form8k053008ex10-16.htm


    


     

    PROPERTY OPTION
AGREEMENT

     

     

    THIS
AGREEMENT made and entered into as of the 30th day of June, 2004.

     

    BETWEEN:

     

    MinQuest Inc., a company
having a mailing address at 4235 Christy Way, Reno,Nevada 89509, U.S.A
;

     

    (herein
called the “Optionor “)

     

    OF THE
FIRST PART

     

    AND:

    American Goldfields Inc., a
company having an office at

    #200 –
4170 Still Creek Dr, Burnaby, B.C. Canada, V5C 6C6;

     

    


     

    (herein
called the “Optionee “)

     

    OF THE
SECOND PART

     

    


     

    WHEREAS
the Optionor has represented that it is the sole recorded and beneficial owner
in and to the Imperial Property (the “Property”) described in Schedule “A”
attached hereto;

     

    AND
WHEREAS the Optionor, subject to the Net Smelter Royalty reserved to the
Optionor, now wishes to grant to the Optionee the exclusive right and option to
acquire an undivided 100% right, title and interest in and to the Property on
the terms and conditions hereinafter set forth;

     

    NOW
THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the premises, the
mutual covenants herein set forth and the sum of One Dollar ($1.00) of lawful
money of U.S. currency now paid by the Optionee to the Optionor (the receipt
whereof is hereby acknowledged), the Parties hereto do hereby mutually covenant
and agree as follows:


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              1.

            	
              Definitions

            


    

     

    The following words, phrases and
expressions shall have the following meanings:

     

    
      	
               
      

            	
              (a)

            	
              “After
      Acquired Properties” means any and all mineral interests staked, located,
      granted or acquired by or on behalf of either of the parties hereto during
      the currency of this Agreement which are located, in whole or in part,
      within one mile of the perimeter of the
  Property;

            


    

     

    
      	
               
      

            	
              (b)

            	
              “Work
      Commitment” includes all direct or indirect expenses [net of government
      incentives and net of payments to the Optionor pursuant to paragraph 4
      hereof] of or incidental to Mining Operations.  The certificate
      of the Controller or other financial officer of the Optionor, together
      with a statement of expenditures in reasonable detail shall be prima facie
      evidence of such expenditures.  In the event the commitment is
      not met on any year, the balance will be due in cash and or free trading
      stock paid to the Optionor.  Any and all excess amounts expended
      in one year may offset commitments to future
  commitments;

            


    

     

    
      	
               
      

            	
              (c)

            	
              “Facilities”
      means all mines and plants, including without limitation, all pits,
      shafts, adits, haulageways, raises and other underground workings, and all
      buildings, plants, facilities, and other structures, fixtures, and
      improvements, and all other property, whether fixed or moveable, as the
      same may exist at any time in, or on the Property and relating to the
      operator of the Property as a mine or outside the Property if for the
      exclusive benefit of the Property
only.

            


    

     

    
      	
               
      

            	
              (d)

            	
              “Force
      Majeure” means an event beyond the reasonable control of the Optionee that
      prevents or delays it from conducting the activities contemplated by this
      Agreement other than the making of payments referred to in Section 4 herein.  Such events shall include
      but not be limited to acts of God, war, insurrection, and inclement
      weather conditions.  Any action or inaction of governmental
      agencies, inability to obtain any environmental, operating or other
      permits or approvals, authorizations or consents within 18 months of
      application assuming continual persistance by the Optionee shall also
      constitute grounds for Force
Majeure;

            


    

     

    
      	
               
      

            	
              (e)

            	
              “Mineral
      Products” means the commercial end products derived from operating the
      Property as a mine;

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
               
      

            	
              (f)

            	
              “Mining
      Operations” includes:

            


    

     

    
      	
               
      

            	
              (i)

            	
              every
      kind of work done on or with respect to the Property by or under the
      direction of the Optionee during the Option Period or pursuant to an
      approved Work Program except expansion of the property boundaries;
      and

            


    

     

    
      	
               
      

            	
              (ii)

            	
              without
      limiting the generality of the foregoing, includes all work capable of
      receiving assessment credits pursuant to The Mines and Minerals
      Act of Nevada and the work of assessment, geophysical, geochemical
      and geological surveys, studies and mapping, investigating, drilling,
      designing, examining equipping, improving, surveying, shaft sinking,
      raising, cross-cutting and drifting, searching for, digging, trucking,
      sampling, working and procuring minerals, ores and metals, in surveying
      and bringing any mineral claims to lease or patent, in doing all other
      work usually considered to be prospecting, exploration, development, a
      feasibility study, mining work, milling, concentration, bonification or
      ores and concentrates, as well as the separation and extraction of mineral
      products;

            


    

     

    
      	
               
      

            	
              (g)

            	
              “Net
      Smelter Royalty” means that Net Smelter Royalty as defined in Schedule “B”
      attached hereto (“NSR”);

            


    

     

    
      	
               
      

            	
              (h)

            	
              “Option”
      means the option granted by the Optionor to the Optionee to acquire,
      subject to the NSR reserved to the Optionor, an undivided 100% right,
      title and interest in and to the Property as more particularly set forth
      in Section 4.

            


    

     

    
      	
               
      

            	
              (i)

            	
              “Option
      Period” means the period from the date hereof to the date at which the
      Optionee has performed its obligations to acquire its 100% interest in the
      Property as set out in Section 4 hereof,
      which ever shall be the lesser
period;

            


    

     

    
      	
               
      

            	
              (j)

            	
              “Property”
      means the mineral claims described in Schedule
  “A”;

            


    

     

    
      	
               
      

            	
              (k)

            	
              “Work
      Program” means, a program of work reasonably acceptable to both parties in
      respect of a particular Property, contained in a written document setting
      out in reasonable detail:

            


    

     

    
      	
               
      

            	
              (i)

            	
              an
      outline of the Mining Operations proposed to be undertaken and conducted
      on the Property, specifically stating the period of time during which the
      work contemplated by the proposed program is to be done and
      performed;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              the
      estimated cost of such Mining Operations including a proposed budget
      providing for estimated monthly cash requirements in advance and giving
      reasonable details;

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
               
      

            	
              (iii)

            	
              the
      total estimated cash costs shall be put in escrow each month to cover
      expenses of Optionor, including but not restricted to cost of initial
      expansion of claim position by location and filing at an estimated cost of
      US$5,000 per year: and

            


    

     

    
      	
               
      

            	
              (iv)

            	
              the
      identity and credentials of the person or persons undertaking the Mining
      Operations so proposed if not the
Optionor.

            


    

     

    reasonably
acceptable to both parties hereto.

     

    
      	
              2.

            	
              Headings

            


    

     

    Any heading, caption or index hereto
shall not be used in any way in construing or interpreting any provision
hereof.

     

    
      	
              3.

            	
              Singular,
      Plural

            


    

     

    Whenever the singular or masculine or
neuter is used in this Agreement, the same shall be construed as meaning plural
or feminine or body politic or corporate or vice versa, as the context so
requires.

     

    
      	
              4.

            	
              Option

            


    

     

    The Optionor hereby grants to the
Optionee the sole exclusive right and option (the “Option”) to earn a 100%
interest in the Property exercisable as follows:

     

    
      	
               
      

            	
              (a)

            	
              the
      Optionee paying the sum of $60,000 US to the Optionor by way of cash upon
      signing.

            


    

     

    
      	
               
      

            	
              (b)

            	
              on
      or before July 1, 2005:

            


    

     

    
      	
               
      

            	
              (i)

            	
              the
      Optionee makes a work commitment of $75,000 on the
    Property;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              and
      the Optionee paying $20,000 to the
Optionor;

            


    

     

    
      	
               
      

            	
              (c)

            	
              on
      or before July 1, 2006:

            


    

     

    
      	
               
      

            	
              (i)

            	
              the
      Optionee makes a work commitment of $100,000 on the Property in addition
      to the expenditure referred to in clauses  (b)(i)
      hereof;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              and
      the Optionee paying $20,000 to the
Optionor;

            


    

     

    
      	
               
      

            	
              (d)

            	
              on
      or before July 1, 2007:

            


    

     

    
      	
               
      

            	
              (i)

            	
              the
      Optionee makes a work commitment of $100,000 on the Property in addition
      to the expenditure referred to in clauses  (b)(i) and (c)(i)
      hereof;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              and
      the Optionee paying $20,000 to the
Optionor;

            


    

     

    
      	
               
      

            	
              (e)

            	
              on
      or before  July 1, 2008

            


    

     

    
      	
               
      

            	
              (i)

            	
              the
      Optionee makes a work commitment of $100,000 on the Property in
      addition  to the expenditures referred to in clauses (b)(i),
      (c)(i) and  (d)(i)

            


    

     

    
      	
               
      

            	
              (ii)

            	
              and
      the Optionee paying $20,000 to the
Optionor;

            


    

     

    (f)             on
or before July 1 ,2009

    
      	
               
      

            	
              (i)

            	
              the
      Optionee makes a work commitment of  $125,000 on the Property in
      addition  to the expenditures referred to in clauses
      (b)(i),(c)(i),(d)(i) and (e)(i).

            


    

    


    following
which the Optionee shall be deemed to have exercised the Option (the “Exercise
Date”) and shall be entitled to an undivided 100% right, title and interest in
and to the Property with the full right and authority to equip the Property for
production and operate the Property as a mine subject to the rights of the
Optionor to receive the  NSR.

     

    
      	
              5.

            	
              Transfer of
      Title

            


    

     

    Upon completion of all work commitments
and property payments by Optionee the Optionor will deliver or cause to be
delivered to the Optionee’s solicitors a duly executed transfer of Property in
favour of the Optionee (the “Optionee Transfer”) to be held in trust by said
solicitors subject to the terms and conditions of this Agreement.  The
Optionee shall be entitled to record the Optionee Transfer with the appropriate
government offices to effect transfer of legal title of the Property into its
own name upon the full and complete exercise of the Option by the Optionee. In
the event the Optionee Transfer is recorded the Optionor shall be entitled to
record notice of its NSR interest.

     

    
      	
              6.

            	
              Mining Operations
      during Option

            


    

     

    During the Option Period, the Optionor
shall conduct the Mining Operations on the Property for and on behalf of the
Optionee and shall invoice the Optionee in respect of the expenses of such
Mining Operations from time to time and the prompt payment of such invoices when
due shall constitute Expenditures by the Optionee as contemplated under Section
4 hereof.

     

    
      	
              7.

            	
              Assignment

            


    

     

    During the Option Term, no party shall
sell, transfer, assign, mortgage, pledge or otherwise encumber its interest in
this Agreement or its right or interest in the Property without the consent of
the other parties, such consent to be not unreasonably withheld, provided that
any party shall be permitted to assign this Agreement to an “affiliate”, as that
term is defined in The
Company Act
(Nevada).  It will be a condition of any assignment under this
Agreement that such assignee shall agree in writing to be bound by the terms of
this Agreement applicable to the assignor.  In the event Optionee
completes all obligations to acquire a 100% interest in the Property the
Optionor will have the right to transfer, assign an or sell the NSR on the open
market.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              8.

            	
              Termination

            


    

     

    This Agreement shall forthwith
terminate in circumstances where:

     

    
      	
               
      

            	
              (a)

            	
              the
      Optionee fails to make the payments for or carry out the expenditures
      required in Section 4 of this Agreement on or
      before the dates set out herein provided that, in circumstances where the
      Optionee is prevented from carrying out any of the expenditures
      contemplated in Section 4 prior to the dates
      set out therein due to Force Majeure, then the Optionee shall forthwith
      give the Optionor written notice of the commencement and termination of
      the said Force Majeure and thereafter such dates shall be deemed to have
      been extended by the period of time during which the Force Majeure remains
      in effect; or

            


    

     

    
      	
               
      

            	
              (b)

            	
              the
      Optionee gives notice of termination to the Optionor which it shall be at
      liberty to do at any time after the execution of this Agreement. If and
      when the Optionee elects to terminate this agreement, at such time the
      property will be returned to the Optionor with at least 1 year assessment
      requirement credit.

            


    

     

    
      	
              9.

            	
              Representations,
      Warranties and Covenants of the
Optionor

            


    

     

    The Optionor represents, warrants and
covenants to and with the Optionee as follows:

     

    
      	
               
      

            	
              (a)

            	
              the
      Optionor is a company duly organized validly existing and in good standing
      under the laws of Nevada;

            


    

     

    
      	
               
      

            	
              (b)

            	
              the
      Optionor has full power and authority to carry on its business and to
      enter into this Agreement and any agreement or instrument referred to or
      contemplated by this Agreement;

            


    

     

    
      	
               
      

            	
              (c)

            	
              neither
      the execution and delivery of this Agreement, nor any of the agreements
      referred to herein or contemplated hereby, nor the consummation of the
      transactions hereby contemplated conflict with, result in the breach of or
      accelerate the performance required by, any agreement to which it is a
      party;

            


    

     

    
      	
               
      

            	
              (d)

            	
              the
      execution and delivery of this Agreement and the agreements contemplated
      hereby will not violate or result in the breach of the laws of any
      jurisdiction applicable or pertaining thereto or of its constating
      documents;

            


    

     

    
      	
               
      

            	
              (e)

            	
              the
      Agreement constitutes a legal, valid and binding obligation of the
      Optionor;

            


    

     

    
      	
               
      

            	
              (f)

            	
              the
      Property is accurately described in Schedule “A”, is in good standing
      under the laws of the jurisdiction in which it is located and is free and
      clear of all liens, charges and
encumbrances;

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
               
      

            	
              (g)

            	
              the
      Optionor is the sole recorded and beneficial owner of the Property and has
      the exclusive right to enter into this Agreement and all necessary
      authority to transfer its interest in the Property in accordance with the
      terms of this Agreement;

            


    

     

    
      	
               
      

            	
              (h)

            	
              no
      person, firm or corporation has any proprietary or possessory interest in
      the Property other than the Optionor, and no person, firm or corporation
      is entitled to any royalty or other payment in the nature of rent or
      royalty on any minerals, ores, metals or concentrates or any other such
      products removed from the Property other than the government of the state
      of Nevada pursuant to statute;

            


    

     

    
      	
               
      

            	
              (i)

            	
              upon
      request by the Optionee, the Optionor shall deliver or cause to be
      delivered to the Optionee copies of all available maps and other documents
      and data in its possession respecting the Property;
  and

            


    

     

    
      	
               
      

            	
              (j)

            	
              subject
      to performance by the Optionee of its obligations under Section 4, during
      the Option Period, the Optionor will keep the Property in good standing,
      free and clear of all liens, charges and encumbrances, will carry out all
      Mining Operations on the Property in a miner-like fashion, will obtain all
      necessary licenses and permits as shall be necessary and will, file all
      applicable work up to the legal limits as assessment work under The Mines and Minerals Act
      (Nevada).

            


    

     

    
      	
              10.

            	
              Representations,
      Warranties and Covenants of the
Optionee

            


    

     

    The Optionee represents, warrants and
covenants to and with the Optionor that:

     

    
      	
               
      

            	
              (a)

            	
              the
      Optionee is a company duly organized validly existing and in good standing
      under the laws of Nevada;

            


    

     

    
      	
               
      

            	
              (b)

            	
              the
      Optionee has full power and authority to carry on its business and to
      enter into this Agreement and any agreement or instrument referred to or
      contemplated by this Agreement;

            


    

     

    
      	
               
      

            	
              (c)

            	
              neither
      the execution and delivery of this Agreement, nor any of the agreements
      referred to herein or contemplated hereby, nor the consummation of the
      transactions hereby contemplated conflict with, result in the breach of or
      accelerate the performance required by, any agreement to which it is a
      party;

            


    

     

    
      	
               
      

            	
              (d)

            	
              the
      execution and delivery of this Agreement and the agreements contemplated
      hereby will not violate or result in the breach of the laws of any
      jurisdiction applicable or pertaining thereto or of its constating
      documents;

            


    

     

    
      	
               
      

            	
              (e)

            	
              this
      Agreement constitutes a legal, valid and binding obligation of the
      Optionee; and

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              11.

            	
              Indemnity and Survival
      of Representations

            


    

     

    The representations and warranties
hereinbefore set out are conditions on which the parties have relied in entering
into this Agreement and shall survive the acquisition of any interest in the
Property by the Optionee and each of the parties will indemnify and save the
other harmless from all loss, damage, costs, actions and suits arising out of or
in connection with any breach of any representation, warranty, covenant,
agreement or condition made by them and contained in this
Agreement.

     

    The Optionor agrees to indemnify and
save harmless the Optionee from any liability to which it may be subject arising
from any Mining Operations carried out by the Optionor or at is direction on the
Property.  The Optionee agrees to indemnify and save harmless the
Optionor from any liability to which it may be subject arising from any Mining
Operations carried out by the Optionee or at its direction on the
Property.

     

    
      	
              12.

            	
              Confidentiality

            


    

     

    The parties hereto agree to hold in
confidence all information obtained in confidence in respect of the Property or
otherwise in connection with this Agreement other than in circumstances where a
party has an obligation to disclose such information in accordance with
applicable securities legislation, in which case such disclosure shall only be
made after consultation with the other party.

     

    
      	
              13.

            	
              Notice

            


    

     

    All notices, consents, demands and
requests (in this Section 13 called the
“Communication”) required or permitted to be given under this Agreement shall be
in writing and may be delivered personally sent by telegram, by telex or
telecopier or other electronic means or may be forwarded by first class prepaid
registered mail to the parties at their addresses first above
written.  Any Communication delivered personally or sent by telegram,
telex or telecopier or other electronic means shall be deemed to have been given
and received on the second business day next following the date of
sending.  Any Communication mailed as aforesaid shall be deemed to
have been given and received on the fifth business day following the date it is
posted, addressed to the parties at their addresses first above written or to
such other address or addresses as either party may from time to time specify by
notice to the other; provided, however, that if there shall be a mail strike,
slowdown or other labour dispute which might affect delivery of the
Communication by mail, then the Communication shall be effective only if
actually delivered.

     

    
      	
              14.

            	
              Further
      Assurances

            


    

     

    Each of the parties to this Agreement
shall from time to time and at all times do all such further acts and execute
and deliver all further deeds and documents as shall be reasonably required in
order fully to perform and carry out the terms of this
Agreement.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    
      	
              15.

            	
              Entire
      Agreement

            


    

     

    The parties hereto acknowledge that
they have expressed herein the entire understanding and obligation of this
Agreement and it is expressly understood and agreed that no implied covenant,
condition, term or reservation, shall be read into this Agreement relating to or
concerning any matter or operation provided for herein.

     

    
      	
              16.

            	
              Proper Law and
      Arbitration

            


    

     

    This Agreement will be governed by and
construed in accordance with the laws of the State of Nevada and the laws of the
United States of America applicable therein.  The parties hereto
hereby irrevocably attorn to the jurisdiction of the Courts of Nevada. All
disputes arising out of or in connection with this Agreement, or in respect of
any defined legal relationship associated therewith or derived therefrom, shall
be referred to and finally resolved by a sole arbitrator by arbitration under
the rules of The Arbitration
Act of Nevada.

     

    
      	
              17.

            	
              Enurement

            


    

     

    This Agreement will enure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.

     

    18.                      After Acquired
Properties

     

    
      	
               
      

            	
              (i)

            	
              The
      parties covenant and agree, each with the other, that any and all After
      Acquired Properties shall be subject to the terms and conditions of this
      Agreement and shall be added to and deemed, for the purposes hereof, to be
      included in the Property.  Any costs incurred by the Optionor in
      staking, locating, recording or otherwise acquiring any “After Acquired
      Properties” will be deemed to Mining Operations for which the Optionor
      will be entitled to reimbursements as part of the Expenditures payable by
      the Optionee hereunder.

            


    

     

    
      	
               
      

            	
              (ii)

            	
              Any
      additional claims staked within a 1 mile radius (1.6 km.) of the property
      boundaries by the Optionor shall form part of this agreement. As per
      1k(iii), the Optionee will escrow $5,000 US for the costs of staking
      additional claims undertaken by the Optionor at the request of the
      Optionee.

            


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    19.                      Default

     

    Notwithstanding anything in this
Agreement to the contrary if any party (a “Defaulting Party”) is in default of
any requirement (other than as set forth in Section 4) herein set forth the party affected by such default
shall give written notice to the Defaulting Party specifying the default and the
Defaulting Party shall not lose any rights under this Agreement, unless thirty
(30) days after the giving of notice of default by the affected party the
Defaulting Party has failed to take reasonable steps to cure the default by the
appropriate performance and if the Defaulting Party fails within such period to
take reasonable steps to cure any such default, the affected party shall be
entitled to seek any remedy it may have on account of such default including,
without limiting, termination of this Agreement.

     

    20.                      Payment

     

    All references to monies hereunder
shall be in U.S. funds.  The Optionee shall escrow projected monthly
costs into an account for the Expenditures.  Escrow funds will be used
to pay invoices delivered by the Optionor which for the purposes of this
agreement shall constitute prompt and due payment.

     

    21.                      Option
Only

     

    This is an option only and except as
herein specifically provided otherwise, nothing herein contained shall be
construed as obligating the Optionee to do any acts or make any payments
hereunder, and any act or acts or payment or payments as shall be made hereunder
shall not be construed as obligating the Optionee to do any further act or make
any further payment or payments.

     

    22.                      Revisionary
Rights

     

    Optionor retains reversionary rights to
all property within the boundary of the Area of Interest as long as Optionee,
its subsidiaries or assigns holds title.  At such time in the future
that Optionee, its subsidiaries or assigns decides any and all property held by
Optionee within the referenced Area of Interest is unnecessary to the pursuit of
an ore deposit, Optionee, its subsidiaries or assigns will offer said Property
to Optionor, its subsidiaries or assigns at least 60 days prior to any fees,
taxes, payments or other assessment being due and payable.  Optionee,
its subsidiaries or assigns will make available any and all data to Optionor to
evaluate the potential or lack thereof of the offered
property.  Optionor will be obligated to accept in writing, by fax or
verbally within 30 days of notification.  At such time that Optionor
accepts any part of a Property, Optionee, its subsidiaries or assigns will
transfer any and all drill core, pulps, rejects, digital and other data
available for the above referenced property.

     

    23.                      Supersedes Previous
Agreements

     

    This Agreement supersedes and replaces
all previous oral or written agreements, memoranda, correspondence or other
communications between the parties hereto relating to the subject matter
hereof.


    
      
         


      

      
         


        
          

        

      

      
         


      

    


     

    IN
WITNESS WHEREOF the Parties hereto have duly executed this Agreement effective
as of the 30th day of June, 2004

     

    


     

                MinQuest
Inc.

     

    


    Per:           

    Authorized Signatory

    


    


              American
Goldfields Inc.

    


    Per:                                                                

    Authorized Signatory

     

    



    
      
         


      

      
         


        
          

        

      

      
         


      

    


    


     

    


     

    SCHEDULE
A

    


    LIST OF IMPERIAL PROPERTY UNPATENTED
CLAIMS, SECTIONS 34-36, T4S, R40E,
MDB&M, ESMERALDA
COUNTY, NEVADA

     

    


    
      	
              Claim Name

            	
              BLM Serial Number

            
	
              Lida
      1-10

            	
              838518-838527

            
	
              Helen

            	
              833046

            
	
              Helen
      1-9

            	
              833047-833055

            
	
              Imperial
      20-21

            	
              833056-833

            


    

    


    



    
      
         


      

      
         


        
          

        

      

      
         


        
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    SCHEDULE
“B”

     

    


     

    “Net
Smelter Return” shall mean the aggregate proceeds received by the Optionee from
time to time from any smelter or other purchaser from the sale of any ores,
concentrates, metals or any other material of commercial value produced by and
from the Property after deducting from such proceeds the following charges only
to the extent that they are not deducted by the smelter or other purchaser in
computing the proceeds:

     

    
      	
              (a)

            	
              the
      cost of transportation of the ores, concentrates or metals from the
      Property to such smelter or other purchaser, including related
      insurance;

            


    

     

    (b)           smelting
and refining charges including penalties; and

     

    The
Optionee shall reserve and pay to the Optionor a NSR equal to three (3%) percent
of Net Smelter Return.

     

    Payment
of NSR payable to the Optionor hereunder shall be made quarterly within thirty
(30) days after the end of each calendar quarter during which the Optionee
receives Net Smelter Returns.  Within thirty (30) days after the end
of each calendar quarter for which the NSR are payable to the Optionor, the
records relating to the calculation of NSR for such year shall be audited by the
Optionee and any adjustments in the payment of NSR to the Optionor shall be made
forthwith after completion of the audit.  All payments of NSR to the
Optionor for a calendar year shall be deemed final and in full satisfaction of
all obligations of the Optionee in respect thereof if such payments or the
calculations thereof are not disputed by the Optionor within ninety (90) days
after receipt by the Optionor of the same audited statement.  The
Optionee shall maintain accurate records relevant to the determination of NSR
and the Optionor, or its authorized agent, shall be permitted the right to
examine such records at all reasonable times.