EXHIBIT 10.1

 

April 2, 2004

Christopher E. Herald

CEO                                                  Via Telecopier & Courier

Solitario Resources                               303-534-1809

4251 Kipling Street, Suite 390

Wheat Ridge, Colorado 80033

Telephone: 303-534-1030

 

 

          Re:          La Tola Property, Peru

Dear Mr. Herald:

          This binding Letter Agreement is entered into and effective on the
date agreed and accepted as set forth below by and between Newmont Peru Limited,
a Delaware corporation ("Newmont") and Solitario Resources Corp., a company
incorporated under the laws of Colorado ("Solitario"), and confirms Newmont's
interest in forming a joint venture (the "Joint Venture") to explore, and if
warranted, develop the property described in Exhibit A attached hereto,
hereinafter referred to as the "Property". This Letter Agreement is subject to
approval by the Toronto Stock Exchange.

           The parties agree to negotiate and agree upon the form of the
definitive joint venture agreement (the "Agreement"), to be executed within
twelve months of signing this Letter Agreement (unless extended by written
consent of both parties). The Agreement shall contain the following basic terms
and such other provisions as are necessary or customary for agreements of this
type and as are acceptable to the parties. These terms and conditions will
become binding upon the full execution of this Letter Agreement by Solitario.

          The "Effective Date" as used herein shall be the day of execution of
this Letter Agreement.

1.          The Property. Solitario warrants that (i) it has the exclusive right
to explore, develop, mine and market mineral products from the Property; (ii)
except for the Polet concession, for which Solitario has an option to purchase
as per the agreement referenced in Exhibit A (the "Polet Option to Purchase
Agreement"), Solitario has a 100% interest in the Property; (iii) the Property
is free and clear of all claims, encumbrances, and liens and is in good standing
under the laws of Peru; and (iv) it has the right to enter into this Letter
Agreement and the Agreement regarding the Property.

          The Polet concession will remain part of the Properties as long as
Newmont pays for Solitario's obligations under the Polet Option to Purchase
Agreement (the "Polet Option Payments"); provided, however, that Newmont will
have the right to exclude the Polet concession from the Properties, by notifying
Solitario in writing no later than 30 days before a Polet Option Payment becomes
due. Upon such notice from Newmont, the Polet concession will be excluded from
the Properties and from the Area of Interest (as defined in paragraph 9 herein)
and Solitario will be solely responsible for its rights and obligations under
the Polet Option to Purchase Agreement.

2.          Earn-in. Subject to Newmont's right, pursuant to paragraph 10, to
terminate this Letter Agreement and the Agreement at any time and be relieved of
all obligations hereunder and thereunder, Newmont will earn up to a 65%
undivided interest in the Property pursuant to the following conditions (the
"Earn-in"):

a)          Phase I Earn-in.. Newmont will earn a 51% undivided interest in the
Property by: (i) completing a minimum of 2,500 meters of drilling within the
Property, on or before the first anniversary of the Effective Date, that shall
include at least 300 meters of drilling within the Polet concession, as per the
Polet Option to Purchase Agreement (the "Drilling Commitment"); and (ii)
spending a cumulative total of US$7,000,000 in exploration on the Property
(which includes the cost of the Drilling Commitment as well as the Polet Option
Payments), on or before the fourth anniversary of the Effective Date (the
"Expenditures"), according to the following schedule:

Due Date                                            

On or by the second anniversary of the Effective Date
On or by the third anniversary of the Effective Date
On or by the fourth anniversary of the Effective Date

Cumulative total

US$1,250,000
US$3,000,000
US$7,000,000

          Newmont shall be responsible for conducting exploration at its sole
cost and discretion. If the Drilling Commitment is delayed by surface rights
owners and/or local communities and/or the lack of approval of the required
environmental permits, the Phase I Earn-in may be extended at Newmont's sole
option, for a period of up to one year. Excess amounts spent during any given
year may be credited towards expenditure requirements in subsequent years.
Newmont's expenditures shall include, without limitation: all exploration
expenses made in the Property including any expenses incurred toward
ascertaining the existence, location, quantity, quality or commercial value of
mineral deposits in, under, upon or which may be produced from the Property
including, without limitation, expenses for sampling and assaying, geochemical
analysis, geophysical surveys, drilling, metallurgical and engineering work,
reclamation, Property maintenance fees and salaries or fees paid for work on the
Property.

b)          Phase II Earn-in. After completing the Phase I Earn-in, Newmont will
have the option to earn an additional 9% undivided interest in the Property.
This interest shall be earned by producing, at its sole cost and discretion, a
positive feasibility study, as defined in Exhibit B, attached hereto (the
"Feasibility Study"), within 3 years after Phase I Earn-in.

c)          Phase III Earn-in. After completing the Phase II Earn-in, and once a
production decision has been reached, Newmont will have the option to earn an
additional 5% undivided interest in the Property, by providing to Solitario
certain conditions and certain guarantees to secure its share of project
financing at commercially competitive terms. The Newmont guarantees will be set
forth in the Agreement.

3.          Technical Committee and Data. During the Earn-in periods, a
technical committee will be formed with two representatives from each party,
with the purpose of presenting exploration programs, budgets and results and the
level of Expenditures incurred during the Phase I Earn-in, and the Feasibility
Study conducted during the Phase II Earn-in; provided, however, that the
technical committee shall be advisory in nature. The technical committee will
hold timely meetings, on a semi-annual basis from the Effective Date. Newmont
will prepare an exploration summary report that will be presented to Solitario
in such technical committee meetings. If drilling operations are ongoing,
Newmont will use its best efforts to report drill hole assay results at least
once a month to Solitario.

4.          Joint Venture. Upon Newmont's completion of the Phase I Earn-in, the
parties shall establish a Joint Venture pursuant to paragraph 16. Upon
completion of the Phase I Earn-in or Phase II Earn-in (depending upon whether
Newmont elects to exercise its Phase II Earn-in) the parties shall contribute to
programs and budgets thereafter, in proportion to their participating interest,
subject to dilution as set forth in paragraph 7 below.

5.          Management Committee. Upon completion of the Phase II Earn-in
(unless Newmont elects not to produce a Feasibility Study, in which case after
the Phase I Earn-in) the parties shall establish a management committee to
determine overall policies, objectives, procedures, methods and actions under
the Agreement. The management committee shall consist of four members: two
members appointed by Newmont and two members appointed by Solitario. Each party,
acting through its appointed members, shall have votes on the management
committee, in proportion to its participating interest.

6.          Operator. Upon completion of the Phase II Earn-in (unless Newmont
elects not to produce a Feasibility Study, in which case after the Phase I
Earn-in), the party holding at least 51% participating interest shall be the
Operator. The Operator shall present work programs and budgets to the management
committee for approval. In addition, the Operator shall provide the management
committee with quarterly and annual reports of its work program together with
all factual and interpretive data generated thereby. The Operator will earn a
management fee equal to 5% of the "Allowable Costs" (as defined below) up to $10
million, and 3% of Allowable Costs over $10 million in a budgetary year,
incurred after Phase II Earn-in (unless Newmont elects not to produce a
Feasibility Study, in which case after the Phase I Earn-in), which shall
continue through development and mining operations.

          Allowable Costs shall include all expenses of the Joint Venture
excluding (i) the management fee set forth herein; (ii) depreciation, wear and
tear and amortization of tangible and intangible assets; (iii) capital
investments; (iv) working capital until it is used in the operation; (v)
financial expenses; (vi) royalties; and (vii) workers' profit sharing,
penalties, taxes and indemnities corresponding to the Joint Venture.

7.          Project Expenditures and Dilution. The Operator will provide the non
operating party the program and budget for a calendar year, within the last
quarter of the previous calendar year. The non operating party will then have
30-days to advise the Operator that it will: (a) participate in funding the
program at its then participating interest, or (b) dilute its interest pursuant
to this paragraph. Expenditure projections for an approved budget will then be
prepared by the Operator in advance for each calendar quarter and provided to
the non operating party. The non operating party will then have to remit its
share of projected expenditures within 30-days from the date such funds were
requested by the Operator. If a party fails to remit its share of projected
expenditures within such 30-day period, such party shall have 15 days from the
date it receives a notice of default, to cure such default before being
subjected to dilution.

          If either party elects not to contribute its proportionate share to an
agreed work program, such party's participating interest shall be subject to
dilution and determined as follows:

          A Participant's Interest = 100% x Aggregate of Participant's Actual
and Deemed Expenditures

                              Aggregate of All Participant's Actual and Deemed
Expenditures

          For dilution calculation purposes, at Phase I Earn-in, Newmont's
initial contribution shall be deemed to be US$7,000,000 and Solitario's initial
contribution shall be deemed to be US$6,725,490, with a total project
expenditure deemed to be US$13,725,490 on a 51:49 basis. Newmont's initial
contribution and Solitario's initial contribution at Phase II Earn-in (60:40
basis) and at Phase III Earn-in (65:35 basis) will be set forth in the Agreement
based on all actual project expenditures incurred by Newmont during the period
of preparation of the Feasibility Study through financing.

          If a party elects to contribute to a work program but fails to make
such contribution, the amount of dilution shall be equal to twice the dilution
that would have occurred had the defaulting party initially elected not to
contribute.

          Solitario Royalty

. Solitario shall retain a net smelter returns (the "NSR" as defined in Exhibit
C) royalty from gold and silver production in the Property (the "Solitario
Royalty"). The Solitario Royalty for gold shall be calculated as a function of
the price of gold according to the following:

Price of Gold (US$ per oz)

% NSR

Less than US$350
Equal or greater than US$350 but less than US$450
Equal or greater than US$450

1.25
1.75
2.25

          The Solitario Royalty from silver production shall be a 1.75 % NSR.

          The parties understand that there is a ongoing effort in Peru to
approve legislation under which a royalty would be applied to mining concessions
(the "Country Royalty"); therefore, the parties agree to limit the Solitario
Royalty such that the Solitario Royalty for gold or for silver plus the Country
Royalty shall never exceed the equivalent a 4.75% NSR. As an example for gold,
if the Country Royalty is equivalent to a 3% NSR and the price of gold is
greater than US$450, then the Solitario Royalty for gold shall be reduced from
2.25% NSR to 1.75% NSR.

9.          Area of Interest. The Area of Interest shall be defined by a line
which is parallel to all exterior boundaries of the Property and separated by
3km from such exterior boundary. Any interest or right to acquire any interest
within the Area of Interest, including, without limitation, mining concessions,
surface or water rights related thereto, or royalty interest, acquired while
this Letter Agreement or the Agreement is in effect, by or on behalf of a
Participant or any affiliate, shall be subject to the terms and provisions of
this Letter Agreement and the Agreement.

10.          Withdrawal. Provided that Newmont has completed the Drilling
Commitment, prior to completing Phase I, Newmont may terminate this Letter
Agreement or the Agreement at any time after 30 days prior written notice. If
Newmont terminates this Letter Agreement or the Agreement without completing the
Drilling Commitment, it shall pay Solitario in cash an amount of US$100 per
meter for the balance between the amount of meters drilled and the Drilling
Commitment. Prior to completing the Phase I, the Agreement will also terminate
if Newmont fails to complete the annual Expenditures for any given year, unless
Newmont decides to pay Solitario in cash, the difference between the spent
amount and the Expenditures required for any given year. Either party will have
the right at any time after 90 days prior written notice to the other party to
withdraw from the Joint Venture by transferring its interest in the Joint
Venture to the other party; provided, however, that such withdrawing party will
be responsible for any obligations incurred by it prior to such withdrawal.

11.          Governing Law. This Letter Agreement and the Agreement will be
governed by the laws of the State of Colorado, USA. The laws of Peru shall apply
to the extent applicable to the Property and the mineral rights.

12.          Right of First Refusal. Each party shall have a right of first
refusal with respect to any bona fide proposed sale, directly or indirectly, of
the other party's interest in the Agreement, the Joint Venture, the Property, or
the Solitario Royalty. Such right shall permit Solitario or Newmont, whichever
the case may be, to purchase such interest on the terms offered by any third
party and shall be exercised, if at all, within 30 days after written notice
from the other party of the proposed offer. This preferential purchase right
shall not apply to transfers to affiliated or related companies, to corporate
reorganizations, mergers, amalgamations, or the sale of all or substantially all
of the stock of Newmont Mining Corporation or of Solitario, provided that the
interest in the Joint Venture does not constitute more than 60% of the assets of
Newmont Mining Corporation or Solitario at the time of such transaction.

13.          No Pledge. Neither party shall pledge, mortgage, or otherwise
encumber its interest in the Joint Venture or the Property, except for the
purpose of financing for its share of expenditures, pursuant to paragraph 2 (c)
herein, after a production decision has been made.

14.          Indemnity. Solitario will indemnify Newmont from and against all
liability relating to Solitario's activities on the Property and, Newmont will
indemnify Solitario from and against all liability relating to Newmont's
activities on the Property.

15.          Dispute Resolution. Disputes of the parties shall be resolved by
binding arbitration in Denver, Colorado in English in accordance with the
International Rules of the American Arbitration Association (the "Rules"). For a
period of at least 60 days prior to submission of a matter to arbitration, an
executive officer of Newmont and an executive officer of Solitario will attempt
to resolve the dispute, failing which either party may refer the matter to
arbitration by written notice to the other party. For disputes involving amounts
of US$2 million dollars or less, the parties shall attempt, by mutual agreement,
to nominate a sole arbitrator within 30 days from the date of the initiating
party's written notice to the other party. If the parties cannot agree upon a
sole arbitrator within such 30 day period, or in the case of disputes involving
amounts of more than US$2 million dollars, the arbitration shall be carried out
by a panel of three arbitrators with one arbitrator being selected by the
initiating party, one arbitrator being selected by the responding party and the
third arbitrator being selected by mutual agreement of such two arbitrators. If
such two arbitrators cannot agree within 75 days upon the appointment of the
third arbitrator, the third arbitrator shall be appointed by the AAA in
accordance with the Rules. Moreover, if any party shall fail to appoint an
arbitrator within the specified time period, such arbitrator and the third
arbitrator shall be appointed by the AAA in accordance with the Rules.
Notwithstanding the foregoing, the arbitrator or arbitrators, as the case may
be, shall be lawyers with at least ten year's experience with international
joint venture agreements, trained in the common law tradition. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction.

16.          Venture Structure/Tax Matters. The parties agree that in order to
form the Joint Venture and negotiate and conclude the Agreement, they will need
to consult with tax and legal advisors, and that the Joint Venture may be
structured as a corporation or partnership, owned either onshore or offshore as
determined pursuant to such tax or legal advice and as necessary to comply with
Peruvian law, maximize organizational and operational efficiencies and minimize
the tax liability (to the extent possible) of each of Newmont and Solitario.

17.          Force Majeure. The parties' obligations and the timeframes
established under this Letter Agreement shall be suspended to the extent and for
the period that performance is prevented by any cause beyond the party's
control, whether foreseeable or unforeseeable, including, without limitation,
labor disputes, opposition by local communities, acts of God, laws, regulations,
orders, proclamations, or requests of any governmental authority, inability to
obtain on reasonable terms required permits, licenses, or other authorizations,
or any other matter similar or dissimilar to the above that constitutes an event
of force majeure.

18.          Confidentiality and Press Releases. Except where regulatory or
stock exchange requirements prohibit, the terms of this Letter Agreement are to
be held by the parties and their directors, officers, employees, consultants,
agents, accountants, legal counsel, financing sources and those of its direct
and indirect wholly-owned subsidiaries and parent companies (herein the
"Representatives"), in strict confidence. It being agreed that each such
Representative will be informed by the respective party of the confidential
nature of this Letter Agreement and will agree to be bound by its terms and
further, that each party will be responsible for any breach hereof by its
Representatives. The parties understand that disclosure may be required pursuant
to law or regulations of an applicable stock exchange, and, in the event that a
party desires to make public disclosure, to the extent legally permissible, the
other party shall receive two business days to review and approve such
disclosure, with such approval not to be unreasonably withheld. The party
wishing to make a public disclosure shall make all reasonable edits requested by
the other party.

          It is understood that this Letter Agreement shall be a binding and
enforceable agreement as of the date it is executed by Solitario; provided,
however, the Agreement shall be subject to a due diligence period during which
Newmont shall have free access to examine all data, to sample the Property and
to satisfy itself with respect to land title, the absence of environmental
liabilities and similar matters. Newmont shall complete this due diligence
within 30 days from the date of execution of this Letter Agreement, and to the
extent that the results of such due diligence are deemed to be unsatisfactory,
at Newmont's reasonable discretion, Newmont may withdraw from this Letter
Agreement and its obligation to perform the Drilling Commitment.

          In the event any provision of this Letter Agreement is found to be
inconsistent with, or contrary to law, rule or regulation, the latter shall be
deemed to control and this Letter Agreement shall be regarded as modified
accordingly and, as so modified, shall continue in full force and effect.

          This Letter Agreement contains the entire understanding of the parties
relating to the specific subject matter hereof, and supersedes all prior
agreements and understandings between the parties. The parties have the
necessary power and authority to enter into this Letter Agreement which shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto. Any amendments hereto shall be in writing and signed by
the parties hereto.

Newmont Peru Limited

 

By: /s/ Carlos Santa Cruz

Name: Carlos Santa Cruz

Title: President and Managing          Director

Agreed to and accepted this 5th day of April, 2004.

Solitario Resources Corp.

 

By: /s/James R. Maronick

Name: James R. Maronick

Title: CFO

EXHIBIT A

The Property

 

 

Name

Hectares

Code

Status

1

ZORAIDA UNO

1,000

01-02901-03

Titled

2

ZORAIDA DOS

1,000

01-03338-03

Titled

3

ZORAIDA TRES

700

01-03339-03

Titled

4

ZORAIDA CUATRO

800

01-03340-03

Titled

5

ZORAIDA CINCO

800

01-03348-03

Titled

6

ZORAIDA SEIS

900

01-03349-03

Titled

7

ZORAIDA SIETE

800

01-03406-03

In process

8

ZORAIDA OCHO

900

01-03407-03

Titled

9

ZORAIDA NUEVE

900

01-03633-03

In process

10

ZORAIDA DIES

1,000

01-03408-03

Titled

11

ZORAIDA ONCE

1,000

01-03409-03

Titled

12

ZORAIDA DOCE

700

01-00082-04

In process

13

ZORAIDA TRECE

500

01-00083-04

In process

14

ZORAIDA CATORCE

1,000

01-00084-04

In process

15

POLET [1]

100

01-02680-03

Titled

Total

12,100

 

 

[1]

          Polet Option to Purchase Agreement is the agreement executed between
Minera Solitario S.A.C., a wholly owned subsidiary of Solitario and Mr. Placido
Remigio Pariguana Moncca, in front of Mr. Alfredo Paino Scarpati Notary Public
of Lima, on March 24, 2003.

 

 

EXHIBIT B

 

Feasibility Study

Feasibility Study means a detailed report recommending the development of a
mine, within the Property, for being economically viable and profitable to
exploit the relevant deposit or deposits according to the parameters established
in such study, contemplating the maximum prospective development and operation
as is reasonable and economically viable according to the data available at the
time such study is prepared. The study shall at least include the following
information:

1.          An estimate of recoverable mineral reserves and an estimate of its
composition and content; the proposed procedure for the development and
production of the mine;

2.          Test results of the minerals that may be treated;

3.          Characteristics and area where the proposed mine facilities will be
located, which facilities may include mineral treatment facilities, if the size
and location of the mineralized body renders such mineral treatment facility
feasible; in which case, the report shall include a preliminary design of said
mineral treatment facility;

4.          Total costs, including the budget of capital costs reasonably
required to acquire, build and install the structures, machinery and equipment
required for the proposed mine, including an estimated timing of such
requirements;

5.          All environmental impact studies and cost thereof;

6.          Proposed period in which commercial production of the mine will
start;

7.          Other data and information that is reasonably necessary to support
the existence of a mineralized deposit of sufficient grade and size to justify
the development of the mine, taking into account all business considerations,
taxes and other economic considerations; and

8.          Working capital requirements for the first four months of the mine
operation, or for a longer period that is reasonably justified by the
circumstances.

The information contemplated above shall be of the quality and content that is
generally required to produce a bankable feasibility study for lending
institutions in the United States of America or Canada, with the purpose of
determining the convenience of providing funding for the project. The
preparation of a bankable feasibility study shall be at the sole expense of the
party desiring to produce such study.

 

EXHIBIT C

 

NET SMELTER RETURNS

1.          Calculation of Net Smelter Returns.

(a)          When and after a dore or other form of concentrate is shipped to a
refinery and there has been a final settlement by the refinery with respect to
such delivery, the "Net Smelter Returns" shall mean: (i) with respect to gold,
the value of gold (stated in U.S. Dollars per ounce of gold) multiplied by the
number of ounces of gold produced, less Allowable Deductions, and (ii) with
respect to all other minerals, the value of such other minerals (stated in U.S.
Dollars), less Allowable Deductions.

          The value of gold shall be the numerical average of the closing prices
of gold as reported on the COMEX (or, if the COMEX shall cease reporting gold
prices, then the London P.M. fix; or, if that should cease to be reported, then
as reported by another mutually agreed substitute index) at the conclusion of
each day of said month in which final settlement occurred; such average price
shall then be used to value all gold products for which there was final
settlement during such month. The value of all other minerals contained in such
dore or other form of concentrate shall be the numerical average of the closing
prices of such minerals as reported on the London Metals Exchange at the
conclusion of each day of said month; such average price shall then be used to
value all such minerals (other than gold) during such month. In all other cases,
"Net Smelter Returns" shall be as defined in subsection (b) of this Section 1.

(b)          Except as provided in subsection (a) of this Section 1, "Net
Smelter Returns" means:

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

(ii)          in the case of ores, minerals, or other products which are
processed by or for the account of the Operator to produce concentrates or other
saleable intermediate products to be smelted or otherwise further processed by
or for the account of the Operator, an amount equal to the market value of the
concentrates or other saleable intermediate products f.o.b. the plant producing
the concentrates or other saleable intermediate products (which amount shall be
deemed to have been received by the Operator), less Allowable Deductions, and in
all other cases, the amount received by the Operator from the purchaser of the
ores, minerals, or other products, less Allowable Deductions.

(c)          "Allowable Deductions" means, to the extent borne or to be borne by
the Operator:

(i)          charges for and taxes on transportation of mineral product from the
mine or plant producing the concentrates or other saleable products to a smelter
or other place of treatment, from the smelter or other place of treatment to the
refinery and from the refinery to the place of sale,

(ii)          insurance and security costs and charges,

(iii)          smelting and refining costs, treatment charges and penalties,
including without limitation metal losses and penalties for impurities,

(iv)          representation, assaying, and umpire costs and fees, and marketing
costs and commissions, and

(v)          production, sales, severance, and other taxes measured by
production or the value of production.

(d)          Advance sales, forward sales, hedging, and other speculative sales
arrangements shall be solely for the account, benefit and risk of the Operator,
and shall not inure to the benefit of the royalty owner.

2.          Commingling. The Operator may commingle ores from the Property with
ores from other properties, either before or after concentration or
beneficiation, so long as all data necessary to determine the weight and grade,
both of the ores removed from the Property and the ores with which they are
commingled, are obtained and preserved by the Operator. The Operator shall then
use that weight and grade data to allocate any value received between the
Property and the other properties from which the other commingled ores were
removed. All such weight, grade and allocation calculations shall be done in a
minerlike fashion.

3.          Payment. Net Smelter Returns shall be calculated for each calendar
quarter in which Net Smelter Returns are realized, and payment shall be made
within thirty (30) days following the end of each such calendar quarter. Such
payments shall be accompanied by a statement summarizing the computation of Net
Smelter Returns. Such quarterly payments are provisional and subject to
adjustment within ninety (90) days following the end of each calendar year. All
royalty payments made during or with respect to a calendar year shall
conclusively be deemed to be true and correct unless within six (6) months
following the end of said calendar year the royalty owner or the Operator takes
or makes written exception, specifying with particularity the items to which
exception is made and grounds for each exception.

4.          Inspection of Records. The Operator's records of all mining and
milling operations within the Property, and its records with respect to
commingling of production from the Property, shall be available for Solitario's
(or its authorized agents') inspection and/or audit upon reasonable advance
notice and during normal business hours, but no more frequently than once each
quarter. If any such audit or inspection reveals that Net Smelter Returns for
any calendar year (after giving effect to year-end adjustments) are underpaid by
more than five percent, the Operator shall reimburse Solitario for its
reasonable costs incurred in such audit or inspection.