FRANKLIN CONSOLIDATED MINING CO., INC.

                                        June 5,1996

Gems & Minerals Corp.
76 Beaver Street
Suite 500
New York, New York 10005

Dear Sirs:

            This will confirm our understanding concerning the proposed
acquisition (the "Transaction") of certain assets of Gems & Minerals Corp., a
Nevada corporation ("Gems") in exchange for common stock, par value $.01 per
share ("Franklin Common Stock") of Franklin Consolidated Mining Co., Inc., a
Delaware corporation ("Franklin"). This letter does not contain all matters upon
which agreement must be reached in order for the Transaction to be consummated,
but is intended solely as an outline of material provisions. The terms of our
understanding are as follows:

                        1. Gems shall transfer to Franklin certain of its assets
            which shall include (i) its 82.5% general partnership interest in
            the Zeus No. 1 Investments, a California general partnership
            ("Zeus") of which Franklin currently owns the remaining 17.5%
            interest; (ii) all of its interest in and to the so-called "Hayden
            Lease" agreements; (iii) all of its interest in the so-called
            "Rugg/Mogul Mine Leases"; and (iv) all of its interest in the
            so-called "Gold Hill Mill", including all permits and other
            agreements relating thereto (collectively the "Assets").

                        2. Franklin shall cause to be issued to Gems, in
            consideration for the transfer of the Assets, such number of shares
            of the Franklin Common Stock so that upon the closing of the
            Transaction Gems shall own approximately 85% (including
            approximately 18% currently owned by Gems) of the issued and
            outstanding shares of Franklin Common Stock (on a fully diluted
            basis).

                        3. The Transaction shall be conditioned upon (i) the
            completion of customary due diligence by each of the parties;(ii)
            the negotiation and approval of definitive documentation by the
            board of directors of each of the parties hereto within 10 business
            days from the
<PAGE>

            date of this letter of intent; (iii) the approval of the
            shareholders of Franklin of an increase in the capitalization of
            Franklin, and approval by the parties' respective shareholders and
            boards of directors of any other matters required by applicable law,
            or their respective certificates of incorporation and/or by-laws in
            order to consummate the Transaction as contemplated hereby; and (iv)
            the obtaining or making of any other consents, filings, instruments
            or regulatory approvals necessary to consummate the Transaction
            contemplated hereby.

                        4. Notwithstanding anything herein to the contrary the
            closing of the Transaction and the consummation thereof must be
            completed no later than 90 days from the date of this Letter of
            Intent.

            The parties agree on the date hereof that Franklin shall issue a
press release in substantially the form of Exhibit A hereto.

            Following your signature, the parties will cause their respective
officers, employees, attorneys, agents, investment bankers, accountants, and
other representatives working on the Transaction to cooperate with each other
with respect to the Transaction until the Transaction is consummated or
negotiations with respect thereto are terminated.

            Following your signature, the parties agree that until the
Transaction is consummated or negotiations with respect thereto are terminated,
to conduct their respective business and operations in all respects only in the
ordinary course unless otherwise consented to in writing by the other party.

            Following your signature, until the Transaction is consummated or
negotiations with respect thereto are terminated, each party will afford to the
officers, employees, attorneys, agents, investment bankers, accountants, and
other representatives of the other party working on the Transaction free and
full access to its properties, books, and records, will permit them to make
extracts from and copies of such books and records, and will from time to time
furnish them with such additional financial and operating data and other
information as to its financial condition, results of operations, business,
properties, assets, liabilities, or future prospects as they from time to time
may request. Each party will cause its independent certified public accountants
to make available to the other party and its independent certified public
accountant, the work papers relating to any audit of its financial statements in
the last five years.

            Each party shall insure that all confidential information which such
party or any of its respective officers, directors, employees, attorneys,
agents, investment bankers, or accountants may hereafter obtain relating to the
financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the other


                                       -2-
<PAGE>

party, any affiliate of the other party, or any customer or supplier of such
other party or any such affiliate shall not be published, disclosed, or made
accessible by any of them to any other person or entity at any time or used by
any of them, in each case without the prior written consent of the other party,
provided, however, that the restrictions of this sentence shall not apply (a) as
may otherwise be required by law, (b) as may be necessary or appropriate in
connection with the enforcement of this Agreement, (c) to the extent such
information shall have otherwise become publicly available, or (d) as to
disclosure by the parties or on their behalf to existing or prospective lenders,
investors or to others whose consent may be required or desirable in connection
with obtaining the financing or consents which are required or desirable to
consummate the Transaction. Each party shall, and shall cause all of such other
persons and entities who received confidential data from it to, deliver to the
other party all tangible evidence of such confidential information to which the
restrictions of the foregoing sentence apply at such time as negotiations with
respect to the Transaction are terminated before the parties enter into any
formal agreement as contemplated by this letter of intent.

            It is understood that this is a letter of intent only and while the
parties hereto agree in principle to the contents hereof and agree to proceed in
good faith to work out the details of the Transaction, neither of them shall
have any legal obligation to the other as a result of this letter (other than
those obligations contained in this paragraph or the preceding paragraph of this
letter, and the obligations contained in the preceding paragraph and the last
sentence of this paragraph shall continue to apply after negotiations with
respect to the Transaction are terminated). Accordingly, except as set forth in
the preceding sentence, this letter does not constitute a binding agreement nor
does it constitute an agreement to enter an agreement and the terms hereof are
subject to the execution and delivery of formal agreements. This letter may not
be assigned by either of the parties hereto. Neither party shall be responsible
for any of the other's expenses in connection with the negotiations, documents,
or transactions contemplated hereby, except that all of the terms and conditions
of the Zeus Joint Venture Agreement regarding the continued financing of
Franklin's operations shall remain in full force and effect until such time as
the parties shall otherwise modify the same in accordance with the terms and
conditions thereunder.

            If this letter accurately reflects our understanding, please so
indicate by signing the original and duplicate of this letter and returning a
fully executed copy to


                                       -3-
<PAGE>

me, so that we can promptly commence work on the formal documents relating to
the Transaction.

                                        Very truly yours,

                                        FRANKLIN CONSOLIDATED
                                        MINING CO., INC.


                                        By
                                          --------------------------------------
                                          President

Accepted and agreed to
this ___ day of June, 1996

GEMS & MINERALS CORP.


By /s/ [illegible]
   -------------------
   President


                                       -4-
<PAGE>

me, so that we can promptly commence work on the formal documents relating to
the Transaction.

                                        Very truly yours,

                                        FRANKLIN CONSOLIDATED
                                        MINING CO., INC.


                                        By /s/ [illegible]
                                           -------------------------------------
                                           President

Accepted and agreed to
this 5th day of June, 1996

GEMS AND MINERALS CORP.

By
  ----------------------------------
  President

Non-Binding Letter of Intent
Exchange Agreement w/Gems & Minerals
June 5, 1996


                                      -4-
<PAGE>

me, so that we can promptly commence work on the formal documents relating to
the Transaction.

                                        Very truly yours,

                                        FRANKLIN CONSOLIDATED
                                        MINING CO., INC.


                                        By /s/ [illegible]
                                           -------------------------------------
                                           President

Accepted and agreed to
this 5th day of June, 1996

GEMS AND MINERALS CORP.

By
  ----------------------------------
  President

Non-Binding Letter of Intent
Exchange Agreement w/Gems & Minerals
June 5, 1996


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