EXPLORATION AGREEMENT WITH
OPTION TO FORM JOINT VENTURE
(WILLOW CREEK PROPERTY)
THIS EXPLORATION AGREEMENT WITH OPTION TO FORM JOINT
VENTURE (WILLOW CREEK PROPERTY) (the “Agreement”) is
made effective this 16th day of June, 2008 (the “Effective
Date”) by and between CARLIN GOLD US INC., a Nevada
corporation (“Carlin US”); and PIEDMONT MINING COMPANY,
INC., a North Carolina corporation
(“Piedmont”).
RECITALS
A. Carlin US owns
the “QA” and “QC” groups of one hundred
nineteen (119) unpatented lode mining claims situated in Elko
County, Nevada (the “QA/QC Claims”). The QA/QC Claims
are more particularly described on Exhibit A-1 attached
hereto.
B. Barrick
Gold Exploration Inc., a Delaware corporation
(“Barrick”), owns the “CC” group of
thirty-nine (39) unpatented lode mining claims situated in Elko
County, Nevada (the “CC Claims”). The CC Claims are
more particularly described on Exhibit A-2 attached hereto. The CC
Claims are subject to the Option Agreement (Currant Creek) dated
June 23, 2004 among Placer Dome U.S. Inc., a California corporation
(“Placer Dome”) as optionor; and Rubicon Minerals
Corporation, a British Columbia corporation
(“Rubicon”), Toquima Minerals Corporation, a British
Columbia corporation (“Toquima Canada”), and Carlin US
as optionees. The Option Agreement has been modified by the First
Amendment to Option Agreement dated June 3, 2005; the Second
Amendment to Option Agreement dated April 13, 2007; and the Letter
Extending
1
Option Period dated August 22, 2007. The foregoing
agreements are collectively referred to as the “Option
Agreement.”
C. Rubicon is
the former shareholder of Toquima Canada. Pursuant to a Plan of
Arrangement dated July 13, 2006, Carlin Gold Corporation, a British
Columbia corporation (“Carlin”) acquired all of the
issued and outstanding shares of Toquima Canada. Carlin US is the
wholly-owned subsidiary of Carlin. Pursuant to the Waiver and
Assumption of Obligations Agreement dated April 18, 2006, Rubicon
released and waived its right of first offer regarding the
Property, as defined in this Agreement, and Carlin agreed to assume
and perform all of Rubicon’s obligations under the Option
Agreement. Barrick is the successor-in-interest of Placer
Dome.
D. Toquima
Minerals US Inc., a Nevada corporation (“Toquima US”),
held a number of interests in the properties constituting the
Willow Creek Property. Toquima US was merged into Carlin US on
December 28, 2007. The property interests formerly held by Toquima
US were transferred to Carlin US by operation of law.
E. Toquima US
entered into a “Mining Lease and Option to Purchase
Agreement” dated January 15, 2004 (the “Mining
Lease”) with W.H. Gibbs Company, a Nevada corporation, as
lessor. The Mining Lease affects 480 acres of fee land situated in
Elko County, Nevada (the “Fee Land”). The Fee Land is
more particularly described on Exhibit A-3 attached hereto. The
Mining Lease is subject to a first amendment dated August 31,
2004.
2
F. The
agreements described in Recitals B and E may be referred to as the
“Underlying Agreements” which in the singular means
each of and, collectively, both of the two agreements
G. The QA Claims,
QC Claims, CC Claims, and Fee Lands (together with all contractual
rights related thereto) shall be referred to collectively as the
“Property”. The term Property shall include all ores,
minerals, surface and mineral rights, and the right to explore,
mine, and remove the same, and all water rights and improvements,
easements, licenses, rights of way, and other interests of
pertinence thereto. The Property shall also apply to any additional
rights and interests acquired in the Area of Interest.
H. Piedmont
wishes to acquire an interest in the Property by making certain
cash payments to Carlin US and a stock distribution to Carlin, and
by providing exploration funding for a work program on the Property
pursuant to Section 1.1 of this Agreement.
I. Carlin US
shall be the operator commencing on the Effective Date and
continuing through the earn-in period as long as Robert Thomas
remains Carlin US’s representative. In the event that Mr.
Thomas ceases to be Carlin US’s representative, Piedmont may
elect to act as operator and appoint another qualified person to
manage Piedmont’s operations under this Agreement.
Piedmont’s initial capital contribution shall
be $3,500,000, pursuant to section 1.1. Piedmont and Carlin US will
enter into a separate “Services Agreement” pertaining
to the conduct of exploration activities during this period. If the
parties form a joint venture (“Joint Venture”), the
appointment of the manager shall be governed by the Joint Venture
Agreement contemplated under Section 3.1.
3
J. Following
completion of the work program and satisfaction of the terms and
conditions of Section 1.1 of this Agreement, Piedmont and Carlin US
may form a Joint Venture for further exploration and development of
the Property.
K. Definitions
- The following defined terms,
wherever used in this Agreement, shall have the meanings described
below:
“Exploration Expenditures” means all
costs incurred for the benefit of the Property for Exploration Work
pursuant to this Agreement, including but not limited
to:
(a) salaries, wages and costs of benefits, labor
expenses and travel and living expenses for Piedmont’s and
Carlin US’s employees employed directly or for the benefit of
the property; (b) costs and expenses of equipment, machinery,
materials and supplies; (c) all payments to contractors for work on
or for the benefit of the Property; (d) cost of sampling, assays,
metallurgical testing and analyses and other costs to determine the
quantity and quality of minerals on the Property; (e) costs
incurred to apply for and obtain approvals, consents, licenses,
permits and rights-of-way and other similar rights in connection
with activities on the Property; (f) costs incurred for the
administration of this Agreement; (g) expenses and payment of
rentals, bonuses, minimum advance royalties and other payments
pursuant to the Underlying Agreement, if any; (h) costs and
expenses of performance of annual assessment work, if required to
be performed; (i) costs and expenses of payment of federal annual
mining claim maintenance fees and filing and recording
4
of proof of payment of federal annual claim
maintenance fees; (j) costs and expenses of payment of all required
county recording fees; (k) all costs and expenses for the
performance of all obligations under the Underlying Agreement, if
any; (l) all taxes and assessments levied against the Property; (m)
costs incurred to acquire new properties in the Area of Interest;
and (m) an Overhead Amount before the formation of the Joint
Venture in the manner prescribed in Section 1.4.
“Exploration Work” means all activities
directed toward ascertaining the existence, location, quantity,
quality or commercial value of deposits of minerals on the
Property.
|
|
THEREFORE, the parties have agreed as
follows:
|
SECTION ONE
Exploration Agreement
1.1
Option to Earn 51% Interest
. Carlin US hereby grants to Piedmont the exclusive
option to earn an undivided fifty-one percent (51%) interest in the
Property by making the following payments and distributions during
a five-year period:
a. Upon
execution of this Agreement, TWENTY-ONE THOUSAND, ONE HUNDRED AND
ONE DOLLARS ($21,101.00) will be paid to Carlin US as reimbursement
for the 2007-2008 BLM claim maintenance and Elko County filing
fees. In addition, THIRTY THOUSAND DOLLARS ($30,000) will be paid
to Carlin US as reimbursement for the January 15, 2008 rental
payment paid to Gibbs. These funds will come out of the $300,000
payment made by Piedmont upon signing for the first year’s
exploration work requirement (Section 1.4).
5
b. Piedmont will
make a cash payment to Carlin US of TEN THOUSAND DOLLARS
($10,000.00) on each anniversary of the Effective Date.
c. Piedmont
agrees to make a payment of THREE HUNDRED THOUSAND DOLLARS
($300,000.00) at signing of this agreement, to cover Exploration
Expenditures during year one (1) following the Effective Date. This
is a binding commitment and cannot be cancelled through termination
of this Agreement. The Exploration Work shall include exploratory
drilling of not less than 5,000 linear feet. Payments to Carlin US
outlined in Section 1.1(a) and 1.1(b) shall be considered part of
the first year’s binding work commitment.
d. Thereafter,
Piedmont may elect to continue funding the Exploration Work on the
Property by completing the following Exploration Expenditures
requirements:
|
|
Year of Agreement
|
Amount of Exploration Expenditures
|
|
|
4
|
Additional $1,000,000.00
|
|
|
5
|
Additional $1,000,000.00
|
Piedmont’s performance of its annual
Exploration Expenditures requirement shall be a condition
subsequent to the effectiveness of this Agreement. If Piedmont does
not complete the performance of its annual Exploration Expenditures
requirements by the end of each Agreement Year, Carlin US may
declare a default in accordance with Section 4.2 below.
6
The total Exploration Expenditures to be made by
Piedmont over a 5 year period shall be THREE MILLION, FIVE HUNDRED
THOUSAND DOLLARS ($3,500,000.00), which amount is the Initial
Capital Contribution (“Initial Capital Contribution”)
of Piedmont. All payments made by Piedmont for the benefit of the
Willow Creek Project pursuant to Sections 1.1(a), 1.1(b), and
1.1(c) above and Sections 1.4, 1.5, 1.6, and 1.7 below shall be
credited towards the Exploration Expenditure requirements. Any
excess of Exploration Expenditures in one year shall be carried
forward as a credit against subsequent years’ Exploration
Expenditure requirements.
1.2
Distribution of Stock .
Within fifteen (15) working days following execution of this
Agreement, Piedmont will issue ONE HUNDRED THOUSAND (100,000)
shares of its unregistered Common Stock (“Stock”) to
Carlin, subject to such limitations and holding periods as may be
required by U.S. and Canadian regulatory authorities. The Stock
shall be subject to the legend set forth in Section 1.9 below.
Piedmont agrees to provide Carlin with “piggyback”
registration rights with respect to this Stock.
1.3
Formation of Joint Venture . At such time as Piedmont has funded THREE MILLION, FIVE
HUNDRED THOUSAND DOLLARS ($3,500,000.00) in accordance with
Sections 1.1(a) 1.1(b), and 1.1(c) above, and provided that
Piedmont has satisfied all other obligations set forth in this
Section One, Piedmont shall notify Carlin US in writing, and
Piedmont will have earned an undivided 51% interest in the
Property. Piedmont shall then proceed to form a 51% Joint Venture
with Carlin US in accordance with Section 3 below.
7
1.4
Funding of Exploration Activities
. Concurrent with the execution of this Agreement,
Carlin US will open the “Carlin US-Willow Creek
Account” at the Virginia Street main branch of U.S. Bank in
Reno, Nevada. Piedmont’s check for THREE HUNDRED THOUSAND
DOLLARS ($300,000.00) will be deposited into this Account,
representing the first year’s binding work commitment. These
funds shall be used exclusively to pay costs associated with the
Willow Creek Project.
Piedmont and Carlin US shall form an exploration
budget committee (“Budget Committee”) comprised of
representatives for each of Piedmont and Carlin US. The initial
representatives shall be Lew Gustafson for Piedmont and Robert
Thomas for Carlin US. The Budget Committee shall agree on the
initial work program which will be funded by Piedmont’s
initial $300,000 payment.
During the term of this Agreement, Exploration
Expenditure budgets beyond the initial commitment shall be made
monthly or for such longer periods as agreed to by the Budget
Committee. An agreed upon budget shall be funded in full by
Piedmont within fifteen (15) days of written notice by the Budget
Committee by check to the Carlin US-Willow Creek Account and in any
event prior to commencement of any exploration activity by Carlin
US pursuant to the Agreement. If the Budget Committee is unable to
reach a consensus with respect to the exploration program during
the earn-in period, Piedmont’s representative shall have the
deciding vote.
Carlin US, while operator of the Willow Creek
Project, will receive, review, and approve individual invoices for
services and materials associated with the Project. Carlin US will
forward approved invoices to Piedmont’s representative,
presently Lew
8
Gustafson, for Piedmont’s review and approval.
If written approval has not been received within 48 hours, invoices
will be deemed to be approved. Approved invoices will then be
returned to Carlin US for payment, with copies forward to Robert
Shields of Piedmont and Ms. Donna Waga, Piedmont’s
independent Certified Public Accountant. Carlin US will then be
authorized to write and issue checks or other payment for the
approved invoices. Carlin US shall be authorized to pay bills of
less than $1,000.00 without approval by Piedmont and will submit
copies of receipts for such expenditures to Piedmont.
U.S. Bank will send monthly statements for the
Carlin US-Willow Creek Account to Carlin US, along with originals
or copies of the checks paid. Carlin will in turn forward monthly
statements and copies of checks paid on to Piedmont. Carlin US may
charge an overhead amount (“Overhead Amount”) of TEN
PERCENT (10%) on all goods and services acquired for the
project except for drilling, road construction, sample prep and assay
costs.
1.5
Bonding . Reclamation
Bond No. NVB000688 in the amount of SEVENTEEN THOUSAND, SEVEN
HUNDRED AND THIRTY-THREE DOLLARS ($17,733.00) previously posted by
Carlin US for the first year’s drill program will be
transferred to Piedmont’s name, and Carlin US shall be
reimbursed this amount from the initial $300,000 paid into the
Account not later than 30 days after this Agreement has been
executed by all parties, such amount shall be creditable against
the first years’ Exploration Expenditures requirement. The
parties agree to diligently prepare, execute, and submit
applications to the Bureau of Land Management and the Nevada
Division of
9
Environmental Protection for transfer of all bonds
and other permits. In the event that Piedmont terminates the
Agreement, it will transfer the bond back to Carlin US and be
reimbursed promptly for the bond amount then in effect.
1.6
Claim Maintenance .
Carlin US shall have the obligation to maintain the claims in good
standing. So long as the Agreement has not been terminated prior to
the earlier of June 1 of each year or the date provided for
maintenance of the mining claims subject to the Option Agreement,
Piedmont shall deliver funds to Carlin US by July 1 to make the
claim payments, and these payments shall be credited against
Piedmont’s work expenditure requirements. Carlin US shall pay
the federal claim maintenance fees to the Nevada Bureau of Land
Management by August 1 of each year, and Carlin US shall file an
Affidavit and Notice of Intent to Hold with the Elko County
Recorder not later than October 1 of each year. Carlin US shall
promptly provide evidence of these filings to Piedmont.
Piedmont’s claim maintenance obligation for the assessment
year 2008-2009 is unconditional. Termination after June 1 in any
calendar year obligates Piedmont to pay BLM and Elko County fees
due in that calendar year.
1.7
Maintenance of Contracts . For so long as this Agreement remains in good standing,
Piedmont shall timely pay all monies and satisfy all other
obligations required by the Option Agreement and Mining Lease. In
particular, Piedmont shall make the rental payments required by
Section 4.1 of the Mining Lease with Gibbs, which payments shall be
credited against the Exploration Expenditure
requirements.
1.8
Area of Interest . The
parties hereby establish an Area of Interest extending one (1) mile
from the exterior boundaries of the Property (and including any
interior
10
fractions). The Area of Interest is illustrated in
Exhibit A-4. Any claims located by Carlin US or Piedmont within the
Area of Interest shall be subject to the terms of this
Agreement.
1.9
Limitations on Stock Transfer
. The distributions of Common Stock described in
Section 1.2 above shall be subject to the restrictions set forth in
this Section, as well as any additional restrictions imposed by
regulatory authorities. Carlin represents and warrants that it is
acquiring the equity securities of Piedmont for investment purposes
only and without any view to further distribution thereof other
than pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the “Act”), and any
provisions established to the satisfaction of Piedmont. In
addition, Carlin agrees that the Common Stock issued hereby shall
bear a legend substantially in accordance with that set forth
below, together with any other legends required (1) under
applicable law, (2) pursuant to the Certificate of Incorporation of
Piedmont, (3) pursuant to any agreement to which Piedmont and
Carlin may be a party. In accordance with the foregoing, the legend
set forth on the Certificates representing the Common Stock shall
be as follows:
THESE SECURITIES HAVE
NOT BEEN REGISTERED
UNDER THE SECURITIES
ACT OF 1933 ,
AS AMENDED (THE
"SECURITIES ACT"), OR
THE SECURITIES LAWS
OF ANY STATE,
AND ARE BEING
OFFERED AND SOLD
PURSUANT TO AN
EXEMPTION FROM THE
REGISTRATION REQUIREMENTS
OF THE SECURITIES
ACT AND SUCH
LAWS. THESE SECURITIES
MAY NOT BE
SOLD
11
OR TRANSFERRED EXCEPT
(1) PURSUANT TO
AN EFFECTIVE
REGISTRATION STATEMENT
UNDER THE SECURITIES
ACT, OR (2)
WITH AN OPINION
OF COUNSEL
SATISFACTORY TO THE
CORPORATION THAT SUCH
REGISTRATION IS NOT
REQUIRED PURSUANT TO
AN AVAILABLE EXEMPTION
FROM THE REGISTRATION
REQUIREMENTS OF THE
SECURITIES ACT OR
SUCH OTHER LAWS.
Piedmont covenants that it will include the Common
Stock in any registration statement which it files with regulatory
agencies following distribution of the Common Stock.
SECTION TWO
Conduct of Exploration Work
The following provisions shall govern exploration
activities on the Property during the term of the Exploration
Agreement described in Section 1 above.
2.1
Conduct of Work .
Piedmont or its delegate, Carlin US, shall perform its exploration
activities on the Property in accordance with good mining practice,
shall comply with the applicable laws and regulations relating to
the performance of exploration and mining operations on the
Property, and shall comply with the applicable worker's
compensation laws of the State of Nevada.
2.2
Liability and Insurance . Piedmont and its assigned operator shall defend, indemnify,
and hold the Property owners and Carlin US harmless from any
claims, demands, or liabilities arising from or relating to
Piedmont’s activities on the Property. Piedmont shall obtain
and carry a policy of public liability insurance in the
minimum
12
amounts of $1,000,000.00 or more for personal injury
and $300,000.00 for property damage, protecting Carlin US against
any claims for injury to persons or damage to property resulting
from Piedmont’s operations. Piedmont shall provide Carlin US
with a certificate of insurance evidencing such
insurance.
2.3
Liens . Piedmont and
its assigned operator shall keep the Property free and clear from
any and all mechanics’ or laborers’ liens arising from
labor performed on or material furnished to the Property at
Piedmont’s request. However, a lien on the Property shall not
constitute a default if Piedmont, in good faith, disputes the
validity of the claim, in which event the existence of the lien
shall constitute a default thirty (30) days after the validity of
the lien has been adjudicated adversely to Piedmont.
2.4
Acquisition of Permits . Piedmont or its assigned operator shall diligently and timely
apply for and acquire all federal, state, and local permits
required for its operations. Piedmont shall be responsible for
reclamation of only those areas disturbed by Piedmont’s
activities and the costs of reclamation, provided, however, that
the cost of such reclamation shall be borne by Piedmont. Piedmont
will post any operating and reclamation bonds required by
regulatory agencies for work on the Property. The bond(s) will
revert to Piedmont upon satisfactory completion of the reclamation
program.
2.5
Inspecti
