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Exploration Agreement With Option To Form Joint Venture

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Governing Law: Nevada     Date: 6/23/2008
Industry: Gold and Silver     Sector: Basic Materials

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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”).


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



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.




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.




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




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:


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).




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



Additional $500,000.00



Additional $700,000.00



Additional $1,000,000.00



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.




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.




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




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




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




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:







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.


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




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      Inspection of Property . Both Piedmont and Carlin US shall be permitted to enter upon the Property at all reasonable times for the purpose of inspection, but shall enter upon the Property at its own risk and so as not to hinder unreasonably the operations of the Piedmont. Carlin US shall indemnify and hold Piedmont harmless from




any damage, claim, or demand by reason of injury to inspecting party or its agents or representatives on the Property or the approaches thereto.

2.6      Inspection of Accounts . The operator shall keep accurate books and records of accounts reflecting its exploration activities on the Property. Each party shall have the right, either itself or through a qualified accountant of its choice and at its cost, to examine and inspect the books and records of the operator US pertaining to its exploration activities on the Property.


Joint Venture

3.1      Formation of Joint Venture . If Piedmont elects to form a Joint Venture with Carlin US in accordance with Section 1.2 above, the parties will negotiate in good faith an agreement to form a Joint Venture in the general format of Form 5A (“Form 5A”) prepared by the Rocky Mountain Mineral Law Foundation. At the election of either party, the parties shall use Form 5A-LLC in place of Form 5A, and all references in this Agreement to Form 5A shall then refer to Form 5A-LLC.

3.2      Participating Interests . Following its expenditure of $3,500,000.00, Piedmont shall have a Participating Interest of 51% and Carlin US will have a Participating Interest of 49%. The deemed value of Carlin US’s Initial Capital Contribution shall be $3,362,745.00. The value of Piedmont’s initial capital contribution shall be $3,500,000.00.

3.3      Operator . Following formation of the Joint Venture, Piedmont shall be the Operator of the Joint Venture, except as otherwise provide in Section 3.1. If Piedmont’s




participating interest becomes less than 50%, Carlin US may elect to become the operator. A Management Committee, consisting of two representatives of each party, shall be responsible for approving programs and budgets and for determining the general policies and directions to be adopted by the Operator in the conduct of its operations. The Management Committee shall meet at least once annually and otherwise on ten (10) days’ advance written notice given by either party.

Prior to the commencement of each contract year, the Operator shall propose Programs and Budgets to the Management Committee at least annually for periods determined necessary or ap

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