EXHIBIT 10.7
DS-470
Revised 1/99
STATE OF MONTANA
METALLIFEROUS MINERAL OR GEM MINING LEASE
NO. M-1947-99
This indenture of lease made and entered into by and between the State
of Montana, acting through its State Board of Land Commissioners, hereinafter
referred to as lessor, and the person, persons, company or corporation herein
named and hereinafter referred to as lessee, under and pursuant to the terms and
provisions of Part 1, Chapter 3, Title 77, MCA, as amended and rules adopted
pursuant thereto,
The lessor, in consideration of the annual rentals provided for herein,
the royalties to be paid, and the covenants to be kept and performed by the
lessee, leases to the lessee for the purpose of mining metalliferous minerals
and or gems as described below, all the lands described as follows:
Date this lease takes effect: JUNE 21, 1999
Name of Lessee: PETER C. ELLSWORTH Address: 265 BENTON AVENUE
MISSOULA, MT 59801
Land Located in PETROLEUM County:
Description of Land: TOWNSHIP 15 NORTH, RANGE 25 EAST
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SECTION 30: SE1/4
Total number of acres 160.00 , more or less, belonging to UNIVERSITY Grant.
Minerals authorized to be mined: SAPPHIRES, DIAMONDS, AND ASSOCIATED GOLD
Royalty: 5% PLUS AN ANNUAL ADVANCE ROYALTY OF $250.00
Bond: $1,000.00
To have and to hold these premises unto said lessee and successors,
legal representatives or assigns, for the primary term of' ten (10) years, and
as long thereafter as the minerals hereinabove designated are being produced in
paying quantities from said premises, the royalties and rents provided for
herein are being paid, and all other obligations are fully kept and performed.
It is mutually understood, agreed and covenanted by and between the
parties to this lease as follows:
1. The lessor expressly reserves the right to lease, sell, or otherwise
dispose of the surface of the lands hereby leased, under existing law or laws
hereafter enacted, insofar as the surface is not necessary for the use of the
lessee in connection with operations under this lease; and lessee agrees to
comply with all statutory requirements, rules, and regulations thereunder made
by the lessor if the lands embraced hereby have been or shall hereafter be sold,
leased, or disposed of.
2. The lessee shall pay to the lessor an annual money rental in the
amount of $ 1.00 per acre for the first three year period, $2.50 per acre for
the next two years, and thereafter annually $3.00 per acre. This is in addition
to any bonus which may be required as a condition of obtaining the lease.
3. Lessee shall prospect and explore with minimum disturbance to the
surface of the land which is required to adequately explore the property. All
mining operations shall be conducted in such a manner as to protect property and
resources from disturbance which is not reasonably necessary in order to
efficiently and economically remove the mineral deposit.
4. The lessee shall obtain the consent of the Department of Natural
Resources and Conservation before cutting any timber upon this land for use in
their operations; and shall pay the lessor the customary charges made by the
lessor for timber thereafter cut.
5. The lessee shall not assign this lease without the consent of the
lessor.
6. The lessee shall cover or enclose all shafts, mines or openings of
any kind in such manner as to remove danger to human beings or livestock.
7. The lessee shall fully comply with all applicable state and federal
laws, rules and regulations, including but not limited to those concerning
safety, environmental protection and reclamation. The lessee shall conduct and
reclaim the operation in accordance with the performance and reclamation
standards of applicable mine reclamation laws. The exemption of lessee's
operations from applicable reclamation laws does not relieve the lessee from the
obligation to conduct and reclaim the operations in accordance with the
performance and reclamation standards of those laws. All disturbances must be
reclaimed prior to release of any bond.
8. If the surface of the land has been sold or leased prior to issuance
of this lease. the mineral lessee shall be responsible for damages to the
surface, the leasehold interest and any improvements.
9. The lessee shall furnish to the Department of Natural Resources and
Conservation, upon request, but not more than once each calendar year an
exploration and development report. The report shall include a description of
any work completed to date, a plat showing the location of any work and shall
include a complete geologic log and electric log (if done) of any test holes.
10. The lessee shall have the right at the termination of any rental
year, by giving at least thirty (30) days previous notice in writing to the
Director of Natural Resources and Conservation, to surrender and relinquish this
lease and thereupon be discharged from any obligation not theretofore accrued.
11. At the termination of this lease, for any cause, the lessee shall
immediately surrender the premises and shall, within sixty (60) days, remove
machinery, tools or equipment that the lessee may have placed thereon.
12. The lessee shall pay a royalty in cash unless the lessor requests
that it be delivered in kind. The royalty rate as specified above shall be based
upon the applicable percentage of returns from the metalliferous minerals or
gems being mined but in no case shall be less than 5 percent of the fair market
value of the metalliferous minerals or gems recovered. The returns are defined
as the net amount received by the shipper after deducting reasonable
transportation costs to the closest feasible point of sale, smelting charges and
deductions and other treatment costs, not including as a deduction any cost of
producing or treating at the mine. The fair market value is the value of the
minerals or gems in raw crude form as recovered at the mine site.
13. The lessee shall, upon commencement of mining, make a report on or
before the last day of each quarter concerning the operations for the latest 3
months for which records are available but in no case more than 3 months
preceding the report. The report shall be on the form prescribed by the
department and shall provide sufficient information to determine the royalty as
well as any other pertinent information requested by the department. The royalty
for the quarter reported shall accompany the report.
14. The lessee has filed a bond with the lessor in the penal sum as
specified above, conditioned upon compliance with all lease terms and in order
to protect the rights of any prior purchasers or surface lessees. Additional
bonds may be required at any time during the period of the lease.
15. The lease is subject to cancellation for failure to comply with the
terms of the lease, applicable state statutes concerning metalliferous and gem
leases and rules enacted pursuant to those statutes, as amended. The lessee
shall be notified of any failure to comply and allowed a reasonable time to
comply. If the lessee fails to comply within a reasonable time, the lease shall
be canceled.
16. All the terms and conditions hereof which are applicable to the
lessee shall likewise be applicable to the heirs, executors, administrators,
assigns, and other successors in interest of the lessee to the same extent as
though they had been specifically mentioned in connection with each of such
terms and conditions and the provisions of this lease shall be binding upon and
inure to the benefit of such heirs, executors, administrators, assigns and other
successors in interest of the lessee.
17. Special conditions:
SEE ATTACHMENT 'A'
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IN WITNESS WHEREOF, the State of Montana and the lessee have caused this
lease to be executed in duplicate and the Director of the Department of Natural
Resources and Conservation, pursuant to the authority granted him by the State
Board of Land Commissioners of the State of Montana, has hereunto set his hand
and affixed the seal of the Board of Land Commissioners this _____ day of August
31, 1999, year of ______.
/s/ Arthur R. Clinch
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ARTHUR R. CLINCH
Director of the Department of Natural
Resources & Conservation
/s/ Peter Ellsworth
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Lessee
PETER C. ELLSWORTH
Address: 265 BENTON AVENUE
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MISSOULA, MT 59802
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Lease No. M-1947-99
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ATTACHMENT "A"
ANNUAL REPORT
1. Lessee shall submit to the Department of Natural Resources and
Conservation a verified report showing in detail what work the lessee
has done and performed under this lease during the preceding year and
the location and character of the same, a plat showing all development
work and improvements on the leased lands, and shall furnish such
additional information relating thereto as the Director shall require,
and in case it is advisable to prospect by test holes or other testing
methods an itemized statement of actual cost of testing, location of
test holes and other relating information with a report as to all
buildings, structures or other work placed in or upon leased lands,
together with a statement as to the amount and grade of minerals and/or
gems produced and sold and the amount received therefor by operations
hereunder.
OPERATING PLAN
2. If the Lessee intends to conduct mining and/or milling activities or
exploration activities, including road building, trenching, dumping, or
other activities which result in land disturbance on the leased
premises, it shall submit to the Department of Natural Resources and
Conservation, Minerals Management Bureau two copies of an Operating Plan
or Amendment to an existing Operating Plan, describing its proposed
activities. No activities shall occur on the tract until an Operating
Plan or Amendments have been approved, in writing, by the Minerals
Management Bureau. The Plan or Amendment shall include the following:
a. A complete description of each activity planned, locations of
each activity, scheduled starting date, and expected duration on
each.
b. Maps (1:24,000 scale or larger) showing use and/or
reconstruction of existing access routes, the location of
proposed new road construction, pipelines, utilities and other
uses and improvements.
c. Drawings showing road construction plans, including width,
drainage, cut/fill slopes and other details, as well as detailed
topographic drawings showing mine and/or mill site development
and layout, and water supply and disposal system.
d. Plans, to include resource protection measures for mining,
milling, waste disposal, sanitation, wildfire prevention, soil
erosion and air and water pollution; emergency actions covering
mining or milling related spills; and land reclamation
procedures.
e. Other information necessary for the Department to assess
probable impacts upon surface and other resources.
Submittal of plans of operation to other departments and Divisions of
State Government including but not limited to the Environmental
Management Bureau of the Department of
Environmental Quality does not satisfy this provision. Original copies
of all plans, maps and amendments must be delivered by the lessee
hereunder to the Minerals Management Bureau.
ACTIVITIES MAY BE DENIED
3. The Department reserves the right to deny all activity that would result
in material disturbance to the leased premises.
RECORDS
4. Representatives of the Lessor shall at all reasonable times have the
right to enter into and upon the premises and all of the workings and
shafts and tunnels or buildings thereon and all parts thereof for the
purpose of inspecting and examining the same.
The lessee agrees to keep books of account showing the amount of
metalliferous minerals and/or gems extracted from the leased lands; the
amount of such minerals and/or gems produced, saved, treated, shipped or
marketed collectively or individually; and the amount of money received
from the sale of the minerals and/or gems or the value extracted from
them; and from and out of the values extracted from them.
Representatives of the Lessor shall also at all reasonable hours have
free access to all books, accounts, records and papers of the Lessee
insofar as they shall relate to the production of the mineral for which
this lease is issued, or the price received therefore or any agreements
relating thereto.
REMOVAL OF GEMS AND/OR MINERALS
5. The lessee shall not, during the prospecting period or any continuation
thereof, remove any metalliferous minerals and/or gems from the leased
premises except as may be permitted by the Department. When the lessee
has discovered metalliferous minerals and/or gems in commercial
quantities he shall notify the Director of the Department that the
prospecting period is terminated, and request permission to dispose of
the metalliferous minerals and/or gems as provided in this lease.
FINANCIAL AGREEMENTS
6. All contracts made in relation to the mineral interest granted herein,
such as but not limited to, assignments, subleases, joint ventures,
overriding royalties, operating agreements, project financing, back-in
rights, or other similar agreements, whether verbal or written between
the lessee herein and any other person or corporation must be approved
by the Director. The Department reserves the right to deny any agreement
that may impair the productive capability of the trust asset. It will be
the Department's sole discretion whether the proposed agreement is
approved. The Department may consider payment of a reasonable
compensatory bonus as adequate mitigation for the proposed agreement.
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DILIGENCE
7. The lessee agrees to commence actual prospecting operations under the
land embraced herein promptly after the execution of this lease and
thereafter diligently prospect, develop and mine in or upon the leased
land unless consent to suspend operations temporarily is granted by the
Department annually.
ADVANCE ROYALTY
8. In addition to the yearly rental, lessee shall pay an advance minimum
royalty of $250.00 per year. This amount is payable each year on the
anniversary date of this lease. This minimum royalty is not refundable
in the event that actual production royalty is less than $250.00 per
year. In the event such actual production royalty is greater, lessee is
obligated to pay the greater amount.
RENT AND ROYALTY REVIEW
9. The rate of the rental shall be reviewed at the end of each five (5)
year period of the lease, and may be adjusted at such time at the
discretion of the Department.
The rate of royalty and any advance royalty shall be reviewed at the end
of each five (5) year period of the lease, and may, after negotiation
between lessor and lessee be adjusted at such time.
WATER RIGHTS
10. Lessee may not interfere with any existing water right owned or operated
by any person. Lessee shall hold Lessor harmless against all claims,
including attorney fees, for damages claimed by any person asserting
interference with a water right.
WASTE PROHIBITED
11. All mining operations shall be done in good and workmanlike manner in
accordance with approved methods and practices using such methods to
insure the extraction of the greatest amount of mineral, having due
regard for the prevention of waste of the minerals developed on the
land, the protection of the environment and all natural resources, the
preservation and conservation of the property for future uses, and for
the health and safety of workmen and employees. If the Lessor has
reasonable belief that the operations are not so being conducted, he
shall so notify the lessee in writing, and if compliance is not promptly
obtained and the delinquency fully satisfied, the Lessor may at its
option, after thirty (30) days notice by registered mail to the Lessee,
cancel the lease.
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SURRENDER OF DATA
12. All geological data, including reports, maps, logs and other pertinent
data regarding Trust resources shall be given to the Department upon
surrender or expiration of the lease. Bond will not be released until
surrender of such data to the Department. All drill core and/or splits
of drill cuttings shall be saved. Upon surrender or expiration of the
lease lessee will contact the Department for instructions on the
required disposition of drill core and/or cuttings.
STREAMBED PRESERVATION
13. Prior to the commencement of any activities within the ordinary high
water mark of perennial streams on the leased premises, the lessee shall
obtain a 310 Permit, if required, from the appropriate Conservation
District. A copy of such permit shall be submitted to the Department.
FIELD NOTIFICATION
14. The Department of Natural Resources and Conservation Unit Manager (or
his representative) who may be contacted regarding matters pertaining to
the leased premises is:
Unit Manager, Lewistown Unit Office, DNRC, Suite E, 613 NE Main Street,
Lewistown, MT 59457-1020 Phone (406) 538-7789
The lessee shall also contact the surface lessee, Teigen Land &
Livestock Co., Box 1 Hwy 200, Teigen, MT 59084, prior to entry onto any
portion of the leased area. Any problems or questions regarding access
to the described property must be addressed prior to entry upon the
property, except that reasonable access for the purpose herein described
may not be withheld pending resolution.
WEED CONTROL
15. Lessee shall be responsible for controlling any noxious weeds introduced
by Lessee's activity on State-owned land and shall prevent or eradicate
the spread of noxious weeds onto land adjoining the leased premises. The
Lessee's methods of control must be reviewed by the Department's Area
Field Office that has jurisdiction for that locale.
CONFIDENTIALITY WAIVED
16. The Lessee is required to contact the Department of Environmental
Quality regarding requirements of the Hard Rock Act prior to the
commencement of any activities on the leased premises. In order to
provide the Department of Natural Resources and Conservation with
information regarding exploration activities important to Trust
resources and to protect the confidentiality of the Lessee's exploration
activities, the Lessee hereby agrees that the Trust Lands Management
Division staff are hereby authorized to review any records pertaining to
Small Miners Exclusion Statement and/or Exploration License obtained by
the Department of Environmental Quality.
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SPECIAL CONDITIONS
17. DNRC-Trust Land Management Division (TLMD) will complete an initial
review for cultural resources and, where applicable, paleontological
resources of the area intended for disturbance and may require a
resources inventory. Based on the results of the inventory, the TLMD may
restrict surface activity for the purpose of protecting significant
resources- located on the lease premises.
Vehicular traffic is restricted to existing roads and to periods when
the soil moisture is low enough (generally below 20 percent) to prevent
rutting unless otherwise authorized by TLMD.
All vehicles and equipment must be washed, particularly the underside,
prior to entry onto the property to minimize the spread of noxious
weeds.
Material disturbed in emplacing exploration sampling holes will be
replaced in the holes immediately on completion of sampling.
Soil disturbance within 100 feet of springs, wetlands, and/or the
ordinary high water mark of streams is not permitted without prior
approval by the Department of Natural Resources and Conservation, Trust
Land Management Division.
Shrub or brush removal is not permitted without prior approval by the
Department of Natural Resources and Conservation, Trust Land Management
Division.
NON-WARRANTY OF TITLE
18. Regardless of any of the above provisions of the said lease, actual or
implied, the State of Montana does not warrant title to its lands.
/s/ Peter Ellsworth
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PETER C. ELLSWORTH
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