Exhibit 10.11

 

Execution Copy

 

EXPLORATION EARN-IN AGREEMENT

 

THIS EXPLORATION EARN-IN AGREEMENT (the “Agreement”) is made and entered into as
of March 2, 2012 (the “Effective Date”), by and between ESTRELLA GOLD
CORPORATION (“Estrella Gold”), a corporation formed under the laws of the
Province of Ontario, Estrella Gold Peru S.A.C., a Peruvian sociedad anonima
cerrada and a wholly owned subsidiary of Estrella Gold (“EGC Peru”, together
with Estrella Gold herein called “EGC”), MINES MANAGEMENT, INC. (“Mines
Management”), an Idaho corporation and Minera Montanore Peru S.A.C., a Peruvian
sociedad anónima cerrada and a wholly owned subsidiary of Mines Management (“MMI
Peru”, together with Mines Management herein called “MMI”). Estrella Gold, EGC
Peru, Mines Management and MMI Peru are sometimes individually referred to as a
“Party” and sometimes collectively as the “Parties.”

 

RECITALS

 

A.                                    EGC is the owner of 100% of the mineral
concessions or mining licenses, as more particularly described in Exhibit A-1
attached hereto and incorporated herein by reference, all of which are located
in the Department of Huancavelica, Peru (the “Concessions”). These Concessions
constitute the La Estrella Gold-Silver Project (the “Project”).

 

B.                                    EGC desires to grant to MMI and MMI
desires to acquire, the exclusive right to explore, evaluate and develop the
Project and to earn a 75% undivided interest in the Project and in all
easements, rights-of-way, water rights, after-acquired property, information,
data, contract rights and other real and personal property, tangible and
intangible, associated therewith (collectively, the “Property”), pursuant to the
terms and conditions of this Agreement.

 

C.                                    The Parties wish to agree to certain
matters regarding the right to earn a 75% interest in the Property and the
possible subsequent development of the Project.

 

AGREEMENT

 

NOW, THEREFORE, for and in consideration of the sum of Ten Dollars ($10.00) now
paid by each Party to the other (the receipt and sufficiency of which are hereby
acknowledged) and the mutual promises, covenants and conditions herein contained
and recited, the Parties agree as follows:

 

A.                                    GRANT OF EXPLORATION, DEVELOPMENT AND
EARN-IN RIGHTS

 

1.                                      EGC hereby grants to MMI the exclusive
right, for so long as this Agreement remains in effect, (i) to enter upon the
Property to explore, evaluate and develop the Concessions, and (ii) to acquire a
75% undivided interest in the Property (the “Earn-In Right”), for the following
consideration:

 

(a)                                 MMI, simultaneous with the execution and
delivery of this Agreement, shall pay to EGC the amount of US $50,000 (the
“Initial Payment”).

 

(b)                                 In addition, in order to maintain its
Earn-In Right in full force and effect and to acquire a 75% interest in the
Property, MMI is required to:

 

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(i)                                     expend a minimum sum of US$500,000 (not
including the Initial Payment) in Exploration and Development Expenses (as
defined in Exhibit B attached hereto) prior to the end of the first Agreement
Year (the “First Year Work Obligation”);

 

(ii)                                  expend a additional minimum sum of
US$500,000 in Exploration and Development Expenses prior to the end of the
second Agreement Year (the “Second Year Work Obligation”, together with the
First Year Work Obligation, the “Minimum Work Obligation”);

 

(iii)                               expend a minimum of US$5.0 million (the
“Aggregate Work Obligation”) in Exploration and Development Expenses;

 

(iv)                              produce a Preliminary Economic Assessment (as
defined in Exhibit C attached hereto) of a resource on the Property; and

 

(v)                                 make the following payments (the “Additional
Payments”) to EGC:

 

Prior to end of the first Agreement Year

 

US

$

100,000

 

Prior to end of each subsequent Agreement Year

 

US

$

200,000

 

 

“Agreement Year” means, during the Earn-In Period, each annual period with the
first Agreement Year commencing on March 1,2012 and ending on February 28,2013,
and each subsequent Agreement Year commencing on March 1 and ending on the
following February 28 or 29, as the case may be.

 

“Earn-in Period” means the period commencing on the Effective Date and
terminating on the earlier of the vesting of a 75% interest in the Property, to
be evidenced by the issuance or transfer to MMI of shares in Newco Peru, and
termination of this Agreement.

 

(c)                                  All Exploration and Development Expenses
incurred by MMI, including Exploration and Development Expenses in excess of the
Minimum Work Obligation, during the first or any subsequent Agreement Year shall
apply as a credit toward the Aggregate Work Obligation.

 

(d)                                 The Initial Payment and the Additional
Payments shall not apply as a credit toward the Aggregate Work Obligation or
towards the Minimum Work Obligation. MMI’s obligation to make Additional
Payments shall terminate upon completion of the Earn-in Period.

 

(e)                                  During each of the first two Agreement
Years, MMI shall spend at least U.S. $500,000 in Exploration and Development
Expenses as set forth in Section A(l)(b) and complete at least 2,500 meters of
exploration diamond or reverse circulation drilling on the Concessions. If MMI
spends more than the First Year Work Obligation during the first Agreement Year,
or completes more than 2,500 meters of exploration diamond or reverse
circulation drilling on the Concessions during the first Agreement Year, the
excess shall be credited towards the Minimum Work Obligation and drilling
obligation for the second Agreement Year.

 

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(f)                                   If MMI (i) terminates this Agreement prior
to spending US$350,000 in Exploration and Development Expenses, or
(ii) otherwise spends less than US$350,000 in Exploration and Development
Expenses during the first Agreement Year, MMI shall pay to EGC an amount equal
to the difference between US$350,000 and the amount actually spent by MMI and
the Agreement shall be terminated.

 

(g)                                  If MMI fails or elects not to achieve the
First Year Work Obligation or the Second Year Work Obligation prior to the end
of the respective Agreement Year, then, in order to keep this Agreement and the
Earn-In Right in full force and effect, within 30 days after the end of such
Agreement Year, MMI may in its sole discretion make a payment to EGC which shall
equal the difference between the amount of the First Year Work Obligation or the
Second Year Work Obligation, as the case may be, and the Exploration and
Development Expenses actually incurred by MMI in respect of that Agreement Year.
For the avoidance of doubt, any such payment shall satisfy either the First Year
Work Obligation or the Second Year Work Obligation, as the case may be.

 

(h)                                 MMI shall provide EGC with a report of its
Exploration and Development Expenses not later than 60 days after the end of
each Agreement Year. If for any reason it is subsequently determined that the
Minimum Work Obligation was not completed during the first or second Agreement
Year, then, in order to keep the Earn-In Right in good standing, MMI shall pay
the amount of any agreed-upon deficiency to EGC within 30 days after the MMI and
EGC reach agreement as to the amount of the deficiency, or as MMI and EGC may
otherwise agree.

 

(i)                                     MMI may in its sole discretion
accelerate the timing of (i) incurring Exploration and Development Expenses to
meet the Minimum Work Obligation and Aggregate Work Obligation, and
(ii) completion of the Preliminary Economic Assessment, and may exercise the
Earn-In Right at any time during the Earn-In Period.

 

(j)                                    MMI shall be the exploration operator and
shall have full control over the content of work programs and Exploration and
Development Expenses during the Earn-In Period. MMI’s rights shall also include
all other rights necessary or incident to or for the performance of its
activities under this Agreement, including, but not limited to, the authority to
apply for and obtain all necessary or desirable permits, licenses and other
approvals from Peru, the Department of Huancavelica or any other governmental or
other entity having regulatory authority over any part of the Property. EGC
shall cooperate fully with MMI in obtaining such permits, licenses or approvals,
which shall include obtaining such permits, licenses and other approvals in its
own name and signing such applications or other related documents if required or
desirable. Within 30 days following receipt of an invoice accompanied by
appropriate supporting documentation, MMI shall reimburse EGC for its out of
pocket costs, plus 10% of such out of pocket costs, incurred by EGC in assisting
MMI in obtaining any such permits, licenses or approvals, and such amounts shall
constitute Exploration and Development Expenses.

 

(k)                                 During the first Agreement Year, EGC will
retain responsibility for relationships with surface owners and possessors as
may be required by MMI for its activities on or for the benefit of the Property
including the local communities Comunidad Campesina de Añacusi, Comunidad
Campesina de San Antonio de Añaylla, Comunidad Campesina de Los Andes, which
shall include obtaining necessary or desirable rights to use the surface,
permits or

 

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other rights from such communities. Within 30 days following receipt of an
invoice accompanied by appropriate supporting documentation, MMI shall reimburse
EGC for its out of pocket costs, plus 10% of such out of pocket costs, incurred
by EGC in connection with relationships with surface owners and possessors, and
such amounts shall constitute Exploration and Development Expenses. The amount
and nature of such out of pocket costs, such expenses shall be submitted to MMI
in advance by EGC and approved in advance in writing by MMI. Following the first
Agreement Year, MMI shall be responsible for maintaining relationships with the
local communities, and shall continue to consult with EGC regarding the same.

 

(l)                                     During the Earn-In Period, EGC will
timely make all property maintenance and other payments to government entities,
including without limitation, the derecho de vigencia, that are required to
maintain the Concessions in full force and effect, and shall provide MMI with
evidence of such payments at least 30 days prior to the date such payments are
due. Within 14 days following receipt of appropriate supporting documentation,
MMI will reimburse EGC for such payments. The obligation of MMI to reimburse EGC
for property maintenance payments is in addition to, and such reimbursements
will not be credited against, the Aggregate Work Obligation or Minimum Work
Obligation. If, however, EGC fails to timely pay derecho de vigencia or
penalidad payments, MMI shall have the right to make such payments directly to
the appropriate Peruvian government agency and) in such event, such payments
will be credited against the Minimum Work Obligation and Aggregate Work
Obligation.

 

(m)                             EGC and MMI anticipate that in the first
Agreement Year and perhaps for a longer period, MMI will conduct its activities
under EGC’s existing permits and licenses and that the Concessions will not be
leased or assigned to MMI. Following the first Agreement Year, EGC and MMI agree
to cooperate so that MMI may enter into an Exploration Investment Agreement with
the Peruvian government and commence recovery of Impuesto General a las Ventas
in connection with its Exploration and Development Expenses, which cooperation
may involve the lease or assignment of the Concessions to MMI during the Earn-In
Period.

 

(n)                                 Upon receipt of a written request from MMI,
EGC shall create a wholly owned Peruvian subsidiary (‘‘NewcoPeru’’) and EGC Peru
shall transfer the Property to NewcoPeru free and clear of all liens, claims and
encumbrances. EGC shall continue to own 100% of the shares of NewcoPeru until
such time as MMI has completed the Earn-in Period and earned a 75% interest in
the Property and NewcoPeru. EGC and MMI shall consult and cooperate in the
formation of NewcoPeru and the transfer of the Property to NewcoPeru so that
(i) the formation and transfer documents and process are acceptable to all
Parties, (iii) MMI’s right to acquire 75% of the outstanding shares of NewcoPeru
is appropriately noted in the share registry and in documents publicly filed in
Peru so as to provide notice of such right to third parties, (iii) the transfer
of the Property is accomplished in the most tax efficient manner, and
(iv) NewcoPeru has no financial obligations to EGC following the transfer of the
Property. MMI shall be pay or reimburse EGC for the costs associated with the
formation of NewcoPeru and the transfer of the Property to NewcoPeru.

 

(o)                                 The rights and obligations of MMI under this
Agreement may be exercised or satisfied by Mines Management, MMI Peru) or any
other wholly owned subsidiary

 

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of Mines Management that agrees to become a Party to this Agreement, as Mines
Management may elect in its sole discretion.

 

2.                                      Except as otherwise set forth in this
Agreement, the timing, manner, nature, and extent of any exploration,
development, or any other activities or operations undertaken on or for the
benefit of the Property under this Agreement shall be at the sole discretion of
MMI; and there shall be no express or implied covenant under this Agreement to
‘begin or continue any such operations or activities.

 

3.                                      EGC has and shall continue to make
available to MMI all records, information and data in its possession or
reasonably available to it relating to title to the Property or environmental
conditions at or pertaining to the Concessions, and all maps, assays, surveys,
technical reports) drill logs, samples, mine, mill, processing and records, and
metallurgical. geological, geophysical, geochemical) and engineering data, and
interpretive reports derived therefrom, concerning the Concessions, and MMI, at
its expense, may copy any such records, information and data that MMI desires.

 

4.                                      MMI and EGC anticipate that MMI may
contract with EGC for local administrative and other services in respect of the
Project during the Earn-In Period. All amounts paid by MMI to EGC in respect of
such services shall constitute Exploration and Development Expenses.

 

B.                                    VESTING AND TRANSFER OF INTEREST

 

1.                                      Upon MMI having made the Initial Payment
and the Additional Payments to EGC in accordance with Section A(l) and having
timely completed the Aggregate Work Obligation and the Preliminary Economic
Assessment, MMI shall provide EGC with written notice of such completion
together with a copy of the Preliminary Economic Assessment within 30 days after
its completion and delivery to MMI. In such notice, MMI shall inform EGC whether
MMI wishes, to exercise the Earn-In Right. MMI shall submit the Preliminary
Economic Assessment to the Toronto Stock Exchange for approval and compliance
with the requirements of Canadian National Instrument 43-101. Within 15 days
following MMI’s receipt of acceptance by the Toronto Stock Exchange, which may
follow amendments to the Preliminary Economic Assessment if necessary or
desirable to obtain such Toronto Stock Exchange acceptance, if MMI has elected
to exercise the Earn-In Right, EGC shall issue or transfer to MMI a number of
shares of NewcoPeru so that, following such transfer, MMI shall own 75% of the
outstanding shares of NewcoPeru, fully paid and non assessable, free and clear
of all liens, claims and encumbrances (the “Earned Shares”). Concurrently with
the issuance or transfer of the above noted shares to MMI, the Parties shall
execute and deliver the shareholder’s agreement referred to in Section B(2). MMI
agrees to be responsible for costs and fees which arise as a result of this the
issuance or transfer of shares.

 

2.                                      Upon MMI having exercised the Earn-In
Right and EGC having issued or transferred the Earned Shares, EGC and MMI shall
enter into a shareholders agreement (the “Shareholders Agreement”) with respect
to their respective 25% and 75% of the outstanding shares of NewcoPeru, which
shall be generally in accordance with the Rocky Mountain Mineral Law Foundation
Exploration, Development and Mine Operating Agreement (Model Form 5A)

 

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(“Form 5A”). The Shareholders Agreement and the by-laws of NewcoPeru will govern
the ongoing activities of MMI and EGC in respect of the Project and the
Property, and shall include the concepts set forth in Section E below, and such
other terms and provisions as are mutually agreeable to MMI and EGC. MMI will
appoint the general manager of NewcoPeru and will have rights and
responsibilities commensurate with those of the manager of a Form 5A joint
venture. EGC and MMI agree to begin good faith negotiations of the Shareholders
Agreement and by-laws of NewcoPeru at any time during the Earn-In Period, when
requested by MMI. If MMI has exercised the Earn-In Right and EGC and MMI have
not completed their negotiation of and executed and delivered the Shareholders
Agreement and accompanying by-laws and other related contribution agreements,
the provisions of Section E of this Agreement shall govern their relationship
until the appropriate agreement(s) are executed and delivered.

 

C.                                    REPRESENTATIONS, WARRANTIES AND COVENANTS

 

1.                                      EGC hereby represents and warrants to
MMI as of the Effective Date (which representations and warranties shall remain
true and correct as of and through the date on which the Property including the
Concessions is transferred to NewcoPeru) as set forth below, and acknowledge
that MMI is relying upon these representations and warranties in entering into
this Agreement.

 

(a)                                 The Property including the Concessions is
accurately described in Exhibit A-I attached hereto; EGC Peru is the sole owner
thereof and is in exclusive possession thereof; and, except for the net smelter
royalty described in Exhibit A-2, the Property including the Concessions is free
and clear of all liens, claims (including the right or agreement of any third
party to acquire any interest in the Concessions), encumbrances and defects.

 

(b)                                 As to each of the Concessions:

 

(i)                                     EGC is the sole, exclusive, legal,
beneficial and registered titleholder of the Concessions, each of which has been
duly and validly granted by the competent governmental agency, and recorded with
the relevant Peruvian Public Registry, in accordance with applicable Peruvian
laws.

 

(ii)                                  Each Concession is valid and in legal good
standing and there is no current dispute relating to any of the Concessions, and
EGC has no reason to believe that any of the Concessions is under cause of
forfeiture or termination.

 

(iii)                               With respect to each Concession, each and
all applicable annual derecho de vigencia until year 2010 inclusive and all
other maintenance payments, including applicable annual penalties for the year
ended 31 December 2009, have been paid in full when due and there is no
outstanding amount owed to any Peruvian governmental entity for any of these
Concessions.

 

(c)                                  All operations and activities conducted by
or on behalf of EGC on the Concessions have been conducted in compliance with
applicable Peruvian national, regional and local laws, rules and regulations,
including without limitation Environmental Laws (as defined in Exhibit B), and
agreements with Peruvian government entities, Peruvian communities, and other
third parties.

 

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(d)                                 Each of Estrella Gold and EGC Peru is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it was formed. Each of Estrella Gold and EGC Peru has the
requisite corporate power and capacity to carry on its business as presently
conducted, to enter into this Agreement, and to perform all of its obligations
hereunder.

 

(e)                                  There are no outstanding agreements, leases
or options (whether oral or written) which contemplate the acquisition of the
Concessions or the Property or any interest therein by any other person or
entity, or which limit or define in any way the activities that may be conducted
on the Concessions, and except for (i) a 1.5% Net Smelter Return Royalty over
the Cinco Hermanos, Jaime 1 and Julia 1 Concessions, in favor of former
underlying owners as described in Exhibit A-2, and (ii) the statutory mining
royalty payable to the Peruvian State as a consideration for exploitation of
minerals which on the Effective Date of this Agreement is fixed at a sliding
scale from 1% to 12%, there are no royalties or other payments based on mineral
production or otherwise payable on the Concessions.

 

(f)                                   The entering into of this Agreement and
the performance by Estrella Gold and EGC Peru of their respective obligations
hereunder will not violate or conflict with their respective articles of
incorporation or by-laws, any applicable law or any order, decree or notice of
any court or other governmental agency, nor conflict with, or result in a breach
of, or accelerate the performance required by any contract or other commitment
to which Estrella Gold or EGC Peru is a party or by which it is bound.

 

(g)                                  All requisite corporate actions on the part
of Estrella Gold and EGC Peru, and on the part of their respective officers,
directors, and shareholders, necessary for the execution, delivery, and
performance by it of this Agreement and all other agreements contemplated
hereby, have been taken. This Agreement and all agreements and instruments
contemplated hereby are, and when executed and delivered by them (assuming valid
execution and delivery by the other Parties), will be their legal, valid, and
binding obligations enforceable against each of them in accordance with their
respective terms. Notwithstanding the foregoing, no representation is made as to
the availability of equitable remedies for the enforcement of this Agreement or
any other agreement contemplated hereby. Additionally, this representation is
limited by applicable bankruptcy, insolvency, moratorium, and other similar laws
affecting generally the rights and remedies of creditors and secured parties.

 

(h)                                 To the best of the knowledge of EGC, there
are no adverse environmental conditions at the Property which constitute a
nuisance or that have caused or could result in a violation of or liability
under any Environmental Laws or any agreements with government entities or
communities. In conducting activities on the Property. EGC has complied with all
applicable Environmental Laws as they relate to the Property and there have been
no breaches of or liabilities caused or permitted to arise by EGC under any
Environmental Laws. EGC has not received notification from any person, including
without limitation, any governmental authority or community, of any potential
violation or alleged violation of any applicable Environmental Laws relating to
the Property or of any inspection or possible inspection or investigation by any
governmental authority under any applicable Environmental Laws relating to the
Property. EGC has not received any notification of or has knowledge of the
presence or release of any Hazardous Materials (as defined in Exhibit B), in the
soil, subsurface strata or water in, on or under the Property and EGC has not
been the subject of any claims or incurred any expenses in

 

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respect of the presence of any contaminants in the soil subsurface strata or
water in, on or under the Property.

 

(i)                                     To the best of knowledge of EGC, there
is no circumstance that would prevent any and all governmental licenses and
permits required to carry out exploration, development, mining, processing, and
reclamation operations on the Property from being obtained, as and when
necessary.

 

(j)                                    EGC has obtained all consents required
under any agreement to which Estrella Gold or EGC Peru is a party and all
required consents and approvals from governmental agencies, communities and any
stock exchange, as necessary for Estrella Gold and EGC Peru to execute, deliver
and perform their obligations under this Agreement.

 

(k)                                 There are no actions, suits or proceedings
pending or, to the knowledge of EGC, threatened against or affecting the
Property, including any actions, suits, or proceedings being prosecuted by any
federal, state or local department, commission, board, bureau, agency, or
instrumentality. To the knowledge of EGC, neither Estrella Gold or EGC Peru is
subject to any order, writ, injunction, judgment or decree of any court or any
federal, state or local department, commission, board, bureau, agency, or
instrumentality which relates to the Property.

 

(l)                                     EGC will assist MMI in making
applications for required permits or other required approvals from regulatory
authorities required in order to conduct exploration and development activities
and operations and related work on the Property.

 

(m)                             All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried on by EGC in such a
manner as not to give rise to any valid claim against MMI or any third party for
a brokerage commission, finder’s fee or other fee or commission arising by
reason of the transactions contemplated by this Agreement.

 

2.                                      MMI hereby represents and warrants to
EGC as of the Effective Date (which representations and warranties shall remain
true and correct as of and through the date on which the Property including the
Concessions is transferred to NewcoPeru) as set forth below, and acknowledge
that EGC is relying upon these representations and warranties in entering into
this Agreement.

 

(a)                                 Each of Mines Management and MMI Peru is
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it was formed. Each of Mines Management and MMI Peru has
the requisite corporate power and capacity to carry on its business as presently
conducted, to enter into this Agreement, and to perform all of its obligations
hereunder.

 

(b)                                 The entering into of this Agreement and the
performance by Mines Management and MMI Peru of its respective obligations
hereunder will not violate or conflict with its respective articles of
incorporation or by-laws, any applicable law or any order, decree or notice of
any court or other governmental agency, nor conflict with, or result in a breach
of, or accelerate the performance required by any contract or other commitment
to which either of them is a party or by which it is bound.

 

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(c)                                  All requisite corporate actions on the part
of Mines Management and MMI Peru and on the part of their respective officers,
directors and shareholders, necessary for the execution, delivery and
performance by it of this Agreement and all other agreements contemplated
hereby, have been taken. This Agreement and all agreements and instruments
contemplated hereby are, and when executed and delivered by them (assuming valid
execution and delivery by the other Party), will be their legal, valid and
binding obligations, enforceable against each of them in accordance with their
respective terms. Notwithstanding the foregoing, no representation is made as to
the availability of equitable remedies for the enforcement of this Agreement.
Additionally, this representation is limited by applicable bankruptcy,
insolvency, moratorium, and other similar laws affecting generally the rights
and remedies of creditors and secured parties.

 

(d)                                 MMI has obtained all consents required under
any agreement to which Mines Management or MMI Peru is a party and all required
consents and approvals from governmental agencies and any stock exchange, as
necessary for it to execute, deliver and perform its obligations under this
Agreement.

 

(e)                                  All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by MMI in such
manner as not to give rise to any valid claim against EGC or any third party for
a brokerage commission, finder’s fee or other fee or commission arising by
reason of the transactions contemplated by this Agreement.

 

D.                                    TERMINATION OF AGREEMENT

 

1.                                      MMI may in its sole discretion terminate
this Agreement at any time during the Earn-In Period, provided that MMI must
satisfy its obligation to EGC set forth in Section A(1)(f), by giving not less
than 60 days prior written notice to that effect to EGC. During the period
between such written notice and termination, MMI shall remain responsible for
all of its financial commitments, and land payments under this Agreement
(including any payments under Section A(l)(l) that may be required to be made
during that period in order to maintain the Concessions in full force and
effect). Upon expiry of the 60 day notice period, or if the Agreement is
terminated pursuant to any other provision of this Agreement, the Agreement will
be of no further force and effect. Upon and following the date of such
termination, MMI shall have no further obligation to incur Exploration and
Development Expenses on or for the benefit of the Property and shall have no
further obligations or liabilities to EGC under this Agreement or with respect
to the Property (including without limitation liability for lost profits or
consequential, special, incidental or punitive damages as a result of an
election by MMI to terminate this Agreement), other than: (i) as set forth in
the remainder of this paragraph, (ii) its indemnification obligations under
Section J and (iii) any reclamation obligations resulting from MMI’s activities
on the Property. EGC hereby agrees to grant MMI such access to the Property as
is reasonably necessary to complete any required reclamation. In the event of
such termination, EGC’s and MMI’s indemnification obligations under Section J
shall survive. In the event of such termination, the obligations of EGC and MMI
pursuant to Sections J, M and N shall survive. At any time MMI may, at its
option, terminate its interest in some but less than all of the Concessions by
written notice to EGC. To the extent MMI terminates its interest in some but
less than all of the Concessions, this Agreement shall remain in full force and
effect with

 

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respect to the remaining Concessions, and the Concessions with respect to which
MMI has terminated its interest shall not be transferred to NewcoPeru.

 

2.                                      In the event MMI is in default in the
observance or performance of any of its covenants, agreements or obligations
under this Agreement, EGC may give written notice of such alleged default
specifying the details of same. MMI shall have 30 days following receipt of said
notice (or, in the event MMI in good faith disputes the existence of such a
default, 30 days after a final, non appealable order of an arbitral tribunal
engaged pursuant to Section M finding that such a default exists) within which
to remedy any such default described therein, or to diligently commence action
in good faith to remedy such default. If MMI does not cure or diligently
commence to cure such default by the end of the applicable 30-day period, then
EGC shall have the right to terminate this Agreement by providing 30 days
advance written notice to MMI. In the event of such termination, the provisions
of Section D(l) shall apply with respect to the Parties’ ongoing obligations and
liabilities.

 

E.                                     PARTICIPATION IN NEWCOPERU COMPANY

 

1.                                      Following exercise of its Earn-in Right,
the transfer or issuance of 75% of the outstanding shares of NewcoPeru to MMI
and execution of the Shareholders Agreement and until Production (as defined in
Exhibit B) has been achieved, EGC may elect to have MMI fund all costs of
Concession and property maintenance, exploration and, if it is decided to
develop a mine on the Concessions, all costs of development and construction,
and EGC’s proportionate 25% share of such costs shall be “carried” by MMI during
this period and the total of EGC’s proportionate 25% share of such costs plus
interest from the date of any advance made by MMI on EGC’s behalf, at the Prime
Rate compounded quarterly (collectively, the “Carried Amount”) shall be
recoupable by MMI from EGC’s 25% proportionate share of the Products or Net Cash
Flow from Operations (as defined in Exhibit B attached hereto and incorporated
herein by reference) from the Concessions until the Carried Amount has been
fully repaid. The Carried Amount shall include all costs of obtaining third
party financing of EGC’s 25% share of such costs. At MMI’s request, EGC shall
grant to third party lenders and to MMI first and second priority security
interests in EGC’s shares of NewcoPeru and its share of Products, until such
time as any third party financing or the Carried Interest has been fully repaid
or recovered, as the case may be. EGC shall cooperate fully with the MMI in this
respect, including executing mortgages, share pledges and such other documents
as such third party lender or MMI reasonably deems necessary to perfect that
security interest.

 

2.                                      At such time as Production is achieved,
MMI and EGC will thereafter provide required funding to the NewcoPeru in
accordance with their respective interests therein, or have their respective
percentage interests in the NewcoPeru diluted in accordance with a straight line
dilution formula, as set forth in the Shareholders Agreement.

 

3.                                      If through dilution the interest of a
Party is reduced to less than 10%, then that Party’s interest shall
automatically be converted to a 3% NSR royalty, as described in Exhibit D.
Should the Concessions be burdened by production royalties payable to third
parties or the Peruvian government, then with respect to those properties the 3%
royalty described above would be reduced by the amount of such royalty but not
below 1%.

 

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4.                                      MMI will serve as operator of the
NewcoPeru and the person holding the position of general manager of the
NewcoPeru will be appointed by MMI so long as it holds a majority of the shares
of the NewcoPeru, unless it resigns or agrees that EGC may act as operator.

 

5.                                      Annual programs and budgets will be
proposed by the General Manager and reviewed and approved by the majority vote
of a Management Committee comprised of members from MMI and EGC voting in
proportion to their respective percentage interests in the NewcoPeru.

 

6.                                      The Management Committee will be formed
generally in accordance with the provisions of Form 5A with committee members of
each Party holding collectively votes in proportion to the percentage of shares
in the NewcoPeru held by the Party they represent.

 

7.                                      MMI as operator will be entitled to a 5%
overhead fee for exploration, development and mine development and construction
activities and a US $7.00 per ounce of gold or gold equivalent production
overhead fee from all production obtained from the mining operations of
NewcoPeru (provided, however that if the primary mineral being produced from the
mine is a mineral other than gold or silver, the fee payable to MMI for mine
operations will be the economic equivalent of $7.00 per ounce of gold).
Calculation of the overhead fee will not include land holding costs.

 

8.                                      All exploration and related data must be
provided to both EGC and MMI by the NewcoPeru, with summary reports provided by
the NewcoPeru on a quarterly basis.

 

9.                                      Annual programs and budgets must be
presented to the minority Party 60 days prior to funds being required. This
includes any amendments to any approved annual program and budget.

 

10.                               Capitalized terms used in this Section E but
not defined herein shall have the meaning ascribed to them in Form 5A.

 

11.                               If for any reason the operator does not
propose a budget for a period in excess of 12 continuous months, the
non-operator shall have the right to propose and fund a budget and the operator
will have the right to participate or be diluted in accordance with the
provisions herein and the Shareholders Agreement.

 

12.                               The Shareholders Agreement shall set forth the
terms and conditions with respect to each Parties’ respective 25% and 75%
interests in the outstanding shares of NewcoPeru. Such terms and conditions will
include a provision restricting the Parties from transferring all or any part of
its shares in NewcoPeru to any third party who is not a party to or has not
agreed to be bound by the Shareholders Agreement.

 

F.                                      OPERATIONS DURING EARN-IN PERIOD

 

During the Earn-In Period:

 

1.                                      MMI and its employees, agents,
consultants and independent contractors shall have the exclusive right to enter
upon the Property and to conduct such prospecting, exploration,

 

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development or other related work thereon and thereunder as they desire and as
is permitted by applicable law. MMI’s activities on the Property may include any
activities for which the costs would qualify as Exploration and Development
Expenses, as well as the removal of mineral samples for the purpose of, and in
amounts appropriate for, testing such mineral samples, including bulk sampling,
and in addition MMI shall have the right to bring upon and erect upon the
Property such buildings, plants, machinery and equipment as MMI may deem
necessary or desirable to carry out such activities.

 

2.                                      MMI in its sole discretion will decide
any matter concerning the conduct) timing and nature of its prospecting,
exploration, development or other mining activities on the Property, except
matters involving community relations during the first Agreement Year and
thereafter in consultation with EGC.

 

3.                                      MMI shall conduct its exploration,
development and other activities on the Property in compliance with applicable
laws and regulations, including laws and regulations related to exploration)
development and mining.

 

4.                                      Subject to EGC’s prior written approval
(which shall not be unreasonably withheld), MMI shall have the full, exclusive
right, but not the obligation, to abandon, reacquire, amend, defend contests or
adverse actions or suits and negotiate settlement thereof with respect to any
and all of the Concessions) and EGC shall cooperate with MMI and shall execute
any and all documents necessary or desirable in the opinion of MMI to further
such amendments, reacquisitions, contests, adverse actions or suits, or
settlement of such contests or adverse actions or suits. MMI shall not be liable
to EGC for the loss of any of the Concessions as a result of such abandonments,
amendments, relocations, contests or adverse actions or suits) so long as the
same are undertaken in good faith.

 

5.                                      All exploration and related data and
results generated by either Party must be provided to both Parties in as close
to near real time as reasonable. In addition, EGC may request copies of any
other data or information pertaining to the Project at any time and this must be
provided by MMI within a reasonable time frame. Notwithstanding the foregoing,
MMI may elect not to provide interpretive reports to EGC that it generates at
its own expense. Any interpretive work done by a third party and charged as an
Exploration and Development Expense shall be provided to both Parties. Subject
to Section K(2), both Parties shall have the right to report such data and
results.

 

6.                                      MMI agrees to carry such insurance,
covering all persons working at or on the Property for MMI, as will fully comply
with the requirements of applicable. In addition, during the Earn-In Period, so
long as it is carrying out exploration, development or activities as the
exploration operator, MMI agrees to carry liability insurance with respect to
such operations in reasonable amounts not less than the greater of the minimum
levels required by law or as set forth below:

 

(a)                                 Commercial General Liability Insurance with
limits of not less than $1,000,000 per occurrence.

 

(b)                                 Automobile Liability Insurance, with:

 

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(i)                                     Limits of not less than $1,000,000
Combined Single Limit per accident.

 

(ii)                                  Coverage applying to any auto.

 

All of the above-described policies (with the exception of worker’s
compensation) shall name EGC as an additional insured and shall contain
provisions that the insurance companies will have no right of recovery or
subrogation against EGC, its affiliates, or subsidiary companies, it being the
intention of the Parties that MMI’s carrier shall be liable for any and all
losses covered by the above-described insurance. All policies providing coverage
hereunder shall contain provisions that no cancellation or material changes in
the policies shall become effective except on thirty (30) days’ advance written
notice thereof to EGC.

 

7.                                      EGC and its authorized agents, at EGC’s
sole risk and expense, shall have the right, exercisable during regular business
hours, at a mutually convenient time, in compliance with MMI’s safety rules and
regulations, and in a reasonable manner so as not to interfere with MMI’s
operations, to go upon the Property for the purpose of confirming that MMI is
conducting its operations in the manner required by this Agreement and to
conduct informational tours. EGC shall indemnify and hold MMI harmless from all
claims for damages arising out of any death, personal injury or property damage
sustained by EGC, its agents or employees, while in or upon the Property,
whether or not EGC, its agents or employees are in or upon the Property pursuant
to this Section F.7, unless such death, injury or damage is due to MMI’s gross
negligence or willful misconduct. If requested by MMI, EGC, its agents and
employees will confirm in writing their waiver of claims against MMI.

 

8.                                      MMI and EGC shall keep the title to the
Property free and clear of all liens and encumbrances; provided, however, that
either Party may refuse to pay any claims asserted against it which it disputes
in good faith. At its sole cost and expense, such Party shall contest any suit,
demand or action commenced to enforce such a claim and, if the suit, demand or
action is decided by a court or other authority of ultimate and final
jurisdiction against such Party or the Property, such Party shall promptly pay
the judgment and shall post any bond and take all other action necessary to
prevent any sale or loss of the Property or any part thereof.

 

9.                                      If MMI exercises its Earn-In Right, the
reclamation obligations associated with any disturbances of the Property made by
MMI during the Earn-In Period shall become obligations of NewcoPeru.

 

G.                                    FORCE MAJEURE

 

If MMI should be delayed in or prevented from performing any of the terms,
covenants or conditions of this Agreement by reason of a cause beyond the
control of MMI, whether or not foreseeable, the cause or effects of which
continue for 45 days, including fires, floods, earthquakes, subsidence, ground
collapse or landslides, interruptions or delays in transportation or power
supplies, strikes, lockouts or other labor disputes, wars, acts of God, changes
in laws, native or indigenous title claims, inability to obtain required
governmental permits or approvals in a timely manner, curtailment or suspension
of activities to remedy or avoid an actual or alleged, present or prospective
violation of Environmental Laws, government regulation or

 

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interference (but excluding a lack of funds), drought or other adverse weather
condition, delay or failure by suppliers or transporters of materials, parts,
supplies, services or equipment or by contractors’ or subcontractors’ shortage
of, or inability to obtain, labor, transportation, materials, machinery,
equipment (including without limitation drilling rigs), supplies, utilities or
services, accidents, breakdown of equipment, machinery or facilities, actions by
citizen groups or local communities, including but not limited to environmental
organizations or native rights groups, declaration of a state of emergency by
the Peruvian government, an illegal protest or blockage of access or any other
cause whether similar or dissimilar to the foregoing (each an “Event of Force
Majeure”), then any such failure on the part of MMI to so perform shall not be
deemed to be a breach of this Agreement and the time within which MMI is obliged
to comply with any terms, covenants or conditions of this Agreement (including
without limitation the Earn-In Period obligation to meet the Minimum Work
Obligation and the dates for payments to EGC to maintain the Agreement in full
force and effect provided that MMI shall be required to comply with its
obligations pursuant to Section A(1)(l)) shall be extended by the period of all
such delays. MMI shall give notice in writing to EGC forthwith and for each
Event of Force Majeure shall set out in such notice particulars of the cause,
and the date on which the same arose, and shall take all reasonable steps to
remove the cause of such Event of Force Majeure (although MMI shall have no
obligation to settle any labor dispute on terms other than those acceptable to
it in its sole discretion), and shall also give notice immediately following the
date that such cause ceases to exist.

 

H.                                   AREA OF INTEREST

 

1.                                      Any interest or rights to acquire any
interest in (a) mineral concessions, surface rights or in other real property
interests within the area described in Exhibit A-3 (the “Area of Interest”), or
(b) contiguous mineral concessions, surface rights or other real property
interests that may extend beyond the Area of Interest, acquired during the
Earn-In Period by or on behalf of EGC or MMI, or any affiliate or subsidiary of
either of them, shall become subject to the terms and provisions of this
Agreement in accordance with the provisions of Section H(2).

 

2.                                      Within 30 days after the acquisition of
such additional property, all or any portion of which lies within the Area of
Interest (or which constitutes contiguous mineral concessions, surface rights or
other real property interests that may extend beyond the Area of Interest), the
acquiring Party shall notify the other Party of such acquisition. Such notice
shall describe in detail the acquisition, the lands, the nature of the interest
therein, the mineral concessions, surface rights or other real property interest
covered thereby, and the acquisition cost. In addition to such notice, the
acquiring Party shall make any and all information it has concerning the
additional property available to the other Party. The other Party shall then
have 30 days after receipt of such notice and information to elect in its sole
discretion whether such additional interest shall be contributed to NewcoPeru if
and when MM exercises the Earn-In Right. If the other Party so elects, such
additional interest shall be considered part of the Property for purposes of
this Agreement, and shall transferred to NewcoPeru in the same manner as the
Property and the Concessions pursuant to Section B.

 

3.                                      All costs incurred by MMI for acquiring
additional property that becomes subject to this Agreement shall count as
Exploration and Development Expenses. Should EGC be the acquiring Party and MMI
elect that the additional property be contributed to NewcoPeru, MMI

 

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shall reimburse EGC for its acquisition costs, and the amount of such
reimbursement shall count as Exploration and Development Expenses.

 

4.                                      If a Party elects pursuant to Section H
(2) that such additional property shall not be contributed to NewcoPeru, then
with respect to that additional interest, the acquiring Party shall be free to
take actions with respect to and dispose of such interest in its sole
discretion, without any obligation to the other Party.

 

I.                                        ASSIGNMENT

 

1.                                      This Agreement shall be binding upon and
inure to the benefit of the Parties and their permitted successors and assigns.
MMI may, upon the prior written approval of EGC, which approval shall not be
unreasonably withheld or delayed, assign its interest in this Agreement to any
third party that is not affiliated with MMI at any time, provided that the
assignee agrees in writing to assume all MMI’s obligations under this Agreement.
Upon such assignment, or an assignment to an affiliate (as described below), MMI
shall have no further obligations or liabilities under this Agreement.
Notwithstanding the foregoing, at any time, and without the consent of EGC, MMI
may assign this Agreement:

 

(a)                                 to one or more of its affiliates upon the
affiliate assuming all of MMI’s obligations under this Agreement (affiliate
meaning any entity which directly or indirectly controls or is controlled by, or
under common control with, MMI);

 

(b)                                 in connection with a pledge by MMI for
financing purposes;

 

(c)                                  in connection with a corporate merger or
reorganization involving MMI or any affiliate;

 

(d)                                 in connection with a sale of all or
substantially all of MMI’s assets; or

 

(e)                                  to a third party that is technically and
financially capable of performing MMI’s obligations under this Agreement.

 

Upon MMI’s prior written approval, which approval shall not be unreasonably
withheld or delayed, EGC may convey its interest in the Property and assign its
interest in this Agreement to a third party, provided that any such third party
must agree in writing to be bound by all of the terms and conditions of this
Agreement, and provided further that EGC may, without the consent of MMI, convey
its interest in the Property and assign its interest in this Agreement to any
third party.

 

2.                                      Except for assignments by MMI under
Section I.1(a) through (d), to which this Section 1.2 shall not apply, if during
the Earn-In Period either party (the “Selling Party”) desires to transfer all or
any part of its interest in this Agreement, the other party (the “Remaining
Party”) shall have a right of first offer to acquire such interest as provided
in this Section I(2):

 

(a)                                 if the Selling Party intends to transfer all
or any of its interest hereunder, it shall promptly notify the Remaining Party
of its intentions. The Remaining Party shall have 28 days from the date such
notice is delivered to notify the Selling Party whether it elects to acquire

 

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the offered interest and the terms and conditions thereof and the price (the
“Offered Price”) therefor. The consideration payable for the offered interest
shall be stated in cash unless otherwise agreed. The Selling Party shall have no
further obligations to the Remaining Party.

 

(b)                                 if the Remaining Party does so elect, and
the Selling Party is not agreeable to the terms and conditions offered by the
Remaining Party, the Selling Party shall have 90 days following receipt of the
offer from the Remaining Party to sell the interest to an arm’s length third
party upon terms and conditions no less favorable than those offered by the
Remaining Party, including that the offer price (or its cash equivalent, if that
offer price includes consideration other than cash) shall not be less than an
amount that is 10% greater than the Offered Price;

 

(c)                                  if the Remaining Party does not so elect
within the period provided for in Section I.2(a), the Selling Party shall have
90 days following the expiration of such period to consummate the transfer to an
arm’s length third party upon such terms and conditions as are satisfactory to
the Selling Party; and

 

(d)                                 if the Selling Party fails to consummate the
transfer to a third party within the period set forth in Sections I.2(b) and
(c), the right of first offer of the Remaining Party in such offered interest
shall be deemed to be revived. Any subsequent proposal to transfer such interest
shall be conducted in accordance with all of the procedures set forth in this
Section I.2.

 

J.                                        INDEMNIFICATION

 

1.                                      MMI agrees to indemnify, defend and hold
harmless EGC and its officers, directors, employees, agents, attorneys,
affiliates, successors, and assigns (the “EGC Indemnified Party”) from and
against any and all debts, liens, claims, causes of action, administrative
orders and notices, costs (including, without limitation, response and/or
remedial costs), personal injuries, losses, damages, liabilities, demands,
interest, fines, penalties and expenses, including reasonable attorney’s fees
and expenses, consultant’s fees and expenses, court costs and all other
out-of-pocket expenses, suffered or incurred by EGC Indemnified Party as a
result of:

 

(a)                                 any breach by MMI of any of its
representations, warranties and covenants set forth in this Agreement; or

 

(b)                                 any operations or activities engaged in by
MMI, including operations by independent contractors and others on behalf of
MMI, on the Property, including without limitation any matter, condition or
state of fact involving Environmental Laws or Hazardous Materials or
Environmental Liabilities which may arise after the Effective Date of this
Agreement and that is caused by MMI or its independent contractors and others
acting on behalf of MMI.

 

2.                                      EGC agrees to indemnify, defend and hold
harmless MMI and its officers, directors, employees, agents, attorneys,
affiliates, successors, and assigns (the “MMI Indemnified Party”) from and
against any and all debts, liens, claims, causes of action, administrative
orders and notices, costs (including, without limitation, response and/or
remedial costs), personal injuries, losses, damages, liabilities, demands,
interest, fines, penalties and expenses, including reasonable attorney’s fees
and expenses, consultant’s fees and expenses,

 

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court costs, and all other out-of-pocket expenses suffered or incurred by MMI
Indemnified Party as a result of:

 

(a)           any breach by EGC of any of their representations, warranties, and
covenants set forth in this Agreement; or

 

(b)                                 any operations or activities engaged in by
EGC, including operations by independent contractors and others on behalf of
EGC, on the Property, including without limitation any matter, condition or
state of fact involving Environmental Laws or Hazardous Materials or
Environmental Liabilities which may exist prior to the Effective Date of this
Agreement or which may arise after the Effective Date of this Agreement and that
is caused by EGC or its independent contractors and others acting on behalf of
EGC.

 

3.                                      The Parties, within 5 days after the
service of process upon either of them in a lawsuit, including any notices of
any court action or administrative action (or any other type of action or
proceeding), or promptly after either of them, to its respective knowledge,
shall become subject to, or possess actual knowledge of, any damage, liability,
loss, cost, expense, or claim to which the indemnification provisions of this
Section J relate, shall give written notice to the other Party setting forth the
fact relating to the claim, damage, or loss, if available, and the estimated
amount of the same. “Promptly” for purposes of this paragraph shall mean giving
notice within 5 days. Failure to provide prompt notification shall not relieve
either Party of its indemnification obligations hereunder unless such Party is
materially prejudiced thereby. Upon receipt of such notice relating to a
lawsuit, the indemnifying party shall be entitled to:

 

(a)                                 participate at its own expense in the
defense or investigation of any claim or lawsuit; or

 

(b)                                 assume the defense thereof, in which event
the indemnifying party shall not be liable to the indemnified party for legal or
attorney fees thereafter incurred by such indemnified party in defense of such
action or claim; provided, that if the indemnified party may have any
unindemnified liability out of such claim, such party shall have the right to
approve the counsel selected by the indemnifying party, which approval shall not
be withheld unreasonably.

 

If the indemnifying party assumes the defense of any claim or lawsuit, all costs
of defense of such claim or lawsuit shall thereafter be borne by such party and
such party shall have the authority to compromise and settle such claim or
lawsuit, or to appeal any adverse judgment or ruling with the cost of such
appeal to be paid by such party; provided, however, if the indemnified party may
have any un indemnified liability arising out of such claim or lawsuit the
indemnifying party shall have the authority to compromise and settle each such
claim or lawsuit only with the written consent of the indemnified party, which
shall not be withheld unreasonably. The indemnified party may continue to
participate in any litigation at its expense after the indemnifying party
assumes the defense of such action. In the event the indemnifying party does not
elect to assume the defense of a claim or lawsuit, the indemnified party shall
have authority to compromise and settle such claim or lawsuit only with the
written consent of the indemnifying party, which consent shall not be
unreasonably withheld, or to appeal any adverse judgment or ruling, with all
costs, fees, and expenses indemnifiable under this Section J hereof to be paid
by the indemnifying party. Upon the indemnified party’s furnishing to the
indemnifying party an

 

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estimate of any loss, damage, liability, or expense to which the indemnification
provisions of this Section J relate, the indemnifying party shall pay to the
indemnified party the amount of such estimate within 10 days after receipt of
such estimate.

 

Notwithstanding any other provision contained in this Agreement to the contrary,
no Party shall be liable to any other Party for any consequential, punitive,
special or indirect damages including without limitation loss of profit, loss of
use, loss of opportunity, loss of production of products, whether such liability
is based, or asserted to be based, upon any breach of any Party’s obligations
under this Agreement, or whether such liability is based or asserted to be based
upon any negligent act or omission of a Party, its agents or affiliates, or
asserted to be based on any other legal ground.

 

K.                                   CONFIDENTIALITY

 

1.                                      All data and information coming into
possession of EGC or MMI by virtue of this Agreement with respect to the
business or operations of the other Party, or the Property generally, shall be
kept confidential and shall not be disclosed to any person not a party hereto
without the prior written consent of the other Party, except:

 

(a)                                 as required by law, rule, regulation or
policy of any stock exchange or securities commission having jurisdiction over a
Party;

 

(b)                                 as may be required by a Party in the
prosecution or defense of a lawsuit or other legal or administrative
proceedings;

 

(c)                                  as required by a financial institution in
connection with a request for financing relating to development or mining
activities; or

 

(d)                                 as may be required in connection with a
proposed conveyance to a third party of an interest in the Property or this
Agreement, provided such third party agrees in writing in a manner enforceable
by the other Party to abide by all of the provisions of this Agreement,
including this Section K with respect to such data and information.

 

2.                                      To the extent either Party intends to
disclose data or information via press release or other similar format as
described in Section K.1 (a), the disclosing Party shall provide the other Party
with not less than five business days notice of the text of the proposed
disclosure, and the other Party shall have the right to comment on the same.

 

3.                                      The Parties agree that the
Confidentiality Agreement dated as of June 9,2011 shall, with respect to the
Property, the Concessions and the Project, be of no further force or effect and
is hereby terminated as of the Effective Date.

 

4.                                      Each Party agrees with the other that in
negotiating and entering into this Agreement it has relied on its own analysis
and estimates as to the value of the Property and upon its own geologic and
engineering interpretations related thereto.

 

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L.                                     ENTIRE AGREEMENT

 

This Agreement contains the entire agreement between the Parties relating to the
Property.

 

M.                                 DISPUTE RESOLUTION

 

1.                                      Any controversy, claim or dispute
arising out of or relating to this Agreement (including, without limitation, the
interpretation of any provision of this Agreement or the breach, termination or
invalidity of this Agreement) that cannot reasonably be resolved by the Parties
shall be submitted to and settled exclusively and finally by binding arbitration
under the International Arbitration Rules of the International Dispute
Resolution Procedures of the American Arbitration Association in effect on and
as of the date of this Agreement (the “AAA Rules”), except as such AAA Rules are
modified pursuant to this Section. Any Party shall give the other Parties at
least 10 days prior to commencing an arbitration proceeding.

 

2.                                      The arbitration shall be conducted
before a panel of three arbitrators, each of whom shall be fluent in English and
shall be knowledgeable about mineral exploration. The arbitrators shall be
appointed by the administrator in accordance with the AAA Rules.

 

3.                                      The arbitration shall be conducted in
Denver, Colorado, USA. The arbitration shall be conducted in English.

 

4.                                      No less than 30 days prior to the date
on which the arbitration proceeding is to begin, each party shall submit to the
other party the documents, in English, a list of witnesses it intends to use in
the arbitration. At any oral hearing of evidence in connection with the
arbitration, each party or its legal counsel shall have the right to examine
witnesses and to cross-examine the witnesses of the opposing party.

 

5.                                      The arbitrators shall apply the laws of
the state of Colorado to any dispute before the arbitration panel, and the
arbitrators shall be so instructed. The arbitrators shall issue a written
opinion stating the findings of fact and the conclusions of law upon which the
decision is based. The decision of the arbitrators shall be final and binding
and may, in appropriate circumstances, include injunctive relief. Judgment on
such award may be entered in any court of appropriate jurisdiction, or
application may be made to that court for a judicial acceptance of the award and
an order of enforcement, as the party seeking to enforce that award may elect.
Any arbitration award for money damages shall be in United States Dollars. The
arbitrators shall be bound by the provisions of this Agreement and shall not
have the authority to amend this Agreement to affect an award. Nothing contained
in this Section shall be deemed to limit any Party’s ability to terminate this
Agreement in accordance with its terms and conditions.

 

6.                                      Each Party shall bear its own costs and
expenses, including attorneys fees and an equal share of the arbitrators’ and
administrative fees of arbitration, incurred in connection with any arbitration
or other legal proceedings brought for enforcement or interpretation of this
Agreement, and no court or arbitrator shall have any power to award attorneys or
other fees or costs to the prevailing party.

 

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7.                                      Notwithstanding any other provisions in
this Agreement to the contrary, no Party hereto shall be liable to the other in
contract, tort, strict liability, warranty or under any other theory of
liability, for any loss of production, loss of use, loss of anticipated profits
or revenue incurred by such Party, or for special, incidental, consequential,
punitive or indirect damages.

 

N.                                    AGREEMENTS OF MMI AND EGC

 

MMI agrees to cause MMI Peru to comply with and perform its obligations,
covenants and agreements as set forth in this Agreement. EGC agrees to cause EGC
Peru to comply with and perform its obligations, covenants and agreements as set
forth in this Agreement. The Parties submit to the jurisdiction of the federal
and state courts in the State of Colorado.

 

O.                                    GENERAL

 

1.                                      Notice to a Party under this Agreement
shall be sufficiently given if delivered personally, or if sent by prepaid mail
or reputable overnight courier, or if transmitted by facsimile to such Party
with confirmation of receipt:

 

(a)                                 in the case of a notice to MMI or MMI Peru
at:

 

Mines Management, Inc.

905 W. Riverside, Suite 311

Spokane, WA 99201

Attention: James H. Moore, Chief Financial Officer

Tel: 509-838-6050

FAX: 509-838-0486

 

And

 

(b)                                 in the case of a notice to EGC or EGC Peru
at:

 

Estrella Gold Corporation

325 Howe Street

Vancouver, British Columbia

Canada V6C lZ7

Attention: Keith Laskowski

Tel: +1 604 687 3520

FAX: +1 604 688 3392

 

or at such other address or addresses as the Party to whom such notice or other
writing is to be given shall have last notified the Party giving the same in the
manner provided in this section. Any notice or other writing delivered to the
Party to whom it is addressed as set forth above shall be deemed to have been
given and received on the day it is so delivered at such address, provided that
if such day is not a business day in the city where the notice is delivered,
then such notice or other writing shall be deemed to have been given and
received on the next following business day. Any notice or other writing
submitted by facsimile or other form of recorded

 

20

--------------------------------------------------------------------------------

 

communication shall be deemed to have been given and received on the first
business day after its transmission.

 

2.                                      Each of MMI and EGC shall, with
reasonable diligence, do all such things and provide all such reasonable
assurances and assistance as may be required to consummate the transactions
contemplated by this Agreement and each Party shall provide such further
documents or instruments required by the other Party as may reasonably be
necessary or desirable in order to give effect to the terms and conditions of
this Agreement and carry out its provisions at, before or after the Effective
Date.

 

3.                                      This Agreement may be executed by each
Party in counterparts and by facsimile, or by electronic delivery each of which
when so executed and delivered shall be an original, but both such counterparts,
whether executed and delivered in the original or by facsimile or by electronic
delivery, shall together constitute one and the same agreement. The Parties
agree to execute and deliver a short form of this Agreement to be prepared by
MMI, which the Parties agree MMI may file in the public records of the Peruvian
Public Registry.

 

4.                                      All dollar references in this Agreement
are to the United States dollars.

 

5.                                      This Agreement, including all documents
annexed hereto and other agreements, documents and other instruments delivered
in connection herewith shall be governed by and construed in accordance with the
laws of the State of Colorado (other than its rules as to conflicts of law) and
the laws of the United States as applicable.

 

6.                                      The Parties agree that this Agreement
shall be construed to benefit the Parties hereto and their respective permitted
successors and assigns only, and shall not be construed to create any third
party beneficiary rights in any other Party or in any governmental organization
or agency, except as specifically set forth in Section J.

 

7.                                      In the event that any one or more of the
provisions contained in this Agreement or in any other instrument or agreement
contemplated hereby shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect; such invalidity, illegality, or unenforceability
shall not affect any other provision of this Agreement or any such other
instrument or agreement contemplated hereby.

 

8.                                      No implied term, covenant, condition or
provision of any kind whatsoever except for good faith and fair dealing shall
affect any of the Parties’ respective rights and obligations hereunder,
including, without limitation, rights and obligations with respect to
exploration, development, mining, processing and marketing of minerals, and the
only terms, covenants, conditions or provisions which shall in any way affect
any of their respective rights and obligations shall be those expressly set
forth in this Agreement.

 

9.                                      This Agreement may not be amended or
modified, nor may any obligation hereunder be waived, except by writing duly
executed on behalf of both Parties, and unless otherwise specifically provided
in such writing, any amendment, modification, or waiver shall be effective only
in the specific instance and for the purpose it is given.

 

21

--------------------------------------------------------------------------------

 

10.                               This Agreement is, and the rights and
obligations of the Parties are, strictly limited to the matters set forth
herein. Subject to the provisions of Section H, each of the Parties shall have
the free and unrestricted right to independently engage in and receive the full
benefits of any and all business ventures of any sort whatever, whether or not
competitive with the matters contemplated hereby, without consulting the other
or inviting or allowing the other to participate therein. The doctrines of
“corporate opportunity” or “business opportunity” shall not be applied to any
other activity, venture, or operation of either Party, whether adjacent to,
nearby, or removed from the Property, and neither Party shall have any
obligation to the other with respect to any opportunity to acquire any interest
in any property outside the Property at any time, or within the Property after
termination of this Agreement, regardless of whether the incentive or
opportunity of a Party to acquire any such property interest may be based, in
whole or in part, upon information learned during the course of operations or
activities hereunder.

 

11.                               The Parties do not intend that there be any
violation of the rule of perpetuities, the rule against unreasonable restraints
or the alienation of property, or any similar rule. Accordingly, if any right or
option to acquire any interest in the Property, or in any other real property,
exists under this Agreement, such right or option must be exercised, if at all,
so as to vest such interest within time periods permitted by applicable rules.
If, however, such violation should inadvertently occur, the Parties hereby agree
that a court shall reform that provision in such a way as to approximate most
closely the intent of the Parties within the limits permissible under such
rules.

 

12.                               Nothing contained in this Agreement shall be
deemed to constitute either Party the partner of the other, nor, except as
otherwise herein expressly provided, to constitute either Party the agent or
legal representative of the other, nor to create any fiduciary relationship
between them. It is not the intention of the Parties to create, nor shall this
Agreement be construed to create, any mining, commercial, or other partnership.
Neither Party shall have any authority to act for or to assume any obligation or
responsibility on behalf of the other Party, except as otherwise expressly
provided herein.

 

22

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the Parties have executed this Exploration Earn-In Agreement
effective as of the date first set forth above.

 

MINES MANAGEMENT, INC.

 

 

 

 

 

By:

/s/ James H. Moore

 

 

 

 

Printed Name: James H. Moore

 

 

 

Title: Chief Financial Officer

 

 

 

 

 

MINERA MONTANORE PERU S.A.C.

 

 

 

 

 

By:

/s/ James H. Moore

 

 

 

 

Printed Name: James H. Moore

 

 

 

Title: CFO/Director

 

 

 

 

 

ESTRELLA GOLD CORPORATION

 

 

 

 

 

By:

/s/ Keith Laskowski

 

 

 

 

Printed Name: Keith Laskowski

 

 

 

Title: President & CEO

 

 

 

 

 

ESTRELLA GOLD PERU S.A.C.

 

 

 

 

 

By:

/s/ Keith Laskowski

 

 

 

 

Printed Name: Keith A. Laskowski

 

 

 

Title: Director

 

 

23

--------------------------------------------------------------------------------

 

EXHIBIT A-1

 

To that Exploration Earn-In Agreement between ESTRELLA GOLD CORPORATION (“EGC”),
a corporation formed under the laws of the Province of Ontario, Estrella Gold
Peru S.A.C., a Peruvian sociedad anonima cerrada and a wholly owned subsidiary
of EGC (“EGC Peru”, together with EGC herein called “EGC”), MINES
MANAGEMENT, INC. (“MMI”),an Idaho corporation and Minera Montanore Peru S.A.C.,
a Peruvian sociedad anonima cerrada and a wholly owned subsidiary of MMI (“MMI
Peru”, together with MMI herein called “MMI”) dated effective March 1, 2012.

 

Description of the Project

Department of Huancavelica, Peru

 

The following Concessions situated in the Department of Huancavelica, Peru:

 

 

 

 

 

 

Area

 

 

 

Recording Details of
Title to Mineral

 

 

 

 

Mineral

 

Code

 

originally
granted

 

Resolution Approving Title to

 

Concession
(Public Registry in the

 

Location
UTM Coordinates (PSAD 56)

 

 

Concession

 

Number

 

(Hectares)

 

Mineral Concession

 

city of Huancayo)

 

North

 

East

 

Vertex

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Cinco Hermanos

 

06008353X01

 

100.0000

 

R.J. N° 7577-94-RPM

 

File 20002904

 

8,603,739.96

 

530,770.23

 

1

 

 

 

 

 

 

 

 

(21 November 1994)

 

 

 

8,601,741.20

 

530,699.85

 

2

 

 

 

 

 

 

 

 

 

 

 

 

8,601,758.80

 

530,200.15

 

3

 

 

 

 

 

 

 

 

 

 

 

 

8,603,757.56

 

530,270.53

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

Jaime 1

 

010204399

 

600.0000

 

R.J. N° 00974-2000-RPM

 

File 11006506

 

8,603,000.00

 

532,000.00

 

1

 

 

 

 

 

 

 

 

(16 March 2000)

 

 

 

8,601,000.00

 

532,000.00

 

2

 

 

 

 

 

 

 

 

 

 

 

 

8,601,000.00

 

529,000.00

 

3

 

 

 

 

 

 

 

 

 

 

 

 

8,603,000.00

 

529,000.00

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

Julia 1

 

010204499

 

600.0000

 

R.J. N° 01169-2000-RPM

 

File 11006525

 

8,605,000.00

 

532,000.00

 

1

 

 

 

 

 

 

 

 

(27 March 2000)

 

 

 

8,603,000.00

 

532,000.00

 

2

 

 

 

 

 

 

 

 

 

 

 

 

8,603,000.00

 

529,000.00

 

3

 

 

 

 

 

 

 

 

 

 

 

 

8,605,000.00

 

529,000.00

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

La Estrella 1

 

010634407

 

1000.0000

 

R.P. N° 1793-2008-INGEMMET/PCD/PM

 

File 11118359

 

8,604,000.00

 

528,000.00

 

1

 

 

 

 

 

 

 

 

(29 May 2008)

 

 

 

8,604,000.00

 

529,000.00

 

2

 

 

 

 

 

 

 

 

 

 

 

 

8,601,000.00

 

529,000.00

 

3

 

 

 

 

 

 

 

 

 

 

 

 

8,601,000.00

 

532,000.00

 

4

 

 

 

 

 

 

 

 

 

 

 

 

8,600,000.00

 

532,000.00

 

5

 

 

 

 

 

 

 

 

 

 

 

 

8,600,000.00

 

527,000.00

 

6

 

 

 

 

 

 

 

 

 

 

 

 

8,603,000.00

 

527,000.00

 

7

 

 

 

 

 

 

 

 

 

 

 

 

8,603,000.00

 

528,000.00

 

8

 

 

A-1-1

--------------------------------------------------------------------------------

 

EXHIBIT A-2

 

Details of the 1.5% NSR Royalty over Cinco Hermanos, Jaime 1 and Julia 1 mineral
concessions

 

 

 

Mineral Concession

 

Beneficiaries of 1.5%
Net Smelter Return

 

Recording Details of the
1.5% Net Smelter Return
Royalty
(Public Registry in the city
of Huancayo)

 

 

 

 

 

 

 

1

 

Cinco Hermanos

 

Jaime Oswaldo Vergara León,

 

Entry 7 of File 2002904

2

 

Jaime 1

 

Carmen Julia Herrera Galdo, and

 

Entry 5 of File 11006506

3

 

Julia 1

 

Jannette Vergara Herrera

 

Entry 5 of File 11006525

 

A-2-1

--------------------------------------------------------------------------------

 

EXHIBIT A-3

 

To that Exploration Earn-In Agreement between ESTRELLA GOLD CORPORATION (“EGC”),
a corporation formed under the laws of the Province of Ontario, Estrella Gold
Peru S.A.C., a Peruvian sociedad anonima cerrada and a wholly owned subsidiary
of EGC (“EGC Peru”, together with EGC herein called “EGC”), MINES
MANAGEMENT, INC. (“MMI”), an Idaho corporation and Minera Montanore Peru S.A.C.,
a Peruvian sociedad anonima cerrada and a wholly owned subsidiary of MMI (“MMI
Peru”, together with MMI herein called “MMI”) dated effective March 1, 2012.

 

AREA OF INTEREST

 

The Area of Interest shall be 2 kilometers from the exterior boundaries of the
existing Concessions as described in Exhibit A-1.

 

A-3-1

--------------------------------------------------------------------------------

 

EXHIBIT B

 

To that Exploration Earn-In Agreement between ESTRELLA GOLD CORPORATION (“EGC”),
a corporation formed under the laws of the Province of Ontario, Estrella Gold
Peru S.A.C., a Peruvian sociedad anonima cerrada and a wholly owned subsidiary
of EGC (“EGC Peru”, together with EGC herein called “EGC”), MINES
MANAGEMENT, INC. (“MMI”), an Idaho corporation and Minera Montanore Peru S.A.C.,
a Peruvian sociedad anonima cerrada and a wholly owned subsidiary of MMI (“MMI
Peru”, together with MMI herein called “MMI”) dated effective March 1, 2012.

 

A.                                    “Environmental Laws” shall mean all laws
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state and local
governments (and all agencies thereof) concerning pollution or protection of the
environment, reclamation, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the existence, manufacture, processing,
distribution, use, treatment, storage, disposal, recycling, transport, or
handling or reporting or notification to any governmental authority in the
collection, storage, use, treatment or disposal of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.

 

B.                                    “Environmental Liabilities” shall mean any
liability arising out of, based on or resulting from (i) the presence, release,
threatened release, discharge or emission into the environment of any Hazardous
Materials or substances existing or arising on, beneath or above such property
and/or emanating or migrating and/or threatening to emanate or migrate from such
property to other properties; (ii) disposal or treatment of or the arrangement
for the disposal or treatment of Hazardous Materials originating or transported
from such property to an off-site treatment, storage or disposal facility,
(iii) physical disturbance of the environment on or from such property; or
(iv) the violation or alleged violation of any Environmental Laws relating to
such property.

 

C.                                    “Exploration and Development Expenses”
shall mean and include all costs or fees, expenses, liabilities and charges
paid, incurred or accrued by MMI which are related to exploration and
development activities on or for the benefit of the Property, including without
limitation:

 

1.                                      All costs and expenses incurred in
conducting exploration and prospecting activities on or in connection with the
Property, including, without limitation, the active pursuit of required federal,
state or local authorizations or permits and the performance of required
environmental protection or reclamation obligations, the building, maintenance
and repair of roads, drill site preparation, drilling, tracking, sampling,
trenching, digging test pits, shaft sinking, acquiring, diverting and/or
transporting water necessary for exploration, logging of drill holes and drill
core, completion and evaluation of geological, geophysical, geochemical or other
exploration data and preparation of interpretive reports, and surveying and
laboratory costs and charges (including assays, or metallurgical analyses and
tests);

 

B-1

--------------------------------------------------------------------------------

 

2.                                      All expenses incurred in conducting
development activities on or in connection with the Property, the active pursuit
of required federal, state or local authorization or permits and the performance
of required environmental protection or reclamation obligations, pre-stripping
and stripping, the construction and installation of a mill, leach pads or other
beneficiation facilities for valuable minerals, and other activities, operations
or work performed in preparation for the removal or testing of valuable minerals
from the Property;

 

3.                                      All costs of acquiring additional
interests in real property within the Area of Interest, to the extent such
interests become subject to this Agreement, including without limitation costs
and expenses incurred by MMI in conducting negotiations and due diligence,
attorneys’ fees and all amounts paid by MMI to EGC or to third parties in
acquiring such interests;

 

4.                                      All costs incurred in performing any
reclamation or other restoration or clean-up work required by any federal, state
or local agency or authority, and all costs of insurance obtained or in force to
cover activities undertaken by or on behalf of MMI on the Property;

 

5.                                      Salaries, wages, expenses and benefits
of employees or consultants of MMI engaged in operations directly relating to
the Property, including salaries and fringe benefits of those who are
temporarily assigned to and directly employed on work relating to the Property
for the periods of time such employees are engaged in such activities and
reasonable transportation expenses for all such employees to and from their
regular place of work to the Property;

 

6.                                      All costs incurred in connection with
the preparation of pre-feasibility or feasibility studies and economic and
technical analyses pertaining to the Property, whether carried out by MMI or by
third parties under contract with MMI;

 

7.                                      Taxes and assessments, other than income
taxes, assessed or levied upon or against the Property or any improvements
thereon situated thereon for which MMI is responsible or for which MMI
reimburses EGC;

 

8.                                      Costs of material, equipment and
supplies acquired, leased or hired, for use in conducting exploration or
development operations relating to the Property; provided, however, that
equipment owned and supplied by MMI shall be chargeable at rates no greater than
comparable market rental rates available in the area of the Property;

 

9.                                      Costs and expenses of establishing and
maintaining field offices, camps and housing facilities; and

 

10.                               Costs incurred by MMI in examining and curing
title to any part of the Property, in making required payments or performing
other required obligations under any underlying agreements, in satisfying
surface use or damage obligations to landowners, or in conducting any analyses
of the environmental conditions at the Property.

 

11.                               “Hazardous Materials” means any substance:
(a) the presence of which requires reporting, investigation, removal or
remediation under any Environmental Law; (b) that is defined as “dangerous
goods”, a “hazardous waste,” “hazardous substance,” “extremely hazardous
substance” or “pollutant” or “contaminant” under any Environmental Law; (c) that
is

 

B-2

--------------------------------------------------------------------------------

 

toxic, explosive, corrosive, flammable, ignitable, infectious, radioactive,
reactive, carcinogenic, mutagenic or otherwise hazardous and is regulated under
any Environmental Law; (d) the presence of which on a property causes or
threatens to cause a nuisance upon the property or to adjacent properties or
poses or threatens to pose a hazard to the health or safety of persons on or
about the property; (e) that contains gasoline, diesel fuel or other liquid
hydrocarbons; or (f) that contains PCBs, asbestos or urea formaldehyde foam
insulation.

 

12.                               “Net Cash Flow from Operations” for any period
shall be calculated by determining all revenues received from the sale of
Products or, if Products are taken in kind, the deemed sale of Products at the
spot price, and any other revenues received (including without limitation
interest income, insurance proceeds and proceeds from the sale of equipment or
other assets for that period), and deducting therefrom all cash payments for all
costs, expenses, liabilities and charges incurred within that period from and
after the date that Production is achieved for exploration, development and the
construction or replacement of facilities upon the Property, and the mining,
processing, treatment, transportation, refining, sales and marketing of Products
from the Property, plus a working capital reserve equal to two months of
expenditures necessary for mining, processing, treatment, transportation,
refining, sales and marketing of Products, all in accordance with generally
accepted accounting principles consistently applied by Mines Management, except
for any non-cash charges such as depreciation, amortization or depletion.

 

In calculating Net Cash Flow from Operations, no deduction shall be made for
income taxes payable to either federal or state governments which are a
liability of the individual Parties and not of NewcoPeru. Any capital
expenditures incurred after the commencement of Production, including
capitalized exploration and deferred mining, shall be deducted at their actual
cost at the time they are incurred. If, in any year after the commencement of
Production, an operating loss results, the amount of the loss shall be
considered as and be included with outstanding costs and expenses and carried
forward in determining Net Cash Flow for subsequent periods.

 

13.                               “Ore” means material containing valuable
minerals that is mined or will be mined and will be sold or further processed
for the recovery of valuable minerals.

 

14.                               “Production” means mining and processing of
Ore from the first deposit of Ore to be mined on the Property at a rate of not
less than 50% of the design capacity of the mine and related facilities for at
least one month without interruption; provided, however, that the term
“Production” shall not include the minor refining of Ore or Products for
metallurgical tests, pilot projects and facility start-up testing.

 

15.                               “Products” means all Ores, minerals and
mineral resources produced from the Properties under this Agreement.

 

B-3

--------------------------------------------------------------------------------

 

EXHIBIT C

 

To that Exploration Earn-In Agreement between ESTRELLA GOLD CORPORATION (“EGC”),
a corporation formed under the laws of the Province of Ontario, Estrella Gold
Peru S.A.C., a Peruvian sociedad anonima cerrada and a wholly owned subsidiary
of EGC (“EGC Peru”, together with EGC herein called “EGC”), MINES
MANAGEMENT, INC. (“MMI”), an Idaho corporation and Minera Montanore Peru S.A.C.,
a Peruvian sociedad anonima cerrada and a wholly owned subsidiary of MMI (“MMI
Peru”, together with MMI herein called “MMI”) dated effective March 1 2012.

 

PRELIMINARY ECONOMIC ASSESSMENT

 

“Preliminary Economic Assessment” means a study that includes an economic
analysis of the potential viability of mineral resources taken at an early stage
of the project prior to the completion of a preliminary feasibility study and
that complies with Canadian National Instrument 43-101.

 

“Preliminary feasibility study” as used in the preceding sentence has the
meaning set forth in Canadian National Instrument 43-101.

 

C-1

--------------------------------------------------------------------------------

 

EXHIBIT D

 

NET SMELTER RETURN ROYALTY

 

NET SMELTER RETURNS

 

1.                                      Calculation.

 

(a)                                 As used herein, “Payor” means the Party
obligated to pay the Production Royalty (and its successors and assigns), and
“Payee” means the Party entitled to receive the Production Royalty (and its
successors and assigns).

 

(b)                                 As used herein, “Net Smelter Returns” means
the Gross Returns from any and all ores, metals, minerals and materials of every
kind and character found in, on or under the Property (“Valuable Minerals”),
extracted, produced and sold or deemed to have been sold from the Property, less
all Allowable Deductions.

 

(c)                                  As used herein, “Gross Returns” has the
following meanings for the following categories of Valuable Minerals:

 

(i)                                     If Payor causes refined gold that meets
or exceeds the generally accepted commercial standards for refined gold to be
produced by an independent third party refinery from ores mined from the
Property, for purposes of determining the Production Royalty, the refined gold
shall be deemed to have been sold in the calendar month in which it was produced
at the refinery at the Monthly Average Gold Price for that month. The Gross
Returns from such deemed sales shall be determined by multiplying Gold
Production during the month by the Monthly Average Gold Price. As used herein,
“Gold Production” means the quantity of refined gold that is outturned to
Payor’s account by the refinery during the calendar month on either a
provisional or final settlement basis. If outturn of refined gold is made by the
refinery on a provisional basis, the Gross Returns shall be based upon the
amount of such provisional settlement, but shall be adjusted in subsequent
statements to account for the amount of refined metal established by final
settlement by the refinery. As used herein, “Monthly Average Gold Price” means
the average London Bullion Market Association P.M. Gold Fix, calculated by
dividing the sum of all such prices reported for the month by the number of days
for which such prices were reported. If the London Bullion Market
Association P.M. Gold Fix ceases to be published. the Monthly Average Gold Price
shall be determined by reference to prices for refined gold for immediate
delivery in the most nearly comparable established market selected by Payor as
such prices are published in “Metals Week” or a similar publication.

 

(ii)                                  If Payor causes refined silver that meets
or exceeds the generally accepted commercial standards for refined silver to be
produced by an independent third-party refinery from are mined from the
Property, for purposes of determining the Production Royalty, the refined silver
shall be deemed to have been sold in the calendar month in which it was produced
at the Monthly Average Silver Price for that month. The Gross Returns from such
deemed sales shall be determined by multiplying Silver

 

D-1

--------------------------------------------------------------------------------

 

Production during the calendar month by the Monthly Average Silver Price. As
used herein, “Silver Production” shall mean the quantity of refined silver that
is outturned to Payor’s account by the refinery during the calendar month on
either a provisional or final settlement basis. If outturn of refined silver is
made by the refinery on a provisional basis, the Gross Returns shall be based
upon the amount of such provisional settlement, but shall be adjusted in
subsequent statements to account for the amount of refined metal established by
final settlement by the refinery. As used herein, “Monthly Average Silver Price”
shall mean the average New York Silver Price as published daily by Handy &
Harman, calculated by dividing the sum of all such prices reported for the
calendar month by the number of days for which such prices were reported. If the
Handy & Harman quotation ceases to be published, the Monthly Average Silver
Price shall be determined by reference to prices for refined silver for
immediate delivery in the most nearly comparable established market selected by
Payor as published in “Metals Week” or a similar publication.

 

(iii)                               If Payor sells refined metals (other than
refined gold and refined silver), doré or concentrates produced from Valuable
Minerals from the Property, the Gross Returns for such refined metals shall be
the proceeds actually received by Payor from their sale. If such sales are to an
Affiliate, the refined metals, doré, or concentrates shall be deemed, solely for
the purpose of computing Gross Returns, to have been sold at prices and on terms
no less favorable to Payor than those which would have been received under
similar circumstances from an unaffiliated third party. As used herein,
“Affiliate” means any person, partnership, limited liability company, joint
venture, corporation, or other form of enterprise which Controls, is Controlled
by, or is under common Control with Payor, and “Control” means the ability,
directly or indirectly through one or more intermediaries, to direct or cause
the direction of the management and policies of such entity through (A) the
legal or beneficial ownership of voting securities or membership interests;
(B) the right to appoint managers, directors or corporate management;
(C) contract; (D) operating agreement; (E) voting trust; or (F) otherwise.

 

(d)                                 As used herein, “Allowable Deductions” means
the following costs, charges, and expenses incurred or accrued by Payor:

 

(i)                                     If Payor sells or is deemed to have sold
refined gold or refined silver:

 

(A)                               all costs, charges and expenses for smelting
and refining doré or concentrates to produce the refined gold or refined silver
(including handling, processing, and provisional settlement fees, sampling,
assaying and representation costs, penalties, and other processor deductions);

 

(B)                               all costs, charges, and expenses for weighing,
sampling, determining moisture content and packaging Valuable Minerals and for
loading and transportation of ores, minerals, doré or concentrates from the
Property to the refinery or smelter and then to the place of sale (including
freight, insurance,

 

D-2

--------------------------------------------------------------------------------

 

security, transaction taxes, handling, port, demurrage, delay, and forwarding
expenses incurred by reason of or in the course of such transportation); and

 

(C)                               actual sales and brokerage costs incurred by
Payor.

 

(ii)                                  If Payor sells refined metals (other than
refined gold or refined silver), doré concentrate or ores:

 

(A)                               all costs, charges, and expenses for
(I) beneficiation, processing or treatment of such materials at any plant or
facility not owned by Payor and (II) smelting or refining to produce a refined
metal (including handling, processing, and provisional settlement fees,
sampling, assaying and representation costs, penalties, and other processor
deductions);

 

(B)                               all costs, charges, and expenses for weighing,
sampling, determining moisture content and packaging Valuable Minerals and for
loading and transportation of ores. Minerals, doré concentrates or other
products from the Property (I) to the place of sale, or (II) if such ores or
other materials are beneficiated, processed, treated, smelted or refined at any
plant or facility more than five (5) miles from the exterior boundary of the
Property, to such plant of facility and then to the place of sale (including
freight, insurance, security, transaction taxes, handling, Port, demurrage,
delay, and forwarding expenses incurred by reason of or in the course of such
transportation); and

 

(C)                               actual sales and brokerage costs.

 

(iii)                               All royalties payable to any governmental
agency and all sales, use, severance, Nevada net proceeds of mines and ad
valorem taxes and any other tax or governmental levy or fee on or measured by
mineral production from the Property (other than taxes based on income).

 

(e)                                  Payor shall have the right to market and
sell or refrain from selling refined gold, refined silver and other mineral
products from the Property in any manner it may elect, including the right to
engage in forward sales, future trading or commodity options trading, and other
price hedging, price protection, and speculative arrangements (“Trading
Activities”) which may involve the possible delivery of gold, silver or other
mineral products from the Property. With respect to Production Royalty payable
on refined gold and refined silver and any other Valuable Minerals, Payee shall
not be entitled to participate in the proceeds or be obligated to share in any
losses generated by Payor’s actual marketing or sales practices or by its
Trading Activities and no such profits or losses shall be included in Gross
Returns.

 

2.                                      Manner of Payment. Production Royalty
payments shall be paid by Payor to Payee (or notice of a credit against
Production Royalties as provided above shall be given to Payee) on or before
thirty (30) days following the calendar quarter during which Payor shall have
received payment for Valuable Minerals sold by Payor or during which Valuable
Minerals are deemed sold as provided above. Production Royalties shall accrue to
Payee’s account upon such final payment or upon being credited to the account of
Payor by the smelter, refinery or other are buyer to Payor for the Valuable
Minerals sold and for which the Production Royalty is

 

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payable. All Production Royalty payments shall be made at Payor’s election by
Payor’s check or by wire transfer. All Production Royalty payments shall be
accompanied by a statement and settlement sheet showing the quantities and
grades of Valuable Minerals mined and sold from the Property, the proceeds of
sales, cost, assays and analyses, and other pertinent information in reasonably
sufficient detail to explain the calculation of the Production Royalty payment.

 

3.                                      Payments; Where Made. All payments
hereunder shall be sent by certified U.S. mail to Payee at its address as set
forth above, or by wire transfer to an account designated by and in accordance
with written instructions from Payee. The date of placing such payment in the
United States mail by Payor, or the date the wire transfer process is initiated,
shall be the date of such payment. Payments by Payor in accordance herewith
shall fully discharge Payor’s obligation with respect to such payment, and Payor
shall have no duty to otherwise apportion or allocate any payment due to Payee
or its successors or assigns.

 

4.                                      Audits; Objections to Payments. Payee,
at its sole election and expense, shall have the right to perform, not more
frequently than once annually following the close of each calendar year, an
audit of Payor’s accounts relating to payment of the Production Royalty
hereunder by any authorized representative of Payee. Any such inspection shall
be for a reasonable length of time during regular business hours, at a mutually
convenient time, upon at least five (5) business days prior written notice by
Payee. All royalty payments made in any calendar year shall be considered final
and in full accord and satisfaction of all obligations of Payor with respect
thereto, unless Payee gives written notice describing and setting forth a
specific objection to the calculation thereof within six (6) months following
the close of the annual audit for that calendar year. Payor shall account for
any agreed upon deficit or excess in Production Royalty payments made to Payee
by adjusting the next quarterly statement and payment following completion of
such audit to account for such excess.

 

5.                                      Conduct of Operations. Payor shall have
the sole and exclusive control of all operations on or for the benefit of the
Property, and of any and all equipment, supplies, machinery, and other assets
purchased or otherwise acquired or under its control in connection with such
operations. Payor may carry out such operations on the Property as it may, in
its sole discretion, determine to be warranted, so long as such operations are
conducted in accordance with procedures acceptable in the mining and
metallurgical industry. The timing, nature, manner and extent of any
exploration, development, mining or processing operations carried out or in
connection with the Property shall be within the sole discretion of Payor, and
there shall be no implied covenant whatsoever to begin or continue any such
operations. If Payor at any time, and from time to time after commencing
operations, desires to shut down, suspend or cease operations for any reason, it
shall have the right to do so. Payor may use and employ such methods of mining
as it may desire or find most profitable. Payor shall not be required to mine,
preserve, or protect in its mining operations any ores, leachates, precipitates,
concentrates or other products containing Valuable Minerals which cannot be
mined or shipped at a reasonable profit to Payor. Any decision as to the time,
manner and form, if any, in which ores or other products containing Valuable
Minerals are to be sold shall be made by Payor in its sole discretion.

 

6.                                      Ore Processing. All determinations with
respect to: (a) whether ore from the Property will be beneficiated, processed or
milled by Payor or sold in a raw state; (b) the

 

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methods of beneficiating, processing or milling any such ore; (c) the
constituents to be recovered therefrom, and (d) the purchasers to whom any ore,
minerals or mineral substances derived from the Property may be sold, shall be
made by Payor in its sole and absolute discretion.

 

7.                                      Ore Samples. The mineral content of all
ore mined and removed from the Property (but excluding ore leached in place) and
the quantities of constituents recovered by Payor shall be determined by Payor,
or with respect to such ore which is sold, by the mill or smelter to which the
ore is sold, in accordance with standard sampling and analysis procedures, and
shall be weighted average based on the total amount of ore from the Property
crushed and sampled, or the constituents recovered, during an entire calendar
quarter. Upon reasonable advance written notice to Payor, Payee shall have the
right to have representatives present at the time samples are taken for the
purpose of confirming that the sampling and analysis procedure is standard and
acceptable according to accepted industry practices.

 

8.                                      Commingling of Ores. Payor shall have
the right to mix or commingle, either underground, at the surface, or at
processing plants or other treatment facilities, any material containing
Valuable Minerals mined or extracted from the Property with ores or material
derived from other lands or properties owned, leased or controlled by Payor;
provided, however, that before commingling, Payor shall calculate from
representative samples the average grade of the ore from the Property and shall
either weigh or volumetrically calculate the number of tons of ore from the
Property to be commingled. As products are produced from the commingled ores,
Payor shall calculate from representative samples the average percentage
recovery of products produced from the commingled ores during each month. In
obtaining representative samples, calculating the average grade of commingled
ores and average percentage of recovery, Payor may use any procedures acceptable
in the mining and metallurgical industry which Payor believes to be accurate and
cost-effective for the type of mining and processing activity being conducted,
and Payor’s choice of such procedures shall be final and binding upon Payee.  In
addition, comparable procedures may be used by Payor to apportion among the
commingled ores any penalty charges imposed by the smelter or refiner on
commingled ores or concentrates. The records relating to commingled ores shall
be available for inspection by Payee, at Payee’s sole expense, at all reasonable
times, and shall be retained by Payor for a period of two (2) years.

 

9.                                      Waste Rock, Spoil and Tailings. Any ore,
mine waters, leachates, pregnant liquors, pregnant slurries, and other products
or compounds or metals or minerals mined from the Property shall be the property
of Payor, subject to the Production Royalty as provided for in Section 1. The
Production Royalty shall be payable only on metals, ores, or minerals recovered
prior to the time waste rock, spoil, tailings, or other mine waste and residue
are first disposed of as such, and Payor shall be free to use or dispose of such
waste and residue in whatever manner it sees fit in its sole discretion. Payor
shall have the sole right to dump, deposit, sell, dispose of, or reprocess such
waste rock, spoil, tailings, or other mine wastes and residues, and Payee shall
have no claim or interest therein other than for the payment of the Production
Royalty to the extent any Valuable Minerals are produced and sold therefrom.

 

10.                               No Covenants. The parties agree that in no
event shall Payor have any duty or obligation, express or implied, to explore
for, develop, mine or produce ores, minerals or mineral substances from the
Property, and the timing, manner, method and amounts of such exploration,
development, mining or production, if any, shall be in the sole discretion of
Payor. Payee

 

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acknowledges that the expenditures made by Payor to advance activities on the
Property and the right to the Production Royalty are sufficient consideration
for the conversion of its Participating Interest. None of the provisions of this
Section 10 or any other provision of this Exhibit D shall be deemed to limit or
restrict Payor’s ability to sell or otherwise conveyor transfer to any third
party all or any portion of Payor’s interest in the Property.

 

11.                               Nature of Payee’s Interest. The Production
Royalty payable to Payee shall payable only on production of Valuable Minerals
from the Property and any real property interest within the Area of Interest
acquired during the term of the this Agreement or the Shareholder Agreement
(“AOI Property), but not production from any other properties adjacent to or in
the vicinity of the Property or within the Area of Interest. With respect to the
Property and the AOI Property, the Payee shall have only the rights and
incidents of ownership of a non-executive royalty owner. Payee shall not have
any possessory or working interest in the Property or the AOI Property nor any
of the incidents of such interest. By way of example but not by way of
limitation, Payee shall not have (a) the right to participate in the execution
of applications for authorities, permits or licenses, mining leases, options,
farm-outs or other conveyances, (b) the right to share in bonus payments or
rental payments received as the consideration for the execution of such leases,
options, farm-outs, or other conveyances, or (c) the right to enter upon the
Property or the AOI Property and prospect for, mine, drill for, or remove ores,
minerals or mineral products therefrom.

 

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