EXHIBIT 10.27
OPTION AGREEMENT
THIS OPTION AGREEMENT ("AGREEMENT") is entered into effective as of the
17th day of October, 2005 (the "EFFECTIVE DATE") by and between ADOM MINING
LIMITED (the "OWNER") with an address at P.O. Box CT 1191, Cantonments, Accra,
Ghana and CANADIANA GOLD RESOURCES LIMITED, a Ghanaian corporation with at
address at 54 Lagoon Block, P.O. Box CT 5239, Nungua, Accra, Ghana
("CANADIANA").
RECITALS
WHEREAS the Owner is the registered proprietor of Prospecting License
1130/1991 dated May 8, 1991 and extended to October 6, 2003 and any subsequent
extensions applied for and obtained by the Owner (the "LICENSE") containing an
approximate area of 39.65 square kilometres, all of which being more
particularly described on the Schedule "B" attached hereto and made a part
hereof (such License area hereinafter referred to as the "PROPERTY");
AND WHEREAS the Owner has agreed to grant to CANADIANA the sole and
exclusive right and option to acquire all of the Owner's right, title and
interest in and to the License, subject to the terms and conditions of this
Agreement;
NOW THEREFORE the Owner and CANADIANA, in consideration of the mutual
promises and undertakings set forth herein, agree as follows:
1. TERM OF AGREEMENT.
(a) unless sooner terminated as herein provided, the term of this
Agreement shall be for five (5) years from the Effective Date
(the "OPTION PERIOD");
(b) the Owner agrees to apply for and obtain from the appropriate
governmental authorities an extension or extensions of the
License, as may be required from time to time, for the period
of time coincidental with the Option Period; and
(c) in connection with subsection (b) above, the cost and/or fees
shall be borne by CANADIANA.
2. OWNER'S REPRESENTATIONS AND WARRANTIES. The Owner represents and warrants:
(a) that the Owner is the beneficial owner of one hundred percent
(100%) of the right, title and interest in and to the License
free and clear of any and all encumbrances;
(b) that it has the sole and exclusive right to enter into this
Agreement;
(c) that it has the exclusive right to engage in prospecting
operations on the Property and has performed all of its
obligations with respect thereto;
- 2 -
(d) that it is not in default or alleged to be in default of the
License, and that no event, condition or occurrence exists
that after notice or lapse of time or both would constitute a
default under the License;
(e) that it is unaware of any consents or authorizations that are
required in order to make or keep the License effective, other
than as provided therein;
(f) that the operations carried out on or conducted by or on
behalf of the Owner on or with respect to the Property have
been carried out or conducted in a sound and workmanlike
manner and in compliance with all applicable environmental
laws and sound geological and geophysical, exploration,
mining, engineering and metallurgical practices;
(g) that the License and all material certificates, registrations,
permits, licenses, consents or qualifications required by the
Government of Ghana to conduct exploration or other operations
on the Property are valid, existing and in good standing, and
that the Owner has not received any notice of proceedings
relating to the revocation or modification of the License and
is not aware of any fact or circumstance that could cause,
lead to or require such revocation or modification;
(h) that there are no claims, contracts, agreements, liabilities
or obligations of the Owner of any kind whatsoever currently
in existence and relating to the Property or the License,
whether or not owed, determined or determinable, that will
become binding on CANADIANA or in respect of which CANADIANA
may become liable as a result of CANADIANA's entering into
this Agreement;
(i) that it has the capacity to enter into this Agreement and all
the transactions contemplated herein and that all corporate
and other actions required to authorize it to enter into and
perform under this Agreement have been properly taken;
(j) that it will not breach any other agreement, covenant or
arrangement or contravene any applicable law by entering into
or performing under this Agreement; and
(k) that this Agreement has been duly executed and delivered by it
and is valid and binding upon it in accordance with its terms.
If, in the opinion of CANADIANA, the legal situation of the
License or the Property is not warranted by the Owner,
CANADIANA may take such actions at it deems fit to attempt to
cure such defects. The Owner shall take such actions as are
reasonably necessary or convenient to assist CANADIANA. The
costs of CANADIANA's actions, including attorney's fees and
the cost of releasing or satisfying any encumbrances, shall be
a credit against any payments thereafter to be made to the
Owner under this Agreement.
3. GRANT. The Owner hereby grants to CANADIANA the sole and exclusive right and
option to acquire all of the Owner's right, title and interest in and to the
License (the "OPTION"). The Option may be exercised by CANADIANA at any time
during the Option Period by giving the Owner written notice of said exercise.
The Owner also hereby grants to
- 3 -
CANADIANA the exclusive right to explore, develop, (and provided CANADIANA has
exercised the Option), mine and sell mineral products from the Property. It is
expressly agreed that CANADIANA shall not be entitled to mine and sell mineral
products from the Property without first exercising the Option.
4. OPTION PAYMENTS. Upon execution of this Agreement, CANADIANA shall pay to the
Owner FIFTEEN THOUSAND UNITED STATES DOLLARS (US$15,000.00) (the "OPTION
PAYMENT"). All payments under this or subsequent agreements (unless the Owner
has a certificate from the Bank of Ghana to the contrary) shall be in Cedis at
the prevailing inter-bank rate of exchange.
5. ADDITIONAL PAYMENTS. CANADIANA shall pay to the Owner an additional payment
of:
(a) FIVE THOUSAND UNITED STATES DOLLARS (US$5,000.00) on the
anniversary date of this Agreement for each year that
CANADIANA holds an interest in the Option; and
(b) TWO HUNDRED THOUSAND UNITED STATES DOLLARS (US$200,000.00)
when the production of gold is commenced in or on the
Property. Provided however, in the event that less than two
million (2,000,000) ounces of proven and probable reserves are
discovered in or on the Property, then this payment shall be
ONE HUNDRED THOUSAND UNITED STATES DOLLARS (US$100,000.00).
6. LICENSE TRANSFER. Upon CANADIANA's written election to exercise the Option,
the Owner shall forthwith transfer the License to CANADIANA, free and clear of
any claims, liens, burdens or encumbrances, subject only to the Reserved Royalty
referred to in Section 7 hereunder. Such transfer will be in accordance with the
laws of Ghana and in a manner prescribed by the Ghana Minerals Commission and
the Minister of Mines.
7. RESERVED ROYALTY.
(a) Upon the successful transfer of title from the Owner to
CANADIANA, CANADIANA shall pay to the Owner an aggregate
production royalty of two percent (2%) of the net smelter
returns (the "NET SMELTER RETURNS") from all ores, minerals or
other products mined and removed from the Property and sold by
CANADIANA, as set forth on Schedule "A" attached hereto and
made a part hereof (the "RESERVED ROYALTY").
(b) Provided however, in the event that less than two million
(2,000,000) ounces of proven and probable reserves are
discovered in or on the Property, then the Reserved Royalty
shall be one percent (1%) of the Net Smelter Returns.
- 4 -
8. RESERVED ROYALTY PURCHASE PRICE.
(a) The Owner hereby grants to CANADIANA the exclusive right and
option, exercisable by CANADIANA at any time to purchase the
entirety of the Reserved Royalty for the total sum of TWO
MILLION UNITED STATES DOLLARS (US$2,000,000.00) (the "RESERVED
ROYALTY PURCHASE PRICE"). No payment of actual Net Smelter
Returns production royalty shall be credited toward the
Reserved Royalty Purchase Price.
(b) Provided however, in the event that less than two million
(2,000,000) ounces of proven and probable reserves are
discovered in or on the Property, then the Reserved Royalty
Purchase Price shall be ONE MILLION UNITED STATES DOLLARS
(US$1,000,000.00).
9. OPERATIONS. CANADIANA shall have free and unrestricted access to the
Property, and shall have the right to explore, develop and mine the Property,
and (provided CANADIANA has exercised the Option and paid the Reserved Royalty
Purchase Price) to extract, remove and sell or otherwise dispose of for its own
account any and all ores, minerals, concentrates or other products, and to
remove ores, air, water, waste and materials from the Property by means of
underground or surface operations on or in the Property or on or in other
property, and to remove ores, air, water, waste and materials from other
property by means of underground or surface operations on or in the Property,
CANADIANA may use any mining method, whether or not the method is in general use
at the time of the Effective Date of this Agreement. CANADIANA shall conduct all
operations on the Property in a good and workmanlike manner and in accordance
with accepted mining practice and the laws of Ghana. All decisions with respect
to exploration, development and (provided CANADIANA has exercised the Option)
mining of the Property and the selling of ores, minerals, concentrates or other
products from the Property, including all decisions regarding the commencement,
suspension, resumption or termination of any operation, shall be made by
CANADIANA in its sole discretion. Provided CANADIANA has exercised the Option,
CANADIANA may mine and sell ores, minerals, concentrates or other products and
may stockpile ores, minerals, concentrates or other products for any length of
time before selling the same. There are no covenants or agreements regarding
these matters other than those expressly set forth herein. CANADIANA shall
comply with all applicable laws and regulations governing its operations,
including reclamation on the Property. CANADIANA shall keep the Property free of
liens for labor performed or materials or merchandise furnished for use on the
Property under this Agreement and shall hold the Owner harmless from all costs,
loss or damage which may result from any work or operations of CANADIANA or its
possession or occupancy of the Property.
10. UNDIVIDED INTEREST. Without impairment of the covenants, representations and
warranties of the Owner, if the Owner owns now or in the future less than the
full, undivided interest in the Property, CANADIANA may reduce the Option
Payment, the Reserved Royalty Purchase Price and the Reserved Royalty in
proportion of such reduction.
11. TERMINATION. CANADIANA may terminate this Agreement at any time upon giving
notice to the Owner. Upon termination CANADIANA shall, upon demand by the Owner
and at CANADIANA's expense, within ninety (90) days of such demand, deliver to
the Owner
- 5 -
one set of copies of all factual data generated by CANADIANA during the Option
Period. Upon termination CANADIANA shall have no further responsibilities or
obligations in respect of the Property except as otherwise expressly stated
herein. Upon any termination of this Agreement, CANADIANA shall have a period of
eighteen (18) months to remove from the Property any mining, plant, buildings,
machinery, tools, appliances and/or equipment, after which period and failing
such removal, they shall become the property of the Owner.
12. MAINTENANCE OF THE PROPERTY. The Owner shall keep the Property in good
standing during the Option Period. CANADIANA shall pay any fees charged by the
Government of Ghana associated with CANADIANA's ownership of the License, but
shall not otherwise be obligated to perform any work on the Property or make any
other payments hereunder with the exception of the Option Payment or, in the
event of the extension of the Option Period, the costs and/or fees referred to
in subsection 1(b) and (c) of this Agreement
13. CONFIDENTIALITY. The Owner agrees that all information in respect of the
Property or received from CANADIANA concerning the Property shall be kept
confidential and shall not be disclosed to any third party without the prior
written authorization of CANADIANA.
14. SUSPENSION OF OPERATIONS. Time shall be of the essence hereof, provided that
if CANADIANA should be delayed or prevented from examining, exploring or
developing the Property as a result of strikes, natural disasters, industrial
disputes, interference of third parties, governmental regulations or
restrictions or any other causes beyond the control of CANADIANA, the time
within which the Option may be exercised and the time when the Option Payment
must be made shall be extended by the period of such delays.
15. NOTICES. All notices and other communications to either party shall be in
writing and shall be sufficiently given if delivered in person, by facsimile or
sent by certified or registered mail, return receipt requested, addressed as
hereinafter set forth. Notices given by mail shall be deemed to be delivered
three (3) days after the date of mailing. Until a change of address is
communicated as indicated above, all notices shall be addressed as follows:
(a) NOTICE TO OWNER:
Adom Mining Limied
P.O. Box CT 1191
Cantonments
Accra, Ghana
Facsimile: [PLEASE INSERT]
(b) NOTICE TO CANADIANA:
Canadiana Gold Resources Limited
54 Lagoon Block
P.O. Box CT 5239
Nungua
Accra, Ghana
Facsimile: 416 981 3055
- 6 -
16. CURRENCY. Unless otherwise indicated herein, all references in this
Agreement to monetary amounts are expressed in United States currency.
17. APPLICATION OF LAW. This Agreement shall be governed and interpreted in
accordance with the laws of Ghana.
18. COUNTERPARTS. This Agreement may be executed by any number of counterparts,
each of which shall be deemed to be an original with the same force and legal
effect as if all executions were of one single instrument.
19. GENERAL. The Owner and CANADIANA agree that there are no implied covenants
whatsoever in this Agreement relating to the commencement, performance or
termination of the evaluation, development, mining or production of the
Property, or the time thereof except as expressly provided in this Agreement.
This Agreement sets forth the entire agreement of the parties with respect to
the subject hereof and, except as herein expressly provided, supersedes all
previous and contemporaneous agreements, representations, warranties or
understandings, written or oral. All covenants, limitations and provisions
herein contained apply to and are binding upon the parties hereto, their heirs,
representatives, successors and assigns. No modification, variation or amendment
of this Agreement shall be effective, unless the modification, variation or
amendment is in writing and is signed by the Owner and CANADIANA. If any part of
this Agreement is inconsistent with or contrary to any law or regulation, the
law or regulation shall control and this Agreement shall be deemed to be
modified accordingly. No waiver of any breach or default under this Agreement
shall be effective unless the waiver is in writing and signed by the party
against whom the waiver is claimed. No waiver or any breach or default shall be
deemed to be a waiver of any other or subsequent breach or default.
20. SURVIVAL. The following sections shall survive the termination of this
Agreement to the full extent necessary for their enforcement and the protection
of the party in whose favour they run: Sections 2, 6, 7, 8, 10, 11, 19 and 20.
IN WITNESS WHEREOF the parties have executed this Agreement effective
as of the date first above written.
CANADIANA GOLD RESOURCES LIMITED
Per: /s/ Alhaji N. Abudulai
Alhaji N. Abudulai
Vice-President, Ghana
ADOM MINING LIMITED
Per: /s/ Adwoa Sintim
Adwoa Sintim
Director
SCHEDULE "A"
NET SMELTER RETURNS ROYALTY
1. CALCULATION OF NET SMELTER RETURNS
(a) When and after a dore or other form of concentrate is shipped
to a refinery and there has been a final settlement by the
refinery with respect to such delivery, the "NET SMELTER
RETURNS" shall means:
(i) with respect to gold and silver contained in such
dore or other form of concentrate, the value of gold
and silver (stated in U.S. Dollars per troy ounce of
gold and silver) multiplied by the number of ounces
of gold and silver produced, less Allowable
Deductions; and
(ii) with respect to all other minerals, the value of
other minerals (stated in U.S. Dollars), less
Allowable Deductions.
The value of gold and silver shall be respectively the numerical average of the
closing prices of gold and silver as reported on the COMEX (or, if the COMEX
shall cease reporting gold and silver prices, then the London P.M. fix for gold
or the London daily fix for silver, or, if that should cease to be reported,
then as reported by another mutually agreed substitute index) at the conclusion
of each day of said month in which final settlement occurred. The value of all
other minerals contained in such dore or other form of concentrate shall be the
numerical average of the closing prices of such minerals as reported on the
London Metals Exchange at the conclusion of each day of said month; such average
price shall then be used to value all such minerals (other than gold and silver)
during such month. In all other cases, "NET SMELTER RETURNS" shall be defined in
subsection (b) of this Section 1.
(b) Except as provided in subsection (a) of this Section 1, "NET
SMELTER RETURNS" means:
(i) in the case of ores, minerals or other products which
are sold by payor in the crude state, the amount
received by payor from the purchaser or ores,
minerals or other products, less Allowable
Deductions;
(ii) in the case of ores, minerals or other products which
are processed by or for the account of payor to
produce concentrates or other saleable intermediate
products to be smelted or otherwise further processed
by or for the account of payor, an amount equal to
the market value of the concentrates or other
saleable intermediate products f.o.b. the plant
producing the concentrates or other saleable
intermediate products (which amount shall be deemed
to have been received by payor), less Allowable
Deductions; and
- ii -
(iii) in all other cases, the amount received by payor from
the purchaser of the ores, minerals or other
products, less Allowable Deductions.
(c) "ALLOWABLE DEDUCTIONS" means, to the extent borne or to be
borne by payor:
(i) charges for treatment in the smelting and refining
process (including handling, processing, interest and
provisions settlement fees, sampling, assaying and
representation costs, penalties and other processor
deductions);
(ii) actual costs of transportation (including freight,
insurance, security, transaction taxes, handling,
port, demurrage, delay and forwarding expenses
incurred by reason of or in the course of such
transportation) of concentrates or other products
from the area to the place of sale; and
(iii) sales, use, ad valorem, severance, net proceeds of
mine and any other tax on or measured by mineral
production.
(d) Advance sales, forward sales, hedging and other speculative
sales arrangements shall be solely for the account, benefit
and risk of payor and shall not inure to the benefit of payee.
2. COMMINGLING. Payor may commingle ores from the Property with ores from other
properties, either before or after concentration or beneficiation, so long as
all data necessary to determine the weight and grade, both of the ores removed
from the Property and the ores with which they are commingled, are obtained and
preserved by payor in accordance with sound mining and metallurgical practices.
Payor shall then use that weight and grade data to allocate any value received
between the Property and the other properties from which the other commingled
ores were removed. All such weight, grade and allocation calculations shall be
done in accordance with sound mining and metallurgical practices.
3. PAYMENT. Net Smelter Returns shall be calculated for each calendar quarter in
which Net Smelter Returns are realized and payment as due hereunder shall be
made within thirty (30) days following the end of each such calendar quarter.
Such payments shall be accompanied by a statement summarizing the computation of
Net Smelter Returns and copies of all relevant settlement sheets. Such quarterly
payments are provisional and subject to adjustment within ninety (90) days
following the end of each calendar year. Within ninety (90) days after the end
of each calendar year, payor shall deliver to payee an unaudited statement of
royalties paid to payor during the year and the calculation thereof. All
year-end statements shall be deemed true and correct six (6) months after
presentation, unless within that period payee delivers notice to payor
specifying with particularity the grounds for each exception. Payee shall be
entitled, at payee's expense, to an annual independent audit of the statement by
a certified public accountant of recognized standing and acceptable to payor,
only if payee delivers a demand for an audit to payor within four (4) months
after presentation of the related year-end statement. If such audit determines
that payor has underpaid payee by greater than ten percent (10%) during such
annual period, after any adjustment, then payor shall reimburse payee for its
reasonable audit costs.
SCHEDULE "B"
IN WITNESS WHEREOF this document has been executed by the parties hereto the day
and year first above written.
THE SCHEDULE ABOVE REFERRED TO
All that piece or parcel of land containing an approximate area of 20.60 acres
lying to the North of Latitude 5(degree)0'0" and to the South of Latitude
5(degree)3'59" 5(degree)3'55" 5(degree)4'33" 5(degree)4'27" 5(degree)1'53"
5(degree)1'49"; East of Longitude 1(degree)54'40" 1(degree)54'15" 1(degree)53'3"
1(degree)56'0" 1(degree)55'27" 1(degree)55'5" and to the West of Longitude
1(degree)53'48" in the Mphor Wassa East District of Western Region of the
Republic of Ghana which piece or parcel of land is more particularly delineated
on the plan annexed hereto for the purposes of identification and not of
limitation.