EXHIBIT 10.2
 
DEED OF TRUST TO PUBLIC TRUSTEE,
 
MORTGAGE, SECURITY AGREEMENT,
 
ASSIGNMENT OF PRODUCTION AND PROCEEDS,
 
FINANCING STATEMENT
 
AND FIXTURE FILING
 
This Deed of Trust to Public Trustee, Mortgage, Security Agreement, Assignment
of Production and Proceeds, Financing Statement and Fixture Filing (this
“Instrument”), dated as of April 27, 2009, is from Hunter Bates Mining
Corporation, a Minnesota corporation (Organizational I.D. No. 2820102-2)
(“Debtor”), with a principal office address of 900 IDS Center, 80 South 8th
Street, Minneapolis, MN  55402-8773, to the Public Trustee of Gilpin County,
Colorado (“Trustee”), and to and for the benefit of Cabo Drilling (America),
Inc., a Washington corporation, as beneficiary (“Secured Party”), with an
address of 3rd Floor, 120 Lonsdale Avenue, North Vancouver, BC  V7M 2E8, Canada.
 
DEFINITIONS
 
Capitalized terms used but not defined herein have the meanings provided in the
Debenture (as defined below).  In this Instrument, the following terms shall
have the following meanings:
 
“Approvals” means each and every approval, authorization, license, permit,
consent, variance, land use entitlement, franchise, agreement, performance of
surety bond, filing or registration by or with any governmental authority or
other person necessary for any stage (or all stages) of developing, operating,
maintaining and closing a mine on all or any part of the Lands (or any other
lands any production from which, or profits or proceeds from such production, is
attributed to any interest in the Lands), including construction of a mine and
related improvements and all other activities described above in clauses (a)
through (i) of the definition of “Mine Property”.
 
“Environmental Laws” shall mean all laws, ordinances, rules and regulations of
the United States or any other political subdivision, agency, or instrumentality
exercising jurisdiction over Debtor or the Collateral, which laws, ordinances,
rules and regulations are applicable to Debtor or the Collateral, governing,
regulating or otherwise pertaining to health, industrial hygiene or the
environment, or regulating, relating to or imposing liability (including strict
liability) or standards of conduct concerning any Hazardous Materials, as are
now or at any time hereafter in effect and as amended from time to time.
 
“Hazardous Materials” shall mean any hazardous waste, hazardous substance,
pollutant, contaminant, toxic substance, oil, hazardous material or chemical, or
other substance regulated by any Environmental Law.
 
“Lands” means the lands that are described in Exhibit A hereto, the leasehold
estates that are described in Exhibit A hereto, and all now-existing or
hereafter-arising leasehold, overriding royalty, royalty, net profits or other
interests in real property of the Debtor, together with all appurtenant rights
accruing to the owner thereof, including extralateral rights, surface use rights
and water rights relating to the lands and leasehold estates identified on
Exhibit A hereto.

 
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“Leases” means all surface and mineral leases, subleases, assignments, options,
licenses, concessions, occupancy agreements, profits-à-prendre, work agreements,
joint venture agreements, partnerships (including mining partnerships),
exploration agreements, operating agreements, surface use agreements and surface
use and damage agreements, subsidence agreements, easements, licenses, net
profits agreements, royalty agreements, nominee agreements, options and all
other conveyances, transfers, agreements or arrangements (whether mineral or
otherwise, whether previously or hereafter made, and whether existing now or
hereafter) relating to all or any part of the Lands or any other lands any
production from which, or profits or proceeds from such production, is
attributed to any interest in Lands, together with all rentals, royalties and
other rights of Debtor thereunder.
 
“Mine Property” means all tangible property (whether now or hereafter existing
or acquired, and whether real, personal or mixed) owned by Debtor and located or
found now or hereafter on, in, or under all or any part of the Lands (or any
other lands any production from which, or profits or proceeds from such
production, is attributed to any interest in the Lands) that now or hereafter is
(together with all substitutions and replacements for, and all accessions,
additions and attachments to any thereof) used or useful in connection with
mining gold or Other Minerals (which as used herein shall include ores,
compounds and concentrates bearing the same) or in connection with any related
activities, including:
 
(a)           exploration for and evaluation of deposits of gold or Other
Minerals,
 
(b)           the development, operation, shutdown and closure (temporary and
permanent) of a mine (whether an underground or a surface mine),
 
(c)           handling, processing, refining and beneficiation of gold or Other
Minerals, including crushing, screening, non-screen classifying, grinding,
flotation, washing, gravity separation, magnetic separation, chemical leaching,
thickening, filtration, drying, sintering, palletizing, briquetting, calcining,
crystallization, sorting, sizing, roasting, ion exchange, solvent extraction,
electrostatic separation, electrorefining, electrowinning and smelting,
 
(d)           storage of gold or Other Minerals,
 
(e)           transportation of gold or Other Minerals by any means, including
haulage within a mine and from a mine to a mill or to any other handling,
processing, beneficiation, storage or marketing location, haulage between any of
the foregoing locations, haulage of mine waste (including waste rock and
overburden) and tailings, slag and other wastes resulting from handling,
processing, and beneficiation and loading in connection with any haulage,
 
(f)           marketing, and readying for market, gold or Other Minerals,
 
(g)           disposal (temporary and permanent) of mine waste (including waste
rock and overburden) and tailings, slag and other wastes from handling,
processing and beneficiation,
 
(h)           monitoring, maintaining, restoring and improving environmental
quality, including elimination, treatment and mitigation of air and water
pollution, and
 
(i)           reclamation of lands and other natural resources affected by any
of the foregoing activities.
 
Without restricting the foregoing, “Mine Property” shall include the following
property (together with all substitutions and replacements for, and all
accessions, additions and attachments to any thereof) now or hereafter used or
useful in connection with mining gold or Other Minerals or in connection with
related activities:

 
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(i)           generally — buildings; structures; improvements; furnishings;
fixtures; equipment; apparatus; facilities; machinery; tools; vehicles; goods;
supplies and inventory; and
 
(ii)           specifically  — headframes; mine offices; maintenance and
equipment repair shops; carpentry; tool and electrical shops; parts and supplies
warehouses; change houses; laboratory and assay facilities; ore bins; air
compressors; electrical generators and buildings for same; dynamos; staff,
workers’ and families’ living and eating facilities; ventilation shafts and
ducts; fans; refrigeration units; underground workings (including injection
wells and recovery wells; adits; shafts; tunnels; crosscuts; laterals; drifts;
raises; winzes; stopes; and other openings to ore); pump rooms; underground
hoist rooms; level stations; underground equipment and machinery storage and
repair areas; escape shafts; ore storage areas; storehouses; hoist houses;
drums; controls; and motors; wire rope for hoists; ore skips and man cars;
timber; roof supports; track (including branch; cut-off, spur; industrial;
switch; connecting; storage; yard; terminal and other railroad tracks); roads
and haulage ways; conveyor belts; electrical wire; apparatus; and controls
(including transformers and switch boxes); pipe; water and fuel supply tanks,
pumps and pipelines; rolling stock; including locomotives and cars; mine
vehicles; drills and related equipment; explosives and explosives storage
facilities; continuous miner machines; mucking equipment; loaders and loading
equipment; tipples; dewatering facilities; including pumps; sewage facilities;
waste water treatment and disposal facilities; water treatment plants
(including, without limitation, the water treatment plant adjacent to the Mine
headframe); wells for the extraction or injection of water, or for the
monitoring of water quality or supply; ditches; water drainage courses; dams;
and silt ponds; telephones and other communications equipment; pipelines
(including slurry and pneumatic pipelines); tractors; scrapers; power shovels;
backhoes; bucket-wheel excavators; draglines; dredges; haulage and water and
maintenance trucks; inclined skips; graders; electrical power lines; ships;
barges; port facilities; loading docks; tramways and aerial trams; aircraft;
airstrips; recreation facilities; company townsite and buildings; mill or
processing plants; sluices; wells; augers; overburden; waste rock or spoil; and
other mine wastes; load-haul-dump vehicles; conveyors (including screw and
bucket conveyors); crushers (including jaw crushers; gyratory crushers; wire
crushers; impact crushers; roil crushers; hammer mills; shredders and roller
mills); screens (including grizzlies); grinding mills (including ball mills; rod
mills; autogenous mills and semi-autogenous mills); flotation circuits
(including flotation cells; collection troughs and launders and flumes); washers
(including hydrocyclones); gravity separation devices (including jigs; sluices;
shaking tables; cones; spirals; vanners and heavy liquids); magnets; leaching
circuits; thickening tanks; filters (including drum; disk; belt; and plate
filters); driers; kilns; smelting furnaces (including reverberatory furnaces and
flash smelters); converters; slag; tailings and tailings ponds.
 
“Mine-Related Agreements and Plans” means all existing and future contracts,
agreements, plans, specifications, technical reports, surveys, designs, drawings
and other matters executed by Debtor and (or prepared by) any contractor,
architect, engineer, surveyor or other consultant, in each case in connection
with the design, construction or operation of the Mine Property, including all
contracts and agreements executed by Debtor and any landscape architect, civil
engineer, electrical engineer, soils engineer, mining engineer or mechanical
engineer, together with all plans and specifications prepared by any design
architect for the construction and improvements comprising Mine Property.

 
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“Mines” shall mean the mine commonly referred to as the Bates Hunter Mine,
located in Gilpin County, Colorado, and any and all other mines now or hereafter
located in, on or under the Lands and the assets related thereto.
 
“Other Minerals” means all minerals other than gold, whether or not similar to
gold or found or produced in association with gold, including silver, coal, all
existing and future ores, minerals, mineral elements and compounds, veins, lodes
and mineral deposits, whether solid, liquid or gaseous, whether organic or
inorganic, metallic or nonmetallic, hydrocarbonaceous or non-hydrocarbonaceous,
including rock, gravel, sand, methane, water, and geothermal steam, geothermal
heat and geothermal resources, found or located on the Lands.
 
“Permitted Liens” means:
 
(i)           Liens for taxes, assessments or governmental charges not then due
and delinquent or in respect of which the Debtor has furnished such security as
the Secured Party may require and which are being contested in good faith by
appropriate proceedings promptly initiated and diligently conducted;
 
(ii)           Liens in the nature of zoning restrictions, easements and rights
and restrictions of record on the use of real property, which do not materially
interfere with the conduct of the business of the Debtor and do not materially
affect the value of the property subject to such Liens;
 
(iii)           undetermined or inchoate Liens, including unregistered
construction Liens, incidental to current operations of the Debtor which have
not at such time been filed pursuant to laws against the Debtor and which relate
to obligations neither due nor delinquent;
 
(iv)           Liens in the form of security given to a public utility or any
Governmental Authority in connection with the operations of the Debtor in the
ordinary course of its business; and
 
(v)           matters of record as of the date hereof, itemized on Exhibit C,
save and except for the Subordinated Liens.
 
“Rights of Way” means (including any of the following that are described in
Exhibit A hereto) all now or hereafter existing or acquired easements,
servitudes, permits, licenses, tenements, hereditaments, rights of way,
privileges, liberties, appendages, appurtenances and similar rights appertaining
or appurtenant to or beneficially used or useful in connection with the Lands
and/or the Mine Property, including and together with all estates, claims,
demand rights, title and interests in and to any street, road, highway or alley,
vacated or otherwise, adjoining or beneficially used or useful in connection
with the Lands and/or the Mine Property.
 
“Subordinated Liens” means the Liens listed in Exhibit B hereto.
 
“Water Rights” means all now or hereafter existing or acquired water and water
rights, reservoirs and reservoir rights, ditches and ditch rights, wells and
well rights, whether evidenced or initiated by permit, decree, well
registration, appropriation not decreed, shares of stock or other interests in
mutual ditch or reservoir companies or carrier ditch or reservoir companies or
otherwise, appertaining or appurtenant to or beneficially used or useful in
connection with the Lands and/or the Mines, together with all pumps, well
casings, wellheads, electrical installations, pumphouses, meters, monitoring
wells and systems, parshall flumes or other measuring devices, pipes, pipelines
and other structures or personal property which are or may be used to produce,
regulate, measure, distribute, store or use water from the said water and water
rights, reservoirs and reservoir rights, ditches and ditch rights, wells and
well rights.

 
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COLLATERAL
 
All of Debtor’s right, title and interest in and to all the hereinafter
described properties, rights and interests, whether now owned or hereafter
acquired, and whether now or hereafter existing or created, is herein
collectively called the “Collateral”:
 
(a)           the Lands and the Rights of Way,
 
(b)           the gold and Other Minerals that originated from the Lands which
are (i) on, in, or under, extending from or into, (ii) produced or to be
produced from, (iii) stored, handled, processed, refined or beneficiated or to
be stored, handled, processed, refined or beneficiated on, or (iv) transported
or marketed or to be transported or marketed on or from, in each case, all or
any part of the Lands or any other lands any production from which (or profits
or proceeds from such production) is attributed to any interest in the Lands,
 
(c)           without duplication of any other provision of this granting clause
all of Debtor’s now or hereafter arising accounts, as-extracted collateral,
chattel paper, commercial tort claims, deposit accounts, documents, general
intangibles, goods (including all its consumer goods, equipment, farm products,
fixtures and inventory), instruments, investment property, letter-of-credit
rights, securities and supporting obligations (as such terms are defined in the
applicable Uniform Commercial Code), but only if, and only to the extent, any
such above-listed properties, rights or interests relate to, or arise out of,
Collateral that is described elsewhere other than in this subsection (c),
 
(d)           the Leases,
 
(e)           the Mines and the Mine Property,
 
(f)           the Approvals,
 
(g)           the Mine-Related Agreements and Plans,
 
(h)           the Water Rights,
 
(i)           all awards, payments or judgments, including interest thereon, and
the right to receive the same, as a result of the exercise or threatened
exercise of any right of eminent domain, other injury to, taking up, or decrease
in the value of all or any portion of the Lands, the Mine Property, the Water
Rights or any other property described herein,
 
(j)           all other property or rights of any kind or character related to
the Lands, the Mine Property, the Water Rights or other property described
herein, and
 
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(k)           all proceeds (as such term is defined in the applicable Uniform
Commercial Code) and products of the foregoing, together with, to the extent
Debtor may lawfully grant a security interest therein, any and all corrections
or amendments to, or renewals, extensions or ratifications of, or replacements
or substitutions for, any of the same, or any instrument relating thereto, and
all contracts, title instruments, title opinions, land status reports, title
abstracts, title insurance commitments or policies, title materials and
information, files, records, writings, data bases, information, systems, maps,
plats, surveys, geological and geophysical (including electrical,
electromagnetic, gravity and seismic), geochemical, and radiometric data and
information, drilling data, test data, mineral -samples (including drill cores),
mineral assay reports, interpretative and analytical reports of any kind or
nature (including reserve or deposit studies or evaluations), mine feasibility
reports, technical reports (including, without limitation, that certain
“Technical Report on the Bates Hunter Project”, dated July 15, 2008, by Orem
Inc.), mine development studies and plans, information concerning exploration
and development of deposits of gold and Other Minerals (including information
concerning mine operation, shutdown and closure and concerning reclamation of
lands and other resources affected by mining), environmental data and related
information and reports and studies, computer hardware and software and all
documentation therefor or relating thereto (including all licenses relating to
or covering such computer hardware, software and/or documentation), trade
secrets, business names and the goodwill of the business relating thereto,
unpatented inventions, patent applications and patents, lease records (including
rental and royalty payment records), payment of rental or maintenance fees, and
filings and recordings made with governmental authorities, the Approvals and
records and information concerning compliance therewith, mine development
programs and budgets, financial statements and audits, reclamation plans and
related data and reports, hedging agreements, interest rate protection
agreement, commodity hedging agreement or any other agreement evidencing a swap
or other derivative transaction, insurance policies, commingling agreements,
information and data and reports regarding the products and proceeds of mine
operations (including quantities produced, proceeds from sale or other
disposition, and disbursement of proceeds to persons entitled to a share
thereof), information and data and reports regarding all aspects of the Mine
Property (including transportation and marketing of mine products), development
rights, air rights, parcel maps, extralateral rights, condemnation awards,
franchises, easements, servitudes, permits, licenses, tenements, hereditaments,
appurtenances, rents, royalties, overriding royalties, revenues, avails, income,
security deposits, reclamation bonds, bonuses, accounts, returns, issues,
profits, advantages, claims against third parties, products, proceeds and all
other benefits, whether now or hereafter existing or arising, used or useful in
connection with, covering, relating to, or arising from or in connection with,
any of the aforesaid in this granting clause referenced, and all other things of
value and incident thereto which Debtor might at any time have or be entitled to
(including any and all liens, lien rights and security interests, and all
properties, rights and interests, whether now or hereafter existing or arising,
that Debtor uses or installs for use in connection with mining gold or Other
Minerals from all or any part of the Lands or any other lands any production
from which, or the profits or proceeds from such production, is attributed to
any interest in the Lands, or in connection with any related activities);
together with all strips and gores belonging, adjacent or pertaining to the
Lands; and any after-acquired title, additions to any of the foregoing,
including those which may be subjected to the lien and security interest of this
Instrument by means of supplements hereto, all the aforesaid properties, rights
and interests, together with any after-acquired title, additions and accretions
to any of the foregoing.
 
GRANTING CLAUSES
 
In consideration of ten dollars and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged by Debtor, and the
matters hereinafter set forth, Debtor hereby:

A.           Real Property.  Grants, bargains, sells, mortgages, assigns,
transfers and conveys to Trustee, with POWER OF SALE, for the benefit of Secured
Party, that part of the Collateral that is real property (including any fixtures
that are real property under applicable state law), subject to the assignment of
severed and extracted gold and Other Minerals and the proceeds thereof made
under paragraph C below; TO HAVE AND TO HOLD all of the Collateral that is real
property (including any fixtures that are real property under applicable state
law), together with all of the rights, privileges, benefits, hereditaments and
appurtenances in any way belonging, incidental or pertaining thereto, to Trustee
and its successors and assigns, forever, IN TRUST, NEVERTHELESS, for the
security and benefit of Secured Party and its successors and assigns, subject to
all of the terms, conditions, covenants, agreements and trusts herein set forth;
 
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B.           Personal Property.  Grants to Secured Party a security interest in
that part of the Collateral that is personal property (including any fixtures
that are personal property under applicable state law); and
 
C.           Assignment of Production.  Collaterally assigns to Secured Party
all of the severed and extracted ore, gold and Other Minerals produced from or
allocated or attributed to any of the Collateral or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise) in,
to and under or that covers, affects or otherwise relates to the Land or to any
of the estates, property rights or other interests described or referred to
above, together with all of the proceeds thereof.
 
ARTICLE I
 
Secured Obligations
 
Section 1.1           Obligations Secured.  This Instrument is executed,
acknowledged and delivered by Debtor to secure and enforce the following
indebtedness, liabilities and obligations (the “Secured Obligations”):
 
A.           Convertible Debenture.  All indebtedness (including but not limited
to the Principal, Interest, Expenses and Extension Fee) evidenced by that
certain Convertible Debenture, of even date herewith, in the principal amount of
U.S. $511,589.59 made by Wits Basin Precious Minerals Inc., a Minnesota
corporation (“Borrower”), and payable to the order of Secured Party, and any
renewals, extensions or restatements thereof, modifications, changes, amendments
or supplements thereto and substitutions therefor (the “Debenture”), as well as
all indebtedness payable by Debtor as a result of Debtor’s obligations in the
Debenture to guaranty the Borrower’s obligations under the Debenture;
 
B.           This Instrument.  All indebtedness payable by Debtor pursuant to
the provisions of and evidenced by this Instrument, including, without
limitation, any amounts advanced to protect the liens and security interests
herein granted and all reasonable attorneys fees, court costs, and expenses of
whatever kind or character now existing or hereafter created or arising,
incident thereto or to the collection of the indebtedness, liabilities and
obligations hereby secured and enforcement of the liens and security interests
herein granted and created;
 
C.           Other Obligations.  All other indebtedness payable by Debtor to
Secured Party of whatever kind or character now existing or hereafter created or
arising, whether fixed, absolute or contingent, direct or indirect, primary or
secondary, joint, several or joint and several, due or to become due, and
however evidenced whether by note, open account, overdraft, endorsement,
security agreement, guarantee or otherwise, it being contemplated that Debtor
may hereafter become indebted to Secured Party in such further sum or sums; and
 
 
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D.           Renewals, Extensions and Amendments.  All indebtedness evidenced by
all renewals, extensions and restatements of, modifications, changes, amendments
and supplements to and substitutions for, all or any part of the foregoing.
 
ARTICLE II
 
Warranties, Representations, Covenants
and Indemnities
 
Section 2.1             Representations and Warranties.  Debtor warrants and
represents as follows:
 
A.             Power and Authority.  Debtor has the power and authority to
grant, bargain, sell, mortgage, assign, transfer and convey the Collateral as
provided herein.
 
B.             Title.  Exhibit A attached hereto correctly describes, as of the
date hereof, all of the land, mineral estates, surface estates and real property
leasehold estates (including, without limitation, easements and rights of way)
in which Debtor owns an interest and all Water Rights owned by Debtor.  Subject
to Permitted Liens and Subordinated Liens, Debtor is the lawful owner of and has
good and marketable title to the Collateral free and clear of all Liens.  Debtor
warrants and will forever defend the title to the Collateral against the claims
of all persons claiming or to claim the same or any part thereof.   To the best
of the Debtor’s knowledge, each Lease is a valid and subsisting Lease and is in
full force and effect.  Each Lease or a certified copy or memorandum thereof has
been recorded in the real property records of the county or counties in which
the Lands covered thereby are located, and has been delivered to Secured
Party.  Each Lease (a) either is within its primary term, or the primary term
thereof has been extended by production of gold or Other Minerals from the Lands
covered thereby or otherwise by its terms; (b) is prior to any deed of trust,
mortgage or other lien or encumbrance upon the fee interest in such Lands; and
(c) is assignable without the prior written consent of the lessor or any other
third party.
 
C.             Approvals.  To the best of Debtor’s knowledge, without inquiry,
other than recording or filing of this Instrument, financing statements and
similar instruments in favor of Secured Party, Debtor is not required to submit
any notice, report or other filing with any governmental authority, person or
entity in connection with Debtor’s execution, delivery or performance of this
Instrument, and no consent, approval or authorization of any governmental
authority, person or entity is required to be obtained by Debtor in connection
with Debtor’s execution, delivery and performance of this Instrument or the
consummation of the transactions contemplated hereby.  To the best of the
Debtor’s knowledge, Debtor is duly qualified to own, hold and operate leases,
easements, rights-of-way, mineral agreements and other agreements covering,
affecting or otherwise relating to state lands.
 
D.             Security Interest.  Except for Permitted Liens, Trustee and
Secured Party, as the case may be, will obtain, as security for the Secured
Obligations a legally valid and binding first perfected lien on, and security
interest in, the Collateral.
 
E.           Structure.  Debtor’s name, identity, corporate structure, state of
incorporation and organizational identification number are correctly reflected
in the preamble to this Instrument.
 
Section 2.2             Covenants.  Debtor covenants and agrees as follows:

 
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A.           Secured Obligations.  Debtor shall pay when due and perform the
Secured Obligations in accordance with the terms thereof and hereof.
 
B.           Recording and Filing.  Debtor shall sign all documents reasonably
requested by Secured Party to assist Secured Party to create, perfect, maintain
and preserve the priority of the liens and security interests intended to be
created hereby as a first lien on real property and fixtures and a first
priority security interest in personal property and fixtures.
 
C.           Modifications and Dispositions.  Without the prior written consent
of Secured Party, except in the ordinary course of business Debtor shall not
(1) amend, modify or otherwise revise any lease, license or other agreement
described in Exhibit A; (2) release, surrender, abandon or forfeit the
Collateral or any part thereof; (3) sell, convey, assign, lease, sublease,
alienate, mortgage or grant security interests in or otherwise dispose of or
encumber the Collateral or any part thereof, except to the extent explicitly
permitted by the Debenture and except sales of severed gold and Other Minerals
in the ordinary course of Debtor’s business and for fair consideration, and
except for the liens and security interests created by this Instrument and liens
for taxes, assessments and governmental charges not delinquent; or (4) consent
to, permit or authorize any such act by another party with respect to the Land,
the Collateral or any part thereof.
 
D.           Defense of Title.  If the title or interest of Debtor, Trustee or
Secured Party to the Collateral or any part thereof, or the lien or encumbrance
created by this Instrument, or the rights or powers of Secured Party or Trustee
hereunder, shall be attacked, either directly or indirectly, or if any legal
proceedings are commenced against Debtor or the Collateral, Debtor shall
promptly give written notice thereof to Secured Party and at Debtor’s own
expense shall take all reasonable steps diligently to defend against any such
attack or proceedings, employing attorneys reasonably acceptable to Secured
Party.
 
E.           Environmental Matters.  Debtor shall comply with all Environmental
Laws and shall maintain and obtain all permits, licenses and approvals required
under Environmental Laws.  Debtor shall not cause or permit the Collateral or
Debtor to be in violation of, or do anything or permit anything to be done that
will subject the Collateral, Debtor or Secured Party to any additional remedial
obligations under any applicable Environmental Laws, assuming disclosure to the
applicable governmental authorities of all relevant facts, conditions and
circumstances, if any, pertaining to the Collateral or otherwise.  Debtor shall
promptly notify Secured Party in writing of any material existing, pending or
threatened investigation or inquiry by any governmental authority in connection
with any applicable Environmental Laws.
 
F.           Further Assurances.  Debtor shall execute, acknowledge and deliver,
or cause to be executed, acknowledged or delivered, to Secured Party such other
and further instruments and do such other acts as in the reasonable opinion of
Secured Party may be necessary or desirable to effect the intent of this
Instrument, promptly upon request of Secured Party and at Debtor’s expense.
 
Section 2.3             Costs, Expenses and Indemnities.  Debtor agrees to pay
and indemnify Secured Party and Trustee as follows:

 
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A.           Costs and Expenses.  Debtor shall indemnify Secured Party and
Trustee from and reimburse and pay Secured Party for all fees, costs and
expenses (including without limitation, attorneys’ fees, court costs and legal
expenses and consultant’s and expert’s fees and expenses), incurred or expended
by Secured Party or Trustee in connection with (1) the breach by Debtor of any
representation or warranty contained in this Instrument, the Debenture or any
other documents and instruments evidencing, securing or otherwise relating to
the Secured Obligations, (2) the failure by Debtor to perform any agreement,
covenant, condition, indemnity or obligation contained in this Instrument, the
Debenture or any other documents and instruments evidencing, securing or
otherwise relating to the Secured Obligations, (3) Secured Party’s or Trustee’s
exercise of any of its rights and remedies under this Instrument, the Debenture
and the other documents and instruments evidencing, securing or otherwise
relating to the Secured Obligations, or (4) the protection of the Collateral and
the liens thereon and security interests therein.  All such fees, costs and
expenses shall be a demand obligation owing by Debtor to Secured Party.  The
liabilities of Debtor as set forth in this Section 2.3(A) shall survive the
termination of this Instrument.
 
B.           Indemnity.  Debtor shall indemnify and hold harmless Secured Party
and persons or entities owned or controlled by or affiliated with Secured Party
and their respective directors, officers, shareholders, partners, employees,
consultants and agents (herein individually, an “Indemnified Party,” and
collectively, “Indemnified Parties”) from and against, and reimburse and pay
Indemnified Parties with respect to, any and all direct claims, demands,
liabilities, losses, damages (including without limitation, actual,
consequential, exemplary and punitive damages), causes of action, judgments,
penalties, fees, costs and expenses (including without limitation, attorneys’
fees, court costs and legal expenses and consultant’s and expert’s fees and
expenses), of any and every kind or character, known or unknown, fixed or
contingent, that may be imposed upon, asserted against or incurred or paid by or
on behalf of any Indemnified Party on account of, in connection with, or arising
out of (1) any bodily injury or death or property damage occurring in or upon or
in the vicinity of the Collateral through any cause whatsoever, (2) any act
performed or omitted to be performed hereunder or the breach of or failure to
perform any warranty, representation, indemnity, covenant, agreement or
condition contained in this Instrument, the Debenture or any other document or
instrument evidencing, securing or otherwise relating to the Secured
Obligations, (3) any transaction, act, omission, event or circumstance arising
out of or in any way connected with the Collateral or with this Instrument, the
Debenture or any other document or instrument evidencing, securing or otherwise
relating to the Secured Obligations, or (4) the violation of or failure to
comply with any statute, law, rule, regulation or order, including without
limitation, Environmental Laws and statutes, laws, rules, regulations and orders
relating to Hazardous Materials; provided however, that such indemnities shall
not apply to any Indemnified Party to the extent the subject of the
indemnification is caused by or arises out of the gross negligence or willful
misconduct of such Indemnified Party (as determined by a court of competent
jurisdiction).  The foregoing indemnities shall not survive in the event that
the Lender takes ownership of the Collateral, provided that the forgoing
indemnities will survive the release, foreclosure or other termination of this
Instrument in all other circumstances.  The rights, powers and remedies herein
conferred are cumulative, and not exclusive, of any and all other rights, powers
and remedies existing at law or in equity (including without limitation, rights,
powers and remedies under Environmental Laws).
 
Section 2.4             Performance by Secured Party.  Debtor agrees that, if
Debtor fails to perform any act which Debtor is required to perform hereunder,
Secured Party and Trustee may, but shall not be obligated to, perform or cause
to be performed such act, and any expense so incurred by Secured Party or by
Trustee in connection therewith shall be a demand obligation owing by Debtor to
Secured Party, and Secured Party shall be subrogated to all of the rights of the
party receiving such payment.

 
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ARTICLE III

 
Collection of Proceeds of Production
 
Section 3.1             Assignment of Proceeds.  Pursuant to paragraph C of the
granting clause of this Instrument, Secured Party is absolutely assigned and
entitled to receive all of the severed and extracted ore, gold and Other
Minerals produced from or allocated or attributed to all of the Collateral,
together with all of the proceeds thereof and payments in lieu thereof.  Debtor
acknowledges and agrees that said assignment is intended to be an absolute and
unconditional assignment and not merely a pledge of or creation of a security
interest in said gold and Other Minerals and proceeds or an assignment as
additional security.  Debtor shall execute, acknowledge and deliver or cause to
be executed, acknowledged and delivered, transfer orders or letters-in-lieu
thereof directing all purchasers of ore, gold and Other Minerals to make
payments directly to Secured Party.  All parties producing, purchasing,
receiving or having in their possession any such ore, gold and Other Minerals or
proceeds are hereby authorized and directed by Debtor to treat and regard
Secured Party as the party entitled in Debtor’s place and stead to receive such
ore, gold and Other Minerals and proceeds; and said parties shall be fully
protected in so treating and regarding Secured Party and shall be under no
obligation to see to the application by Secured Party of any such proceeds
received by it.  Notwithstanding the foregoing or any provision contained in
this Deed of Trust, Secured Party agrees that, until and unless an Event of
Default occurs hereunder, Secured Party shall exercise no rights to possession
of any of the Collateral and shall permit Debtor to receive such ore, gold and
Other Minerals or proceeds until such time as Secured Party shall have made
written demand therefore following an Event of Default.  Such election by
Secured Party shall not in any way waive the right of Secured Party to demand
and receive such ore, gold and Other Minerals and proceeds thereafter allocated
or attributed to the Collateral and shall not in any way diminish the absolute
and unconditional right of Secured Party to receive all of such ore, gold and
Other Minerals and proceeds and cash proceeds not theretofore expended or
distributed by Debtor.  Following an Event of Default, any such ore, gold and
Other Minerals or proceeds received by Debtor shall, when received, constitute
trust funds in Debtor’s hands and shall be held by Debtor for the benefit of
Secured Party.  Debtor hereby agrees that upon the first to occur of either
(A) written demand of Secured Party, or (B) the occurrence of any event which
constitutes an Event of Default (as hereinafter defined) or which upon the
giving (or receiving) of notice or lapse of time, or both, would constitute such
an Event of Default, all cash, proceeds, instruments and other property, of
whatever kind or character, received by Debtor on account of the Collateral,
whether received by Debtor in the exercise of its collection rights hereunder or
otherwise, shall, in accordance with instructions then given by Secured Party,
be remitted to Secured Party or deposited to an account designated by Secured
Party, in the form received (properly assigned or endorsed to the order of
Secured Party or for collection and in accordance with Secured Party’s
instructions) not later than the first banking business day following the day of
receipt, to be applied as provided in Section 3.2 hereof and, until so applied,
may be held by Secured Party in a separate account on which Debtor may not
draw.  Debtor agrees not to commingle any such property, following the receipt
of any such demand from Secured Party or the occurrence of an Event of Default,
with any of its other funds or property and agrees to hold the same upon an
express trust for Secured Party until remitted to Secured Party.
 
Section 3.2             Application of Proceeds.  Secured Party shall apply all
of the proceeds received pursuant to Section 3.1 hereof in satisfaction of the
Secured Obligations as provided below, unless otherwise agreed to by Secured
Party and Debtor.  All such proceeds received and to be applied by Secured Party
up to the close of business on the last day of each calendar month shall be
applied by Secured Party on or before the fifth business day of the next
succeeding calendar month as follows (with any balance remaining after such
application to be paid to Debtor):

 
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A.           First, to the payment to Secured Party and Trustee of all
outstanding or unreimbursed fees, costs and expenses incurred by Secured Party
or Trustee pursuant hereto, and any part of the Secured Obligations not
evidenced by written instrument, including without limitation, all charges and
penalties, including interest thereon, due Secured Party;
 
B.           Second, to the payment or prepayment of all interest accrued on the
Secured Obligations; and
 
C.           Third, to the payment or prepayment of the principal of the Secured
Obligations in any order the Secured Party may elect from time to time;
 
Section 3.3             Inclusion in Sale.  Upon any sale of any of the
Collateral pursuant to Article V hereof and expiration of any mandatory
redemption periods, the ore, gold and Other Minerals thereafter produced from or
attributed to the part of the Collateral so sold, and the proceeds thereof,
shall be included in such sale and shall pass to the purchaser free and clear of
the provisions of this Article III.
 
Section 3.4             No Liability in Secured Party.  Except for negligent
acts or willful misconduct, Secured Party is hereby absolved from all liability
for failure to enforce collection of any such proceeds and from all other
responsibility in connection therewith, except the responsibility to account to
Debtor for proceeds actually received.
 
Section 3.5             Rights of Secured Party.  Subject to the terms and
conditions contained herein, Secured Party shall have the immediate and
continuing right to demand, collect, receive and receipt for all production,
proceeds and payments assigned hereunder.  In addition, Debtor agrees that, upon
the request of Secured Party and following an Event of Default, it will promptly
execute and deliver to Secured Party such transfer orders, payment orders,
division orders and other instruments as Secured Party may deem necessary,
convenient or appropriate in connection with the payment and delivery directly
to Secured Party of all proceeds, production, and payments assigned
hereunder.  Debtor hereby authorizes and directs that, upon the request of
Secured Party and following an Event of Default, all purchasers, transporters
and other parties now or hereafter purchasing mineral production produced from
or allocated or attributed to the Collateral or any other interest of Debtor
(whether now owned or hereafter acquired by operation of law or otherwise), in,
to or relating to the Land or to any of the estates, property, rights or other
interests included in the Collateral, or any part thereof, or now or hereafter
having in their possession or control any production from or allocated to the
Collateral or any other interest of Debtor (whether now owned or hereafter
acquired by operation of law or otherwise), in, to or relating to the Land or to
any of the estates, property, rights or other interests included in the
Collateral, or any part thereof, or now or hereafter otherwise owing monies to
Debtor under contracts and agreements herein assigned, shall, until Secured
Party directs otherwise, pay and deliver such proceeds, production or amounts
directly to Secured Party at Secured Party’s address set forth in the
introduction to this Instrument, or in such other manner as Secured Party may
direct such parties in writing, and this authorization shall continue until the
assignment of production and proceeds contained herein is released and
reassigned.  No payor making payments to Secured Party at its request under the
assignment of production and proceeds contained herein shall have any
responsibility to see to the application of any of such funds, and any party
paying or delivering proceeds, production or amounts to Secured Party under such
assignments shall be released thereby from any and all liability to Debtor to
the full extent and amount of all payments, production or proceeds so delivered.

 
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Section 3.6             Change of Purchaser.  Should any purchaser taking the
production from the Collateral or any other interest of Debtor (whether now
owned or hereafter acquired by operation of law or otherwise), in, to or
relating to the Land or to any of the estates, property, rights or other
interests included in the Collateral, or any part thereof, fail to make any
payment promptly to Secured Party, in accordance with the assignment of
production and proceeds herein made, then Secured Party, to the fullest extent
permissible under applicable law, shall have the right to demand a change of
purchaser and to designate another purchaser of the ore, gold and Other Minerals
included in the Collateral, without any liability on the part of Secured Party
in making such selection; and failure of Debtor to consent to and promptly
effect such change of purchaser shall constitute an Event of Default under
Article V below.
 
Section 3.7             No Delegation or Assumption.  Nothing in this Instrument
shall be deemed or construed to create a delegation to or assumption by Secured
Party, of the duties and obligations of Debtor under any agreement or contract
relating to the Collateral or any portion thereof, and all of the parties to any
such contract shall continue to look to Debtor for performance of all covenants
and other obligations and the satisfaction of all representations, warranties,
covenants, indemnities and other agreements of Debtor thereunder,
notwithstanding the assignment of production and proceeds contained herein or
the exercise by Secured Party, prior to foreclosure, of any of its rights
hereunder or under applicable law.
 
Section 3.8             Cumulative.  The assignment of production and proceeds
contained herein shall not be construed to limit in any way the other rights and
remedies of Secured Party hereunder, including without limitation, its right to
accelerate the indebtedness evidenced by the Secured Obligations upon an Event
of Default and the other rights and remedies herein conferred, conferred in the
other documents and instruments evidencing, securing or relating to the Secured
Obligations, or conferred by operation of law.  Monies received under the
assignment of production and proceeds contained herein shall not be deemed to
have been applied in payment of the Secured Obligations unless and until such
monies actually are applied thereto by Secured Party.
 
ARTICLE IV

 
Termination and Release
 
Section 4.1             Release Upon Termination.  If all of the Secured
Obligations shall be paid in full and otherwise satisfied pursuant to the terms
and conditions of this Instrument and the other documents and instruments
evidencing, securing or relating to the Secured Obligations, and if Debtor shall
have well and truly performed all of the covenants and agreements herein
contained, then all of the Collateral shall revert to Debtor, the liens and
security interests created by this Instrument shall terminate and Secured Party
shall, promptly after the request of Debtor, execute, acknowledge and deliver to
Debtor a request to the Trustee to release this Instrument, and Secured Party
shall execute such other instruments as may be necessary to evidence the
termination of the liens and security interests created by this Instrument.
 
Section 4.2             Partial Release.  No partial release from the liens and
security interests created by this Instrument of any part of the Collateral by
Trustee or Secured Party shall in any way alter, vary or diminish the force or
effect of this Instrument or impair, release or subordinate the liens and
security interests created by this Instrument on the remainder of the
Collateral.
 
ARTICLE V

 
Default
 
Section 5.1             Events of Default.  The occurrence of any of the
following events which continues five (5) Banking Days after written notice
thereof by the Debtor shall constitute an event of default (“Event of Default”)
and upon the occurrence thereof the liens and security interests created hereby
shall be subject to foreclosure in any manner provided for herein or provided
for by applicable law:
 

 
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A.           Failure of Debtor to pay as and when provided herein any fee or
other amount due Secured Party or Trustee under this Instrument when due;
 
B.           Failure of Debtor to perform or observe any covenant, agreement,
indemnity, condition or provision in this Instrument;
 
C.           Any of Debtor’s representations or warranties made in this
Instrument or any statement or certificate at any time given in writing pursuant
hereto or in connection herewith shall be false or misleading in any material
respect as of the date made or deemed made; or
 
D.           An “Event of Default” as defined in the Debenture shall occur.
 
Section 5.2             Treatment of Fixtures.  Upon the occurrence of any Event
of Default, or at any time thereafter, if deemed appropriate by Secured Party or
if required by applicable law, Secured Party may elect to treat the fixtures
included in the Collateral either as real property or as personal property, or
both, and proceed to exercise such rights as apply to the type of property
selected.
 
Section 5.3             Foreclosure.  Upon the occurrence of any Event of
Default, or at any time thereafter, in addition to any other rights, powers and
remedies herein conferred or conferred by operation of law, Secured Party and
Trustee shall have all of the rights, powers and remedies of a secured party, a
mortgagee, a beneficiary under a deed of trust, and a public trustee under a
deed of trust granted under applicable law.  Secured Party may, with notice,
proceed by one or more actions in equity or at law for the seizure and sale of
the Collateral or any portion thereof, for the foreclosure or sale of the
Collateral or any portion thereof by judicial foreclosure by appropriate
proceedings in any court of competent jurisdiction, by a public trustee’s sale,
or in any other manner then permitted by law, for the specific performance of
any covenant or agreement of Debtor herein contained or in aid of the execution
of any right, power or remedy herein granted, or for the enforcement of any
other appropriate equitable or legal remedy and to recover judgment against
Debtor.  In furtherance, and not in limitation, thereof:
 
A.           Deed of Trust.  This Instrument shall constitute a trust deed under
Articles 37, 38 and 39 of Title 38 of the Colorado Revised Statutes, as amended
and as may be amended from time to time, or any future law containing provisions
under which the sale of property securing debts is authorized or permitted; and
upon an Event of Default, or any time thereafter, Trustee shall, whenever
requested by Secured Party, cause the Collateral to be sold in accordance with
the provisions thereof and hereof.
 
B.           Mortgage.  This Instrument shall also constitute a mortgage, and
upon the occurrence of an Event of Default and during the continuance thereof
may be foreclosed as to any of the Collateral by judicial action or in any
manner then permitted by applicable law; and to the extent, if any, required to
cause this Instrument to be so effective as a mortgage as well as a deed of
trust, Debtor hereby mortgages the Collateral to Secured Party.
 
C.           Election.  Secured Party may elect to treat this Instrument, from
time to time and at any time, either as a deed of trust to the public trustee or
as a mortgage.  In the event a public trustee’s sale of the Collateral shall be
commenced by Trustee, Secured Party may at any time before the sale of the
Collateral, elect to abandon the public trustee’s sale, and Secured Party may
then institute a suit for the collection of the Secured Obligations and for the
foreclosure of this Instrument by judicial action.  It is agreed that if Secured
Party should institute a suit for the foreclosure of this Instrument by judicial
action, Secured Party may at any time before the entry of a final judgment,
dismiss such suit, and then direct Trustee to cause the Collateral to be sold
pursuant to a public trustee’s sale in accordance with the provisions of this
Instrument.

 
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D.           Additional Actions.  This Instrument shall also constitute and may
be enforced from time to time as an assignment, chattel mortgage, contract, deed
of trust, mortgage, financing statement and security agreement, and from time to
time as any one or more thereof as appropriate under applicable law.  Secured
Party shall be entitled to all of the rights, remedies and benefits of a secured
party, mortgagee and a beneficiary granted under applicable law; and, to the
fullest extent of such law, shall be entitled to enforce such rights, remedies
and benefits.  Debtor intends and hereby grants to Secured Party all rights,
powers and remedies accorded a secured party, mortgagee and a beneficiary under
applicable law whether or not such rights, powers and remedies are expressly
granted or reserved herein.
 
E.           Notice, Place and Manner of Sale.  Any sale of the Collateral under
this Article V shall take place at such place or places and otherwise in such
manner and upon such notice as may be required by law; or, in the absence of any
such requirement, as Secured Party may deem appropriate.  Debtor expressly
agrees that Secured Party or Trustee may offer the Collateral as a whole or in
such parcels or lots as Secured Party or Trustee elects, regardless of the
manner in which the Collateral may be described.
 
F.           Postponement of Sale.  Any sale of the Collateral conducted under
this Article V may be postponed from time to time as provided by applicable law;
or, in the absence of any such provisions, Secured Party may postpone the sale
of the Collateral or any part thereof by public announcement at the time and
place of such sale, and from time to time thereafter may further postpone such
sale by public announcement made at the time of sale fixed by the preceding
postponement.  Sale of a part of the Collateral will not exhaust the power of
sale, and sales may be made from time to time until all Collateral is sold or
the Secured Obligations are paid in full.
 
G.           Secured Party’s Right to Purchase.  Secured Party shall have the
right to bid or to become the purchaser at any sale made pursuant to the
provisions of this Article V, and shall have the right to credit upon the amount
of the bid made therefor the amount payable to it out of the net proceeds of
such sale.
 
H.           Conveyance to Purchaser.  Any lawful sale of the Collateral or any
portion thereof pursuant to the provisions of this Article V will operate to
divest all right, title, interest, claim and demand of Debtor in and to the
property sold and will be a perpetual bar against Debtor and shall, subject to
applicable law, vest title in the purchaser free and clear of all liens,
security interests and encumbrances, including without limitation, liens,
security interests and encumbrances junior or subordinate to the liens, security
interests and encumbrances created by this Instrument.  Upon any lawful sale of
the Collateral or any portion thereof pursuant to the provisions of this
Article V, the receipt by Secured Party, Trustee, the sheriff or other official
or party responsible for conducting the sale, shall be sufficient discharge to
the purchaser or purchasers at any sale for the purchase money, and such
purchaser or purchasers and the heirs, devisees, personal representatives,
successors and assigns thereof shall not, after paying such purchase money and
receiving such receipt of Secured Party, Trustee, the sheriff or such other
official or party, be obliged to see to the application thereof or be in anywise
answerable for any loss, misapplication or nonapplication thereof.  Any
purchaser at a sale will, subject to mandatory redemption periods, if any,
receive immediate possession of the Collateral purchased, and Debtor agrees that
if Debtor retains possession of the Collateral or any part thereof subsequent to
such sale, Debtor will be considered a tenant at sufferance of the purchaser,
and will, if Debtor remains in possession after demand to remove, be guilty of
forcible detainer, and will be subject to eviction and removal, forcible or
otherwise, with or without process of law and all damages to Debtor by reason
thereof are hereby expressly waived by Debtor.

 
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Section 5.4             Personal Property.  Upon the occurrence of any Event of
Default, or at any time thereafter, in addition to all other rights, powers and
remedies herein conferred or conferred by operation of law, Secured Party shall
have all of the rights and remedies of an assignee and secured party granted by
applicable law, including without limitation, the applicable Uniform Commercial
Code as then in effect, and shall, to the extent permitted by applicable law,
have the right and power, but not the obligation, to take possession of the
personal property included in the Collateral and any proceeds thereof wherever
located, and for that purpose Secured Party may enter upon any premises on which
any or all of such personal property is located and take possession of and
operate such personal property or remove the same therefrom.  Secured Party may
require Debtor to assemble such personal property and make it available to
Secured Party at a place to be designated by Secured Party that is reasonably
convenient to both parties.  The following presumptions shall exist and shall be
deemed conclusive with regard to the exercise by Secured Party of any of its
remedies with respect to personal property:
 
A.           If notice is required by applicable law, Debtor agrees that ten
days’ prior written notice of the time and place of any public sale or of the
time after which any private sale or any other intended disposition thereof is
to be made shall be deemed reasonable notice to Debtor.  No such notice is
necessary if such property is perishable, threatens to decline speedily in value
or is of a type customarily sold on a recognized market.
 
B.           If Secured Party in good faith believes that the Securities Act of
1933 or any other state or federal law prohibits or restricts the customary
manner of sale or distribution of any of such property, Secured Party may sell
such property privately or in any other manner deemed advisable by Secured Party
at such price or prices as Secured Party determines in its sole
discretion.  Debtor recognizes that such prohibition or restriction may cause
such property to have less value than it otherwise would have and that,
consequently, such sale or disposition by Secured Party may result in a lower
sales price than if the sale were otherwise held.
 
Section 5.5             Possession.  Upon the occurrence of any Event of
Default, or at any time thereafter, in addition to all other rights, powers and
remedies herein conferred or conferred by operation of law, Secured Party shall,
to the extent not prohibited by applicable law, have the right and power, but
not the obligation, to enter upon and take immediate possession of the
Collateral or any portion thereof, to exclude Debtor therefrom, to hold, use,
operate, manage, enjoy and control such Collateral, to make all such repairs,
replacements, alterations, additions and improvements to the same as Secured
Party may deem proper or expedient, to sell all of the severed and extracted
ore, gold and Other Minerals included in the same subject to the provisions of
Article III hereof, to demand, collect and retain all other earnings, rents,
issues, profits, proceeds and other sums due or to become due with respect to
such Collateral accounting for and applying to the payment of the Secured
Obligations only the net earnings arising therefrom after charging against the
receipts therefrom all fees, costs, expenses, charges, damages and losses
incurred by reason thereof plus interest thereon without any liability to Debtor
in connection therewith.  Such possession shall at once be delivered to Secured
Party upon request, and on refusal or failure to so deliver possession, the
delivery of such possession may be enforced by Secured Party by any appropriate
civil suit or proceeding.

 
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Section 5.6             Appointment of Receiver.  Upon the occurrence of any
Event of Default, or at any time thereafter, in addition to all other rights,
powers and remedies herein conferred or conferred by operation of law, Secured
Party shall be entitled to the appointment of a receiver of the Collateral
without the necessity of the posting of a bond or notice; and shall, to the
extent not prohibited by applicable law, be entitled to such receiver as a
matter of right, without regard to the solvency or insolvency of Debtor, the
value or adequacy of the Collateral or the Collateral being in danger of being
materially injured or reduced in value as security by removal, destruction,
deterioration, accumulation of prior liens or otherwise; and such receiver may
be appointed by any court of competent jurisdiction upon ex parte application,
and without notice, notice being expressly waived.  Debtor does hereby consent
to the appointment of such receiver or receivers, waive any and all defenses to
such appointment, and agree not to oppose any application therefor by Secured
Party, and agree that such appointment shall in no manner impair, prejudice or
otherwise affect the rights of Secured Party under this Article V.  Nothing
herein is to be construed to deprive Secured Party of any other right, remedy or
privilege it may now or hereafter have under law to have a receiver
appointed.  Any money advanced by Secured Party in connection with any such
receivership shall be a demand obligation owing by Debtor to Secured Party.  Any
such receiver shall have all powers conferred by the court appointing such
receiver, which powers shall, to the extent not prohibited by applicable law
include, without limitation, the right to enter upon and take immediate
possession of the Collateral or any part thereof, to exclude Debtor therefrom,
to hold, use, operate, manage and control such Collateral, to make all such
repairs, replacements, alterations, additions and improvements to the same as
such receiver or Secured Party may deem proper or expedient, to lease, sell or
otherwise transfer the Collateral or any portion thereof as such receiver or
Secured Party may deem proper or expedient, to lease, sell or otherwise transfer
the Collateral or any portion thereof as such receiver or Secured Party may deem
proper or expedient, to sell all of the severed and extracted ore, gold and
Other Minerals included in the same subject to the provisions of Article III
hereof, to demand and collect all of the other earnings, rents, issues, profits,
proceeds and other sums due or to become due with respect to such Collateral,
accounting for only the net earnings arising therefrom after charging against
the receipts therefrom all fees, costs, expenses, charges, damages and losses
incurred by reason thereof plus interest thereon without any liability to Debtor
in connection therewith which net earnings shall be turned over by such receiver
to Secured Party to be applied by Secured Party to the payment of the Secured
Obligations in the order set forth in Section 5.10.
 
Section 5.7             Waiver by Debtor.  To the extent not prohibited by
applicable law, Debtor agrees that Debtor shall not at any time have, invoke,
utilize or assert any right under any laws pertaining to the marshaling of
assets or liens, the sale of property in the inverse order of alienation, the
exemption of homesteads, the administration of estates of decedents,
appraisement, moratorium, valuation, stay, extension or redemption now or
hereafter in force, and Debtor hereby waives the benefit of all such laws to the
fullest extent not prohibited by applicable law.
 
Section 5.8             Remedies Cumulative.  All rights, powers and remedies
herein conferred are cumulative, and not exclusive, of (A) any and all other
rights and remedies herein conferred, (B) any and all rights, powers and
remedies existing at law or in equity, and (C) any and all other rights, powers
and remedies provided for in any other documents or instruments evidencing,
securing or relating to the Secured Obligations, and Secured Party shall, in
addition to the rights, powers and remedies herein conferred, be entitled to
avail itself of all such other rights, powers and remedies as may now or
hereafter exist at law or in equity for the collection of and enforcement of the
Secured Obligations and the enforcement of the warranties, representations,
covenants, indemnities and other agreements contained in this Instrument and the
other documents and instruments evidencing, securing or relating to the Secured
Obligations and the foreclosure of the liens and security interests created by
this Instrument.  Each and every such right, power and remedy may be exercised
from time to time and as often and in such order as may be deemed expedient by
Secured Party and the exercise of any such right, power or remedy shall not be
deemed a waiver of the right to exercise, at the same time or thereafter, any
other right, power or remedy.  No delay or omission by Secured Party or by
Trustee, the sheriff or other official or person in the exercise of any right,
power or remedy will impair any such right, power or remedy or operate as a
waiver thereof or of any other right, power or remedy then or thereafter
existing.

 
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Section 5.9             Costs and Expenses.  All fees, costs and expenses
(including without limitation, attorneys’ fees and legal expenses), incurred by
or on behalf of Secured Party or Trustee in protecting and enforcing their
rights hereunder or incident to the enforcement of this Instrument and the liens
and security interests created hereby, shall be a demand obligation owing by
Debtor to Secured Party.
 
Section 5.10             Application of Proceeds.  The proceeds of any sale of
the Collateral or any part thereof made pursuant to this Article V shall be
applied as may be required by applicable law, or in the absence of any such
requirements, as follows:
 
A.           First, to the payment of all fees, costs, expenses and penalties
incident to the enforcement of this Instrument and the liens and security
interests created hereby, including without limitation, the fees, costs and
expenses described in Section 5.9 hereof;
 
B.           Second, to the payment of all fees, costs, expenses and penalties
remaining unpaid under the Debenture;
 
C.           Third, to the payment or prepayment of accrued interest remaining
unpaid on the Debenture;
 
D.           Fourth, to the payment or prepayment of principal remaining unpaid
on the Debenture in such order as Secured Party may elect;
 
E.           Fifth, to the payment or prepayment of the Secured Obligations
other than the Secured Obligations evidenced by the Debenture in such order as
Secured Party may elect; and
 
F.           Sixth, the remainder, if any, shall be paid to Debtor or such other
person or persons as may be legally entitled thereto.
 
Section 5.11           Limitation on Rights and Waivers.  All rights, powers and
remedies herein conferred shall be exercisable by Trustee and Secured Party only
to the extent not prohibited by applicable law; and all waivers and
relinquishments of rights and similar matters shall only be effective to the
extent such waivers or relinquishments are not prohibited by applicable law.
 
ARTICLE VI
 
Miscellaneous Provisions
 
Section 6.1             Waiver.  Any and all covenants of Debtor in this
Instrument may from time to time, be waived by Secured Party by an instrument in
writing signed by Secured Party to such extent and in such manner as Secured
Party may desire, but no such waiver will ever affect or impair Secured Party’s
rights hereunder, except to the extent specifically stated in such written
instrument.  All changes to, amendments and modifications of this Instrument
must be in writing and signed by Secured Party.
 

 
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Section 6.2             Severability.  If any provision of this Instrument or of
any of the instruments and documents evidencing, securing or relating to the
Secured Obligations is invalid or unenforceable in any jurisdiction, such
provision shall be fully severable from this Instrument and the other provisions
hereof and of said instruments and documents shall remain in full force and
effect in such jurisdiction and the remaining provisions hereof shall be
liberally construed in favor of Secured Party and Trustee in order to carry out
the provisions and intent hereof.  The invalidity of any provision of this
Instrument in any jurisdiction shall not affect the validity or enforceability
of any such provision in any other jurisdiction.
 
Section 6.3             Subrogation.  This Instrument is made with full
substitution and subrogation of Secured Party and Trustee in and to all
covenants and warranties by others heretofore given or made with respect to the
Collateral or any part thereof.
 
Section 6.4             Financing Statement.  This Instrument shall be deemed to
be and may be enforced from time to time as an assignment, contract, deed of
trust, mortgage, financing statement, real estate mortgage or security
agreement, and from time to time as any one or more thereof is appropriate under
applicable state law.  Debtor hereby authorizes Secured Party to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Collateral without the signature of Debtor at any time
after the execution of this Instrument, and hereby ratifies any thereof filed
prior to the execution of this Instrument.
 
Section 6.5             Rate of Interest.  Notwithstanding anything to the
contrary contained herein, no rate of interest required hereunder or under the
Secured Obligations shall exceed the maximum legal rate under applicable law,
and, in the event any such rate is found to exceed such maximum legal rate,
Debtor shall be required to pay only such maximum legal rate.
 
Section 6.6             Governing Law.  Insofar as permitted by otherwise
applicable law, this Instrument shall be construed under and governed by the
laws of the state of Colorado without giving effect to the conflicts of laws
principles thereof.
 
Section 6.7             Recording.  All recording references in the Exhibits
hereto are to the official real property records of the county in which the
affected Land is located and in which records such documents are or in the past
have been customarily recorded, whether deed records, oil and gas records, oil
and gas lease records or other records.  The references in this Instrument and
in the Exhibits hereto to liens, encumbrances and other burdens are for the
purposes of defining the nature and extent of Debtor’s warranties and shall not
be deemed to ratify, recognize or create any rights in third parties.
 
Section 6.8             Execution in Counterparts.  This Instrument may be
executed in one or more original counterparts.  To facilitate filing and
recording, there may be omitted from any counterpart the parts of Exhibit A
containing specific descriptions of the Collateral that relate to land located
in counties other than the county in which the particular counterpart is to be
filed or recorded.  Each counterpart shall be deemed to be an original for all
purposes, and all counterparts shall together constitute but one and the same
instrument.
 
Section 6.9             Notices.  All notices given hereunder shall be in
writing, shall be given by certified mail, return receipt requested, overnight
courier service, telecopy, facsimile or copy delivered by hand, and, (A) if
mailed, shall be deemed received three business days after having been deposited
in a receptacle for United States mail, postage prepaid, (B) if delivered by
overnight air courier service, shall be deemed received one business day after
having been deposited with such overnight air courier service, postage prepaid,
and (C) if delivered by telex, telecopy or hand delivery, shall be deemed
received on the day the notice is sent if the sender thereof exercises
reasonable efforts to confirm receipt thereof, in each case addressed as
follows:

 
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If to Debtor:
 
Hunter Bates Mining Corporation
900 IDS Center
80 South 8th Street
Minneapolis, MN  55402-8773
Attention: Mark D. Dacko
Fax. No.:  (612) 395-5276
 
If to Secured Party:
 
Cabo Drilling (America), Inc.
3rd Floor, 120 Lonsdale Avenue,
North Vancouver, BC  V7M 2E8, Canada
Attention: President
Fax. No.:  (604) 983-8056
 
Any party may, by written notice so delivered to the others, change the address
or facsimile number to which delivery shall thereafter be made.
 
Section 6.10             Binding Effect.  This Instrument shall bind and inure
to the benefit of the respective permitted successors and assigns of Debtor,
Secured Party and Trustee.
 
Section 6.11             Filing.  Some of the above described goods are or are
to become fixtures on the Land described in Exhibit A.  This Instrument is to be
filed for record in, among other places, the real estate records of each county
identified in Exhibit A.  This instrument covers fixtures, as-extracted
collateral and minerals or the like or other substances of value which may be
extracted from the earth and the accounts relating thereto, including accounts
resulting from the sale thereof at the minehead thereof.  Debtor is the owner of
an interest of record in the real estate concerned.
 
Executed as of the date first above written.
 
DEBTOR:
 
HUNTER BATES MINING CORPORATION
a Minnesota corporation
 
By:  /s/ Mark D. Dacko
 
  Printed Name: Mark D. Dacko
  Title: CFO

 
 
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