exv10w1



 



Exhibit 10.1




Mr. Notary:


Please enter in your Registry of Public Deeds one recording the Option
Agreement and the Lease Agreement entered into by and between BEAR CREEK MINING
COMPANY — SUCURSAL DEL PERU, with RUC No20473955939, registered in entry 1,
file No 41289 of the Public Mining Registry, duly represented by it’s general
manager Andrew T. Swarthout, identified with foreign identity card N114755,
whose faculties are registered as entry 1, file 41289, domiciled at calle
Monteflor No 460, Urbanización Valle Hermoso, Santiago de Surco, Lima 33,
hereinafter referred to as “OPTIONEE”; on one side; and, on the other side
FÉLIX FAUSTINO ELÍAS FARFÁN, identified with DNI No22074535, and his wife
RAQUEL AMALIA VERA TORRES, identified with DNI No22075665, both domiciled at
Laureano Martínez 134, San Miguel, Lima 32, hereinafter collectively referred
to as the “TITLEHOLDER”; on the following terms and conditions:


RECITALS

WHEREAS:



	1.	 	The Titleholder, as the unique and exclusive titleholder, has agreed to
grant to the Optionee an exclusive and irrevocable option to acquire 100%
of the mining concessions namely Pechereque, code 01-00822-01; Pechereque
10, code 01-00717-02 and Pechereque XII, code 01-00836-02, within a
maximum thirty-six month term.
	 
	2.	 	Together with this exclusive and irrevocable option to acquire, the
Titleholder has agreed lease the mining concessions Pechereque, code
01-00822-01; Pechereque 10, code 01-00717-02 and Pechereque XII, code
01-00836-02, within a maximum thirty-six month term to the Optionee, for
exploration purposes and for the same term.



NOW AND THEREFORE, the Parties have agreed as follows:



	1.	 	FIRST: DEFINITIONS
	 
	 	 	For the purposes hereof and of the preceding recitals, the following words
and expressions shall have the following meanings:
	 
	1.1	 	“Exhibits”, means Exhibits “A”, “B” and “C” of the agreement hereof.
	 
	1.2	 	“Deposits”, means the sums of money that will be delivered to the
Titleholder in virtue of the option agreement, pursuant to Article 1480
and followings of the Peruvian Civil Code, which shall be deducted in full
and immediately from the Transfer Price if the Optionee exercises the
Option.



 








 







	1.3	 	“Mineral Rights”, means the following mining concessions:




	 	a)	 	Pechereque, code 01-00822-01, with an extent of 200 hectares,
located in the department of Ica, which title to mining concession
was given to Felix Faustino Elías Farfán and approved by resolution
RJ No 01412-2001-INACC/J, issued by the National Institute of Mining
Concessions and Cadaster (Instituto Nacional de Concesiones y
Catastro Minero) on December 5, 2001.
	 
	 	b)	 	Pechereque 10, code 01-00717-02, located in the department of
Ica; and
	 
	 	c)	 	Pechereque XII, code 01-00836-02, located in the department of
Ica.




	1.4	 	“Agreement”, means this document that contains the Option to Acquire and
the Mining Lease Agreements, its Exhibits, as well as any amendments,
clarifications or additions thereto that the Parties may agree from time
to time.
	 
	1.5	 	“Lease Agreement”, means the mining lease agreement relating to the
Mineral Rights, and any amendments, clarifications, or additions thereto
that the Parties may agree from time to time pursuant to Article 166 of
the General Mining Act.
	 
	1.6	 	“Option
Agreement”, means the option to acquire the Mineral Rights, and
any amendments, clarifications, or additions thereto that the Parties may
agree from time to time pursuant to Article 165 of the General Mining Act.
	 
	1.7	 	“Transfer Agreement”, means the contract to be drafted in the form of
Exhibit C hereto, to formalize the transfer of the Mineral Rights from the
Titleholder to the Optionee, subject to exercise of the Option, whereby
the Optionee becomes the sole and exclusive titleholder of 100% of the
Mineral Rights.
	 
	1.8	 	“Dollars” or “US$”, means the currency of legal tender in the United States of America.
	 
	1.9	 	“Force Majeure”, has the meaning set out in sub-section 6.3
	 
	1.10	 	“Confidential Information”, has the meaning set out in sub-section 6.7



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	1.11	 	“Land Act” means the Law regulating Private Investment in the Development
of Economic Activities in Lands of the National Territory and Peasant and
Native Communities, Law No. 26505, enacted July 18, 1995, and its
regulations, amendments, additions, substitutions, and related laws.
	 
	1.12	 	“General Mining Act” means the Consolidated General Mining Act, approved
by Supreme Decree 014-92-EM dated June 2, 1992, and any regulations,
amendments, additions, substitutions, and related laws.
	 
	1.13	 	“Notice” means any notice, request, order, demand, offer, requirement, or
other communication authorized or required to be made under the Option
Agreement or the Lease Agreement, as set out in sub-section 6.5.
	 
	1.14	 	“Option” means the exclusive, irrevocable and indivisible option granted
to the Optionee according to the terms of the Option Agreement, whereby
the Optionee is entitled to acquire, at its own discretion, 100% of one,
some or all the mining concessions that comprise the Mineral Rights.
	 
	1.15	 	“Optionee” means Bear Creek Mining Company, Sucursal del Perú, or its
successor.
	 
	1.16	 	“Party” or “Parties” means the Titleholder and the Optionee, and any
other person who may acquire any rights under the Option Agreement and/or
the Lease Agreement.
	 
	1.17	 	“Lease Term”, means the term of the Lease Agreement, during which the
Optionee is entitled to carry out exploration activities in accordance
with sub-section 5.3, including any extension in accordance with
sub-sections 4.2 and 6.3
	 
	1.18	 	“Option Term” means the term of the Option, during which the Optionee may
exercise the Option in accordance with section 3.3, including any
extension of this term in accordance with sub-sections 4.2 and 6.3.
	 
	1.19	 	“Transfer Price” has the meaning set out in sub-section 3.2.
	 
	1.20	 	“Environmental Regulations” mean the Environmental Regulations for Mining
Exploration Activities approved by Supreme Decree No. 038-98-EM and
published in the official gazette El Peruano on November 30, 1998, and its
extensions, amendments, and related regulations.
	 
	1.21	 	“Titleholder” means Felix Faustino Elías Farfán and Raquel Amalia Vera
Torres.



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SECOND: REPRESENTATIONS AND WARRANTIES




	2.1	 	The Titleholder hereby represents and warrants that:




	 	a)	 	On the date of this Agreement, the Titleholder holds the
mineral rights namely Pechereque, Pechereque 10 and Pechereque XII;
that the Mineral Rights are free from encumbrances, liens, and there
is no legal or extra-judicial process or agreement publicly recorded
or not that affects or limits the free transferability of the Mining
Rights, nor the free transferability of the rights conferred to their
titleholder or applicant, or the execution of the Option Agreement or
the Lease Agreement; that the License Fees (“Derecho de Vigencia”)
for the years 2001 and 2002, have been duly paid, having the
Titleholder complied with all the formal obligations applicable to
the Mineral Rights under the General Mining Act and other applicable
laws;
	 
	 	b)	 	In the ordinary course of its business relating to the Mineral
Rights, the Titleholder has complied with all the necessary legal
formalities, and regarding to the Pechereque mining concession,
during the performance of exploration and/or exploitation activities
the Titleholder has complied with all the necessary legal formalities
without infringing any law, regulation or norm relating to the
exercise of mining activities as concession holder, nor any
environmental regulation; and that there are no adverse environmental
conditions that affect or may affect the Mineral Rights as a result
of its past or present activities;
	 
	 	c)	 	If title to the Mineral Rights were defective, deficient, or
contained limitations restricting the free transfer of the Mineral
Rights, the Optionee shall have the right to institute and pursue, at
the cost and account of the Titleholder, every legal process that may
be necessary to cure such defects or deficiencies, without incurring
any liability, having the Optionee the right to deduct from the
deposits, any expenses effectively incurred to defend the title. In
any event, the delivery of Deposits under sub-section 3.4 shall be
suspended until the defect or deficiency is finally settled.
	 
	 	d)	 	During the Option Term, the Titleholder shall not, by action or
inaction, permit or cause any rights of creditors, legal or
extra-judicial actions, liens, charges, or other real or personal
rights to be established or maintained over the Mineral Rights, or
any part or appurtenance thereof, that may affect the Mineral Rights
and/or this Agreement; nor put at risk the validity, existence, or
title to the Mineral Rights.



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	 	e)	 	The Titleholder will defend and hold the Optionee harmless and
free from any responsibility, obligation, lost, costs, expenses,
damages and demands, including without limitation damages to third
persons, or to property, reclamation costs of damages caused to the
environment and third parties, that may result from the activities
carried out in the Mineral Rights and/or in relation to them, prior
to the execution of this Agreement; and
	 
	 	f)	 	At the time of signing this Agreement and/or executing its
obligations under the Agreement, the Titleholder does not violate,
infringe and/or breaches any other agreement, contract or obligation
with third persons or the Peruvian State.




	2.2	 	The Optionee hereby represents and warrants that:




	 	a)	 	It is a branch of Bear Creek Mining Company, established in
Peru in accordance with the applicable Peruvian laws; and
	 
	 	b)	 	It has sufficient authorization given by its principal Bear
Creek Mining Company, to execute this Agreement.



THIRD: OPTION AGREEMENT




	3.1	 	Option Agreement
	 
	 	 	Pursuant to Article 165 of the General Mining Act, the Titleholder grants
the Optionee an exclusive and irrevocable option to acquire one hundred
percent (100%) of one, some or all of the Mineral Rights (the “Option”),
during the term provided under sub-section 3.3. The option to acquire the
Mineral Rights includes all of the Mineral Rights' parts and appurtenances
as well as everything that de facto or de lure pertains thereto, whether
within or outside their external boundaries, without demanding any payment
other than the agreed herein on these or other accounts.
	 
	3.2	 	Transfer Price
	 
	 	 	The consideration for the transfer of the Mineral Rights is US$250,000.00
(two hundred and fifty thousand Dollars) (the “Transfer Price”). All
amounts previously delivered as Deposits pursuant to sub-section 3.4 shall
be deducted from the Transfer Price, as well as the balance of the
Transfer Price.
	 
	3.3	 	Option Term



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	 	3.3.1	 	The term of the Option is thirty-six (36) months from the date
on which the formal deed that may arise from this minute is signed by
both Parties (the “Option Term”).
	 
	 	3.3.2	 	The Option Term is mandatory for the Titleholder and voluntary
for the Optionee. The Optionee may therefore terminate the Option at
any time by giving Notice of termination to the Titleholder via a
public notary.




	3.4	 	Deposits (“Arras de Retractación”)




	 	3.4.1	 	The Optionee undertakes to give as Deposits to the Titleholder the following amounts:




	 	a) US $30,000	 	On the sixth month counted as of the date
the Parties sign the public deed that will arise from this
private document.
	 
	 	b) US $45,000	 	On the day following the first anniversary
counted as of the date of signing of the public deed that will
arise from this private document.
	 
	 	c) US $75,000	 	On the day following the second
anniversary counted as of the date of signing the public deed
that will arise from this private document.




	 	 	 	If the Optionee does exercise the Option, the Deposits
delivered to the Titleholder under this sub-section 3.4.1, shall
be deducted in full and immediately from the Transfer Price.
	 
	 	3.4.2	 	Waiver of the right of withdrawal
	 
	 	 	 	The Titleholder hereby waives its right to withdraw its offer
pursuant to Article 1482 of the Peruvian Civil Code.
	 
	 	3.4.3	 	Requirements for Making the Deposits
	 
	 	 	 	The Deposits referred to in sub-sections 3.4.1 (a), 3.4.1 (b) and
3.4.1 (c) shall be made if accrued during the Option Agreement, and
provided the Agreement is in force.



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	 	3.4.4	 	Consequences of the Failure to Exercise the Option
	 
	 	 	 	Failure by the Optionee to exercise the Option shall cause the
Optionee to lose the Deposits in favor of the Titleholder. The
Deposits include the VAT and the Municipal Promotion Tax, as well as
any other value added tax or sales tax that may replace them.
	 
	 	3.4.5	 	Indivisibility of the Deposits
	 
	 	 	 	The Optionee and the Titleholder hereby declare that the Deposits
referred to in sub-section 3.4.1 will only accrue on the specified
dates, and are indivisible. No claim for delivery of the Deposits or
portions thereof based on the number of days, weeks or months elapsed
shall be therefore admitted.
	 
	 	 	 	Failure by the Optionee to deliver the Deposits under sub-section
3.4.1 will entitle the Titleholder to deliver a Notice to the
Optionee by a public notary, detailing the Optionee ́s default. The
Optionee may cure the default within thirty (30) calendar days
following receipt of the Notice. If the Optionee does not cure the
default, the Titleholder may terminate the Option Agreement, except
for sub-section 6.3.




	3.5	 	Exercise of the Option




	 	3.5.1	 	The Optionee shall exercise the Option at any time during the
Option Term by giving Notice of its decision to exercise the Option
to the Titleholder, via public notary.
	 
	 	3.5.2	 	Upon the exercise of the Option, the Mineral Rights shall be
automatically transferred to the Optionee. The Parties therefore
agree that the Option Notice delivered by the Optionee will effect
the transfer of the Mineral Rights and will constitute sufficient
title to publicly register the transfer of the Mineral Rights on
behalf of the Optionee.
	 
	 	3.5.3	 	Without prejudice of sub-section 3.5.2, the Titleholder
unconditionally and irrevocably undertakes to issue and deliver all
public and private documents that may be required to formalize the
transfer of the Mineral Rights in favor of the Optionee, within a
maximum of twenty (20) calendar days following receipt of the Notice
thereof. Any delay by the Titleholder in signing the documents that
the Optionee may require upon the exercise of the Option, shall
automatically extend the Lease Term referred to in sub-section 5.3,
until such time as the Titleholder signs the documents in question.



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	3.6	 	Payment of the Transfer Price
	 
	 	 	The balance of the Transfer Price shall be equal to the difference between
the Transfer Price and the aggregate Deposits delivered to the Titleholder
by the Optionee. This amount shall be paid to the Titleholder at the time
the public deed containing the Transfer Agreement is signed by the
Parties.
	 
	3.7	 	Work Expenditures




	 	3.7.1	 	The Optionee is committed to make work expenditures in
relation to the Mineral Rights, being entitled to make any
expenditures in exploration directly or through its agents and
contractors, as may be decided by the Optionee as follows:




	 	(a) US$60,000	 	During the first year counted as of the date of signing the
contract on surface rights referred to under section 4 and
subject to the approval of the exploration project pursuant
to the Environmental Regulations.
	 
	 	(b) US$100,000	 	During the second year counted as of the date the Parties
sign the public deed that contains this Agreement, provided
that the Optionee has executed the contracts on surface
rights referred to under section 4 and subject to the
approval of the exploration project pursuant to the
Environmental Regulations.
	 
	 	(c) US$150,000	 	During the third year counted as of the date the Parties
sign the public deed that contains this Agreement, provided
that the Optionee has executed the contracts on surface
rights referred to under section 4 and subject to the
approval of the exploration project pursuant to the
Environmental Regulations.




	 	 	 	The Work Expenditures shall be incurred at the Optionee’s discretion
and cost pursuant to this sub-section 3.7 and the Exhibit “A”. The
Optionee has the right to accelerate completion at its own
discretion.
	 
	 	3.7.2	 	Statements




	 	 	(a)	 	Within ninety (90) days following the expiry of each
anniversary referred to in sub-section 3.7.1, the Optionee shall
provide the Titleholder a statement of the Work Expenditures
incurred. The Titleholder, prior agreement with the Optionee,
may carry



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	 	 	 	 	out an accounting audit regarding the documentation in support
of the Work Expenditures made, at its own cost. The Titleholder
shall deliver a Notice to the Optionee containing the detailed
results of the accounting audit. Any difference between the
Work Expenditures in the statements provided by the Optionee,
and the amount determined as a result of the accounting audit,
unless not objected by the Optionee within a twenty five (25)
day term, shall be considered as Work Expenditure for the
following year.
	 
	 	 	(b)	 	Any and all investment incurred by the Optionee in
addition to the annual Work Expenditure for a given year shall
be deemed as an investment on account for the following year.
	 
	 	 	(c)	 	If by any reason, the Optionee does not carry out the
annual Work Expenditure for a given year, the balance between
the Work Expenditures determined pursuant to sub-section 3.7.1
and the total amount of the Work Expenditure carried out during
such period, shall be deemed a Work Expenditure of the following
year.
	 
	 	 	(d)	 	The term to make the Work Expenditures may be
extended according to sub-sections 4.2. and 6.3 of this
Agreement.




	 	3.7.3	 	The Work Expenditures shall be carried out by the Optionee at
its own cost, responsibility and discretion, pursuant to Exhibit “A”
of this Agreement.




	3.8	 	Termination of the Option




	 	3.8.1	 	The Optionee may terminate the Option at any time during the
Option Term by giving a termination Notice to the Titleholder via
public notary, as provided under sub-section 3.3.2. Upon termination
of the Option Agreement, the delivery of Deposits pursuant to
sub-section 3.4 and any other right or obligation under this
Agreement shall cease.
	 
	 	3.8.2	 	Upon delivery of the termination Notice, or failure to
exercise the Option within the Option Term, the Titleholder shall
issue and deliver a receipt for the aggregate amount of Deposits
received from the Optionee. The receipt shall be issued within twenty
(20) days following delivery of the termination Notice or on the date
of signing of the public deed that formalizes the termination of the
Option, whichever occurs first.



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FOURTH: CONTRACTS FOR ACCESS TO SURFACE LANDS




	4.1	 	Pursuant to article 7 of the Land Act, the Optionee will enter into
agreements with owners of surface lands located within or outside the
external boundaries of the Mineral Rights that may be deemed necessary to
obtain access to the Mineral Rights for performance of the exploration
works.
	 
	4.2	 	Any delay or impediment for entering into these agreements is a cause of
Force Majeure to be communicated to the Titleholder as soon as reasonably
possible. This will allow the Optionee to suspend the Option Term and the
Lease Term referred to in sub-sections 3.3 and 5.34 of this Agreement,
respectively. The Titleholder agrees to provide its full support to the
Optionee insofar for this purpose.



FIFTH: LEASE AGREEMENT




	5.1	 	Lease of the Mineral Rights
	 




	 	5.1.1	 	The Titleholder hereby exclusively leases the Mineral Rights
to the Optionee, for exploration purposes, in accordance with Article
166 of the General Mining Act, for the term provided in sub-section
5.3.
	 
	 	5.1.2	 	By the lease, the Optionee is assigned with all of the
Titleholder’s rights as concession holder of the Mineral Rights,
being the Optionee entitled to determine, at its own discretion, the
programmes and budgets.




	5.2	 	Consideration for the Lease
	 
	 	 	The consideration for the lease of the Mineral Rights is US$4,500.00
(four thousand five hundred Dollars), including VAT. The Optionee will
pay the consideration for the lease at the time of signing this
Agreement, with no more proof that the Titleholder  ́s signature in this
document.
	 
	5.3	 	Lease Term




	 	5.3.1	 	Lease Term for Pechereque mineral right
	 
	 	 	 	The term of the mining lease of the Pechereque mineral right is
thirty-six (36) months counted as of the date on which the public
deed that contains this Agreement (“Lease Term”) is signed by both
Parties.



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	 	5.3.2	 	Lease Term for Pechereque 10 and Pechereque XII mineral rights
The term of the mining lease of the Pechereque 10 and Pechereque XII
mineral rights is thirty-six (36) months counted as of the date on
which the condition precedent referred to under sub-section 5.6 is
verified (“Lease Term”).
	 
	 	5.3.3	 	The Lease Term is mandatory for the Titleholder and voluntary
for the Optionee. The Optionee may therefore terminate the Lease
Agreement at any time by giving Notice of its decision to the
Titleholder via public notary.




	5.4	 	Rights and Obligations of the Optionee under the Lease Agreement




	 	5.4.1	 	Exploration Works
	 
	 	 	 	The Optionee is entitled to:




	 	(a)	 	Start and carry out exploration works at any time in
accordance with the programs and budgets to be determined by the
Optionee, and apply for the necessary permits and approvals
before the competent authorities.
	 
	 	(b)	 	Apply for or acquire mineral rights in areas adjacent
to the Mineral Rights, which, if applied for or acquired, shall
not be part of this Agreement.
	 
	 	(c)	 	Obtain from the Mineral Rights the quantities of ores
or other materials that may be deemed appropriate for the
evaluation of the Mineral Rights or for the completion of a
feasibility study, being authorized to dispose of them freely,
at its own discretion. As regards to the portions of cores
and/or samples obtained from drilling operations, the Optionee
is authorized to freely dispose of up to fifty percent (50%)
thereof, keeping control thereof in accordance with the
provisions of the General Mining Act.




	 	5.4.2	 	Environmental Obligations
	 
	 	 	 	The Optionee hereby agrees to comply with the Environmental
Regulations in the course of its exploration activities.



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	 	5.4.3	 	Licence Fees




	 	(a)	 	The Titleholder is responsible for payment of the
Licence Fees for the Mineral Rights for the years 2001 and 2002,
as the case may be.
	 
	 	(b)	 	The Optionee will pay the Licence Fees for the
Mineral Rights pursuant to article 59 of the Mining General Act,
while the Lease Agreement remains in force.




	 	5.4.4	 	Delivery of Documentation
	 
	 	 	 	The Optionee shall deliver copies of receipt of payment of the
Licence Fees and of the annual consolidated statement to the
Optionee. These documents shall be made available to the Titleholder
within thirty (30) days following delivery to the National Institute
of Mining Concessions and Cadaster or the Ministry of Energy and
Mines, as the case may be.




	5.5	 	Termination of the Lease




	 	5.5.1	 	The Optionee may terminate the Lease Agreement at any time
during the Lease Term by giving Notice of its decision to the
Titleholder via public notary, pursuant to sub-section 5.3.3. As of
delivery of the termination Notice referred to under this sub-section
5.5.1, any and all the rights and obligations of the Parties shall
cease immediately, except for those contained under sub-section
5.5.2.
	 
	 	5.5.2	 	Upon termination of the Lease Agreement, the Optionee will
remove all facilities, tubing and piping, improvements, machinery,
equipment, tools, supplies, constructions, and other assets installed
or placed in the Mineral Rights, within six (6) months following
receipt of the termination Notice.
	 
	 	5.5.3	 	The termination of the Option pursuant to sub-section 3.3.2,
shall cause the immediate termination of the Lease Agreement referred
to under this section 5.




	5.6	 	Condition




	 	5.6.1	 	It is a condition precedent to the Lease Agreement of the
Pechereque 10 mineral right, the approval of the title to mining
concession granted by the National Institute of Mining Concessions
and Cadaster.



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	 	5.6.2	 	It is a condition precedent to the Lease Agreement of the
Pechereque XII mineral right, the approval of the title to mining
concession granted by the National Institute of Mining Concessions
and Cadaster.
	 
	 	5.6.3	 	By virtue of the resolution approving title to each of the
mining concessions, and once such resolutions are deemed final and is
recorded with the Public Registry, the Optionee is hereby authorized
to sign all the public and private documentation that may be
required, and to carry out all the recording proceedings before the
Public Registry, to give publicity to compliance with the condition
imposed on the Pechereque 10 and Pechereque XII mineral rights’
Lease, pursuant to Exhibit “B”, without requiring the Titleholder’s
intervention.



SIXTH: COMMON PROVISIONS APPLICABLE TO THE OPTION AGREEMENT AND LEASE AGREEMENT




	6.1	 	Applicable Law
	 
	 	 	The Parties hereby agree to be bound by the terms and conditions of this
Agreement and, if needed, by the provisions of the General Mining Act and
the Civil Code.
	 
	6.2	 	Arbitration




	 	6.2.1	 	Any dispute, controversy or claim arising out of or relating
to the execution of the public and private documents relating to the
exercise of the Option and the subsequent formalization of the
transfer of the Mineral Rights shall be settled by the judges and
courts of the Judicial District of Lima, to which jurisdiction the
Parties hereby submit to.
	 
	 	6.2.2	 	Any dispute, controversy or claim arising out of or relating
to the Option Agreement and/or the Lease Agreement, the execution,
object, subscription, validity, interpretation, breach or termination
thereof, except as provided in sub-section 6.2.1, shall be settled by
arbitration of law in accordance with the applicable law. The ruling
shall be final and binding. All Notices relating to the arbitration
process, including the Notice of arbitration and the response
thereto, may be served as provided under sub-section 6.5 of this
Agreement.
	 
	 	6.2.3	 	There shall be one arbitrator appointed by the Parties within
thirty (30) calendar days after receipt of a Notice of arbitration.
If the Parties fail to agree on a single arbitrator within that term,
there shall be three arbitrators. Each Party will appoint one
arbitrator and the two arbitrators so appointed will elect the third
arbitrator, who will preside the arbitration tribunal.



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	 	6.2.4	 	If within thirty (30) calendar days after receipt of a Party’s
Notice of appointment of an arbitrator, the other Party has not
notified the first Party of its appointment of an arbitrator, or if
within thirty (30) calendar days of the appointment of the second
arbitrator the Parties have not reached an agreement on the third
arbitrator, the third arbitrator will be chosen by the National
Institute of Mining Petroleum and Energy Law (Instituto Nacional de
Derecho de Minería, Petróleo y Energía). This decision shall be final
and binding.
	 
	 	6.2.5	 	As regards to any intervention of the judiciary that may be
required or specified in the applicable law, the Parties hereby
submit to the jurisdiction of the Judges and Courts of the Judicial
District of Lima — Cercado.




	6.3	 	Force Majeure




	 	6.3.1	 	All the obligations under the Option Agreement and/or the
Lease Agreement may be suspended, and the terms thereof shall be
extended, during any event of force majeure or Act of God
(indistinctly, “Force Majeure”) duly communicated to the other Party
by the affected Party. The Notice of force majeure shall contain
reasonably full particulars of the event of force majeure, the
reasons thereof, and estimated period of suspension. The affected
Party shall resume its obligations as soon as reasonably possible.
	 
	 	6.3.2	 	“Force Majeure” means any extraordinary, unforeseeable and
irresistible event which, even if foreseeable, is beyond the
reasonable control by the affected Party and that prevents, impedes,
or delays fulfillment by the affected Party of its obligations
hereunder, including, but not limited to, regional or national
strikes, acts of God, orders, mandates, instructions or resolutions
of government or governmental agencies restricting or affecting the
performance of the proposed work in the Mineral Rights, judicial,
administrative or arbitral decisions or resolutions of any rank or
hierarchy;, inability to obtain on reasonably acceptable terms any
private or public exploration right, licenses, permits or
concessions; failure to obtain in reasonable terms any rights of
access pursuant to section 4, suspension or curtailment of the
exploration works due inability to exercise the access rights
pursuant to section 4, in reasonable terms for the Optionee;
suspension or curtailment of the activities to remedy or avoid an
actual or alleged, present or future, violation of the environmental
laws; delay in obtaining approval for the exploration project or the
environmental permit referred to under the Environmental Regulations;
acts of war, whether declared or undeclared, terrorism, riots,
commotion or civil war, disorders, seditions, insurrection or
rebellion, fires, explosions,



14








 





	 	 	 	earthquakes, natural disasters, storms, floods, droughts, adverse
climatological conditions other than those considered normal.
	 
	 	6.3.3	 	Except as provided for below, any Party shall have the right
to terminate this Agreement if the period of Force Majeure extends
for more than a year. The Party who decides to terminate the Option
Agreement and the Lease Agreement given that the term of Force
Majeure continues for more than one year, shall notify its decision
to the other Party. If the Titleholder is the Party who decides to
terminate the Agreement (provided it does not contribute to the cause
of the Force Majeure), the Optionee shall have the right to exercise
the Option within thirty (30) days following receipt of Notice,
pursuant to sub-section 3.6.




	6.4	 	Assignment — Authorizations
	 
	 	 	Pursuant to articles 1435 of the Civil Code and 166 of the General Mining
Act, the Optionee is hereby expressly authorized to assign its interest in
the Option Agreement and/or the Lease Agreement, in whole or in part, and
on the same terms and conditions hereof. In such case, the successor will
be subject to the same terms and conditions hereof.
	 
	6.5	 	Notices
	 
	 	 	All notices, offers, summons, petitions, and communications in general
(“Notice”) between the Parties in connection with the Option Agreement or
the Lease Agreement shall be in writing, delivered to the addresses
specified below, and considered effective on the date of reception,
receipt acknowledged, or on the date of delivery via notary. If not
received on a business day, the notice shall be considered received the
following business day. Any change of address, telephone, or facsimile
shall be communicated to the other Party via notary or with
acknowledgement of receipt five days prior thereto, otherwise any Notice
addressed to the former address shall be deemed delivered.




	 	 	 	 	 	 	 
	a)	 	OPTIONEE:	 	BEAR CREEK MINING COMPANY SUCURSAL DEL PERÚ
	 	 	 	 	Address:
	 	Calle Monteflor No. 460, Urbanización Valle

Hermoso, Santiago de Surco, Lima 33 — Perú
	 	 	 	 	Telephone:

Facsimile:
	 	(51 1) 372 5765

(51 1) 372 8070
	b)	 	
TITLEHOLDER:
	 	FELIX FAUSTINO ELÍAS FARFÁN

RAQUEL AMALIA VERA TORRES
	 	 	 	 	Address:
	 	Laureano Martinez 134 San Miguel, Lima 32.



15








 




	6.6	 	Taxes
	 
	 	 	Each Party will be responsible for the applicable tax obligations.
	 
	6.7	 	Confidentiality




	 	6.7.1	 	All the facts, reports, registers and other information of any
kind developed or acquired by the Titleholder as a result of the
performance of this Agreement shall be kept by the Titleholder as
strictly confidential (“Confidential Information”), and such
Confidential Information shall not be revealed or divulged in other
way to third Parties if there is no prior written consent from the
Optionee.
	 
	 	6.7.2	 	In the event that the Titleholder is required to disclose
Confidential Information to any competent governmental entity and/or
its dependencies, to the extent required by law or in response to a
legitimate request for such Confidential Information, the Titleholder
must immediately send Notice to the Optionee of the requirement and
its terms before the divulgation. The Optionee shall have the right
to object, to the agency concerned, to such disclosure and to seek
confidential treatment of any Confidential Information to be
disclosed.




	6.8	 	Expenditures
	 
	 	 	The Optionee shall bear all notarial and registration fees required to
formalize this Agreement into a public deed and to have it recorded with
the Public Registry.



Mr. Notary: Please add the legal formalities hereto and file notice to the
Public Mining Register for registration of this document. Signed in three
identical counterparts in Lima, on the 3rd day of June, 2002.


BEAR CREEK MINING COMPANY, SUCURSAL DEL PERU

By: “Andrew Swarthout”

Position: General Manager


 


FELIX FAUSTINO ELIAS FARFÁN

“Felix Faustino Elias
Farfán”


 


RAQUEL AMALIA VERA TORRES

“Raquel Amalia Vera Torres”

16








 


EXHIBIT “A”

Expenditures



Expenditures in Exploration include:



	 	1.	 	Payroll costs comprising salaries, wages and all other benefits
paid to or on account of employees plus associated on-costs covering
payroll taxes, long service leave, superannuation, provident fund,
annual leave, sick leave, workers compensation, public holidays.
	 
	 	2.	 	Overheads comprising all other costs of a general nature not
otherwise in this annex and/or all costs as defined herein but of a
nature that they cannot be specifically allocated directly to the
operations to a maximum of 10% of all other project Expenditure.
	 
	 	3.	 	The cost of food, messing and accommodation for or in
connection with field and camp operations including camp
establishment, additions and improvements.
	 
	 	4.	 	Costs and expenses including sums paid or to be paid to or on
account of contractors and advisors, for or in connection with:




	 	•	 	sampling;
	 
	 	•	 	trenching;
	 
	 	•	 	field surveying;
	 
	 	•	 	geophysics;
	 
	 	•	 	geochemistry;
	 
	 	•	 	aerial mapping and photography;
	 
	 	•	 	chartered aircraft (including helicopters);
	 
	 	•	 	drilling – diamond, percussion and auger;
	 
	 	•	 	laboratory assaying;
	 
	 	•	 	laboratory geochemical (samples);
	 
	 	•	 	metallurgical testing;
	 
	 	•	 	field mapping and investigations;
	 
	 	•	 	Costs in engineering studies; and
	 
	 	•	 	Costs related with the preparation of the feasibility study.




	 	5.	 	The net cost of establishing and maintaining such temporary
field officers and on-site construction offices as may be required
for or in connection with operations, including office supplies,
telephone, telex and telegraph charges and other office operating
costs, and construction, maintenance and operation of store houses,
machine shops and other facilities.
	 
	 	6.	 	The cost of all expendable materials and stores, light, power,
water, tools and the like.



17








 







	 	7.	 	The costs (including acquisition costs and rental, operating
costs and costs of repairs and maintenance) of vehicles and machinery
purchased, hired or otherwise procured for or in connection with
operations.
	 
	 	8.	 	The cost of freight for or in connection with operations.
	 
	 	9.	 	Travelling expenses of employees and contract personnel when
travelling in connection with operations. When these travelling
expenses also relate to other activities carried out, the expenses
will with respect to journeys common to both operations and other
activities be apportioned in proportion to the time spent on
operations and other activities.
	 
	 	10.	 	The costs and expenses of transportation, in the country or
abroad, of personnel and effects to and from points of residence and
the site.
	 
	 	11.	 	Handling charges in relation to equipment, supplies, plant and
machinery, including loading and unloading costs and expenses.
	 
	 	12.	 	Excise, customs and other taxes, duties, levies, royalties (if
any), imposts, deductions and other charges of whatsoever nature
(including agency fees) payable on or in respect of production or
goods purchased for or in connection with operations and all
royalties and other taxes, duties, levies, imposts, and deductions
(with the sole exception of income taxes payable by the parties)
payable to any government or governmental authority in respect of
production or operations.
	 
	 	13.	 	First aid and safety costs and expenses incurred for or in
connection with operations.
	 
	 	14.	 	All insurance coverage reasonably obtained or maintained in
relation to operations.
	 
	 	15.	 	Legal, audit and consulting fees expended solely and
exclusively for or in connection with operations.
	 
	 	16.	 	When used in relation to the operations, depreciation at usual
rates on:




	 	•	 	building;
	 
	 	•	 	vehicles;
	 
	 	•	 	camp accommodation and equipment;
	 
	 	•	 	furniture and fittings;
	 
	 	•	 	drilling equipment;
	 
	 	•	 	geophysical equipment;
	 
	 	•	 	laboratory equipment;
	 
	 	•	 	sundry equipment; and
	 
	 	•	 	other fixtures and chattels.




	 	17.	 	All costs and expenses associated with the acquisition and
maintenance of title to the Mineral Rights area including but not
limited to rents, rates, survey fees and labor exemption fees.



18








 







	 	18.	 	Any charge, fee, payment or other consideration payable in
respect of any consent, approval or authority required for the
purposes of this agreement and payments, if any, of compensation.
	 
	 	19.	 	Save and except to the extent, if any, that the same are
recovered under any insurance carried by the Optionee all costs and
expenses reasonably incurred in or in relation to the replacement or
repair of damages or losses incurred by fire, flood, storm, theft,
accident or any other cause.
	 
	 	20.	 	Any other costs incurred or payments made in negotiation
pursuant in connection with surface rights located inside or outside
the boundaries of the Mineral Rights, pursuant to section 4 of this
Agreement, or any payments made to the surface owners or possessors
under such agreements.



19








 






EXHIBIT “B”

COMPLIANCE WITH THE CONDITION PRECEDENT



Mr. Notary:


Please enter in your Registry of Public Deeds one recording the Statement of
Completion of Condition, hereinafter referred to as the “Affidavit” issued and
delivered by BEAR CREEK MINING COMPANY — SUCURSAL DEL PERU, registered in
entry 1, file No 41289 of the Public Mining Registry, duly represented by it’s
general manager Andrew T. Swarthout, identified with foreign identity card
N114755, whose faculties are registered as entry 1, file 41289, domiciled at
calle Monteflor No 460, Urbanización Valle Hermoso, Santiago de Surco, Lima 33,
hereinafter referred to as “OPTIONEE”; on the following terms and conditions:



	1.	 	BACKGROUND
	 
	1.1	 	On March 3, 2002, Felix Faustino Elias Farfan and Raquel Amalia Vera
Torres, hereinafter collectively referred to as the “Titleholder” and the
Optionee entered into an Option and Lease Agreement with regard to the
mineral rights namely Pechereque, code 01-00822-01, Pechereque 10, code
01-00717-02 and Pechereque XII, code 01-00836-02.
	 
	1.2	 	Pursuant to sub-section 5.6 of the Option and Lease Agreement referred to
in sub-section 1.1, the mining lease of Pechereque 10 and Pechereque XII
mineral rights was signed subject to a condition precedent regarding the
final approval of each title to mining concession to be granted by the
National Institute of Mining Concessions and Cadaster (“Instituto Nacional
de Concesiones y Catastro Minero”)
	 
	1.3	 	On xxx, the National Institute of Mining Concessions and Cadaster, issued
the resolution RJ Noxxx, granting the Titleholder title to mining
concession to xxx, code xxx.
	 
	1.4	 	On xxx and pursuant to Article 124 of the Single Revised Text of the
General Mining Act, approved by Supreme

Decree 014-92-EM, the National
Institute of Mining Concessions and Cadaster published in the official
gazette “El Peruano” the list of the mining concessions which title had
been approved during the month of xxx of the year xxx, including
resolution RJ Noxxx.
	 
	1.5	 	On xxx, the competent agency of the National Institute of Mining
Concessions and Cadaster confirmed that the resolution RJ Noxxx, was final
(and had not been challenged by third parties).



20








 







	2.	 	PURPOSE OF THE AGREEMENT
	 
	 	 	Pursuant to sub-section 5.6 of the Option and Lease Agreement executed on
June 3, 2002, the Optionee issues and delivers this document to give
publicity to the compliance of the condition precedent and to give full
effect to the lease agreement of the xxxx mining concession.
	 
	3.	 	Expenditures
	 
	 	 	The Optionee shall bear the cost of all the notarial and registration fees
required to formalize this agreement into a public deed and to have it
registered with the Public Registry.



Mr. Notary: Please add the legal introduction and conclusion, inserting the
resolution of the approval of the title to mining concession xxx, given by the
National Institute of Mining Concessions and Cadaster for its recording.


Lima, xxx


BEAR CREEK MINING COMPANY, SUCURSAL DEL PERÚ


By: _______________________________________

Position: General Manager


21








 



EXHIBIT “C”

TRANSFER OF THE MINERAL RIGHTS



Mr. Notary:



Please enter in your Registry of Public Deeds one recording the Option
Agreement and the Lease Agreement entered into by and between BEAR CREEK MINING
COMPANY — SUCURSAL DEL PERU, with RUC No20473955939, registered in entry 1,
file No 41289 of the Public Mining Registry, duly represented by it’s general
manager Andrew T. Swarthout, identified with foreign identity card N114755,
whose faculties are registered as entry 1, file 41289, domiciled at calle
Monteflor No 460, Urbanización Valle Hermoso, Santiago de Surco, Lima 33,
hereinafter referred to as “OPTIONEE”; on one side; and, on the other side
FÉLIX FAUSTINO ELÍAS FARFÁN, identified with DNI No22074535, and his wife
RAQUEL AMALIA VERA TORRES, identified with DNI No22075665, both domiciled at
Laureano Martínez 134, San Miguel, Lima 32, hereinafter collectively referred
to as the “TITLEHOLDER”; on the following terms and conditions:


FIRST: DEFINITIONS



For the purposes hereof and of the preceding recitals, the following words and
expressions shall have the following meanings:



	1.1	 	“Mineral Rights”, means the following mining concessions:




	 	a)	 	Pechereque, code 01-00822-01, with an extent of 200 hectares,
located in the department of Ica, which title to mining concession
was given to Felix Faustino Elías Farfán and approved by resolution
RJ No 01412-2001-INACC/J, issued by the National Institute of Mining
Concessions and Cadaster (Instituto Nacional de Concesiones y
Catastro Minero) on December 5, 2001.
	 
	 	b)	 	Pechereque 10, code 01-00717-02, located in the department of
Ica; and
	 
	 	c)	 	Pechereque XII, code 01-00836-02, located in the department of
Ica.




	1.2	 	“Agreement”, means this Mineral Rights’ Transfer Agreement.



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	1.3	 	“Option and Lease Agreement”, means the Option to Acquire and Lease
Agreements, entered into by and between Bear Creek Mining Company —
Sucursal del Perú and Felix Faustino Elías Farfán and Raquel Amalia Vera
Torres, dated June 3, 2002, its exhibits, amendments, clarifications or
periodical additions that may have agreed from time to time.
	 
	1.4	 	“Dollars” or “US$”, means the currency of legal tender in the United
States of America.
	 
	1.5	 	“General Mining Act”, means the Consolidated General Mining Act, approved
by Supreme Decree 014-92-EM dated June 2, 1992, and any regulations,
amendments, additions, substitutions and related laws.
	 
	1.6	 	“Notice”, means any notice, request, order, demand, offer, requirement,
or other communication authorized or required to be made under this
Agreement, as set out in sub-section 6.2.
	 
	1.7	 	“Optionee” means Bear Creek Mining Company, Sucursal del Perú, or its
successor.
	 
	1.8	 	“Party” or “Parties” means the Titleholder and the Optionee, and any
other person who may acquire any rights under this Agreement.
	 
	1.9	 	“Transfer Price” has the meaning set out in sub-section 4.1.
	 
	1.10	 	“Titleholder” means Felix Faustino Elias Farfan and Raquel Amalia Vera
Torres.



SECOND: BACKGROUND




	2.1	 	The Titleholder is the sole and exclusive concession holder of the
Mineral Rights.
	 
	2.2	 	On June 3, 2002, the Optionee and the Titleholder entered into the Option
and Lease Agreement, whereby the Titleholder granted the Optionee the
right to acquire, at its own discretion, one hundred percent (100%) of
one, some or all the mining concessions that comprise the Mineral Rights,
during a thirty six (36) month term. The Parties agreed that the
consideration for the transfer of the Mineral Rights was two hundred and
fifty thousand Dollars (US$250,000.00). Simultaneously to the option to
acquire, the Titleholder leased the Mineral Rights for exploration
purposes and for a thirty-six month term, in favor of the Optionee.
	 
	2.3	 	The Optionee has exercised its option to acquire the Mineral Rights.
Pursuant to sub-section 3.5 of the Option and Lease Agreement, the
Optionee delivered the Notice of exercise of the option



23








 





	 	 	via public notary, which acknowledgment of receipt will be inserted in
the public deed that will arise from this document.



THIRD: PURPOSE OF THE AGREEMENT



Pursuant to Articles 164 and 165 of the General Mining Act, the Parties hereby
acknowledge the transfer of the Mineral Rights in favor of the Optionee,
including all its parts and appurtenances as well as everything that de facto
or de lure pertains thereto, whether within or outside the external boundaries
of the Mineral Rights, without demanding any payment other than the agreed
herein on these or other accounts.


FOURTH: TRANSFER PRICE




	4.1	 	Pursuant to section 3.2 of the Option and Lease Agreement, the
consideration for the transfer of 100% of the Mineral Rights, is the
amount of nine hundred thousand Dollars (US$900,000.00).
	 
	4.2	 	Pursuant to sub-section 3.4.1 of the Option and Lease Agreement, the
Deposits delivered to the Titleholder are the aggregate amount of US$XXXX.
The balance of the Transfer Price to be paid to the Titleholder is
therefore US$XXXXX.



FIFTH: REPRESENTATIONS AND WARRANTIES




	5.1	 	The Titleholder hereby represents and warrants that:




	 	a)	 	At the time of the signing this agreement, the Mineral Rights
are in good standing, free from any liens, encumbrances, charges, and
there is no legal or extra-judicial order or agreement that affects
or limits their free transferability; that the License Fees (“Derecho
de Vigencia”) have been duly paid, having the Titleholder complied
with all formal obligations applicable to the Mineral Rights under
the General Mining Act. and other applicable laws.
	 
	 	b)	 	That in the ordinary course of business relating to the Mineral
Rights or during the exploration and/or exploitation activities
carried out before the execution of the Option and Lease Agreement,
the Titleholder has not infringed any law, regulation or permit
relating to activities as concession holder, nor infringed any
environmental law or the health safety regulation applicable to the
Mineral Rights.



24








 







	 	c)	 	That during the term of the Option and Lease Agreement, the
Titleholder has not agreed, permitted or disposed under any title, by
action or inaction, the constitution or maintenance of any creditor,
legal or extra-judicial order, lien, encumbrance or any other real or
personal right over the Mineral Rights, or over any part of them,
that may affect the Mineral Rights or this agreement; and has not
carried on activities of any kind in the Mineral Rights, or has
compromised the validity, existence or title to the Mineral Rights.
	 
	 	d)	 	That it will defend and hold the Optionee harmless of any
responsibility or obligation, lost, costs, expenses, damages and
demands, including, without limitation, damages to third persons,
damages to property, reclamation costs of damages caused to the
environment and third parties that may result from the activities
carried out by the Titleholder prior to the execution of the Option
and Lease Agreement.
	 
	 	e)	 	At the time of signing this Agreement and/or executing its
obligations under this Agreement, the Titleholder does not violate,
infringe and/or breaches any other agreement, contract or obligation
with third persons and that it has disposed of, transferred or
institute any lien or encumbrance over the Mineral Rights and that no
offer, counteroffer or negotiation with third parties has concluded
in a contract pursuant to Articles 1359 and 1376 of the Civil Code.
	 
	 	f)	 	That the Titleholder hereby agrees with the execution and
performance under the Option and Lease Agreement and with the terms
hereof.




	5.2	 	The Optionee hereby represents and warrants that it is a branch duly
established under the laws of Peru and that has full power and authority
to execute this Agreement.



SIXTH: OTHER PROVISIONS




	6.1	 	Applicable Law
	 
	 	 	The Parties hereby agree to be bound by the terms and conditions of this
Agreement and, if needed, by the provisions of the General Mining Act and
the Civil Code.
	 
	6.2	 	Notices
	 
	 	 	All notices, offers, summons, petitions, and communications in general
(“Notice”) between the Parties in connection with this Agreement shall be
in writing, delivered to the addresses specified below, and considered
effective on the date of reception, receipt acknowledged, or on the date
of



25








 





	 	 	delivery via notary. If not received on a business day, the notice shall
be considered received the following business day. Any change of address,
telephone, or facsimile shall be communicated to the other Party via
notary or with acknowledgement of receipt five days prior thereto,
otherwise any Notice addressed to the former address shall be deemed
delivered.




	 	 	 	 	 	 	 
	a)	 	
OPTIONEE:
	 	BEAR CREEK MINING COMPANY SUCURSAL DEL PERÚ
	 	 	 	 	Address:
	 	Calle Monteflor No. 460, Urbanización Valle

Hermoso, Santiago de Surco, Lima 33 — Perú
	 	 	 	 	Telephone:

Facsimile:
	 	(51 1) 3725765

(51 1) 3728070
	b)	 	
TITLEHOLDER:
	 	FELIX FAUSTINO ELÍAS FARFÁN

RAQUEL AMALIA VERA TORRES
	 	 	 	 	Address:
	 	Laureano Martinez 134 San Miguel, Lima 32.




	6.3	 	Expenditures
	 
	 	 	The Optionee shall bear the cost of all the notarial and registration fees
required to formalize this agreement into a public deed and to have it
registered with the Public Registry.



Mr. Notary: Please add the legal introduction and conclusion, inserting the
Notice of exercise of the Option, hereto and file notice to the Public Mining
Register for registration of this document. Signed in two identical
counterparts in Lima, on the XXXX day of XXXXX, XXXX.


BEAR CREEK MINING COMPANY, SUCURSAL DEL PERU



By:_____________________________

Position: General Manager





FELIX FAUSTINO ELIAS FARFÁN



____________________________________





RAQUEL AMALIA VERA TORRES



____________________________________



26