EXHIBIT 4.4
DEVELOPMENT FACILITY AGREEMENT DATED
JUNE 20, 2006
DEVELOPMENT FACILITY AGREEMENT
THIS AGREEMENT dated for reference the 20th day of June, 2006.
BETWEEN:
ALB HOLDINGS LTD., a corporation incorporated under the laws
of British Columbia and having an office at 1305 - ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
("ALB")
AND:
ROCHESTER RESOURCES LTD., a corporation incorporated under the
laws of the British Columbia and having an office at ▇▇▇-▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
("Rochester")
AND:
MINA REAL MEXICO S.A. DE C.V., a corporation incorporated
under the laws of Mexico and having an office at Rio Tajo # 6
Entre Everest y Andes Colonia Lindavista, C.P. 63110 Tepic,
Nayrit, Mexico
("Mina Real")
WHEREAS:
A. ALB, Rochester and ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ entered into an option
agreement dated January 8, 2006 (the "Option Agreement") whereby ALB, among
other things, granted an option to Rochester to purchase up to 51% of the issued
shares of Mina Real under the terms and conditions of the Option Agreement;
B. Mina Real is the beneficial owner of an undivided 100% interest in
certain exploration and mining concessions situated in Nayarit, Mexico, as more
particularly described in Schedule "A" (the "Mina Real Concessions") and which
are referenced in the Initial Option Agreement as the "Mina Real Property";
C. Rochester can earn an 11% ownership interest in Mina Real by incurring
US$900,000 in payments to ALB, and can earn an additional 40% ownership interest
by incurring a minimum of US$1.5 million in expenditures on the Mina Real
Concessions (the "Work Commitment") on the basis of a 20% ownership interest for
each US$750,000 of expenditures, all in accordance with the Option Agreement;
D. Rochester, Mina Real and ALB wish to proceed with an expedited
development program on the Mina Real Concessions to further develop and equip
the Mina Real Concessions for Commercial Production (as hereinafter defined)
including the construction of a mill capable of milling up to 200 tonnes of ore
per day and designed to be modified to process up to 300 tonne/day with minimal
interruption and cost (the "Development Program"); and
E. Rochester has agreed to provide up to US$2.5 million of additional
funding for the Development Program exclusive of the Work Commitment (the
"Development Facility"), in consideration of Rochester receiving an 80% net
profits royalty from Commercial Production until the Development Facility has
been repaid in full plus a participation premium fee of 25% of the total amount
funded under the Development Facility on the terms and conditions of this
Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the
payment by Rochester to ALB of the sum of TEN ($10.00) DOLLARS on the execution
hereof (the receipt and sufficiency of which is hereby expressly acknowledged by
ALB) and of the mutual covenants and agreements herein contained the parties
agree as follows:
1. DEFINITIONS
1.1 In this Agreement, and in the Schedules and the recitals hereto, unless
the context otherwise requires, the following expressions will have the
following meanings and any terms not otherwise defined herein shall have the
meanings attributed to those terms in the Initial Option Agreement:
(a) "ADVANCE" means an amount described in a Funding Request;
(b) "BUSINESS DAY" means a day which is not a Saturday, Sunday or
legal holiday in the place where any action is to be taken or
any act performed hereunder;
(c) "COMMERCIAL PRODUCTION" means the commercial exploitation of
Ore, but does not include milling for the purpose of testing
or milling or leaching by a pilot plant or during the initial
tune-up period of a mill or plant. Commercial Production will
be deemed to have commenced:
(i) if a plant is located on the Property, on the first
day of the month following the first period of thirty
(30) consecutive days during which Ore has been
processed through such plant for not less than
fifteen (15) days at an average rate of not less than
sixty (60%) percent of the initial rated capacity of
such mill or plant, or
(ii) if no plant is located on the Property, on the first
day of the month following the first period of thirty
(30) consecutive days during which Ore has been
shipped from the Property on a regular basis for the
purpose of processing and earning revenue;
(d) "DEVELOPMENT FACILITY" has the meaning assigned to that term
in Recital E hereof;
(e) "DEVELOPMENT PROGRAM" has the meaning assigned to that term in
Recital D;
(f) "EXCHANGE" means the TSX Venture Exchange;
(g) "EXPENDITURES" means all costs, expenses, obligations and
liabilities of whatever kind or nature spent or incurred
directly or indirectly by Rochester including, without
limiting the generality of the foregoing, monies expended in
connection with:
(i) maintaining the Property in good standing and
fulfilling any of the requirements of any title
documents, permits or applicable mining laws in
Mexico with respect to the Property, including the
costs of any discussions or negotiations with
governmental authorities in connection therewith,
- 2 -
(ii) mobilization and de-mobilization of work crews,
supplies, Facilities and equipment to and from the
Property, including all transportation, insurance,
customs brokerage and import and export taxes, fees
and charges and all other governmental levies in
connection therewith,
(iii) implementing and carrying out any program of surface
or underground prospecting, exploring or mapping or
of geological, geophysical or geochemical surveying,
(iv) trenching or other surface or near surface sampling,
(v) reverse circulation, diamond or other drilling,
(vi) drifting, raising or other underground work,
(vii) assaying and metallurgical testing,
(viii) carrying out environmental studies and preparing
environmental impact assessment reports,
(ix) carrying out all required restoration and reclamation
of the Property required as a result of activities
thereon hereunder, and posting any bond (whether cash
or surety) required in that regard by any applicable
governmental authority,
(x) preparing and making submissions to government
agencies with respect to substitute or successor
title to any of the Property and test and production
permits,
(xi) acquiring, constructing and transporting Facilities,
and
(xii) all office overhead and administrative expenses of
Mina Real including without limitation, fees wages,
salaries, traveling expenses and fringe benefits
(whether or not required by law) of all persons
engaged in work with respect to and for the benefit
of the Property and the food, lodging and other
reasonable needs of such persons;
(h) "FACILITIES" means all mines, ▇▇▇▇▇ and plants including,
without limitation, all pits, shafts, haulageways and other
underground workings, and all buildings, plants and other
structures, fixtures and improvements, and all other property,
whether fixed or moveable, as the same may exist at any time
in, or on the Property or outside the Property if for the
exclusive benefit of the Property only including, without
limitation, the construction of a mill on the Property;
- 3 -
(i) "FUNDING DATE" means the date of any funding of an Advance by
Rochester;
(j) "FUNDING REQUEST" means a request for an Advance from the
Development Facility;
(k) "MINA REAL CONCESSIONS" has the meaning assigned to that term
in Recital B;
(l) "NET PROFITS ROYALTY" means the royalty which may be payable
to a in accordance with this Agreement, as defined, calculated
and paid in accordance with Schedule "B" hereto;
(m) "ORE" means all materials from the Property, the nature and
composition of which, in the sole judgement of the Mina Real,
justifies either:
(i) mining or removing from place and shipping and
selling such material, or delivering such material to
a processing plant for physical or chemical
treatment, or
(ii) processing of such material in place;
(n) "PARTICIPATION PREMIUM" means a premium payment to Rochester
in the amount of 25% of the total amount of the Development
Facility;
(o) "PROPERTY" means the Mina Real Concessions, and all mineral,
surface, water and ancillary or appurtenant rights attached or
accruing thereto, and any mining licenses, mining leases,
permits, concessions or other form of substitute or successor
mineral title or interest granted, obtained or issued in
connection with or in place of or in substitution for any such
tenures or interests; and
(p) "WORK COMMITMENT" has the meaning assigned to that term in
Recital C;
1.2 All references to moneys hereunder will be to lawful monies of the
United States unless specifically stated otherwise. All payments to be made to
any party hereunder may be made by bank draft mailed or delivered to such party
at its address for notice purposes as provided herein, or by wire transfer
deposited for the account of such party at such bank or banks as such party may
designate from time to time by notice to the paying party. Said bank or banks
will be deemed the agent of the designating party for the purpose of receiving,
collecting and receipting such payment.
2. REPRESENTATIONS AND WARRANTIES
2.1 Each of Rochester and ALB represents and warrants to the other that:
(a) it is a company duly incorporated, organized and validly
subsisting under the laws of its incorporating jurisdiction
and is qualified to acquire and dispose of interests in, and
to explore, develop and exploit, mining Property;
(b) it has full power, capacity and authority to carry on its
business and to enter into and perform its obligations under
this Agreement and any agreement or instrument referred to or
contemplated by this Agreement;
(c) all necessary corporate and shareholder approvals have been
obtained and are in effect with respect to the transactions
contemplated hereby, and no further action on the part of the
directors or shareholders is necessary or desirable to make
this Agreement valid and binding on a party;
- 4 -
(d) neither the execution and delivery of this Agreement nor any
of the agreements referred to herein or contemplated hereby,
nor the consummation of the transactions hereby contemplated
conflict with, result in the breach of or accelerate the
performance required by, any agreement to which it is a party;
and
(e) the execution and delivery of this Agreement and the
agreements contemplated hereby will not violate or result in
the breach of the laws of any jurisdiction applicable or
pertaining thereto or of its constating documents.
2.2 Each of ALB and Mina Real represents and warrants to Rochester that:
(a) all of the representations and warranties described in Section
2.1 apply to Mina Real;
(b) ALB beneficially owns 100% of the issued and outstanding
shares of Mina Real;
(c) Mina Real is the 100% undivided beneficial owner and is in the
process of becoming the registered owner of the Property which
is accurately described in Schedule "A" hereto , and in good
standing, is free and clear of all liens, charges and
encumbrances and are not subject to any claims against their
validity by any person;
(d) ALB has the exclusive right to enter into this Agreement and
all necessary authority to dispose of an interest in and to
its shares in Mina Real in accordance with the terms of this
Agreement;
(e) no person, firm or corporation has any proprietary or
possessory interest in the Property other than ALB, Mina Real
and Rochester hereunder, and no other person is entitled to
any royalty or other payment in the nature of rent or royalty
on any Ore or Product other than a 1% Net Smelter Return
Royalty in favour of MINAS DE VALLARTA S.A. DE C.V ;
(f) no person has any right, agreement, option or understanding,
commitment or privilege capable of becoming an agreement for
the purchase from ALB or any of its Affiliates of any interest
in or to the Property or Mina Real other than ALB, Mina Real
and Rochester;
(g) there is no public or private litigation, arbitration,
proceeding or other governmental investigation pending or
threatened involving any of the Property or ALB or any of its
Affiliates which may, if adversely determined, materially and
adversely affect the Property or the interests of ALB therein
or which seeks to or would, if successful, prevent, restrain
or prohibit any of the transactions contemplated herein;
(h) to the best of its knowledge, information and belief,
conditions on and relating to the Property and operations
conducted by ALB thereon are in compliance with all applicable
laws, regulations or orders relating to environmental matters;
(i) to the best of its knowledge, information and belief, there
are no outstanding orders or directions relating to
environmental matters requiring any work, repairs,
construction or capital expenditures with respect to the
Property and the conduct of operations related thereto, it has
not received any notice of the same and it is not aware of any
basis on which any such order or direction could be made; and
- 5 -
(j) it is not aware of any material fact or circumstance which has
not been disclosed to Rochester which should be disclosed in
order to prevent the representations and warranties in this
section from being misleading or which may be material in
Rochester decision to enter into this Agreement and acquire an
interest in the Mina Real.
2.3 The representations and warranties hereinbefore set out are conditions
on which the parties have relied in entering into this Agreement and will
survive the acquisition of any interest in Mina Real by Rochester and each of
the parties will indemnify and save the other harmless from all loss, damage,
costs, actions and suits arising out of or in connection with any breach of any
representation, warranty, covenant, agreement or condition made by it and
contained in this Agreement.
3. DEVELOPMENT FUNDING
3.1 Rochester hereby agrees to make available to Mina Real the Development
Facility to be used exclusively for the Development Program.
3.2 The Development Facility is a non recourse funding facility which shall
be repaid exclusively from the 80% Net Profits Royalty from Commercial
Production granted to Rochester under this Agreement.
3.3 Commencing on the date of Commercial Production, Rochester shall be
entitled to receive an 80% Net Profits Royalty from Commercial Production until
the full Development Facility and the Participation Premium has been paid in
full. Such Net Profits Royalty shall be registered at the request of Rochester
against the Property in accordance with the laws of Mexico and the parties shall
cooperate to do all things required to properly register the Net Profits Royalty
with the applicable mining registry in Mexico.
3.4 Mina Real will provide to Rochester such advance notice that Rochester
may require but exceeding five business days in writing of any Funding Request
specifying the amount and date of the requested Advance together with a budget
of proposed expenditures for the Advance.
3.5 Subject to Section 4, Advances to Mina Real shall be made by bank draft
or wire transfer in the amount of the Funding Request on the Funding Date.
3.6 Until such time as Rochester has completed the Work Commitment to earn
a 40% interest in Mina Real, all Advances by Rochester shall be deemed to apply
to the Work Commitment.
4. CONDITIONS FOR FUNDING
4.1 Following the execution of this Agreement, the obligation of Rochester
to provide an Advance following receipt of a Funding Request is subject to the
following conditions any of which conditions Rochester may waive in its sole
discretion:
(a) all representations of ALB and Mina Real in this Agreement
being true;
(b) Rochester agreeing to the purpose of the Funding Request in
its sole discretion;
(c) Rochester approving each budget relating to the Development
Program;
- 6 -
(d) Rochester approving of the Development Program and any
amendments to the Development Program;
(e) receipt by Rochester of any regulatory approvals, if required;
(f) Mina Real being up to date on all Net Profits Royalty payments
required to be made to Rochester under this Agreement;
(g) within 60 days of this Agreement, ALB granting an option to
Rochester to purchase the balance of the ownership interest in
Mina Real on terms acceptable to Rochester;
(h) there being no adverse change in the financial position of
Mina Real, or the operations of Mina Real;
(i) neither ALB or Mina Real enters into a negotiation or
agreement with respect to the sale, merger, corporate
reorganization, option or acquisition of any nature of any of
the shares of Mina Real or any portion of the Property without
the consent of Rochester;
(j) there being no additional encumbrances on the Property or
encumbrances of any shares in the capital of Mina Real to be
issued or sold to Rochester without the consent of Rochester;
(k) Rochester being satisfied in its sole discretion with the
results or progress of the Development Program and its
progress in bringing the Property into Commercial Production;
(l) neither ALB nor Mina Real is in default of any material
agreement which default may materially affect ALB or Mina Real
or its ability to comply with the terms of the Option
Agreement or this Agreement.
5. NOTICES
5.1 Any notice, direction or other instrument required or permitted to be
given under this Agreement will be in writing and may be given by the delivery
of the same or by sending the same by electronic facsimile, in each case
addressed as follows:
(a) If to ALB or Mina Real at:
ALB Holdings Ltd.
1305 - ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
And : Mina Real Mexico SA de CV, Attention: President
Rio Tajo # 6
Entre Everest y Andes
Colonia Lindavista, C.P. 63110
Tepic, Nayrit
Mexico
Facsimile No.: ▇▇-▇▇▇-▇▇▇-▇▇▇▇
- 7 -
(b) If to ROCHESTER at:
Rochester Resources Ltd.
▇▇▇▇ - ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇ ▇▇▇
Attention: President
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
5.2 Any notice, direction or other instrument aforesaid will, if delivered,
be deemed to have been given and received on the day it was delivered and, if
sent by facsimile, be deemed to have been given or received on the day it was so
sent unless it was sent:
(a) on a day which is not a Business Day in the place to which it
was sent; or
(b) after 4:00 p.m. in the place to which it was sent,
in which cases it will be deemed to have been given and received on the next day
which is a Business Day in the place it was sent to. Notices which are required
to be sent for information purposes are required to be sent, but for the
purposes of determining the time when receipt of a notice is effective hereunder
it is the time of receipt of the primary notice which is relevant.
5.3 Any party may at any time give to the others notice in writing of any
change of address of the party giving such notice and from and after the giving
of such notice the address or addresses therein specified will be deemed to be
the address of such party for the purposes of giving notice hereunder.
6. FORCE MAJEURE
6.1 No party will be liable for its failure to perform any of its
obligations under this Agreement due to a cause beyond its control (each an
"Intervening Event") (except those caused by its own lack of funds) including,
but not limited to adverse weather conditions, environmental or native land
claims protests or blockages, war, insurrection or other acts against a lawfully
appointed or elected governing body, acts of God, fire, flood, explosion,
strikes, lockouts or other industrial disturbances, laws, rules and regulations
or orders of any duly constituted governmental authority, delays in the granting
or issuance of any necessary permits, licenses or consents or non-availability
of labour, equipment, materials or transportation.
6.2 A party relying on the provisions of subsection 6.1 will promptly give
written notice to the others of the particulars of the Intervening Event and all
time limits imposed by this Agreement will be extended from the date of delivery
of such notice by a period equivalent to the period of delay resulting from an
Intervening Event.
6.3 A party relying on the provisions of subsection 6.1 will take all
reasonable steps to eliminate any Intervening Event and, if possible, will
perform its obligations under this Agreement as far as commercially practical,
but nothing herein will require such party to settle or adjust any labour
dispute or to question or to test the validity of any law, rule, regulation or
order of any duly constituted governmental authority or to complete its
obligations under this Agreement if an Intervening Event renders completion
commercially impracticable. A party relying on the provisions of subsection 6.1
will give written notice to the others as soon as such Intervening Event ceases
to exist.
- 8 -
7. DEFAULT
7.1 Notwithstanding anything in this Agreement to the contrary (other than
the provisions of this Agreement providing for elections to contribute and
contributions to any Program and any Production Program, for which no notice of
default need by given), if any party (a "Defaulting Party") is in default of any
requirement herein set forth the party affected by such default ("Affected
Party") may give written notice ("Default Notice") to the Defaulting Party
specifying the default and unless:
(a) with respect to any default in the payment of any moneys or
the issuance of any shares, within five (5) days of receipt of
the Default Notice the Defaulting Party has cured such
default;
(b) with respect to any default, other than a default in paragraph
14.1(a), which can reasonably be cured within a thirty (30)
days period, within thirty (30) days of receipt of the Default
Notice the Defaulting Party has cured such default; or
(c) with respect to any default, other than a default in paragraph
14.1(a), which is not of a nature as can reasonably be cured
within a thirty (30) day period, within a thirty (30) day
period following receipt of the Default Notice the Defaulting
Party has taken reasonable and prudent action to commence to
cure such default and thereafter diligently pursues the curing
of such default until cured, subject to a maximum period to
cure such default of one hundred and twenty (120) days;
the Affected Party will be entitled to seek any remedy it may have on
account of such default including, without limitation, terminating this
Agreement and/or seeking the remedies of specific performance,
injunction or damages against the Defaulting Party.
8. ARBITRATION
8.1 Any dispute, controversy or claim arising out of or relating to this
Agreement, or the breach, termination or invalidity of it, or any deadlock or
inability of the parties to agree on a course of action to be taken hereunder,
will be referred to and finally resolved by arbitration under the rules of the
BRITISH COLUMBIA INTERNATIONAL COMMERCIAL ARBITRATION CENTRE in effect on the
date hereof.
8.2 The parties agree that:
(a) the appointing authority will be the BRITISH COLUMBIA
INTERNATIONAL COMMERCIAL ARBITRATION CENTRE;
(b) the case will be administered by the BRITISH COLUMBIA
INTERNATIONAL COMMERCIAL ARBITRATION CENTRE in accordance with
its "Procedures for Cases under the BCICAC Rules";
(c) the place of arbitration will be Vancouver, British Columbia;
(d) the number of arbitrators will be three; and
(e) the language used in the arbitral proceeding will be English.
- 9 -
8.1 The arbitrators' fees will be paid by both parties in equal parts
during the course of the arbitration but upon final decision of the dispute, the
defeated party will pay all costs and reimburse all arbitration costs, including
the amounts paid by the prevailing party, subject to the contrary decision of
the arbitrators.
8.2 Arbitrations pursuant to this section 8 will be carried out in such a
manner as to render the arbitration award enforceable in British Columbia, and
in that regard all requirements of any such jurisdiction with respect to
rendering a foreign arbitral award enforceable will be complied with.
8.3 The City of Vancouver will be the venue for any legal proceedings to
enforce in British Columbia.
9. GENERAL
1.2 The parties will execute such further and other documents and do such
further and other things as may be necessary or convenient to carry out and give
effect to the intent of this Agreement.
1.3 Time will be of the essence in the performance of this Agreement.
1.4 The headings of the sections of this Agreement are for convenience only
and do not form a part of this Agreement nor are they intended to affect the
construction or meaning of anything herein contained or govern the rights and
liabilities of the parties.
1.5 This Agreement will enure to the benefit of and be binding upon the
parties hereto and their respective successors and permitted assigns.
1.6 This Agreement constitutes the entire agreement between the parties
and, except as hereafter set out, replaces and supersedes all prior agreements,
memoranda, correspondence, communications, negotiations and representations,
whether oral or written, express or implied, statutory or otherwise between the
parties with respect to the subject matter herein.
1.7 This Agreement will be governed by and construed according to the laws
of British Columbia and the laws of Canada. All actions arising from this
Agreement will be commenced and maintained in the Supreme Court of British
Columbia.
- 10 -
IN WITNESS WHEREOF the parties hereto have executed these presents as
of the day and year first above written.
ALB HOLDINGS LTD. MINA REAL MEXICO S.A. DE C.V.
Per: /s/ ▇▇▇▇ ▇▇▇▇▇▇ Per: /s/ ▇▇▇▇ ▇▇▇▇▇▇
--------------------------------- ---------------------------------
Authorized Signatory Authorized Signatory
ROCHESTER RESOURCES LTD.
Per: /s/ ▇▇▇▇ Good
---------------------------------
Authorized Signatory
- 11 -
SCHEDULE "A"
PROPERTY
--------------------------------------------------------------------------------
CONCESSION NAME CONCESSION TYPE TITLE NUMBER ACRES (HECTARES)
--------------------------------------------------------------------------------
▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 2,266.76
Tajos Cuates Exploration 213209 120.57
Tommini Exploration Pending 495.00
Tommini II Exploration Pending 495.00
--------------------------------------------------------------------------------
TOTAL N/A N/A 3,387.33
--------------------------------------------------------------------------------
All concessions lie within the INEGI topographic sheets F13 D32 (Santa ▇▇▇▇▇ del
Oro) and F13D42 (Ixlan del Rio. See following property claim map.
A-1
THIS IS SCHEDULE "B" TO THE DEVELOPMENT FACILITY AGREEMENT MADE AS OF THE ____
DAY OF JUNE, 2006 BETWEEN ROCHESTER RESOURCES LTD., ALB HOLDINGS LTD. AND MINAS
REAL MEXICO S.A. DE C.V.
1. Pursuant to the attached Development Facility Agreement, Rochester
Resources Ltd. (the "Payee") may become entitled to a 80% Net Profits
Royalty which shall be calculated in accordance with this Schedule.
Unless specifically provided otherwise, any terms or expressions given
a defined meaning in this Schedule shall have a corresponding meaning
in the Development Facility Agreement to which this Schedule is
attached.
2. Minas Real Mexico S.A. de C.V. (the "Owner") shall, at the request of
the Payee, establish a Royalty Account to which it shall debit:
(a) Corporate and Administrative Expenditures;
(b) Operating Losses;
(c) Production Program Costs; and
(d) Reserve Charges;
3. The Owner shall apply Net Profits first to reduce the amounts debited
to the Royalty Account. While there is any debit balance in the Royalty
Account, the Owner shall retain all Net Profits. Whenever the Royalty
Account shows no debits, Net Profits in an amount equal to the credit
balance in the Royalty Account shall be distributed 20% to the Owner
and 80% to the Payee.
4. The Owner shall debit or credit amounts to the Royalty Account, as
applicable, on a monthly basis and distribution of Net Profits shall be
made on a interim basis within 30 days after the end of each fiscal
quarter of the Owner. A final settlement of the distribution of Net
Profits shall be made within 90 days of the end of each fiscal year.
The Owner shall be entitled to deduct any overpayment of the Net
Profits Royalty as revealed in the annual calculation for purposes of
the final settlement from future payments due to the Payee. Any
underpayment shall be paid forthwith.
5. In this Schedule the following terms shall have the following meanings:
(a) "Commercial Production" means the commercial exploitation of
Ore, but does not include milling for the purpose of testing
or milling or leaching by a pilot plant or during the initial
tune-up period of a mill or plant. Commercial Production will
be deemed to have commenced:
(i) if a plant is located on the Property, on the first
day of the month following the first period of thirty
(30) consecutive days during which Ore has been
processed through such plant for not less than
fifteen (15) days at an average rate of not less than
sixty (60%) percent of the initial rated capacity of
such mill or plant, or
(ii) if no plant is located on the Property, on the first
day of the month following the first period of thirty
(30) consecutive days during which Ore has been
shipped from the Property on a regular basis for the
purpose of processing and earning revenue;
- 2 -
(b) "Corporate and Administrative Expenditures" means all
corporate administrative costs of the Owner which do not
exceed 15% of the budgeted corporate administrative costs that
have been approved by the Payee;
(c) "Facilities" means all mines, ▇▇▇▇▇ and plants including,
without limitation, all pits, shafts, haulageways and other
underground workings, and all buildings, plants and other
structures, fixtures and improvements, and all other property,
whether fixed or moveable, as the same may exist at any time
in, or on the Property or outside the Property if for the
exclusive benefit of the Property only including, without
limitation, the construction of a mill on the Property;
(d) "Mineral Products" means the end products derived from
operating the Property as a mine;
(e) "Net Profits" means, in any month after the commencement of
Commercial Production, the amount by which Revenue exceeds
Operating Costs;
(f) "Operating the Property as a mine" or "operation of the
Property as a mine" means, after commencement of Commercial
Production, any or all of the extraction, mining, leaching,
milling, smelting and refining of ores, minerals, metals or
concentrates derived from the Property with a view to selling
Mineral Products;
(g) "Operating Costs" means, for any period after commencement of
Commercial Production, all costs, expenses, obligations,
liabilities and charges of whatsoever kind or nature incurred
or chargeable directly or indirectly in connection with the
operation of the Property as a mine during such period, which
costs, expenses, obligations, liabilities and charges include,
without limiting the generality of the foregoing, the
following without duplication:
(i) all costs of or related to the mining and
transporting of waste, ores or other products and the
operation of the Facilities and all costs of or
related to the processing, treating and marketing of
Mineral Products including transportation,
commissions and/or discounts;
(ii) all costs of maintaining in good standing or
reviewing from time to time the Property and any
interest therein or ancillary thereto including
payment of all government royalties and taxes of any
nature whatsoever in connection therewith, other than
income taxes;
(iii) such amount of cash for working capital as, in the
opinion of the Owner is required for the operation of
the Property as a mine;
(iv) all costs of or related to operating employee
facilities, including housing;
(v) all duties, charges, levies, royalties, taxes
(excluding taxes levied on the income of the parties
and other payments imposed by any government or
municipality or department or agency thereof upon or
in connection with operating the Property as a mine;
(vi) fees, wages, salaries, travelling expenses and fringe
benefits (whether or not required by law) equal to
30% of the amount of gross salaries paid to all
persons directly engaged in respect of and for the
benefit of the Property and all costs involved in
paying for the food, lodging and other reasonable
needs of such persons;
- 3 -
(vii) all costs of consulting, legal, accounting, insurance
and other services;
(viii) all exploration expenditures incurred after
commencement of Commercial Production;
(ix) all capital costs of operating the Property as a mine
including all costs of construction, equipment and
mine development including maintenance, repairs and
replacements and any capital expenditures relating to
an improvement, expansion, modernization, or
replacement of the Facilities;
(x) all costs for waste management, pollution control,
reclamation and remediation, compensation and any
other related costs;
(xi) any costs or expenses incurred or to be incurred
relating to the termination of the operation of the
Property as a mine;
(xii) uninsured losses on the Facilities or in respect to
the operation of the Property as a mine;
and except where specific provision is made otherwise, all
Operating Costs shall be determined in accordance with
generally accepted accounting principles applied consistently
from year to year but such costs shall not include any amount
in respect of amortization of Corporate and Administrative
Expenditures, Production Program Costs, depletion or
depreciation;
(h) "Operating Losses" means, in any month after the commencement
of Commercial Production, the amount by which Operating Costs
exceed Revenue;
(i) "Production Program Costs" means all cash, expenses,
obligations and liabilities of whatever kind or nature spent
or incurred directly or indirectly by the Owner in connection
with the production program in order to equip the Property for
Commercial Production including all costs of obtaining
financing, costs of financing and costs of providing security
in connection with such financing, working capital required
for the initial six month operation of the Property as a mine
or such longer period as may be reasonably justified in the
circumstances and a charge made to the Owner for providing all
technical, management and supervisory services in connection
with the Production Program;
(j) Property" means the Property described in Schedule "A" of the
Development Facility Agreement to which this Schedule "B" is
attached;
(A) "Ore" means all materials from the Property, the nature and
composition of which, in the sole judgement of the Mina Real,
justifies either:
(i) mining or removing from place and shipping and
selling such material, or delivering such material to
a processing plant for physical or chemical
treatment, or
(ii) processing of such material in place;
(k) "Reserve Charges" means an amount to be established by
estimating the cost of rehabilitation, restoration,
reclamation and remediation which will have to be spent after
Commercial Production has terminated and charging a portion of
that cost monthly to the Royalty Account over a reasonable
period of time from commencement of Commercial Production;
- 4 -
(l) "Revenue" means the amount of money received by the Owner from
the sale of Mineral Products or any assets, the cost of which
has been previously charged to the Royalty Account; and
(m) "Royalty Account" means the account to be established by the
Owner for purposes of calculating the amount of the Net Profit
Royalty.
6. The Owner shall at all times maintain adequate records which shall be
made available to the Payee in order that the Payee may verify the
correctness of any entries in the Royalty Account or in the
determination of the Net Profits Royalty. The Owner shall utilize
methods for weighing and sampling ore which are generally accepted
within the industry.