MINING LEASE WITH OPTION TO PURCHASE

(Patented and Unpatented Mining Claims

located in Jefferson County, Montana)

 

BETWEEN:

 

MT. HEAGAN DEVELOPMENT, INC.

 

-and-

 

ELKHORN GOLDFIELDS, INC.

 

January 29, 2001

 

 

 

 

MINING LEASE WITH OPTION TO PURCHASE

(Patented and Unpatented Mining Claims, Jefferson County, Montana)

 

THIS CONTRACT IS SUBJECT TO ARBITRATION

 

This Agreement, effective as of the 29th day of January, 2001 (“Effective
Date”), is between MT. HEAGAN DEVELOPMENT, INC. (“Owner”), whose address is 3819
Highway 93 South, Darby, Montana 59827, and ELKHORN GOLDFIELDS, INC., a Montana
corporation (“EGI”), whose address is 7 Maple Ridge Place, St. Andrews,
Manitoba, Canada R1A 2Y6.

 

Owner warrants and represents that it is the owner, free and clear without lien,
encumbrance or third party interest, save and except a seven percent (7%) net
smelter return royalty (the “Ray Interest”) [pursuant to that certain “Ray
Agreement,” which was dated July 3, 1984 and filed of record on August 22, 1984,
in Book 28 of Miscellaneous at Page 827 in the Clerk and Recorder’s office of
Jefferson County, Montana, regarding the Dewey (M.S. #10017) patented lode
mining claim set forth in Exhibit “A” hereto], of and is in sole possession of
those certain eleven (11) patented mining claims (including one fee lot) and
eight (8) unpatented mining claims (collectively, the “Mining Claims” or
individually, the “Mining Claim”) in Jefferson County, Montana (collectively,
the “Property” as more further described below), the Mining Claims being more
particularly described in Exhibit “A,” attached to this Agreement and
incorporated by reference in this Agreement.

 

Owner warrants and represents that it holds exclusive rights to explore,
develop, mine and remove minerals from the Property.

 

EGI desires to obtain and Owner is willing to grant a mining lease of the
Property, together with an exclusive option to purchase the Property.

 

NOW THEREFORE, in consideration of Two Thousand and No/100 Dollars ($2,000.00)
paid to Owner, the receipt and sufficiency of the mutual covenants and
conditions contained in this Agreement, the parties hereto agree as follows:

 

1.0          Lease. Owner leases the Property to EGI, with the exclusive rights
to explore, develop, mine and remove minerals from the Property, which lease
shall include all rights of access, ingress and egress over, to and from the
Mining Claims; the mining, mineral and extralateral rights; mine-waste dumps and
tailings (pursuant to Sections 6.0 and 15.0); fixtures and other appurtenances
and water rights incident to the Property and all improvements and personal
property on the Property.

 

2.0          Additional Property. (a) Owner represents that he has no interest
in any mining property, fee lands, or water rights (except the Property) within
the area described in Exhibit A. If it appears that Owner has any such interest,
the interest shall, at EGI’s option, be deemed a part of the Property for the
purposes of this Agreement. EGI’s option may be exercised during the initial or
extended term, as described in Section 3.0 (collectively, “term”), of this
Agreement.

 

 

 

 

(b)          If during the term of this Agreement, Owner locates or otherwise
acquires an interest in any mining property, fee lands, or water rights within
the area described in the foregoing subparagraph (a), the interest shall, at
EGI’s option, be deemed a part of the Property for the purposes of this
Agreement. This option of EGI shall be exercised during the initial term of this
Agreement or within 21 years after the Effective Date by both parties, whichever
period shall be the shorter.

 

3.0          Term. (a) The initial term of this Agreement shall be five (5)
years from the Effective Date, unless extended, or sooner surrendered or
otherwise terminated, or until the earlier exercise of the option granted by
Section 23.0.

 

(b)          EGI may extend the initial term of this Agreement for additional
period of five (5) years each by giving Owner notice of the extension not less
than thirty (30) days prior to the expiration of the initial term or any
extension.

 

4.0          Exclusive Possession. EGI shall have the exclusive possession of
the Property during the term of this Agreement, save and except for the
following (i) the right of Owner to enter the Property to complete Owner’s
reclamation of logging operations (including but not limited to cleanup of
logging debris and slash), and (ii) the right of a prior lessee to Owner,
Newmont Mining Corporation or its former affiliate, to enter the Property to
complete the reclamation of its prior activities on the Property, as required of
either of these activities by Montana law, for a reasonable period of time.
Owner warrants, represents, covenants and agrees to indemnify, save, protect,
defend and hold harmless EGI, its agents, attorneys, officers, directors,
contractors, invitees and employees, from and against any and all losses (as
defined in Section 34.0) arising out of, resulting from or relating to its
activities hereunder.

 

5.0          Title. (a) In addition to any other warranties and representations
herein, Owner warrants that it has one hundred percent (100%) of the fee title,
minerals and surface, to each of the Mining Claims and is in possession of the
Property, that it has the right to enter into this Agreement, that it knows of
no other person or entity asserting any interest in the Property or the ground
covered thereby, except the United States Forest Service may have a legal right
to, and may assert a right to, a right of way across a portion of the Property,
and that the Property is free from all liens and encumbrances, except liens for
property taxes not yet due and payable and the Ray Interest. Owner further
warrants to EGI the quiet enjoyment of the Property and the right to explore,
develop, and mine the same.

 

(b)          Owner warrants that the unpatented mining claims included in the
Property have been properly located, all filings and recordings have been timely
and properly made, and that for each assessment year assessment work has been
performed (or other steps taken in accordance with law) for the benefit of the
claims. Owner warrants and will defend title to all of the Property and the
ground covered thereby against all persons whomsoever.

 

 

 

 

(c)          Owner represents that the Ray Agreement and any and all other
option agreements to purchase the Mining Claims have been exercised, fully
complied with, and except for the Ray Interest have no further force and effect.

 

(d)          Owner shall provide EGI with recording data with respect to deeds,
easements, or other documents which bear upon Owner’s title to the Property, and
shall provide EGI with copies of all such documents, together with all title
opinions, in Owner’s possession or control. Owner shall, upon EGI’s request
record any such document in Owner’s possession or control which has not been
recorded. Owner shall deliver to EGI all abstracts in Owner’s possession or
control. Upon the termination of this Agreement EGI shall return all such
abstracts to Owner.

 

(e)          At EGI’s request, Owner shall take all action necessary (including
judicial proceedings) to remove any cloud from or cure any defect in the title
to the Property. If Owner fails or refuses to take any such action, EGI may take
such action in Owner’s name. Owner shall cooperate with EGI in any such action
taken. EGI may recover from Owner or from any payments thereafter to become due
to Owner under this Agreement all costs and expenses (including attorneys’ fees)
incurred by EGI in any such action.

 

(f)          If the United States or any third person attacks the validity of
any of the Mining Claims included in the Property for any reason except EGI’s
failure to comply with its obligation to perform assessment work or to record
and file evidence thereof pursuant to this Agreement, EGI shall have no
obligation to defend the validity of the Mining Claim.

 

(g)          To the best of Owner’s knowledge and belief, as of the Effective
Date, there has been no violation by Owner or other operator regarding prior
activities of any applicable federal, state, regional or county law, permit or
regulation regarding zoning, land use, environmental protection or any other
matter relating to the Property or “prior activities” (defined in Section 6.0)
conducted thereon. “Environmental protection” laws, permits or regulations shall
include but not be limited to those regarding all substances, wastes,
pollutants, contaminants and materials regulated, or defined or designated as
hazardous, extremely or imminently hazardous, dangerous, or toxic, under the
following federal statutes and their state counterparts, as well as these
statutes' implementing regulations: the Comprehensive Environmental Response ,
Compensation and Liability Act, 42 U.S.C. § § 9601 et seq., the Federal
Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C, § § 136 et seq., the
Atomic Energy Act, 42 U.S.C. § § 2011 et seq., and the Hazardous Materials
Transportation Act, 42 U.S.C. § § 1801 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. § § 6901 et seq., the Toxic Substances Control Act, 15
U.S.C. § § 2601 et seq.; the Clean Water Act, 33 U.S.C, § § 1251 et seq., the
Clean Air Act, 42 U.S.C. § § 7401 et seq., the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. § § 11011 et seq., and the Safe Drinking Water Act,
33 U.S.C. § § 300f et seq.

 

 

 

 

6.0          Prior Activities. Owner shall be responsible for reclamation that
may become required of any condition existing on the Property due to activities
of Owner at any time during its ownership of the Property conducted under
Owner’s Operating Permit, as amended (hereinbefore and hereinafter, “prior
activities”), issued by the then-Montana Department of State Lands, predecessor
to the Montana Department of Environmental Quality, including but not limited to
those regarding the leach pad and ponds located on the Park patented lode mining
claim (more particularly described in Exhibit A).

 

Owner shall defend, protect, indemnify, save and hold harmless EGI, its agents,
attorneys, contractors, employees, officers, successors and assigns, from any
and all causes of action, damages, fees (including reasonable attorneys’ fees),
assessments, penalties, losses, liabilities and suits of every kind and
character arising out of, relating to or resulting from, directly or indirectly,
prior activities on the Property; under the statutes, laws and acts cited in
Section 5(g); save and except any such causes of action or damages which may
arise because EGI disturbs prior reclaimed portions of the Property and
negligently or wilfully fails to reclaim said portions of the Property in
conformance with then existing local, state or federal laws.

 

7.0          Lesser Interest. (a) If Owner’s title fails as to any part of the
Property, no royalty shall be payable with respect to the part of the Property
as to which title has failed and the purchase price payable under this Agreement
shall be reduced proportionally (pro-rata on an acreage basis) with respect to
that part of the property.

 

(b)          If Owner owns a lesser interest in any part of the Property than
the entirety thereof (or such other interest as may be set forth in Exhibit A),
then all royalties payable under this Agreement with respect to that part of the
Property shall be reduced proportionally and the purchase price payable under
this Agreement shall be reduced proportionally (pro-rata on an acreage basis)
with respect to that part of the Property.

 

(c)          Subject to the provisions of the foregoing subparagraphs (a) and
(b), if any part of the Property is subject to any royalties or other payments
other than those specifically reserved to Owner in this Agreement, such
royalties or other payments shall be deducted from any amounts payable to Owner
under this Agreement.

 

8.0          Undivided Interests. If the interest claimed by Owner in any part
of the lands described in Exhibit A is less than 100%, the interest claimed by
Owner is set forth in Exhibit A. Any representation or warranty of title made by
Owner shall apply only to the interest set forth in Exhibit A. The royalty
provided for in Section 9.0 shall be reduced so as to be proportional to the
interest set forth in Exhibit A with respect to each part of the Property. If
Owner owns or hereafter acquires an interest in any part of the lands described
in Exhibit A greater than that set forth in Exhibit A, such interest shall be
deemed amended to include such interest, and the royalty payable under this
Agreement with respect to that portion of the Property shall be increased
proportionally.

 

9.0          Royalty. (a) EGI shall pay an advance minimum royalty to Owner on
the dates and in the amounts as follows:

 

 

 

 

  Amount   Due Date           $ 2,000.00   per month, the first payment upon
execution of this Agreement by both parties, that being the initial
consideration referenced above, and on or before the 29th day of each month
thereafter until July 29, 2001;           $ 2,500.00   per month, beginning on
or before July 29, 2001, and on or before the 29th day of each month thereafter
until the first (1st) anniversary of the Effective Date;           $ 5,000.00  
per month, beginning on or before January 29, 2002, and on or before the 29th
day of each month thereafter, pursuant to Section 3.0(b).

 

These advance minimum royalty payments shall be creditable and recoupable, but
not refundable, against any production royalty payments, under Section 9.0, or
purchase payment, under Section 23.0, made pursuant to the Agreement.

 

These advance minimum royalty payments shall be in lieu of any obligation on the
part of EGI, express or implied, to explore, develop, mine, or perform any work
on or in connection with the Property, except as provided in Section 30.0.

 

(b)          Subject to the provisions of Sections 7.0 and 8.0, EGI shall pay to
Owner a royalty of three percent (3%) of the “Net Returns” from all ores,
minerals, or other products removed from the property and sold or processed by
EGI. There shall be credited against the production royalty payments provided
for in this subparagraph (b) all advance minimum royalties previously paid
pursuant to the foregoing subparagraph (a).

 

(c)          “Net Returns” means–

 

(i)          in the case of ores, minerals, or other products which are sold by
EGI in the crude state or as native material, the amount received by EGI from
the purchaser of the ores, minerals, or other products, less Allowable
Deductions;

 

(ii)         in the case of ores, minerals, or other products which are
processed by or for the account of EGI to produce concentrates or other saleable
intermediate products which are sold by EGI, the amount received by EGI from the
purchase of the concentrates or other saleable intermediate products, less
“Allowable Deductions;”

 

 

 

 

(iii)        in the case of ores, minerals, or other products which are
processed by or for the account of EGI to produce concentrates or other saleable
intermediate products which are smelted or otherwise further processed by or for
the account of EGI, an amount equal to the market value of the concentrates or
other saleable intermediate products f.o.b. (free on board) the plant producing
the concentrates or other saleable intermediate products (which amount shall be
deemed to have been received by EGI), less Allowable Deductions; and

 

(iv)         in all other cases, the amount received by EGI from the purchaser
of the ores, minerals, or other products (or, if such ores, minerals, or other
products are deemed to be sold, an amount equal to the market value thereof
f.o.b. the plant producing the same (which amount shall be deemed to have been
received by EGI)), less Allowable Deductions.

 

(d)          “Allowable Deductions” means, to the extent borne or to be borne by
EGI, which relate only to the processing of ores, minerals or other products:

 

(i)          sales, severance, and other similar taxes;

 

(ii)         charges for and taxes on transportation from the mine or, if the
ores are processed, the plant producing the concentrates or other saleable
products, to the place of sale;

 

(iii)        insurance and security costs and charges;

 

(iv)        purchaser’s milling, smelting, refining, and other treatment charges
or costs;

 

(v)         representation, assaying, and umpire costs and fees; and

 

(vi)        marketing costs and commissions.

 

If ores, minerals, or other products are deemed to have been sold, Allowable
Deductions shall include amounts representing the items enumerated above to the
extent that they would have been borne by EGI had the ores, minerals, or other
products actually been sold.

 

10.0         Stockpiling. (a) EGI may stockpile any ores, minerals, or other
products produced from the Property at such place or places as EGI may elect,
either upon the Property or upon other property.

 

(b)          If EGI stockpiles or holds in inventory any ores, minerals, or
other products produced from the Property upon other property for a period
longer than six (6) months, such ores, minerals, or other products shall be
deemed to have been sold, and EGI shall pay to Owner the royalty determined as
provided in Section 9.0.

 

 

 

 

11.0         Commingling. EGI may commingle ores, minerals, or other products
from the Property (“Subject Ore”) with ores, minerals, or other products from
other property (“Other Ore”). Before commingling, EGI shall weigh and sample the
Subject Ore and Other Ore in accordance with sound mining and metallurgical
practice including, as determined necessary by EGI, for moisture and metal
content and assay the samples to determine metal content. EGI shall keep records
showing, as appropriate, weights or volumes, moisture, percent metal content,
and gross metal content of the Subject Ore and Other Ore. Royalties shall be
allocated between Subject Ore and Other Ore on the basis of gross metal content,
with due regard being given to the difference, if any, between the royalty rate
on the Subject Ore and the royalty rate on Other Ore.

 

12.0         Payment. (a) EGI shall make all payments due Owner under the
Agreement by check which shall be transmitted to Owner as provided in Sections
24.0 and 32.0, except for the initial consideration.

 

(b)          All royalty payments shall be made on or before the 25th day of the
calendar month following the calendar quarter in which payment is received or
deemed to have been received for such ores, minerals, or other products.

 

(c)          Royalty payments shall be accompanied by a statement indicating the
amount of ores, minerals, or other products sold or processed and the
computation of the royalty being paid. The statement shall be conclusively
presumed true and correct after the expiration of ninety (90) days after the
date furnished, unless within the ninety (90) day period Owner takes written
exception, specifying with particularity the items excepted to and the ground
for each exception. Owner shall be entitled to an independent audit of the
matters covered by the statement, at Owner’s expense, provided that the audit is
conducted by an accounting firm of recognized standing, at least one of whose
members is a member of the American Institute of Certified Public Accountants.

 

(d)          If at any time during the term of this Agreement it appears that
one or more third parties may have a claim of ownership in the Property, the
minerals lying in or under the Property, or royalties or other payments with
respect to the Property, EGI may withhold from any payments which would
otherwise be due to Owner under the terms of this Agreement an amount sufficient
to satisfy the claims. EGI shall deposit the amount withheld in escrow, giving
notice of the deposit to Owner, the amount to remain in escrow until the
controversy is resolved by decision of a court or arbitrators, or otherwise.
Owner shall pay when due and before delinquent all taxes required by this
Agreement to be paid by Owner and all mortgage and other payments required to
preserve Owner’s interest in the Property. Owner shall furnish EGI with receipts
or other evidence of such payments. If at any time during the term of this
Agreement it appears that any one or more third parties may have a claim against
the Property by reason of any tax, mortgage, or other lien, EGI may pay any past
due payments and shall be subrogated to all rights of the holder against Owner.
If EGI makes any payments to one or more third parties as a result of any claim
of ownership, tax, mortgage, or lien, either by way of contract, settlement,
compromise, pursuant to final judgment of any court of record, or otherwise, EGI
may recover from Owner or from payments thereafter to become due to Owner under
this Agreement the amount of any payment and all costs and expenses (including
attorneys’ fees) incurred by EGI in connection with the claim of ownership, tax,
mortgage, or lien.

 

 

 

 

13.0         Operations. (a) During the term of this Agreement, EGI shall have
free and unrestricted access to the Property, and shall have the right (i) to
explore, develop, and mine the Property and to extract, remove, and sell or
otherwise dispose of for its own account any and all ores, minerals, or other
products, (ii) to remove ores, air, water, waste, and materials from the
Property or from other property by means of underground or surface operations on
or in the Property or on or in other property, (iii) to deposit ores, water,
waste, tailings, and materials from the Property or other property on or in the
Property, and to use any part of the Property for waste dumps and tailings
disposal areas, (iv) to conduct on or in the Property general mining, treatment,
processing, and related operations respecting the property and other property,
and to use any part of the Property for any purposes incident to such
operations, and (v) to construct, use, and maintain on the Property such roads,
improvements, structures, equipment, personal property, and fixtures as may be
necessary or convenient for the conduct of EGI’s operations.

 

(b)          EGI shall conduct all operations on the Property in a good and
workmanlike manner and in accordance with accepted mining practice. All
decisions with respect to exploration, development, and mining of the Property
and the selling of ores, minerals, concentrates, or other products from the
Property, including all decisions regarding the commencement, suspension,
resumption, or termination of any operations, shall be made by EGI in its sole
discretion. EGI may sell ores, minerals, or other products, and may stockpile
ores, minerals, or other products for any length of time before selling the
same. There are no covenants or agreements regarding these matters other than
those expressly set forth in this Agreement.

 

(c)          EGI may use any lawful mining method, whether or not the method is
in general use at the time of the execution of this Agreement, including without
limitation, underground mining (including methods, such as block caving, which
result in the disturbance or subsidence of the surface), surface mining
(including strip mining, open pit mining, and dredging), and in situ mining
(including solution mining, leaching, gasification, and liquification).

 

(d)          EGI shall comply with all laws and regulations governing its
operations on the Property, including all laws and regulations regarding
reclamation of the Property. Owner is aware that if ores, minerals or other
products are produced they may contain sulphide minerals which are susceptible
to acid generation. EGI agrees to take those precautions necessary to prevent,
contain, and neutralize any such acid formation or generation, as required by
law. If this Agreement is inconsistent with or contrary to any law or
regulation, the law or regulation shall control and this Agreement shall be
deemed to be modified accordingly.

 

(e)          If EGI mines, produces and sells ores, minerals and other products
from the Dewey (M.S. #10017) patented lode mining claim, one of the Mining
Claims hereto, while the Ray Interest is in force and effect, EGI shall pay in a
timely and proper manner all of the royalty payments that come due as a result
of EGI’s activity on the Dewey (M.S. #10017) claim, so long as Owner provides
EGI on or before the Effective Date with all documentation related to the Ray
Interest, with an accounting and status of any payment obligations pursuant to
the Ray Agreement and with an Estoppel Certificate evidencing the current force
and effect of such obligation and any necessary consent to transfer of such
obligation.

 

 

 

 

14.0         Easements. If requested by EGI from time to time during the term of
this Agreement, Owner shall execute, acknowledge, and deliver to EGI, without
further consideration, one or more instruments granting to EGI, without cost to
EGI, easements upon, over, or through the Property or upon, over, or through
other property owned by Owner, for the construction, maintenance, use, and
removal of pipe lines, telephone lines, electrical power or transmission lines,
roads, railroads, tramways, flumes, ditches, shafts, drifts, tunnels, and other
facilities necessary or convenient for EGI’s operations on or in the Property or
on or in other Property. Any such instruments granted to EGI by Owner shall be
in force only so long as this Agreement is enforceable and in effect unless EGI
exercises its option to purchase the Property (pursuant to Section 23.0) in
which case such instruments shall not be so limited.

 

15.0         Dumps and Tailings. All dumps, tailings, or residue remaining after
mining, milling, or subsequent processing of ores, minerals, or other products
from the Property by EGI shall be the property of EGI (pursuant to Section 6.0),
unless such dumps, tailings, or residue remain upon the Property after the
period of time provided for in Section 26.0, and after EGI satisfies all of the
State of Montana’s statutory and bonding requirements then in effect with regard
to reclamation and remediation of such dumps, tailing or residue, in which case
the dumps, tailings, or residue shall be the property of the Owner.

 

16.0         No Implied Covenants. No covenants or conditions relating to the
exploration, development, mining, or related operations on or in connection with
the Property, or the timing thereof, other than those expressly provided in this
Agreement, shall be implied. After commencing any exploration, development,
mining, or related operations on or in connection with the Property, EGI may in
its sole discretion curtail or cease such operations so long as it continues to
make any payments due Owner under this Agreement.

 

17.0         Protection from Liens and Damages. EGI shall keep the Property,
with regard to its activities hereunder, free of liens for labor performed or
materials or merchandise furnished for use on the Property under this Agreement,
and shall hold Owner harmless from all costs, loss, or damage which may result
from any work or operations of EGI or is possession or occupancy of the
Property.

 

18.0         Taxes. Owner shall pay all taxes levied against the Property prior
to the date of this Agreement. EGI shall pay all taxes levied against the
Property during the term of this Agreement, so long as Owner provides EGI with
prompt, timely notice and evidence of such pending tax obligations. In the case
of taxes for the tax year in which this Agreement commences, and for the tax
year in which this Agreement ends, there shall be an apportionment, EGI to bear
the proportion of taxes upon the Property applicable to the part of the tax year
included under this Agreement, and Owner to bear the balance of the taxes. EGI
shall pay all taxes levied during the term of this Agreement against all
improvements, structures, equipment, personal property, and fixtures placed upon
the Property by EGI and all taxes levied against EGI as an employer of labor.
All taxes shall be paid when due and before delinquent, but EGI shall be under
no obligation to pay any tax so long as the tax is being contested in good faith
and by appropriate legal proceedings and the nonpayment thereof does not
adversely affect Owner or any right, title, or interest of Owner in or to the
Property.

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

19.0         Insurance. EGI shall carry at all times during the term of this
Agreement worker’s compensation and other insurance required by state laws and
mining regulations, or EGI may self-insure as to such matters if it qualifies as
a self-insurer under the appropriate laws and regulations. EGI shall also carry,
and keep current, at all times during the term of this Agreement, a General
Liability insurance policy on the Property in the amount of Five Hundred
Thousand and No/ths Dollars ($500,000) and an Umbrella insurance policy on the
Property in the amount of Five Million and No/ths Dollars ($5,000,000) with
Owner named as co-insured on the policies.

 

20.0         Inspection. (a) Owner or Owner’s authorized representative may
enter on the Property at any reasonable time for the purpose of inspection, but
shall enter at Owner’s own risk and so as not to hinder unreasonably the
operations of EGI. Owner shall indemnify and hold EGI, its agents, attorneys,
contractors, employees and officers, harmless from any costs, loss, claims,
causes of action or damage by reason of injury to or the presence of Owner or
Owner’s representatives on the Property.

 

(b)          Owner or Owner’s authorized representative may, at any reasonable
time, inspect any records pertinent and necessary for the purpose of
substantiating the compliance of EGI with the provisions of this Agreement.

 

21.0         Data. (a) Upon the execution of this Agreement, Owner shall deliver
to EGI all drill core, all geological, geophysical, and engineering data and
maps, logs of drill holds, results of assaying and sampling, and similar data
concerning the Property (or copies thereof) which are in Owner’s possession or
control.

 

(b)          Upon the surrender or other termination of this Agreement (except
by exercise of the option contained in Section 23.0), EGI shall, within sixty
(60) days after termination, (i) return to owner all drill core and original
data delivered by Owner to EGI which are then in EGI’s possession or control,
and (ii) make available for inspection by Owner all factual geological and
geophysical data and maps (not including interpretive data), logs of drill
holes, and results of assaying and sampling pertaining to the Property which EGI
has obtained as a result of its exploration work under this Agreement and which
are then in EGI’s possession or control. Upon Owner’s request made within sixty
(60) days after termination of this Agreement (except by exercise of the option
contained in Section 23.0), EGI shall, at Owner’s expense, provide Owner with
the drill core designated by Owner and with copies of any portion of the
geological and geophysical data and maps (not including interpretive data), logs
of drill holes, and results of assaying and sampling designated by Owner.

 

(c)          EGI makes no representation or warranty as to the accuracy,
sufficiency or completeness of any such data or information, and shall not be
liable on account of any use by Owner or any other person of any such data or
information. EGI shall not be liable for the loss or destruction of any drill
core. 

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

22.0         Confidentiality. All information obtained by Owner or Owner’s
authorized representatives from EGI arising out of EGI’s activities on the
Property pursuant to this Agreement shall be kept strictly confidential by Owner
and shall not be released to any third person except upon the prior written
consent of EGI.

 

23.0         Option. In further consideration of the benefits set forth herein,
Owner grants to EGI during the term of this Agreement the sole and exclusive
option to purchase the Property, together with and including all appurtenances
and water rights incident thereto and all improvements and personal property
thereon, as such Property is fully described in Section 1.0, free and clear of
all liens and encumbrances, for a total “purchase price” of One Million Five
Hundred Thousand and No/100 Dollars ($1,500,000.00), payable in ten (10) equal
payments, to be made over twenty-seven (27) months, with a payment due every
three (3) months. The principal amount due Owner shall carry an interest rate of
seven and one half percent (7.5%) per annum. The first such payment shall be due
on the day EGI elects to exercise the Option. EGI shall be entitled to a credit
against the purchase price for all amounts paid under the provisions of Section
9.0, and for all costs and expenses incurred under the provisions of Section 5.0
(collectiely, “Option Credits”), should it elect the option to purchase provided
for herein. The following formula sets forth the manner by which the amount of
these options payments shall be determined:

 

[$1,500,000.00 - Option Credits]  = whole number plus remainder

$150,000.00

 

Said whole number equals number of payments of $150,000 to be paid before final
payment of amount remaining to total purchase price is paid.

 

EGI shall also have the option at its election to prepay any or all option
payments provided for herein.

 

24.0         Escrow and Property Purchase.

 

(a)          Contemporaneously with the execution of this Agreement, Owner and
EGI shall accomplish the following:

 

(i)          Owner shall have executed and acknowledged, and deliver to Helena
Abstract & Title Company (“Escrow Agent”), 6th and Fuller Streets, Helena,
Montana 59601, 1-406-442-5080, a warranty deed conveying the Property to EGI, in
substantially the form set forth in Exhibit”B,” attached hereto and incorporated
herein by reference. Owner and EGI hereby appoint Escrow Agent, as their escrow
agent to receive and distribute all payments hereunder and to hold the warranty
deed and deliver it to the party entitled to receive it;

 

(ii)         The parties agree that the Escrow Agent shall act pursuant to
Escrow Instruction executed contemporaneously with the execution of the
Agreement; 

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

(ii)         The parties agree that any payments made to Owner by EGI hereunder,
pursuant to Sections 9.0, 23.0, 24.0 or any other provisions herein, shall be
made to Escrow Agent on behalf of Owner; and

 

(iii)        A conforming copy of this Agreement, the original Warranty Deed and
an original Escrow Instructions document shall be delivered to the Escrow Agent.

 

(b)          At such time as the total costs and expenses incurred by EGI as set
forth in Section 5.0 and the total payments made to Owner as set forth in
Section 9.0 equal the total consideration due under Section 23.0, or EGI
otherwise elects to exercise its option, EGI will notify the Escrow Agent in
writing, with a copy to Owner, that the option to purchase the Mining Claims, as
described in the notice, has been exercised. After that date, and immediately
upon full payment of the purchase price as set forth in Section 23.0, the Escrow
Agent will deliver to EGI the escrowed Warranty Deed conveying to EGI the Mining
Claims. Upon receipt of the Warranty Deed, EGI will own the entire and undivided
ownership interest in the Mining Claims described in the Warranty Deed, subject
to the terms and conditions of this Agreement.

 

(c)          EGI, at its sole discretion, may appoint a successor to the Escrow
Agent designated above. If a successor is appointed, EGI shall give written
notice to Owner specifying the name and address of the successor, and within ten
(10) days from the date of the notice, Owner and EGI shall execute and deliver
instructions to the successor in the same form as executed with this Agreement,
or as EGI shall otherwise reasonably designate.

 

In the event there is a reduction in the purchase price as provided in Section
23.0, within ten (10) days from the date of such reduction, the parties hereto
shall execute and deliver to the Escrow Agent Amended Escrow Instructions
specifying the revised purchase price. In addition EGI shall deliver to the
Escrow Agent a recordable Deed or Deeds, if necessary, executed by Owner that
conveys to EGI the remaining Mining Claims then comprising the Property.

 

(d)          All reasonable charges of the Escrow Agent and any successor escrow
agent shall be paid by EGI.

 

25.0         Termination and Surrender. (a) If EGI fails to comply with the
provisions of this Agreement, including Section 9.0, and if EGI does not
initiate and diligently pursue steps to correct the default within thirty (30)
days after notice has been given to it by Owner specifying with particularity
the nature of the default, then upon the expiration of the thirty (30) day
period, all rights, liabilities, and obligations of EGI under this Agreement
shall terminate, except that (i) EGI shall have the rights provided in Sections
26.0 and 27.0, (ii) EGI shall have those liabilities existing on the date of
termination, the obligations provided in Section 21.0, and liability for
payments under Section 9.0 then due or, in the case of production royalties,
then accrued, and (iii) any and all obligations and duties EGI may then have
with regard to reclamation and remediation required by local, state or federal
law. Any default claimed with respect to the payment of money may be cured by
the deposit in escrow with Escrow Agent of the amount in controversy (not
including interest or claimed consequential, special, exemplary, or punitive
damages) and giving of notice of the deposit to Owner, the amount to remain in
escrow until the controversy is resolved by decision of a court or arbitrators,
or otherwise. If EGI by notice to Owner disputes the existence of a default,
then this Agreement shall not terminate unless EGI does not initiate and
diligently pursue steps to correct the default within thirty (30) days after the
existence of a default has been determined by decision of a court or
arbitrators, or otherwise. 

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

(b)          Subject to the right of Owner to terminate this Agreement as
provided in the foregoing subparagraph (a), controversy between the parties to
this Agreement shall not interrupt operations under this Agreement. In the event
of any controversy, EGI may continue operations under this Agreement and shall
make the payments provided for in this Agreement notwithstanding the existence
of the controversy. Upon the resolution of the controversy, such payments or
restitutions shall be made as required by the terms of the decision of the court
or arbitrators, or otherwise.

 

(c)          EGI may at any time terminate this Agreement as to all or any part
of the Property by delivering to Owner or by filing for record in the
appropriate office (with a copy to Owner) a recordable Surrender of this
Agreement or a Partial Surrender describing that portion of the Property as to
which this Agreement is surrendered. Upon mailing the Surrender or Partial
Surrender to Owner or to the appropriate office, all rights, liabilities, and
obligations of EGI under this Agreement with respect to the portion of the
Property as to which this Agreement is terminated shall terminate, except that
(i) EGI shall have the rights provided in Sections 26.0 and 27.0, and (ii) EGI
shall have those liabilities existing on the date of termination, the
obligations provided in Section 21.0, and liability for payments under Section
9.0 then due or, in the case of production royalties, then accrued.

 

26.0         Removal of Property. For a period of six (6) months after the
termination of this Agreement EGI shall have the right (but not the obligation)
to remove from the Property all broken or stockpiled ore, minerals, or other
products (subject to the payment of royalties provided for in this Agreement),
dumps, tailing, and residue, and all structures, equipment, personal property,
and fixtures owned by EGI or erected or placed on or in the Property by EGI,
except mine timbers in place. EGI may keep one or more watchmen on the Property
during the above-mentioned period.

 

27.0         Access. For as long as necessary after termination of this
Agreement, EGI shall have the right of access to and across the Property for
reclamation purposes.

 

28.0         Amendments, Relocations, and Patents. During the term of this
Agreement EGI shall have the right (but not the obligation) to amend or relocate
any or all of the unpatented mining claims included in the Property, to locate
placer claims on ground theretofore covered by lode claims and vice versa, to
locate millsites on ground theretofore covered by mining claims and vice versa,
and to locate any fractions existing on the date of this Agreement or resulting
from the location, amendment, or relocation of mining claims or millsites. All
such locations, amendments, or relocations shall be made in the name of Owner.
At the request of EGI, Owner shall apply for patent, as such right becomes
legally available, for any or all of the unpatented mining claims and millsites.
All expenses authorized by EGI in connection with locating, amending, or
relocating mining claims or millsites or prosecuting patent proceedings shall be
borne by EGI. The right of EGI under this Agreement shall extend to all such
locations, amended locations, relocations, and patented mining claims and
millsites. 

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

29.0         Compliance with Federal Land Policy and Management Act. (a) Owner
warrants that the location notices or location certificates for the unpatented
mining claims included in the Property have been timely filed in the proper
office of the Bureau of Land Management pursuant to § 314(b) of the Federal Land
Policy and Management Act of 1976, 43 U.S.C. § 1744(b).

 

(b)          Owner warrants that evidence of assessment work or notices of
intention to hold for the unpatented mining claims included in the Property have
been timely recorded in the proper county (or recording district) office and
timely filed in the property office of the Bureau of Land Management pursuant to
§ 314(a) of the Federal Land Policy and Management Act of 1976, 43 U.S.C. §
1744(a), for each assessment year for which such recording and filing was
required and including the assessment year ending September 1, 2001.

 

30.0         Assessment Work. (a) Owner warrants that the annual assessment work
required to hold the Property has been performed for the assessment year ending
September 1, 2001, or that it has otherwise complied with the requirements of
Sections 82-2-101 et seq. of the Montana Code Annotated regarding, among other
requirements, locating claims, recording certificates of location, maintaining
claims and recording affidavits of assessment work; and with all federal laws,
including those set forth in 43 C.F.R. Sections 3831 and 3833, regarding the
aforementioned requirements and the payment of claim maintenance or other fees,
as applicable. EGI shall perform the assessment work for the benefit of the
Property for the assessment year ending September 1, 2002, and for every year
thereafter in which EGI continues this Agreement beyond the 1st day of September
of that assessment year. If any court or governmental agency decides that the
work performed by EGI does not constitute the kind of work required by federal
or state law, EGI shall nevertheless be deemed to have complied with the terms
of this Agreement if the work done by EGI is of the kind generally accepted in
the mining industry as assessment work under existing law.

 

(b)          Owner represents that the Property is one contiguous group of
mining claims, except for the Golden Curry Placer claim (more particularly
described in Exhibit A).

 

31.0         Change in Federal Mining Law. If the United States establishes a
leasing system or other system of tenure for lands or minerals now subject to
location under the mining laws prior to purchase of the Property (pursuant to
Section 23.0), EGI may make the election to first attempt a re-negotiation of
the Agreement with Owner, solely with regard to the unpatented claims set forth
in Exhibit A. If the re-negotiation does not resolve the concerns of EGI, EGI
and Owner will immediately seek resolution of this matter pursuant to Section
41.0, and this Agreement will remain in full force and effect without default
thereof during this dispute resolution period. 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

 

32.0         Notices. All notices and other communications to either party shall
be in writing and shall be sufficiently given if (i) delivered in person, (ii)
sent by electronic communication, with confirmation sent by registered or
certified mail, return receipt required, or (iii) sent by registered or
certified mail, return receipt required. All notices shall be effective and
shall be deemed delivered (i) if by personal delivery, on the date of delivery,
(ii) if by electronic communication, on the date of receipt of the electronic
communication, and (iii) if by mail, on the date of mailing. Until a change of
address is communicated as indicated above, all notices to Owner shall be
addressed:

 

Mr. C.A. Dickey

Mt. Heagan Development, Inc.

Highway 93 South

Darby, MT 59827

 

and all notices to EGI shall be addressed:

 

Mr. Ian Berzins

Elkhorn Goldfields, Inc.

7 Maple Ridge Place

St. Andrews, Manitoba Canada R1A 2Y6

 

33.0         Assignment. (a) The rights of either party under this Agreement may
be assigned only in the Agreement’s entirety, subject to the provisions set
forth below.

 

(b)          No change or division in the ownership of the Property or the
payments provided for in this Agreement, however, accomplished, shall enlarge
the obligations or diminish the rights of EGI. Owner covenants that any change
in ownership shall be accomplished in such a manner that EGI shall be required
to make payments and to give notices to but one person, firm, or corporation,
and upon breach of this covenant, EGI may retain all monies otherwise due to
Owner until the breach has been cured. No change or division in ownership shall
be binding on EGI until thirty (30) days after Owner has given EGI a certified
copy of the recorded instrument evidencing the change or division.

 

(c)          EGI may assign its entire interest in this Agreement, subject to
approval of the Owner, which approval shall not be unreasonably withheld. If
such approval is withheld by Owner, EGI may immediately seek an expedited review
by arbitration of Owner’s decision to withhold approval, pursuant to Section
41(b). If the arbitrator finds that the Owner is unreasonable in its decision,
Owner shall pay all costs and expenses of EGI for this arbitration (including
but not limited to reasonable attorney fees), contrary provisions in Section
41(b) notwithstanding. If EGI assigns the interest in this Agreement, liability
for breach of any obligation under this Agreement shall rest exclusively upon
the holder of this Agreement who commits the breach.

 

(d)          If Owner desires to sell or otherwise dispose of all or any part of
his interest in the Property or in this Agreement, Owner shall first offer the
interest to EGI stating the interest proposed to be sold or otherwise disposed
of, the offering price (which may include deferred payments), and other terms
and conditions of sale. EGI may accept the offer by notice to Owner given within
sixty (60) days following the effective date of Owner’s offer. If EGI does not
accept Owner’s offer, Owner may sell or otherwise dispose of the interest
offered to EGI at a price and upon terms and conditions equal to or more
favorable to Owner than those offered to EGI, provided that the sale or other
disposition is effectuated within one hundred twenty (120) days from the
effective date of Owner’s offer. 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

34.0         Indemnification. In addition to any other indemnifications
hereunder:

 

(a)          Indemnification by EGI. EGI warrants, represents, covenants and
agrees to indemnify, save, protect, defend and hold harmless Owner, its agents,
officers, directors, contractors, invitees and employees, from and against any
and all liabilities, liens, claims, suits, adverse legal or administrative
judgments, disputes, damages, losses, costs, expenses, penalties, fines,
assessments and causes of action, including reasonable attorneys' fees and
expenses (collectively, “losses”) arising out of, resulting from or relating to
its activities on or involving the Property, or under the terms and conditions
of this Agreement, or caused by the negligence, misconduct or fault of EGI, its
agents, employees or contractors, (except for acts attributable to the
negligence of Owner, its agents, employees, and invitees), and from its
noncompliance or alleged noncompliance with all applicable laws, permits or
regulations.

 

(b)          Indemnification by Owner. In addition to other indemnifications set
forth herein, Owner warrants, represents, covenants and agrees to indemnify,
save, protect, defend and hold harmless EGI, its agents, attorneys, officers,
directors, contractors, invitees and employees, from and against any and all
said losses arising out of, resulting from or relating to any prior activities
existing on the Effective Date, its activities after the Effective Date on or
involving the Property, or under the terms and conditions of this Agreement, or
caused by the negligence, misconduct or fault of Owner, its agents, invitees,
contractors, employees or contractors (except for acts attributable to the
negligence of EGI, its agents, employees, and invitees).

 

(c)          In no event shall either party be liable to the other party
pursuant to this Agreement for any consequential, punitive, special or
incidental loss or damage.

 

35.0         Inurement. All covenants, conditions, limitations, and provisions
contained in this Agreement apply to and are binding upon the parties to this
Agreement, their heirs, representatives, successors, and assigns.

 

36.0         Short Form. Contemporaneously herewith EGI and Owner have executed
and delivered a Short Form Memorandum of this Agreement, substantially in the
form set forth in Exhibit”C,” attached hereto and incorporated herein by this
reference. EGI may record the Short Form or this Agreement, or both, as it may
elect.

 

37.0         Modification. No modification, variation, or amendment of this
Agreement shall be effective unless it is in writing and is signed by all
parties to this Agreement.

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

38.0         Entire Agreement. This Agreement sets forth the entire agreement of
the parties and supersedes all previous and contemporaneous agreements,
representations, warranties, and undertakings, written or oral.

 

39.0         Construction. (a) The paragraph headings are for convenience only,
and shall not be used in the construction of this Agreement. The term “Owner”
shall be deemed to be singular or plural, and shall be deemed to be masculine,
feminine, or neuter, whenever the construction of this Agreement so requires.

 

(b)          The invalidity of any provision of this Agreement shall not affect
the enforceability of any other provision of this Agreement.

 

40.0         Governing Law. The formation, interpretation, and performance of
this Agreement shall be governed by the internal law (but not the conflicts of
law rules) of the state of Montana.

 

41.0 Mediation and Arbitration. Any dispute arising out of or related to the
negotiation, existence, performance, breach, default or termination of this
Agreement, or the method of resolution thereof, shall be determined:

 

(a)           First, by mediation of the parties to be facilitated by a mediator
acceptable to both parties. The exclusive place of mediation shall be Helena,
Montana; and

 

(b)          Finally, if mediation does not resolve the dispute, by arbitration
under the then Commercial Arbitration Rules of the American Arbitration
Association. The exclusive place of arbitration shall be Helena, Montana. The
arbitrators shall issue their award within ninety (90) days after submission of
the dispute to arbitration. Costs of arbitration shall be borne equally.
Judgment on any award may be entered in any court having jurisdiction over the
person or property of the party against whom the award is entered. No punitive
damages may be awarded hereby.

 

42.0         Cooperation and Additional Documents. Owner shall cooperate with
EGI, when reasonably required, for EGI to obtain any permits or other documents
so that EGI can exercise any and all of its rights hereunder. Owner shall
provide EGI with such additional documents as may be necessary to carry out the
purposes of this Agreement. If conditions change by reason of acquisitions,
conveyances, assignments, or other matters relating to the title to or
description of the Property, Owner and EGI shall execute amendments of this
Agreement and the Short Form of this Agreement, and any other documents which
may be necessary to reflect such changed conditions.

 

43.0         Homestead Waiver. Owner expressly waives and releases all rights,
exemptions, and benefits under or by virtue of any homestead, homestead
exemption, dower, courtesy, community property, or marital property laws now or
hereafter in force in the state in which the Property is located.

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

44.0         Survival.. Any terms or agreements herein which by their nature may
or must be performed or occur after termination of this Agreement shall survive
such termination.

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.

 

OWNER: MT. HEAGAN DEVELOPMENT, INC.       By:       John C. Orser     Title:
Vice President       EGI: ELKHORN GOLDFIELDS, INC.       By:       Ian Berzins  
  Title: Managing Director

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

STATE OF MONTANA )   :  ss. County of Lewis and Clark )

 

On this 29th day of January, 2001, before me, the undersigned, a Notary Public
in and for the state of Montana, personally appeared John C. Orser, known to me
to be the Vice President of Mt. Heagan Development, Inc., and known to me to be
the person whose name is subscribed to the foregoing instrument and acknowledged
to me he executed the same on behalf of Mt. Heagan Development, Inc.

 

In witness whereof, I have hereunto set my hand and affixed my Notarial Seal on
the day and year first-above written.

 

      Notary Public for the State of Montana (Notarial Seal) Residing at:     My
commission expires: .  

  

STATE OF MONTANA )   :  ss. County of Lewis and Clark )

  

On this 29th day of January, 2001, before me, the undersigned, a Notary Public
in and for the state of Montana, personally appeared Ian Berzins, known to me to
be the Managing Director of Elkhorn Goldfields, Inc., and known to me to be the
person whose name is subscribed to the foregoing instrument and acknowledged to
me he executed the same on behalf of Mt. Heagan Development, Inc.

 

In witness whereof, I have hereunto set my hand and affixed my Notarial Seal on
the day and year first-above written.

 

      Notary Public for the State of Montana (Notarial Seal) Residing at:     My
commission expires: .  

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

EXHIBIT “A”

TO

MINING LEASE WITH OPTION TO PURCHASE (“AGREEMENT”)

BY AND BETWEEN

MT. HEAGAN DEVELOPMENT, INC. (OWNER”)

AND

ELKHORN GOLDFIELDS, INC. (“EGI”)

DATED JANUARY 29, 2001

 

Pursuant to the aforementioned Agreement, Owner leases to EGI all of its right,
title and interest in and to the certain patented and unpatented mining and
millsite claims and fee lots, and water right, situated in Jefferson County,
Montana, and more particularly described as follows:

 

I.           Patented Mining Claims and Fee Lots

 

A.                       Claims

 

  Claim Name   Mineral Survey No.   Township   Range   Section   Meridian      
                    Golden Curry No. 1   7218   6N   3W   10   P.M.M.   Golden
Curry No. 2   7219   6N   3W   10   P.M.M.   Golden Curry No. 3   7220   6N   3W
  10   P.M.M.                           Dewey   10017   6N   3W   11&14   P.M.M.
                          Gold Hill   10691   6N   3W   10&11   P.M.M.   Birds
Eye   10691   6N   3W   11   P.M.M.   Montana   10691   6N   3W   11   P.M.M.  
Heagan   10691   6N   3W   10&11   P.M.M.   Park   10691   6N   3W   10&11  
P.M.M.                           Erickmann   10725   6N   3W   10   P.M.M.

 

 

B.            Fee Lots

 

  New Year   Government Lots 6 and 9   6N   3W   11&14   P.M.M.

  

Page 1 of 2 – Exhibit “A”

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

II.          Unpatented Mining and Millsite Claims

 

                Jefferson                                   County, MT          
            BLM Serial   Location   Recordation                   Claim Name  
(MMC No.)   Date   Book   Page   Township   Range   Section   Meridian          
                            South Golden Curry   33425   6/25/34   43   576   6N
  3W   10&15   P.M.M.       Amended at:       47   09                          
Golden Curry Millsite   33426   2/28/35   Q   60   6N   3W   10   P.M.M.  
Sourdough Fraction   33427   10/24/36   46   125   6N   3W   10   P.M.M.   South
Sourdough   33428   10/24/36   46   124   6N   3W   10   P.M.M.   East Golden
Curry   33429   7/16/36   45   81   6N   3W   10   P.M.M.       Amended at:    
  47   08                           South Golden Curry No. 2   33430   6/24/34  
45   32   6N   3W   10   P.M.M.                                       Golden
Curry Placer                                   (Elkhorn Bar Placer)   33432  
7/16/36   R   55   6N   3W   10   P.M.M.                                      
New Year   40852   2/15/36   22 (lodes) 557  6N   3W   11&14  P.M.M.            
              Amended at:                                   35 (lodes) 534      
               

  

III.           Water Right

 

Water Right filed with the State of Montana Department of Natural Resources and
Conservation:

 

Water Right Number 41E-W-127803-00

Point of Diversion: Section 11, T. 6 N., R. 3 W., P.M.M., Jefferson County,
Montana

Place of Use: Section 11, T. 6 N., R. 3 W., P.M.M., Jefferson County, Montana

 

Point of diversion and place of use are on Birds Eye, a/k/a Birdseye, patented
mining claim M.S. No. 10691.

 

 

Initialed for Identification

 

Page 2 of 2 – Exhibit “A”

 

{Mining Lease with Option to Purchase - w Exhibit.1 /}

 

 

 

 

EXHIBIT "B"

TO

MINING LEASE WITH OPTION TO PURCHASE ("AGREEMENT")

BY AND BETWEEN

MT. HEAGAN DEVELOPMENT, INC. (OWNER")

AND

ELKHORN GOLDFIELDS, INC. ("EGI")

DATED JANUARY 29, 2001

 

[Warranty Deed attached]

 

____________________________________

Initiated for Identification

 

 

 

 

RECORDING REQUESTED BY

AND RETURN TO:

Elkhorn Goldfields, Inc.

7 Maple Ridge Place

St. Andrews, Manitobia

Canada RIA 2&6

 

WARRANTY DEED

 

MT. HEAGANDEVELOPMENT, INC. ("Mt. Heagan"), a Montana corporation ("Grantor"),
whose address is 3819 Highway 93 South, Darby, Montana 59827, for and in
consideration often and No/lOO Dollars ($10.00) and other valuable consideration
paid to it by Mt. Heagan, the receipt of which is hereby acknowledged, hereby
grants, gives, bargains, sells, and conveys to ELKHORN GOLDFIELDS, INC.
("Elkhorn Goldfields"), a Montana corporation ("Grantee"), whose address is 7
Maple Ridge Place, St. Andrews, Manitoba, Canada RIA 2Y6, all of Grantor's
right, title and interest in and to that certain real property situated in
Jefferson County, State of Montana, more particularly described in Exhibit "A,"
attached hereto (the "Property").

 

Grantor represents and warrants to Grantee, its successors and assigns:

 

(i)          That the Property is free and clear of a leases (including but not
limited to Deed Ref: 31 Misc. 287-290, 42 Misc. 144-147), liens, encumbrances
and outstanding adverse claims and interest.

 

(ii)         That Grantor shall warrant and defend its right, title and interest
to the Property and Grantee's quiet and peaceful possession and enjoyment
thereof against all persons or entities who may claim any interest in the
Property, the ores, metals, minerals, tailings, concentrates, water rights, and
minerals derived from the Property, or the proceeds therefrom together with all
other tenements, hereditaments and appurtenances thereto.

 

TO HAVE AND TO HOLD the same unto Grantee, its successors and assigns forever.

 

IN WITNESS WHEREOF, Grantor has executed this Warranty Deed effective as of the
29th day of January, 2001.

 

    MT. HEAGAN DEVELOPMENT, INC.         By:       Name: John C. Orser    
Title: Vice President

 

 

 

 

STATE OF MONTANA )   :ss. County of Lewis and Clark )

 

On this 29th day of January, 2001, before me __________________________ a notary
public, personally appeared John C. Orser, known to me to be the Vice President
of Mt. Heagan Development, Inc., a Montana corporation, and acknowledged to me
that such corporation executed the within instrument.

 

  ______________________________________________   NOTRARY PUBLIC FOR THE STATE
OF MONTANA (Notary Seal) Residing At: ___________________________________   My
Commission Expires: ________________________

 

 

 

 

EXHIBIT "C"

TO

MINING LEASE WITH OPTION TO PURCHASE ("AGREEMENT")

BY AND BET\VEEN

MT. HEAGAN DEVELOPMENT, INC. (OWNER")

AND

ELKHORN GOLDFIELDS, INC. ("EGI")

DATED JANUARY 29, 2001

 

[Memorandum .of Agreement attached]

 

____________________________________

Initiated for Identification

 

 

 

 

RECORDING REQUESTED BY

AND RETURN TO:

Elkhorn Goldfields, Inc.

7 Maple Ridge Place

St. Andrews, Manitoba

Canada RIA 2Y6

 

MEMORANDUM OF MINERAL LEASE WITH OPTION TO

PURCHASE

 

THIS MEMORANDUMOF MINERAL LEASEWITH OPTIONTO PURCHASE effective this 29th day of
January, 2001, is filed of record in accordance with the provisions contained in
a MINERAL LEASE AND OPTION TO PURCHASE (hereinafter referred to as the
"Agreement") of even date herewith, wherein Mt. Heagan Development, Inc., a
Montana corporation, whose address is 3819 Highway 93 South, Darby, Montana
59827 (hereinafter referred to as "Lessor") granted to ELKHORN GOLDFIELDS, INC.,
a Montana corporation, whose address is 7 Maple Ridge Place, St. Andrews,
Manitoba, Canada RIA 2Y6 (hereinafter referred to as "Lessee") an exclusive
lease with an option to purchase certain patented lode mining claims, certain
fee lots, a certain water right filed with the State of Montana and certain
unpatented mining and mill site claims (collectively referred to as the
"Property") located in Jefferson County, Montana, which are described more fully
on Exhibit "A" attached hereto and incorporated herein by this reference,
together with all rights of ingress and egress to and from the mining claims,
all water and mining and extra lateral rights appurtenant thereto; and all
mine-waste dumps, tailing, fixtures and improvements thereon (all of which are
hereinafter collectively referred to as the "Property"). The Property is leased
and optioned by Lessor to Lessee for the consideration and subject to all of the
terms and conditions contained in the Agreement, which terms and conditions,
include but are not limited to, the following:

 

1.           GRANT OF RIGHTS. Lessor granted to Lessee an exclusive lease and
option to purchase the Property, including all ores, metals, minerals, tailings,
concentrates and mineral products (hereinafter collectively referred to as
"Minerals") and all mining, water and extra lateral rights appurtenant to the
Property, together with the exclusive right to enter upon, possess, and to use
the Property for exploration, development, mining, extraction and processing of
all Minerals and for all such other purposes related to such operations on other
properties adjacent to or in the vicinity of the Property.

 

2.           TERM. The Agreement is granted for an initial term of five (5)
years and so long thereafter as Lessee is exercising the rights granted in the
Agreement and continues to make the advance minimum payments (hereinafter
referred to as "Advance Minimum Payments").

 

 

 

 

3ADVANCE MINIMUM PAYMENTS AND PRODUCTION ROYALTY PAYMENTS.

 

A.           Lessee shall pay to Lessor Advance Minimum Payments in the amount
set forth in the Agreement.

 

B.           Under the terms of the Agreement, Lessor shall receive a production
royalty on the Minerals mined from said mining claims to the Property and
produced and sold by Lessee.

 

4.           PURCHASE OPTION. Lessee has the exclusive and irrevocable right to
purchase the Property during the term of the Agreement, at a purchase price as
set forth in the Agreement.

 

5.           ASSIGNMENT. All of the terms and conditions of the Agreement shall
be binding upon and inure to the benefit of the parties and their heirs,
successors, and assigns, as set forth therein.

 

6.           INFORMATION REGARDING AGREEMENT. Information regarding the.
Agreement may be obtained from Lessee's office and place of business at 7 Maple
Ridge Place, St. Andrews, Manitoba, Canada RIA 2Y6.

 

IN WITNESS WHEREOF, the parties have executed this MEMORANDUMOF MINERAL LEASE
AND OPTION TO PURCHASE effective as of the day and year first above written.

 

LESSOR:

  LESSEE:       MT. HEAGAN DEVELOPMENT, INC   ELKHORN GOLDFIELDS, INC.          
By     By     John C. Orser, Vice President     Ian Berzins, Managing Director

 

 

 

 

December 19, 2005

 

Mr. C.A. Dickey

Mt. Heagan Development, Inc.

Highway 93 South

Darby, Mt

59827

 

Dear Mr, Dickey:

 

On behalf of Elkhorn Goldfields, Inc. (EGI) please accept this letter as written
confirmation that, pursuant to the Mining Lease and Option to Purchase Agreement
entered into between EGI and MT. Heagan Development, Inc. dated the 29 day of
January, 2001, EGI wishes to extend the initial term of this Agreement for an
additional period of five (5) years.

 

Also, any correspondence directed to Elkhorn Goldfields, Inc. should now be
directed to the address noted above.

 

From the staff and employees at the Elkhorn Project, we want to wish you a happy
holiday season and a prosperous 2006.

 

Sincerely,

Elkhorn

 

Robert Trenaman

Managing Director

 

cc: Eric Lelacheur   Bill McBride

 

 

 

 

[logo.jpg]

Suite 1209

409 Granville Street

Vancouver, B.C.

V6C 1T2

 

November 23, 2010

 

Mr. C. A. Dickey   MT. Heagan Development Via Certified Mail P.O. Box 2269  
Peachtree City, Georgia   30269  

 

RE: Mining Lease with Option to Purchase agreement between EGI and MT Heagan

 

Dear Mr. Dickey:

 

On behalf of Elkhorn Goldfields, Inc. (EGI) please accept this letter as written
confirmation that, pursuant to the Mining Lease and Option to Purchase Agreement
entered into between EGI and MT. Heagan Development, Inc. dated the 29th day of
January, 2001 and extended for a five year period December 19th, 2005, EGI
wishes to extend the term of this Agreement for an additional period of five (5)
years.

 

Please direct any correspondence with respect to this matter to the above noted
address and, as always, please feel free to contact me at (604) 687-4450 if
there are any items to discuss.

 

Regards,

Elkhorn Goldfields, Inc.

 

Robert Trenaman

Managing Director

 

Cc Eric Altman   Bill McBride