Mining Lease Agreement

 

MINING LEASE
by and between Lyle F. Campbell,
Julian E. Simpson and Jean C. Simpson, and
Tonkin Springs Gold Mining Company,
effective as of January 1, 1986

 

TABLE OF CONTENTS

 

Section		Page
1.	Interests Leased	1
2.	Term; Rule Against Perpetuities and Severability of Paragraphs	1
3.	Advance Minimum Royalty	2
4.	Production Royalty	3
5.	Work Requirements	4
6.	Manner of Payment	6
7.	Lessor’s Title	6
8.	Assessment Work – Unpatented Mining Claims	7
9.	Relocation and Amendment of Unpatented Mining Claims	8
10.	Liens	8
11.	Laws and Regulations – Indemnification of Lessor	8
12.	Taxes	9
13.	Default	9
14.	Surrender	10
15.	Removal of Improvements	10
16.	Books and Accounts	11
17.	Data – Inspection	11
18.	Commingling	12
19.	Notices	12
20.	Force Majeure	12
21.	Assignment; Sublease	13
22.	Governing Law	13
23.	Press Releases by Lessee	13
24.	Titles of Articles	13
25.	Attorneys’ Fees	13
26.	No Waiver	13
27.	Modification	13
28.	Recordation	13
29.	Further Assurances	14
30.	Sole Agreement	14
31.	Counterparts	14
32.	New Mining Claims	14
33.	Boundary Agreement	15
34.	Binding Effect	15
EXHIBITS
	“A”  -  Description of Claims Subject to the Lease
	“B”  -  Description of Rob Claims
	“C”  -  Boundary Agreement

 

(i)

 

MINING LEASE

 

THIS MINING LEASE is made and entered into effective as of the 1st day of January, 1986, by and between Lyle F. Campbell, a single man with a mailing address of P.O. Box 7377, Reno, Nevada 89510, Julian E. Simpson and Jean C. Simpson, husband and wife, with a mailing address of Box 266, Kihei, Maui, Hawaii 96753 (hereinafter collectively called “Lessor”), and Tonkin Springs Gold Mining Company, a Colorado corporation with a mailing address of 1600 Stout Street, Suite 1600, Denver, Colorado 80202 (hereinafter called “Lessee”).

 

WITNESSETH :

 

1.                           Interests Leased . Lessor, for and in consideration of the royalties hereinafter reserved, and the work commitments by Lessee contained herein, hereby leases and lets exclusively to lessor has an interest as described in Exhibit “A” attached hereto and made a part hereof (hereinafter called “Mineral Prospect”) for the purpose of investigating, exploring, prospecting and drilling for, developing mining by any method (whether or not now known and including, but not limited to, open pit, strip, underground and solution methods), producing, saving. taking, owning, milling, transporting, storing, handling and marketing: all minerals or any valuable products of any nature whatsoever, including, but not limited to, ore, concentrates, refined materials and any other product of any process whether now known or which may be developed in the future, regardless of at what stage in the milling, refining, upgrading or other processing of the product (hereinafter called “Leased Substances”) title passes to the buyer, together with all rights, privileges and easements useful for Lessee’s operations hereunder on the Mineral Prospect for Lessee’s operations hereunder on the Mineral prospect including, but not limited to, the following rights: to look for, test, work, mine, excavate, raise, clean, stockpile on the Mineral Prospect only, store, carry away and sell said Leased substances; to excavate pits, to sink shafts, to make, use and occupy openings, adits, tunnels, raises, rooms, slopes, stopes, winzes and underground passages (now existing or hereafter opened); to strip seams, lodes, veins and beds; and to erect, use and maintain on said premises such buildings, tipples, headframes, refineries, gasification plants, power plants, engines, machinery appliances, devices, wells, presently appurtenant (if any) or newly established water rights roadways, housing, railroad tracks, shops, ditches dams, ponds, reservoirs, pipes, power and communication lines and, without limitation, all other necessary structures and facilities (all of the same being hereinafter called “Improvements”) and from time to time, to relocate all or any part of the same, as Lessee may deem desirable or necessary in its operations on the Mineral Prospect: and together with full right of ingress and egress during the term of this Lease in connection with the exercise of any all of said rights.

 

2.                           Term; Rule Against Perpetuities and Severability of Paragraphs . Subject to the other provisions herein contained, this Lease shall remain in force for a term of twenty (20) years from the date hereof and for so long thereafter as there is production of one or more Leased Substances from the Mineral Prospect, or any operations permitted hereunder are being conducted on the Mineral Prospect or this Lease is continued in force by reason of any of the provisions hereof; provided, however, the term of this Lease shall not exceed 99

 

 

years. During any period of extension beyond the primary term hereof, all of the terms and conditions of this Lease shall remain in full force and effect.

 

The term of this Lease is not intended to violate the Rule Against Perpetuities. In the event the term of this Lease is determined to violate the Rule Against Perpetuities by a court of competent jurisdiction, the term shall, by this Article 2, be automatically reduced to the maximum number of years determined to comply with the Rule Against Perpetuities. Each of the Articles in this Lease is severable from each of the other Articles in this Lease. In the event an Article in this Lease is determined to be invalid, void, or unenforceable, then all remaining Articles shall remain in full force and effect. In the further event that this Article 2 is construed in such a manner as to eliminate a definitive term of this Lease, then the parties agree that the term shall be a reasonable period of time sufficient to accomplish the purposes of this Lease.

 

3.                           Advance Minimum Royalty . Lessee shall pay to Lessor as advance minimum royalty (“Advance Minimum Royalty”) the following amounts on the following dates, provided, however, that Lessee’s obligation to make such Advance Minimum Royalty payments to Lessor shall cease when Lessee commences producing and marketing Leased Substances from the Mineral Prospect (“Production Date”), except that if the Production Royalty under Article 4 in any year after the Production Date is less than the scheduled Advance Minimum Royalty, Lessee shall pay the difference, which payments shall be deemed to be payment of such Advance Minimum Royalty:

 

Due Date of Advance Minimum Royalty Payment		Amount of Advance Minimum Royalty Payment
Between January 1-15, 1987		The greater of $50,000 or the U.S. “Dollar equivalent”* of 152 ounces of gold
Between January 1-15, 1988		The greater of $50,000 or the U.S. “Dollar equivalent”* of 152 ounces of gold
Between January 1-15, 1989 and between January 1-15 in each year thereafter during the term of this Lease		The greater of $150,000 or the U.S. “Dollar equivalent”* of 455 ounces of gold

 

*                             The term “Dollar equivalent” is defined below in this Article 3.

 

All of said Advance Minimum Royalty payments shall be deemed a prepayment of Production Royalty payable under the following Article 4, and from and after the Production Date, Lessee may recover all sums theretofore paid to Lessor as Advance Minimum Royalty, by crediting and applying said Advance Minimum Royalty against and in reduction of the Production Royalty accruing and becoming due at any time hereunder, until by such application all Advance Minimum Royalty previously paid by Lessee has been exhausted.

 

For the purpose of this Lease, the “Dollar equivalent” referred to in the above schedule of payments set forth in Article 3 and for the minimum yearly work commitments set forth

 

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in Article 5, shall be for gold that is ninety-nine and ninety-five one-hundredths percent (99.95%) pure, and shall be determined by the base price of Handy and Harmon as published in The Wall Street Journal (or its recognized successor in the publication of gold and silver quotations) for the first business day of the year in which a payment is due or in which a commitment accrues.

 

If, however, gold payment clauses are declared to be unenforceable or violations of public policy, then the “Dollar equivalent” shall be calculated by reference to the price of silver (which, for the purposes of this Lease, shall be silver that is ninety-nine and nine-tenths percent (99.9%) pure), and the amounts thereof shall be equal to (1) Eight Thousand Three Hundred Thirty-Three (8,333) ounces of silver for the Advance Minimum Royalty payment due in 1987, and Eight Thousand Three Hundred Thirty-Three (8,333) ounces of Silver for the Advance Minimum Royalty payment due in 1988, and Twenty-Five Thousand (25,000) ounces of silver for the Advance Minimum Royalty payment due in 1989 and thereafter, pursuant to this Article 3 and (2) Fifty Thousand (50,000) ounces of silver for the work commitment due in 1988 and in each year thereafter, as provided in Article 5 below. The method of calculating the “Dollar equivalent” using silver shall be the same as that for calculating the “Dollar equivalent” using gold above in this Article 3, using the appropriate base price for silver.

 

4.                           Production Royalty . Lessee shall pay Lessor a royalty (hereinafter “Production Royalty”) for all Leased   Substances, which are mutually agreed and understood to consist of all minerals or any valuable products of any nature whatsoever, including, but not limited to, ore, concentrates, refined materials and any other product of any process whether now known or which may be developed in the future, regardless of what stage in the milling, refining, upgrading or other processing of the product title passes to the buyer. Production Royalty shall be calculated as follows:

 

A.                        A Production Royalty of five percent (5%) of the gross sales of any gold, silver, platinum or palladium contained in the Leased Substances, such Production Royalty to be computed before any deductions whatsoever from the gross sales price of the product sold as shown on the buyer’s settlement sheet or other bona fide document for each separate sale thereof. If milling, processing, refining or treatment costs or penalties are paid in Kind, the Production Royalty shall be computed on the amount of gold, silver, platinum and palladium contained in the Leased Substances before deducting any such costs or payments in kind.

 

B.                          A production Royalty of two percent (2%) of the gross sales price of all Leased substances other than gold, silver, platinum or palladium, such Production Royalty to be computed in the manner described above in Subsection A of this Article 4.

 

C.                          In addition to the Production Royalties.payable under Subsections A and B of this Article 4. Lessee shall pay to Lessor as Production Royalty hereunder a like percentage of the gross amount paid before any deductions whatsoever of any bonus, subsidy or similar payment or allowance made for whatever reason to Lessee by any governmental agency, ore buyer, or others with respect to any production, transport, or sale of Leased Substances hereunder.

 

Payment of Production Royalty, other than Production Royalty taken in kind by Lessor, shall be made by Lessee to Lessor on or before thirty (30) days after receipt of payment by

 

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Lessee for the Leased Substances sold or otherwise disposed of and for which the Production Royalty is payable.

 

It is mutually understood and agreed that, after Lessee has recouped all Advance Minimum Royalties, then Lessor shall have the right and option to take its Production Royalty in kind in the form in which Lessee sells such Leased substances. On or before October 1st of each calendar year, Lessor shall give Lessee written notice of whether Lessor elects to take its Production Royalty in kind throughout the following calendar year. If Lessor fails to give such notice for the first calendar year in which it is eligible to take its production Royalty in kind, Lessor shall be deemed to have elected not to take its Production Royalty in kind for that calendar year. If Lessor fails to give such notice by October 1st of any subsequent year, the election then in effect will continue throughout the following calendar year. Lessor hereby agrees that each election to take or not to take its Production Royalty in kind shall remain in effect for calendar year increments and that all persons or entities constituting the Lessor shall be required to make the same election whether or not to take in kind.

 

If Lessee enters into an agreement for sale of Leased Substances from the Mineral Prospect, it shall not include in such agreement sale of that portion of the Leased Substances which Lessor has the right to take in kind, without the prior written agreement of Lessor.

 

If Lessor elects to take its Production Royalty in Kind, Leased Substances shipped to buyers or to smelters, refiners or other processors shall be shipped in the joint names of Lessor and Lessee. If Lessor elects to take its Production Royalty in kind. Lessor shall bear all risks associated with taking its Production Royalty in kind, and shall bear all additional costs incurred by Lessee as a result of Lessor’s taking in kind, such as increased costs due to separate pourings, storage insurance, security, transportation and monitoring. Lessor shall have the right to inspect procedures used by Lessee to make payment in kind, and at its option, Lessor, or its agent, shall have the right to be present to observe all sampling and splitting procedures and to review all records and procedures related to division of Leased Substances for the purpose of taking in kind.

 

In the event the purchaser of any of the Leased Substances produced and sold by Lessee hereunder shall be owned or controlled by Lessee, the purchase agreement(s) covering such Leased Substances shall be commercially fair and shall provide that the price to be received by Lessee therefor shall be commercially fair and shall not be less than the price currently and generally received by other sellers of Leased Substances of like quality and quantity in the general market area where such Leased Substances are ordinarily sold by Lessee. For the purpose of this Article 4, “owned or controlled” shall mean that Lessee holds sufficient interests in the purchaser substantially to direct its operations on a continuing basis.

 

5.                           Work Requirements . Lessee shall be required to perform yearly work expenditures for exploration, development and mining of the Mineral Prospect, as described below in this Article 5. Lessee’s expenditures for 1986 shall include at least 5,000 feet of exploration test drilling at locations of its choice within the Mineral Prospect by no later than December 31, 1986.

 

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MINIMUM YEAR WORK COMMITMENT

 

Year		Amount
1986		$54,100.00
1987		$150,000.00
1988 and each year thereafter		The greater of $300,000 or the U.S. “Dollar equivalent”* of 909 ounces of gold

 

*                             “Dollar equivalent” is described in Article 3 above.

 

If in any year Lessee expends more than the expenditure requirement for that year, the excess shall be carried forward as a credit against the expenditure requirements for subsequent years until that excess amount is fully recovered from such credits. However, if this Lease is terminated before that excess amount is so recovered by Lessee, Lessor shall not be required to reimburse or otherwise compensate Lessee for the unrecovered balance.

 

The yearly work expenditures shall be limited to all costs incurred in actual work on the Mineral Prospect in drilling, trenching, excavating, exploring, developing, mining, road building, assaying, metallurgical testing of ore extracted from the Mineral prospect, surveying, geological studies and mapping, geochemistry and geophysics. Expenditures shall include wages and salaries paid to engineers, geologists, laborers and technicians for actual time spent in exploration, development and mining of the Mineral Prospect. Direct over-head, such as lodging, meals, and travel expenses (but specifically excluding any charge for office or administrative expenses) shall be limited to ten percent (10%) of the yearly work requirement.

 

Prior to February 1st of each year, Lessee shall provide Lessor documentation from Lessee’s accounting records of the expenditures claimed as minimum yearly work commitments upon the Mineral Prospect. At reasonable times and places, Lessor shall have access to the original invoices and any other records pertinent and necessary for substituting the compliance of Lessee with the provisions of this Lease.

 

Lessee shall only be obligated to expend the yearly work requirement if the Lease has not been terminated by Lessee or Lessor before June 1 of any calendar year that the Lease is in force.

 

Lessee shall fully comply with 43 C.F.R. § 3809 regulations (surface Management of Public Lands under the U.S. Mining Laws) or with 36 C.F.R. § 228 (regulations concerning use of the surface of Forest Service lands) by April 1 of each year, in order to give the Bureau of Land Management or Forest Service adequate time to examine and approve Lessee’s exploration plan in sufficient time for Lessee to execute such plan and satisfy the yearly work requirement during each year’s normal exploration season.

 

If the Bureau of Land Management or Forest Service disapproves of all or part of the exploration plan. Lessee shall diligently and in good faith attempt to cure any defects and comply with Bureau of Land Management or Forest service requirements. If Lessee fails to gain Bureau of Land Management or Forest Service approval, it shall be excused from expenditures

 

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for that portion of that year’s work requirement which is disapproved, it being understood and agreed that any portion of the yearly work requirement which is not expended because of Bureau of Land Management or Forest Service disapproval shall be added to the succeeding year’s annua1 requirement. It is further mutually understood and agreed that annual assessment work requirements shall not be so excused unless permission to defer annual assessment work requirements has been granted to Lessee by the Bureau of Land Management or other government agency, in which case Lessee shall file all documents required to maintain the Mineral Prospect in good standing with the county and the Bureau of Land Management prior to September 1st each year and provide Lessor with proof of such filing prior to November 1st of each year.

 

On or before February 1st of each year after 1906, Lessee shall provide Lessor with a written narrative report describing the operations conducted on the Mineral Prospect during the prior calendar year. With the report shall be furnished true copies of all reports and records made for the Mineral Prospect, including, but not limited to, lithologic drilling logs and assays, maps, cross-sections, assays, metallurgical tests, ore reserve calculations and geological reports pertaining to the Mineral Prospect. Upon Lessor’s request and at Lessor’s expense. Lessee shall provide copies of the above data in reproducible form such as mylars or sepias. It is agreed between Lessor and Lessee that, during the term of this Lease, Lessor shall keep all such information strictly confidential, and Lessor shall indemnify and save harmless Lessee from any action resulting from reliance upon such information by Lessor or by any person to whom Lessor furnishes such information.

 

6.                           Manner of Payment . Each payment to be made by Lessee to Lessor after the effective date hereof, except Production Royalty where in kind payment is taken, shall be made by wiring seventy percent (70%) thereof to the account (number 103-180-6) of Mr. Lyle F. Campbell at the First Interstate Bank of Nevada, N.A., 1 East First Street, Reno, Nevada 89502, and by wiring the remaining thirty percent (30%) thereof to the account (number 21-233307) of Julian E. Simpson and Jean C. Simpson at the First Hawaiian Bank, Kahului Branch, Box 157, Kahului, Maui, Hawaii 96732. Each such payment shall be so made on or before the date such payment shall be required to be made hereunder, provided, however, that the Advance Minimum Royalty shall be so paid between January 1st and 15th of each year. If Lessee fails to pay or shall incorrectly pay some portion of any payment due hereunder, this Lease shall terminate absolutely if Lessee within thirty (30) days after Lessee’s receipt of written notice; from Lessor of its error or failure, shall fail to rectify the same.

 

7.                           Lessor’s Title .

 

A.                        It is acknowledged by the three individuals collectively referred to as Lessor herein that Lyle F. Campbell is the owner of a seventy percent (70%) interest in the Mineral Prospect and Julian E. Simpson and Jean C. Simpson jointly own the remaining thirty percent (30%) interest therein, all subject to the terms of this Lease. Subject only to the last sentence of Subsection D below of this Article 7, it is mutually understood and agreed that this Lease is granted only under such title as Lessor may now hold or hereafter acquire and that in the event that Lessor shall hereafter be divested of such title, Lessor shall not be liable for any damages sustained by Lessee; additionally, Lessee shall not be liable for any damages sustained by Lessor unless such damages are the result of

 

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Lessee’s failure to perform under the terms of this Lease, and neither Lessee nor Lessor shall attempt to hold the other party liable (in damages or otherwise) on account of such divestment or of Lessee’s possession being destroyed or interrupted unless damages sustained are the result of Lessee’s failure to perform hereunder.

 

B.                          It is understood and agreed that in the event of adverse claim or claims affecting the Mineral Prospect or the lands covered thereby, Lessee shall be under no obligation to defend title, nor to contribute to the defense of title thereto, and it is specifically understood in such event that Lessor shall be under no obligation to defend title.

 

C.                          Concerning possible conflicts with unpatented mining claims of third persons, neither party is under a specific obligation of title defense; Lessor leases merely whatever title it might have in such area of conflict. To the extent that Lessee desires to enter an area of conflict and endeavor to prove up the title of Lessor’s claims, Lessee may do so at its own risk and expense. Lessor represents that it has no knowledge of claims of third parties.

 

D.                         It is expressly agreed that Lessor does not warrant title to the Mineral Prospect. Lessor does, however, represent and warrant that the Mineral Prospect is free and clear of all liens, encumbrances and leases of third parties created by Lessor.

 

8.                           Assessment Work - Unpatented Mining Claims . Subject to the provisions of this Lease, Lessee agrees during the term hereof to perform timely on or for the benefit of the Mineral Prospect sufficient assessment work each assessment year, as the term “assessment year” is defined by statute, that would be considered as sufficient to comply with the law, using good mining practices to maintain the Mineral Prospect under applicable state and federal mining laws. The parties hereto agree to cooperate to the fullest extent to enable Lessee to prepare and file in a timely manner all related proofs of assessment work or Notices of Intention to Hold in the manner required by applicable law. Lessee shall file related Notices of Intention to Hold (if applicable) and any related affidavits of assessment work based upon geological, geophysical and geochemical surveys with the county prior to September 1st each year. Lessee shall file all other related affidavits of physical assessment work with the county prior to September 2lst each year. Lessee shall provide Lessor with copies of county recorded documents prior to October 15th of each year and with copies of the receipts from the Bureau of Land Management for the county recorded documents prior to December 1st of each year.

 

Subject to the following provisions of this Article B, Lessee shall have the right, at any time and from time to time, to surrender all or any pact of its rights and obligations hereunder with respect to all or any portion of the unpatented mining claims included within the Mineral Prospect by giving Lessor notice of Lessee’s decision to do so; provided, however, that no such partial surrender shall result in a dimunition of the Advance Minimum Royalty or the Production Royalty payable hereunder. Upon giving of such notice, the claim or claims identified therein shall be deemed stricken from this Lease, and this Lease shall terminate with respect to the claim or claims identified in the notice. Notwithstanding the release of any claim or claims from the operation hereof, this Lease shall continue in full force and effect with respect to all pacts of the Mineral Prospect not identified in such notice. Lessee shall, within fifteen (15) days after giving such notice,

 

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provide Lessor with all data regarding work which has been done by Lessee subsequent to the end of the prior assessment year upon any of such claims so surrendered and released, which data may be utilized by Lessor for its own benefit to apply toward the assessment work requirements pertaining to any of such claims and for filing proofs of labor. If Lessee shall fail to provide such data, if any, within the time specified. Lessee shall be obligated to perform such work as shall be required to maintain such claim or claims for the then current assessment year.

 

In the event Lessee shall terminate this Lease, in whole or in part, as to the Mineral Prospect less than ninety (90) days prior to the end of the then current assessment year, Lessee shall be obligated to perform assessment work for the then current assessment year as to each of such claims as shall have been terminated, or may, at its option, pay Lessor one hundred dollars ($100.00) per claim or such amount as may then be required to be expended on each claim annually by any government laws or regulations within fifteen (15) days following such termination date, but not later than sixty (60) days prior to the end of the then current assessment year.

 

9.                           Relocation and Amendment of Unpatented Mining Claims . Lessee, in the name of Lessor, shall have the right, but not the obligation, to amend the locations of any one or more of the mining claims included within the Mineral Prospect for the purpose of eliminating interior gaps, and Lessor agrees to execute promptly any documents necessary for that purpose. If the location of any of such mining claims was, for any reason, defective, Lessee shall have the right but shall not be required to relocate such defective mining claim or claims in the name of Lessor for the purpose of curing such defect.

 

10.                     Liens . Lessee shall pay in full for all labor performed upon or material furnished to the Mineral Prospect at the instance or request of Lessee and shall so keep the whole thereof free and clear from any and all liens of whatsoever nature created by Lessee. It is mutually agreed that concurrent with the execution of the Lease, Lessor and Lessee will execute and acknowledge a “Notice of Non-Responsibility for Labor or Materials Furnished Mineral Prospect” which Lessor shall file with the Eureka County Recorder in compliance with NRS 108.234. When the recorded copy of the “Notice of Non-Responsibility” has been received by Lessor, he shall furnished a copy of same to the Lessee which Lessee shall post and keep posted upon the Mineral Prospect during the term of this Lease.

 

11.                     Laws and Regulations - Indemnification of Lessor . Lessee shall at all times comply in all respects with all county, state and federal laws, ordinances and regulations relating to the Lessee’s actions under this Lease or upon or about the Mineral Prospect. Lessee shall provide Workmen’s Compensation Insurance and such other insurance to cover personnel and all of its operations upon the Mineral Prospect in the amount and form as may be required by law. Lessee shall indemnify and hold Lessor harmless of and from any and all claims, demands or liabilities arising out of or in connection with the operations or activities of Lessee hereunder. Lessee assumes full and sole responsibility for the operation and direction of the work, done under this Lease on the Mineral Prospect, and no employee or agent furnished by Lessee shall under any circumstance be deemed an employee of Lessor. Lessee shall provide Lessor with copies of all plans, maps and all other documents submitted in compliance with government regulations and all agreements with any government agency pertaining to the Mineral Prospect, including but not limited to

 

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Notices of Intent to Operate, Plans of Operations, Environmental Impact Statements and all government agency communications received by Lessee which are related to such submissions or agreements, within thirty (30) days of sending to or receiving such materials from any government agency. In the event any government agency requires the filing of a bond to insure Lessee’s performance, Lessee agrees to provide such bond at its own cost and expense.

 

12.                     Taxes . Lessor agrees to send Lessee any notice or other advice of taxes due which is in the possession of Lessor so that the same is received by Lessee at least thirty (30) days before the tax in question is due and payable, provided Lessor receives such notice or advice in sufficient time to comply herewith. Lessee agrees to pay all taxes levied and assessed upon the Mineral Prospect, or any part thereof, including taxes levied and assessed on improvements placed upon the Mineral Prospect by Lessee during the continuance of this Lease, commencing with taxes for the year 1986, and to make payment thereof as required by the applicable state or federal statutes so that no default in taxes upon the Mineral Prospect shall occur, and to deliver to Lessor, within thirty (30) days after payment, copies of documents which show that tax payments have been timely made. Should Lessee be in possession under this Lease for only a portion of a year, the tax for that year shall be prorated between Lessor and Lessee, provided that Lessee shall pay all taxes on improvements and equipment which Lessee removes or intends to remove from the Mineral Prospect. All severance taxes and all net proceeds or other taxes that are now or hereafter levied or computed on the amount or value of Leased Substances produced and sold hereunder shall be apportioned between Lessor and Lessee. Lessor’s pro rata share thereof shall be measured by the Production Royalty percentage for the applicable Leased Substance upon which the tax is based, and the balance of such tax shall be paid by Lessee. If Lessor fails to pay its proportionate share of such taxes as set forth above, unless Lessor is contesting the same, Lessee may at its option pay Lessor’s proportionate share of taxes when due and may deduct all such sums from payments to be made to Lessor hereunder. Either Lessee or Lessor shall always have the right to contest in the courts or otherwise the validity or amount of any taxes or assessments which the respective party may be required to pay hereunder if it deems the same unlawful, unjust, unequal or excessive or to take such other steps or proceedings as it may deem necessary to secure a cancellation, reduction, readjustment or equalization thereof before it shall be required to pay the same.

 

13.                     Default . If Lessor considers that Lessee has not complied with any covenants, conditions or obligations hereunder, either express or implied, Lessor shall notify Lessee, in writing, setting out specifically in what respects it is claimed that Lessee has breached this Lease. The receipt of such notice by Lessee and the lapse of sixty (60) days thereafter without Lessee’s curing or commencing and diligently pursuing such action which is necessary to cure the alleged breaches shall be a default hereunder and Lessor may, at Lessor’s option, terminate this Lease. Neither the service of said notice nor the doing of any acts by Lessee aimed to cure all or any of the alleged breaches shall be deemed an admission or presumption that Lessee has failed to perform all of its obligations hereunder. If Lessee has not, within the sixty (60) day period, begun to cure such failure and thereafter does not diligently prosecute such action until such failure is cured and corrected, Lessor shall have the option to terminate this Lease absolutely.

 

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If Lessee fails to make any of the payments due under Articles 3, 4 or 8 herein within thirty (30) days after Lessee’s receipt of notice of such failure from Lessor, this Lease shall terminate absolutely; provided, however, that any termination for whatever reason shall not excuse Lessee from any obligation incurred under the terms of this Lease prior to such termination.

 

In the event of termination under this Article 13, Lessee shall have the right to remove its property and equipment from the Mineral Prospect, as hereinafter provided.

 

14.                     Surrender . Subject only to the provisions of this Article 14 and the last two paragraphs of Article 8 hereof, Lessee may at any time or times surrender this Lease or any portion thereof by delivering or mailing a written notice of surrender to Lessor. Surrender shall not become effective until such date that Lessee has delivered or mailed the data listed in Article 17 to be furnished by Lessee to Lessor on termination of this Lease, and upon such delivery or mailing Lessee shall be relieved of all obligations, except unsatisfied prior obligations incurred hereunder, as to the portion so surrendered except that any partial surrender hereof shall in no manner affect the Advance Minimum Royalty payments to be made under Article 3 hereof, the Production Royalty payments to be made under Article 4 hereof, or the amount of work requirements of Article 5 hereof or the timely assessment work provisions of Article 8. It is mutually understood and agreed that Lessee shall comply with all governmental regulations, including but not limited to restoration and reclamation requirements, with respect to the Mineral Prospect or portion thereof which is to be surrendered, prior to surrender of this Lease in whole or in part. Lessee shall accept full responsibility for any government requirements directly related to Lessee’s work on the Mineral Prospect following execution of this Lease, and such responsibility shall survive any termination of this Lease. Within thirty (30) days after any such surrender, Lessee shall file a “Quit Claim Deed and Leasehold Release” with the Eureka County Recorder’s Office and shall provide Lessor with a record stamped copy of the filed document within thirty (30) days after Lessee’s receipt of the recorded document.

 

15.                     Removal of Improvements . Whenever this Lease shall be surrendered or terminated in whole or in part, for any reason whatsoever, Lessee shall deliver up the surrendered or terminated portion of the Mineral Prospect to Lessor in reasonably good condition and leave the premises in compliance with all applicable laws, rules, and regulations. Lessee shall, however, subject to any laws, rules or regulations which may be applicable at the time, have the right to remove any or all of the Improvements placed by it on or within the surrendered or terminated portion of the Mineral Prospect, but Lessee shall leave in place all track, pipe, timber, chutes and ladders without any warranty as to condition or fitness for use. Within a reasonable time after surrender or termination, Lessee shall assign to Lessor any water rights acquired or perfected by it during the term of this Lease which are situated on the Mineral Prospect, and any water rights which are situated off the Mineral Prospect but were acquired for the purpose of conducting work on the Mineral Prospect (excluding always any water rights which are situated on the “Rob” group of unpatented mining claims, more specifically described in Exhibit “B” attached hereto and incorporated herein, and any water rights which are situated off both the Mineral Prospect and the Rob group but were acquired for the purpose of conducting work on the Rob group). Lessee shall have the right to effect the removal of such Improvements, other than those specified above to be left in place, prior to such surrender or termination of this Lease

 

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or within one hundred twenty (120) days thereafter. Any Improvements not removed prior to expiration of said period of one hundred twenty (120) days following such surrender or termination of this Lease shall be deemed affixed to the surrendered or terminated portion of the Mineral Prospect and shall become and remain the property of Lessor. Upon surrender or termination, Lessor shall retain title to all stockpiles, dumps and tailings generated from mining and treating ore from the Mineral Prospect.

 

16.                     Books and Accounts . Lessee shall maintain on a current basis, and in accordance with generally accepted accounting principles consistently applied, complete and accurate records and books of account, covering all matters necessary to the proper computation of the Production Royalty described in Article 4 hereof. Said records and books of account may be kept either in the vicinity of the Mineral Prospect or elsewhere within the State of Nevada at Lessee’s option, and shall be open to inspection by Lessor or its authorized agents (at Lessor’s sole expense) at any reasonable time during normal business hours, provided such inspections do not unduly interfere with or hamper the managerial or accounting staffs of Lessee. Within sixty (60) days after the end of each calendar year during the term hereof. Lessee shall furnish to Lessor an unaudited “Year-End Statement” showing the amount of any Production Royalty paid to Lessor by Lessee during said year and the basis thereof. All statements so presented shall be conclusively presumed true and correct after the expiration of twelve (12) months from the date of such receipt by Lessor, unless within said twelve (12) month period Lessor takes written exception thereto, specifying with particularity the items excepted to and the grounds for such exception. Lessor shall be entitled to an annual independent audit of the matters covered by said statement, at Lessor’s sole expense, provided Leesor selects for such audit an accounting firm of recognized standing, at least one of whose members is a member of the American Institute of Certified Public Accountants.

 

17.                     Data - Inspection . Lessee shall furnish Lessor with copies of any agreement (including, but not limited to, haulage, milling, refining, extracting, and ore and concentrate purchase agreements), and any amendments thereto, which in any way relate to the processing, preparation for sale and the sale of Leased Substances produced from the Mineral Prospect, within thirty (30) days after executing such agreements or amendments. Lessee shall furnish Lessor with copies of all settlement sheets or statements which in any way relate to the sale or other disposition of Leased Substances produced from the Mineral Prospect within thirty (30) days after receiving such sheets or statements. Lessee shall furnish Lessor with full, true and accurate information in response to any reasonable request with respect to the condition of mine workings on the Mineral Prospect, or with respect to the general grade, quantity or quality of ores or minerals found in drilling or exposed in mining the Mineral Prospect or mined, processed or shipped by Lessee thereon or therefrom. Lessee shall keep full and accurate records of all operations conducted on the Mineral Prospect, including assays, drilling records, drill hole location maps and mine maps which shall be open to inspection by Lessor or Lessor’s agent (at Lessor’s sole expense) during regular business hours and upon reasonable notice, with the provision that copies of any of these materials shall on request be furnished to Lessor by Lessee at Lessor’s sole expense. Lessor, at Lessor’s sole risk and expense, shall have the right to enter upon and into all parts of the Mineral Prospect from time to time, and at all reasonable times and hours, for the purpose of inspecting or surveying the same, or taking

 

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reasonable samples of Leased Substances therefrom. If this Lease is terminated for any reason, Lessee shall, within thirty (30) days thereafter, furnish Lessor with all exploration data generated by Lessee in its exploration of the Mineral Prospect including, but not limited to, legible copies of drilling logs, assay results, survey information, maps and cross-sections including geologic interpretive data and including reproducible mylars or sepias which may have been prepared by Lessee. Lessor shall not disclose during the term of this Lease, without the prior written consent of Lessee, any information furnished to or made available to Lessor regarding any portion of the Mineral Prospect while such portion is subject to the terms of this Lease. Lessor shall indemnify and save Lessee harmless from any action resulting from Lessor’s or any other person’s reliance thereon of the non-accounting data provided by Lessee.

 

18.                     Commingling . Lessor understands and acknowledges that Lessee is conducting mining and heap leaching operations on adjacent and nearby properties. Lessee agrees that it shall not commingle Leased Substances with ores from other properties without Lessor’s prior written consent.

 

19.                     Notices . Unless otherwise herein provided, notices hereunder shall be deemed sufficiently given or made when deposited in the United States mail, postage prepaid, registered or certified, return receipt requested, and addressed as follows:

 

TO LESSOR:	Mr. Lyle P. Campbell
	P. O. Box 7377
	Reno, Nevada 89510
	and
	Mr. and Mrs. Julian E. Simpson
	P.O. Box 266
	Kihei, Maui, Hawaii 96753
TO LESSEE:	Tonkin Springs Gold Mining Co.
	Attention: William W. Reid
	1600 Hudson’s Bay Centre
	1600 Stout Street
	Denver, CO 80202

 

or such other person or address as either party may designate by proper written notice.

 

20.                     Force Majeure . Except for the payments and the time requirements with respect thereto set forth in Articles 3, 4, 5, 6 and 8 hereof, whenever the time for performance of any act hereunder is limited and the performance thereof is hindered, prevented or delayed by any factor or circumstance beyond the reasonable control of Lessee and which Lessee could not have avoided by the use of due diligence, such as acts of God, fire, floods, strike or labor troubles, breakage of machinery, inability to obtain necessary materials, supplies or labor, interruptions in delivery or transportation, shortage of  railroad cars, insurrections or mob violence, regulations,  orders or requirements of the government, embargoes, war or  other disabling causes, whether similar or different, then the  time for the performance of any such act or obligation shall be extended for a period equal to the extent of such delay. Lessee shall immediately notify Lessor in writing of the existence of a force majeure, and Lessee shall use due diligence to remove the force majeure and shall promptly notify Lessor when the declaration of force majeure is terminated. It is expressly understood and agreed that litigation in which Lessee is a party

 

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shall not constitute a condition of force majeure hereunder unless such litigation includes the United States of America as a party or involves either the validity of the unpatented mining claims included within the Mineral Prospect or the validity of Lessor’s record or possessory title thereto, or unless such litigation is necessary in order for Lessee to establish a right of access across lands owned or controlled by a third party or entity for the purpose of reaching the Mineral Prospect or for the purpose of conducting operations thereon.

 

21.                     Assignment; Sublease . Lessee may assign or sublease its interest in this Lease or enter into a joint operating agreement with any other person or entity without the consent of Lessor, provided, such assignment, sublease or joint operating agreement shall be null and void unless Lessee provides Lessor with a bona fide copy of the executed instrument and any exhibits, attachments, amendments or modifications thereto within thirty (30) days after its or their execution, and further provided, that such assignment or sublease shall not relieve Lessee of any of its obligations hereunder unless such assignee, sublessee or joint operator shall agree in writing to be bound by all of the terms and conditions of this Lease, including without limitation this Article 21. Lessee shall incorporate this Article 21 into the instrument of assignment, sublease or joint operating agreement, and any and all subsequent assignments, subleases or joint venture agreements shall also be subject to this Article 21.

 

22.                     Governing Law . This Lease shall be governed by the laws of the State of Nevada, unless the laws of the United States apply  Should any section or provision of this Lease be declar