JOINT VENTURE AGREEMENT

Joint Venture JV Agreement

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LIBERTY STAR GOLD CORP | XSTATE RESOURCES LIMITED

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Title: JOINT VENTURE AGREEMENT
Date: 10/16/2006

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Exhibit 10.1

JOINT VENTURE AGREEMENT

THIS AGREEMENT is made the 6th day of October, 2006

BETWEEN

XSTATE RESOURCES LIMITED (ABN 96 009 217 154) of Level 2, 45 Stirling Highway Nedlands, Western Australia (Xstate);

AND

LIBERTY STAR GOLD CORP INC, a company incorporated in Nevada, of 2766 North Country Club Road, Tucson A2 85716, United Sates of America (Liberty Star).

RECITALS

A.	On 11 July 2006, Xstate and Liberty Star entered into an agreement (Heads of Agreement) whereby the Parties agreed to form the Joint Venture for the purpose of exploring, developing and, if warranted, mining the JV Pipes located within the Joint Venture Area.

B.	This Agreement replaces the Heads of Agreement and sets out the terms of the Joint Venture between the Parties.

C.	The Parties acknowledge that it is Xstate’s intention to incorporate a subsidiary entity in the United States (USCO) and that Xstate will assign its interest in this Agreement to USCO prior to the Commencement Date.

IT IS AGREED as follows:

1.	DEFINITIONS AND INTERPRETATION

1.1

Definitions

In this Agreement:

Advance means a cash payment of $100,000 that has already been paid by Xstate to Liberty Star in accordance with the terms of the Heads of Agreement.

Agreement means this Agreement including the recitals, schedules and annexures.

Area of Interest has the meaning ascribed to it in clause 19.1.

Assigning Party has the meaning given to it in clause 10.1.

ASX means the Australian Stock Exchange Limited ACN 008 624 691.

Bankable Feasibility Study means a detailed study which could reasonably serve as the basis for a favourable decision by a financial institution to finance Mine Development. The Bankable Feasibility Study shall:

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(a)

provide estimates of the tonnes of proven and probable reserves of ore and the Mineral grades thereof;

(b)

contain estimates of both capital costs and operating costs likely to be incurred in establishing and conducting Mining Operations, including costs to be incurred in Mine Development, pre-production and crushing and treatment;

(c)

analyze how to proceed with Mining Operations to economically and commercially extract Minerals;

(d)

include reference to relevant marketing and financial aspects;

(e)

state that the proposed Mining Operations is commercially viable and recommends the parameters for the most viable operations; and

(f)

include a schedule of relevant approvals necessary before production may commence.

Business Day means a day upon which trading banks are open for business in Perth, Western Australia, not being a Saturday or a Sunday.

Commencement Date means the date all of the conditions precedent set out in clause 2.1 have been satisfied or waived.

End Date means 5:00 pm Western Standard Time in Perth, Western Australia, on 14 December 2006 (or such later date as the Parties agree).

Environmental Law means any law concerning environmental matters which regulates or affects the U.S. Federal Lode Mining Claims, and includes, but is not limited to, laws concerning land use, development, pollution, waste disposal, toxic and hazardous substances, conservation of natural or cultural resources and resource allocation including any law relating to exploration for or development of any natural resource.

Environmental Liability means any obligation, expense, penalty or fine under Environmental Law, including, rehabilitation and rectification work of whatsoever nature or kind.

Expert means such independent person as is agreed between the Parties or failing expeditious agreement as is appointed at the request of any Party by the then President of the Canadian Institute of Mining, Metallurgy and Petroleum.

Exploration Operations means all activities up to the date one or both Parties elect to participate in the Mining Operations pursuant to clause 9.2 which include activities aimed at the discovery, location and delineation of Minerals and all activities as are necessary or expedient for the purpose of exploring the Joint Venture Area, conducting a Bankable Feasibility Study and all activities to produce the same.

First Right Expiry Date means the date that is 3 years from the Commencement Date.

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Heads of Agreement means the agreement dated July 11, 2006 between Liberty Star and Xstate.

Initial JV Pipes means the Pipes as detailed in Item 1 of Appendix 3, located within the Joint Venture Area, in which Xstate will obtain a 50% interest pursuant to the terms and conditions of this Agreement.

Joint Venture means the unincorporated joint venture formed by the Parties in respect of the Joint Venture Area upon the terms and conditions set out in this Agreement.

Joint Venture Area means the Elle Joint Venture lands which encompasses an area of approximately 22 square miles allocated by Liberty Star to the Joint Venture, plus the area on which any after-acquired property in the Area of Interest is located, as more specifically identified in Appendix 2.

Joint Venture Assets means all property held or acquired or created by or on behalf of the Parties for the purposes of the Joint Venture including (without limitation):

(a)

the JV Pipes;

(b)

the Mining Information;

(c)

equipment, vehicles, and plants; and

(d)

the Minerals, concentrate and ore prior to their being taken in kind by the Parties.

Joint Venture Expenditure(s) means all costs reasonably and properly incurred by or on behalf of the Joint Venture in connection with Joint Venture Operations.

Joint Venture Interest means the following obligations, benefits and rights of a Party expressed as a percentage determined in accordance with this Agreement:

(a)

the obligation, subject to the terms of this Agreement, to contribute that percentage of all Joint Venture Expenditure;

(b)

the ownership of and the obligation right and benefit as a tenant in common to receive in kind and to dispose of for its own account that percentage of Minerals produced by the Joint Venture; and

(c)

the beneficial ownership as a tenant in common of an undivided share in that percentage of all Joint Venture Property.

Joint Venture Operations means all activities as are necessary or desirable in order to implement and give full effect to the provisions and purposes of this Agreement incidental to the Exploration Operations and, subject to clause 9 Mining Operations, related to the JV Pipes.

JV Bank Account has the meaning given to that term in clause 3.3.

JV General Plan means the general plan of the Joint Venture as detailed in Appendix 1.

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JV Mining Claims mean the U.S. Federal Lode Mining Claims on which the JV Pipes are located (as set out in Appendix 3) and any mining claim or interest in a JV Mining Claim (or equivalent) otherwise acquired by the Joint Venture after the date of this Agreement. The JV Mining Claims include all rights to mine and other privileges appurtenant to those JV Mining Claims and all ore and mineral-bearing material, sand, slimes, tailings and residues located on and under those JV Mining Claims.

JV Pipes means both the Initial JV Pipes and any Other Pipes allocated to the Joint Venture pursuant to clause 7, as identified in Appendix 3 as amended from time to time.

Listing Rules means the official Listing Rules of ASX.

Management Committee has the meaning given to that term in clause 4.1.

Manager means the Party appointed by the Parties in accordance with this Agreement, to manage the Joint Venture.

Mine Development means the location, opening and development of mines and all activities necessary, expedient, conducive or incidental thereto including without limitation pre-stripping and the removal and disposal of over-burden and waste.

Minerals means all naturally occurring substances obtained or obtainable by Joint Venture Operations carried out on or under the surface of the land the subject of the JV Pipes and includes (without limitation) uranium, gold and other precious metals.

Mining Information means all technical information including (without limitation) geological, geochemical and geophysical reports, surveys, mosaics, serial photographs, samples, drill core, drill logs, drill pulp, assay results, maps and plans relating to the JV Pipes and/or Joint Venture Operations, whether in physical, written or electronic form.

Mining Laws means the applicable rules, regulations, statutes and directives that apply to exploration and mining activities in Arizona.

Mining Operations means commercial mining operations and all activities necessary, expedient, conducive or incidental thereto including without limitation:

(a)

Mine Development; and

(b)

the weighing, sampling, assaying, mining, extraction, crushing, refining, treatment, transportation, handling, storage, loading and delivery of Minerals.

Native Title means a right, interest or entitlement to the occupation or use of the Joint Venture Area by indigenous inhabitants in accordance with the laws and customs of the indigenous inhabitants and recognised by statute or by common law.

Non-Assigning Parties has the meaning given to it in clause 10.2.

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Other Pipes means other pipe targets held by Liberty Star within the Joint Venture Area as detailed in Appendix 4 which may be allocated to the Joint Venture in accordance with clause 7 or otherwise.

Party means Xstate and Liberty Star and their respective successors and permitted assigns and the successors and permitted assigns and (where applicable) legal personal representatives of any person which at any time hereafter becomes a Party and each of those persons and Parties means any one of the Party.

Pipe(s) means an area within the JV Mining Claims designated as a breccia pipe target.

Prime Rate means the prime rate, as reported by the Wall Street Journal's bank survey.

Program means operating plans, mine maintenance plans, development plans, exploration plans, mine closure plans and related budgets, for the Joint Venture Operations or any part thereof, as approved in accordance with the Management Committee pursuant to this Agreement.

Related Body Corporate in relation to a Party which is a corporation, means a company which is related to that Party if the Party and the corporation is the subsidiary of the other, or both are subsidiaries of the same body corporate, or each of them is construed by the same person.

Right of First Refusal has the meaning given to it in clause 7.

Sole Funding Amount means the amount of $2,900,000 that Xstate agrees to make available for Joint Venture Operations during the Sole Funding Period in return for a 50% Joint Venture Interest.

Sole Funding Period means a 3 year period commencing on the Commencement Date.

Subcontracting Agreement means the subcontracting agreement between Xstate as Manager and Liberty Star as subcontractor in a form to be agreed between the Parties.

Xstate means Xstate Resources Ltd (formerly Oriental Crystal (International) Limited) (ABN 96 009 217 154).

1.2

Interpretation

In this Agreement unless the context otherwise requires:

(a)

references to a recital, clause, schedule, annexure or exhibit is to a recital, clause, schedule, annexure or exhibit of or to this Agreement;

(b)

a reference to this Agreement or another instrument includes any variation or replacement of any of them;

(c)

a reference to any statute shall include any amendment, replacement or re-enactment thereof for the time being in force and any by-laws, statutory

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instruments, rules, regulations, notices, orders, directions, consents or permission’s made thereunder and any conditions attaching thereto;

(d)

the singular includes the plural and vice versa;

(e)

a reference to any gender includes all genders;

(f)

a reference to a person includes a reference to the person’s executors, administrators, substitutes, successors and permitted assigns;

(g)

a reference to $ or dollars is to the currency of the United States of America;

(h)

a reference to AUD$ is to the currency of Australia; and

(i)

the headings in this Agreement shall not affect its interpretation.

2.	CONDITIONS PRECEDENT

2.1

Conditions

The formation of the Joint Venture is subject to and conditional upon:

(a)

Xstate obtaining all necessary governmental consents and approvals to the matters set out in this Agreement including any consent required pursuant to the Mining Laws for the transactions contemplated by this Agreement;

(b)

Xstate completing a capital raising of a minimum of AUD$5,000,000 through the issue of fully paid ordinary shares at a price of AUD$0.20 each (Capital Raising);

(c)

Xstate preparing a prospectus for the Capital Raising (Prospectus) and lodging it with the Australian Securities and Investments Commission;

(d)

Xstate obtaining shareholder approval to change the nature and/or scale of its activities in accordance with Chapter 11 of the Listing Rules;

(e)

Xstate satisfying the requirements of Chapters 1 and 2 of the Listing Rules as if Xstate was applying to be admitted to the official list of ASX; and

(f)

Xstate depositing the Sole Funding Amount in the Joint Venture Bank Account, in accordance with clause 3.3.

2.2

Efforts to Satisfy Conditions

Xstate shall use commercially reasonable efforts to:

(a)

satisfy the conditions set out in clause 2.1(a) to 2.1(f) inclusive, as soon as practicable after the date of this Agreement; and

(b)

execute and do all such acts and things as are necessary or desirable to ensure that the conditions set out in clause 2.1(a) to 2.1(f) are fulfilled as expeditiously as possible.

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2.3

Right to Terminate

If the conditions set out in clause 2.1 are not satisfied or waived in accordance with the terms of this Agreement on or before the End Date, either Party may elect to immediately terminate this Agreement by written notice to the other Party.

2.4

Effect of Termination

If this Agreement is terminated pursuant to clause 2.3:

(a)

this Agreement shall be deemed to be at an end and shall have no force or effect;

(b)

neither Party shall be subject to any of the obligations contained in this Agreement;

(c)

no Party may claim any rights at law or equity against the other Party; and

(d)

Liberty Star will be entitled to retain the Advance.

2.5

Benefit of Conditions

The conditions in clause 2.1 are inserted in this Agreement for the benefit of both Parties and the Parties may, by mutual written consent on or before the End Date, waive the benefit of one or more of the conditions.

3.	THE JOINT VENTURE

3.1

Establishment of the Joint Venture

Xstate and Liberty Star shall form the Joint Venture on and from the Commencement Date, for the purpose of the Joint Venture Operations on the commercial terms set out in this Agreement and otherwise on terms and conditions acceptable to both Parties.

3.2

Initial Joint Venture Interests

Prior to the Commencement Date, the Parties agree the initial Joint Venture Interests of Liberty Star and Xstate in the Joint Venture are:

(a)

Liberty Star – 100%; and

(b)

Xstate – 0%.

3.3

Joint Venture Bank Account

(a)

As soon as practicable after the execution of this Agreement, the Parties agree to set up a bank account to hold funds on behalf of the Joint Venture (JV Bank Account).

(b)

No disbursements may be made from the JV Bank Account unless the Party seeking to make the disbursement obtains the written approval from the other Party.

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(c)

The Sole Funding Amount will be paid into the JV Bank Account.

3.4

Xstate’s 50% Interest

Upon fulfillment or waiver of all of the conditions set out in clause 2.1(a) to 2.1(f) inclusive:

(a)

Liberty Star shall immediately transfer to Xstate a 50% interest in the Initial JV Pipes; and

(b)

Xstate will immediately earn a 50% Joint Venture Interest.

3.5

Commencement Date

The Joint Venture shall commence and deem to have been formed on the Commencement Date.

3.6

Sole Funding Amount

(a)

The Parties agree:

(i)

the Sole Funding Amount will be expended on Exploration Operations in accordance with the programs and budgets approved by the Management Committee;

(ii)

subject to clause 3.6(b), the entire Sole Funding Amount shall be spent during the Sole Funding Period; and

(iii)

to the terms of the JV General Plan.

(b)

The Management Committee may elect to cease further exploration work in relation to any of the JV Pipes if the initial exploration that is undertaken does not warrant further follow up work on any particular JV Pipe. In these circumstances, some or all of the Sole Funding Amount may be allocated to the Other Pipes.

(c)

If, prior to the completion of the Exploration Operations, the entire Sole Funding Amount has been expended, each Party agrees to contribute to expenditure made or incurred in respect of the Exploration Operations in accordance with clause 8.1.

(d)

If, after the completion of the Exploration Operations part of the Sole Funding Amount has not yet been expended, then those funds will be applied to the costs of the Bankable Feasibility Study, and if any funds yet remain, for the Mining Operations.

3.7

General

(a)

Liberty Star shall do everything necessary to confirm and effect the transfer to Xstate of any beneficial interest, and corresponding legal interest, in the JV Pipes acquired by Xstate pursuant to this Agreement. Pending any required transfer, Liberty Star shall hold that interest in trust for Xstate.

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(b)

Each Party shall be the beneficial owner as tenant in common of an undivided share of the Joint Venture Property in proportion to their Joint Venture Interest.

(c)

Each Party shall be entitled to take in kind and separately dispose of, in proportion to their Joint Venture Interest, all Minerals produced by the Joint Venture.

(d)

The rights, interests, liabilities and obligations of the Parties respectively under this Agreement will be individual and separate and will not be joint or collective and each Party will be responsible only for its own obligations and will be liable only for its own proportionate share of any Joint Venture Expenditure and will be entitled only to its own proportionate share of any property and assets of the Joint Venture. The rights and obligations of the Parties pursuant to this Agreement will be several and neither joint nor joint and several.

(e)

The Parties agree that sufficient expenditure will be incurred in relation to the JV Pipes to meet the minimum expenditure commitments, if any, set out by regulatory authorities having jurisdiction.

4.	MANAGEMENT COMMITTEE

4.1

Establishment

(a)

After the Commencement Date, the Parties will form a Management Committee (Management Committee).

(b)

Each Party may appoint one member to the Management Committee.

(c)

Each Party may appoint one alternate member (Alternate) for any members appointed by it.

(d)

Each Party must give notice to the other Party of the appointment of its members and Alternate.

(e)

An Alternate may act only if the member for whom the Alternate is appointed Alternate is not present at a meeting of the Management Committee, in which event the Alternate will be deemed to be that member and may exercise all powers of that member to the extent that the member has not exercised them.

(f)

Each Party has the right to change any of its members and Alternates at any time by notifying the other Party to that effect.

4.2

Voting

(a)

Voting on any issue requiring a decision by the Management Committee will be by a simple majority with the vote of each Party being in proportion to its Joint Venture Interest at the time. Any Party may arrange at its own expense to have further consultants, acceptable to the Management Committee or technical personnel (being bona fide employees of the particular Party which they represent) present at the meetings of the

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Management Committee to assist the representatives but those persons will not be entitled to vote at those meetings.

(b)

In the event of a deadlock, the Parties agree that the dispute resolution process set out in clause 12 will be followed.

4.3

Function

The Management Committee will have the power to:

(a)

approve, disapprove or amend any Program;

(b)

review the status of the Mine Operations from time to time;

(c)

approve parts of the Joint Venture Area to be surrendered or otherwise removed from the Joint Venture Area;

(d)

approve the acquisition of JV Mining Claims, or other interests in mining assets; and

(e)

provide advice to and instruct the Manager from time to time.

4.4

Frequency of Meetings

(a)

The Management Committee will meet on any date nominated by the Manager but not less than once a fortnight (or such other period as may be mutually agreed between the Parties from time to time) while Exploration Operations or Mine Development is being conducted.

(b)

The Manager may also call a meeting of the Management Committee at any time on no less than 7 days, notice if it reasonably considers that the meeting is necessary.

(c)

The Manager will prepare and send to all the other members of the Management Committee notice of all meetings and the proposed agenda, to be received not less than 7 days during Exploration Operations or not less than 14 days during Mine Development (or shorter period as may be agreed by the members of the Management Committee), before the respective meeting date.

4.5