Unassociated Document


    EXHIBIT
      10.2

     

    OPTION
      AGREEMENT

     

    THIS
      OPTION AGREEMENT is made and entered into effective as of July 28, 2006 by
      and between Elkhorn Goldfields, Inc., a Montana corporation, whose address
      is
      320 West Main Street, Aspen, Colorado 81611 (“EGI”),
      and
      Montana Tunnels Mining, Inc., a Delaware corporation, whose address is P.O.
      Box
      176, Jefferson City, Montana 59638 (“MTM”).
      EGI
      and MTM will be collectively referred to hereinafter as the “Parties”
and
      each will be referred to individually as a “Party”.

     

    RECITALS

     

    A. MTM
      is
      the owner of certain patented mining claims and unpatented mining claims in
      Broadwater County, Montana, and holds a leasehold interest in certain additional
      unpatented mining claims in Broadwater County, Montana, all as more particularly
      described in Exhibit A
      attached
      hereto and incorporated by reference (the “Property”).
      A
      previously operating gold mine known as the Diamond Hill Mine (the “Mine”)
      is
      located on the Property. MTM is also the owner of certain personal property
      rights and interests associated with the Mine (the “Assets”),
      as
      described in Exhibit B
      attached
      hereto and incorporated herein by reference.

     

    B. MTM
      desires to grant to EGI, and EGI desires to acquire: (i) an exclusive right
      to explore and evaluate the mineral development potential of the Property;
      and
      (ii) an option to purchase the Property from MTM, all for the consideration
      and upon the terms and conditions described herein.

     

    AGREEMENT

     

    NOW,
      THEREFORE, for and in consideration of the claim maintenance and tax payment
      requirements set forth in this Agreement, and the mutual promises, covenants,
      and conditions herein contained and recited, and other good and valuable
      consideration, the receipt and sufficiency of which are hereby acknowledged
      and
      confirmed, the Parties hereto agree as follows:

     

    ARTICLE
      1

    DEFINITIONS

     

    As
      used
      in this Agreement, the following terms shall have the meanings assigned to
      them
      in this Article 1.

     

    	1.1  	
            “Affiliate”
              means any person, partnership, joint venture, corporation or other
              form of
              enterprise which directly or indirectly controls, is controlled by,
              or is
              under common control with, a Party to this Agreement. For purposes
              of the
              preceding sentence, “control”
              means possession, directly or indirectly, of the power to direct or
              cause
              direction of management and policies through ownership of voting rights.
              

          


     

    
      
         

      

      
        F-1

        
          

        

      

      
         

      

    

     

    	1.2  	
            “Agreement”
              means this Option Agreement, the recitals and all exhibits attached
              hereto
              and by this reference incorporated
              herein.

          


     

    	1.3  	
            “Asset
              Records”
              means all records and files of MTM pertaining to the Mine, the Assets
              and
              the Property, other than Retained Records. Except to the extent such
              materials constitute Retained Records, and except to the extent that
              providing such materials would be in violation of applicable Laws,
              Asset
              Records include all available property, geological, geophysical,
              geochemical, metallurgical and engineering reports, analyses, data,
              maps
              and records pertaining to the Assets, the Mine, and the Property; all
              mill, processing and smelter records; all assays, surveys, technical
              reports, drill logs and samples; all records pertaining to Permits
              and
              environmental conditions at or affecting the Property; and all title
              records and conveyance documents held by MTM with respect to the Property;
              excluding any interpretive data or reports that are proprietary to
              or
              constitute trade secrets of MTM or any third
              party.

          


     

    	1.4  	
            “Assumed
              Liabilities”
              means all of the past, present and future obligations and liabilities
              (whether known or unknown, fixed or contingent) associated with the
              Property, the Mine, and the Assets.

          


     

    	1.5  	
            “Assumption
              Agreement”
              means the Assumption Agreement in the form of Exhibit D
              hereto, pursuant to which EGI will assume and be solely responsible
              for
              the Assumed Liabilities.

          


     

    	1.6  	
            “Bill
              of Sale”
              means a Bill of Sale and Assignment substantially in the form of
              Exhibit E
              hereto,
              pursuant to which MTM will convey the Personal Property to
              EGI.

          


     

    	1.7  	
            “Effective
              Date”
              means July 28, 2006.

          


     

    	1.8  	
            “Environmental
              Compliance”
              means actions taken in connection with activities or operations on
              the
              Property to comply with the requirements of all Environmental Laws
              or
              contractual commitments related to reclamation of the Property or other
              compliance with Environmental Laws.

          


     

    	1.9  	
            “Environmental
              Laws”
              means the Comprehensive Environmental Response, Compensation and Liability
              Act of 1980, the Resource Conservation and Recovery Act of 1976, the
              Clean
              Air Act, the Clean Water Act, the Hazardous Materials Transportation
              Act,
              the Toxic Substances Control Act, the Federal Water Pollution Control
              Act,
              the Superfund Amendments and Reauthorization Act of 1986, the Safe
              Drinking Water Act, the Endangered Species Act, the National Environmental
              Policy Act, the Mine Safety and Health Act of 1977, the Federal Land
              Policy and Management Act of 1976, the Emergency Planning and Community
              Right to Know Act, and the National Historic Preservation Act, each
              as
              amended, and any state law counterparts, together with all other 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.

          


     

    
      
         

      

      
        F-2

        
          

        

      

      
         

      

    

     

    	1.10  	
            “Environmental
              Liabilities”
              means 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.

          


     

    	1.11  	
            “Exploration”
              means all activities directed toward ascertaining the existence, location,
              quantity, quality or commercial value of deposits of Valuable Minerals,
              and all related Environmental Compliance.

          


     

    	1.12  	
            “Exploration
              and Related Work”
              means and includes all operations and activities of EGI (or performed
              at
              the request of EGI) on or relating to the Property for purposes of
              determining ore reserves and mineralization, including, without
              limitation, the right to enter upon the Property for purposes of
              surveying, exploring, testing, sampling, trenching, bulk sampling in
              an
              amount not to exceed 200 tons of ore without the consent of MTM,
              prospecting and drilling for Valuable Minerals, and to construct and
              use
              roads and drill pads, and to use so much of the surface of the Property
              in
              such manner as EGI deems necessary in its reasonable discretion for
              the
              enjoyment of any rights and privileges granted to EGI hereunder or
              otherwise necessary to effect the purposes of this Agreement, and any
              reclamation and remediation required in connection with the
              foregoing.

          


     

    	1.13  	
            “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 a “hazardous waste,” “hazardous substance,”
              “extremely hazardous substance” or “pollutant” or “contaminant” under any
              Environmental Law; (c) that is 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 petroleum
              hydrocarbons; or (f) that contains PCBs, asbestos or urea formaldehyde
              foam insulation; in each case subject to exceptions provided in applicable
              Environmental Laws.

          


     

    
      
         

      

      
        F-3

        
          

        

      

      
         

      

    

     

    	1.14  	
            “Mining
              Lease”
              means that Mining Exploration and Lease Agreement dated May 26, 1999,
              among Nyla Tyrell, et al and MTM.

          


     

    	1.15  	
            “Option”
              means the exclusive right of EGI to purchase the Property pursuant
              to this
              Agreement.

          


     

    	1.16  	
            “Option
              Period”
              means the period of time commencing on the Effective Date and continuing
              for a period of two years thereafter, unless EGI has previously exercised
              the Option in accordance with Sections 2.1 and 2.2 or EGI has
              otherwise relinquished its rights
              hereunder.

          


     

    	1.17  	
            “Property”
              shall have the meaning set forth in
              Recital A.

          


     

    	1.18  	
            “Retained
              Records”
              means (i) copies of any property files of MTM pertaining to the
              Property, the Mine or the Assets; (ii) all tax returns, files and
              records of MTM pertaining to the Property, the Mine or the Assets;
              (iii) all files, records and sales materials of MTM pertaining to
              marketing and sales of production from the Mine; and (iv) all other
              files and records of MTM which do not directly relate to the Property,
              the
              Mine or the Assets.

          


     

    	1.19  	
            “Valuable
              Minerals”
              means all ores, minerals, mineral deposits or mineral substances of
              every
              kind or character located in, on or under the
              Property.

          


     

    	1.20  	
            “$”
              means United States currency.

          


     

    ARTICLE 2

    GRANT
      OF RIGHTS AND OPTION

     

    	2.1  	
            Rights
              Granted.
              MTM hereby grants to EGI:  (a) the exclusive right to enter
              upon the Property during the Option Period for the purpose of conducting
              Exploration and Related Work; and (b) the exclusive and irrevocable
              option to purchase the Property, exercisable by EGI in its sole discretion
              (the “Option”)
              by (i) paying a purchase price (if it elects to exercise the Option)
              of $250,000 plus the posting of a substitute reclamation bond, payable
              as
              set forth in Section 2.4 (the “Purchase
              Price”),
              and (ii) paying holding costs for the Property as set forth in
              Section 2.3.

          


     

    	2.2  	
            Option
              Period; Termination.

          


     

    	(a)  	
            Option
              Period.
              Unless sooner terminated pursuant to this Section 2.2, the Option
              shall expire at 5:00 p.m. Mountain time on July 28, 2008 (the
              “Expiration
              Date”).
              The Option may be exercised by EGI by delivery to MTM of a written
              notice
              of election to exercise the Option at any time prior to the end of
              the
              Option Period (the date such notice is effective being referred to
              hereinafter as the “Exercise
              Date”).

          


     

    	(b)  	
            Termination.
              In the event EGI desires to terminate this Agreement, which EGI may
              elect
              to do in its sole discretion at any time during the Option Period,
              EGI may
              terminate this Agreement by giving MTM written notice of termination,
              and
              this Agreement shall be deemed terminated immediately upon receipt
              by MTM
              of the notice of termination. Following expiration of the Option Period
              without EGI exercising the Option, or termination of this Agreement
              for
              any reason prior to the expiration of the Option Period, neither of
              the
              Parties shall have any further obligations or liabilities hereunder,
              except as set forth in Sections 8.1 and
              8.2.

          


     

    
      
         

      

      
        F-4

        
          

        

      

      
         

      

    

     

    	2.3  	
            Property
              Maintenance.
              During the Option Period, in order to maintain the Option in full force
              and effect, EGI shall, at least 15 days prior to their respective
              completion or due dates, (a) perform required annual assessment work
              (in good faith and in accordance with industry standards) or pay all
              claim
              maintenance fees required in lieu thereof to maintain the unpatented
              mining claims comprising a portion of the Property (the “Claims”),
              and provide reasonable evidence of such payment or performance to MTM;
              (b) make all filings and recordings with the Bureau of Land
              Management (the “BLM”)
              and Broadwater County required in connection therewith,
              and provide copies of such filings and recordings to MTM; (c) pay all
              real property and other ad valorem taxes assessed against the
              Property; and (d) pay all rental and advance royalty payments
              required under the Mining Lease. If EGI fails to make the payments
              or
              perform the obligations set forth in items (a) - (d) above, and to
              provide MTM with evidence of payment or performance of the same, not
              later
              than 15 days prior to their respective completion or due dates, MTM
              may,
              but shall have no obligation to, pay or perform the same and terminate
              this Agreement pursuant to
              Section 8.2.

          


     

    	2.4  	
            The
              Closing.
              If EGI exercises the Option in accordance with the terms of this
              Agreement, the closing of the sale of the Property (the “Closing”)
              shall take place within 30 days after the written notice of election
              to exercise the Option is delivered by EGI to MTM, at a time and place
              mutually agreeable to EGI and MTM. 

          


     

    	(a)  	
            Deliverables.
              

          


     

    	(i)  	
            At
              the Closing, MTM shall deliver to EGI:  (a) a fully
              executed and acknowledged good and sufficient special warranty deed
              and
              assignment substantially in the form of Exhibit C
              attached hereto and incorporated herein by reference (the “Deed”),
              conveying the Property to EGI free and clear of all liens and encumbrances
              arising by, through or under MTM other than Permitted Encumbrances;
              (b) a fully executed Bill of Sale; (c) a fully-executed
              Assignment of the Mining Lease in the form of Exhibit F
              attached hereto and incorporated herein by reference; (d) a
              certificate of non-foreign status for U.S. federal tax purposes;
              (e) a fully executed Assumption Agreement; and (f) the Asset
              Records.

          


     

    	(ii)  	
            At
              the Closing, EGI shall deliver:  (a) the full amount of the
              Purchase Price, $250,000 of which shall be paid by wire transfer in
              accordance with written instructions to be delivered by MTM to EGI
              prior
              to the date of the Closing, and the remainder of which shall be payable
              by
              EGI having in place a reclamation bond or other surety instruments,
              which
              will have been as of the Closing Date accepted by the Montana Department
              of Environmental Quality (“MDEQ”) and the BLM, to (1) replace MTM’s
              existing reclamation bond covering the Property in the amount of $622,512
              (as more particularly described in Section 2.7), and (2) which will
              allow for the release, simultaneous with the Closing, of that Irrevocable
              Standby Letter of Credit No. SSB-SB-2005/0276 (DEQ Bond No. 002620-HR)
              and
              any guarantees associated therewith; (b) a fully executed Assumption
              Agreement; and (c) certificates of good standing for EGI from the offices
              of the Montana Secretary of State. In addition, each of EGI and MTM
              will
              deliver such other closing certificates and documents as are reasonably
              requested by the other Party. Closing costs, including real property
              transfer taxes, recording costs and any escrow fees will be paid by
              EGI,
              including all applicable taxes and disbursements. Any ad valorem real
              property taxes on the Property for calendar year 2006 will be split
              between MTM and EGI on a pro rata basis.

          


     

    
      
         

      

      
        F-5

        
          

        

      

      
         

      

    

     

    	2.5  	
            Geological
              and Other Data.
              Upon execution of this Agreement, MTM shall make available to EGI 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 Property, and all maps, assays, surveys, technical
              reports, drill logs, samples, mine, mill, processing and smelter records,
              and metallurgical, geological, geophysical, geochemical, and engineering
              data, and interpretive reports derived therefrom, concerning the Property
              and EGI, at its expense, may copy any such records, information and
              data
              that it desires. MTM makes no representation or warranty as to the
              accuracy, reliability or completeness of any such records, information
              or
              data, and EGI and any third parties with whom EGI shares any such data and
              information shall rely on the same at their sole
              risk.

          


     

    	2.6  	
            Transfer
              Approvals.
              Promptly after the Exercise Date, EGI agrees, in consultation with
              and
              approval from MTM, to contact the applicable governmental authorities
              and
              use commercially reasonable efforts to understand what information
              those
              governmental authorities will require in order to timely grant the
              transfer of the Permits from MTM to EGI or what information those
              governmental authorities will require EGI to submit in order for EGI
              to
              obtain replacement permits for those Permits presently held by MTM
              that
              are not transferable (provided that in making such contacts EGI shall
              comply with the confidentiality provisions set forth in
              Section 10.5). Promptly after the Exercise Date, EGI (i) shall
              file with the appropriate governmental authorities all applications
              and
              other instruments of transfer for all of the Permits which are
              transferable and subject to approval or other processing by such
              governmental authorities, including the posting and acceptance by the
              appropriate governmental authority of whatever bonds or other surety
              are
              required in connection with such approval or other processing;
              (ii) shall file with the appropriate governmental authorities all
              required notices of transfers of these Permits for which no approval
              is
              necessary; and (iii) shall file with the appropriate governmental
              authorities all applications, instruments or notices required, including
              the posting and acceptance by the appropriate governmental authority
              of
              whatever bonds or other surety are required, to obtain replacement
              permits
              for those Permits presently held by MTM that are not transferable (with
              those items referred to in sub-clauses (i), (ii) and (iii) above
              collectively referred to as the “Transfer
              Approvals”).
              EGI will diligently pursue on a commercially reasonable efforts basis
              all
              Transfer Approvals necessary to complete transfer of the Property and
              the
              Permits from MTM to EGI or obtain replacement permits in EGI’s own name as
              of the Closing Date (provided that all such Transfer Approvals shall
              be
              contingent on the consummation of the Closing), and will keep MTM apprised
              of the status of its efforts to secure such Transfer Approvals (provided
              that use of “commercially reasonable efforts” shall not require EGI to
              undertake extraordinary or unreasonable measures to obtain such Transfer
              Approvals as of the Closing Date, such as the initiation or prosecution
              of
              legal proceedings or the payment of fees in excess of normal and usual
              filing and processing fees). All of the Transfer Approvals must be
              in
              place and effective as of the Closing Date, and EGI shall have no right
              to
              conduct any activities under any permit that has not been assigned,
              transferred or re-issued to it.
              MTM agrees that it will cooperate in good faith with EGI in its efforts
              to
              obtain the Transfer Approvals.

          


     

    
      
         

      

      
        F-6

        
          

        

      

      
         

      

    

     

    	2.7  	
            Replacement
              of Bonds.
              Not later than ten days after the Exercise Date, EGI shall provide
              to the
              appropriate state and federal governmental authorities (the “Agencies”)
              a firm undertaking (such firm undertaking to include submission of
              the
              final reclamation bond on forms approved by the Agencies) acceptable
              to
              the Agencies (subject only to the payment of required premiums by EGI
              and
              the Closing) to post, effective as of the Closing Date, a reclamation
              bond
              (or other surety instrument acceptable to MTM and the Agencies) covering
              all of the existing reclamation, remediation, clean-up and closure
              obligations pertaining to the Property, which shall replace MTM’s existing
              reclamation bond covering the Property in the amount of $622,512 (as
              more
              particularly described in Section 2.7), and which will allow for the
              release, simultaneous with the Closing, of that Irrevocable Standby
              Letter
              of Credit No. SSB-SB-2005/0276 (DEQ Bond No. 002620-HR) and any guarantees
              associated therewith. From and after the Closing Date, EGI assumes,
              and
              MTM shall have no further obligation or liability for, all reclamation,
              remediation, clean-up and closure requirements associated with the
              Property.

          


     

    ARTICLE
      3

    RIGHTS
      AND OBLIGATIONS OF EGI AND OTHER

    ARRANGEMENTS
      DURING THE OPTION PERIOD

     

    	3.1  	
            EGI’s
              Rights.
              During the Option Period, the rights of EGI shall include the
              following:

          


     

    	(a)  	
            Operations
              at the Property.
              EGI may carry out such Exploration operations at the Property as it
              may,
              in its sole discretion, determine to be warranted, and EGI shall have
              the
              exclusive right to conduct and control of all Exploration and Related
              Work
              on or for the benefit of the Property, and of any and all equipment,
              supplies, machinery or other assets purchased or otherwise acquired
              in
              connection with such Exploration operations; provided,
              however,
              that during the Option Period except as provided herein, EGI shall
              have no
              right to conduct on the Property any activities related to activities
              of
              EGI on other properties, and EGI shall have no right
              to:

          


     

    	(i)  	
            conduct
              any activities in preparation for the removal and recovery of Valuable
              Minerals from the Property, including pre-stripping, stripping and
              the
              construction or installation of a mill, leach facilities, or any other
              improvements or other facilities for beneficiation of Valuable Minerals;
              or

          


     

    
      
         

      

      
        F-7

        
          

        

      

      
         

      

    

     

    	(ii)  	
            to
              remove Valuable Minerals from the Property,


          


    	 	 


    	 	except that EGI shall be permitted to recover and
            remove
            such Valuable Minerals from the Property as are reasonably required to
            carry out Exploration on the Property in accordance with usual industry
            standards, including removal of samples of Valuable Minerals for
            testing.


     

    	(b)  	
            Permits.
              The rights of EGI shall include all other rights necessary or incident
              to
              or for its performance of its activities hereunder, including, but
              not
              limited to the authority to apply in its own name for all necessary
              permits, licenses and other approvals from the United States of America,
              the State of Montana or any other governmental or other entity having
              regulatory authority over any part of the
              Property.

          


     

    	3.2  	
            Conduct
              of Operations by EGI at the Property.
              All of the work which may be performed by EGI on or with respect to
              the
              Property shall be performed in a good and workmanlike manner and in
              accordance with good industry practices.

          


     

    	3.3  	
            Indemnity.
              EGI agrees to indemnify, defend and hold MTM, its Affiliates, and their
              respective officers, directors and employees harmless from and against
              any
              and all Losses (as defined in Section 7.1) MTM may incur to third
              persons or entities for injury to or death of persons or damage to
              property which result from operations conducted by or on behalf of
              EGI at
              or with respect to the Property during the Option Period, unless such
              injury, death or damage is due to MTM’s gross negligence or willful
              misconduct.

          


     

    	3.4  	
            Insurance.
              During the Option Period, EGI agrees to carry such insurance, covering
              all
              employees of EGI working at or on the Property, as will fully comply
              with
              the requirements of the statutes of the State of Montana pertaining
              to
              worker’s compensation and occupational disease and disabilities as are now
              in force or as may be hereafter amended or enacted. In addition, during
              the Option Period, EGI agrees to carry liability insurance with respect
              to
              any operations conducted by it or on its behalf on or with respect
              to the
              Property in reasonable amounts in accordance with accepted industry
              practices. In connection with that obligation, EGI agrees that it will
              carry general liability insurance (a) with a policy limit of
              $1,000,000 (combined single limit, annual aggregate), until such time
              as
              EGI elects to conduct activities on the Property that will require
              submission to the BLM or MDEQ and approval by the BLM or MDEQ of a
              Plan of
              Operations or Mining and Reclamation Plan, and thereafter (b) with a
              policy limit of $2,000,000 (combined single limit, annual aggregate),
              and
              that MTM shall be named as an additional named insured on each of said
              policies for the foresaid amounts. Prior to conducting any work on
              the
              Property, EGI will provide to MTM a certificate evidencing the required
              amount of insurance coverage and naming MTM as an additional insured,
              which such certificate shall provide for at least thirty (30) days
              prior written notice of cancellation to EGI and to
              MTM.

          


     

    	3.5  	
            Compliance
              with Laws.
              EGI agrees to conduct and perform all of its operations on or with
              respect
              to the Property during the Option Period in compliance with all applicable
              federal, state and local laws, rules and regulations, including, without
              limitation, such laws, rules and regulations pertaining to social
              security, unemployment compensation, wages and hours and conditions
              of
              labor, and Environmental Laws, and EGI shall defend, indemnify and
              hold
              MTM, its Affiliates and their respective officers, directors and employees
              harmless from and against any and all Losses (as defined in
              Section 7.1) incurred by MTM occasioned by the failure of EGI to
              comply with said laws, rules or
              regulations.

          


     

    
      
         

      

      
        F-8

        
          

        

      

      
         

      

    

     

    	3.6  	
            Liens
              and Encumbrances.
              During the Option Period, and thereafter if EGI does not exercise the
              Option, EGI shall keep the title to the Property free and clear of
              all
              liens and encumbrances resulting from its operations under this Agreement.
              At its sole cost and expense, EGI shall contest any suit, demand or
              action
              commenced to enforce any claim of a lien or encumbrance on the Property
              and, if the suit, demand or action is decided by a court or other
              authority of ultimate and final jurisdiction against EGI or the Property,
              EGI 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.

          


     

    	3.7  	
            Reclamation.
              If this Agreement is terminated and EGI does not exercise the Option,
              EGI
              shall reclaim and remediate the Property to the extent disturbed by
              EGI
              (or at its direction) during the Option Period, in accordance with
              applicable federal, state and local laws, rules and regulations. MTM,
              to
              the extent it may legally do so, hereby agrees to grant to EGI such
              access
              to the Property following such termination as is reasonably necessary
              to
              complete such reclamation and remediation work, although MTM shall
              have no
              obligation to maintain any of the Claims after this Agreement is so
              terminated. 

          


     

    	3.8  	
            Data
              and Information.
              During the Option Period, not later than 30 days after the first and
              second anniversaries of the Effective Date, EGI shall provide to MTM
              copies of any and all data and information created by it or on its
              behalf
              and pertaining to the Property including, but not limited to,
              electronically transferred geochemical laboratory results, raw
              geophysical, geological data and information, and information and data
              represented on paper such as survey maps, drill hole logs, assay reports,
              and other non-interpretive geological data relating to the Claims,
              as well
              as copies of internal analyses of such data, excluding any such analyses
              that include trade secrets or other data or information proprietary
              to
              EGI. The data and information to be provided to MTM shall include without
              limitation copies of survey maps, drill hole logs, assay reports or
              other
              non-interpretive data (or analyses thereof) pertaining to work that
              was
              not performed on the Property if it was performed for the benefit of
              the
              Property. EGI makes no representation or warranty as to the accuracy,
              reliability or completeness of any such information made available
              to MTM
              under this Section 3.8, and MTM shall rely on the same at its sole
              risk.

          


     

    	3.9  	
            Responsibility
              for Services to the Mine.
              All charges for water, electricity, natural gas, telephone, sewer,
              trash
              disposal and other recurring services provided to the Mine which relate
              to
              such services provided subsequent to the Effective Date will be for
              the
              account of EGI. 

          


     

    
      
         

      

      
        F-9

        
          

        

      

      
         

      

    

     

    ARTICLE
      4

    REPRESENTATIONS
      AND WARRANTIES OF MTM

     

    	4.1  	
            Representations
              and Warranties.
              MTM represents and warrants to EGI as of the date hereof as follows,
              and
              covenants that these representations and warranties will be true and
              correct throughout the Option Period and through the
              Closing:

          


     

    	(a)  	
            Organization
              and Standing.
              MTM is a corporation duly organized, validly existing, and in good
              standing under the laws of the State of
              Delaware.

          


     

    	(b)  	
            Corporate
              Power.
              MTM has the requisite corporate power and authority: (i) to enter
              into this Agreement and all other agreements contemplated hereby; and
              (ii) to carry out and perform its obligations under the terms and
              provisions of this Agreement and all agreements contemplated
              hereby.

          


     

    	(c)  	
            Authorization
              and Enforceability.
              All requisite corporate action on the part of MTM, and its officers,
              directors, and shareholders, necessary for the execution, delivery,
              and
              performance of this Agreement and all other agreements of MTM contemplated
              hereby, have been taken. This Agreement and all agreements and instruments
              contemplated hereby are, and when executed and delivered by MTM (assuming
              valid execution and delivery EGI), will be, legal, valid, and binding
              obligations of MTM enforceable against MTM in accordance with their
              respective terms. The execution, delivery and performance of this
              Agreement by MTM will not violate any provision of the articles of
              incorporation or by-laws of MTM or of any law; any order of any court
              or
              other agency of government; or any provision of any indenture, agreement
              or other instrument to which MTM is a party or by which its properties
              or
              assets are bound; or be in conflict with, result in a breach of or
              constitute (with due notice and lapse of time) a default under any
              such
              indenture, agreement or other instrument. There is no law, rule or
              regulation, nor is there any judgment, decree or order of any court
              or
              governmental authority binding on MTM which would be contravened by
              the
              execution, delivery, performance or enforcement of this Agreement or
              any
              instrument or agreement required hereunder. Notwithstanding the foregoing,
              no representation is made as to: (i) the remedy of specific
              performance or other equitable remedies for the enforcement of this
              Agreement or any other agreement contemplated hereby; or (ii) rights
              to indemnity under this Agreement for securities law liability.
              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)  	
            Encumbrances.
              To MTM’s knowledge, the Property is free and clear of all encumbrances
              arising by, through or under MTM, except for Permitted Encumbrances
              and
              those liens, claims and encumbrances specifically identified in
              Exhibit A.
              Except as set forth in the mining lease identified in Exhibit A
              (the Mining
              Lease”)
              and as otherwise identified in Exhibit A,
              there are no royalties or other burdens on production affecting the
              Properties. For purposes of this Agreement, “Permitted
              Encumbrances”
              means (i)(A) liens for taxes, assessments and governmental charges or
              levies not yet due and payable; and (B) encumbrances such as
              materialmen’s, mechanics’, carriers’, workmen’s and repairmen’s liens and
              other similar liens arising in the ordinary course of business securing
              obligations that (x) are not overdue for a period of more than 60
              days and (y) are not in excess of $5,000 in the aggregate at any
              time; (ii) minor survey exceptions, easement agreements and other
              customary encumbrances on title to real property that (A) were not
              incurred in connection with any indebtedness and (B) do not have a
              material adverse effect on the value or the use of such property for
              its
              present purposes; (iii) zoning restrictions and other limitations
              imposed by any governmental authority having jurisdiction over real
              property; (iv) reservations in federal patents; (v) encumbrances
              of record (which for purposes of this Agreement shall include encumbrances
              that are reflected in the official records of the Broadwater County,
              Montana Clerk and Recorder’s Office or the Broadwater County Assessor’s
              Office, or that are reflected in the public records maintained by the
              Montana State Office of the Bureau of Land Management); (vi) as to
              those portions of the Property covered by the Mining Lease, the terms
              and
              conditions of the Mining Lease, and liens affecting the interests of
              the
              lessor under the Mining Lease; (vii) liens of pledges or deposits
              under workers’ compensation laws or similar legislation, unemployment
              insurance or other types of social security or to secure the performance
              of tenders, statutory obligations, surety and appeal bonds, bids, leases,
              governmental contracts, performance and return of money bonds and similar
              obligations; (viii) rights reserved to or vested in any governmental
              authority to control or regulate any interest in the Property in any
              manner, and all laws, rules and regulations of any governmental authority;
              and (ix) the production royalty payable to Shamrock Partners pursuant
              to that Quit Claim Deed described in Item 1 of Part 4 of Exhibit
              A.

          


     

    
      
         

      

      
        F-10

        
          

        

      

      
         

      

    

     

    	(e)  	
            Validity
              of Mining Lease.
              (i) MTM has not received any notice of default of any of the terms or
              provisions of the Mining Lease; (ii) the Mining Lease is in good
              standing; (iii) MTM has no knowledge of any act or omission or any
              condition on the properties covered thereby which could be considered
              or
              construed as a material default under the Mining Lease. MTM has delivered
              to or made available for inspection by EGI a true and correct copy
              of the
              Mining Lease.

          


     

    	(f)  	
            Title
              to Claims.
              With respect to the Claims, except as provided in Exhibit A
              and subject to the paramount title of the United States and the rights
              of
              third parties to use the surface of those Claims pursuant to applicable
              laws, to MTM’s knowledge: (i) all Governmental Fees required to
              maintain those Claims have been paid through the assessment year ending
              September 1, 2006; and (ii) evidence of payment of Governmental
              Fees, and other filings required to maintain those Claims in good standing
              have been properly and timely recorded or filed with appropriate
              governmental agencies. Nothing in this Section 4.1(f), however, shall
              be deemed to be a representation or a warranty as to the presence or
              absence of unpatented mining claims or millsites in conflict with the
              Claims, that the Claims constitute a compact group of contiguous claims
              free of interior gaps or fractions, or that any of the Claims contains
              a
              valuable mineral deposit. In addition, MTM does not make any
              representation or warranty as to whether or not MTM or its
              predecessors-in-title established or maintained pedis
              possessio
              rights with respect to any of the Claims, what rights MTM has to use
              the
              surface of any of the Claims for any purpose, or otherwise as to the
              validity of any of the Claims or the use of the same (except as
              specifically set forth above). 

          


     

    
      
         

      

      
        F-11

        
          

        

      

      
         

      

    

     

    	(g)  	
            Litigation.
              With respect to the Property, there are no pending or, to MTM’s knowledge,
              threatened, actions, suits, claims or
              proceedings.

          


     

    	(h)  	
            Permits.
              MTM has obtained all material permits, licenses, approvals, authorizations
              and qualifications of all federal, state and local authorities required
              for it to carry on its current operations at or on the Property
              (collectively, the “Permits”),
              as listed on Schedule 4.1(h).

          


     

    	(i)  	
            Taxes.
              All federal, state and local excise, property and other taxes and
              assessments assessed against the Property and due on or prior to the
              Effective Date have been timely and properly paid.
              

          


     

    	(j)  	
            Disclaimer
              of Certain Representations and Warranties.
              EXCEPT AS SPECIFICALLY PROVIDED IN THIS ARTICLE 4, MTM MAKES NO
              REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED (AND HEREBY DISCLAIMS
              ANY SUCH REPRESENTATIONS OR WARRANTIES) WITH RESPECT TO (A) THE
              PROPERTY, (B) LIABILITIES, INCLUDING ENVIRONMENTAL LIABILITIES,
              ASSOCIATED THEREWITH, OR (C) THE QUANTITY, QUALITY, SUITABILITY FOR
              MINING OR COSTS OF MINING OF ANY MINERAL RESERVES OR RESOURCES, IF
              ANY,
              INCLUDED IN THE PROPERTY.

          


     

    ARTICLE
      5

    REPRESENTATIONS
      AND WARRANTIES OF EGI

     

    	5.1  	
            Representations
              and Warranties of EGI.
              EGI represents and warrants to MTM as of the date hereof as follows,
              and
              covenants that these representations and warranties will be true and
              correct throughout the Option Period and through the
              Closing:

          


     

    	(a)  	
            Organization
              and Standing.
              EGI is a corporation duly organized, validly existing, and in good
              standing under the laws of the State of
              Montana.

          


     

    	(b)  	
            Corporate
              Power.
              EGI has the requisite corporate power and authority: (i) to enter
              into this Agreement and all other agreements contemplated hereby; and
              (ii) to carry out and perform its obligations under the terms and
              provisions of this Agreement and all agreements contemplated
              hereby.

          


     

    	(c)  	
            Authorization
              and Enforceability.
              All requisite corporate action on the part of EGI and its respective
              officers, directors and shareholders, necessary for the execution,
              delivery and performance of this Agreement and all other agreements
              contemplated hereby have been taken. This Agreement and all agreements
              and
              instruments contemplated hereby, when executed and delivered by EGI
              (assuming valid execution and delivery by MTM), will be the legal,
              valid,
              and binding obligations of EGI enforceable against it in accordance
              with
              their terms. The execution, delivery and performance of this Agreement
              by
              EGI will not violate any provision of the articles of incorporation
              or
              by-laws of EGI, or of any law; any order of any court or other agency
              of
              government; or any provision of any indenture, agreement or other
              instrument to which EGI is a party or by which its properties or assets
              are bound; or be in conflict with, result in a breach of or constitute
              (with due notice and lapse of time) a default under any such indenture,
              agreement or other instrument. There is no law, rule or regulation,
              nor is
              there any judgment, decree or order of any court or governmental authority
              binding on EGI which would be contravened by the execution, delivery,
              performance or enforcement of this Agreement or any instrument or
              agreement required hereunder. Notwithstanding the foregoing, no
              representation is made as to:  (i) the remedy of specific
              performance or other equitable remedies for the enforcement of this
              Agreement or any other agreement contemplated hereby; or (ii) rights
              to indemnity under this Agreement for securities law liability.
              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.

          


     

    
      
         

      

      
        F-12

        
          

        

      

      
         

      

    

     

    	(d)  	
            EGI’s
              Due Diligence.
              EGI has conducted such due diligence investigations concerning the
              Property as it has determined to be appropriate. With respect to the
              exploration potential of the Property, title to or environmental
              conditions at or potential environmental liabilities associated with
              the
              Property, the validity of the Claims and all other matters concerning
              the
              Property which are not specifically addressed by MTM’s representations and
              warranties in this Agreement, EGI has relied exclusively upon its due
              diligence investigation of the Property, including the advice of its
              own
              experts or consultants, as EGI has determined to be necessary or desirable
              in its sole discretion.

          


     

    ARTICLE
      6

    NOTICES

     

    	6.1  	
            Notices.
              All notices given in connection herewith shall be in writing, and all
              such
              notices and deliveries to be made pursuant hereto shall be given or
              made
              in person, by certified or registered mail, by reputable overnight
              courier, or by facsimile with receipt confirmed. Such notices and
              deliveries shall be deemed to have been duly given and received when
              actually delivered in person or sent by facsimile (during normal business
              hours and with receipt confirmed), on the next business day following
              the
              date they are sent by courier, or three (3) business days after registered
              or certified mailing when deposited in a receptacle for United States
              mail, postage prepaid, and addressed as
              follows:

          


     

    
      
         

      

      
        F-13

        
          

        

      

      
         

      

    

     

    	(a)  	
            If
              to MTM:

          


     

    Montana
      Tunnels Mining, Inc.

    5655 South
      Yosemite Street, Suite 200

    Greenwood
      Village, Colorado 80111

    Attention:
      R. David Russell

    Facsimile
      No.: (720) 482-0957

    Telephone
      No.: (720) 886-9656

    


    with
      a
      copy to:

    


    Deborah
      Friedman

    Davis
      Graham & Stubbs LLP

    1550
      17th
      Street, Suite 500

    Denver,
      Colorado 80202

    Facsimile
      No.: (303) 893-1379

    Telephone
      No.: (303) 892-9400

    


    	(b)  	
            If
              to EGI:

          


     

    Elkhorn
      Goldfields, Inc.

    320 West
      Main Street

    Aspen,
      Colorado 81611

    Attention:
      Robert Trenaman

    Facsimile
      No.: (970)
      544-9155

    Telephone
      No.: (970)
      920-6944

    


    with
      a
      copy to:

    


    Mark E.
      Mendel, Esq.

    Mendel
      Blumenfeld, LLP

    5809
      Acacia Circle

    El Paso,
      Texas 79912

    Facsimile
      No.: (915) 587-8808

    Telephone
      No.: (915) 587-7878

     

    ARTICLE
      7

    INDEMNIFICATION

     

    	7.1  	
            By
              EGI.
              EGI agrees to defend, indemnify and hold harmless MTM, its Affiliates,
              successors, assigns, and its and their respective officers, directors
              and
              employees from and against any and all claims, actions, suits, losses,
              liabilities, damages, assessments, judgments, costs and expenses,
              including reasonable attorneys’ fees and the costs of defending the same
              (collectively, “Losses”),
              arising out of or related to:  (a) any breach by EGI of any
              representation, warranty or covenant set forth in this Agreement;
              (b) any activities conducted by or on behalf of EGI on or in
              connection with the Property; or (c) any Environmental Liabilities
              associated with the Property in connection with operations carried
              out by
              or at the direction of EGI.

          


     

    
      
         

      

      
        F-14

        
          

        

      

      
         

      

    

     

    	7.2  	
            By
              MTM.
              MTM agrees to defend, indemnify and hold harmless EGI, its Affiliates,
              successors, assigns, and its and their respective officers, directors
              and
              employees from and against any and all Losses arising out of or related
              to
              any breach by MTM of any representation, warranty or covenant set forth
              in
              this Agreement.

          


     

    	7.3  	
            Notification.
              Any Party who has a claim giving rise to indemnification liability
              pursuant to this Agreement (an “Indemnified
              Party”)
              which results from a claim by a third party or otherwise shall give
              prompt
              notice to the other Party (the “Indemnifying
              Party”)
              of such claim, together with a reasonable description thereof. Failure
              to
              provide such notice shall not relieve a Party of any of its obligations
              hereunder except to the extent materially prejudiced thereby. With
              respect
              to any claim by a third party against any Party to this Agreement which
              is
              subject to indemnification under this Agreement, the Indemnifying Party
              shall be afforded the opportunity, at its expense, to defend or settle
              the
              claim if it utilizes counsel reasonably satisfactory to the Indemnified
              Party, and promptly commences the defense of such claim and pursues
              such
              defense with diligence; provided,
              however,
              that the Indemnifying Party shall secure the consent of the Indemnified
              Party to any settlement, which consent shall not be unreasonably withheld.
              The Indemnified Party may participate in the defense of any claim at
              its
              expense, and until the Indemnifying Party has agreed to defend such
              claim,
              the Indemnified Party may file any motion, answer or other pleading
              or
              take such other action as it deems appropriate to protect its interests
              or
              those of the Indemnifying Party. If an Indemnifying Party does not
              elect
              to contest any third-party claim, the Indemnifying Party shall be bound
              by
              the results obtained with respect thereto by the Indemnified Party,
              including any settlement of such claim.

          


     

    ARTICLE
      8

    DEFAULT
      AND TERMINATION

     

    	8.1  	
            Termination
              by EGI.
              EGI shall have the right to terminate, surrender and relinquish this
              Agreement at any time during the Option Period by giving written notice
              to
              MTM of such election in accordance with the provisions of
              Section 2.2(b). Upon termination of this Agreement by EGI, EGI shall
              have no further liability or obligations hereunder or with respect
              to the
              Property, except with respect to the obligations set forth in
              Sections 2.3 (if such termination is effective after August 1 of
              the calendar year in question), 3.3, 3.5 (only
              with respect to indemnification),
              3.6, 3.7, 3.8, 7.1, 7.3, 8.1, 8.3, 8.4 and 8.5, and any other obligations
              that may have accrued prior to the effective date of such termination,
              and
              MTM shall have no further liability or obligations hereunder, except
              with
              respect to the obligations set forth in
              Section 3.7.

          


     

    	8.2  	
            Termination
              by MTM.
              In the event of a default hereunder on the part of EGI, MTM shall give
              to
              EGI written notice specifying the particular default or defaults asserted,
              and, in the case of a default other than with respect to the payment
              of
              money, EGI shall have 30 days after the receipt of said notice within
              which either to cure such specified defaults, or to undertake diligent
              efforts to cure the same. In the event such curative action is not
              so
              completed or diligent efforts to cure such defaults are not undertaken
              within the applicable 30-day period and thereafter diligently pursued
              to
              completion, MTM may elect to terminate this Agreement by notice to
              EGI as
              provided in Section 6.1, which such termination shall be effective
              immediately upon EGI’s receipt of such notice. In the case of a default by
              EGI relating to the payment of any funds to MTM, EGI shall have five
              days
              after receipt of notice of such default to rectify the same, failing
              which
              MTM may elect to terminate this Agreement by written notice to EGI
              as
              provided in Section 6.1. Upon termination of this Agreement pursuant
              to this Section 8.2, EGI shall have no further liability or
              obligations hereunder or with respect to the Property, except with
              respect
              to the obligations set forth in Sections 2.3 (if such termination is
              effective after August 1 of the calendar year in question) 3.3, 3.5
              (only with respect to indemnification), 3.6, 3.7, 3.8, 7.1, 7.3, 8.3,
              8.4
              and 8.5, and any other obligations that may have accrued prior to the
              effective date of such termination, and MTM shall have no further
              liability or obligations hereunder, except with respect to the obligations
              set forth in Section 3.7.

          


     

    
      
         

      

      
        F-15

        
          

        

      

      
         

      

    

     

    	8.3  	
            Return
              of Data.
              As soon as practicable upon the termination of this Agreement, if EGI
              has
              not exercised the Option, EGI shall return to MTM all title,
              environmental, metallurgical, geological, geophysical, milling and
              other
              data furnished to EGI by MTM. At such time, EGI shall make available
              to
              MTM for examination and copying all information relating to title to
              the
              Property or environmental conditions at or pertaining to the Property,
              and
              all surveys, maps, drill hole logs, samples, sample locations, mine,
              mill,
              processing and smelter records geological, geophysical, geochemical
              and
              engineering data from the Property, as well as assays developed by
              EGI
              with respect to the Property during the term of this Agreement and
              not
              previously made available to MTM; provided,
              however,
              that EGI shall have no obligation to make any interpretive data or
              reports
              developed by it or on its behalf available to MTM. EGI makes no
              representation or warranty as to the accuracy, reliability or completeness
              of any such information made available to MTM under this Section 8.3,
              and MTM shall rely on the same at its sole risk. 

          


     

    	8.4  	
            Release.
              Upon termination of this Agreement during the Option Period, if EGI
              has
              not exercised the Option, EGI shall provide MTM with a written release,
              in
              the nature of a quit claim deed or similar document in recordable form,
              of
              its rights hereunder with respect to the
              Property.

          


     

    	8.5  	
            Surrender
              of Possession and Removal of Equipment.
              Upon termination of this Agreement, if EGI has not exercised the Option,
              EGI shall surrender possession of the Property, subject to the condition
              that EGI shall have the right at any time within six months after such
              surrender or termination of this Agreement to remove all of its tools,
              equipment, machinery, supplies, fixtures, buildings, structures and
              other
              property erected or placed on such property by EGI. Title to such property
              not removed within the time period set forth above shall, at the election
              of MTM, pass to MTM.

          


     

    	8.6  	
            Survival
              of Terms Upon Exercise of Option.
              If EGI exercises the Option, the terms and conditions of
              Sections 2.4, 2.5, 7.1, this Section 8.6, and
              Sections 10.2, 10.3 and 10.8 shall survive, notwithstanding the
              execution and delivery of the Deed, and shall not be deemed merged
              into
              the Deed.

          


     

    
      
         

      

      
        F-16

        
          

        

      

      
         

      

    

     

    ARTICLE
      9

    ENTIRE
      AGREEMENT/AMENDMENT

     

    	9.1  	
            Entire
              Agreement.
              This Agreement is the complete expression of all agreements, contracts,
              covenants and promises among the Parties, and all negotiations,
              understandings, and agreements among the Parties are set forth in this
              Agreement, which solely and completely expresses their understanding,
              and
              shall be construed without reference to any such negotiations,
              understandings and agreements. 

          


     

    	9.2  	
            Amendments.
              Except as permitted by Section 10.2, this Agreement may not be
              amended or modified, nor may any obligation hereunder be waived, except
              by
              writing duly executed on behalf of all 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.

          


     

     

    ARTICLE
      10

    GENERAL
      PROVISIONS

     

    	10.1  	
            Governing
              Law.
              This Agreement, and the rights and liabilities of the Parties hereunder,
              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
              Parties hereby submit to the non-exclusive jurisdiction of the Colorado
              state and federal courts with respect to any matters arising out of
              or
              pertaining to this Agreement, and hereby waive any defenses of lack
              of
              jurisdiction, inconvenient forum or improper
              venue.

          


     

    	10.2  	
            Parties
              in Interest; Assignment.
              All of the terms and provisions of this Agreement shall be binding
              upon
              and inure to the benefit of and be enforceable by the respective Parties
              hereto and their successors and permitted assigns. During the Option
              Period, EGI’s rights, powers, privileges, obligations and interests under
              this Agreement shall not be assigned or delegated to any third party,
              other than to an Affiliate of EGI; provided, however, that any such
              assignment or delegation to an Affiliate of EGI shall not relieve EGI
              of
              any obligations or liabilities under this Agreement. If
              EGI exercises the Option, it may assign or delegate its rights and
              obligations under this Agreement to any third party, provided that
              (a) such third party agrees in writing to be bound by all of the
              terms and conditions of this Agreement, and (b) any such assignment
              or delegation shall not relieve EGI of any obligations or liabilities
              under this Agreement.

          


     

    	10.3  	
            Other
              Business Opportunities.
              This Agreement is, and the rights and obligations of the Parties are,
              strictly limited to the matters set forth herein. 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. 

          


     

    
      
         

      

      
        F-17

        
          

        

      

      
         

      

    

     

    	10.4  	
            No
              Partnership.
              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 any 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, tax 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.

          


     

    	10.5  	
            Confidentiality.
              Except as set forth in Section 10.8, each of the Parties agrees to
              treat all data, reports, records and other information developed or
              made
              available to it by the other Party under this Agreement and applicable
              to
              the Property as confidential, and unless either Party is required by
              any
              law, rule, regulation, or order or by rule or regulation of a stock
              exchange or securities commission to disclose any of such information,
              information shall not be disclosed to any third party without the prior
              written consent of the non-disclosing Party, which consent shall not
              be
              unreasonably withheld.

          


     

    	10.6  	
            Memorandum
              for Recording.
              Promptly following the execution of this Agreement, the Parties agree
              to
              execute for recording purposes a written Short Form of Option Agreement,
              in a form mutually agreeable to the parties, setting forth the basic
              terms
              and conditions of this Agreement as necessitated by Montana law. Promptly
              after the execution and delivery of that Short Form of Option Agreement,
              EGI shall record that Short Form in the official records of Broadwater
              County, and provide a copy of the recorded Short Form to MTM. MTM may
              record a notice of non-responsibility as reasonably deemed necessary
              by
              MTM.

          


     

    	10.7  	
            Public
              Announcements.
              Disclosure of information relating to this Agreement or the Property
              may
              be made by either Party if such information is required to be disclosed
              to
              any federal, state, provincial or local government or appropriate agencies
              and departments thereof or if such information is required by law,
              stock
              exchange rule or regulation to be publicly announced. Otherwise, public
              announcements or reports by EGI of information relating to this Agreement
              or the Property shall be made only on the basis of agreed texts upon
              the
              prior written consent of MTM, which consent shall not be unreasonably
              withheld. EGI agrees that it will, not less than two business days
              in
              advance of making public any information referred to in this
              Section 10.7, give MTM written notice of the text of the proposed
              report and provide MTM with the opportunity to comment on the form
              and
              content thereof before the same is issued. MTM shall respond within
              two
              business days after receipt of such notice, or its silence will constitute
              a waiver of objection to the terms of the proposed
              text.

          


     

    	10.8  	
            Severability.
              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.

          


     

    
      
         

      

      
        F-18

        
          

        

      

      
         

      

    

     

    	10.9  	
            Attorneys’
              Fees.
              In the event of any controversy, claim, or dispute between the Parties
              hereto, arising out of or relating to this Agreement or the breach
              thereof, the prevailing Party in any arbitration or litigation resolving
              the same shall be entitled to recover from the losing Party reasonable
              expenses, attorneys’ fees, and costs.

          


     

    	10.10  	
            Further
              Documents.
              At the request of either Party, the Parties shall execute and deliver
              any
              further instruments, agreements, documents or other papers reasonably
              requested by the other Party to effect the purposes of this Agreement
              and
              the transactions contemplated hereby. 

          


     

    	10.11  	
            Dispute
              Resolution.
              The Parties hereby agree that any dispute arising under this Agreement
              shall be subject to the informal dispute resolution procedure set forth
              in
              this Section 10.11. The Party asserting the existence of a dispute as
              to the interpretation of any provision of this Agreement or the
              performance by the other Party of any of its obligations hereunder
              shall
              notify the other Party of the nature of the asserted dispute. Within
              seven
              business days after receipt of such notice, a designated representative
              of
              MTM and a designated representative of EGI shall arrange for a personal
              or
              telephone conference in which they use good faith efforts to resolve
              such
              dispute. If those individuals are unable to resolve the dispute, they
              shall each prepare and, within seven business days after their conference,
              circulate to the President of MTM and the President of EGI a memorandum
              outlining in reasonable detail the nature of the dispute. Within five
              business days after receipt of the memoranda, the individuals to whom
              the
              memoranda were addressed shall arrange for a personal or telephone
              conference in which they attempt to resolve such dispute. If those
              individuals are unable to resolve the dispute, either Party may proceed
              with any legal remedy available to it; provided,
              however,
              that the Parties agree that any statement made as to the subject matter
              of
              the dispute in any of the conferences referred to in this
              Section 10.12 shall not be used in any legal proceeding against the
              Party that made such statement.

          


     

    	10.12  	
            Counterparts.
              This Agreement may be executed in multiple counterparts and by facsimile
              signatures, and all such counterparts taken together shall be deemed
              to
              constitute one and the same document.

          


     

    	10.13  	
            Rule
              Against Perpetuities.
              Any right or option to acquire any interest in real or personal property
              under this Agreement must be exercised, if at all, so as to vest such
              interest in the acquirer within 21 years after the Effective Date of
              this
              Agreement.

          


     

    	10.14  	
            Interpretation.
              Whenever the word “including” is used in this Agreement, it shall be
              deemed to mean “including without limitation.”


          


     

    [Signature
      Page Follows]

     

    
      
         

      

      
        F-19

        
          

        

      

      
         

      

    


    IN
      WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly
      executed, delivered, and effective from the date first above
      written.

     

    ELKHORN
      GOLDFIELDS, INC., a Montana corporation

    


    


    By:_____________________________

    (name):
      Patrick Imeson

    (title): 
      President

    


    


    


    MONTANA
      TUNNELS MINING, INC., a Delaware corporation

    


    


    By:______________________________

    (name):
      R. David Russell

    (title): 
      President

     

    
      
         

      

      
        F-20