EXHIBIT 10.3
                               SECURITY AGREEMENT

      THIS SECURITY  AGREEMENT (this "Agreement") is made as of October 28, 2005
by and between El Capitan  Precious  Metals,  Inc.,  a Nevada  corporation  ("El
Capitan"),  and Whitebox  Intermarket  Partners,  L.P., a British Virgin Islands
limited partnership ("WIP").

                                    RECITALS

      A. El Capitan and WIP have entered into a Purchase  Agreement  dated as of
this date (the  "Purchase  Agreement"),  pursuant to which WIP is  purchasing  a
secured  convertible  promissory  note  in the  aggregate  principal  amount  of
$750,000  (the "Note") and a warrant to purchase  shares of El Capitan's  Common
Stock (the "Warrant") in consideration  of a $750,000 loan (the "Loan").  WIP is
referred to herein as the "Secured Party."

      B. As part of the  Purchase  Agreement,  El Capitan has granted to WIP and
its  affiliates  an  option  to  purchase  an  additional  secured   convertible
promissory note in the aggregate  principal  amount of $550,000 (the "Additional
Note") and an  additional  warrant to  purchase  Common  Stock (the  "Additional
Warrant").

      C. As a condition  to making the Loan,  El Capitan has agreed to pledge to
Secured Party all of its assets, subject to no other security interest except as
noted herein.

      NOW, THEREFORE,  in consideration of the agreements herein and in reliance
upon the  representations  and  warranties  set forth  herein and  therein,  the
parties agree as follows:

                                   ARTICLE 1.
                                  DEFINED TERMS

      1.1  DEFINITIONS.  Unless  otherwise  defined herein or unless the context
otherwise  requires,  terms used in this  Agreement,  including its preamble and
recitals, have the meanings provided in the Uniform Commercial Code in effect in
the State of Nevada (the "UCC").  In addition,  the following terms when used in
this  Agreement,  including its preamble and recitals,  shall have the following
meanings:

      "Loan  Documents"  means  (a)  this  Agreement,  (b)  the  Notes,  (c) the
Warrants,  (d) a Registration  Rights  Agreement of this date between El Capitan
and WIP (the "Registration Rights Agreement"), and (e) the Purchase Agreement.

      "Notes" means each of the Note and the Additional Note.

      "Obligations"  means the payment and other  performance  obligations under
the Loan Documents.

      "Warrants" means each of the Warrant and the Additional Warrant.

<PAGE>

                                   ARTICLE 2.
                                SECURITY INTEREST

      2.1  GRANT  OF  SECURITY  INTEREST.  To  secure  the  timely  payment  and
performance in full of the Obligations, El Capitan does hereby assign, grant and
pledge to Secured Party,  subject to no other secured rights, all of the estate,
right,  title and interest of El Capitan in and to the  Collateral as more fully
described on Exhibit A hereto,  whether now owned or later  acquired or created,
and  including  all proceeds of the  Collateral,  whether cash or non-cash  (the
"Collateral").

      2.2 FINANCING STATEMENTS.

            (a) El Capitan hereby authorizes Secured Party to file all financing
statements,  continuation  statements,  assignments,   certificates,  and  other
documents and instruments with respect to the Collateral pursuant to the UCC and
otherwise  as may be  necessary  or  reasonably  requested  by Secured  Party to
perfect or from time to time to  publish  notice  of, or  continue  or renew the
security  interests  granted  hereby  (including,   such  financing  statements,
continuation statements,  certificates,  and other documents as may be necessary
or  reasonably  requested  to  perfect a  security  interest  in any  additional
property  rights  hereafter  acquired  by El  Capitan  or in  any  replacements,
products or proceeds thereof),  in each case in form and substance  satisfactory
to Secured Party.

            (b) Secured Party will pay the cost of filing the same in all public
offices where filing is necessary or  reasonably  requested by Secured Party and
will  pay any and all  recording,  transfer  or  filing  taxes  that  may due in
connection  with any such filing.  El Capitan grants Secured Party the right, at
any time  and at  Secured  Party's  option,  to file  any or all such  financing
statements, continuation statements, and other documents pursuant to the UCC and
otherwise as Secured Party reasonably may deem necessary or desirable.

            (c) El  Capitan  hereby  authorizes  the  filing  of  any  financing
statements or continuation  statements,  and amendments to financing statements,
or any similar  document  in any  jurisdictions  and with any filing  offices as
Secured Party may reasonably determine are necessary or advisable to perfect the
security  interests  granted to Secured  Party.  Such  financing  statements may
describe the Collateral in the same manner as described herein or may contain an
indication or  description  of collateral  that  describes  such property in any
other manner as Secured Party may reasonably  determine is necessary,  advisable
or prudent to ensure the  perfection of the security  interest in the Collateral
granted to Secured Party herein.

      2.3 DEBTOR REMAINS LIABLE.

            (a) Anything herein  contained to the contrary  notwithstanding,  El
Capitan shall remain liable under any contracts,  agreements and other documents
included in the Collateral,  to perform all of the obligations  undertaken by it
thereunder,  all in  accordance  with and  pursuant to the terms and  provisions
thereof,  and Secured Party shall have no obligations  or liabilities  under any
such  contracts,  agreements  or other  documents by reason of or arising out of
this  Agreement,  nor shall Secured Party be required or obligated in any manner
to perform or fulfill any  obligations  of El Capitan  thereunder or to make any
payment,  or to make any inquiry as to the nature or  sufficiency of any payment
received by their or present or file any claim, or take any action to collect or
enforce the payment of any  amounts  which may have been  assigned to them or to
which they may be entitled at any time or times.

                                       2
<PAGE>

            (b)  If any  default  by El  Capitan  under  any  of the  contracts,
agreements or other documents  shall occur,  Secured Party shall, at its option,
be permitted  (but shall not be  obligated) to remedy any such default by giving
written notice of such intent to El Capitan and to the parties to such contract,
agreement or other document.  Any cure by Secured Party of El Capitan's  default
under any such  contract,  agreement or other document shall not be construed as
an assumption by Secured Party of any obligations, covenants or agreements of El
Capitan  contained in such contract,  agreement or other  document,  and Secured
Party  shall not incur any  liability  to El  Capitan  or any other  person as a
result of any actions  undertaken  by Secured  Party in curing or  attempting to
cure any such  default.  This  Agreement  shall not be deemed to  release  or to
affect in any way the  obligations  of El Capitan  under any of such  contracts,
agreements or other documents.

      2.4 DELIVERY OF CERTIFICATES.  Secured Party  acknowledges that El Capitan
has granted a security  interest  in  1,000,000  shares of common  stock of U.S.
Canadian Minerals, Inc., a Nevada corporation ("UCAD"), owned by El Capitan to a
third  party  ("UCAD  Security  Interest")  and  that  such  shares  are  in the
possession of such third party.  Other than  certificates  or other  instruments
evidencing  shares securing the UCAD Security  Interest,  all  certificates  and
other instruments representing or evidencing El Capitan's ownership of shares of
capital   stock  of  UCAD  and  El  Capitan,   Ltd.,   an  Arizona   corporation
(collectively, the "Pledged Equity Interests") shall be delivered to and held by
or on behalf of  Secured  Party,  or its  designee  in the  manner  set forth in
Section 4.12 below.

      2.5 SALE OF UCAD  COMMON  STOCK.  Notwithstanding  any other  term of this
Agreement,  El  Capitan  shall be  entitled  to sell any and all  shares of UCAD
common stock to a third party in an arms-length  transaction;  provided that, in
the event of such sale of UCAD common stock,  El Capitan shall, at the option of
Secured  Party,  use no less than 35% of the net  proceeds  from the sale of the
UCAD common  stock  constituting  a portion of the Pledged  Equity  Interests to
satisfy all or a portion of its obligations to Secured Party under the Notes. In
the event of such sale, Secured Party shall promptly deliver to El Capitan, upon
the request of El Capitan, any certificates or other instruments representing or
evidencing  such  ownership  in such number of shares of UCAD common stock to be
sold by El Capitan,  and shall further  provide written consent for such sale by
El Capitan in such form as  reasonably  requested by El Capitan or the purchaser
of such UCAD common stock.  In such written request to Secured party, El Capitan
shall set forth the terms of the proposed sale and the anticipated closing date.

      2.6 VOTING  RIGHTS;  DIVIDENDS.  As long as no Event of Default,  or event
which with the giving of notice or lapse of time  would  constitute  an Event of
Default shall have occurred and be continuing:

            (a) El Capitan  shall be entitled to exercise  any and all voting or
consensual  rights relating to the Pledged Equity  Interests for any purpose not
inconsistent  with  the  terms of this  Agreement;  provided,  however,  that El
Capitan  shall not  exercise or refrain from  exercising  any such right if such
action would have a material adverse effect on the value of the Collateral; and

                                       3
<PAGE>

            (b) El Capitan  shall be  entitled to receive and retain any and all
ordinary cash dividends payable in respect of the Pledged Equity Interests.

                                   ARTICLE 3.
                    REPRESENTATIONS AND WARRANTIES OF DEBTOR

      El Capitan makes the following  representations  and  warranties to and in
favor of Secured Party as of the date hereof. All of these  representations  and
warranties shall survive the execution and delivery of this Agreement:

      3.1 ORGANIZATION. El Capitan:

            (a) is a corporation  duly  incorporated and validly existing and in
good standing under the laws of the State of Nevada;

            (b) is  duly  qualified,  authorized  to do  business  as a  foreign
corporation  in each U.S. and foreign  jurisdiction  where the  character of its
properties or the nature of its activities makes such  qualification  necessary;
and

            (c) has the corporate power (A) to enter into the Loan Documents and
to  perform  its  obligations  thereunder  and to  consummate  the  transactions
contemplated thereby, (B) to carry on its business as now being conducted and as
proposed  to be  conducted  by it, (C) to  execute,  deliver  and  perform  this
Agreement,  (D) to  take  all  action  as may be  necessary  to  consummate  the
transactions  contemplated  hereunder,  and (E) to grant the liens and  security
interests provided for in this Agreement.

      3.2 OFFICES,  LOCATION OF COLLATERAL.  The chief executive office or chief
place of  business  of El  Capitan  is  located  at  14301  North  87th  Street,
Scottsdale, Arizona, 85260.

      3.3 TITLE AND LIENS. Except for the UCAD Security Interest, El Capitan has
good,  valid,  and marketable  title to the Collateral,  free from all liens and
encumbrances of any kind. As a result of this Agreement, Secured Party will have
a first priority  security  interest in the Collateral,  subordinate to no other
security  interest other than the UCAD Security  Interest,  in which the Secured
Party shall have a secondary security interest.

      3.4 AUTHORIZATION;  NO CONFLICT. El Capitan has duly authorized,  executed
and delivered this Agreement, and El Capitan's execution and delivery hereof and
its consummation of the transactions contemplated hereby and the compliance with
the terms thereof:

            (a)  does  not  or  will  not  contravene  any  legal   requirements
applicable  to or binding on El Capitan  which could  reasonably  be expected to
have a material  adverse  effect upon the  Collateral or Secured  Party's rights
therein;

                                       4
<PAGE>

            (b) does not or will not  contravene  or result in any  breach of or
constitute  any  default,  or result in or require the creation of any lien upon
any of El Capitan's  property,  under any  agreement or  instrument  to which El
Capitan  is a party  or by  which  it or any of its  properties  may be bound or
affected; and

            (c) does not or will not  require  the  consent or  approval  of any
third party which has not already been obtained.

      3.5  ENFORCEABILITY.   This  Agreement  is  a  legal,  valid  and  binding
obligation of Secured Party,  enforceable  against El Capitan in accordance with
its terms, except to the extent that enforceability may be limited by applicable
bankruptcy,  insolvency,  moratorium,   reorganization  or  other  similar  laws
affecting  the  enforcement  of  creditors'  rights or by the  effect of general
equitable principles.

      3.6 UCC  ARTICLE  8. All  shares of common  stock of UCAD and El  Capitan,
Ltd., an Arizona corporation,  owned by the Company, and shares of capital stock
of any  subsidiary of the Company that are part of the Collateral are securities
governed by Article 8 of the UCC.

                                   ARTICLE 4.
                               COVENANTS OF DEBTOR

      El Capitan covenants to and in favor of Secured Party as follows:

      4.1 COMPLIANCE  WITH  OBLIGATIONS.  El Capitan shall perform and comply in
all material  respects  with all  obligations  and  conditions on its part to be
performed with respect to the Collateral.

      4.2 INFORMATION  CONCERNING  COLLATERAL.  El Capitan shall,  promptly upon
request,  provide  to  Secured  Party  all  information  and  evidence  they  it
reasonably  request concerning the Collateral to enable Secured Party to enforce
the provisions of this Agreement.

      4.3  DEFENSE  OF  COLLATERAL.  El  Capitan  shall  defend its title to the
Collateral  and  the  interests  of  Secured  Party  in the  Collateral  pledged
hereunder against the claims and demands of all third parties whomsoever.

      4.4 MAINTENANCE OF COLLATERAL. El Capitan shall not (i) fail to deliver to
Secured  Party a copy of each demand or notice  received or given by it relating
to any  contract or  agreement  of El Capitan or to any other  Collateral  which
could  reasonably  be  expected  to have a  material  adverse  effect  upon  the
Collateral  or Secured  Party's  rights  therein,  or (ii)  except as  otherwise
permitted herein, sell, contract to sell, assign,  transfer or dispose of any of
the Collateral,  except in the ordinary course of business,  or with the consent
of Secured Party, which consent will not be unreasonably withheld.

      4.5 EVENTS OF  DEFAULT.  El Capitan  shall  give to Secured  Party  prompt
notice of any  material  default  with  respect  to the  Collateral  of which El
Capitan has knowledge or has received notice.

                                       5
<PAGE>

      4.6 PRESERVATION OF VALUE;  LIMITATION OF LIENS. El Capitan shall not take
any action in connection with the Collateral  which would impair in any material
respect  the  interests  or rights of  Secured  Party  therein  or with  respect
thereto, except as expressly permitted hereby;  provided,  however, that nothing
in this  Agreement  shall  prevent El Capitan,  prior to the exercise by Secured
Party of any rights pursuant to the terms hereof,  from undertaking El Capitan's
operations in the ordinary course of business.  El Capitan shall not directly or
indirectly create, incur, assume or suffer to exist any liens on or with respect
to all or any  part of the  Collateral  (other  than the  lien  created  by this
Agreement).  El Capitan  shall at its own cost and  expense  promptly  take such
action as may be necessary to discharge any such liens.

      4.7 NO OTHER  FILINGS.  El Capitan shall not file or authorize to be filed
in any jurisdiction any financing statements under the UCC or any like statement
relating to the Collateral.

      4.8 MAINTENANCE OF RECORDS.  El Capitan shall, at all times, keep accurate
and complete records of the Collateral.  El Capitan shall permit representatives
of Secured  Party,  upon  reasonable  prior  notice,  at any time during  normal
business  hours of El Capitan to inspect and make  abstracts  from El  Capitan's
books and records  pertaining to the Collateral.  Upon the occurrence and during
the continuation of any Event of Default, at Secured Party's request, El Capitan
shall promptly deliver copies of any and all such records to Secured Party.

      4.9 PAYMENT OF TAXES. El Capitan shall pay or cause to be paid, before any
fine,  penalty,  interest or cost attaches thereto,  all taxes,  assessments and
other governmental or non-governmental charges or levies (other than those taxes
that it is  contesting  in good  faith and by  appropriate  proceedings,  and in
respect of which it has  established  adequate  reserves  for such taxes) now or
hereafter  assessed or levied against the  Collateral  pledged by them hereunder
and shall retain copies of, and, upon request,  permit  Secured Party to examine
receipts showing payment of any of the foregoing.

      4.10 NAME;  JURISDICTION  OF  ORGANIZATION.  El Capitan shall give Secured
Party at least 30 days prior written notice before El Capitan  changes its name,
jurisdiction  of  organization  or entity  type and shall at the  expense  of El
Capitan execute and deliver such instruments and documents as may be required by
Secured Party or applicable  legal  requirements  to maintain a first  perfected
security interest in the Collateral.

      4.11 PROCEEDS OF  COLLATERAL.  Except as otherwise  specified  herein,  El
Capitan shall,  at all times,  keep pledged to Secured Party pursuant hereto all
Collateral  and all  dividends,  distributions,  interest,  principal  and other
proceeds  received by El Capitan with respect thereto,  and all other Collateral
and  other  securities,  instruments,  proceeds  and  rights  from  time to time
received by or  distributable  to El Capitan in respect of any  Collateral,  and
shall not permit any issuer of such  Collateral  to issue any shares of stock or
other equity  interests  which shall not have been  immediately  duly pledged to
Secured Party hereunder.

                                       6
<PAGE>

      4.12 DELIVERY OF PLEDGED  EQUITY  INTERESTS.  Except for  certificates  or
instruments  representing  or  evidencing  shares  securing  the  UCAD  Security
Interest,  certificates  or instruments  representing  or evidencing the Pledged
Equity Interests shall be delivered to and held by or on behalf of Secured Party
pursuant hereto.  All such certificates or instruments shall be in suitable form
for transfer by delivery,  or shall be accompanied by duly executed  instruments
of transfer or  assignment  in blank,  all in form and  substance  acceptable to
Secured Party. Secured Party shall have the right, at any time in its discretion
and without prior notice to El Capitan,  following the occurrence and during the
continuation  of an Event of Default,  to transfer to or to register in the name
of  Secured  Party  or any  of its  nominees  any or all of the  Pledged  Equity
Interests and to exchange certificates or instruments representing or evidencing
Pledged Equity  Interests for  certificates  or instruments of smaller or larger
denominations;  provided,  however,  that once such  Event of  Default  has been
cured,  Secured Party will promptly transfer to or register in the name or cause
its  nominees  to  transfer to or to register in the name of El Capitan all such
Pledged Equity  Interests.  In  furtherance  of the foregoing,  El Capitan shall
further  execute and deliver to Secured  Party stock powers in the form attached
hereto as Exhibit B.

                                   ARTICLE 5.
                               RIGHTS AND REMEDIES

      5.1 EVENT OF DEFAULT  DEFINED.  Any failure to materially  comply with any
covenant, agreement, term or provision contained in this Agreement, the Purchase
Agreement or the Registration Rights Agreement or any event of default under any
of the Notes  (incorporating  any applicable cure periods)  (including events of
non-compliance  with this Agreement as described in the Notes) shall  constitute
an "Event of Default" hereunder.  Without limiting the foregoing, it is intended
that any event of default under the Additional  Note will constitute an event of
default under the Note.

      5.2 REMEDIES UPON EVENT OF DEFAULT.

            (a) During any period  during  which an Event of Default  shall have
occurred and be continuing,  Secured Party may (but shall be under no obligation
to), directly or by using agent or broker:

                  (i) proceed to protect and enforce the rights  vested in it by
this Agreement and under the UCC;

                  (ii) cause all moneys and other  property  pledged as security
to be paid and/or  delivered  directly to it, and demand,  sue for,  collect and
receive any such moneys and property;

                  (iii)  cause  any  action  at law or suit in  equity  or other
proceeding to be instituted and prosecuted to collect or enforce any Obligations
of El Capitan or rights included in the Collateral,  or for specific enforcement
of any covenant or agreement  contained herein, or in aid of the exercise of any
power therein or herein granted, or for any foreclosure hereunder and sale under
a judgment or decree in any judicial  proceeding,  or to enforce any other legal
or equitable right vested in it by this Agreement or by law;

                  (iv)  foreclose  or  enforce  any  other  agreement  or  other
instrument  by or under or pursuant to which the  Obligations  of El Capitan are
issued or secured;

                                       7
<PAGE>

                  (v)  subject  to  Section  5.2(b),  sell,  lease or  otherwise
dispose of any or all of the Collateral,  in one or more  transactions,  at such
prices as Secured  Party may deem best,  and for cash or on credit or for future
delivery,  without  assumption of any credit risk,  at any broker's  board or at
public or private sale,  without demand of performance or notice of intention to
sell, lease or otherwise dispose of, or of time or place of disposition  (except
such notice as is required by applicable statute and cannot be waived), it being
agreed that Secured  Party may be  purchasers  or lessees on their own behalf at
any such sale and that  Secured  Party or anyone else who may be the  purchaser,
lessee or  recipient  for value of any or all of the  Collateral  so disposed of
shall,  upon such  disposition,  acquire  all of El  Capitan's  rights  therein.
Secured  Party may  adjourn  any public or private  sale or cause the same to be
adjourned from time to time by  announcement at the time and place fixed for the
same, and such sale may,  without further notice or publication,  be made at any
time or place to which the same may be so  adjourned.  If Secured Party sell any
of the  Collateral  upon  credit,  after  reasonable  inquiry  as to the  credit
worthiness  of the  purchaser,  El Capitan will be credited  only with  payments
actually  made by the  purchaser,  received by Secured  Party and applied to the
indebtedness  of the purchaser.  In the event the purchaser fails to pay for the
Collateral,  Secured  Party may resell the  Collateral  and El Capitan  shall be
credited with the proceeds of the sale;

                  (vi) incur expenses,  including  reasonable  attorneys'  fees,
consultants'  fees, and other costs  appropriate to the exercise of any right or
power under this Agreement;

                  (vii) perform any obligation of El Capitan  hereunder and make
payments, purchase, contest or compromise any encumbrance,  charge, or lien, and
pay taxes and expenses;

                  (viii) make any  reasonable  compromise or  settlement  deemed
desirable  with respect to any or all of the  Collateral  and extend the time of
payment, arrange for payment installments, or otherwise modify the terms of, any
or all of the Collateral;

                  (ix) secure the appointment of a receiver of any or all of the
Collateral;

                  (x)  exercise  any  other or  additional  rights  or  remedies
granted  to  Secured  Party  under  any other  provision  of this  Agreement  or
exercisable by a secured party under the UCC,  whether or not the UCC applies to
the affected  Collateral,  or under any other  applicable law and take any other
action  which  Secured  Party deem  necessary or desirable to protect or realize
upon their security interests in the Collateral or any part thereof; and/or

                  (xi) appoint a third party (who may be an employee, officer or
other  representative of Secured Party) to do any of the foregoing,  or take any
other action permitted hereunder, on behalf of Secured Party.

            (b) If, pursuant to any law, prior notice of any action described in
Section  5.2(a)  is  required  to be  given to El  Capitan,  El  Capitan  hereby
acknowledges  that the  minimum  time  required by such law, or if no minimum is
specified, ten days, shall be deemed a reasonable notice period.

                                       8
<PAGE>

            (c) Any action or proceeding to enforce this  Agreement may be taken
by Secured  Party either in El Capitan's  name or in Secured  Party's  name,  as
Secured Party may deem necessary.

            (d) All rights of marshalling of assets of El Capitan, including any
such right with respect to the Collateral, are hereby waived by El Capitan.

            (e) Secured  Party shall incur no  liability as a result of the sale
of any or all of the  Collateral at any private sale pursuant to Section  5.2(a)
conducted in a  commercially  reasonable  manner.  El Capitan  hereby waives any
claims  against  Secured  Party  arising by reason of the fact that the price at
which any or all of the Collateral may have been sold at such a private sale was
less than the price that might have  obtained  at a public sale or was less than
the aggregate amount of the Obligations, even if Secured Party accepts the first
offer received and does not offer the Collateral to more than one offeree.

      5.3  ATTORNEY-IN-FACT.  Upon the occurrence and during the continuation of
an Event of Default,  El Capitan  hereby  irrevocably  constitutes  and appoints
Secured Party as its true and lawful  attorney-in-fact  to enforce all rights of
El  Capitan  with  respect  to the  Collateral,  including  the  right  to  give
appropriate receipts, releases and satisfactions for and on behalf of and in the
name of El Capitan  or, at the option of Secured  Party,  in the name of Secured
Party,  with the same force and effect as El Capitan could do if this  Agreement
had not been made.  If Secured  Party  shall so elect after the  occurrence  and
during the  continuation of an Event of Default  hereunder,  Secured Party shall
have the right at all times to settle,  compromise,  adjust,  or  liquidate  all
claims or disputes  directly  with El Capitan or any obligor of El Capitan  upon
such terms and conditions as Secured Party may determine in its sole discretion,
and to charge all costs and expenses thereof  (including  reasonable  attorneys'
fees and  charges) to El  Capitan's  account and to add them to the  Obligations
whereupon such costs and expenses  shall be and become part of the  Obligations.
This  power  of  attorney  is a power  coupled  with an  interest  and  shall be
irrevocable.

      5.4  EXPENSES;  INTEREST.  All costs and  expenses  (including  reasonable
attorneys'  fees and  expenses)  incurred by Secured  Party in  connection  with
exercising any actions taken under Article 5, together with interest thereon (to
the extent  permitted  by law)  computed at a rate of 10% per annum (or if less,
the maximum rate permitted by law) from the date on which such costs or expenses
are  invoiced  to and  become  payable  by El  Capitan,  to the date of  payment
thereof,  shall constitute part of the Obligations secured by this Agreement and
shall be paid by El  Capitan  to  Secured  Party  within 10 days  after  written
demand.

      5.5 NO  IMPAIRMENT OF REMEDIES.  If under  applicable  law,  Secured Party
proceed by either judicial  foreclosure or by non-judicial  sale or enforcement,
Secured Party may, at its sole option, determine which of its remedies or rights
to  pursue  without  affecting  any of their  rights  and  remedies  under  this
Agreement. If, by exercising any right and remedy, Secured Party forfeits any of
its other rights or remedies, including any right to enter a deficiency judgment
against El Capitan or any third party  (whether  because of any  applicable  law
pertaining  to  "election of  remedies"  or the like),  El Capitan  nevertheless
hereby  consents to such action by Secured  Party.  To the extent  permitted  by
applicable law, El Capitan also waives any claim based upon such action, even if
such action by Secured  Party results in a full or partial loss of any rights of
subrogation,  indemnification or reimbursement  which El Capitan might otherwise
have had but for such action by Secured Party or the terms herein.  Any election
of remedies  which  results in the denial or  impairment of the right of Secured
Party to seek a  deficiency  judgment  against any third party shall not, to the
extent permitted by applicable law, impair El Capitan's  obligations  hereunder.
If Secured  Party bids at any  foreclosure  or trustee's  sale or at any private
sale permitted by law or this Agreement,  Secured Party may bid all or less than
the amount of the  Obligations.  To the extent  permitted by applicable law, the
amount of the  successful  bid at any such sale,  whether  Secured  Party or any
other party is the successful  bidder,  shall be  conclusively  deemed to be the
fair market value of the Collateral  and the difference  between such bid amount
and the remaining balance of the Obligations shall be conclusively  deemed to be
the amount of the Obligations.

                                       9
<PAGE>

                                   ARTICLE 6.
                                 CERTAIN WAIVERS

      6.1 MODIFICATION OF OBLIGATIONS.  El Capitan's  liability  hereunder shall
not be reduced, limited, impaired,  discharged or terminated if Secured Party at
any time with El Capitan's  consent (or, to the extent  permissible by the terms
of the Loan Documents and law, without notice to or demand of El Capitan):

            (a) renews, extends, accelerates, increases the rate of interest on,
or otherwise changes the time, place, manner or terms, or otherwise modifies any
of the Obligations (including any payment terms);

            (b) extends or waives the time for El Capitan's  performance  of, or
compliance with, any term,  covenant or agreement on its part to be performed or
observed under the Loan Documents,  or waives such  performance or compliance or
consents to a failure of, or departure from, such performance or compliance;

            (c)  settles,  compromises,  releases or  discharges,  or accepts or
refuses any offer of performance with respect to, or  substitutions  for, any of
the  Obligations  or any agreement  relating  thereto  and/or  subordinates  the
payment of the same to the payment of any other obligations;

            (d) requests and accepts other  guaranties of any of the Obligations
and takes and holds security for the payment hereof or any of the Obligations;

            (e)  releases,  surrenders,  exchanges,  substitutes,   compromises,
settles,  rescinds,  waives, alters,  subordinates or modifies,  with or without
consideration,  any  security for payment of any of the  Obligations,  any other
guaranties of any of the Obligations, or any other obligation of any third party
with respect to any of the Obligations;

            (f) to the  extent  permitted  by  law,  enforces  and  applies  any
security,  if any, now or hereafter  held by or for the benefit of Secured Party
in respect hereof or any of the  Obligations  and directs the order or manner of
sale thereof, or exercises any other right or remedy that Secured Party may have
against any such  security,  in each case as Secured Party in its discretion may
determine,  including  foreclosure  on any  collateral  pursuant  to one or more
judicial or nonjudicial  sales,  whether or not every aspect of any such sale is
commercially reasonable; or

                                       10
<PAGE>

            (g) exercises any other rights available to it under any of the Loan
Documents, at law or in equity.

      6.2  SECURITY  INTERESTS  ABSOLUTE.  All rights of  Secured  Party and the
security interests hereunder, and all obligations of El Capitan hereunder, shall
be absolute and unconditional irrespective of:

            (a) any  failure or omission  to assert or enforce or  agreement  or
election not to assert or enforce, or the stay or enjoining,  by order of court,
by operation of law or otherwise,  of the exercise or enforcement  of, any claim
or  demand  or any  right,  power or  remedy  (whether  arising  under  any Loan
Document, at law, in equity or otherwise) with respect to any of the Obligations
or any agreement  relating thereto,  or with respect to any other guaranty of or
security for the payment of any of the Obligations;

            (b) any rescission,  waiver,  amendment or  modification  of, or any
consent to departure from, any of the terms or provisions  (including provisions
relating  to events  of  default)  hereof,  in any other  Loan  Document  or any
agreement or instrument  executed pursuant thereto,  or of any other guaranty or
security for any of the Obligations,  in each case, whether or not in accordance
with the terms hereof or any other Loan  Document or any  agreement  relating to
such other guaranty or security;

            (c) the application of payments received from any source (other than
payments  received from the proceeds of any security for any of the Obligations,
except to the extent such security also serves as  collateral  for  indebtedness
other than the  Obligations)  to the  payment of  indebtedness  of El Capitan to
Secured Party other than the  Obligations,  even though Secured Party might have
elected to apply such payment to any part or all of the Obligations;

            (d)  Secured  Party's  consent  to  the  change,  reorganization  or
termination  of the  corporate  structure  or existence of El Capitan and to any
corresponding restructuring of any of the Obligations;

            (e) any other act or thing or omission, or delay to do any other act
or thing,  which may or might in any manner or to any extent vary the risk of El
Capitan as an obligor in respect of any of the Obligations;

            (f) any Obligations or any agreement  relating thereto,  at any time
being found to be illegal, invalid or unenforceable in any respect

            (g) any  defenses,  set-offs or  counterclaims  which El Capitan may
allege or assert against Secured Party in respect of the Obligations; and

            (h) whether  Secured Party makes,  or does not or fails to make, any
additional loan to El Capitan subsequent to the date hereof.

                                       11
<PAGE>

      6.3 CERTAIN WAIVERS. Except as provided in Section 7.16, El Capitan hereby
waives  any  and  all  defenses  afforded  to a  surety,  including  promptness,
diligence,  notice of acceptance and any other notice with respect to any of the
Obligations and this Agreement and any  requirement  that Secured Party protect,
secure, perfect or insure any security interest or lien, or any property subject
thereto, or exhaust any right or take any action against El Capitan or any other
third party or entity or any collateral securing any of the Obligations,  as the
case may be.

      6.4  POSTPONEMENT  OF  SUBROGATION.  El  Capitan  agrees  that it will not
exercise any rights which it may acquire by way of rights of  subrogation  under
this Agreement, by any payment made hereunder or otherwise, while this Agreement
is in effect,  unless  such action is required to stay or prevent the running of
any applicable statute of limitations.  Any amount paid to El Capitan on account
of any such  subrogation  rights  prior to such time  shall be held in trust for
Secured  Party and shall  immediately  be paid to Secured Party and credited and
applied  against the  Obligations.  Any time after this Agreement has terminated
and if El Capitan has made payment to Secured  Party of all of the  Obligations,
or if an action is required  to stay or prevent  the  running of any  applicable
statute of  limitations,  then,  at El  Capitan's  request,  Secured  Party will
execute and deliver to El Capitan  appropriate  documents  (without recourse and
without  representation  or  warranty)  necessary  to evidence  the  transfer by
subrogation to El Capitan of an interest in the Obligations  resulting from such
payment by El Capitan.

                                   ARTICLE 7.
                                  MISCELLANEOUS

      7.1  NOTICES.  Any  communications,  including  notices and  instructions,
between the parties hereto or notices  provided  herein to be given may be given
to the following addresses:

      (a) if to El Capitan, at:

          El Capitan Precious Metals, Inc.
          14301 North 87th Street, Suite 216
          Scottsdale, Arizona 85260
          Attention: Charles C. Mottley, President and Chief Executive Officer
          Facsimile: (480) 607-7193

          with a copy to:

          Maslon Edelman Borman & Brand, LLP
          90 South Seventh Street, Suite 3300
          Minneapolis, Minnesota  55402
          Attention: William M. Mower, Esq.
          Facsimile: (612) 642-8358

      (b) if to the Secured Party, in care of:

          Whitebox Advisors, LLC
          3033 Excelsior Boulevard, Suite 300
          Minneapolis, Minnesota  55416
          Attention: Jonathan Wood, Chief Financial Officer
          Facsimile: (612) 253-6151

                                       12
<PAGE>

          with a copy to:

          Messerli & Kramer P.A.
          150 South Fifth Street, Suite 1800
          Minneapolis, Minnesota  55402
          Attention: Jeffrey C. Robbins, Esq.
          Facsimile: (612) 672-3777.

      All  notices or other  communications  required or  permitted  to be given
hereunder  shall be made in writing and shall be considered  given (a) when made
if made by hand  delivery,  (b) one business day after being  deposited  with an
overnight courier if made by a courier guaranteeing  overnight delivery,  (c) on
the date indicated on the notice of receipt if made by first-class United States
mail,  with  return  receipt  requested,  and (d) upon  confirmation  if made by
telecopier.  Any party  shall  have the right to change its  address  for notice
hereunder to any other location within the  continental  United States by giving
of notice to the other parties in the manner set forth hereinabove.

      7.2 DELAY AND WAIVER; REMEDIES CUMULATIVE.  No failure or delay by Secured
Party in  exercising  any right or power  hereunder  shall  operate  as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any  abandonment  or  discontinuance  of steps to enforce such a right or power,
preclude  any other or further  exercise  thereof or the  exercise  of any other
right or power. Any waiver, permit, consent or approval of any kind or character
on the part of Secured Party of any breach or default under the Agreement or any
waiver  on the part of  Secured  Party of any  provision  or  condition  of this
Agreement  must be in writing and shall be effective  only to the extent in such
writing  specifically set forth. No right, power or remedy herein conferred upon
or reserved to Secured Party  hereunder is intended to be exclusive of any other
right,  power or remedy,  and every such right,  power and remedy shall,  to the
extent  permitted  by law, be  cumulative  and in addition to every other right,
power and remedy  given  hereunder  or now or  hereafter  existing  at law or in
equity  or  otherwise.  The  assertion  or  employment  of any  right or  remedy
hereunder,  or  otherwise,   shall  not  prevent  the  concurrent  assertion  or
employment  of any  other  appropriate  right or  remedy.  Resort  to any or all
security now or hereafter  held by Secured  Party may be taken  concurrently  or
successively and in one or several  consolidated or independent judicial actions
or lawfully taken nonjudicial proceedings, or both.

      7.3 ENTIRE  AGREEMENT.  This  Agreement  and any  agreement,  document  or
instrument  referred to herein integrate all the terms and conditions  mentioned
herein or  incidental  hereto  and  supersede  all oral  negotiations  and prior
writings in respect of the subject matter hereof.

      7.4 GOVERNING  LAW. This  Agreement  shall be governed by and construed in
accordance  with the laws of the State of Nevada,  exclusive  of its conflict of
laws rules.

                                       13
<PAGE>

      7.5 SEVERABILITY.  In case any one or more of the provisions  contained in
this Agreement should be invalid,  illegal or unenforceable in any respect,  the
validity,  legality and enforceability of the remaining  provisions shall not in
any way be affected or impaired thereby.

      7.6 HEADINGS. Paragraph headings have been inserted in this Agreement as a
matter of  convenience  for reference  only and it is agreed that such paragraph
headings  are  not a part  of  this  Agreement  and  shall  not be  used  in the
interpretation of any provision of this Agreement.

      7.7 WAIVER OF JURY TRIAL. EL CAPITAN HEREBY  KNOWINGLY,  VOLUNTARILY,  AND
INTENTIONALLY WAIVES ANY RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY
LITIGATION  BASED HEREON,  OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT  OR ANY COURSE OR  CONDUCT,  COURSE OF  DEALING,  STATEMENTS  (WHETHER
VERBAL OR WRITTEN),  OR ACTIONS OF SECURED  PARTY.  THIS PROVISION IS A MATERIAL
INDUCEMENT FOR SECURED PARTY TO MAKE THE LOAN.

      7.8  CONSENT TO  JURISDICTION.  Each party  hereto  agrees  that any legal
action or  proceeding  with respect to or arising out of this  Agreement  may be
brought in or removed to the federal or state courts located in Hennepin County,
Minnesota,  as Secured  Party may  elect.  By  execution  and  delivery  of this
Agreement,  each party hereto  accepts,  for  themselves and in respect of their
property,  generally  and  unconditionally,  the  jurisdiction  of the aforesaid
courts.  Each of the  parties  hereto  irrevocably  consents  to the  service of
process out of any of the aforementioned  courts in any manner permitted by law.
Nothing  herein shall affect the right of Secured Party to bring legal action or
proceedings in any other competent jurisdiction. Each party hereto hereby waives
any right to stay or dismiss  any action or  proceeding  under or in  connection
with this Agreement  brought  before the foregoing  courts on the basis of forum
non-conveniens.

      7.9 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure
to the  benefit  of the  parties  hereto  and their  respective  successors  and
permitted assigns.

      7.10 COUNTERPARTS. This Agreement may be executed in one or more duplicate
counterparts  and  when  signed  by all  of  the  parties  listed  below,  shall
constitute a single binding agreement. Delivery of an executed signature page of
this Agreement by facsimile  transmission shall be as effective as delivery of a
manually executed counterpart thereof.

      7.11 BENEFIT OF AGREEMENT.  Nothing in this Agreement, express or implied,
shall give or be construed to give, any person other than the parties hereto and
their  respective  permitted  successors,  transferees  and assigns any legal or
equitable  right,  remedy or claim under this Agreement,  or under any covenants
and provisions of this Agreement, each such covenant and provision being for the
sole benefit of the parties hereto and their  respective  permitted  successors,
transferees and assigns.

      7.12 AMENDMENTS AND WAIVERS.  No amendment,  modification,  termination or
waiver of any provision of this Agreement or consent to any departure  therefrom
shall be effective unless the same shall be in writing and signed by each of the
parties  hereto.  Each amendment,  modification,  termination or waiver shall be
effective only in the specific  instance and for the specific  purpose for which
it was given.

                                       14
<PAGE>

      7.13  SURVIVAL OF  AGREEMENTS.  The  provisions  regarding  the payment of
expenses and indemnification  obligations shall survive and remain in full force
and effect  regardless of the termination of this Agreement  pursuant to Section
7.14.

      7.14 RELEASE AND SATISFACTION.  Upon the indefeasible  payment (whether in
cash and/or other  consideration which is satisfactory to Secured Party in their
sole discretion) and performance in full of the Obligations,  (i) this Agreement
and the security interests created hereby shall terminate and Secured Party will
return the Collateral,  including all documentation  evidencing or affecting the
Collateral,  and (ii) upon written  request of El Capitan,  Secured  Party shall
execute  and  deliver  to  El  Capitan,  at El  Capitan's  expense  and  without
representation  or  warranty  by or  recourse  to Secured  Party,  releases  and
satisfactions of all financing statements,  mortgages, notices of assignment and
other registrations of security.

      7.15  REINSTATEMENT.  This Agreement  shall continue to be effective or be
automatically  reinstated,  as the  case  may be,  if at any  time  any  payment
pursuant  to this  Agreement  is  rescinded  or must  otherwise  be  restored or
returned upon the  insolvency,  bankruptcy,  reorganization,  liquidation  of El
Capitan  or upon  the  dissolution  of,  or  appointment  of any  intervenor  or
conservator  of,  or  trustee  or  similar  official  for,  El  Capitan  or  any
substantial  part of El  Capitan's  assets,  or  otherwise,  all as though  such
payments had not been made.

      7.16  LIMITATION ON DUTY OF SECURED PARTY WITH RESPECT TO THE  COLLATERAL.
The  powers  conferred  on Secured  Party  hereunder  are solely to protect  its
interest in the Collateral and shall not impose any duty on Secured Party or any
of its  designated  agents to  exercise  any such  powers.  Except  for the safe
custody  of any  Collateral  in its  possession  and the  accounting  for monies
actually received by it hereunder, Secured Party shall have no duty with respect
to any Collateral  and no implied duties or obligations  shall be read into this
Agreement against Secured Party. Secured Party shall be deemed to have exercised
reasonable  care  in the  custody  and  preservation  of the  Collateral  in its
possession  if the  Collateral  is  accorded  treatment  that  is  substantially
equivalent  to that which  Secured  Party  accords  its own  property,  it being
expressly  agreed,  to the maximum  extent  permitted by  applicable  law,  that
Secured Party shall have no responsibility for (a) taking any necessary steps to
preserve rights against any parties with respect to any Collateral or (b) taking
any action to protect against any diminution in value of the Collateral, but, in
each case,  Secured  Party may do so and all  expenses  reasonably  incurred  in
connection therewith shall be part of the Obligations.

                                       15
<PAGE>

      IN WITNESS WHEREOF, the parties hereto have caused this Security Agreement
to be executed and delivered as of the date first written above.

El Capitan:                                  Secured Party:

El Capitan Precious Metals, Inc.             Whitebox Intermarket Partners, L.P.

By /s/ Charles C. Mottley                    By  /s/ Jonathan Wood
   ----------------------------------           --------------------------------
   Charles C. Mottley, President and
   Chief Executive Officer                   Its      CFO/Director
                                                 -------------------------------