EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

Exhibit 2.1

EXPLORATION, DEVELOPMENT AND
MINE OPERATING AGREEMENT

BETWEEN

EMERALD MINING & LEASING, LLC
GOLDEN 8 MINING, LLC

AND

RIO GRANDE SILVER, INC.

February 21, 2008

TABLE OF CONTENTS

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EXPLORATION, DEVELOPMENT AND MINE OPERATING AGREEMENT

          This Agreement is made as of February 21, 2008 (“ Effective Date ”) between EMERALD MINING & LEASING, LLC, a limited liability company formed under Colorado law (“EML”), the address of which is P.O. Box 628, Emerald Ranch Road, Creede, CO 81130, GOLDEN 8 MINING, LLC, a limited liability company formed under Oklahoma law (“G8”), the address of which is 6305 Waterford Blvd., Suite 300, Oklahoma City, OK 73118 and RIO GRANDE SILVER, INC., a Delaware corporation (“RGS”), the address of which is 6500 N. Mineral Dr., Suite 200, Coeur d’Alene, ID 83815.

RECITALS

                    A. EML and G8 own or control certain properties in Mineral County, State of Colorado, which properties are described in Exhibit A and defined in Exhibit D (“Properties”).

                    B. EML and G8 wish RGS to participate with them in the exploration, evaluation and if justified the development and mining of mineral resources within the Properties, and EML and G8 are willing to grant such rights to RGS.

                    C. In exchange for such participation EML and G8 agree to grant certain rights to RGS as set forth in this Agreement.

                    D. Unless otherwise stated, EML, G8 and RGS intend to grant the non-defaulting and/or surviving parties, the option to share proportionally, according to their respective Participating Interests, in any defaulting and/or non-surviving parties Participating Interest.

                    NOW THEREFORE, in consideration of the covenants and conditions contained herein, EML, G8 and RGS intend to become legally bound and agree as follows:

ARTICLE I
DEFINITIONS AND CROSS-REFERENCES

                     1.1 Definitions. The terms defined in Exhibit D and elsewhere shall have the defined meaning wherever used in this Agreement, including in Exhibits.

                     1.2 Cross-References. References to “ Exhibits ,” “ Articles ,” “ Sections ” and “ Subsections ” refer to Exhibits, Articles, Sections and Subsections of this Agreement. References to “ Paragraphs ” and “ Subparagraphs ” refer to paragraphs and subparagraphs of the referenced Exhibits.

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ARTICLE II
NAME, PURPOSES AND TERM

                     2.1 General. EML, G8 and RGS hereby enter into this Agreement for the purposes hereinafter stated. All of the rights and obligations of the Participants in connection with the Assets or the Area of Interest and all Operations shall be subject to and governed by this Agreement.

                     2.2 Name. The Assets shall be managed and operated by the Participants under the name of the “San Juan Silver Mining Joint Venture” (referred to herein as the “Venture”). The Manager shall accomplish any registration required by applicable assumed or fictitious trade name statutes and similar statutes.

                     2.3 Purposes. This Agreement is entered into for the following purposes and for no others, and shall serve as the exclusive means by which each of the Participants accomplishes such purposes:

                     2.4 Limitation. Unless the Participants otherwise agree in writing, the Operations shall be limited to the purposes described in Section 2.3, and nothing in this Agreement shall be construed to enlarge such purposes or to change the relationships of the Participants as set forth in Section 4.

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                     2.5 Term. The term of this Agreement shall be for fifty (50) years from the Effective Date and for so long thereafter as Products are produced from the Properties on a continuous basis, and thereafter until all materials, supplies, equipment and infrastructure have been salvaged and disposed of, any required Environmental Compliance is completed and accepted and the Participants have agreed to a final accounting, unless the Business is earlier terminated as herein provided. For purposes hereof, Products shall be deemed to be produced from the Properties on a “ continuous basis ” so long as production in commercial quantities is not halted for more than four (4) consecutive years, subject to a tolling of time during periods for which Force Majeure has been declared. For purposes hereof, “ commercial quantities ” means processing through a mill or other processing facility, for beneficiation of Products of not less than 50% of mine and mill capacity as determined by the Feasibility Study, for a period of not less than 200 days in any calendar year, subject to any Force Majeure , provided that the Force Majeure may not last for more than three consecutive years in addition to the four years set forth above for a total of seven years.

ARTICLE III
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES

                     3.1 Representations and Warranties of Each Participant. As of the Effective Date, each Participant warrants and represents to the other that:

                              (a) it is a limited liability company (in the case of EML and G8) or a corporation (in the case of RGS) duly organized and in good standing in its state of organization or incorporation and is qualified to do business and is in good standing in those states where necessary in order to carry out the purposes of this Agreement;

                               (b) it has the capacity to enter into and perform this Agreement and all transactions contemplated herein and that all corporate, board of directors, shareholder, surface and mineral rights owner, lessor, lessee and other actions required to authorize it to enter into and perform this Agreement have been properly taken;

                               (c) it will not breach any other agreement or arrangement by entering into or performing this Agreement;

                               (d) it is not subject to any governmental order, judgment, decree, debarment, sanction or Laws that would preclude the permitting or implementation of Operations under this Agreement; and

                               (e) this Agreement has been duly executed and delivered by it and is valid and binding upon it in accordance with its terms.

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                     3.2 Representations and Warranties of EML and G8. As of the Effective Date, EML and G8 (severally as to each 50% interest and not jointly) make the following representations and warranties to RGS:

                               (a) With respect to those Properties EML and G8 own in fee simple, if any, to their Knowledge EML and G8 are in exclusive possession of and own such Properties free and clear of all Encumbrances or defects in title except those specifically identified in Paragraph 1.1 of Exhibit A except to the extent that the transfer of some or all of such Properties to EML and G8 from Emerald Ranch Limited Liability Company has not yet been completed in the records of Mineral County, Colorado, or the Bureau of Land Management (which transfer of record is in the process of completion).

                               (b) With respect to those Properties in which EML and G8 hold an interest under leases or other contracts: (i) EML and G8 are in exclusive possession of such Properties; (ii) neither EML nor G8 has received any notice of default of any of the terms or provisions of such leases or other contracts; (iii) EML and G8 have the authority under such leases or other contracts to perform fully their obligations under this Agreement; (iv) to EML’s and G8’s Knowledge, such leases and other contracts are valid and are in good standing; (v) neither EML nor G8 has any Knowledge of any act or omission or any condition on the Properties which could be considered or construed as a default under any such lease or other contract; and (vi) to EML’s and G8’s Knowledge, such Properties are free and clear of all Encumbrances or defects in title except for those specifically identified in Paragraph 1.1 of Exhibit A.

                               (c) EML and G8 have delivered to or made available for inspection by RGS (directly or through access to the data that continues to be held by Homestake Mining Company of California) all Existing Data in their possession or control, and true and correct copies of all leases or other contracts relating to the Properties, such data being made available to RGS without warranty of the accuracy or completeness of the data and information or other warranty of any other kind.

                               (d) With respect to unpatented mining claims and millsites located by EML, G8, or their predecessor Emerald Ranch Limited Liability Company that are included within the Properties (except to the extent that the transfer of some or all of such Properties to EML and G8 from Emerald Ranch Limited Liability Company has not yet been completed in the records of Mineral County, Colorado, or the Bureau of Land Management (which transfer of record is in the process of completion)), except as provided in Paragraph 1.1 of Exhibit A and subject to the paramount title of the United States and to EML’s and G8’s Knowledge: (i) the unpatented mining claims were properly laid out and monumented; (ii) all required location and validation work was properly performed; (iii) location notices and certificates were properly recorded and filed with appropriate governmental agencies; (iv) all assessment work required to hold the unpatented mining claims has been performed and all Governmental Fees have been paid in a manner consistent with that required of the Manager pursuant to Subsection 8.2(k) through the assessment year ending August 31, 2008; (v) all affidavits of assessment work,

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evidence of payment of Governmental Fees, and other filings required to maintain the claims in good standing have been properly and timely recorded or filed with appropriate governmental agencies; (vi) the claims are free and clear of Encumbrances or defects in title; and (vii) neither EML nor G8 has any Knowledge of conflicting mining claims. Nothing in this Subsection, however, shall be deemed to be a representation or a warranty that any of the unpatented mining claims contains a valuable mineral deposit.

                               (e) With respect to unpatented mining claims and millsites not located by EML, G8 or Emerald Ranch Limited Liability Company but which are included within the Properties (except to the extent that the transfer of some or all of such Properties to EML from one of its members, Emerald Ranch Limited Liability Company, has not yet been completed in the records of Mineral County, Colorado, or the Bureau of Land Management (which transfer of record is in the process of completion)), except as provided in Paragraph 1.1 of Exhibit A and subject to the paramount title of the United States: (i) all assessment work required to hold the unpatented mining claims has been performed and all Governmental Fees have been paid in a manner consistent with that required of the Manager pursuant to Subsection 8.2(k) through the assessment year ending August 31, 2008; (ii) all affidavits of assessment work, evidence of payment of Governmental Fees, and other filings required to maintain the claims in good standing have been properly and timely recorded or filed with appropriate governmental agencies; (iii) the claims are free and clear of Encumbrances or defects in title; and (iv) neither EML nor G8 has any Knowledge of conflicting mining claims. Nothing in this Subsection, however, shall be deemed to be a representation or a warranty that any of the unpatented mining claims contains a valuable discovery of minerals.

                               (f) With respect to the Properties and except pending litigation filed by Wason Ranch Corporation in the U.S. District Court for the District of Colorado (07 CV 00267-EWN-MEH), to EML’s and G8’s Knowledge, there are no pending or threatened actions, suits, claims or proceedings, and there have been no previous transactions affecting its interests in the Properties which have not been for fair consideration.

                               (g) Except as to matters otherwise disclosed in writing to RGS prior to the Effective Date,

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The representations and warranties set forth above shall survive the execution and delivery of any documents of Transfer provided under this Agreement. For a representation or warranty made to a Participant’s “Knowledge,” the term “Knowledge” shall mean actual knowledge on the part of the officers, employees, and agents of the representing Participant or of facts that would reasonably lead to the indicated conclusions.

                     3.3 Disclosures. Each of the Participants represents and warrants that it is unaware of any material facts or circumstances that have not been disclosed in this Agreement, which should be disclosed to the other Participants in order to prevent the representations and warranties in this Article from being materially misleading. EML and G8 have disclosed or made available to RGS all information they believe to be relevant concerning the Assets and has provided to or made available for inspection by RGS all such information, but does not make any representation or warranty, express or implied, as to the accuracy or completeness of the information (except as provided in Section 3.2) or as to the boundaries or value of the Assets. Each Participant represents to the others that in negotiating and entering into this Agreement it has relied solely on its own appraisals and estimates as to the value of the Assets, as to the environmental condition of the Properties, and upon its own geologic and engineering interpretations related thereto.

                     3.4 Record Title. Title to the Assets shall be held by EML and G8 as equal cotenants for EML, G8, and RGS, as their Participating Interests are determined pursuant to this Agreement. EML and G8 will, upon the Manager’s written request, and at the expense of the Business Account, and after RGS has earned a 70% Participating Interest or upon RGS’ withdrawal, assign to RGS an interest in the Property as co-tenant with EML and G8 equal to RGS’ Participating Interest, as such Participating Interest is at the time of the conveyance. To do so, EML and G8 will execute and deliver for filing with the Clerk and Recorder of Mineral County, Colorado and (if necessary) the Bureau of Land Management, deeds conveying the Properties.

                     3.5 Loss of Title. Subject to the limitations set forth in Section 3.7(b), any failure or loss of title to the Assets, and all costs of defending title, shall be charged to the Business Account, except that all costs and losses arising out of or resulting from breach of the representations and warranties of EML, G8 or RGS as to title shall be charged to EML, G8 or RGS, as the case may be.

                     3.6 Royalties, Production Taxes and Other Payments Based on Production. All required payments of production royalties, taxes based on production of Products, and other payments out of production to private parties and governmental entities shall be determined and made by the Manager from the Business Account on behalf of each Participant in proportion to its Participating Interest.

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                     3.7 Indemnities/Limitation of Liability.

                              (a) Each Participant shall indemnify the other Participants, their directors, officers, employees, agents and attorneys, or Affiliates (collectively “ Indemnified Participant ”) from and against the entire amount of any Material Loss. A “Material Loss” shall mean all costs, expenses, damages or liabilities, including attorneys’ fees and other costs of litigation (either threatened or pending) arising out of or based on a breach by a Participant (“ Indemnifying Participant ”) of any representation, warranty or covenant contained in this Agreement, including without limitation:

                                        (i) any failure by a Participant to determine accurately and make timely payment of its proportionate share of required royalties, production taxes and other payments out of production to third parties as required by Section 3.6;

                                        (ii) any action taken for or obligation or responsibility assumed on behalf of the other Participants, their directors, officers, employees, agents and attorneys, or Affiliates by a Participant, any of its directors, officers, employees, agents and attorneys, or Affiliates, in violation of Section 4.1;

                                        (iii) failure of a Participant or its Affiliates to comply with the non-compete or Area of Interest provisions of Section 12.6 or Article XIII ; and

                                         (iv) Intentionally Left Blank.

                                        (v) failure of a Participant or its Affiliates to comply with the preemptive right under Section 16.3 and Exhibit H.

A Material Loss shall not be deemed to have occurred until, in the aggregate, an Indemnified Participant incurs losses, costs, damages or liabilities in excess of $2,000,000 relating to breaches of warranties, representations and covenants contained in this Agreement. At such time, the Indemnified Participant shall be indemnified for all losses, including the first Two Million Dollars ($2,000,000). EML’s and G8’s aggregate liability to all Indemnified Participants under this Section for breaches of the representations in Subsection 3.2(g) shall be several (50% as to each), and shall not, however, exceed a total of $20,000,000, or the amount RGS has invested in the Project, whichever is less.

                              (b) Notwithstanding any other provisions in this Agreement, and except as provided in this Subsection 3.7(b) , EML shall be solely responsible for any and all payments and other obligations that are or hereafter become due under that Assumption and Indemnification Agreement by and between Homestake Mining Company of California, EML and Emerald Ranch Limited Liability Company (“ERLLC”), and any such payments and other obligation chargeable to the Venture or RGS. RGS shall have no obligation to provide funding or payments for any Environmental Liabilities covered by the Assumption and Indemnification Agreement by and between Homestake Mining Company of California, EML and ERLLC; provided that the Venture shall be liable to EML and ERLLC for any liability incurred by EML and ERLLC subject to such agreement to the extent such liability arises directly from the

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activities or operations of the Venture or to Environmental Liabilities arising from activities or operations of the Venture and the parties shall be responsible for such liabilities in proportion to their Participating Interests. The provision for Material Loss, as defined by Subsection 3.7(a) does not apply to this subsection.

                               (c) If any claim or demand is asserted against an Indemnified Participant in respect of which such Indemnified Participant may be entitled to indemnification under this Agreement, written notice of such claim or demand shall promptly be given to the Indemnifying Participant. The Indemnifying Participant shall have the right, but not the obligation, by notifying the Indemnified Participants within thirty (30) days after their receipt of the notice of the claim or demand, to assume the entire control of (subject to the right of the Indemnified Participant to participate, at the Indemnified Participant’s expense and with counsel of the Indemnified Participant’s choice), the defense, compromise, or settlement of the matter, including, at the Indemnifying Participant’s expense, employment of counsel of the Indemnifying Participant’s choice. Any damages to the assets or business of the Indemnified Participants caused by a failure by the Indemnifying Participant to defend, compromise, or settle a claim or demand in a reasonable and expeditious manner requested by the Indemnified Participant, after the Indemnifying Participants have given notice that they will assume control of the defense, compromise, or settlement of the matter, shall be included in the damages for which the Indemnifying Participants shall be obligated to indemnify the Indemnified Participants. Any settlement or compromise of a matter by the Indemnifying Participants shall include a full release of claims against the Indemnified Participant which has arisen out of the indemnified claim or demand. This Subsection 3.7(c) shall not apply to, and RGS may not seek indemnification from EML with respect to, any claims that have been or are hereafter asserted against RGS or any of its Affiliates in the pending litigation filed by Wason Ranch Corporation in the U.S. District Court for the District of Colorado (07 CV 00267-EWN-MEH).

                3.8 Investment. EML and G8 are Accredited Investors and are acquiring the Hecla Mining Company common stock (“Hecla Shares”) for their own accounts for purposes of investment and not with a view to distribution thereof within the meaning of the Securities Act or in violation of the registration requirements of the Securities Act or any state securities law. EML and G8 will refrain from transferring, alienating or otherwise disposing of the Hecla Shares or any interest therein in such a manner as to cause the RGS, or its affiliates, to be in violation of the registration requirements of the Securities Act or any state securities law. EML and G8 further understand that the Hecla Shares have not been registered under the Securities Act and may not be transferred except in compliance therewith.

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ARTICLE IV
RELATIONSHIP OF THE PARTICIPANTS

                     4.1 No Partnership. Nothing contained in this Agreement shall be deemed to constitute any Participant the partner of the others, or, except as otherwise herein expressly provided, to constitute any Participant the agent or legal representative of the other, or to create any fiduciary relationship between them. The Participants do not intend to create, and this Agreement shall not be construed to create, any mining, commercial or other partnership. No Participant, nor any of its directors, officers, employees, agents and attorneys, or Affiliates, shall act for or assume any obligation or responsibility on behalf of the other Participants, except as otherwise expressly provided herein, and any such action or assumption by a Participant’s directors, officers, employees, agents and attorneys, or Affiliates shall be a breach by such Participant of this Agreement. The rights, duties, obligations and liabilities of the Participants shall be several and not joint or collective. Each Participant shall be responsible only for its obligations as herein set out and shall be liable only for its share of the costs and expenses as provided herein, and it is the express purpose and intention of the Participants that their ownership of Assets and the rights acquired hereunder shall be as tenants in common.

                     4.2 Federal and State Tax Elections and Allocations. The Participants hereby agree to elect that this Agreement and all Operations hereunder be excluded from the applications of the provisions of Subchapter K of Chapter 1 of Subtitle A of the United States Internal Revenue Code of 1986, as amended (the “Code”), and the similar provisions of applicable state law. Each Participant agrees to effect this election pursuant to Section 761(a) of the Code. Subject to the written approval of the Participants, the Manager shall prepare and file any documents required to insure the Participants’ exclusion from Subchapter K and from similar provisions of applicable state law.

                     4.3           Intentionally Left Blank

                     4.4           Intentionally Left Blank

                     4.5 Other Business Opportunities. Except as expressly provided in this Agreement, each Participant shall have the right to engage in and receive full benefits from any independent business activities or operations, whether or not competitive with this Business, without consulting with, or obligation to, the other Participants. The doctrines of “ corporate opportunity ” or “ business opportunity ” shall not be applied to this Business nor to any other activity or operation of any Participant. No Participant shall have any obligation to the other with respect to any opportunity to acquire any property outside the Area of Interest at any time, or, except as otherwise provided in Section 12.6, within the Area of Interest after the termination of the Business. Unless otherwise agreed in writing, no Participant shall have any obligation to mill, beneficiate

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or otherwise treat any Products in any facility owned or controlled by such Participant which facility is not owned or controlled by the Venture.

                     4.6 Waiver of Rights to Partition or Other Division of Assets. The Participants hereby waive and release all rights of partition, or of sale in lieu thereof, or other division of Assets, including any such rights provided by Law.

                     4.7 Transfer or Termination of Rights to Properties. Except as otherwise provided in this Agreement, no Participant shall Transfer all or any part of its interest in the Assets or this Agreement or otherwise permit or cause such interests to terminate.

                     4.8 Implied Covenants. There are no implied covenants contained in this Agreement other than those of good faith and fair dealing.

                     4.9 No Third Party Beneficiary Rights. This Agreement shall be construed to benefit the Participants and their respective successors and assigns only, and shall not be construed to create third party beneficiary rights in any other party or in any governmental organization or agency, except to the extent required by Financing and as provided in Subsection 3.7(a).

ARTICLE V
CONTRIBUTIONS BY PARTICIPANTS

                     5.1           Participants’ Initial Contributions.

                              (a) EML and G8, as their Initial Contribution, hereby contribute the Assets described in Exhibit A to the purposes of this Agreement. For the purposes of determining the Equity Accounts for EML and G8, this contribution shall have a value equal to $9,428,571 ($4,714,286 each to EML and G8) and shall not be reduced by the direct payments from RGS to EML and G8 contemplated by Section 5.1(b), below. EML and G8 will also provide RGS the opportunity to participate in any Financing arranged by EML, G8 or any Affiliate of EML or G8, on the most favorable terms obtained by EML, G8 or such Affiliate, with the understanding that neither EML, G8 nor any Affiliate has any obligation to arrange Financing.

                               (b) Subject to RGS’s right of withdrawal as set forth in Section 12.3, RGS, as its Initial Contribution, shall pay EML and G8 $8,000,000 in shares of Hecla Mining Company common stock (which may be restricted as that term is defined under Rule 144) as soon as is commercially practicable, but not later than ten (10) trading days of the execution of the Agreement (with the total number of shares to be issued based on 90% of the volume-weighted average price (the “VWAP”) of Hecla Mining Company shares on the New York Stock Exchange (“NYSE”) for the twenty trading (20) days immediately preceding the date of execution of the Agreement by EML and

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G8. Such payment will be made equally to EML and G8 (that is, $4,000,000 in common stock to each). RGS shall receive a 30% inchoate interest upon payment of its Initial Contribution.

                     5.2 Additional Contributions. At such time as RGS has contributed the full amount of its Initial Contribution RGS shall:

                              (a) Incur $6,000,000 in Qualifying Expenses on or before the first anniversary of the Effective Date (which obligation is subject to Force Majeure and is subject to extension by agreement of the Management Committee on a per capita vote (not a vote based on Participating Interest)), and pay EML and G8 $2,000,000 (that is, $1,000,000 to each) inshares of Hecla Mining Company common stock (which may be restricted as that term is defined under Rule 144) on or before the first anniversary of the Effective Date. The total number of shares to be issued based on 90% of the VWAP of Hecla Mining Company shares on the NYSE for the twenty (20) trading days ending, five (5) trading days prior to the payment date. RGS shall receive a 60% Participating Interest.

                              (b) Incur $9,000,000 in Qualifying Expenses during the first 24 months following the Effective Date pursuant to approved Programs and Budgets (which obligation is subject to Force Majeure and is subject to extension by agreement of the Management Committee on a per capita vote (not a vote based on Participating Interest)), and shall receive a 65% Participating Interest.

                               (c) Incur $12,000,000 in Qualifying Expenses during the first 36 months following the Effective Date pursuant to approved Programs and Budgets (which obligation is subject to Force Majeure and is subject to extension by agreement of the Management Committee on a per capita vote (not a vote based on Participating Interest)), and shall receive a 70% Participating Interest. At such time as RGS has earned its 70% Participating Interest, the Participants, subject to Section 5.4, below, and any election permitted by Subsection 9.5(a), shall be obligated to contribute funds to adopted Programs and Budgets in proportion to their respective Participating Interests.

                               (d) Provide EML and G8 and its members with an opportunity to participate in any Financing arranged by RGS or any Affiliate of RGS, on the most favorable terms obtained by RGS or such Affiliate, with the understanding that neither RGS nor any Affiliate has any obligation to arrange Financing;

                     5.3           Failure to Make Initial Contribution.

                               (a) RGS’s failure to make its Initial Contribution described in Sections 5.1(b), if not cured within three (3) days after notice by EML or G8 of such default, shall be deemed to be a withdrawal of RGS from the Business.

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                              (b) If RGS fails to make its Additional Contributions described in Sections 5.2(a)(b) and (c) , RGS may cure within nine (9) months after receiving notice by EML or G8 of such default, by making the Additional Contributions described in Sections 5.2(a)(b) and (c) , or by paying 100% of the value of the uncompleted Work, to EML and G8 (50% each to EML and G8).

                    5.4 Additional Contributions Prior to Feasibility Study. After RGS has completed its Initial Contribution as required by Section 5.1(b) , and the Additional Contributions as defined in Section 5.2(a)(b) and (c), and has not completed a Feasibility Study, EML and G8 may elect for RGS to pay EML’s and G8’s full share of any adopted Program and Budget necessary to progress the project in accordance with the Program and Budget, up to a total of an additional $8,000,000. Following RGS’s funding of $8,000,000 in Qualifying Expenditures, funding of any adopted Program and Budget, necessary to progress the project, shall be paid pro rata by the participants in accordance with their Participating Interests. Provided, however, that nothing in this paragraph shall limit RGS’s ability to vote for or against a proposed Program and Budget. EML and G8 shall repay all amounts that RGS advanced for their account (but not more than a total of $1,200,000 each) and without interest, from 50% of their respective share of Net Proceeds.

ARTICLE VI
INTERESTS OF PARTICIPANTS

                    6.1 Initial Participating Interests . The Participants shall have the following initial Participating Interests:

                    6.2 Changes in Participating Interests . The Participating Interests shall be eliminated or changed as follows:

                              (a) Upon RGS making its Initial Contribution as set forth in Section 5.1(b), the Additional Contributions as set forth in Section 5.2(a)(b) and (c) will reduce EML’s and G8’s Participating Interest equally ;

                              (b) withdrawal or deemed withdrawal as provided in Sections 6.3 , and Article XII ;

                              (c) Upon an election by any Participant pursuant to Section 9.5 to contribute less to an adopted Program and Budget than the percentage equal to its Participating Interest, or to contribute nothing to an adopted Program and Budget;

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                              (d) In the event of default by any Participant in making its agreed-upon contribution to an adopted Program and Budget, followed by an election by the other Participant to invoke any of the remedies in Section 10.5 ;

                              (e) Upon Transfer by any Participant of part or all of its Participating Interest in accordance with Article XVI ; or

                              (f) Upon acquisition by any Participant of part or all of the Participating Interest of another Participant, however arising.

                    6.3           Elimination of Minority Interest .

                              (a) A Reduced Participant whose Recalculated Participating Interest becomes less than 5% shall have the right, at any time by notice to the Manager, to convert such Participant’s Participating Interest into the right to receive an equal percentage of Net Proceeds, if any, from Operations. For example, if a Participant has a 4% Participating Interest, that Participant may give notice to the Manager to convert the Participating Interest into a right to receive 4% of the Net Proceeds, if any, from Operations.

                              (b) If the final adjustment provided under Section 9.6 for any recalculation under Section 9.5 results in a Recalculated Participating Interest that is different from the Participating Interest as to which notice of conversion was given pursuant to Section 6.3(a) , the conversion to a Net Proceeds interest shall be adjusted to reflect the percentage attributable to the Recalculated Participating Interest.

                    6.4 Continuing Liabilities Upon Adjustments of Participating Interests . Any reduction or elimination of any Participant’s Participating Interest under Section 6.2 shall not relieve such Participant of its share of any liability, including, without limitation, Continuing Obligations, Environmental Liabilities and Environmental Compliance, whether arising, before or after such reduction or elimination, out of acts or omissions occurring or conditions existing prior to the Effective Date or out of Operations conducted during the term of this Agreement but prior to such reduction or elimination, regardless of when any funds may be expended to satisfy such liability. For purposes of this Section, such Participant’s share of such liability shall be equal to its Participating Interest at the time the act or omission giving rise to the liability occurred, after first taking into account any reduction, readjustment and restoration of Participating Interests under Sections 6.3 , 9.5 , 9.6 and 10.5 (or, as to such liability arising out of acts or omissions occurring or conditions existing prior to the Effective Date, equal to such Participant’s initial Participating Interest). Should the cumulative cost of satisfying Continuing Obligations be in excess of cumulative amounts accrued or otherwise charged to the Environmental Compliance Fund as described in Exhibit B , each of the Participants shall be liable for their proportionate share ( i.e. , Participating Interest at the time of the act or omission giving rise to such liability occurred), after first taking into account any

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reduction, readjustment and restoration of Participating Interests under Sections 6.3 , 9.5 , 9.6 and 10.5 , of the cost of satisfying such Continuing Obligations, notwithstanding that any Participant has previously withdrawn from the Business or that its Participating Interest has been reduced or converted to an interest in Net Proceeds pursuant to Subsection 6.3(a) .

                    6.5 Documentation of Adjustments to Participating Interests . Adjustments to the Participating Interests need not be evidenced during the term of this Agreement by the execution and recording of appropriate instruments, but each Participant’s Participating Interest and related Equity Account balance shall be shown in the accounting records of the Manager, and any adjustments thereto, including any reduction, readjustment, and restoration of Participating Interests under Sections 6.3 , 9.5 , 9.6 and 10.5 , shall be made monthly. However, any Participant, at any time upon the request of the other Participants, shall execute and acknowledge instruments necessary to evidence such adjustments in form sufficient for filing and recording in the jurisdiction where the Properties are located.

                    6.6           Grant of Lien and Security Interest .

                              (a) Subject to Section 6.7 , each Participant grants to the other Participants a lien upon and a security interest in its Participating Interest, including all of its right, title and interest in the Assets, whenever acquired or arising, and the proceeds from and accessions to the foregoing.

                              (b) The liens and security interests granted by Subsection 6.6(a) shall secure every obligation or liability of the Participant granting such lien or security interest created under this Agreement, including the obligation to repay a Cover Payment in accordance with Section 10.4 . Each Participant hereby agrees to take all action necessary to perfect such lien and security interest and hereby appoints the other Participants its attorney-in-fact to execute, file and record all financing statements and other documents necessary to perfect or maintain such lien and security interest. No Participant may record any notification of such lien or security interest unless and until the other Participants against whom the lien or security interest is being recorded, is in default in such Participant’s obligations hereunder.

                    6.7 Subordination of Interests . Each Participant shall, from time to time, take all reasonably necessary actions, including execution of appropriate agreements, to pledge and subordinate its Participating Interest, any liens it may hold which are created under this Agreement other than those created pursuant to Section 6.6 hereof, and any other right or interest it holds with respect to the Assets (other than any statutory lien of the Manager) to any secured borrowings for Operations approved by the Management Committee, including any secured borrowings relating to Financing, and any modifications or renewals thereof.

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ARTICLE VII
MANAGEMENT COMMITTEE

                    7.1 Organization and Composition . The Participants hereby establish a Management Committee to determine overall policies, objectives, procedures, methods and actions under this Agreement. The Management Committee shall consist of one (1) member appointed by EML, one (1) member appointed by G8, and two (2) members appointed by RGS. Each Participant may appoint one or more alternates to act in the absence of a regular member. Any alternate so acting shall be deemed a member. Appointments by a Participant shall be made or changed by notice to the other members. RGS shall designate one of its members to serve as the chair of the Management Committee.

                    7.2 Decisions . Each Participant, acting through its appointed member(s) in attendance at the meeting, shall have the votes on the Management Committee in proportion to its Participating Interest. Unless otherwise provided in this Agreement, the vote of the Participant with a Participating Interest over 50% shall determine the decisions of the Management Committee. During the period before RGS has earned a 70% Participating Interest, RGS will have a vote on the Management Committee as though it has earned a 70% Participating Interest unless RGS has given its notice to withdraw from the Venture.

                    7.3           Meetings .

                              (a) After RGS has earned a 60% Participating Interest, the Management Committee shall hold regular meetings at least quarterly in Creede, Colorado, or at other agreed places. The Manager shall give thirty (30) days notice to the Participants of such meetings. Additionally, any Participant may call a special meeting upon seven (7) days notice to the other Participants. In case of an emergency, reasonable notice of a special meeting shall suffice. Any member of the Management Committee may participate in any meeting in person or by telephone. There shall be a quorum if at least one member representing each Participant is present in person or by telephone; provided, however , that if a Participant fails to attend two consecutive properly called meetings, then a quorum shall exist at the second meeting if the other Participants are represented by at least one appointed member, and a vote of any of such Participants shall be considered the vote required for the purposes of the conduct of all business properly noticed even if such vote would otherwise require unanimity.

                              (b) If business cannot be conducted at a regular or special meeting due to the lack of a quorum, any Participant may call the next meeting upon ten (10) days notice to the other Participant.

                              (c) Each notice of a meeting shall include an itemized agenda prepared by the Manager in the case of a regular meeting or by the Participant calling the meeting in the case of a special meeting, but any matters may be considered if any

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Participant adds the matter to the agenda at least ten (10) days before the meeting or with the consent of the other Participants. The Manager shall prepare minutes of all meetings and shall distribute copies of such minutes to the other Participants within thirty (30) days after the meeting. Any Participant may electronically record the proceedings of a meeting with the written consent of the other Participants. The other Participants shall sign and return or object to the minutes prepared by the Manager within thirty (30) days after receipt, and failure to do either shall be deemed acceptance of the minutes as prepared by the Manager. The minutes, when signed or deemed accepted by all Participants, shall be the official record of the decisions made by the Management Committee. Decisions made at a Management Committee meeting shall be implemented in accordance with adopted Programs and Budgets. If a Participant timely objects to minutes proposed by the Manager, the members of the Management Committee shall seek, for a period not to exceed thirty (30) days from receipt by the Manager of notice of the objections, to agree upon minutes acceptable to all Participants. If the Management Committee does not reach agreement on the minutes of the meeting within such thirty (30) day period, the minutes of the meeting as prepared by the Manager together with the other Participants’ proposed changes shall collectively constitute the record of the meeting. If personnel employed in Operations are required to attend a Management Committee meeting, reasonable costs incurred in connection with such attendance shall be charged to the Business Account. All other costs shall be paid by the Participants individually.

                    7.4 Action Without Meeting in Person . In lieu of meetings in person, the Management Committee may conduct meetings by telephone or video conference, so long as minutes of such meetings are prepared in accordance with Subsection 7.3(c) . The Management Committee may also take actions in writing signed by all members.

                    7.5 Matters Requiring Approval . Except as otherwise delegated to the Manager in Section 8.2 , the Management Committee shall have exclusive authority to determine all matters related to overall policies, objectives, procedures, methods and actions under this Agreement.

ARTICLE VIII
MANAGER

                    8.1 Appointment . The Participants hereby appoint RGS as the Manager with overall management responsibility for Operations. RGS hereby agrees to serve until it resigns as provided in Section 8.4 .

                    8.2 Powers and Duties of Manager . Subject to the terms and provisions of this Agreement, the Manager shall have the following powers and duties, which shall be discharged in accordance with adopted Programs and Budgets.

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                              (a) The Manager shall manage, direct and control Operations, and shall prepare and present to the Management Committee proposed Programs and Budgets as provided in Article IX .

                              (b) The Manager shall implement the decisions of the Management Committee, shall make all expenditures necessary to carry out adopted Programs, and shall promptly advise the Management Committee if it lacks sufficient funds to carry out its responsibilities under this Agreement.

                              (c) The Manager shall use reasonable efforts to: (i) purchase or otherwise acquire all material, supplies, equipment, water, utility and transportation services required for Operations, such purchases and acquisitions to be made to the extent reasonably possible on the best terms available, taking into account all of the circumstances; (ii) obtain such customary warranties and guarantees as are available in connection with such purchases and acquisitions; and (iii) keep the Assets free and clear of all Encumbrances, except any such Encumbrances listed in Paragraph 1.1 of Exhibit A and those existing at the time of, or created concurrent with, the acquisition of such Assets, or mechanic’s or materialmen’s liens (which shall be contested, released or discharged in a diligent matter) or Encumbrances specifically approved by the Management Committee.

                              (d) The Manager shall conduct such title examinations of the Properties and cure such title defects pertaining to the Properties as may be advisable in its reasonable judgment.

                              (e) The Manager shall: (i) make or arrange for all payments required by leases, licenses, permits, contracts and other agreements related to the Assets (subject only to the exclusions contained in Section 3.7(b) ); (ii) pay all taxes, assessments and like charges on Operations and Assets except taxes determined or measured by a Participant’s sales revenue or net income and taxes, including production taxes, attributable to a Participant’s share of Products, and shall otherwise promptly pay and discharge expenses incurred in Operations; provided, however , that if authorized by the Management Committee, the Manager shall have the right to contest (in the courts or otherwise) the validity or amount of any taxes, assessments or charges if the Manager deems them to be unlawful, unjust, unequal or excessive, or to undertake such other steps or proceedings as the Manager may deem reasonably necessary to secure a cancellation, reduction, readjustment or equalization thereof before the Manager shall be required to pay them, but in no event shall the Manager permit or allow title to the Assets to be lost as the result of the nonpayment of any taxes, assessments or like charges; and (iii) do all other acts reasonably necessary to maintain the Assets.

                              (f) The Manager shall: (i) apply for all necessary permits, licenses and approvals; (ii) comply with all Laws; (iii) notify promptly the Management Committee of any allegations of substantial violation thereof; and (iv) prepare and file all reports or notices required for or as a result of Operations. The Manager shall not be in

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breach of this provision if a violation has occurred in spite of the Manager’s good faith efforts to comply consistent with its standard of care under Section 8.3 . In the event of any such violation, the Manager shall timely cure or dispose of such violation on behalf of the Participants through performance, payment of fines and penalties, or both, and the cost thereof shall be charged to the Business Account.

                              (g) The Manager shall prosecute and defend, but shall not initiate without consent of the Management Committee, all litigation or administrative proceedings arising out of Operations. The non-managing Participants shall have the right to participate, at their own expense, in such litigation or administrative proceedings. The non-managing Participants shall approve in advance any settlement involving payments, commitments or obligations in excess of $250,000 in cash or value.

                              (h) The Manager shall provide insurance for the benefit of the Participants as provided in Exhibit F or as may otherwise be determined from time to time by the Management Committee.