COOPERATION AGREEMENT
REGARDING
THE DEVELOPMENT OF
THE CHANGBA-LIJIAGOU LEAD-ZINC DEPOSIT
Between
Minco Mining & Metals Corporation
And
Baiyin Non-Ferrous Metals Company
Baiyin, Gansu, China
November 17, 1997
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COOPERATION AGREEMENT
REGARDING THE DEVELOPMENT OF
THE CHANGBA-LUIAGOU LEAD-ZINC DEPOSIT
THIS AGREEMENT is executed on the 17th day of November, 1997, in Baiyin City,
Gansu Province, China.
BETWEEN:
MINCO MINING & METALS CORPORATION a public corporation incorporated under
the laws of British Columbia (referred to herein as "MINCO")
Registered Address: 1200, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Authorized representative: ▇▇. ▇▇▇ ▇. ▇▇▇, the President of MINCO
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
AND:
BAIYIN NON-FERROUS METALS COMPANY
a corporation incorporated under the laws of the People's Republic of China
(referred to herein as "BAIYIN")
Registered Address: Baiyin City, Gansu Province, China
Authorized representative: ▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇, the Deputy General Manager
of BAIYIN
Phone: (0943) 8812 - 171 Fax: (0943) 8223 - 449
(collectively, the "Parties", or individually a "Party")
WHEREAS:
1. BAIYIN has been authorized and approved by China National Non-Ferrous
Metals Industries Corporation ("CNNC") to develop the Changba-Lijiagou
lead-zinc deposit.
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2. BAIYIN has been authorized by CNNC to seek various sources of capital
(including foreign capital and investment) to develop and exploit the large
Changba-Lijiagou lead-zinc deposits ( the "Project"). CNNC has agreed in
principle to permit foreign investors to acquire the majority interest in
the joint venture enterprise to be established for the Project.
3. BAIYIN faxed to MINCO invitations for a site visit for purposes of
discussing a joint venture for the Project in August 1994 and April 1995,
respectively. After receiving such invitations and a summary of geological
data related to the Project, MINCO visited BAIYIN four times during each of
May 1995, October 1995, May 1996, and October 1996 respectively and the
Parties signed a letter of intent (the "Letter of Intent") and a
cooperation agreement pursuant to which they would cooperate to develop and
exploit the Changba-Lijiagou lead-zinc deposits.
4. In October 1995, MINCO visited CNNC in Beijing and had friendly discussions
with CNNC concerning the Project.
5. On the basis of mutual exchanges of views, extensive discussions and
negotiation, MINCO conducted a preliminary evaluation and later a detailed
assessment (the "Detailed Assessment") of the Project and concluded that
the Project has high geological potential, favorable geological
characteristics, and very good infrastructure conditions. Accordingly and
subsequently, MINCO expressed strong interest in the Project.
6. After the execution of the Cooperation Agreement on October 18, 1996, both
Parties pursued the Project aggressively. However, the Project has been
delayed and the Changba open pit mine has been damaged seriously because of
the non-natural Chinese factors (illegal mining on the property). Thus, the
cooperation scope agreed by the Parties originally has been changed
significantly.
7. The Parties conducted further discussions and negotiations during October
14-17, 1997, at the offices of Baiyin, both Parties agreed as follows:
1.0- ESTABLISHMENT OF THE JOINT VENTURE
1.1 The Parties agreed to establish a Co-operative (or equity) joint venture
(the "Joint Venture") constituted as a separate legal person for the
Project.
1.2 The Joint Venture shall have limited liability. Both Parties will make
contributions to, and share the risk and profits of, the Joint Venture in
accordance with their respective equity interests in the Joint Venture.
1.3 The term of the Joint Venture shall be thirty (30) years such period to be
extendible upon mutual agreement between the Parties if the circumstances
so warrant.
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1.4 The purpose of the Joint Venture is to develop and exploit jointly the
Changba-Lijiagou deposits on the basis of mutual benefits. The Parties will
each use their respective advantages including mineral resources, capital,
and technology, to achieve satisfactory profitability to both Parties.
1.5 The business scope of the Joint Venture is for mineral exploration,
development, exploitation, processing and marketing the mineral products
produced using an integrated mining company. In addition to the exploration
and exploitation on the area covered by the existing mining license or the
potentially acquired mining license, the Joint Venture will apply for the
exploration permit which will cover, including but not limited to, the
strike and dip extension of the ore bodies to be mined at the
Changba-Lijiagou deposits, and adjacent ore bodies in Lijiagou area.
2.0- OPERATION AND MANAGEMENT OF THE JOINT VENTURE
2.1 The board of directors that will possess the highest authority over the
operation and management of the Joint Venture will manage the Joint
Venture. Each Party will appoint a number of directors in proportion with
its relative beneficial interest in the Joint Venture. The Chairman of the
board of directors shall be appointed by the controlling shareholder.
2.2 The general manager who shall be appointed and controlled by the board of
directors will manage the day-to-day operation of the Joint Venture.
3.0- JOINT VENTURE AREA AND PRODUCT SCHEMES
3.1 Three joint venture alternatives for the joint venture scope were proposed
initially under the Letter of Intent. After further assessment, both
Parties agreed that the area for the Joint Venture (the "Joint Venture
Area") includes:
1) deep Changba (below 1205m of the Changba deposit);
2) the Lijiagou deposit (below 1205m);
3) the joint area between the Changba and Lijiagou deposits (the "Joint
Area"); and
4) the Changba mill plant and other associated facilities.
The Parties further agreed that the Joint Venture should exercise its best
efforts to acquire the exploration permit for the area surrounding the
Changba and Lijiagou deposits. If such exploration permit were obtained,
the Joint Venture would conduct mineral exploration on the permitted area
and enjoy the results and benefits from the exploration. Neither BAIYIN nor
MINCO shall conduct such exploration for its own benefit.
3.2 The Parties agreed that the Project would be carried out under the
principle of overall planning, staged development and exploitation.
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3.3 The initial target of cooperation is to develop the Lijiagou deposit into
an underground mine at 1,000 tonnes of ores per day capacity. The second
stage of the Project will expand the underground mine to 3,500 tones per
day capacity, including the Lijiagou deposit and the Joint Area. The
Parties currently expect the capacity to be increased to 5,000 tonnes per
day to mine the Lijiagou deposit, the Joint Area, and the Changba deposit.
3.4 The Parties agreed to use the product from the Joint Venture either to
produce concentrate for sale or to produce metals or metals products for
sale through custom smelting.
4.0- BENEFICIAL INTEREST AND CONTRIBUTIONS TO THE JOINT VENTURE
4.1 The Parties agreed that MINCO will be the controlling shareholder of the
Joint Venture. The Parties agreed the beneficial interest in the Joint
Venture and the contributions to the Joint Venture are as follows:
4.1.1BAIYIN shall contribute the mining rights of the Joint Venture Area; the
land using rights; and the net values of the total assets at the Changba
milling system which can process 3,500 tonnes of ores per day, including
fixed assets, moveable assets, projects under construction, and other
assets (collectively referred to herein as the "BAlYIN's Contribution").
Baiyin shall have 25% of equity interest in the Joint Venture after the
above contributions have been made.
4.1.2. MINCO shall contribute capital and advanced equipment to develop a 3,500
tonnes per day underground mine on the property, including further
exploration expenditures and feasibility study expenditures required for
the Lijiagou deposit, and development capital expenditures of a 3,500
tonnes per day underground mine. MINCO shall have 75% equity interest in
the Joint Venture after the above contributions have been made.
4.2 After the Parties made their respective initial contributions to the Joint
Venture, the further capital requirements of the Joint Venture shall be
contributed by the Parties in accordance to their respective equity
interests in the Joint Venture.
5.0- CO-OPERATION PROCEDURE
5.1 In order to promote the Project in a timely fashion, the Parties agreed to
use the following procedure:
1) After the execution of this Agreement, BAIYIN will prepare a detailed
application for the Joint Venture in a timely fashion based on the
information and reports provided by the Parties, and then apply to the
appropriate Chinese government authorities for approval of the Joint
Venture (the "Joint Venture Approval").
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BAIYIN will inform MINCO in a timely fashion once the Joint Venture
Approval has been obtained.
2) When the Joint Venture Approval has been obtained, BAIYIN, assisted by
MINCO, shall compile the proposal and preliminary feasibility study
for the Joint Venture and apply to the appropriate Chinese government
authorities for approval (the "JV Proposal Approval").
3) When the JV Proposal Approval has been obtained, both Parties will
jointly prepare a feasibility study of the Joint Venture (the "Joint
Venture Feasibility Study"). When such Joint Venture Feasibility Study
has been completed, BAIYIN shall apply to the appropriate Chinese
government authorities for approval of such Joint Venture Feasibility
Study (the "Joint Venture Feasibility Study Approval").
4) When the Joint Venture Feasibility Study Approval has been obtained,
both Parties will negotiate in good faith and execute a joint venture
contract (the "JVC") which shall set out in detail the rights and
obligations of the Parties in the Joint Venture. BAIYIN will seek the
approval of the JVC from appropriate Chinese government agencies in a
timely fashion.
5) During the preparation of the JVC, the Parties shall jointly conduct
preliminary works (the "Preliminary Works") on the property to advance
the Project to meet the conditions of feasibility study of the
Project, including underground exploration, hydrological and
engineering assessment, metallurgical testing, environmental
evaluation, and asset appraisal.
6) When the Joint Venture Contract has been approved, BAIYIN shall obtain
business licenses from the appropriate Chinese government authorities
to establish the Joint Venture. MINCO shall provide all reasonable
assistance to BAIYIN.
7) When the Preliminary Works have been completed, the Parties will
jointly conduct a technical feasibility study (the "Technical
Feasibility Study") of the Project, including Chinese feasibility
study, preliminary mine design and construction design, and some
initial development works. MINCO will lead the Technical Feasibility
Study with the participation of Lanzhou Engineering & Research
Institute of Non-Ferrous Metallurgy of CNNC commissioned by BAIYIN.
8) If the Technical Feasibility Study concludes that the Project meets
the investment criteria and is economically and socially attractive to
the Parties, both Parties shall carry out the Project pursuant to the
terms of the JVC and the Articles of Association of the Joint Venture.
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5.2 The Parties agree that the expenditures incurred for the Preliminary Works
(as defined in section 5.1 (5)) and for the Technical Feasibility Study (as
defined in section 5.1 (7)) will be contributed by both Parties in
proportion to their respective beneficial interests (i.e. MINCO 75% and
BAIYIN 25%). If the Project is unsuccessful, both Parties will assume their
respective expenditures as a loss of a risky investment and neither Party
shall be compensated by the other Party. If the Project is successful, the
expenditures incurred by each of the Parties will be credited as part of
each Party's respective capital contribution to the Joint Venture.
6.0- CLEARING LOCAL MINERS
The Parties acknowledge and agree that it is critical to the success of the
Joint Venture, and a condition of further investment by MINCO in the Project,
that the mining activities being conducted by the local farmers on the Joint
Venture Area (Lijiagou, the Joint Area, and Changba) be stopped peacefully and
permanently and without leaving any hidden unresolved issue which could later
adversely affect the Joint Venture.
7.0- EXCLUSIVE NEGOTIATION AND INVESTMENT RIGHTS
7.1 By this Agreement, BAIYIN grants and guarantees to MINCO the exclusive
rights to negotiate and to invest in the Project.
7.2 Both Parties further agree that:
1) BAIYIN shall have right to invite other Chinese enterprises
(non-foreign) to invest in the Project and participate its 25%
interest provided that all Chinese investors collectively shall form a
single entity that will be the sole Chinese shareholder to participate
in the Joint Venture.
2) MINCO shall have right to invite other foreign enterprises
(non-Chinese) to invest in the Project and participate its 75%
interest provided that all the non-Chinese investors shall form a
single entity that will be the sole non-Chinese shareholder to
participate in the Joint Venture.
8.0- OTHER PROMISES OF THE PARTIES
8.1 The Parties agree that the Joint Venture shall conduct the Project under
the environmental standards not lower than the requirements of the Chinese
environmental laws and regulations. BAIYIN promised that the Joint Venture
shall not be responsible for any environmental liability of BAIYIN's
operations incurred before the creation of the Joint Venture.
8.2 MINCO promised that BAIYIN shall have exclusive concentrate purchasing
rights or custom smelting rights if BAIYIN can match the same terms of
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sales prices of concentrates or custom smelting charges, final product
quality, and processing time in case of custom smelting.
8.3 Both Parties promised to preserve the confidentiality of all information
(the "Information") obtained from the other Party. Subject to the exception
set out at the end of this section, neither Party shall disclose such
Information to any third party without consent from the other Party. If
this Agreement, or any successor agreement, is terminated, each Party shall
return to the other Party all such Information. However, each Party can
disclose such Information to its respective regulatory authorities
(including government authorities, security commissions, and stock
exchanges, etc.), joint venture partners, and third parties under contract
to a Party to work on the Project.
8.4 Before the execution of the Joint Venture Contract, each of the Parties
shall be responsible for its own expenses incurred related to the Project.
If the Joint Venture is successfully established, then expenses actually
incurred by each of the Parties shall be credited as part of the capital
contribution to the Joint Venture.
8.5 The Joint Venture shall use the Project as a starting point to develop a
long-term cooperation between the Parties in a wider area. Both Parties
agree that if circumstances warrant, the Joint Venture can be listed on the
Chinese and foreign stock exchanges (e.g. Toronto Stock Exchange) in order
to attract more international investors, widen the capital sources, and
achieve strategic growth of the Joint Venture.
9.0- GENERAL
9.1 If the contents of this Agreement have any conflict with the Letter of
Intent and the memorandum of understanding previously signed, the terms of
this Agreement shall prevail.
9.2 This Agreement is written in duplicate in both Chinese and English, with
both texts having equal authority.
9.3 Each of the Parties acknowledge the receipt of one executed copy of the
English version of this Agreement and of one executed copy of the Chinese
version of this Agreement. The English version of this Agreement may be
executed in counterparts and transmitted by facsimile transmission. A copy
which has been executed in counterparts and transmitted by facsimile
transmission shall have equal authority as an originally executed copy.
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IN WITNESS WHEREOF the Parties have duly executed this Cooperation Agreement as
evidenced by each signature below.
BAIYIN NON-FERROUS METALS COMPANY
Legal Representative:
Jiangshen Wu, General Manager I
Authorized Representative:
Shichang Ren, Deputy General Manager
MINCO MINING AND METALS CORPORATION
Legal Representative:
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chairman of the Board
Authorized Representative:
/s/ ▇▇▇ ▇. ▇▇▇
▇▇▇ ▇. ▇▇▇, President and CEO