THIS CONTRACT SIGNED ON SEPTEMBER 1, 1997
BETWEEN: MINERA MONTORO S.A. de C.V. (Hereinafter "Montoro")
AND: COMPANIA MINERA CONSTELACION, S.A. de C.V. (Hereinafter
"Constelacion).
WHEREAS:
A. Constelacion holds the Los Verdes Concession comprising 11 exploitation
mining concessions located in the municipality of Yecora, Sonora State,
which are more particularly described in Schedule "A" attached to this
Agreement and are hereinafter defined as the Concession together with
the "Ampliacion Los Verdes" exploration mining concession currently
pending registration at the Mining Ministry in Hermisillo, Sonora with
File No. 18,087 once this concession is registered in favor of
Constelacion before the Public Registry of Mining.
B. Constelacion has agreed to grant Montoro the option to acquire the
Property on the terms and conditions hereinafter set forth.
NOW THEREFORE THIS AGREEMENT WITNESSES THAT in consideration of the mutual
covenants and agreements hereinafter contained the parties agree as follows:
1. INTERPRETATION
1.01 In this Agreement the following words, phrases and expressions
shall have the following meanings:
(a) "Minerals" means any and all ores, and minerals,
precious and base, metallic or non-metallic, in, on
or under the Property which under the laws,
regulations, orders, decrees or other instruments
having the force of law may be explored for,
developed, mined, extracted, worked, treated, carried
away, sold and disposed of, and further includes all
concentrates and metals.
(b) "Exploration" means every kind of work done on or in
respect of the Concession by or under the direction
of Montoro including, without limiting generality,
investigating, prospecting, exploring and preparing a
feasibility report.
(c) "Mining Operations" means every kind of exploitation
work done on or in respect of the Concession by or
under the direction of Montoro, including without
limiting generality, development, designing,
equipping, improving, surveying, construction and
mining, and the milling concentrating, smelting,
treating, refining, transporting, handling, marketing
and selling of Minerals.
(d) "Interest Rate" means the interest rate stated by the
Citibank main office in New York, as being charged by
it on US Dollar demand loans to most creditworthy
domestic Commercial customers.
(e) "Production Date" means the date upon which the first
regular commercial shipment of Minerals extracted
from the Property is made from a mine on the
Property.
(f) "Concession" means the exploitation and exploration
concessions listed in Schedule A.
(g) "Lot" means surface covered by mining concessions
referred by the Concession.
(h) "Option" means the purchase option of the Concessions
that Constelacion grants unto Montoro in the terms
mentioned in subsection 3.01, 3.02 and 3.03 below.
(i) "Purchase Price" means the total amount of
US$50,000.00 that Montoro will pay to Constelacion in
the terms mentioned in subsection 4.01 below.
(j) "Anticipated Royalties" means all advances against
royalties over the Concession production that Montoro
will pay to Constelacion in the terms and conditions
mentioned in subsection 4.02 below.
(k) "Royalties" means royalties over Concessions
production that Montoro will pay to Constelacion in
the terms and conditions mentioned in subsection 4.03
below.
(l) "Concession Assignment Date" means the date in which
Montoro and Constelacion celebrates this agreement in
which Constelacion assigns the titled of the
Concessions to Montoro.
(m) "$" means United States dollars.
2. DECLARATIONS AND WARRANTIES
2.01 Constelacion warrants and represents to Montoro that:
(a) It is the sole legal and beneficial holder of the
Property;
(b) it has the right and capacity to enter and carry out
this Agreement and to dispose of the Concession;
(c) the Concession is not encumbered, neither
Constelacion nor any of its predecessors in interest
or title has done anything whereby the Concession may
become encumbered; and
(d) there is no lawsuits or arbitraments that involve or
may involve the Concession, and neither other use or
date of this agreement which in the future may bring
any lawsuit or arbitrament.
(e) it has fulfilled all its obligations as title of the
Concessions in accordance with all applicable
legislation including without limiting generality the
obligations mentioned in Article 27 of the Mining Law
and additional obligations mentioned by the same Law
and its Bylaw and the General Law of Ecological
Equilibrium and Environment Protection.
3. DUE DILIGENCE
3.01 In consideration of US$25,000 paid on signing this Agreement,
Constelacion hereby gives and grants unto Montoro the sole and
exclusive Option
3.02 Montoro shall have four months as of the signing of this
Agreement to perform due diligence on title matters and site
evaluations of the Property as well as approaching prospective
lenders regarding financing requirements of the project. If
the financial institutions request additional or confirmation
drilling on the Property, then Montoro shall request and
Constelacion shall grant an extension of an additional 60 days
for this option period.
Constelacion is compelled to give all kind of documentation
and information required by Montoro and allow Montoro free
access to the Concession to review Constelacion obligations
mentioned in the above paragraph.
3.03 If Montoro wishes to exercise the Option contemplated in
section 3.01, it will give notice to Constelacion in writing
on or before the end period of the Option or the extension
granted in subsection 3.02, and Constelacion is compelled to
execute an agreement assigning the Concession to Montoro
within the following 30 days upon Constelacion receiving such
notice. If Montoro does not give notice by that date or elects
not to proceed, this Agreement will be of no further force or
effect.
In case that in the execution of the above mentioned agreement
the "Ampliacion Los Verdes" exploration mining concession,
mentioned in Schedule A, is not assigned to Montoro,
Constelacion should assign this concession to Montoro within
the following 30 days upon Registration of this concession in
favor of Constelacion by Public Registry of Mining.
4. PURCHASE PRICE AND ROYALTIES
4.01 Purchase Price:
If Montoro elects to exercise the Option as contemplated in
subsection 3.03, Montoro shall pay to Constelacion the total
amount of US$50,000.00 as Purchase Price of the Concession
once this agreement is executed assigning Montoro the
Concession.
4.02 Advanced Royalties:
Montoro shall pay yearly to Constelacion as Advanced Royalties
over Concession production the amount of US$100,000.00 no
later than each anniversary of the Assignation date of the
Concession until and including the year of the production
date.
4.03 Royalties:
Montoro will pay as royalties over Concession production as
per:
a) US$1,000,000 yearly as royalties on each anniversary
of the Production Date over the understanding that
the first and subsequent anniversary payment must be
reduced, until the paid amounts mentioned in
subsection 4.02 have been deducted, however, the
amount to be paid in each anniversary would not be
lower than US$75,000.00 understanding that such
royalties should be paid although the Concession
production in interrupted.
b) The total amount of the Royalties should be
US$4,950,000 without including the advanced payments
as "Advanced Royalties" mentioned in subsection 4.02.
If following the Production Date, Montoro wishes to delay the
payment of any amount due under paragraph 4.03, by reason of
low metal prices affecting the operations or other reasonable
cause, Montoro may request and Constelacion will grant a
90-day extension with interest charged during the extension at
Prime Rate.
4.04 If Montoro fails to make any payment due pursuant to
subsection 4.01, 4.02 or 4.03, Constelacion may give Montoro
notice in writing of the default. Montoro shall be entitled to
pay to Constelacion within 14 days of receipt of
Constelacion's notice 105 percent of the cash payment which is
overdue. Any increased payment so made within the 14-day
period shall be deemed to have been duly and properly made and
this Agreement shall remain in full force and effect.
4.05 All payments payable under this Agreement shall be paid by
Montoro in Mexican National currency using the official
exchange rate on the day before the payment is made, published
in the Official Gazette of the Federation for credit to
Constelacion at the bank as follows:
Bank: Banamex, S.A.
Branch: 274
Account No.: 5472187
5. REGISTRATION IN THE "REGISTRO PUBLICO DE MINERIA"
5.01 Montoro shall pay the costs associated with the public deed
transferring of the Concession from Constelacion and its
registration at the Public Registry of Mining.
After signature of this agreement, Montoro shall present all
notices and/or notifications required by the Public Registry
of Mining in reference with this Option, and Constelacion
requested by Montoro shall sign on time, any application,
permit or acceptance and deliver to Montoro any information
required by authorities related to the presentation of such
advertisements and/or notifications.
6. AREA OF INTEREST
6.01 During the term of this Agreement that area of land which is
within 2,500 meters in radius form the existing portal of the
"Los Verdes Adit" shall be deemed to comprise the "Area of
Interest." Any exploration or exploitation concessions
acquired by either party within the Area of Interest shall be
deemed to be part of the Concession and to be subject to this
Agreement.
7. MINING OPERATIONS AND REPORTING
7.01 Constelacion grants Montoro the exclusive right to exploit and
explore the Lotes including all rights derived from its
Exploration Works and Mining Operations in the terms and
conditions of this agreement.
7.02 Until the purchase price, advance royalties and royalties have
been paid in full, Montoro shall:
(a) perform its Mining Operations in a sound and
workmanlike manner, in accordance with sound mining
and engineering practices and in compliance with all
material applicable federal, provincial and municipal
laws, by-laws, ordinances, rules and regulations and
this Agreement;
(b) not commence or continue a work program unless it has
sufficient funds secured or on hand to pay for
budgeted costs plus a reasonable allowance for
contingencies; and
(c) permit Constelacion to inspect the Property at
reasonable intervals and times, previously agreed by
both parties provided that the Inspections are at
Constelacion's sole risk and expense and Constelacion
does not disrupt Mining Operations, Montoro will not
unreasonably refuse the dates proposed by
Constelacion for these inspections.
(d) keep the title of the Property in good standing.
(e) Only sell or encumber the Property in any manner
until all considerations mentioned in section 4 above
are paid, or with previous agreement with
Constelacion.
7.03 Until the purchase price, advance royalties and royalties have
been paid in full, Montoro shall provide to Constelacion:
(a) quarterly regular reports of Mining Operations of the
results obtained therefrom;
(b) copies of any news releases it proposes to make prior
to making the same.
8. PROPERTY ADMINISTRATION
8.01 During the term of this Agreement, Montoro shall pay such
taxes and other payments and file, to the maximum extent
possible, assessment credit, such work as may be required to
keep the Property in good standing. Notwithstanding the
foregoing, Montoro may abandon from any or all of the
concessions comprised in the Concession and such action shall
not after the terms of this Agreement with respect to the
remainder of the Concession. However: (a) concessions will be
abandoned only after Montoro has given notice of abandonment
to Constelacion; and
(b) all concessions proposed for abandonment shall be in
good standing for a least 90 days from the date of
Montoro's notice of abandonment and shall be
transferred to Constelacion forthwith upon request
made by Constelacion within 30 days of Montoro's
notice of abandonment.
If this Agreement were in force and effect 90 days
prior to the expiration date of a concession, Montoro
must submit the respective mineral exploitation
concession application for the mineral lots at least
30 days before the expiration date. Constelacion will
provide such reasonable assistance as Montoro may
request to this end and sign all the required
documents.
8.02 If this Agreement terminates without Montoro having paid the
purchase price and royalties in full, Montoro will:
(a) Upon request made within 30 days or termination,
deliver to Constelacion copies of all pertinent
plans, assay maps and diamond drill records relating
to the Mining Operations which have previously not
been delivered; and
(b) cause sufficient work to be recorded or money paid in
lieu thereof to maintain the concessions which then
comprise the Property in good standing for at least
one year from the date of termination contemplated in
paragraph 9.01(a); and
(c) offer to transfer the Property to Constelacion as
contemplated in subsection 9.02 forthwith upon
request made by Constelacion within 30 days of
Montoro's notice of abandonment.
9. TERMINATION
9.01 This Agreement shall terminate:
(a) If any cash payment listed in subsection 4.01, 4.02,
4.03 is not paid or delivered by the due date listed
or the later date permitted in subsection 4.04; or
(b) on Montoro giving notice of termination to
Constelacion which it shall be at liberty to do at
any time after the execution of this Agreement.
9.02 If this Agreement terminates without Montoro having paid the
purchase price, Advance Royalties and Royalties in full,
Montoro shall offer to transfer the Concession to Constelacion
and any mining concessions held by Montoro or any mining claim
request by Montoro, once it is titled, within the Area of
Interest. If Constelacion accepts Montoro's offer within 30
days or if Montoro failed to make an offer and Constelacion
registered that the Concession be transferred to Constelacion,
Montoro shall transfer the Concessions to Constelacion for
US$1.00 within 14 days of Constelacion's acceptance or
request, and for that purpose Montoro is obliged to fulfill
all necessary requirements and execute whatever documents may
be required to transfer the Concession to Constelacion upon
receipt of notice from Constelacion that it is entitled to a
transfer of the Concession under this section.
9.03 Upon termination of this Agreement, Montoro shall cease to be
liable to Constelacion save for the performance of those of
its covenants which theretofore should have been performed and
its obligations under subsections 7.02, 7.03, 8.02 and 9.02.
9.04 Montoro shall vacate the Property within 180 days after
termination, but shall have the right of access to the
Property for a reasonable time thereafter to remove its
buildings, machinery, equipment and supplies.
9.05 Constelacion shall under no circumstances be obligated to
return any amounts which it may have received from Montoro.
10. INDEMNITY AND INSURANCE
10.01 Montoro shall indemnify and save Constelacion harmless from
and against any loss, liability, claim, demand, damage,
expense, injury or death (including, unless Montoro assumes
and pays the defense of legal fees and the reasonable cost of
investigating and defending against any judicial proceedings
once they are reasonable and documented) arising out of or in
connection with exploration activities conducted during the
subsistence of the Option or arising out of or in connection
with the sale or attempted sale of any interest in the
Concession to a third party.
10.02 During the term of this Agreement, Montoro shall provide,
maintain and pay for the following insurance which shall be
placed with such insurance company or companies and in such
form as may be acceptable to Constelacion:
(a) Comprehensive General Liability Insurance protecting
Montoro and its employees, agents, contractors,
invitees and licensees against damages arising from
personal injury (including death) and from claims for
property damage which may arise directly or
indirectly out of the operations of Montoro and
Constelacion under this Agreement including coverage
for liability and contractual liability; and
(b) automobile insurance on Montoro's owned vehicles, if
any, protecting Montoro and its employees, agents,
contractors, invitees, and licensees against damages
arising from bodily injury (including death) and from
claims for property damage arising out of the
operations of Montoro under this Agreement.
10.03 Each policy of insurance contemplated in subsection 10.02
shall:
(a) Be in an amount acceptable to Montoro and
(b) indicate that the insurer will give Constelacion 30
days' prior written notice of cancellation or
termination of the coverage.
Montoro shall provide Constelacion with such evidence
of insurance as Constelacion may request.
10.04 Montoro will, at its expense, obtain insurance in such greater
amounts and for such greater coverage as it deems prudent to
protect itself and Constelacion hereunder.
10.05 Constelacion shall indemnify and save Montoro harmless from
and against any loss, liability, claim, demand, damage,
expense, injury or death (including, unless Constelacion
assumes and pays the defense of legal fees and the reasonable
cost of investigating and defending against any judicial
proceedings) arising out of or in connection with exploration
activities conducted before the subsistence of the Option or
arising out of or in connection with representations by
Constelacion.
11. NOTICES
11.01 All notices, demands or requests required or permitted to be
given hereunder shall be in writing and may be delivered
personally, sent by telecopier or forwarded by prepaid
registered mail. Any notice sent by telecopier or personally
delivered shall be deemed to have been given and received on
the business day next following the date of sending or
delivery. Any notice mailed shall deemed to have been given
and received on the seventh day following the date of posting,
addressed as follows:
If to Constelacion:
Compania Minera Constelacion , S.A. de C.V.
Pable Neruda #2886
Col. Providencia
44639 Guadalajara, Jalisco, Mexico
Attention: Manager
Tel: 01 (3) 642-5014
Fax: 01 (3) 640-2472
Copy to:
Cominco Ltd.
500-200 Burrard Street
Vancouver, BC
V6C 3L7
Attention: General Manager, International
Exploration
If to Montoro:
MINERA MONTORO, S.A. DE C.V.
Palmas #735-205
Lomas de Chapultepec
11000 Mexico, D.F.
Attention: President
Tel: 01 (5) 520-2926
Fax: 01 (5) 520-2893
Copy to:
FISCHER-WATT GOLD COMPANY, INC.
1621 N. 3rd Street, Suite 1000
Coeur d'Alene, ID 83814-3304
Attention: President and Chief Executive Officer
Tel: 001 (208) 664-6757
Fax: 001 (208) 667-6516
or to such other address as wither party may subsequently
specify by notice to the other. However, if there is a mail
strike, slowdown or other labor dispute which might affect
delivery of the notice by mail, then the notice shall be
effective only if actually delivered.
12. ASSIGNMENT
12.01 During the term of this Agreement:
(a) Montoro, previous agreement with Constelacion, could
only sell, transfer, assign or otherwise dispose this
Agreement or its right or interest in the Concession.
(b) Montoro, previous writing agreement with
Constelacion, could pledge, mortgage, charge or
otherwise encumber their beneficial interest in the
Concessions or their rights under this Agreement.
13. FURTHER ASSURANCES
13.01 Each of the parties shall do all such further acts and execute
and deliver such further deeds and documents as shall be
reasonably required in order fully to perform the terms of
this Agreement.
14. CAPTIONS
14.01 The captions in this Agreement have been inserted for
convenient reference and shall be disregarded interpreting
this Agreement.
15 ENTIRE AGREEMENT
15.01 This is the entire agreement between the parties relating to
the Concession and supersedes all previous negotiations and
communications including, without limiting generality, the
Letter of Intent signed on June 3, 1997.
16 EXPENDITURES AND TAXES
16.01 Montoro will cover all the expenditures and taxes under the
public deed, and in this case, those under the purchase and
sale of concession rights' deed.
16.02 Constelacion will cover any income or profit taxes associated
with its sale of the Property.
16.03 The Value Added Tax shall be added to all amounts agreed in
this agreement.
17. GOVERNING LAW
17.01 For any controversy that would arise between the parties in
respect to the interpretation and execution of the present
contract, the parties will abide by the laws of the courts of
Mexico, Federal District, and expressly renounce any other.
IN WITNESS WHEREOF the parties have executed this Agreement as of the day and
year first above written.
MINERA MONTORO S.A. de C.V.
By: Ing. Jorge E. Ordonez Cortes
-------------------------------------
(Title)
COMPANIA MINERA CONSTELACION, S.A. de C.V.
By: Lic. Yvonne Avalos Cazares
-------------------------------------
(Title)
Attachment "A" of the Minero Montoro, S.A. de C.V. and Compania Minera
Constelacion, S.A. de C.V. Agreement made as of 1st September 1997.
The Concession is composed of:
I. The exploitation mining Concessions of the following lots located
in Muncipality of Yecora, Sonora State.
Name Title Hectares
---- ----- --------
1. "Bacanora" 168,625 238.9685
2. "Bacanora Tres" 194,437 12.0000
3. "Los Verdes" 168,566 14.0000
4. "Buena Vista" 168,569 21.0000
5. "Piedras Azules" 178,925 132.7287
6. "Continuacion Buena Vista" 168,574 30.000
7. "La Nueva Cruz de San Nicolas 168,573 81.0000
8. "La Frontera" 168,575 15.0000
9. "Dos Picachos" 168,621 31.0000
10. "La Bufita" 193,491 10.0000
11. "La Verde" 168,576 9.0000
The above mentioned concessions are grouped to comply with the mining tax
obligations being head of the group the "Los Verdes" concession, Title 168,566.
II. The application for the "Ampliacion Los Verdes" exploration
mining claim its being handled under file 18,087 before the
Mining Agency in Hermosillo.
III. The mining concession requested by Montoro within the area of
interest entitled to Montoro or Constelacion or from which they
obtained contractual right to explore or exploit or an option to
acquire their ownership.