<PAGE>

                                                                    EXHIBIT 10.3


                          EQUIPMENT PURCHASE AGREEMENT


THIS AGREEMENT, made and entered into this 22nd day of August, 1997, by and
between FAUSETT INTERNATIONAL, INC., an Idaho corporation, ("FII") and ATLAS
MINING COMPANY, an Idaho corporation ("Buyer");

     WHEREAS, FII owns equipment used in providing underground mining and
related civil construction contract services in the state of Idaho and
throughout the western United States; and

     WHEREAS, Seller desires to sell and Buyer desires to purchase from Seller
all of the mining equipment, drills, loaders, trucks, tools, vehicles and
supplies upon the terms and conditions hereinafter set forth;

     NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for the other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties do hereby mutually
agree as follows:

       Agreement to Sell and to Buy. Seller, for itself and its respective
          successors, legal representatives and assigns, hereby agrees to sell
          to Buyer and Buyer, for itself and its successors, legal
          representatives and assigns, hereby agrees to purchase from Seller,
          for the consideration set forth in Section 2 hereof, all of Seller's
          rights, title and interests in and to the property listed in Exhibit
          B, attached hereto. Seller warrants that the specified assets are free
          from all liabilities and encumbrances, except for the secured
          interests of Washington Trust Bank and Orix Credit Alliance as
          described in Exhibit A, attached hereto. Buyer is not assuming any
          underlying debts in a timely and orderly manner.

       Purchase Price and Method of Payment. Subject to the adjustments
          Hereinafter specified, the total purchase price is One Million Four
          Hundred Sixteen Thousand Ninety-Four Dollars ($1,416,094.00) and is
          payable by the Buyer as follows:

          Twenty-five Thousand Dollars ($25,000) upon signing of this agreement,
                the receipt of which is hereby acknowleged as earnest money in
                partial payment of the purchase price for said assets; and
<PAGE>

          The additional sum of Twenty-five Thousand Dollars ($25,000), plus
                Three Hundred Fifty Thousand Dollars ($350,000) of Atlas Mining
                Company Stock issued at the bid price as of the date of this
                agreement to FII, on or before the closing date of this
                agreement; and

       The balance of the purchase price shall be evidenced by a promissory Note
          payable to Seller which provides for payment principal in the amount
          of One Million Sixteen Thousand Ninety-Four Dollars ($1,016,094)
          payable according to the following schedule.

       During the first 12 months of the term of the note, payments will be
          $15,000, payable monthly beginning thirty days after Closing Date.
          Interest will accrue at the rate of eight and three quarters percent
          (8.75%) per annum.

       Should Buyer sell or refinance equipment on Exhibit A (now financed by
          Washington Trust or Orix Credit), then Buyer will pay the additional
          principal payment of the sale or refinance proceeds directly to the
          Creditor herein and Seller will reduce balance of the promissory note
          in the amount equal to that paid by the Buyer directly to the
          creditor.

         At the end of One Year after Closing Date the Buyer shall: Pay the
outstanding principal and accrued interest in one lump payment; or Refinance the
outstanding balance of principal and accrued interest with another lender; or If
after pursuing both SBA and commercial financing for the purpose of refinancing
the outstanding balance of principal and accrued interest the Buyer is unable to
obtain financing the Buyer shall have the option of refinancing with the Seller
the outstanding balance for additional periods of 30 month or 42 month periods,
and for periods of one year thereafter. The terms of the notes shall be of a
maximum 7 year amortization and annual percentage rate no more than the
Washington Trust Bank prime rate + .75%.

       The Buyer has the right to prepay the note without penalty.

       The Buyer agrees that all of the equipment listed on Exhibit B shall be
          subject to uniform commercial code security interests and/or motor
          vehicle title liens in favor of the Seller to secure payment of the
          amount due under the promissory note. All security interests shall be
          released by the Seller when the note is satisfied.

       Buyer agrees the duty of Seller to consummate this sale is expressly
          contingent upon the approval of the terms hereof by Washington Trust
          Bank and Orix Credit Alliance on or prior to the Closing Date.

<PAGE>

       Liabilities Not Assumed. This agreement is intended by the parties to be
          for the sale of equipment only. It is expressly understood and agreed
          that Buyer shall not assume any liability or obligations of any
          nature, financial or otherwise, pertaining to the conduct of the
          business by Seller prior to the date of closing or the ownership by
          Seller of the assets sold to Buyer hereunder.

       Closing. It is hereby agreed that this matter shall be closed at the
          office of HULL, BRANSTETTER & SIMPSON, Wallace, Idaho. All funds and
          instruments necessary to complete the sale and create the contemplated
          security interests will be deposited with them. The Closing Date shall
          be ______________, 1997, unless an earlier date is mutually agreed
          upon.

       Documents to be Delivered by Seller at Closing. At Closing, Seller Shall
          deliver to Buyer, in form and substance satisfactory to Buyer in each
          case:

       Certified copies of resolutions duly adopted by the Board of Directors
          and ratification of shareholders of FII approving the transactions
          referred to herein and authorizing and directing the execution of this
          Agreement and the performance of all obligations hereunder;

       Fully executed Bills of Sale and Assignment with full warranties of title
          (except as otherwise shown on Exhibit A hereto) transferring to Buyer
          all of Seller's interests of every kind and nature in and to all
          equipment and supplies as listed in Exhibit B;

       All other documents or instruments which Buyer may reasonably require to
          assure full and effective transfer to Buyer of all of Seller's
          property transferred to Buyer pursuant to the terms of this agreement.

       Seller agrees to give the Board of Directors of Atlas Mining Company
          voting rights to the stock issued by Atlas as partial payment herein,
          said proxy to be nonrevocable for the term of this agreement or
          extensions thereof.

<PAGE>

       Documents to be Delivered by Buyer at Closing. At Closing, Buyer shall
          deliver to Seller, in form and substance satisfactory to Seller in
          each case;
       Payment in full of that portion of the consideration payable on the Date
          of Closing as specified in Section 2;
       Duly executed promissory note purchase money security agreement and
          uniform commercial code filing instrument covering assets purchased in
          the amount and payable in the manner specified in Section 2;
       Certified copies of resolutions duly adopted by Buyer's Board of
          Directors approving the transactions referred to herein and
          authorizing and directing the execution of this Agreement and the
          performance of all obligations hereunder;
       Such other documents as may be reasonably requested by Seller in order to
          complete the transaction contemplated hereby.

       Possession. Seller shall deliver to Buyer, and Buyer shall take delivery
          of, property to Seller being purchased and sold hereunder on the Date
          of Closing.

       Seller's Covenant, Representations, and Warranties. As an inducement to
          Buyer to enter into this Agreement, Seller for itself and its
          respective representatives, successors and assigns, jointly and
          severally covenant, represent and warrant to Buyer as follows:

The Seller is now, and on the Date of Closing will be, a corporation duly
   organized and in good standing under the laws of the State of Idaho, with the
   power to own, sell and transfer its assets, inventory and properties pursuant
   to this Agreement;

The execution, delivery and performance by the Seller of this Agreement, and
   each other instrument or agreement contemplated by this agreement, are within
   the corporate powers of the Seller, have been duly authorized by all
   necessary corporate action on the part of the Seller (including shareholder
   approval of transactions or documents contemplated by this Agreement with
   respect to which shareholder approval is required by law or each of the
   Seller's governing instruments), and will not violate or constitute a default
   under any provision of law or of the Articles of Incorporation, By-Laws, or
   other contractual obligation of the Seller. This Agreement, together with all
   other instruments or agreements contemplated hereunder, when duly executed
   and delivered, will be the legal, valid and binding obligation of the Seller
   and its heirs or assigns, and is enforceable against the Seller in accordance
   with their respective terms;
Except as specified in Exhibit A, Seller has good and marketable title to their
   respective assets sold hereunder. On the Date of Closing all tangible
   personal property purchased hereunder shall be in as good order and condition
   as on the date of this Agreement, ordinary wear and tear excepted;
The Seller is not a party to or by any agreement or instrument or subject to any
   charter or corporate resolution or any order, injunction or decree of any
   court or governmental agency affecting the properties being purchased by
   Buyer hereunder;
Except to the extent otherwise specifically agreed upon under the terms of this
   Agreement, the risk of loss of the properties purchased by the Buyer
   Hereunder shall remain with Seller until the Closing, at which time such risk
   shall become that of the Buyer.
<PAGE>

      Buyer's Covenants, Representations and Warranties. As an inducement to
            Seller to enter into this Agreement, Buyer covenants, represents and
            warrants to Seller that:
Buyer is now, and on the Date of Closing will be, a corporation duly organized,
   Validly existing and in good standing under the laws of the State of Idaho,
   with power to own, purchase and acquire Seller's assets pursuant to this
   Agreement; The execution, delivery and performance by Buyer of this
   Agreement, and each other instrument or agreement contemplated by the
   Agreement, are within the corporate powers of Buyer, have been duly
   authorized by all necessary corporate action on the part of Buyer and will
   not violate or constitute default under any provision of the Articles of
   Incorporation, Bylaws or any other contractual obligation of Buyer. This
   Agreement, together with all other instruments or agreements contemplated
   hereunder, when duly executed and delivered, will be the legal, valid and
   binding obligation of Buyer, and will be enforceable against Buyer in
   accordance with their respective terms.
From and after the time of closing Buyer agrees to continually insure the
   equipment subject to this agreement in the amount equal to the amount owed
   FII from time to time. Buyer further agrees to name FII as an additional
   Insured on such theft and casualty policy and with indemnification paying all
   proceeds of claims directly to FII or its assigns.

     10.    Conditions  to Obligation of Buyer.  The obligations of Buyer under
            this Agreement are expressly conditioned upon  satisfaction  of  the
            following conditions  as  of  the  Date  of  Closing:
All the terms, covenants and conditions of this Agreement to be compiled with
and performed by the Seller on or before the Date of Closing shall have been
fully complied with and performed in all material respects;
<PAGE>

Seller shall have afforded to the officers and authorized representatives of
Buyer free and full access to the equipment and supplies of Seller prior to the
Date of Closing in order that Buyer shall have full opportunity to make such
inspections of the assets being purchased hereunder and such other
investigations as it shall desire, including the right of Buyer to have an
independent outside appraisal of the assets in Exhibit B, and Seller shall have
furnished Buyer with such additional financial and operating data and other
information as to the maintenance operation of Seller's assets which Buyer shall
from time to time have reasonably requested prior to the Date of Closing.

     11.    Brokerage.  Seller  and  Buyer  warrant  and represent to each other
            that there is  no  brokerage or finder's fee payable to any party in
            connection with the sale o the  assets,  inventory,  and  properties
            provided for in this Agreement.

     12.    Assignment. Prior to the Date of Closing, Buyer may at its option
            assign its interests under this Agreement to a third party without
            the prior consent of Seller. Seller may at its option assign its
            interests under this agreement to a third party without the prior
            written consent of Buyer.

     13.    Miscellaneous.

All covenants, agreements, representations and warranties contained herein Shall
    survive the execution of this Agreement and the Date of Closing hereunder;
The parties shall execute and deliver such other and further documents as may be
    necessary to implement and consummate this Agreement; This Agreement shall
    be binding upon and inure to the benefit and be enforceable against the
    parties hereto and their respective successors and assigns, and shall in all
    respects be governed, enforced and interpreted in accordance with the laws
    of the State of Idaho;
Attorney for the Seller is Ben Simpson, Hull Branstetter & Simpson, 416 River
    Street, Wallace, Idaho 83873. Each party acknowledges the right of the other
    to have any and all documents reviewed by their respective representative.
All notices, demands and requests required or permitted to be given hereunder
    shall be deemed duly given if and when mailed by certified or registered
    mail, postage prepaid, and, pending the designation in writing of another
    address, addressed to Seller as follows:

                  Fausett International, Inc.
                  1221 W. Yellowstone Avenue
                  Osburn, Idaho 83849

    and addressed as follows:

                  Atlas Mining Company
                  P.O. Box 631
                  Mullan, ID 83846
<PAGE>

        (f)    This Agreement and the Exhibits attached hereto contain the
               entire agreement between the parties, superseding in all respects
               any and all prior oral or written agreements or understandings,
               between the parties hereto pertaining to the sale of Seller's
               equipment purchased and sold hereunder, and shall be amended or
               modified only by written instrument signed by both parties
               hereto. This Agreement may be executed in one or more
               counterparts, each of which shall be deemed an original and all
               of which, taken together, shall constitute one agreement.


     IN WITNESS WHEREOF, each of the parties hereto executed this Agreement on
the day and year first above written.


     SELLER:     Fausett  International,  Inc.
                 By:  _________________________
                 Its:  ________________________
                 Date:  _______________________


     BUYER:     Atlas  Mining  Company
                By:  _________________________
                Its:  ________________________
                Date:  _______________________

                                   EXHIBIT "A"

EQUIPMENT: All equipment of Debtor now owned or hereafter acquired including,
but not limited to mining equipment and machinery, together with all parts,
fittings, and accessions at anytime acquired, wherever located.

INVENTORY: All inventory of debtor now owned or hereafter acquired, including,
but not limited to, raw materials, work in process, finished goods and materials
and supplies used or consumed in debtor's business including, but not limited to
drill bits, drill shafts and other consumable mining inventory whether in the
possession of the debtor, warehouseman, bailee, or any other person or wherever
located, and all proceeds and products of debtor's inventory in any form.

CASH AND DEPOSIT ACCOUNTS: All cash and deposit accounts in any form excluding
payroll and tax reserve accounts.

DATED this 11th day of October, 1989.

Fausett  International,  Inc.



By:________________________________
            President



By:________________________________
            Treasurer

Washington  Trust  Bank



By:_________________________________
          Vice President


<PAGE>

                           FAUSETT INTERNATIONAL, INC.
                           FAUSETT MINE SERVICES, INC.

                                    Exhibit A

ACCOUNTS: All accounts, chattel paper, contracts and contract receivables,
instruments, documents or other writing evidencing a monetary obligation, all
other rights to payments, including, but not limited to, all general intangibles
evidencing or comprising a right to receive payment, including all city, county,
state and federal tax refunds or other receivables due from such sources now or
at anytime hereafter existing whether or not earned by performance arising out
of the conduct of the Debtor's business together with all rights, titles,
security and guaranties of each account including any right to stop in transit
and all security interest, claims and pledges whether voluntary or involuntary
which are pertinent to or affect such accounts and all returned or repossessed
goods sold in inventory. All accounts, chattel paper, instruments general
intangibles, and rights to payment of every kind, now or hereafter owing to
Debtor including but not limited to that certain contract between Debtor and
Pegasus Gold Corporation dated 24th day of June, 1994.

CASH AND DEPOSIT ACCOUNTS: All cash deposit accounts in any form excluding
payroll and tax reserve accounts.

GENERAL INTANGIBLES: All general intangibles (as defined in Article 9 of the
Uniform Commercial Code) now owned or hereafter acquired, together with all
renewals, replacements and/or substitutions therefore or additions thereto, all
rights accruing therefrom and all proceeds thereof.

FAUSETT  INTERNATIONAL,  INC.


By:_______________________________


By:_______________________________


FAUSETT  MINE  SERVICES,  INC.

By:_______________________________


By:_______________________________


<PAGE>

                                   EXHIBIT "A"

EQUIPMENT: All equipment of Debtor now owned or hereafter acquired including,
but not limited to mining equipment and machinery, together with all parts,
fittings, and accessions at anytime acquired, wherever located.

INVENTORY: All inventory of debtor now owned or hereafter acquired, including,
but not limited to, raw materials, work in process, finished goods and materials
and supplies used or consumed in debtor's business including, but not limited to
drill bits, drill shafts and other consumable mining inventory whether in the
possession of the debtor, warehouseman, bailee, or any other person or wherever
located, and all proceeds and products of debtor's inventory in any form.

CASH  AND  DEPOSIT ACCOUNTS: All cash and deposit accounts in any form excluding
payroll  and  tax  reserve  accounts.

DATED this 11th day of October, 1989.

Fausett  International,  Inc.



By:________________________________
              President



By:________________________________
              Treasurer

Washington Trust Bank



By:_________________________________
              Vice President

<PAGE>

                           FAUSETT INTERNATIONAL, INC.
                           FAUSETT MINE SERVICES, INC.

                                    Exhibit A

ACCOUNTS: All accounts, chattel paper, contracts and contract receivables,
instruments, documents or other writing evidencing a monetary obligation, all
other rights to payments, including, but not limited to, all general intangibles
evidencing or comprising a right to receive payment, including all city, county,
state and federal tax refunds or other receivables due from such sources now or
at anytime hereafter existing whether or not earned by performance arising out
of the conduct of the Debtor's business together with all rights, titles,
security and guaranties of each account including any right to stop in transit
and all security interest, claims and pledges whether voluntary or involuntary
which are pertinent to or affect such accounts and all returned or repossessed
goods sold in inventory. All accounts, chattel paper, instruments general
intangibles, and rights to payment of every kind, now or hereafter owing to
Debtor including but not limited to that certain contract between Debtor and
Pegasus Gold Corporation dated 24th day of June, 1994.

CASH AND DEPOSIT ACCOUNTS: All cash deposit accounts in any form excluding
payroll and tax reserve accounts.

GENERAL INTANGIBLES: All general intangibles (as defined in Article 9 of the
Uniform Commercial Code) now owned or hereafter acquired, together with all
renewals, replacements and/or substitutions therefore or additions thereto, all
rights accruing therefrom and all proceeds thereof.

FAUSETT INTERNATIONAL, INC.


By:_______________________________


By:_______________________________


FAUSETT  MINE  SERVICES,  INC.

By:_______________________________


By:_______________________________

<PAGE>

                         ADDENDUM TO PURCHASE AGREEMENT
                              DATED AUGUST 22, 1997

This is to modify the maturity date of the Equipment Purchase Agreement of
August 22, 1998, between Fausett International, Inc. and Atlas Mining Company.

It is mutually agreed that the date of maturity of this agreement be extended to
August 22, 2002. It is mutually agreed that the maturity of the Promissory Note
dated September 30, 1997, negotiated in conjunction with the Equipment Purchase
Agreement also be extended to August 22, 2002.

Signed this ___ day of December, 1998.



---------------------------------
For Fausett International, Inc.