Filed by Automated Filing Services Inc. (604) 609-0244 - Santa Fe Gold Corporation - Exhibit 4.2






EXHIBIT B

FORM OF CONVERTIBLE
DEBENTURE

NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS
DEBENTURE ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS.

SANTA FE GOLD CORPORATION

7% SENIOR SECURED CONVERTIBLE DEBENTURE DUE DECEMBER 31,
2012

	$_________ 	Albuquerque, New Mexico 	___________, 200_ 


     This 7% Senior Secured
Convertible Debenture (this “Debenture”) is issued by Santa Fe
Gold Corporation, a Delaware corporation (“Maker”), to Sulane
Holdings, Ltd. (“Holder”), pursuant to that certain Securities
Purchase Agreement, dated December 15, 2007 (the “Securities Purchase
Agreement”), by and between Maker and Holder. In addition to the terms
defined elsewhere in this Debenture, capitalized terms that are not otherwise
defined herein have the meanings given to such terms in the Securities Purchase
Agreement.

     FOR VALUE RECEIVED, Maker
hereby promises to pay to Holder or its successors and assigns the principal sum
of _______________ Thousand Dollars ($ ,000.00) 1 together with
interest on the unpaid principal balance from time to time remaining in
accordance with the following terms: 

     1.     
Interest and Principal Payments;
Redemption.

          1.1     
Interest. Interest on the outstanding principal amount hereof
shall accrue at the rate of seven percent (7%) per annum. Until June 30, 2009,
interest on the outstanding principal amount will be deferred, accrued and
compounded quarterly (“Initial Accrued Interest”). The Initial
Accrued Interest shall be due on July 1, 2009 and payable within five (5)
Business Days (as defined in Section 8.11 below) after June 30, 2009. Commencing
with the quarter ending September 30, 2009, interest on the outstanding
principal amount shall be payable quarterly in arrears (each a “Quarterly
Interest Payment”) and shall be due the first day of the month following
the applicable quarter and payable within five (5) Business Days after the end
of each quarter ending 

___________________________
1 The amount is set
forth in the Funding Schedule, which is included as Exhibit A to the Purchase
Agreement, in respect of the applicable Closing Date. 




September 30, December 31, March 31,
and June 30, respectively (each an “Interest Payment Date”).

          Interest
shall be calculated on the basis of a 360-day year and the actual number of days
elapsed, to the extent permitted by applicable law. All past due principal and
interest shall bear interest from maturity at the rate of fourteen percent (14%)
per annum, calculated on a 360-day year commencing on the date on which demand
for payment shall be made in writing.

          1.2     
Payment in Shares. The Holder shall have the option, by giving
Maker written notice of its election thirty (30) days’ prior to June 30, 2009,
to have the Initial Accrued Interest paid in shares of the Company’s common
stock (“Common Stock”). Commencing September 30, 2009, the
Holder shall have the option to make an annual election, by giving Maker thirty
(30) days’ prior written notice of its election, to have the following four (4)
Quarterly Interest Payments paid in shares of Common Stock. Valuation of the
Common Stock shall be based upon the Market Price (as defined below) of the
Common Stock for the thirty (30) trading days immediately preceding the payment
due date. As used herein, “Market Price” shall mean the arithmetic
average of the volume weighted average trading price per share of Common Stock
for such thirty (30) day period as reported by Bloomberg L.P., or any successor
performing similar functions.

          1.3     
Principal and Accrued Interest Payments. The outstanding principal
amount of, and accrued interest on, this Debenture shall be payable in cash on
December 31, 2012.

          1.4     
Pre-payment election. On January 1, 2011 and January 1, 2012,
respectively, Holder shall have the right to make an annual election, by giving
ninety (90) days prior written notice to Maker, to require Maker to pay to
Holder thirty percent (30%) of any Available Quarterly Cash Flow (as defined
below) within fifteen (15) days after the end of each of Maker’s four fiscal
quarters for the calendar years 2011 and 2012, respectively (the “Excess
Quarterly Cash Flow Payment”). As used herein, “Available
Quarterly Cash Flow” means net operating cash flow from the Summit
Project (as defined in the Securities Purchase Agreement) for Maker’s applicable
fiscal quarter less a reasonable operating and contingency reserve. The Excess
Quarterly Cash Flow Payment will first be applied to accrued and unpaid interest
and then to the outstanding principal amount of this Debenture. Maker’s
obligation to make any Excess Quarterly Cash Flow Payments will terminate upon
repayment, redemption or conversion of the Debenture.

          1.5     
Redemption. After December 31, 2010, subject to Holder’s right to
convert this Debenture at any time into shares of Common Stock as set forth in
Section 2.1 below, upon at least 30 days prior written notice to Holder,
Maker may redeem the outstanding principal amount of, and accrued interest on,
this Debenture at the Redemption Prices (as defined below) on the date specified
for redemption (the “Redemption Date”).

2




     Such
redemption shall be at a purchase price, expressed as a percentage of the
initial principal amount of, and accrued interest on, the Debenture during the
applicable period (the “Redemption Price”):

	 	12 months ending December 31, 	Redemption Price 
	 	           
             2011 	       102%
    
	 	               
         2012 	       101%



     The
applicable Redemption Price will be paid by cashier’s check or wire transfer on
the Redemption Date upon presentation and surrender of this Debenture. On and
after the close of business on the Redemption Date, all rights with respect to
this Debenture shall forthwith cease and terminate, except the right of Holder
thereof to receive upon surrender of this Debenture the consideration payable
upon redemption thereof.

2.     
Conversion. 

          2.1     
Voluntary Conversion. Holder has the right, at Holder’s option, at
any time and from time to time prior to payment in full of the principal balance
of, and accrued interest on, this Debenture, to convert this Debenture, in
accordance with the provisions of Section 2.3 hereof, in whole or in
part, into fully paid and non-assessable shares of Maker’s common stock, $.002
par value per share (“Common Stock”). The number of shares of
Common Stock into which this Debenture may be converted (the “Conversion
Shares”) shall be determined by dividing the aggregate principal amount
together with all accrued interest to the date of conversion by the Conversion
Price (as defined below) in effect at the time of such conversion. The initial
conversion price shall be equal to $1.00 per share (the “Conversion
Price”).

          2.2     
Automatic Conversion. The entire principal amount of this
Debenture shall be automatically converted into the Conversion Shares at the
Conversion Price upon (i) Holders of at least a majority of the outstanding
principal amount of this Debenture consent to such conversion, or (ii) the
Market Price of the Common Stock exceeding $2.50 per share for 10 consecutive
trading days.

         
2.3      Conversion Procedure.

          2.3.1   Notice
of Conversion Pursuant to Section 2.1. Before Holder shall be
entitled to convert this Debenture into shares of Common Stock, it shall
surrender this Debenture at the office of Maker and shall give written notice in
substantially the form set forth on Exhibit A attached hereto. Such
notice shall be delivered by mail, postage prepaid, to Maker at its principal
corporate office, of the election to convert the same pursuant to Section
2.1, and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. Maker shall, as soon
as practicable thereafter, issue and deliver at such office to Holder of this
Debenture a certificate or certificates for the number of shares of Common Stock
to which Holder of this Debenture shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of this Debenture, and the person or
persons 

3




entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date.

          2.3.2     
Notice of Conversion Pursuant to Section 2.2. If this
Debenture is automatically converted, written notice shall be delivered to
Holder of this Debenture at the address of Holder set forth in the Securities
Purchase Agreement or at the address last given by Holder to Maker for the
purpose of notice or, if no such address appears or is given, at the place where
the principal executive office of Maker is located, notifying Holder of the
conversion to be effected, specifying the Conversion Price, the principal amount
of this Debenture to be converted, the amount of accrued interest to be
converted, the date on which such conversion will occur and calling upon such
Holder to surrender to Maker, in the manner and at the place designated, this
Debenture.

          2.4     
Delivery of Stock Certificates. As promptly as practicable
after the conversion of this Debenture, Maker at its expense will issue and
deliver to Holder of this Debenture a certificate or certificates for the number
of full shares of Common Stock issuable upon such conversion.

          2.5     
Mechanics and Effect of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of this Debenture. In lieu of Maker
issuing any fractional shares to Holder upon the conversion of this Debenture,
Maker shall pay to Holder the amount of outstanding principal that is not so
converted, such payment to be in the form as provided below. Upon the conversion
of this Debenture pursuant to Section 2.1 above, Holder shall surrender
this Debenture, duly endorsed, at the principal office of Maker. At its expense,
Maker shall, as soon as practicable thereafter, issue and deliver to such Holder
at such principal office a certificate or certificates for the number of shares
of such Common Stock to which Holder shall be entitled upon such conversion
(bearing such legends as are required by applicable state and federal securities
laws in the opinion of counsel to Maker), together with any other securities and
property to which Holder is entitled upon such conversion under the terms of
this Debenture, including a check payable to Holder for any cash amounts payable
as described above. Upon conversion of this Debenture in its entirety, Maker
shall be forever released from all its obligations and liabilities under this
Debenture, except that Maker shall be obligated to pay Holder, within ten (10)
days after the date of such conversion, any interest accrued and unpaid or
unconverted to and including the date of such conversion.

     3.     
Anti-Dilution Provisions and Other Adjustments. In order to
prevent dilution of the rights granted hereunder, the Conversion Price shall be
subject to adjustment from time to time in accordance with this Section
3.

          3.1     
Adjustments for Splits and Combinations. In case, after the
issuance of this Debenture, Maker shall (i) pay a dividend or make a
distribution on its outstanding shares of Common Stock in shares of its Capital
Stock, (ii) subdivide the then outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine the then outstanding shares of
Common Stock into a smaller number of 

4




shares of Common Stock, or (iv) issue
by reclassification of its shares of Common Stock any shares of any other class
of capital stock of Maker (including any such reclassification in connection
with a merger in which Maker is the continuing Maker), then the Conversion Price
in effect immediately prior to the opening of business on the record date for
such dividend or distribution or the effective date of such subdivision,
combination or reclassification shall be adjusted so that Holder of this
Debenture thereafter surrendered for conversion shall be entitled to receive the
number and kind of shares of Common Stock of Maker that such holder would have
owned or been entitled to receive immediately following such action had such
Debenture been converted immediately prior to such time. An adjustment made
pursuant to this Section 3.1 for a dividend or distribution shall become
effective immediately after the record date for the dividend or distribution and
an adjustment made pursuant to this Section 3.1 for a subdivision,
combination or reclassification shall become effective immediately after the
effective date of the subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any action listed above shall be
taken.

          3.2     
Adjustments for Issuances of Rights, Options or Warrants. If
Maker, at any time while this Debenture is outstanding, shall issue rights,
options or warrants to all holders of Common Stock (and not to the Holder)
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than then applicable Conversion Price (except for Permitted
Issuances (as defined below)), then the Conversion Price shall be multiplied by
a fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants (plus the number of additional shares of Common Stock
offered for subscription or purchase), and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants, plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at the Conversion Price. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights, options or warrants. However, upon the expiration of any
such right, option or warrant to purchase shares of the Common Stock the
issuance of which resulted in an adjustment in the Conversion Price pursuant to
this Section, if any such right, option or warrant shall expire and shall not
have been exercised, the Conversion Price shall immediately upon such expiration
be recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights, options or warrants been made on the
basis of offering for subscription or purchase only that number of shares of the
Common Stock actually purchased upon the exercise of such rights, options or
warrants actually exercised.

          3.3     
Adjustments for Issuances of Common Stock Equivalents. If Maker,
at any time while this Debenture is outstanding, shall issue shares, except for
Permitted Issuances, of Common Stock or rights, warrants, options or other
securities or debt that 

5




are convertible into or exchangeable
for shares of Common Stock (“Common Stock Equivalents”) entitling
any Person to acquire shares of Common Stock, at a price per share less than the
Conversion Price (if the holder of the Common Stock or Common Stock Equivalent
so issued shall at any time, whether by operation of purchase price adjustments,
reset provisions, floating conversion, exercise or exchange prices or otherwise,
or due to warrants, options or rights per share which is issued in connection
with such issuance, be entitled to receive shares of Common Stock at a price per
share which is less than the Conversion Price, such issuance shall be deemed to
have occurred for less than the Conversion Price), then, at the sole option of
the Holder, the Conversion Price shall be adjusted to mirror the conversion,
exchange or purchase price for such Common Stock or Common Stock Equivalents
(including any reset provisions thereof) at issue. Such adjustment shall be made
whenever such Common Stock or Common Stock Equivalents are issued. Maker shall
notify Holder in writing, no later than one (1) business day following the
issuance of any Common Stock or Common Stock Equivalent subject to this Section,
indicating therein the applicable issuance price, or of applicable reset price,
exchange price, conversion price and other pricing terms. 

          3.4     
Adjustments for Issuances of Indebtedness, Assets or Securities.
If Maker, at any time while this Debenture is outstanding, shall distribute to
all holders of Common Stock (and not to the Holder) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security, then in each such case the Conversion Price at which this Debenture
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the fair market value of a share of
Common Stock determined as of the record date mentioned above as determined by
the Board of Directors in good faith, and of which the numerator shall be such
fair market value of a share of Common Stock on such record date less the then
fair market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of the Common
Stock as determined by the Board of Directors in good faith. In either case the
adjustments shall be described in a statement provided to Holder of the portion
of assets or evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective immediately
after the record date mentioned above.

          3.5     
Adjustment for Reclassification or Merger. In case of any
reclassification or change in the Common Stock (other than any reclassification
or change referred to in Section 3.1 and other than a change in par
value) or in case of any consolidation of Maker with any other corporation or
any merger of Maker into another corporation or of another corporation into
Maker (other than a merger in which Maker is the continuing corporation and
which does not result in any reclassification or change (other than a change in
par value or any reclassification or change to which Section 3.1 is
applicable) in the outstanding Common Stock), or in case of any sale or transfer
to another corporation or entity (other than by mortgage or pledge) of all or
substantially all of the properties and assets of Maker, in any such case, the
corporation or entity (or its 

6




successor in such consolidation or
merger) or the purchaser of such properties and assets shall make appropriate
provision so that Holder shall have the right thereafter, at its option, (A) to
convert the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture into the kind and amount of shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of the Common Stock
following such reclassification or share exchange, and the Holder of this
Debenture shall be entitled upon such event to receive such amount of
securities, cash or property as the shares of the Common Stock of Maker into
which the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture could have been converted immediately prior to such reclassification
or share exchange would have been entitled, or (B) to require Maker to prepay
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable thereon. The entire prepayment price shall be paid in
cash. This provision shall similarly apply to successive reclassifications or
share exchanges.

          3.6     
Notice of Adjustment. Whenever the Conversion Price or the
conversion privilege shall be adjusted as provided in Sections 3.1, 3.2, 3.3,
3.4 or 3.5, Maker shall promptly cause a notice to be mailed to Holders of
record of this Debenture describing the nature of the event requiring such
adjustment, the Conversion Price in effect immediately thereafter and the kind
and amount of stock or other securities or property into which this Debenture
shall be convertible after such event. Where appropriate, such notice may be
given in advance and included as a part of a notice required to be mailed under
the provisions of Section 3.8.

          3.7     
De Minimis Adjustment. Maker may, but shall not be required to,
make any adjustment of the Conversion Price if such adjustment would require an
increase or decrease of less than 1% in such Conversion Price; provided,
however, that any adjustments which by reason of this Section 3.7 are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment. All calculations under this Section 3 shall be
made to the nearest cent or the nearest 1/100th of a share, as the case may
be.

         
3.8      Notices. In case at any
time:

     (i)     
Maker shall take any action which would require an adjustment in the Conversion
Price pursuant to this Section;

     (ii)     
there shall be any capital reorganization or reclassification of the Common
Stock (other than a change in par value), or any consolidation or merger to
which Maker is a party and for which approval of any shareholders of Maker is
required, or any sale or transfer of all or substantially all of the properties
and assets of Maker; or

7




     (iii)     
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of Maker;

then, in any such event, Maker shall
give written notice, in the manner provided in Section 8.1 hereof, to
Holders of this Debenture at their respective addresses as the same appear on
the books of Maker, at least 30 days prior to any record date for such action,
dividend or distribution or the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, sale, transfer, lease
dissolution, liquidation or winding up; provided, however, that any notice
required by any event described in clause (ii) of this Section 3.8 shall
be given in the manner and at the time that such notice is given to Holders of
Common Stock. Without limiting the obligations of Maker to provide notice of
corporate actions hereunder, the failure to give the notice required by this
Section 3.8 or any defect therein shall not affect the legality or
validity of any such corporate action of Maker or the vote upon such action.

          3.9     
Permitted Issuances. As used herein, “Permitted
Issuances” shall mean (i) securities issuable pursuant to any option,
warrant or other agreement in effect as of the date hereof and set forth in the
SEC Filings (as defined in the Securities Purchase Agreement); (ii) up to eight
million shares of Common Stock (or options to purchase such Common Stock)
issuable to officers, directors, employees, or consultants to Maker pursuant to
Maker’s 2007 Equity Incentive Plan approved by the Maker’s shareholders and set
forth in the SEC Filings; (iii) up to ten million shares of Common Stock (or
options to purchase such Common Stock) issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business combination
approved by the Board of Directors: or (iv) up to five million shares of Common
Stock (or warrants, options to purchase such Common Stock or securities
convertible or exchangeable into Common Stock) in any transaction exempt from
the registration requirements of the United States federal securities laws.

     4.     
Reservation of Shares. Maker shall at all times reserve and
keep available, solely for the purpose of issuance upon conversion of this
Debenture, such number of shares of Common Stock as shall be issuable upon the
conversion of this Debenture. 

     5.     
Events of Defaults. If any of the events specified
in this Section 5 shall occur (herein individually referred to as an
“Event of Default”), Holder of this Debenture may declare the
entire principal and unpaid accrued interest hereon immediately due and payable,
by notice in writing to Maker:

     5.1     
Default in the payment of the principal or interest of this Debenture when due
and payable;

     5.2     
The institution by Maker of proceedings to be adjudicated as bankrupt or
insolvent, or the consent by it to institution of bankruptcy or insolvency
proceedings against it or the filing by it of a petition or answer or consent
seeking reorganization or 

8




release under the federal Bankruptcy
Act, or any other applicable federal or state law, or the consent by it to the
filing of any such petition or the appointment of a receiver, liquidator,
assignee, trustee or other similar official of Maker, or of any substantial part
of its property, or the making by it of assignment for the benefit of creditors;
or

          5.3     
If, within sixty (60) days after the commencement of an action against Maker
(and service of process in connection therewith on Maker) seeking any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, such action shall
not have been resolved in favor of Maker or all orders or proceedings thereunder
affecting the operations or the business of Maker stayed, or if the stay of any
such order or proceeding shall thereafter be set aside, or if, within sixty (60)
days after the appointment without the consent or acquiescence of Maker of any
trustee, receiver or liquidator of Maker or of all or any substantial part of
the properties of Maker, such appointment shall not have been vacated; or 

         
5.4      Maker or any subsidiary of Maker shall fail to
pay, or shall state that it is unable to pay, or shall be unable to pay, its
debts generally as they become due; or Maker or any subsidiary of Maker shall
call a meeting of its creditors with a view to arranging a composition,
adjustment or restructuring of its debts; or Maker or any subsidiary of Maker
shall by any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing or any of the actions described in
Sections 5.2 or 5.3; or any corporate or other action is taken by
Maker or any subsidiary of Maker for the purpose of effecting any of the
foregoing or any of the actions described in Sections 5.2 or 5.3;
or

          5.5     
Any declared default of Maker or any or its subsidiaries under any Senior
Indebtedness that gives the holder thereof the right to accelerate such Senior
Indebtedness, and such Senior Indebtedness is in fact accelerated by such
holder.

     6.     
Security. Payment of this Debenture shall be secured by a
mortgage, security agreement and financing statement executed by Maker, dated
December 15, 2007 (the “Mortgage”), covering the real property and
assets that comprise the Summit Project.

     7.     
Subordination. The principal amount of, and
accrued interest on, this Debenture shall be subordinated to all Senior
Indebtedness, to the extent and in the manner hereinafter set forth, in right of
payment to the prior payment in full of all Maker’s Senior Indebtedness. As used
herein, “Senior Indebtedness” means the principal of and unpaid
accrued interest on all current and future debt of Maker, (i) that is evidenced
by one or more outstanding convertible debentures, and that may be issued in
connection with additional investment rights issued in private placements
completed on March 21, 2006, and September 6, 2006, respectively, as described
in the Company’s Registration Statement on Form SB-2, SEC Registration No.
333-141558 and (ii) in the event that Holder should breach its obligations to
purchase the Debentures and Warrants as set forth in the Funding Schedule in
accordance with the terms and conditions set forth in the Securities Purchase
Agreement, all indebtedness that may be incurred by Maker for working capital
and capital expenditures relating to completion of the Summit Project.

9




     If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the assets and
liabilities of Maker, or if this Debenture shall be declared due and payable
upon the occurrence of an event of default with respect to any Senior
Indebtedness, then (i) no amount shall be paid by Maker in respect of the
outstanding principal amount of the Debenture (the “Unpaid Principal Balance”),
or accrued and unpaid interest on, this Debenture at the time outstanding,
unless and until the principal of and interest on the Senior Indebtedness then
outstanding shall be paid in full, and (ii) no claim or proof of claim shall be
filed with Maker by or on behalf of the Holder of this Debenture that shall
assert any right to receive any payments in respect of the Unpaid Principal
Balance and accrued and unpaid interest thereon (including declaring an Event of
Default, acceleration, instituting any legal action or otherwise enforcing its
rights with respect to the indebtedness evidenced by this Debenture), except
subject to the payment in full of the principal of and interest on all of the
Senior Indebtedness then outstanding. If there occurs an event of default that
has been declared in writing with respect to any Senior Indebtedness, or in the
instrument under which any Senior Indebtedness is outstanding, permitting the
holder of such Senior Indebtedness to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist, or all Senior Indebtedness shall have been paid in full,
no payment shall be made in respect of the unpaid principal balance and accrued
and unpaid interest thereon.

     Subject to the rights, if any, of
the holders of Senior Indebtedness under this Section 7 to receive cash,
securities or other properties otherwise payable or deliverable to the Holder,
nothing contained in this Section 7 shall impair, as between Maker and the
Holder, the obligation of Maker, subject to the terms and conditions hereof, to
pay to the Holder the Unpaid Principal Balance and unpaid accrued interest
thereon as and when the same become due and payable, or shall prevent the Holder
of this Debenture, upon default hereunder, from exercising all rights, powers
and remedies otherwise provided herein or by applicable law.

     Subject to the payment in full of
all Senior Indebtedness and until this Debenture shall be paid in full, the
Holder shall be subrogated to the rights of the holders of Senior Indebtedness
(to the extent of payments or distributions previously made to such holders of
Senior Indebtedness) pursuant to the provisions of this Section 7 to receive
payment or distributions of assets of Maker applicable to the Senior
Indebtedness. No such payments or distributions applicable to the Senior
Indebtedness shall, as between Maker and its creditors, other than the holders
of Senior Indebtedness and the Holder, be deemed to be a payment by Maker to or
on account of this Debenture; and for the purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness to which the
Holder would be entitled except for the provisions of this Section 7 shall, as
between the Maker and its creditors, other than the holders of Senior
Indebtedness and the Holder, be deemed to be a payment by the Maker to or on
account of the Senior Indebtedness.

     By its acceptance of this
Debenture, the Holder agrees to execute and deliver such documents as may be
reasonably requested from time to time by Maker or the lender of any 

10




Senior Indebtedness in order to implement the foregoing
provisions of this Section 7.

    
8.     
General

          8.1     
Notices. Any notice or demand given hereunder by Holder must be in
writing to be effective and shall be deemed to have been given and received (a)
when actually delivered to the address of the party to be notified if delivered
in person, (b) if mailed, on the earlier of the date actually delivered to the
address of the party to be notified or (whether ever so delivered or not) on the
third Business Day (as defined in Section 8.11 below) after it is enclosed in an
envelope, addressed to the party to be notified, properly stamped, sealed, and
deposited in the United States mail, certified mail, return receipt requested,
or (c) one (1) Business Day after deposit with a nationally recognized overnight
delivery service.

          8.2     
Renounciation. Maker hereby renounces and waives grace,
presentment, protest, notice of every type, including, without limitation,
notice of default, notice of intention to accelerate, notice of acceleration,
and notice of protest, and consents that time of payment may be extended without
notice.

          8.3     
Waiver. This Debenture evidences the payment obligations of Maker
to Holder. No failure on the part of Holder to exercise and no delay in
exercising, and no course of dealing with respect to, any right, power,
privilege or remedy under this Debenture shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power, privilege or remedy
under this Debenture preclude any other or further exercise thereof or the
exercise of any other right, power, privilege or remedy. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law. Any
waiver by Holder of a breach of any provision of this Debenture shall not
operate as or be construed to be a waiver of any other breach of such provision
or of any breach of any other provision of this Debenture. Any waiver must be in
writing.

          8.4     
Successors and Assigns. This Debenture shall be binding upon, and
inure to the benefit of, Maker and Holder and their respective successors and
assigns. Maker may not assign its rights or obligations under this Debenture
without the prior written consent of Holder except in the event of a capital
reorganization or reclassification of the Common Stock (other than a change in
par value), or any consolidation or merger to which Maker is a party and for
which approval of shareholders of Maker is required. 

          8.5     
Severability. If one or more provisions of this Debenture
are held to be invalid, illegal or unenforceable under applicable law, such
provision(s) shall be excluded from this Debenture and the balance of this
Debenture shall be interpreted as if such provision(s) were so excluded and
shall otherwise be enforceable in accordance with its terms, and if any
provision is inapplicable to any person or circumstance, it shall nevertheless
remain applicable to all other persons and circumstances.

          8.6     
Usury. If it shall be found that any interest or other
amount deemed interest due hereunder shall violate applicable laws governing
usury, the applicable rate of interest due 11




hereunder shall automatically be
lowered to equal the maximum permitted rate of interest. Maker covenants (to the
extent that it may lawfully do so) that it shall not at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or usury law or other law which would prohibit or forgive
Maker from paying all or any portion of the principal of or interest on this
Debenture as contemplated herein, wherever enacted, now or at any time hereafter
in force, or which may affect the covenants or the performance of this
Debenture, and Maker (to the extent it may lawfully do so) hereby expressly
waives all benefits or advantage of any such law, and covenants that it will
not, by resort to any such law, hinder, delay or impeded the execution of any
power herein granted to Holder, but will suffer and permit the execution of
every such as though no such law has been enacted.

          The
parties hereto intend to conform strictly to the usury laws applicable to
Holder. Accordingly, if the transactions contemplated hereby would be usurious
under applicable state or federal law, then, notwithstanding anything to the
contrary in this Debenture or in any other agreement entered into in connection
with or as security for this Debenture, it is agreed as follows: (a) the
aggregate of all consideration which constitutes interest under law applicable
to Holder that is contracted for, taken, reserved, charged or received under
this Debenture or under any of such other agreements or otherwise in connection
with this Debenture shall under no circumstances exceed the maximum amount
allowed by such applicable law, and any excess shall be credited by Holder on
the principal amount of this Debenture (or, to the extent that the principal
amount of this Debenture has been or would thereby be paid in full, refunded by
Holder to Maker); and (b) if the maturity of this Debenture is accelerated by
reason of an election of Secured Party resulting from any Event of Default under
this Debenture, the Mortgage or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to Holder may never include more than the maximum amount allowed
by such applicable law, and excess interest, if any, provided for in this
Debenture, the Mortgage or otherwise shall be cancelled automatically as of the
date of such acceleration or prepayment and, if theretofore paid, shall be
credited by Holder on the principal amount of this Debenture (or, to the extent
that the principal amount of this Debenture has been or would thereby be paid in
full, refunded by Holder to Maker).

          8.7     
Governing Law. This Debenture shall be governed by the substantive
laws of the State of Delaware, without regard to principles of conflicts of
laws, and shall be performable in Albuquerque, New Mexico.

          8.8     
Lost or Mutilated. If this Debenture is mutilated, lost, stolen or
destroyed, Maker shall execute and deliver, in exchange and substitution for and
upon cancellation of the mutilated Debenture, or in lieu of or in substitution
for a lost, stolen or destroyed Debenture, a new Debenture for the principal
amount of this Debenture so mutilated, lost, stolen or destroyed but only upon
receipt of evidence of such loss, theft or destruction of such Debenture, and of
the ownership hereof, and indemnity, if requested, all reasonably satisfactory
to Maker.

         
8.9      Direct Obligation. Except as
expressly provided herein, no provision of this 

12




Debenture shall alter or impair the
obligations of Maker, which are absolute and unconditional, to pay the principal
of, interest and other charges (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a
direct obligation of Maker. This Debenture ranks pari passu with all other
Debentures now or hereafter issued under the terms of the Securities Purchase
Agreement. 

          8.10     
Attorneys’ Fees. If Maker fails to strictly comply with the terms
of this Debenture, then Maker shall reimburse Holder promptly for all fees,
costs and expenses, including, without limitation, attorneys’ fees and expenses
incurred by Holder in any action in connection with this Debenture, including,
without limitation, those incurred: (i) during any workout, attempted workout,
and/or in connection with the rendering of legal advice as to Holder’s rights,
remedies and obligations, (ii) collecting any sums which become due to Holder,
(iii) defending or prosecuting any proceeding or any counterclaim to any
proceeding or appeal; or (iv) the protection, preservation or enforcement of any
rights or remedies of Holder.

          8.11     
Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day (as defined below), such payment
shall be made on the next succeeding Business Day. As used herein,
“Business Day” means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close.

     IN
WITNESS WHEREOF, the undersigned have executed this Debenture as of the date
first above written.

MAKER:

SANTA FE GOLD CORPORATION 

	 By: 		 	  
	 	Name: W. Pierce Carson 	 	 
	 	Title: President & CEO
    	 	


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EXHIBIT A

NOTICE OF CONVERSION

(To Be Signed Only Upon Conversion of Debenture)

	TO: 	SANTA FE GOLD CORPORATION



     The undersigned, Holder of the
foregoing Debenture, pursuant to Section 2.1 of such Debenture hereby surrenders
such Debenture for conversion into shares of Common Stock of SANTA FE GOLD
CORPORATION, to the extent of $ ______________ unpaid principal amount of, and
accrued interest on, such Debenture, and requests that the certificates for such
shares be issued in the name of, and delivered to, __________________ ,
whose address is _________________________________________________________.

Dated: ____________________________

	 	 
	 	(Signature must conform in all respects 
	 	to name of Holder as specified on the 
	 	face of the Note) 
	 	  
	 	  
	 	(Address) 


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