LIMITED LIABILITY COMPANY AGREEMENT

                        PEGASUS GOLD INTERNATIONAL, INC.

                                       AND

                                MINERA ANDES INC.

                                October 23, 1997



<PAGE>
                                Table of Contents

                                                                           Page

ARTICLE 1.  DEFINITIONS....................................................-1-

    1.1     "Accounting Procedure".........................................-1-
    1.2     "Act"..........................................................-1-
    1.3     "Affiliate"....................................................-1-
    1.4     "Agreement"....................................................-1-
    1.5     "Area of Interest".............................................-1-
    1.6     "Assets".......................................................-2-
    1.7     "Authorized Person"............................................-2-
    1.8     "Budget".......................................................-2-
    1.9     "Certificate"..................................................-2-
    1.10    "Claims".......................................................-2-
    1.11    "Company"......................................................-2-
    1.13    "Construction Period"..........................................-2-
    1.14    "Continuing Obligations".......................................-2-
    1.15    "Contract Year"................................................-2-
    1.16    "Development"..................................................-2-
    1.17    "Development Area".............................................-2-
    1.18    "Dollars" and "$"..............................................-3-
    1.19    "Environmental Compliance".....................................-3-
    1.20    "Environmental Laws"...........................................-3-
    1.21    "Environmental Liabilities" ...................................-3-
    1.22    "Exploration"..................................................-3-
    1.23    "Exploration Period"...........................................-3-
    1.24    "Feasibility Study"............................................-3-
    1.25    "Initial Contribution".........................................-4-
    1.26    "Initial Contribution Period"..................................-4-
    1.27    "Law" or "Laws" ...............................................-4-
    1.28    "Management Committee".........................................-4-
    1.29    "Managers".....................................................-4-
    1.30    "Member".......................................................-4-
    1.31    "Mining".......................................................-4-
    1.32    "Mining Period"................................................-4-
    1.33    "Non-Operator".................................................-4-
    1.34    "Operations"...................................................-4-
    1.35    "Operator".....................................................-5-
    1.36    "Participating Interest".......................................-5-
    1.37    "Person".......................................................-5-
    1.38    "Production Royalty"...........................................-5-
    1.39    "Products".....................................................-5-

                                        i

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    1.40    "Program"......................................................-5-
    1.41    "Property".....................................................-5-
    1.42    "Successor Company"............................................-5-

ARTICLE 2.  FORMATION OF THE COMPANY
            INFORMATION FOR CERTIFICATE....................................-5-
    2.1     Formation......................................................-5-
    2.2     Name and Principal Place of Business...........................-6-
    2.3     Purposes.......................................................-6-
    2.4     Limitations....................................................-7-
    2.5     Other Business Opportunities...................................-7-
    2.6     Effective Date and Term........................................-7-
    2.7     Termination of Rights to Assets................................-8-
    2.8     Registered Office..............................................-8-
    2.9     Agent for Service of Process...................................-8-

ARTICLE 3.  CONTRIBUTIONS BY MEMBERS.......................................-8-

    3.1     Members' Initial Contributions.................................-8-
            3.1.1     Pegasus' Contribution................................-8-
            3.1.2     Minera Andes' Contribution...........................-8-
                      (1)     Minimum Obligation...........................-8-
                      (2)     Nature of Qualifying Expenses................-9-
    3.2     Withdrawal During Initial Contribution Period..................-9-
            3.2.1     Elective Withdrawal..................................-9-
            3.2.2     Failure to Make Initial Contribution................-10-
    3.3     Additional Cash Contributions.................................-10-

ARTICLE 4.  INTERESTS OF MEMBERS..........................................-10-

    4.1     Initial Participating Interests...............................-10-
    4.2     Changes in Participating Interests............................-10-
    4.3     Voluntary Reduction in Participation..........................-11-
    4.4     Dilution......................................................-11-
    4.5     Rights of Nondiluting Member..................................-12-
    4.6     Adjustment for Actual Expenditures--Restoration of
            Diluted Interests.............................................-12-
    4.7     Default in Making Contributions...............................-12-
    4.8     Conversion to Production Royalty..............................-13-
    4.9     Continuing Rights and Liabilities upon Adjustments of
            Participating Interests.......................................-13-


                                       ii

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ARTICLE 5.  MANAGEMENT COMMITTEE..........................................-13-

    5.1     Organization and Composition..................................-13-
    5.2     Decisions.....................................................-13-
    5.3     Meetings......................................................-13-
    5.4     Action Without Meeting........................................-14-
    5.5     Management Committee Duties...................................-14-
            5.5.1     Matters Requiring Approval..........................-14-
            5.5.2     Matters Requiring Unanimous Approval................-15-

ARTICLE 6.  OPERATOR......................................................-16-

    6.1     Appointment...................................................-16-
    6.2     Powers and Duties of Operator.................................-16-
    6.3     Transactions with Affiliates..................................-19-
    6.4     Standard of Care and Liability................................-19-
    6.5     Compensation of Operator......................................-19-
    6.6     Resignation, Removal or Change of Operator....................-19-
    6.7     Change of Operator--Development...............................-20-
    6.8     Operator's Default and Remedies of Non-Operator...............-20-
            6.8.1     Notice..............................................-20-
            6.8.2     Opportunity to Cure.................................-21-
            6.8.3     Rights of Non-Operator..............................-21-

ARTICLE 7.  PROGRAMS AND BUDGETS..........................................-22-

    7.1     In General....................................................-22-
            7.1.1     Operations Pursuant to Programs and Budgets.........-22-
            7.1.2     Content of Programs and Budgets.....................-22-
            7.1.3     Presentation of Programs and Budgets................-22-
            7.1.4     Budget Overruns; Program Changes....................-22-
            7.1.5     Emergency or Unexpected Expenditures................-23-
    7.2     Initial Contribution Period and Exploration Period............-23-
            7.2.1     Review and Approval.................................-23-
            7.2.2     Minera Andes' Vote Controls During Initial
                      Contribution Period.................................-23-
            7.2.3     Activities During Deadlock--Exploration Period......-23-
            7.2.4     Election to Participate--Exploration Period.........-23-
    7.3     Feasibility Study and Development.............................-24-
            7.3.1     Preparation.........................................-24-
            7.3.2     Nonconsent Study....................................-24-
            7.3.3     Review..............................................-25-
            7.3.4     Notice of Development Proposal......................-25-
            7.3.5     Authorization of Development by Management
                      Committee...........................................-25-

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            7.3.6     Commitments upon Management Committee
                      Authorization.......................................-25-
            7.3.7     Unilateral Development Commitment...................-26-
            7.3.8     Designation of Development Area.....................-27-
            7.3.9     Participation in Development Commitment.............-27-
            7.3.10    Adjustment of Participating Interests...............-27-
            7.3.11    Development Budget and Operations...................-28-
            7.3.12    Restoration of Participating Interest...............-28-
            7.3.13    Cost Increases and Price Declines...................-29-
    7.4     Mining and Operations.........................................-29-
            7.4.1     Review and Approval.................................-29-
            7.4.2     Activities During Deadlock--Mining Period...........-30-

ARTICLE 8.  ACCOUNTS AND SETTLEMENTS......................................-30-

    8.1     Monthly Cash Budget...........................................-30-
    8.2     Cash Calls....................................................-31-
    8.3     Failure to Meet Cash Calls....................................-31-
    8.4     Accounts......................................................-31-
    8.5     Audits........................................................-31-
    8.6     Annual Reports and Records....................................-32-
    8.7     Monthly Report................................................-32-
    8.8     Inspection and Access.........................................-33-
    8.9     Additional Information........................................-33-

ARTICLE 9.  DISPOSITION OF PRODUCTION.....................................-33-

    9.1     Disposition in General........................................-33-
    9.2     Taking in Kind................................................-34-
    9.3     Futures Contracts.............................................-34-

ARTICLE 10. REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS...............-34-

    10.1    Capacity of Members...........................................-34-
    10.2    Representations and Warranties of Each Member.................-35-
    10.3    Joint Loss of Title...........................................-36-
    10.4    Compliance with Agreements....................................-36-
    10.5    Review of Title...............................................-36-

ARTICLE 11. MEMBERS' DEFAULTS AND REMEDIES................................-37-

    11.1    Events of Default.............................................-37-
    11.2    Notice of Default.............................................-37-
    11.3    Opportunity to Cure...........................................-37-
    11.4    Rights upon Default...........................................-38-

                                       iv

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            11.4.1    Loan................................................-38-
            11.4.2    Dilution............................................-38-
            11.4.3    Termination.........................................-38-
    11.5    Remedies Not Exclusive........................................-38-

ARTICLE 12. CONTRIBUTION TO LIABILITIES...................................-39-

    12.1    Contribution..................................................-39-
    12.2    Indemnification...............................................-39-

ARTICLE 13. TERMINATION...................................................-40-

    13.1    Termination...................................................-40-
            13.1.1    Termination by Agreement............................-40-
            13.1.2    Termination by Withdrawal...........................-40-
            13.1.3    Termination by Completion of Product Development....-40-
            13.1.4    Termination by Elimination of Participating Interest-40-
            13.1.5    Termination by Default..............................-41-
    13.2    Continuing Obligations........................................-41-
    13.3    Disposition of Assets on Termination..........................-41-
    13.4    Termination at Election of Minera Andes During
            Initial Contribution Period...................................-41-
    13.5    Tax Consequences..............................................-41-
    13.6    Noncompete Covenants..........................................-41-
    13.7    Right to Data After Termination...............................-41-
    13.8    Continuing Authority..........................................-42-

ARTICLE 14. ACQUISITIONS WITHIN AREA OF INTEREST..........................-42-

    14.1    General.......................................................-42-
    14.2    Notice to Nonacquiring Member.................................-42-
    14.3    Option Exercised..............................................-42-
    14.4    Option Not Exercised..........................................-43-

ARTICLE 15. ABANDONMENT AND SURRENDER OF PROPERTY.........................-43-

    15.1    During Initial Contribution Period............................-43-
    15.2    Surrender or Abandonment of Property..........................-43-
    15.3    Reacquisition.................................................-43-


                                        v

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ARTICLE 16. TRANSFER OF INTEREST..........................................-44-

    16.1    General.......................................................-44-
    16.2    Limitations on Free Transferability...........................-44-
    16.3    Preemptive Right..............................................-45-
    16.4    Exceptions to Preemptive Right................................-45-
    16.5    Insolvency....................................................-46-

ARTICLE 17. GENERAL PROVISIONS............................................-46-

    17.1    Notices......................................................-46-
    17.2    Waiver........................................................-47-
    17.3    Modification..................................................-47-
    17.4    Force Majeure.................................................-47-
    17.5    Contest of Governmental Regulation............................-48-
    17.6    Governing Law.................................................-48-
    17.7    Dispute Resolution............................................-48-
            17.7.1    Agreement to Arbitrate..............................-48-
            17.7.2    Submission to Arbitration and Selection
                      of Arbitrators......................................-48-
            17.7.3    Arbitration Procedures..............................-49-
            17.7.4    Successor Arbitrators...............................-49-
            17.7.5    Status of Member-Appointed Arbitrators..............-49-
            17.7.6    Cost of Arbitration.................................-49-
    17.8    Further Assurances............................................-49-
    17.9    Survival of Terms and Conditions..............................-50-
    17.10   Confidentiality and Public Statements.........................-50-
    17.11   Entire Agreement; Successors and Assigns......................-51-



Exhibit A   The Property
Exhibit B   Accounting Procedure
Exhibit C   Tax Provisions
Exhibit D   Net Profits Royalty Deed

                                       vi

<PAGE>
                       LIMITED LIABILITY COMPANY AGREEMENT


     THIS LIMITED LIABILITY COMPANY AGREEMENT is made as of the 23rd day of
October, 1997 (the "Effective Date") by and between PEGASUS GOLD INTERNATIONAL,
INC. ("Pegasus"), a Washington corporation authorized to transact business in
the Republic of Argentina ("Argentina"), and MINERA ANDES INC., an Alberta
corporation ("Minera Andes"), a corporation authorized to transact business in
Argentina.

                                    RECITALS

     A. Pegasus owns or leases certain mineral properties in Argentina, which
are described in the attached Exhibit A (the "Property").

     B. Minera Andes and Pegasus wish to form a Limited Liability Company to
explore, evaluate and develop mineral resources within the Property or any other
properties acquired pursuant to this Agreement.

     NOW, THEREFORE, in consideration of the covenants and agreements contained
in this Agreement, Pegasus and Minera Andes agree as follows:

                             ARTICLE 1. DEFINITIONS

     1.1 "Accounting Procedure" means the procedures set forth in Exhibit B.

       1.2 "Act" shall mean the Washington Limited Liability Company Act,
codified as Chapter 25.15 of the Revised Code of Washington, including any
amendments thereto that become effective after the date hereof.

     1.3 "Affiliate" means any person or entity related to a Member in such a
way that either the Member or such person or entity directly or indirectly
controls or is controlled by or is under common control with the other. For this
purpose, "control" means the power, direct or indirect, to direct or cause
direction of management and policies through ownership of voting securities,
contract, voting trust or otherwise.

     1.4 "Agreement" means this Limited Liability Company Agreement, as it may
be amended from time to time, together with all exhibits to it.

     1.5 "Area of Interest" means the area within one (1) kilometer from the
perimeter of any portion of the Property.

     1.6 "Assets" means the Property, Products and all other real and personal
property of the Limited Liability Company, tangible and intangible, held or
acquired for the benefit of the Company, including, without limitation, water
rights.


<PAGE>
     1.7 "Authorized Person" means each of the Members and their authorized
representatives and designees, including but not limited to the lenders to a
Member or to an Affiliate.

     1.8 "Budget" means a detailed estimate of all costs to be incurred by the
Company with respect to a Program and a schedule of cash advances to be made.

     1.9 "Certificate" shall mean the Certificate of Formation described in
Section 2.1, including any amendment to such certificate.

     1.10 "Claims" means those exploration concessions and pending exploitation
concessions under the laws of Argentina identified on Exhibit A and any
subsequent amendments to that exhibit, including without limitation cateos,
manifestations of discovery, minas and estaca minas.

     1.11 "Company" shall mean Arroyo Verde, LLC, a Washington limited liability
company.

     1.12 "Company Account" means the account maintained in accordance with the
Accounting Procedure showing the charges and credits accruing to the Company.

     1.13 "Construction Period" means the period of time from the approval of a
Feasibility Study until completion of the Development activities described in
the approved study, as it may be modified from time to time under Section 7.3.

     1.14 "Continuing Obligations" means obligations or responsibilities that
are reasonably expected to continue or arise after Operations on a particular
area of the Property have ceased or are suspended, such as future monitoring,
stabilizing, or Environmental Compliance.

     1.15 "Contract Year" means the year, beginning July 1 and ending June 30.
-------------

     1.16 "Development" means all preparation for the removal and recovery of
Products, including the construction, installation or expansion of a mine or
mill or any other improvements to be used for the Mining.

     1.17 "Development Area" means a portion of the Property identified by the
Management Committee under Section 7.3.4 as the area to be developed pursuant to
an approved Feasibility Study.

     1.18 "Dollars" and "$" means lawful currency of the United States of
America. ---------------

                                       -2-

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     1.19 "Environmental Compliance" means actions performed during or after
Operations to comply with the requirements of all Environmental Laws or
contractual commitments related to reclamation of the Property or other
compliance with Environmental Laws.

     1.20 "Environmental Laws" means Laws aimed at reclamation or restoration of
the Property; abatement of pollution; protection of the environment; protection
of wildlife, including endangered species; ensuring public safety from
environmental hazards; protection of cultural or historic resources; management,
storage or control of hazardous materials and substances; releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances as wastes into the environment, including without
limitation, ambient air, surface water and groundwater; and all other Laws
relating to the manufacturing, processing, distribution, use, treatment,
storage, disposal, handling or transport of pollutants, contaminants, chemicals
or industrial, toxic or hazardous substances or wastes.

     1.21 "Environmental Liabilities" means any and all claims, actions, causes
of action, damages, losses, liabilities, obligations, penalties, judgments,
amounts paid in settlement, assessments, costs, disbursements, or expenses
(including, without limitation, attorneys' fees and costs, experts' fees and
costs, and consultants' fees and costs) of any kind or of any nature whatsoever
that are asserted against either Member, by any person or entity other than the
other Member, alleging liability (including, without limitation, liability for
studies, testing or investigatory costs, cleanup costs, response costs, removal
costs, remediation costs, containment costs, restoration costs, corrective
action costs, closure costs, reclamation costs, natural resource damages,
property damages, business losses, personal injuries, penalties or fines)
arising out of, based on or resulting from (i) the presence, release, threatened
release, discharge or emission into the environment of any hazardous materials
or substances existing or arising on, beneath or above the Properties and/or
emanating or migrating and/or threatening to emanate or migrate from the
Properties to off-site properties; (ii) physical disturbance of the environment;
or (iii) the violation or alleged violation of any Environmental Laws.

     1.22 "Exploration" means all activities directed toward ascertaining the
existence, location, quantity, quality or commercial value of deposits of
Products.

     1.23 "Exploration Period" means the period of time from the termination of
the Initial Contribution Period until approval or deemed approval of a
Feasibility Study.

     1.24 "Feasibility Study" means a report to ascertain whether minerals can
profitably be extracted, treated and sold in circumstances that would provide
long-term return to the Members with due regard to the profitable recovery of
low-grade minerals and in a form and level of detail acceptable to a recognized
major international bank. Such study shall report on the economic feasibility of
establishing a mine on and constructing facilities for removing and processing
deposits of Products and shall be prepared and adopted in accordance with
Section 7.3. Such study shall consider, but not be limited to, review of
geology, ore reserves, metallurgy, environmental considerations, mining methods,
mine capital and operating costs

                                       -3-

<PAGE>
estimates, process flow sheets, process plant capital and operating costs
estimates, refining alternatives, surface facilities specifications, surface
building requirements, surface utility requirements, surface transportation
requirements, surface facilities arrangements, surface mobile and miscellaneous
equipment requirements, surface and ancillary facilities capital and operating
costs estimates and general personnel requirements.

     1.25 "Initial Contribution" means the contribution each Member agrees to
make, or is deemed to have made, pursuant to Section 3.1.

     1.26 "Initial Contribution Period" means the time period from the Effective
Date through and including June 30, 2000 or through and including the date upon
which Minera Andes completes its Initial Contribution under Section 3.1.2,
whichever occurs first, unless this Agreement is sooner terminated.

     1.27 "Law" or "Laws" means all applicable federal, state and local laws
(statutory or common), rules, ordinances, regulations, grants, concessions,
franchises, licenses, orders, directives, judgments, decrees, and other
governmental restrictions, including permits and other similar requirements,
whether legislative, municipal, administrative or judicial in nature.

     1.28 "Management Committee" means the committee established under Article
5.

     1.29 "Managers" means the Persons designated as the Managers in Section 5.1
and any other person who may become a successor or substitute Manager as
provided in Section 5.1.

     1.30 "Member" means each Person who executes this Agreement, and is
admitted as a Member in accordance with the terms of this Agreement. Pegasus and
Minera Andes are the initial members of the Company.

     1.31 "Mining" means the mining, extracting, producing, handling, milling or
other processing of Products.

     1.32 "Mining Period" means the period of time after completion of the
Development activities described in an approved Feasibility Study during which
Mining occurs on the Property.

     1.33 "Non-Operator" means the Member of the Company, other than the
Operator.

     1.34 "Operations" means the activities carried out under this Agreement
within the Area of Interest, including Exploration, Development and Mining.

     1.35 "Operator" means the Member designated as Operator under Article 6 of
this Agreement, when acting in its capacity as Operator.

                                       -4-

<PAGE>
     1.36 "Participating Interest" means the respective percentage ownership
interests of the Members in the Company as specified and determined under
Article 4. Participating Interests shall be calculated to three decimal places
and rounded to two. Decimals of .005 or more shall be rounded up to .01, and
decimals of less than .005 shall be rounded down.

     1.37 "Person" shall mean any individual, partnership, corporation, trust,
limited liability company or other entity.

     1.38 "Production Royalty" shall mean the 10 percent royalty determined and
distributed in accordance with the terms and conditions of the Royalty Deed
attached as Exhibit D.

     1.39 "Products" means all ores, dore, slag, bullion or refined material,
minerals and mineral resources produced from the Property under this Agreement.

     1.40 "Program" means a description in reasonable detail of Operations to be
conducted by the Operator for a designated period, which is adopted by the
Management Committee under Article 7.

     1.41 "Property" means those interests in real property, including but not
limited to the Claims, described in Exhibit A, and all other interests in real
property within the Area of Interest which are acquired or located under this
Agreement after the Effective Date.

     1.42 "Successor Company" shall mean a new limited liability company, formed
pursuant to an agreement substantially in the form of this Agreement, under
Section 7.3.4.

                       ARTICLE 2. FORMATION OF THE COMPANY
                           INFORMATION FOR CERTIFICATE

     2.1 Formation. Upon execution of this Agreement, Pegasus and Minera Andes
shall form the Company by filing a Certificate with the office of the Secretary
of State for the State of Washington for the limited purposes set forth in this
Agreement. Pegasus and Minera Andes shall organize the Company and shall conduct
the Company's business and affairs in a manner consistent with this Agreement,
the Act, and the Certificate. Prior to the expiration of the Initial
Contribution Period, the Property and Assets contributed to the Company may be
held in the name of the contributing Member but shall be held in trust for the
benefit of the Company. If the Company continues to conduct business after the
end of the Initial Contribution Period, all the Property within the Area of
Interest and Assets owned or controlled by the Company shall be held in the
Company name and not in the names of the individual Members. Neither Member
shall have any individual ownership in such Property except for its property
rights as a Member of the Company. All agreements, permits, and transactions
shall be executed and performed by the Company in its own name and not in the
names of the individual Members; provided, however, that pursuant to Section
6.2.4, all employees shall be employees of the

                                       -5-

<PAGE>
Operator or one of its Affiliates and not employees of the Company. The Company
shall operate in accordance with the terms and conditions of this Agreement.

     2.2 Name and Principal Place of Business. The name of the Company is Arroyo
Verde, LLC, and the Operator shall conduct the business of the Company under
this name. The principal place of business shall be at offices in the United
States as may be designated by the Operator (during the period Minera Andes is
the Operator, the offices shall be at the offices of Minera Andes in Spokane,
Washington). The principal place of business may be changed from time to time,
and other places of business may be established by actions taken in accordance
with the provisions of this Agreement governing management of the Company's
business and affairs. The Operator shall make any registration required by
applicable assumed or fictitious name statutes and similar statutes and qualify
and register the Company to do business in Argentina.

     2.3 Purposes. This Company is formed for the following limited purposes:

          2.3.1 To conduct Exploration within the Area of Interest;

          2.3.2 To acquire additional property within the Area of Interest;

          2.3.3 To evaluate and engage in Development and Mining of the
Property;

          2.3.4 To acquire by purchase, lease or otherwise all of the Assets
necessary to explore, develop and mine Property within the Area of Interest;

          2.3.5 To obtain all permits, licenses, consents and other
authorizations necessary or appropriate to carry out Operations;

          2.3.6 To enter into contracts for transportation, smelting, refining,
assaying and testing of Products;

          2.3.7 To dispose of Products produced from the Property, to the extent
permitted in Article 9;

          2.3.8 To engage in reclamation of the Property and to complete and
satisfy all Environmental Compliance obligations and Continuing Obligations
affecting the Property; and

          2.3.9 To perform any other Operations or activities necessary,
appropriate or incidental to the conduct of the Company as permitted by the Act
or the laws of any jurisdiction in which the Company may do business.

     2.4 Limitations. The Company shall have all powers provided for in the Act.
However, unless the Members otherwise agree in writing, Operations shall be
limited to the purposes stated in Section 2.3, and nothing in this Agreement
shall be construed:

                                       -6-

<PAGE>
          2.4.1 To create a general partnership between the Members;

          2.4.2 To authorize either Member to act as agent for the other Member
except as provided in this Agreement;

          2.4.3 To permit either Member to undertake the development of any
other property on behalf of the other Member; or

          2.4.4 To permit either Member to undertake the conduct of any other
business on behalf of the other Member.

          Except as otherwise specifically provided in this Agreement, a Member
shall not have any authority to act for, or to assume any obligation or
responsibility on behalf of, the other Member or the Company. Neither Member
shall have the right to borrow money or incur obligations on behalf of the
Company, to use the credit of the other Member or of the Company for any
purpose, or to pledge, assign or otherwise encumber the Assets, except as herein
provided, without the prior written consent of the other Member. Each Member
shall be responsible only for its obligations under this Agreement and shall be
liable only for its share of the costs and expenses as provided in this
Agreement.

     2.5 Other Business Opportunities. Except as expressly provided in this
Agreement, each Member shall have the right to independently engage in and
receive full benefits from business activities, whether or not competitive with
Operations of the Company, without consulting the other. The doctrine of
"corporate opportunity" or "business opportunity" shall not be applied to any
other activity, venture or operation of either Member, and, except as otherwise
provided in Article 14, neither Member shall have any obligation to the other
with respect to any opportunity to acquire any property outside the Area of
Interest at any time or within the Area of Interest after the termination of
this Agreement. Unless otherwise agreed in writing, neither Member shall have
any obligation to mill, beneficiate or otherwise treat any Products or the other
Member's share of Products in any facility owned or controlled by the other
Member.

     2.6 Effective Date and Term. The Effective Date of this Agreement shall be
the date first recited above. The term of this Agreement shall commence on the
Effective Date and shall continue for twenty (20) years, unless (a) Mining or
Environmental Compliance is ongoing, in which case the Agreement shall be
extended from year to year so long as Mining or Environmental Compliance
continues; or (b) the Agreement is earlier dissolved and terminated by the
occurrence of any one of the conditions described in Section 13.1, in which case
the Agreement shall continue in force only until all Assets have been salvaged
and disposed of and a final accounting has been made between the Parties as
provided in Section 13.3.

     2.7 Termination of Rights to Assets. Except as otherwise provided in this
Agreement, neither Member shall permit or cause all or any part of its interest
in the Assets or

                                       -7-

<PAGE>
the Company to be sold, exchanged, encumbered, surrendered, abandoned, or
otherwise terminated.

     2.8 Registered Office. The initial registered office of the Company is as
follows:

                     Minera Andes Inc.
                     3303 N. Sullivan Road
                     Spokane, WA 99216
                     Fax: (509) 921-7325
                     Phone: (509) 921-7322

     2.9 Agent for Service of Process. The name and address of the agent for
service of process of the Company shall be:

                     Jerry R. Fish
                     Stoel Rives LLP
                     One University Square
                     600 University Street, Suite 3600
                     Seattle, WA 98101-3197
                     Fax: (206) 386-7500
                     Phone: (206) 624-0900

                       ARTICLE 3. CONTRIBUTIONS BY MEMBERS

     3.1 Members' Initial Contributions.

          3.1.1 Pegasus' Contribution. Pegasus' Initial Contribution shall be
the contribution of its interest in the Property and all data about the Property
in Pegasus' possession. This contribution shall be deemed made upon execution of
this Agreement though Pegasus shall continue to hold legal title to the Property
in trust for the Company. The value of Pegasus' Initial Contribution shall be
deemed to be $ 325,000. During the Initial Contribution Period, Pegasus shall
have no obligation to make any additional contributions for Operations,
including but not limited to property acquisition.

          3.1.2 Minera Andes' Contribution.

               (1) Minimum Obligation. Minera Andes' Initial Contribution shall
be $ 1,300,000, which shall be contributed to the Company as follows:

                                       -8-

<PAGE>
<TABLE>
<CAPTION>

      Contract Year             Qualifying Expenditures             Cash
      -------------             -----------------------             ----
<S>    <C>                       <C>                                <C>

       1997-1998                 $ 200,000                          $  50,000
       1998-1999                 $ 300,000                          $100,000
       1999-2000                 $ 400,000                          $250,000

</TABLE>
Of the above amounts, the Company shall distribute cash payments to Pegasus in
the following amounts: (i) on the first anniversary of the Effective Date,
$50,000; (ii) on the second anniversary of the Effective Date, $100,000; (iii)
on the third anniversary of the Effective Date, $250,000. All other
contributions shall be in the form of qualifying expenditures (as described in
Section 3.1.2(2)). Qualifying expenditures made by Minera Andes during any
Contract Year in excess of the amount set forth above for such Contract Year
shall be carried over and credited toward satisfaction of Minera Andes' required
expenditures for subsequent Contract Years. If Minera Andes fails to make its
minimum contribution, as stated above, in any Contract Year, Minera Andes shall
be deemed to have withdrawn and this Agreement shall terminate, as provided in
Section 3.2.2.

               (2) Nature of Qualifying Expenses. Expenditures credited toward
Minera Andes' Initial Contribution requirement shall include all direct project
costs, leasehold payments and land-related costs, tax payments for cateos, if
any, made directly by Pegasus and reimbursed by Minera Andes, costs of locating
Claims within the Area of Interest, costs of acquiring any other interest in
real property within the Area of Interest that becomes a part of the Property
pursuant to Section 14.3 below, and all directly applicable personnel costs,
including salaries, benefits and travel costs, but in each case, only to the
extent such costs and expenditures are chargeable to the Joint Account in
accordance with the provisions of Exhibit B. "Qualifying expenses" shall include
any off-site administrative expenses, management fees and insurance costs
incurred or charged by Operator during the Initial Contribution Period and
subsequently provided that the amount of such expenses during the Initial
Contribution Period shall not exceed 5% of all other qualifying expenses during
the Initial Contribution Period.

     3.2 Withdrawal During Initial Contribution Period.

          3.2.1 Elective Withdrawal. During the Initial Contribution Period,
Minera Andes may elect to withdraw as a Member from the Company and terminate
the Agreement upon 30 days' written notice to Pegasus; provided, however, that
such elective withdrawal shall not relieve Minera Andes of its obligation to
fund and satisfy its share of liabilities to third persons arising out of the
Operations conducted prior to Minera Andes' withdrawal and shall not relieve
Minera Andes from 100% liability for all contracts unfulfilled at the time of
Minera Andes' withdrawal and that were entered into by Minera Andes. Minera
Andes shall return the property reclaimed in good condition and in compliance
with applicable laws and regulations. If Minera Andes has not incurred
qualifying expenditures of $200,000 as of the date of withdrawal, Minera Andes
shall pay any shortfall to Pegasus in cash; provided that Minera Andes shall
have no obligation to make such payment if Pegasus has breached its title
representations and warranties set forth in Section 10.2 and has not cured such
default within

                                       -9-

<PAGE>
the time allowed under Section 10.5. Upon withdrawal under this Section 3.2.1 or
under 3.2.2 below, Minera Andes shall convey to Pegasus any Assets held in
Minera Andes' name or in the name of the Company, including, without limitation,
Claims and water rights and all information relating to the Property. Minera
Andes' obligations under Article 12 and Section 17.10 shall survive withdrawal.

          3.2.2 Failure to Make Initial Contribution. If Minera Andes fails to
make its Initial Contribution for any Contract Year as required by Section 3.1,
Minera Andes shall be deemed to have withdrawn from the Company, and this
Agreement shall terminate. Upon such event, Minera Andes shall have no further
right, title or interest in the Assets of the Company. Minera Andes' withdrawal
shall be effective upon such failure, but such withdrawal shall not: (1) relieve
Minera Andes of its obligation to the Company to fund Operations in Contract
Year 1997-1998 to $ 200,000; or (2) relieve Minera Andes of its responsibility
to fund and satisfy its share of liabilities to third persons arising out of the
Operations conducted prior to Minera Andes' withdrawal; or (3) relieve Minera
Andes from 100% liability for all contracts unfilled at the time of Minera
Andes' withdrawal and that were entered into by Minera Andes; or (4) relieve
Minera Andes from its obligation to return the property reclaimed in good
condition and in compliance with applicable laws and regulations. If Minera
Andes has not incurred qualifying expenditures of $200,000 as of the date of
withdrawal, Minera Andes shall pay any shortfall to Pegasus in cash; provided
that Minera Andes shall have no obligation to make such payment if Pegasus has
breached its title representations and warranties set forth in Section 10.2 and
has not cured such default within the time allowed under Section 11.3.

          3.3 Additional Cash Contributions. After Minera Andes and Pegasus have
completed their Initial Contributions, at the call of the Operator and with the
approval of the Management Committee, if required by Section 5.5, the Members
shall contribute funds for approved Programs in proportion to their respective
Participating Interests, subject to the election permitted under Section 4.3.

                         ARTICLE 4. INTERESTS OF MEMBERS

          4.1 Initial Participating Interests. The Members shall have the
following initial Participating Interests:

              Minera Andes           80%
              Pegasus                20%

          4.2 Changes in Participating Interests. A Member's Participating
Interest may be changed as follows:

               4.2.1 After the completion of the Initial Contribution Period,
upon an election by a Member pursuant to Section 4.3 not to contribute or to
contribute less to an approved Program and Budget than the percentage reflected
by its Participating Interest; or

                                      -10-

<PAGE>
               4.2.2 In the event of default by a Member in making its
agreed-upon contribution to an approved Program and Budget, followed by an
election by the other Member to invoke dilution as a remedy for default under
Section 11.4.2; or

               4.2.3 By conversion to a Production Royalty as provided in
Section 4.8; or

          4.3 Voluntary Reduction in Participation. After the completion of the
Initial Contribution Period, a Member may elect to limit its contributions to an
approved Program and Budget as follows:

               4.3.1 To some lesser amount than in proportion to its
Participating Interest; or

               4.3.2 To no contribution at all for that Contract Year.

               The Participating Interest of that Member electing either Section
4.3.1 or 4.3.2 above shall be adjusted effective July 1 of the Contract Year in
which the diluting Member will not make its full share of required
contributions. A Member must make its election not to contribute to the next
Contract Year's approved Program by written notice to the Operator within 60
days after the Program is approved by the Management Committee under Article 7.
Said notice shall describe the portion of the Program that the Member elects not
to fund. Failure to provide timely written notice shall be deemed an election to
contribute in proportion to the Member's Participating Interest.

          4.4 Dilution. If a Member elects not to contribute or to contribute a
lesser amount than in proportion to its Participating Interest, the
Participating Interest of that Member shall be adjusted to a percentage obtained
by dividing (A) by (B) where

          (A) is the sum of (x), the value of the diluting Member's Initial
     Contribution, plus (y), the total of the diluting Member's contributions
     under Section 3.2, plus (z), the amount the diluting Member elects to
     contribute to the approved Program; and

          (B) is the sum of (r), the value of all the Parties' Initial
     Contributions, plus (s), the total of all the Parties' contributions under
     Section 3.2, plus (t), the total Budget for the approved Program; and

         then multiplying the quotient by 100 percent.  That is:

         (A) x (100%) =  [(x) + (y) + (z)] x (100%) =    The diluting Member's
         ---              ---------------
         (B)             [(r) + (s) + (t)]               Adjusted Participating
                                                         Interest

The Participating Interest of the nondiluting Member shall then be the
difference between 100 percent and the diluting Member's adjusted Participating
Interest. The nondiluting Member shall

                                      -11-

<PAGE>
then have the options described in Section 4.5. If the Company expends or incurs
obligations of less than 80 percent of the Budget upon which the diluting Member
made the election, the diluting Member may restore its Participating Interest
pursuant to Section 4.6.

     4.5 Rights of Nondiluting Member. If a Member elects a voluntary reduction
in participation under Section 4.3, the nondiluting Member shall have 20 days
from the date it receives notice of the election to decide whether it will fund
all of the Program and Budget not funded by the diluting Member. The nondiluting
Member may choose to: (1) fund the diluting Member's share of the Program and
Budget, or (2) propose an alternative Program and Budget. Dilution under Section
4.4 shall occur only if the nondiluting Member chooses (1) above. No dilution
shall occur if the nondiluting Member chooses (2) above. Any alternative Program
and Budget proposed shall be considered a new program and budget subject to
approval under Article 7 and a noncontribution election under Section 4.3.

     4.6 Adjustment for Actual Expenditures--Restoration of Diluted Interests.
Within 30 days after the conclusion of a Program and Budget with respect to
which a Member's Participating Interest was diluted under Section 4.4, the
Operator shall report to the diluting Member the total amount of money expended
plus the total obligations incurred by the Operator for the Budget upon which
the diluting Member made the election under Section 4.3.

          4.6.1 If the Operator expended or incurred obligations of 80 percent
or more of the Budget, the Members' Participating Interests shall not be
readjusted.

          4.6.2 If the Operator expended or incurred obligations of less than 80
percent of the Budget, within 30 days of receiving the Operator's report on
expenditures, the diluting Member may notify the nondiluting Member of its
election to reimburse the nondiluting Member for the diluting Member's
proportionate share (at the diluting Member's former Participating Interest) of
the actual amount expended or incurred for the Program. The diluting Member
shall meet the nondiluting Member's cash calls in addition to its own under
Section 9.2 for the succeeding Contract Years' Programs and Budgets until an
amount of cash equivalent to the diluting Member's proportionate share (at the
diluting Member's former Participating Interest) of the actual amount expended
or incurred for the Program has been contributed. Such reimbursement shall
restore and maintain the Participating Interest of the diluting Member that
existed prior to the election under Section 4.3. Restoration of the diluting
Member's Participating Interest shall be effective as of the date provided in
Section 4.3. If the diluting Member does not elect to restore its Participating
Interest, the Members' Participating Interests shall be readjusted pursuant to
Section 4.6.1 above.

     4.7 Default in Making Contributions. Unless a Member makes a timely
election under Article 7 and Section 4.3 to not contribute funds to an approved
Program and Budget, such Member shall be in default if it fails to contribute
and the provisions of Article 11 shall apply.

                                      -12-

<PAGE>
     4.8 Conversion to Production Royalty. Upon the reduction of its
Participating Interest to less than 20 percent, a Member shall be deemed to have
withdrawn as a Member from the Company and shall relinquish its entire
Participating Interest. Such relinquished Participating Interest shall be deemed
to have accrued automatically to the other Member. Upon such relinquishment of a
Member's Participating Interest, that Member shall promptly execute assignments
and documents to transfer its Participating Interest to the other Member and
shall receive a Royalty Deed from the Company substantially in the form attached
as Exhibit D. Once a Member's Participating Interest has been reduced to less
than 20 percent, that Member shall have no right to elect to reimburse the
nondiluting Member under Section 4.6.2 above.

     4.9 Continuing Rights and Liabilities upon Adjustments of Participating
Interests. Any reduction of a Member's Participating Interest under this Article
4 shall not relieve such Member of its share of any liability, whether said
liability accrues before or after such reduction, arising out of Operations
conducted prior to such reduction. For purposes of this Article 4, such Member's
share of such liability shall be equal to its Participating Interest at the time
such liability was incurred. The increased Participating Interest accruing to a
Member as a result of the reduction of the other Member's Participating Interest
shall be free of royalties, liens, or other encumbrances arising by, through or
under such other Member, other than those existing at the time the Property was
acquired or those to which both Members have given their written consent. Any
reduction of a Member's Participating Interest shall not affect such Member's
right, title, and interest in any work in process as of the date the reduction
in Participating Interest is effective.

                         ARTICLE 5. MANAGEMENT COMMITTEE

     5.1 Organization and Composition. The Members shall conduct the Company
through a Management Committee, which shall determine overall policies,
objectives, procedures, methods, and actions under this Agreement. The
Management Committee shall be composed of two Managers appointed by Pegasus and
two Managers appointed by Minera Andes. Each Member may appoint one or more
alternates to act in the absence of the regular Managers. Any alternate so
acting shall be deemed to be a Manager. Appointments shall be made or changed by
written notice to the other Member. Each Member may bring such technical and
other advisors as it deems appropriate to all Management Committee meetings.

     5.2 Decisions. Each Member, acting through its appointed members, shall
have a vote on the Management Committee equal to its Participating Interest,
unless otherwise provided in this Agreement. Each Member's vote may be exercised
by a Manager appointed by the Member or, in his absence, by his alternate.
Except as specifically provided below, decisions made by the Management
Committee shall be by majority vote.

     5.3 Meetings. The Management Committee shall hold regular meetings at least
semi-annually. Meetings shall be held at any mutually agreed place. The Operator
shall give 30 days' notice to the other Member of regular meetings. Either
Member may call a special meeting upon 10 days' notice to the other Member. In
case of emergency, reasonable notice of

                                      -13-

<PAGE>
a special meeting shall suffice. A quorum for any meeting shall consist of one
Manager representing each Member; except that if one Member fails to attend two
consecutive properly called meetings for the purpose of preventing any action
from being taken at such meeting, then a quorum shall consist of the members
representing the other Member, and such Member's vote shall be considered a
majority vote for the purposes of the conduct of all business properly noticed
and not requiring a unanimous vote. Each meeting notice shall include an
itemized agenda prepared by the Operator in the case of a regular meeting, or by
the Member calling the meeting in the case of a special meeting, but any matters
may be considered if either Member adds the matter to the agenda by notice to
the other Member at least 48 hours before the meeting. Each notice shall include
a copy of any document as to which action is to be taken. Supplemental
information may be requested by either Member. Notice may be waived by the
written consent of the Management Committee Managers. The Operator shall prepare
minutes of all meetings and shall distribute copies of the minutes to the
Members within 30 days after the meeting. Each Member shall return to the
Operator signed minutes or specific objections within 20 days of receipt. If the
Operator does not receive signed minutes or objections within such period,
approval shall be deemed. If an objection to the minutes is received and not
resolved by the Members within 30 days, a meeting of the Management Committee
shall be called at which time the minutes in dispute shall again be considered
and final minutes shall be agreed upon. The minutes, when signed by both
Members, shall be the official record of the decisions made by the Management
Committee and shall be binding on the Operator and the Members. If personnel
employed in Operations are required by the Management Committee to attend a
Management Committee meeting, reasonable costs incurred in connection with such
attendance shall be Company costs. All other costs shall be paid for by the
Members individually.

     5.4 Action Without Meeting. In lieu of meetings, the Management Committee
may hold telephone conferences, so long as minutes of such meetings are
immediately distributed to the Members and signed by the Managers on the
Management Committee. The Management Committee, in lieu of deciding any matter
at a meeting or by telephone conference, may act by instrument in writing signed
by each Manager on the Management Committee.

     5.5 Management Committee Duties.

          5.5.1 Matters Requiring Approval. Except as otherwise delegated to the
Operator in Section 6.2, the Management Committee shall have exclusive authority
to determine all management matters related to this Agreement, including but not
limited to approving Programs and Budgets and approving plans or standards for
distribution of Company cash and selection of the Operator, provided, however,
that if a transfer of the Operator's entire interest in the Company is made to
an Affiliate under Article 16, the Affiliate may become the Operator without the
approval of the Management Committee.

          5.5.2 Matters Requiring Unanimous Approval. The Management Committee
shall be responsible for approving the following actions by the Company, all of
which shall require the unanimous approval of all members of the Management
Committee:

                                      -14-

<PAGE>
               (1) Acquisition or disposition of any asset of the Company, the
acquisition or disposition of which would materially impair or change the
conduct of the ordinary business of the Company as contemplated by this
Agreement.

               (2) Acquisition of any interest in real property outside of the
Area of Interest or disposition of any portion of the Property within the Area
of Interest. (3) Except as provided in Sections 6.2.3 and 6.2.12, a call for
contribution from the Members not previously approved as part of a Program and
Budget pursuant to Article 7 hereof.

               (4) Any settlement or adjustment of any suit or claim involving
Company Assets for an amount in excess of $25,000; provided, however, that a
Member withholding consent to any such settlement or adjustment shall be solely
responsible for all amounts subsequently paid in settlement, in adjustment or on
any judgment of such claim or suit in excess of the amount for which consent was
withheld, plus all attorneys' fees incurred by the Company because of such claim
or suit after the date consent was withheld.

               (5) Any subsequent changes in the definition of the authority and
responsibilities of the Operator described in Section 6.2.

               (6) Approval of any revisions in the Accounting Procedure set
forth in Exhibit B.

               (7) Except for Development authorized under Sections 7.3.5 or
7.3.7, the assumption, guarantee or approval of the incurrence of any obligation
for borrowed money on behalf of or in the name of the Company (including without
limitation (i) any obligation owed for all or any part of the purchase price of
property or other assets or for the cost of property or other assets constructed
or of improvements, other than accounts payable included in current liabilities
and incurred in respect of property purchased in the ordinary course of
business, and (ii) any obligation for borrowed money secured by any encumbrance
in respect of the Company, even though the Company has not assumed or become
liable for the payment of such obligation).

               (8) Except for Development authorized under Sections 7.3.5 or
7.3.7, entering into any lease of personal property on behalf of or in the name
of the Company having a term (including without limitation terms of renewal or
extension at the option of the lessor or lessee, whether or not such option has
been exercised) of more than two years or entering into any lease of property on
behalf of or in the name of the Company that in accordance with generally
accepted accounting principles should be capitalized on the balance sheet of the
Company.

                                      -15-

<PAGE>
               (9) Making any investment not in the ordinary course of business,
whether by stock purchase, capital contribution, loan or advance or by purchase
of property or otherwise, on behalf of or in the name of the Company.

               (10) Selling any notes or accounts receivable of the Company with
recourse, at a discount or otherwise for less than the fair market value
thereof.

               (11) Except pursuant to a Member's right under Section 7.3.2,
undertaking a Feasibility Study.

               (12) Except pursuant to a Member's right under Section 7.3.7,
commencing Production.

                               ARTICLE 6. OPERATOR

     6.1 Appointment. The Members appoint Minera Andes as the Operator with
overall management responsibility for Operations. Minera Andes agrees to serve
until it resigns, is replaced, or is deemed to have resigned as provided in
Section 6.6. If Development is authorized under Section 7.3.5, Minera Andes
shall be appointed Operator for the designated Development Area under a
Successor Limited Liability Company Agreement pursuant to Section 7.3.4 and
Minera Andes shall remain the Operator of the Property that has not been
designated as a Development Area. If a unilateral Development commitment is
deemed approved as provided in Section 7.3.7, then the Member proposing such
commitment shall be the Operator for the Development Area designated in the
Feasibility Study upon which the commitment is based. If the Operator transfers
all or part of its interest in or to the Agreement pursuant to Section 16.1 and
following such transfer the Operator's Participating Interest is less than 50
percent (50%), then the Member that is not one of the parties to the transfer
shall become the Operator. The Members direct the Operator to perform, and the
Operator agrees to perform, the duties of Operator of the Company subject to the
terms and conditions of this Agreement. The Members agree that at all times the
Operator shall be the agent of the Company for conducting Operations on behalf
of the Company and for the performance of such other duties as are imposed on
the Operator by the Members under or pursuant to the provisions of this
Agreement. The Operator shall consult freely with the Management Committee.

     6.2 Powers and Duties of Operator. Subject to the terms and provisions of
this Agreement, and to the supervision and direction of the Management
Committee, the Operator shall have the powers and duties to:

          6.2.1 Manage, direct, and control all Operations in accordance with
approved Programs and Budgets and in accordance with the other provisions of
this Agreement.

          6.2.2 Take all actions, perform all duties and make or incur such
expenditures as are required to maintain the titles and interests of the Company
in and to the Property, including, without limitation, the payment of all taxes
(subject to the provisions of this

                                      -16-

<PAGE>
Agreement for payment of such taxes by Pegasus during the Initial Contribution
Period, with subsequent reimbursement by Minera Andes), royalties, rentals and
other amounts required to be paid with respect to the Property.

          6.2.3 Arrange for and carry out Operations on and with respect to the
Property, including but not limited to obtaining such competent consultants,
technicians, agents and independent contractors as may be required and
purchasing and selling such materials, supplies, equipment and services as may
be required in connection with Operations and entering into such contracts as
may be necessary in connection therewith. As to Operations conducted pursuant to
an approved Program and Budget, the Operator may not exceed an approved Budget
of less than $1,000,000 by an amount of more than ten percent nor an approved
Budget equal to or greater than $1,000,000 by an amount of more than five
percent without the prior approval of the Management Committee. Equipment shall
be sold by the Operator only if it meets all of the following criteria:

               (1) It is no longer required for Operations; and

               (2) It has a fair market value of $20,000 or less; and

               (3) The fair market value equals or exceeds the net book value of
the equipment.

Any other sales of equipment must be specifically approved by the Management
Committee as part of a Program and Budget.

          6.2.4 Hire, transfer, or discharge from its own personnel all
executive and other employees required for the Company. All employees shall be
employees of the Operator or one of its Affiliates and not employees of the
Company.

          6.2.5 Locate additional Claims (including without limitation federal
and provincial) and acquire additional prospecting sites and maintain and
protect the Claims and the Assets in connection with Operations and manage and
supervise work, services and other activities to maintain the Property in good
standing and, to the extent provided in a Program, perfect Mining rights,
including but not limited to acquiring access rights, surface rights, water
rights, Claims, leases of Claims, mineral rights and other appurtenant rights
and interests necessary for Operations and performing and filing all work
required to maintain all Claims under Argentinean (including without limitation
federal and provincial) legal requirements.

          6.2.6 Protect the interests of the Members in connection with the
valuation by public authorities for tax purposes of the Property and Assets.

          6.2.7 Prepare and file (or cause to be prepared and filed) with
governmental authorities all tax and other reports required by law to be filed
by either of the Members or the Company and disburse funds for all taxes and
other governmental charges, other than taxes on

                                      -17-

<PAGE>
or measured by net income, that are imposed on the Members by virtue of their
conduct of the Operations.

          6.2.8 Secure and maintain in full force and effect at all times in
financially sound and reputable insurers, for the benefit and at the expense of
the Company, (a) all workers' compensation or similar insurance as may be
required under the laws of any jurisdiction, (b) public liability insurance in
the amount of $2,000,000 for personal injury, death or property damage suffered
upon, in or about any premises owned or occupied by the Company or occurring as
a result of the ownership, maintenance or operation by the Company of any
automobile, truck or other vehicle, or as a result of the use of products
manufactured, constructed or sold by the Company, or services rendered by the
Company, and (c) such other insurance as required by the Management Committee.
Insurance specified in clauses (b) and (c) above shall be maintained in such
amounts (and with co-insurance and deductibles) as required by the Management
Committee. The Operator shall name the Non-Operator as an additional insured on
all policies and shall provide the Non-Operator with certificates of such
insurance on the Effective Date, annually thereafter, and at such other times as
may be reasonably requested by the Non-Operator.

          6.2.9 Conduct Operations in compliance with all applicable statutes,
regulations, and orders of Argentinean governmental bodies (including federal,
provincial, and local bodies), including but not limited to those relating to
safety requirements, working conditions, workers' compensation, employee
benefits, environmental protection and mine reclamation, and secure all
licenses, permits and approvals necessary for Operations. The Operator shall not
be in default of this provision during any period in which the Operator is in
good faith contesting an alleged violation so long as the violation occurred in
spite of the Operator's good faith efforts to comply and the Operator timely
cures through appropriate performance or payment of assessed fines or penalties.

          6.2.10 Keep full and accurate records and accounts of all transactions
entered into on behalf of the Members and of all Company costs and of all funds
disbursed by it or under its direction in accordance with the Accounting
Procedure.

          6.2.11 Prepare and distribute to each Member reports on Operations and
finances in accordance with Article 8.

          6.2.12 Prepare and maintain minutes of all Management Committee
meetings and related correspondence.

          6.2.13 In case of emergency, take any action the Operator deems
necessary to protect life, limb or property, to protect the Assets or to comply
with law or government regulation as provided in Section 7.1.5.

          6.2.14 Notify the Management Committee of any material event or action
affecting Operations as soon as possible following such event or action.

                                      -18-

<PAGE>
          6.2.15 The Operator shall not be in default of its duties under this
Section 6.2 if its failure to perform is caused by the failure of the
Non-Operator to perform acts or make contributions required of it by this
Agreement.

          6.3 Transactions with Affiliates. If the Operator engages Affiliates
to provide services hereunder, it shall do so on terms no less favorable to the
Company than would be the case with unrelated persons in arm's-length
transactions.

     6.4 Standard of Care and Liability. The Operator shall conduct and manage
the Operations and perform all of its obligations as Operator in a workmanlike
and commercially reasonable manner in accordance with sound geological,
engineering, Mining and processing methods and practices using its prudent
business judgment for the benefit of both Members. The Operator shall indemnify
and hold each Member and the Company harmless from all losses, claims, damages
and liabilities, including attorneys' fees, arising out of any act or omission
related to the responsibilities of the Operator that is done or undertaken in
bad faith or that results from the willful misconduct or gross negligence of the
Operator or breach of this Agreement by the Operator; provided that such
indemnity shall not extend to any breach of this Agreement or other matter
arising out of an act or omission of the Operator, its employees, contractors or
other agents that is judged to be negligence but not gross negligence or willful
misconduct.

     6.5 Compensation of Operator. The Members agree that the Operator shall be
advanced funds or reimbursed for Company costs as provided in Article 8 and in
accordance with the Accounting Procedure (Exhibit B).

     6.6 Resignation, Removal or Change of Operator. The Operator shall be
deemed to have resigned from its duties and obligations upon the occurrence of
any of the following events:

          6.6.1 On the date 120 days after tender of written notice to the
Management Committee of its desire to resign as Operator;

          6.6.2 By transfer of all or part of the Operator's interest in the
Company to the Non-Operator or a third party, except as to a transfer to an
Affiliate permitted by Section 3.1, which shall not be deemed to be a
resignation;

          6.6.3 If the Operator defaults in any of its duties and obligations
under this Agreement and does not cure such default or begin to cure such
default in accordance with Section 6.8 after receipt of written notice of such
default from the Non-Operator;

          6.6.4 By the voluntary or involuntary liquidation, insolvency or
termination of the Operator's corporate existence;

                                      -19-

<PAGE>
          6.6.5 By removal of the Operator by a majority vote of the Management
Committee;

          6.6.6 By the elimination under Section 4.8 of the Operator's
Participating Interest; or

          6.6.7 By a default of the Operator as a Member pursuant to Section
11.1 that is not cured or begun to be cured, to the extent cure is permitted by
this Agreement, in accordance with Section 11.3 after receipt of written notice
of such default under Section 11.2.

          In the event the Operator has been deemed to have resigned, the
Management Committee may select a new Operator; provided, however, that a
non-party to this Agreement may not serve as Operator without the unanimous
consent of all Managers on the Management Committee. If the Operator is in
default under Section 6.8 below or under Section 11.1, the Non-Operator shall
choose the Operator (which can include the Non-Operator itself). The resigning
Operator shall not be relieved of its duties sooner than 120 days from the date
of resignation, unless the Management Committee, by vote, not including the vote
of the Operator, waives this time period in writing.

          The Operator, upon ceasing to act as Operator, shall deliver to its
successor custody of all Assets, including but not limited to the real and
personal property records and books. A successor Operator shall have the rights
and obligations of the Operator pursuant to this Agreement.

     6.7 Change of Operator--Development. If a unilateral Development commitment
is made under Section 7.3.7, the Operator shall change as provided in Section
6.1. The existing Operator shall deliver to the new Operator all Assets,
including but not limited to the real and personal property records and books,
as they relate to the Development Area. The new Operator shall be responsible
for preparing the Development Program and Budget pursuant to Section 7.3.12.

     6.8 Operator's Default and Remedies of Non-Operator.

          6.8.1 Notice. Failure of the Operator to perform any material
obligation imposed upon it under this Article 6 shall constitute an event of
default by the Operator in its capacity as Operator. The Non-Operator shall have
the right to give the Operator a Notice of Default, which shall be in writing,
shall set forth the nature of the default, and shall, if the default is curable,
set forth the date by which such default must be cured or by which such cure
shall be initiated, which date shall be at least 30 days after receipt of Notice
of Default, except in the case of a failure to make payments to third parties,
in which case the date shall be 10 days after receipt of such Notice of Default
and except as to Sections 6.6.2, 6.6.4, and 6.6.6, as to which there will be no
cure period. Failure of the Non-Operator to give any such notice shall not
release the Operator from any of its obligations under this Agreement.

                                      -20-

<PAGE>
          6.8.2 Opportunity to Cure. If within 30 days after receipt of the
Notice of Default (or 10 days if the default is a failure to make payments to
third parties) the Operator cures such default, or if the failure is one that
cannot be corrected within 30 days but can be corrected within a reasonable
period of time and the Operator begins correction of such failure to perform
within such 30 days and continues corrective efforts with reasonable diligence
until a cure is effected, the Notice of Default shall be inoperative, and the
Operator shall lose no rights hereunder. If, within such specified period, the
Operator does not cure such default, or if within such specified period the
Operator notifies the Non-Operator that it disputes the existence of the alleged
default and the Operator shall not have commenced correction of the default
within a specified period after a final nonappealable decision by a court of law
that the Operator was in default, the Non-Operator at the expiration of such
period, or upon notice where no cure period is allowed, shall have the rights
hereinafter specified.

          6.8.3 Rights of Non-Operator. If the Operator within said 30-day
period (or 10-day period) does not cure such default or begin to cure such
default, the Operator shall be deemed to have resigned pursuant to Section 6.6.3
and shall be replaced as provided in Section 6.6. The Non-Operator may seek to
recover any damages sustained as a result of the Operator's breach of its
obligations hereunder. The Operator shall be and remain liable for any and all
damages sustained by the Non-Operator as a result of any such breach of its
obligations hereunder, except that no default by the Operator shall affect its
rights and obligations hereunder as a Member (the Non-Operator may also seek any
other remedy now or hereafter provided at law or in equity including the right
to specific performance) and each and every power and remedy of the Non-Operator
may be exercised from time to time and simultaneously and as often and in such
order as the Non-Operator may deem expedient. All such powers and remedies shall
be cumulative, and the exercise of one shall not be deemed a waiver of the right
to exercise any other or others. No delay or omission in the exercise of any
such power or remedy shall impair any such power or remedy or shall be construed
to be a waiver of any default or an acquiescence in such default.

                         ARTICLE 7. PROGRAMS AND BUDGETS

     7.1 In General.

          7.1.1 Operations Pursuant to Programs and Budgets. Operations shall be
conducted, expenses shall be incurred, and Assets shall be acquired only
pursuant to approved Programs and Budgets.

          7.1.2 Content of Programs and Budgets. Each annual Program and Budget
shall describe in reasonable detail the full nature and extent of the proposed
Operations, including, if applicable to that Contract Year, geologic research
and reconnaissance to be undertaken; real property acquisition proposals;
proposed drilling activities; proposed regulatory permit applications; proposed
engineering studies and Mining and Construction plans; a long-range plan for the
Mining of all minable reserves that logically would be mined at the same time or
in sequence with the first scheduled mine under good mining practices; the kind
and capacity

                                                      -21-

<PAGE>
of any plant or milling facilities to be acquired or constructed; a plan for
refining of mineral concentrates; and the estimated period of time required to
complete the proposed Operations. The Program and Budget shall also include, if
applicable, all anticipated costs and expenses, including but not limited to
operation and maintenance expenditures, capital expenditures, working capital
requirements, a statement of expected cash calls and the annual and other
rentals, filing fees or other payments required to maintain the Property in good
standing during the Contract Year, and all anticipated distributions of
Products. Each request for funds to acquire capital items shall include a
detailed description of such items, including but not limited to equipment or
construction specifications. If applicable, each Program and Budget shall also
include monthly production schedules and forecasts, cost estimates and budgets
in sufficient detail to accord with industry standards. The Program and Budget
for the first year of the term of this Agreement is attached hereto as Exhibit
E.

          7.1.3 Presentation of Programs and Budgets. Proposed Programs and
Budgets shall be prepared by the Operator and shall be for one Contract Year
except that the Program and Budget for Development may extend over several
years.

          7.1.4 Budget Overruns; Program Changes. The Operator shall immediately
notify the Management Committee of any material departure from an approved
Program and Budget. If the Operator exceeds an approved Budget of less than
$1,000,000 by more than ten percent, or an approved Budget equal to or greater
than $1,000,000 by more than five percent, then the excess over such percentage,
unless directly caused by an emergency or unexpected expenditure made pursuant
to Section 7.1.5 or unless otherwise authorized by the Management Committee,
shall be for the sole account of the Operator and such excess shall not be
included in the calculation of the Participating Interests pursuant to Section
4.4. Budget overruns of less than the above percentages shall be borne by the
Company as of the beginning of the Contract Year covered by the then current
Program and Budget.

          7.1.5 Emergency or Unexpected Expenditures. In case of emergency, the
Operator may take any action it deems necessary to protect life, limb or
property, to protect the Assets, or to comply with law or government regulation.
In the case of an emergency, the Operator shall promptly notify the Members of
the emergency by telephone, telex, or other electronic communication, and the
Operator shall be reimbursed therefor by the Members in proportion to each
Member's respective Participating Interest as of the beginning of the Contract
Year covered by the then current Program and Budget.

     7.2 Initial Contribution Period and Exploration Period.

          7.2.1 Review and Approval. The Operator shall, on or before May 15 of
each year during the Initial Contribution Period and the Exploration Period,
submit in writing to each Manager on the Management Committee a proposed Program
for Operations during the next Contract Year. During the Exploration Period,
semi-annual Management Committee meetings shall be held during the first week of
September and the first week of April. Within 10 days after receipt of the
Operator's proposed Program and Budget, the Non-Operator may propose

                                      -22-

<PAGE>
modifications to the Operator's proposal or alternatives to the proposed Program
and Budget. At the annual meeting, the Management Committee shall consider the
proposed Program and Budget and any suggested modifications or alternatives. If
the Non-Operator proposes a modification or alternative, then the Management
Committee shall seek to develop a Program and Budget acceptable to both Members.
The Management Committee shall then vote to approve or reject a Program and
Budget.

          7.2.2 Minera Andes' Vote Controls During Initial Contribution Period.
During the Initial Contribution Period, the vote of Minera Andes on Programs and
Budgets shall be controlling, subject to the provisions of Section 5.5.2 on
matters requiring unanimous approval; provided, that (a) if the Initial
Contribution will be completed before the Program and Budget for that Contract
Year is completed, Pegasus shall have full voting rights on any expenditures
beyond those required to complete the Initial Contribution; and (b) a Program
and Budget for the accomplishment of Development under an approved Feasibility
Study shall be approved only as set forth in Section 7.3.5.

          7.2.3 Activities During Deadlock--Exploration Period. If the
Management Committee for any reason fails to approve a Program and Budget on or
before July 1 of any Contract Year during the Exploration Period, the
then-proposed or alternative Program and Budget (whether submitted by the
Operator or another Member) proposing the larger Exploration Budget shall be
deemed to be approved.

          7.2.4 Election to Participate--Exploration Period. By notice to the
Management Committee within 30 days after the final vote approving a Program and
Budget by the Management Committee during the Exploration Period, a Member may
elect to contribute to such Program and Budget:

               (1) In proportion to its Participating Interest as of the
beginning of the Contract Year covered thereby; or

               (2) To some lesser extent than in proportion to its Participating
Interest; or

               (3) Not at all, as provided in Section 4.3.

If a Member elects (2) or (3) above, the Members' Participating Interests shall
be adjusted pursuant to Section 4.4.

          If within such 30-day period a Member fails to notify the Management
Committee in writing of an election not to contribute to a Program and Budget,
such Member shall be deemed to have agreed to contribute funds to such Program
and Budget in proportion to its Participating Interest.

     7.3 Feasibility Study and Development.

                                      -23-

<PAGE>
          7.3.1 Preparation. At the request of the Management Committee, or at
the request of either Member and with the approval of the Management Committee,
the Operator shall conduct or have conducted a Feasibility Study as a part of an
approved Program and Budget and upon conclusion submit a written report to the
Management Committee evaluating the commercial potential of any mineral deposit
lying in one or more areas within the Property. A Feasibility Study will
conclude with a recommendation to commence Development, conduct further
Exploration, or take such other action as the preparer deems appropriate. The
cost of preparing such study shall be charged to the Company Account.

          7.3.2 Nonconsent Study. If either Member requests the Management
Committee to direct the Operator to prepare a Feasibility Study when, in the
reasonable, good faith opinion of such Member, sufficient geological and
metallurgical testing has been completed to justify preparation of a Feasibility
Study, and if the Management Committee fails or refuses to direct that such
study be prepared, then that Member may prepare and submit a Feasibility Study
to the Management Committee, which shall be referred to as a "nonconsent study."
The cost of preparing such study shall be for the account of the Member
preparing the study, unless the Development proposed by the study is
subsequently authorized by the Management Committee, in which event 150% of the
cost of preparing such study shall be paid to such Member and charged to the
Joint Account. If the other Member chooses not to contribute at all to
Operations under a nonconsent Feasibility Study that is authorized or deemed
authorized, 150% of the cost of preparing the Feasibility Study shall be added
to the denominator of the formula in Section 4.4 in calculating the
noncontributing Member's adjusted Participating Interest pursuant to Section
7.3.9(2).

          7.3.3 Review. The first Feasibility Study submitted shall be
designated the "initial Feasibility Study," whether prepared under Section 7.3.1
or 7.3.2. Within 90 days after submission of the initial Feasibility Study, the
Member that did not prepare it may prepare or have prepared an alternative
Feasibility Study, which shall be presented to the Management Committee within
such 90-day period. The cost of preparing such study shall be for the account of
the Member preparing the study, unless the Development proposed by the study is
subsequently authorized by the Management Committee, in which event 150% of the
cost of preparing such study shall be paid to such Member and charged to the
Joint Account. Any such alternative Feasibility Study shall be considered by the
Management Committee along with the initial Feasibility Study. The Management
Committee shall also have the right to direct the Operator to perform additional
work or to otherwise revise any Feasibility Study. If the initial Feasibility
Study or any alternative Feasibility Study recommends that Development commence,
the Management Committee will meet within 180 days after submission of the
initial Feasibility Study and consider whether to authorize such Development
pursuant to Section 7.3.6.

          7.3.4 Notice of Development Proposal. If a Feasibility Study or any
alternative Feasibility Study recommends that Development commence, any Member
may request the Management Committee to commence Development on a proposed
Development Area if:

                                      -24-

<PAGE>
               (1) Notice of the request is furnished to each Member at least 45
days before the meeting of the Management Committee at which the request is to
be considered; and

               (2) If such Feasibility Study was completed more than one year
before the date of such meeting, an addendum, prepared as of a date not more
than 90 days before the date of such meeting, updating all information contained
in the Feasibility Study affected by the time delay has been distributed to all
Members.

          7.3.5 Authorization of Development by Management Committee. The
Management Committee will meet and consider any request made under Section 7.3.4
or any Feasibility Study recommending Development proposed under Section 7.3.3
and may, if Members holding not less than 75 percent of total Participating
Interests concur, authorize Development, provided that unless the Management
Committee otherwise determines, the Development so approved will require
commencement of construction within one year's time and will be based upon a
timetable for completion of Development within four years' time. Prompt notice
of such authorization will be given to each Member that did not vote in favor of
Development.

          7.3.6 Commitments upon Management Committee Authorization. Each Member
that votes in favor of commencing Development will be deemed to have committed
to participate in placing the Development Area into production at a rate of
participation not less than its Participating Interest plus, pro rata to its
share of the Participating Interests of the Members that joined in the
authorization, a proportionate amount of the Participating Interest of any
Member that, having voted against the Development authorized under Section
7.3.5, elects not to participate, or to participate at a reduced rate, but not
less, in any event, than a 20 percent Participating Interest.

          7.3.7 Unilateral Development Commitment. Any Member holding not less
than a 20 percent Participating Interest may commit to Development of a proposed
Development Area if:

               (1) Within six months before the date of the commitment,
authorization of Development on the proposed Development Area was considered by
the Management Committee pursuant to Section 7.3.5, but was not given;

               (2) The commitment contains (i) an undertaking by it, alone or
with one or more other Members, to commence Development within one year's time,
(ii) a timetable for completion of Development, which will be not more than four
years from the date of commitment, and (iii) the budget for such Development;

               (3) If any Feasibility Study that recommended Development
commence was completed more than one year before the date of such commitment, an
addendum thereto, prepared as of a date not more than 90 days before the date of
such commitment, updating all

                                      -25-

<PAGE>
information contained in the Feasibility Study affected by the time delay has
been distributed to all Members; and

               (4) There is furnished to all Members a commitment letter from
one or more banks confirming that on the basis of such Feasibility Study such
bank or banks will lend to the Members on a project finance basis, and at
prevailing interest rates for major construction projects in Argentina, amounts,
to be secured by first mortgage liens on the interests of the Members in the
Development Area, aggregating not less than 90 percent of the capital cost to
place the Property into production and that no deficiency or other guarantees
will be required except for completion guarantees providing for overrun
financing and timely completion of the project on terms customarily contained in
project finance completion guarantees.

               If more than one Member makes a unilateral commitment to
Development of a proposed Development Area, the commitment proposing the larger
budget shall be the commitment to which other Members subscribe, as provided
below.

               The commitment will be delivered to all Members, and upon
delivery each Member subscribing will, subject to Section 7.3.10, be obliged,
subject to force majeure, to place the proposed Development Area into production
in accordance with the Feasibility Study and the timetable for completion
submitted to the Members, but nothing will oblige any Member to borrow from or
give security to any person, including any bank referred to in subsection (d)
above.

          7.3.8 Designation of Development Area. If Development is authorized
under Section 7.3.5 or if Development is deemed to be authorized under Section
7.3.7, then the Management Committee shall designate part of the Property
covered by such study as a Development Area. If any Development Area is
designated that includes less than all of the Property, this Agreement shall be
modified to exclude the Development Area. After completion of the Initial
Contribution Period, each Development Area designated shall be transferred to a
Successor Company, the interests in which shall be distributed to the Members
according to their respective Participating Interests in this Agreement as of
the date of distribution. The Members shall execute, with respect to the
Successor Company, a limited liability company agreement substantially in the
form of this Agreement and agree upon a method of allocating the total income
and expenses under this Agreement between the Company and each Successor
Company. The Operator shall serve as operator for the Successor Company. If a
Development Area appears likely to be the only or the last Development Area to
be designated within the Area of Interest, it shall not be contributed to a
Successor Company but shall be developed under the terms of this Agreement.
Then, if another Development Area is later designated, it shall be contributed
to a Successor Company.

          7.3.9 Participation in Development Commitment. In case of

                                      -26-

<PAGE>
               (1) Development authorized under Section 7.3.5, each Member that
did not vote in favor will, during a period of 120-days after the authorization;
or

               (2) A unilateral Development commitment under Section 7.3.7, each
Member other than Members referred to in subsection 7.3.7(2) will, during a
period of 120- days after delivery of such commitment;

have the right, subject to Section 7.3.10, to elect to participate in such
Development, either at the rate of its Participating Interest or at a reduced
rate, but not less, in any event, than a 20 percent Participating Interest. When
a reduced rate of participation is elected, the Member must contribute to all
expenditures in proportion to the Participating Interest then elected, but if
the Member's Participating Interest is reduced to less than 20 percent, Section
4.8 will apply. A Member that fails to make any timely election under this
Section 7.3.9 will be deemed to have elected not to participate in the proposed
Development.

          7.3.10 Adjustment of Participating Interests. If fewer than all
Members elect to participate in Development under Section 7.3.6 or 7.3.9, the
Members that voted in favor of Development under Section 7.3.5, or that joined
in the commitment pursuant to Section 7.3.7, as the case may be, will, pro rata
to their Participating Interests, increase their respective Participating
Interests in the Development Program and Budget for the implementation of the
Feasibility Study such that the Participating Interests in such Program and
Budget of all Members will total 100 percent.

          7.3.11 Development Budget and Operations. As soon as reasonably
practicable after Development is authorized or deemed authorized under Sections
7.3.6 or 7.3.9, and in no event later than 30 days prior to commencement of
Development work, the Operator shall submit to the Management Committee: (a) a
Program and Budget, based upon the Feasibility Study, for the accomplishment of
the Development together with a Program and Budget for the period commencing on
the date of such submission and ending on the next following June 30, and (b)
long-term projections with respect to development, construction, maintenance and
operation of the project. At any time prior to commencement of Development, the
Management Committee shall have the right, with unanimous consent and upon
consultation with the Operator, to make revisions in such Development Program
and Budget that are not at substantial variance with the Feasibility Study. At
the time of submission of the Program and Budget as provided above, the Operator
shall report on bids obtained for accomplishment of the Development work (i.e.,
plant construction, major equipment purchases, etc.).

          On or before April 25 of each year during the Construction Period, the
Operator shall submit to the Management Committee a proposed Program and Budget
for the following Contract Year, together with any necessary revisions to the
long-term projections with respect to development, construction, maintenance and
operation of the project. The Operator shall call a meeting of the Management
Committee not earlier than May 20 and no later than June 15 of each year for the
purpose of considering the Program and Budget. Such Program and Budget, as
modified and approved by the Management Committee, shall constitute the Program
and

                                      -27-

<PAGE>
Budget for the Company for the following Contract Year. All Members shall
contribute in proportion to their respective Participating Interest. As provided
in Sections 7.3.6 and 7.3.9, once a Member elects to participate in Development
to any extent, it shall be liable to contribute to all costs and obligations of
Development to the extent of its initial election with no further elections or
opportunity to reduce its Participating Interest until Mining commences, except
as provided in Section 7.3.13.

          7.3.12 Restoration of Participating Interest.

               (1) If one Member elects to reduce its participation in
Development under Section 7.3.6 or 7.3.9 and has its Participating Interest
adjusted pursuant to Section 4.4, and if the nondiluting Member has not
commenced Development consistent with the Feasibility Study within one year from
the effective date of the adjustment of the diluting Member's Participating
Interest, then the Participating Interest of the diluting Member shall be
restored to its level before the adjustment, effective as of the effective date
of the first adjustment. No further work shall be conducted, except to maintain
and protect the Property, until a new or revised Feasibility Study has been
prepared and Development has been authorized pursuant to this Section 7.3. As
used in this Section 7.3.12, the phrase "commence Development" shall mean
expending and contractually committing to expend either (i) 50 percent of the
first 12 months' Development Budget or (ii) ten percent of the total cost of
Development as projected in the approved Feasibility Study.

               (2) If the nondiluting Member timely commences Development but
later ceases Development prior to completion, and such cessation continues for
more than six months, exclusive of any period of cessation attributable to force
majeure, the nondiluting Member shall not resume Development, except to maintain
and protect the Property, until a new or revised Feasibility Study has been
prepared and Development has been authorized pursuant to this Section 7.3. The
diluting Member's Participating Interest shall be restored to its level prior to
the adjustment based on the Feasibility Study just abandoned.

               (3) If a new or revised Feasibility Study is prepared and
approved following a failure to commence or a cessation of Development under
Section 7.3.12(1) or 7.3.12(2) above, any amounts paid by the nondiluting Member
under the earlier Feasibility Study for Development prior to cessation that are
of benefit to the Operations under the new Feasibility Study as determined by
the Management Committee shall be credited to the nondiluting Member's account,
and that Member shall have no obligation to bear any further costs until the
amounts spent by the Members on all Development (under either Feasibility Study)
are in proportion to their Participating Interests.

          7.3.13 Cost Increases and Price Declines. If bids submitted for
Development work result in cost increases of more than 25 percent above the
approved Feasibility Study estimates, or if the spot price of the commodity
planned to be developed drops more than 25 percent below the previous Contract
Year's average price for a period of 180 days or more, the Operator shall
immediately notify the Management Committee in writing. The Management

                                      -28-

<PAGE>
Committee shall hold a meeting within 30 days of the Operator's notice and
decide by majority vote what action should be taken in response to the cost
increase or price decline. If the Management Committee decides to continue with
Development, each Member shall have the right, for a period of 45 days following
the Management Committee decision, to reconsider its participation under
Sections 7.3.6 or 7.3.9. Failure to elect one of the options under such sections
within such time shall bind the Member to participate at its Participating
Interest. No right to reconsider a Member's election shall exist once
Development is continued or commences, unless subsequent cumulative cost
increases by an additional 25 percent of the approved Feasibility Study
estimates or spot price declines an additional ten percent for a period of 180
days or more. If the Management Committee fails to approve continued
Development, then a Program and Budget sufficient to maintain the Members'
interest in the Agreement, and no more, shall be prepared by the Operator and
shall be deemed approved by the Management Committee for the next Contract Year.

     7.4 Mining and Operations.

          7.4.1 Review and Approval. As soon as practicable after completion of
the Development, the Operator shall submit to the Management Committee a
proposed Mining Program and Budget for the period commencing on the date of such
submission and ending on the next following June 30. On or before April 25 of
each year after the commencement of Mining, the Operator shall submit to the
Management Committee a proposed Program and Budget for the following Contract
Year. The Management Committee shall call a meeting of the Management Committee
for not earlier than May 20 and no later than May 25 of such Contract Year for
the purpose of considering such Program and Budget. Such Program and Budget, as
modified and approved by the Management Committee, shall constitute the Program
and Budget for the following Contract Year. All Members shall contribute in
proportion to their Participating Interests.

          If the Operator fails to submit a Program and Budget by May 25 of any
Contract Year during Mining Operations, or if the Management Committee fails to
approve a Program and Budget submitted by the Operator, then any Member holding
at least a 20 percent Participating Interest shall have the right to submit to
the Management Committee a Program and Budget on or before June 20 of such
Contract Year or within 30 days of any Management Committee rejection of the
Operator's proposed Program and Budget, whichever is later. If the Management
Committee approves any such Program and Budget, it shall become the Mining
Program for the following Contract Year.

          Unless otherwise agreed by the Management Committee, the rate of
production under the first Mining Program and Budget shall be the standard rate
of production set forth in the final Feasibility Study. The rate of production
for each subsequent Contract Year shall be determined by the Management
Committee at the time of approval of the annual Program and Budget for that
Contract Year.

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<PAGE>
          7.4.2 Activities During Deadlock--Mining Period. If the Management
Committee fails to approve any Program and Budget by June 1 of any Contract
Year, then the proposed Program and Budget (whether submitted by the Operator or
another Member) proposing the larger Mining Budget shall be deemed to be
approved.

                       ARTICLE 8. ACCOUNTS AND SETTLEMENTS

     8.1 Monthly Cash Budget. The Operator shall promptly submit to the Members
monthly statements of account reflecting in reasonable detail the charges and
credits to the Company Account. The monthly statement shall show:

          8.1.1 The estimated amount that will be required to be contributed
during the succeeding calendar month (or such longer period as may be determined
by the Management Committee) for the approved Program and Budget;

          8.1.2 The extent, if any, to which said amount may be satisfied by
funds (in excess of a proper amount of Company working capital) previously
furnished to the Operator under this Agreement;

          8.1.3 Credits, if any, to the Company, including those arising from
adjustment of accruals to actual expenditures; and

          8.1.4 A summary of the Operator's activities and the results of such
activity.

          The monthly cash budget shall include an amount to cover the monthly
general expenses of the Operator, an amount to cover the anticipated
expenditures during the succeeding month for approved Operations and an amount
required to maintain working capital (in accordance with Section 8.2), all in
accordance with Exhibit B.

     8.2 Cash Calls. After the end of the Initial Contribution Period, the
Operator shall submit to each Member, prior to the last day of each month, a
billing for estimated cash requirements for the next month. The billings shall
be reconciled to the monthly statement provided for in Section 8.1. The billing
shall, if appropriate, include adjustments for any excess or deficiency arising
from any differences between estimated and actual costs. Within 15 days after
receipt of each billing, each Member shall advance to the Operator its
proportionate share of the estimated amount, based on Participating Interests.
Time is of the essence of payment of such billings. The Operator shall at all
times maintain a cash balance approximately equal to the rate of disbursement
for up to 45 days.

     8.3 Failure to Meet Cash Calls. A Member that fails to meet cash calls in
the amount and at the times specified in Section 8.2 shall be in default. The
nondefaulting Member shall have those rights, remedies and elections specified
in Section 4.5 and Article 11.

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<PAGE>
     8.4 Accounts. The Operator shall maintain at its offices complete financial
books and records, on the accrual basis for financial reporting, in accordance
with the Accounting Procedure and generally accepted accounting principles,
showing all costs, expenditures, sales, receipts, disbursements, assets and
liabilities, and profits and losses. These accounts shall include general
ledgers and supporting and subsidiary journals, invoices, checks, and other
customary documentation. The Operator shall also maintain at such offices all
other records necessary, convenient or incidental to the recording of the
Company's affairs. The accounts shall be retained for the duration of the period
allowed the Members for audit or the period required by the Internal Revenue
Code or by the needs of either Member. All such books of account and other
records of the Company may be examined and copies thereof made by any Authorized
Person, all at such reasonable times as the Authorized Person may upon
reasonable notice request.

     8.5 Audits. Any Member and any Authorized Person may, upon reasonable
notice, at its sole expense and at reasonable times, inspect, examine and audit
the accounts and records of Operations under this Agreement. All written
exceptions to and claims upon the Operator for discrepancies disclosed by such
audit shall be made within the 12-month period after such an audit is made
available to the Members. Following the Exploration Period, the annual
accounting and financial records shall be audited within three months after the
end of each Contract Year by a firm of independent certified public accountants
of national reputation selected by the Operator. Upon prior written notice from
the Operator to the other Members, the Operator may use a firm of accountants
that is otherwise performing audit services for the Operator or its Affiliates
unless within 10 days after such notice is mailed by the Operator another Member
makes reasonable objection to the use of such accountants. The cost of such
audit shall be borne by the Company. Upon the request of the Non-Operator, the
Operator shall provide a detailed accounting reconciling beginning and ending
balances in any of the Company accounts. In addition, the Operator shall
promptly deliver to the Non-Operator a copy of any report as to material
inadequacies in accounting controls (including reports as to the absence of any
inadequacies) submitted by the independent public accountants in connection with
any audit of the Company. The Non-Operator may make written exception to and
claim upon the Operator for any discrepancies disclosed by such audit within a
reasonable time after the delivery of the audit report. The Operator shall
retain all documents and invoices pertaining to charges and credits to the
Company Account for a period of not less than 24 months after the end of the
Contract Year in which such charges and credits take place or until the
Non-Operator's exceptions have been satisfied, whichever is the longer. The
Non-Operator and any Authorized Person shall have the right to at any time meet
with and discuss the affairs, finances and accounts of the Company with the
independent public accountants conducting any such audit. Any disputes arising
out of audits shall be addressed promptly by the Management Committee at a
meeting called for such purpose. If the Management Committee fails to resolve
such dispute to the satisfaction of all Members, then they shall be left with
all of their remedies at law and equity and all of their remedies under the
Agreement.

     8.6 Annual Reports and Records. By May 15 of each Contract Year, the
Operator shall furnish to each of the Members a detailed report on the
activities of the Company during

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that Contract Year, reporting the results of all Operations, including but not
limited to copies of all geologic maps, drill hole analysis data, assay reports,
and the Operator's recommended long-term and short-term plans. Within three
months after the end of each Contract Year, the Operator shall furnish to each
of the Members an annual Company financial statement, which shall include
statements of income, changes in financial position, and balance sheets for the
Contract Year then ended and any additional information that the Members may
reasonably require.

     8.7 Monthly Report. On or before the 20th day of each month, the Operator
shall prepare and submit to the Members a monthly report showing the actual
results of Operations for the preceding month in sufficient detail for
computation and monitoring of all phases of Operations, including but not
limited to, as applicable, the following: maintenance costs by unit, detailed
ore production reports, labor costs by category, drifting costs, costs per ton
of ore, costs per ton of waste, processing costs, work in process, summaries of
all geological results, including without limitation, and if applicable, copies
of all geological maps, drill hole analysis data, assay reports, and the
Operator's recommended long-term and short-term plans. The report shall also
include other information consistent with generally accepted accounting
principles and cost accounting procedures consistent with standards in the
industry. The monthly report shall include comparative actual to budget
information, anticipated Operations over the next six months with notations of
any material events, and explanation of any significant differences between
actual results and those budgeted or previously forecast.

     8.8 Inspection and Access. Both Members or any Authorized Person shall be
entitled to enter upon the Area of Interest at any and all reasonable times,
after reasonable advance notice, at the respective Member's sole risk and
expense, to inspect the Assets and Operations. The Members or any Authorized
Person shall also be permitted, at any and all reasonable times, to inspect and
copy the Operator's books, records and data pertaining to the Company.

     8.9 Additional Information. Each Company or its Authorized Person shall
have the right to discuss the affairs, finances, and accounts of the Company
with the officers and employees of the Operator. The Operator shall, in addition
to the foregoing, make available to the Non-Operator and its Authorized Person
such other information relating to the affairs of the Company (including such
information as may be within the knowledge of the Operator concerning the
Development, Construction, Operation and maintenance of the Company) as the
Member or any Authorized Person may from time to time reasonably request.

                      ARTICLE 9. DISPOSITION OF PRODUCTION

     9.1 Disposition in General. To the extent permitted by the laws of
Argentina in effect from time to time, the Company shall distribute Products in
kind to the Members, and, under extraordinary circumstances, in the discretion
of the Management Committee, the Company may distribute cash to the Members.
Products shall be distributed by the Operator as soon as possible after they
have been refined to the standards set forth below as to gold and silver or
otherwise processed into readily marketable form. (However, except as provided

                                      -32-

<PAGE>
below, the Operator will not sell Products and distribute cash since all
Products shall be distributed in kind.) Except upon termination, the Operator
shall not distribute Company Assets (other than Products or cash) without the
consent of the Members.

          Gold and silver Products shall be distributed in kind at the refiner's
place of business as soon as, but only after, they have been refined to a final
gold and silver bullion standard of at least 99.9 percent pure silver and at
least 99.95 percent pure gold. The Operator shall direct the refiner to deposit
each Member's share of the refined Products in proportion to each Member's
Participating Interest as of the date of distribution into a separate
consignment account at the refinery in the Member's name. After such
distributions, all storage costs and risk of loss shall be borne by the Member
receiving the distribution.

          As to Products other than gold and silver, the Operator shall give the
Members notice at least 30 days in advance of the delivery date upon which their
respective shares of Products will be available. Such dispositions shall be made
only when such Products have been processed into readily marketable form. If a
Member fails to take such Products in kind, the Operator shall have the right,
but not the obligation, for a period of time consistent with the minimum needs
of the industry, but not to exceed one year, to sell such share as agent for the
other Member at not less than the prevailing market price in the area. Subject
to the terms of any such contracts of sale then outstanding, during any period
that the Operator is purchasing or selling a Member's share of production, the
Member may elect by notice to the Operator to take in kind. The Operator shall
be entitled to deduct from proceeds of any sale by it for the account of a
Member reasonable expenses incurred by the Operator in such a sale.

     9.2 Taking in Kind. Any extra expenditure incurred in the taking in kind or
separate disposition by either Member of its proportionate share of Products
shall be borne by such Member. Nothing in this Agreement shall be construed as
providing authority, directly or indirectly, for any marketing or selling of
Products.

     9.3 Futures Contracts. The Members agree that neither Member shall have any
obligation to account to the other Member nor have any interest or right of
participation in any profits or proceeds of futures contracts, forward sales,
hedging or any other similar marketing mechanism employed by the other Member
with respect to any minerals produced or to be produced from the Property.

           ARTICLE 10. REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS


     10.1 Capacity of Members. Each of the Members represents and warrants as
follows:

          10.1.1 That it is a corporation duly incorporated and in good standing
in its state of incorporation and that it is qualified to do business and is in
good standing in Argentina;

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<PAGE>

          10.1.2 That it has the capacity to enter into and perform this
Agreement and all transactions contemplated in this Agreement and that all
corporate and other actions required to authorize it to enter into and perform
this Agreement have been properly taken;

          10.1.3 That it will not breach any other agreement or arrangement by
entering into or performing this Agreement and that this Agreement has been duly
executed and delivered by it and is valid and binding upon it in accordance with
its terms;

          10.1.4 That it has not engaged or employed any broker or finder in
connection with the negotiation, execution or delivery of this Agreement; and

          10.1.5 That it has not made any assignment for the benefit of
creditors, filed any petition in bankruptcy, been adjudicated insolvent or
bankrupt, petitioned or applied to any tribunal for any receiver, conservator or
trustee of it under any reorganization arrangement, readjustment of debt,
conservation, dissolution or liquidation law or statute of any jurisdiction, and
no such action or proceeding has been commenced against it by any creditor,
claimant, governmental agency, or other person.

     10.2 Representations and Warranties of Each Member.

          10.2.1 With respect to any portions of the Property in which Pegasus
held an interest under contracts or leases prior to the Effective Date, Pegasus
warrants and represents that Pegasus has not received any notice of default of
any of the terms or provisions of the contracts, and to the best of Pegasus'
knowledge and belief the contracts or leases are valid and are in good standing
and there are no pending or threatened actions, suits, claims, or proceedings
related to them.

          10.2.2 With respect to any portion of the Property comprised of
Claims, subject to the paramount title of Argentina and the Province of Chubut
and to the best of Pegasus' knowledge, Pegasus warrants and represents that:

               (1) All work required to be performed by Pegasus, and as far as
Pegasus is aware, all other work, payments or other actions required to hold
such Claims, have been performed or made when required;

               (2) The Claims are free and clear of defects, liens and
encumbrances arising by, through or under Pegasus; and

               (3) Except as may be disclosed at Exhibit A, Pegasus has no
knowledge of the existence of third party claims or property rights that
conflict with the Claims comprising the Property.

          10.2.3 Without limiting Minera Andes' right to rely on the
representations and warranties of Pegasus, Minera Andes represents and warrants
that (1) it has entered into the

                                      -34-

<PAGE>
Agreement based solely on its own due diligence as to the Property and Assets
and on its own geologic and engineering interpretations; (2) the Assets (if any
other than funds) contributed by Minera Andes are free and clear of defects,
liens and encumbrances arising by, through or under Minera Andes; and (3) Minera
Andes has no knowledge of the existence of third party claims or property rights
that conflict with its title to the Assets.

     Nothing in this Article, however, shall be deemed to be a representation or
warranty that each or any of the Claims has a discovery of minerals within its
boundaries. Pegasus disclaims any representation or warranty as to the value of
any minerals located on such claims or the ability to develop and recover the
same. The representations and warranties above shall apply only to the period
prior to the Effective Date but shall survive the Effective Date.

     Pegasus further warrants that it has not entered into any agreements,
either written or oral, with any other party obligating Pegasus to perform any
duty or convey or burden any interest in the Property, nor is the Property
subject to any rights of first offer or first refusal. Pegasus further warrants
that no action, suit, claim proceeding, arbitration or investigation is pending
or to its knowledge threatened against the Property at law or in equity. Pegasus
has provided all material data relevant to the Properties that is in possession
of Pegasus, but Pegasus makes no representation as to accuracy of such data
except that Pegasus is not aware that any of such data is materially false or
incorrect and Pegasus is not aware of any material adverse fact concerning the
Property which it has failed to disclose to Minera Andes. EXCEPT AS EXPLICITLY
SET FORTH IN THIS SECTION 10.2, PEGASUS DISCLAIMS ALL REPRESENTATIONS AND
WARRANTIES, WHETHER EXPRESS, IMPLIED, ARISING BY LAW, OR OTHERWISE.

     Each Member shall indemnify, protect, defend, save and hold harmless the
other Member from and against any and all damage, loss, liability, obligation,
claim, demand, cost, expense, or fees (including without limitation reasonable
attorneys' fees) arising from the activities of the first Member, its agents,
contractors, employees and representatives conducted on or for the benefit of
the Property or the Assets prior to the Effective Date.

     10.3 Joint Loss of Title. Any failure or loss of title to the Assets,
except for losses arising out of a breach of the representations and warranties
by Pegasus or Minera Andes, shall be charged to the Members in proportion to
their Participating Interests, and all costs of defending title (except costs
arising out of a breach of the representations and warranties by Pegasus) shall
be charged to the Company.

     10.4 Compliance with Agreements. Each Member agrees that it will comply
with all of the terms, conditions, and provisions on its part to be observed or
performed under any lease, agreement, or other instrument pursuant to which
Assets have been acquired, including but not limited to the leases and
agreements listed in Exhibit A, and that it will not terminate or cancel any
such lease, agreement or other instrument and will take all action requisite on
its part to prevent any termination or cancellation thereof, other than
termination by consent of both Members or termination for reasons beyond the
control of either Member. Each Member agrees

                                      -35-

<PAGE>
to notify the other Member promptly in writing if it receives notice of any
default or alleged default under such leases and agreements or notice of any
title defect or alleged title defect affecting property within the Area of
Interest.

     10.5 Review of Title. Minera Andes shall be entitled to review Pegasus'
title to the Property Pegasus has contributed to the Company during the Initial
Contribution Period. Pegasus agrees to provide all of its data about the
Property, including title opinions, if any, to Minera Andes, and Minera Andes
may undertake, at its sole expense, any additional title review and
investigation. If Minera Andes determines, that title to the Property is
unsatisfactory, it shall provide written notice of title defects to Pegasus,
along with Minera Andes' recommendations for title curative work. Within 30 days
after receipt of such report, Pegasus may elect to commence and diligently
complete title curative work at its sole expense. If Pegasus does not undertake
within 30 days to cure title defects, Minera Andes may either (a) cure such
title defects and credit all required expenditures to its initial contribution
to the Company, or (b) elect to withdraw from the Company and terminate this
Agreement under Section 13.1.2. Minera Andes shall be liable for its share of
liabilities arising out of Operations conducted prior to such withdrawal but
shall not be liable for any further payment to Pegasus.

                   ARTICLE 11. MEMBERS' DEFAULTS AND REMEDIES

     11.1 Events of Default. The following events shall constitute events of
default:

          11.1.1 Failure of a Member to meet a cash call pursuant to Section
8.2, or to contribute funds pursuant to Section 3.2, without having elected not
to contribute pursuant to Section 4.3 or, if the Member elected to contribute,
making contributions less than those it committed to make;

          11.1.2 Any transfer by a Member to its interest in the Company in
contravention of the provisions of Article 16;

          11.1.3 Failure of a Member to perform any other obligation imposed
upon such Member by this Agreement, including, without limitation, any
obligation it may have as Operator;

          11.1.4 Filing of a petition in bankruptcy by or against a Member if
such petition is not withdrawn or dismissed within 60 days after its filing;

          11.1.5 General assignment by a Member for the benefit of creditors; or

          11.1.6 Allowance by a Member of the appointment of a receiver or
trustee of all or any substantial part of its property if such receiver or
trustee is not discharged within 60 days after his appointment.

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<PAGE>
          11.1.7 Any breach by a Member of any representation and warranty it
has made in this Agreement.

          Upon the occurrence of any such event, the Member failing to perform
shall be deemed to be in default hereunder and shall be referred to as the
"Defaulting Member," and the other Member shall be referred to as the
"Non-Defaulting Member."

     11.2 Notice of Default. The Non-Defaulting Member shall have the right to
give the Defaulting Member a Notice of Default, which shall be in writing, shall
set forth the nature of the event of default, and shall set forth the date by
which such default must be cured, which date shall be at least 30 days after
receipt of the Notice of Default, except in the case of a failure to advance
funds, in which case the date shall be 10 days after receipt of said Notice of
Default and except as to subsections 11.1.2, 11.1.4, 11.1.5 and 11.1.6, as to
which there will be no cure period. Failure of the Non-Defaulting Member to give
any such notice shall not release the Defaulting Member from any of its
obligations under this Agreement.

     11.3 Opportunity to Cure. If within such 30-day period (or 10-day period)
the Defaulting Member cures such default, or if the failure is one that cannot
in good faith be corrected within 30 days but is ultimately curable and the
Defaulting Member begins correction of such failure to perform within such 30
days and continues corrective efforts with reasonable diligence until a cure is
effected, the Notice of Default shall be inoperative, and the Defaulting Member
shall lose no rights under this Agreement. If, within such specified period, the
Defaulting Member does not cure such default, or if within such 30-day period
the Defaulting Member notifies the Non-Defaulting Member that it disputes the
existence of the alleged default and the Defaulting Member shall not have
commenced correction of the default within 30 days after a final nonappealable
decision by a court of law that the Defaulting Member was in default, the
Non-Defaulting Member at the expiration of such period, or upon notice where no
cure period is allowed, shall have the rights specified below.

     11.4 Rights upon Default. The Non-Defaulting Member, after providing notice
and an opportunity to cure as provided in Sections 11.2 and 11.3 above, shall be
entitled to (but not required to) exercise any of the following powers and
remedies:

          11.4.1 Loan. The Non-Defaulting Member may pay or assume the
obligations of the Defaulting Member and elect to treat it as a loan to the
Defaulting Member that shall be immediately due and payable and that shall bear
interest from the date due at an annual rate equal to five percentage points
over the publicly announced prime rate or reference rate for commercial loans in
effect from time to time quoted by Citibank, New York (or, if Citibank should
discontinue such rate, the publicly announced prime or reference rate of any
other U.S. commercial bank selected by the Non-Defaulting Member that is among
the 50 largest in the U.S., by assets) or at the maximum rate permitted by law,
whichever is less. Any such loan shall be secured by a security interest in the
Defaulting Member's interest in the Company, and by this Agreement each Member
grants to the other Member a security interest for that purpose,

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<PAGE>
and, additionally, any such loan shall create a separate contract right in favor
of the Non-Defaulting Member.

          11.4.2 Dilution. If the event of default occurs under Section 11.1.1,
the Non-Defaulting Member may, at its option, pay or assume the obligations of
the Defaulting Member. In such event, the Non-Defaulting Member's Participating
Interest shall be increased and the Defaulting Member's Participating Interest
shall be decreased in accordance with the provisions of Section 4.4 effective as
of the end of the month preceding the month in which the event of default
occurred. The Non-Defaulting Member shall be treated as the nondiluting Member
and the Defaulting Member shall be treated as the diluting Member thereunder,
the event of default being treated as an "election not to contribute" under
Section 4.3.

          11.4.3 Termination. The Non-Defaulting Member may terminate this
Agreement upon 10 days' written notice to the Defaulting Member of its intent to
do so.

     11.5 Remedies Not Exclusive. Except as otherwise expressly provided in this
Agreement, each and every power and remedy hereby specifically given to the
Non-Defaulting Member shall be in addition to every other power and remedy now
or hereafter exercised at law or in equity (including the right to specific
performance), and each and every power and remedy may be exercised from time to
time and as often and in such order as may be deemed expedient. All such powers
and remedies shall be cumulative, and the exercise of one shall not be deemed a
waiver of the right to exercise any other or others. No delay or omission in the
exercise of any such power or remedy and no renewal or extension of any payments
due hereunder shall impair any such power or remedy or shall be construed to be
a waiver of any default or an acquiescence therein.

          The Defaulting Member shall cease to have the right to participate in
the management of the Company beginning immediately after the period for cure
expires and continuing for so long as the default is continuing, and the
Defaulting Member during such period shall have no vote in Management Committee
decisions. In continuing to manage the Company, the Non-Defaulting Member shall
have absolute discretion and may remove and replace the Defaulting Member as
Operator and manage the Operations in conformity with Article 6 above, and no
action taken by it shall subject it to a claim for breach of duty, on the ground
of conflict of interest, negligence or any other theory, except fraud or gross
negligence.

                     ARTICLE 12. CONTRIBUTION TO LIABILITIES

     12.1 Contribution. If either Member pays any Company liability or
obligation, except where such payment requires the prior approval of the
Management Committee under the terms of this Agreement, in any manner other than
in accordance with its Participating Interest, that Member shall be entitled to
contribution from the other Member for such excess. This right of contribution
is in addition to any other right that might be provided by law or under this
Agreement. Any reduction in a Member's Participating Interest under Article 4
shall not relieve such Member of its share of any liability, whether it accrues
before or after such reduction,

                                      -38-

<PAGE>
arising out of Operations conducted prior to such reduction. For purposes of
this Article 12, such Member's share of such liability shall be in proportion to
its Participating Interest at the time such liability was incurred.

     12.2 Indemnification. Except (1) as otherwise provided in Section 12.1; and
(2) in cases in which the Operator failed to obtain the required insurance, each
Member agrees to and does hereby indemnify, defend, and hold harmless the other
Member, its directors, officers, employees, and agents and to the extent set
forth below each Affiliate of the other Member from and against all claims,
causes of action, liabilities, payments, obligations, expenses (including
without limitation reasonable fees of and disbursements of counsel) or losses
arising out of a Company liability or obligation to the extent necessary to
accomplish the result that neither Member or its Affiliates shall bear any
portion of a liability or obligation of the Company in any manner other than in
accordance with its Participating Interest; provided, however, that each Member
(other than the Operator in the course of its duties as Operator, as to which
liabilities and obligations the Members shall contribute in proportion to their
Participating Interests unless the Operator breaches its standard of care under
Section 6.4) shall indemnify the other and the Company from any claims of
personal injury to or death of that Member's agents, contractors, or employees
(or those of its Affiliates) unless due to the gross negligence, willful
misconduct of the other Member. Without limiting the generality of the
foregoing, a claim, loss or liability shall be deemed to arise out of a Company
liability or obligation if it arises out of, or is based upon, the conduct of
the business of the Company or the ownership or operation of the Company Assets.
The foregoing indemnification shall be available to an Affiliate of a Member
with respect to a claim, liability or loss arising out of a Company liability or
obligation that is paid by or incurred by such Affiliate solely as a result of
such Affiliate directly or indirectly owning or controlling a Member. The
foregoing shall not inure to the benefit of any Member or Affiliate in respect
of any claim, liability or loss that (1) arises out of, or is based upon, the
gross negligence or willful misconduct of such Member or Affiliate or out a
breach of such Member's or Affiliates obligations under this Agreement or (2) is
a tax, levy or similar law or governmental charge not imposed upon the Company
or upon its Assets. The foregoing indemnity shall apply only to a claim,
liability or loss to the extent that it is uninsured by the Company and shall
survive the dissolution or other termination of the Company.

                             ARTICLE 13. TERMINATION

     13.1 Termination. This Agreement is subject to termination and the Company
is subject to dissolution as follows:

          13.1.1 Termination by Agreement. The Members may terminate this
Agreement and dissolve the Company at any time by written agreement.
Alternatively, one Member may agree to convey its Participating Interest in the
Company to the other.

          13.1.2 Termination by Withdrawal. During the Initial Contribution
Period, Minera Andes may withdraw or be deemed to have withdrawn pursuant to
Section 3.2 subject to the terms of Section 13.4. Any withdrawal under this
Section 13.1.2 shall not relieve the

                                      -39-

<PAGE>
withdrawing Member of its share of liabilities arising out of Operations
conducted prior to such withdrawal according to their respective Participating
Interests immediately prior to such withdrawal. Following the Initial
Contribution Period, a Member may elect to withdraw from this Company by giving
notice to the other Member of the effective date of withdrawal, which shall be
the later of the end of the then current Program and Budget or at least 30 days
after the date of the notice.

          13.1.3 Termination by Completion of Product Development. This
Agreement shall terminate and the Company shall dissolve automatically when the
Products within the Area of Interest have been economically developed and
exploited and all attendant legal responsibilities, including Environmental
Compliance, have been fulfilled and all Company facilities shall have been
disposed of and a final accounting made between the Members.

          13.1.4 Termination by Elimination of Participating Interest. The
Agreement shall terminate automatically upon elimination of a Member's
Participating Interest pursuant to Section 4.8.

          13.1.5 Termination by Default. This Agreement may be terminated and
the Company dissolved by the Non-Defaulting Member (as defined in Section 11.1)
in accordance with Section 11.4.3.

     13.2 Continuing Obligations. On termination of this Agreement and
dissolution of the Company, the Members shall remain liable according to their
respective Participating Interests immediately prior to termination for
continuing obligations under this Agreement until final settlement of all
accounts and for any liability, whether it arises before or after termination,
if it arises out of Operations during the term of the Agreement.

     13.3 Disposition of Assets on Termination. Promptly after termination, the
Operator shall take all action necessary to wind up the activities of the
Company, and all costs and expenses incurred in connection with the winding up
of the Company shall be expenses chargeable to the Company. The "Capital
Accounts" of the Members shall be closed as provided in Exhibit C. A Member
shall receive no distribution of any interest in Products or proceeds from their
sale if such Member's Participating Interest has been terminated pursuant to
Section 4.8.

     13.4 Termination at Election of Minera Andes During Initial Contribution
Period. If the Agreement is terminated and the Company dissolved by Minera Andes
in accordance with Section 3.2 and Section 13.1.2, all of the Property and all
Assets within the Area of Interest shall be deemed to be transferred to Pegasus,
without cost and free and clear of royalties, liens or other encumbrances
arising by, through or under Minera Andes, except those exceptions to title
described in Part 1 of Exhibit A and those to which both Members have given
their written consent after the date of this Agreement.

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<PAGE>
     13.5 Tax Consequences. Exhibit C shall control the distribution and
application to the Members of the net proceeds of liquidation of the Company
Assets or, if applicable, the Company Assets themselves upon termination of this
Agreement and dissolution of the Company.

     13.6 Noncompete Covenants. A Member that withdraws pursuant to Section
13.1.2, or a Member that is deemed to have withdrawn pursuant to Section 4.8, or
Minera Andes in the event that it does not complete its Initial Contribution,
shall not directly or indirectly acquire any interest in property within the
Area of Interest for 24 months after the date of withdrawal, provided that the
foregoing restriction shall not apply to Property which the Company elected to
not acquire pursuant to the provisions of Section 10.4. If a withdrawing Member,
or the Affiliate of a withdrawing Member, breaches this Section 13.6, such
Member or Affiliate shall be obligated to offer to convey to the nonwithdrawing
Member, without cost, any such property or interest acquired in the Area of
Interest. Such offer shall be made in writing and can be accepted by the
nonwithdrawing Member at any time within 45 days after such offer is received by
the nonwithdrawing Member.

     13.7 Right to Data After Termination. After termination of this Agreement
pursuant to Section 13.1.1, 13.1.2, 13.1.3 or 13.1.4, each Member shall be
entitled to copies of all information acquired under this Agreement as of the
date of termination and not previously furnished to it; provided, however, that
the Non-Operator shall have only 18 months from the date of any such termination
to review and request copies of such information. The terminating or withdrawing
Member shall not be entitled to any such copies after any other termination or
any withdrawal.

     13.8 Continuing Authority. On termination of this Agreement under Section
13.1 or the deemed withdrawal of a Member pursuant to Section 4.8, the Operator
shall have the power and authority, subject to control of the Management
Committee, if any, to do all things on behalf of the Members that are reasonably
necessary or convenient to: (1) wind up operations and (2) complete any
transaction and satisfy any obligation unfinished or unsatisfied at the time of
such termination or withdrawal, if the transaction or obligation arises out of
Operations prior to such termination or withdrawal. The Operator shall have the
power and authority to grant or receive extensions of time or change the method
of payment of an already existing liability or obligation, prosecute and defend
actions on behalf of the Members and the Company, mortgage assets, and take any
other reasonable action in any manner with respect to which the former Members
continue to have, or appear or are alleged to have, a common interest or a
common liability.

                ARTICLE 14. ACQUISITIONS WITHIN AREA OF INTEREST

     14.1 General. Any interest or option to acquire any interest in real
property, including Claims, within the Area of Interest, owned on the Effective
Date or subsequently acquired during the term of this Agreement by or on behalf
of a Member or any Affiliate shall, except

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<PAGE>
as provided in this Article 14, be included in the Property and shall be subject
to the terms and provisions of this Agreement.

     14.2 Notice to Nonacquiring Member. Within 30 days after the acquisition of
any interest or the option to acquire any interest in real property, including
Claims, wholly or partially within the Area of Interest (except real property
acquired by the Operator pursuant to a Program), by a Member or its Affiliates,
the acquiring Member shall notify the other Member of such acquisition. The
acquiring Member's notice shall describe in detail the acquisition, the lands
and minerals covered thereby, the direct acquisition cost without consideration
for management fees or indirect costs, and the reasons why the acquiring Member
believes the acquisition of the interest is in the best interests of the
Company. In addition to such notice, the acquiring Member shall make any and all
information concerning the acquired interest available for inspection by the
other Member.

     14.3 Option Exercised. If, within 45 days after receiving the acquiring
Member's notice, the other Member notifies the acquiring Member of its election
to cause the Company to accept the acquired interest (or cause its Affiliates to
convey such interest), the acquiring Member shall convey such interest to the
Company by deed, assignment or other appropriate document. The acquired interest
shall become a part of the Property for all purposes of this Agreement
immediately upon the notice of such other Member's election to cause the Company
to accept the acquired interest. The other Member shall promptly pay to the
acquiring Member its proportionate share (based on Participating Interests) of
the latter's actual out-of-pocket acquisition costs and assume any acquisition
obligations.

     14.4 Option Not Exercised. If the other Member does not give its notice to
elect to cause the Company to accept such proportionate interest within the
45-day period set forth in Section 14.3, the Company shall have no interest in
the acquired interest, and the acquired interest shall not be a part of the
Property or be subject to this Agreement.

               ARTICLE 15. ABANDONMENT AND SURRENDER OF PROPERTY

     15.1 During Initial Contribution Period. As provided in Section 3.2, during
the Initial Contribution Period, Minera Andes may surrender part or all of its
interest in the Company to Pegasus. Upon Minera Andes' surrender, Minera Andes
shall promptly execute and deliver all appropriate documents to assign its
interest in the Company to Pegasus.

     15.2 Surrender or Abandonment of Property. The Management Committee may
authorize the Operator to surrender or abandon part or all of the Property. If
the Management Committee authorizes any such surrender or abandonment over the
objection of a Member, the Company shall assign to the objecting Member, by
appropriate documents, and without cost to the Company, all of the Company's
interest in the property to be abandoned or surrendered, and the abandoned or
surrendered property shall cease to be part of the Property. Provided, however,
the objecting Member shall assume all responsibility and liabilities arising
after such assignment, including but not limited to reclamation and restoration,
with regard to the

                                      -42-

<PAGE>
surrendered or abandoned property. Liabilities arising out of Operations prior
to such assignment shall remain the obligation of the Company.

     15.3 Reacquisition. If all or part of the Property is abandoned or
surrendered under the provisions of this Article 15 to a third party, then
unless this Agreement is earlier terminated, and except as provided for
assignment to an objecting Member in Section 15.2, neither Member nor any
Affiliate thereof shall acquire any interest in such Property for a period of
two years following the date of such abandonment or surrender. If a Member
reacquires the Property in violation of this Section 15.3, the other Member may
elect by notice to the reacquiring Member, within 45 days after it has actual
notice of such reacquisition, to have such properties made subject to the terms
of this Agreement. In the event such an election is made, the reacquired
properties will thereafter be treated as part of the Property, and the costs of
reacquisition shall be borne solely by the reacquiring Member and shall not be
included for purposes of calculating the Members' respective Participating
Interests.

                        ARTICLE 16. TRANSFER OF INTEREST

     16.1 General. A Member shall have the right, subject to the preemptive
right under Section 16.3 and the limitations below, to transfer, grant, assign,
encumber, pledge or otherwise commit or dispose of ("transfer") to any third
party all or part of its interest in or to this Agreement and its Participating
Interest in the Company; provided that no transferee of less than all of either
Pegasus' or Minera Andes' Participating Interest shall be entitled to a share of
the Production Royalty specified in Section 4.8. If a transferee of less than
all of Pegasus' or Minera Andes' Participating Interest is subsequently diluted
to a Participating Interest of less than 20 percent, that Member will be deemed
to have withdrawn from the Company, and its Participating Interest shall be
relinquished as provided in Section 4.8 and shall be divided among the remaining
Members in proportion to their Participating Interests. Neither Member shall
have any right to transfer its interest during the Initial Contribution Period
except as provided in Section 16.4.

     16.2 Limitations on Free Transferability. The transfer right of a Member in
Section 16.1 shall be subject to the following terms and conditions:

          16.2.1 No transferee of all of the Participating Interest of a Member
shall have the rights of a Member unless and until the transferring Member has
provided to the other Member notice of the transfer, and the transferee, as of
the effective date of the transfer, has committed in writing to be bound by this
Agreement to the same extent and nature as the transferring Member;

          16.2.2 No Member, without the consent of the other Member, shall make
a transfer that shall cause termination of the tax status of the Company. If
contrary to this Section 16.2.2 a transfer is made that causes such termination,
the transferring Member and the transferee shall indemnify, defend and hold
harmless the other Member from and against any and all loss, cost, expense or
damage arising from such termination;

                                      -43-

<PAGE>
          16.2.3 No transfer permitted by this Article 16 shall relieve the
transferring Member of its share of any liability, whether accruing before or
after such transfer, that arises out of Operations conducted prior to such
transfer;

          16.2.4 The transferring Member and the transferee shall bear all tax
consequences of the transfer;

          16.2.5 If the transfer is the grant of a security interest by
mortgage, deed of trust, pledge, lien or other encumbrance of its interest in
this Agreement, to secure a loan or other indebtedness of a Member in a bona
fide transaction, such security interest shall be subordinate to the terms of
this Agreement and the rights and interests of the other Member hereunder. Upon
any foreclosure or other enforcement of rights in the security interest, the
acquiring third party shall be deemed to assume the position of the encumbering
Member with respect to this Agreement and the other Member, except that the
Non-Operator shall become the Operator and the acquiring third party shall not
become the Operator, and it shall comply with the terms and conditions of this
Article 16; and

          16.2.6 No Member may transfer any interest in this Agreement or the
Assets, other than Products, except by transfer of all or part of its
Participating Interest.

     16.3 Preemptive Right. Except as otherwise provided in Section 16.4, if a
Member desires to transfer all or part of its interest in this Agreement and its
Participating Interest in the Company, the other Member shall have a preemptive
right to acquire such interest as provided in this Section 16.3.

          16.3.1 A Member intending to transfer all or part of its interest in
this Agreement and its Participating Interest in the Company shall promptly
notify the other Member of its intentions. The notice shall state the price and
all other pertinent terms and conditions, including contingent payments and
royalties, if applicable, of the intended transfer, which shall be for a
monetary consideration only. The other Member shall have 30 days from the date
such notice is delivered to notify the transferring Member whether it elects to
acquire the offered interest at the same price and on the same terms and
conditions as set forth in the notice. If it does so elect, the transfer shall
be consummated within 60 days after notice of such election is delivered to the
transferring Member.

          16.3.2 If the other Member fails to so elect within the period
provided for in Section 16.3.1, the transferring Member shall have 90 days
following the expiration of such period to consummate the transfer to a third
party at an identical or greater price and on terms no less favorable to the
transferring party than those presented to the other Member and set forth in the
notice required in Section 16.3.1.

          16.3.3 If the transferring Member fails to consummate the transfer or
execute a binding agreement to transfer to a third party within the period set
forth in Section 16.3.2, or

                                      -44-

<PAGE>
upon change in the price or terms offered to the third party, the preemptive
right of the other Member in such offered interest shall be deemed to be
revived. Any subsequent proposal to transfer such interest shall be conducted in
accordance with all of the procedures set forth in this Section 16.3.

     16.4 Exceptions to Preemptive Right. Section 16.3 shall not apply to the
following transfers:

          16.4.1 Transfer by a Member of all or any part of its interest in this
Agreement and its Participating Interest in the Company to an Affiliate;
provided, however, that following such a Transfer, the assignor shall remain
jointly and severally liable with the assignee Affiliate for all obligations as
a Member or as Operator, regardless of whether such obligations arose before or
arise after the assignment.

          16.4.2 Corporate merger, consolidation, amalgamation or reorganization
of a Member by which the surviving entity shall possess substantially all of the
stock, or all of the property rights and interests, and be subject to
substantially all of the liabilities and obligations, including those created by
this Agreement, of that Member;

          16.4.3 The grant by a Member of a security interest in its interest in
this Agreement and its Participating Interest in the Company by mortgage, deed
of trust, pledge, lien or other encumbrance; and

          16.4.4 A sale or other commitment or disposition of Products or
proceeds from sale of Products by a Member upon distribution to it pursuant to
Article 9.

     16.5 Insolvency. If either Member commences a voluntary case under the
federal bankruptcy laws or under any other applicable federal or state law
relating to insolvency, if an order for relief or similar determination is
entered in an involuntary case under the federal bankruptcy laws or any other
federal or state law relating to insolvency, or if a receiver, liquidator,
assignee, trustee, custodian or other similar person is appointed, voluntarily
or involuntarily, for the assets of either Member, then such Member (the
"Insolvent Member") shall cease to have the right to participate in the
management of the Company, and the Company thereafter shall be managed by the
other Member, who shall, if not theretofore serving as Operator, become the
Operator. In continuing to manage the Company, the other Member shall have
absolute discretion and no action taken by it shall subject it to a claim for
any breach of duty, on the ground of conflict of interest, negligence or any
other theory, except fraud, wilful misconduct, or gross negligence. Any
transfer, sale, assignment, pledge or other encumbrance or disposition of the
Insolvent Member's interest in the Company by a trustee, debtor-in-possession or
custodian shall be subject to the provisions of Section 16.3.

                                      -45-

<PAGE>
                         ARTICLE 17. GENERAL PROVISIONS

     17.1 Notices. All notices, payments and other required communications
("Notices") to the Members shall be in writing and shall be addressed
respectively as follows:

          Minera Andes:    Minera Andes Inc.
                           3303 N. Sullivan Rd.
                           Spokane, WA 99216
                           Fax: (509) 921-7325
                           Phone: (509) 921-7322


          Pegasus:         Pegasus Gold International, Inc.
                           601 West First Avenue
                           Suite 1500
                           Spokane, WA  99204
                           Attn: Land/Legal Department
                           Fax:  (509) 838-8317
                           Phone: (509) 624-4653

     All Notices shall be given (1) by personal delivery to the Member, or (2)
by registered or certified mail, return receipt requested, or (3) by electronic
communication followed within 24 hours by acknowledgment of receipt from the
receiving Member via electronic communication. The term "electronic
communication" includes but is not limited to telex and facsimile communication.
All Notices shall be effective and shall be deemed delivered (a) if by personal
delivery, on the date of delivery, (b) if by electronic communication, on the
date the confirmation is delivered to the United States Postal Service as shown
on the actual receipt, and (c) if solely by mail, on the day delivered to the
United States Postal Service and as shown on the actual receipt. A Member may
change its address from time to time by Notice to the other Member. Notice to
the Management Committee shall be by notice to the Members as provided herein.

     17.2 Waiver. The failure of a Member to insist on the strict performance of
any provision of this Agreement or to exercise any right, power or remedy upon a
breach hereof shall not constitute a waiver of any provision of this Agreement
or limit the Member's right thereafter to enforce any provision or exercise any
right.

     17.3 Modification. No modification of this Agreement shall be valid unless
made in writing and duly executed by the Members.

     17.4 Force Majeure. The obligations of a Member, other than (1) the payment
of money, or (2) the performance and timely filing of required exploration work
for any Claim included in the Property as required by provincial or federal law,
shall be suspended to the extent and for the period that performance is
prevented by any cause, whether foreseeable or unforeseeable, beyond its
reasonable control if the Member is making a good faith effort to

                                      -46-

<PAGE>
resolve or avoid such cause, including without limitation labor disputes
(however arising and whether or not employee demands are reasonable or within
the power of the Member to grant); acts of God, laws, regulations, orders,
proclamations, instructions or requests of any government or governmental
entity; judgments or orders of any court; inability to obtain on reasonably
acceptable terms any public or private license, permit or other authorization;
curtailment or suspension of activities to remedy or avoid an actual or alleged,
present or prospective violation of federal, provisional or local environmental
standards; acts of war or conditions arising out of or attributable to war,
whether declared or undeclared; riot, civil strife, insurrection or rebellion;
fire, explosion, earthquake, storm, flood, sinkholes, drought or other adverse
weather condition; delay or failure by suppliers or transporters of materials,
parts, supplies, services or equipment or by contractors' or subcontractors'
shortage of, or inability to obtain, labor, transportation, materials,
machinery, equipment, supplies, utilities or services; accidents; breakdown of
equipment, machinery or facilities; or any other cause whether similar or
dissimilar to the foregoing; provided that the affected Member shall give
written notice to the other Member within 30 days of the suspension of
performance, stating therein the nature of the suspension, the reasons therefor
and the expected duration thereof. The affected Member shall resume performance
as soon as reasonably possible. During the period of suspension, the obligations
of the Members to advance funds pursuant to Section 8.2 shall be reduced to
levels consistent with Operations.

     17.5 Contest of Governmental Regulation. Notwithstanding Section 17.4, in
the event the Company is or becomes subject, at any time, to environmental
regulations or governmental restrictions ("environmental regulations or
governmental restrictions" shall include any governmental law, rule, order,
regulation, policy, proposal, action or inaction, or restriction relating to air
pollution, water pollution, surface mining, surface effects of mining, land use
or hazardous or toxic materials) that prohibit or materially affect any
Operations, the Operator shall have the right to declare the existence of a
condition of force majeure during the period in which the Operator is making a
good faith effort to comply with, be exempted from, modify, obtain necessary
permits or licenses under, or prevent the enactment or promulgation of said
environmental regulations or governmental restrictions. To invoke this
provision, the Operator must give the other Member 30 days' advance written
notice.

     17.6 Governing Law. Except for matters of title to the Property or the
Claims, which shall be governed by the law of Argentina, this Agreement shall be
governed by and interpreted in accordance with the internal laws of the State of
Washington.

     17.7 Dispute Resolution

          17.7.1 Agreement to Arbitrate. Should any controversy arise under the
terms and provisions of this Agreement or arise out of or be in any way related
to operations of the Company or the conduct of the Members with respect the
Company or the Property as to which the Members are unable to effect a
satisfactory resolution, such controversy shall be submitted to arbitration in
accordance with the terms and provisions of this Section 17.7.1 and in
accordance with the provisions of the Federal Arbitration Act (Title 9 of the
United States

                                      -47-

<PAGE>
Code). The provisions of the Federal Arbitration Act and the Commercial
Arbitration Rules of American Arbitration Association, as from time to time
amended and in effect, will be followed to the extent they are not inconsistent
with the provisions of this Agreement. Any arbitration hearings conducted
pursuant to this Article shall be administered by the American Arbitration
Association and shall be conducted in Spokane, Washington at a mutually agreed
location.

          17.7.2 Submission to Arbitration and Selection of Arbitrators. A
Member desiring to submit to arbitration any such controversy shall furnish its
demand for arbitration in writing to the other Member, which demand shall
contain a brief statement of the matter in controversy, the amount involved, if
any, and the remedies sought. Within a period of ten (10) business days after
service of such demand, each Member shall name one arbitrator by written notice
to the other Member. Within twenty (20) days after the appointment of an
arbitrator by each party, the two arbitrators shall choose a third arbitrator.
If any Member fails to name an arbitrator within the specified 10-day period or
if two arbitrators chosen by the Members fail to select within the 20-day period
a third arbitrator, then the American Arbitration Association shall designate
such necessary additional arbitrators within twenty (20) days of application by
either Member. Each of the arbitrators chosen or appointed pursuant to this
Section 17.7.2 shall be an attorney or a person having at least ten (10) years'
experience in the United States in a calling related to the subject matter
involved in the dispute and shall not be a past or present officer, director, or
employee of any of the Members or their Affiliates.

          17.7.3 Arbitration Procedures. Each Member may furnish the arbitrators
with a written statement of matters it deems to be in controversy for purposes
of the arbitration procedures. The arbitrators shall allow for discovery
pursuant to the Federal Rules of Civil Procedure ("FRCP") and shall be entitled
to enforce sanctions for failure to make discovery pursuant to FRCP No. 37.
Following discovery, the arbitrators shall promptly hold hearings on the matters
in controversy and shall render their decision and award, upon the concurrence
of at least two of their number, as soon as possible but no later than ninety
(90) days after the conclusion of such hearings. Such decision and award shall
be in writing and counterpart copies of the decision shall be delivered to each
of the parties. Each Member agrees that judgment may be had on the decision and
award of the arbitrators so rendered.

          17.7.4 Successor Arbitrators. Notwithstanding the above, if any
arbitrator appointed by a Member dies, refuses to act, or becomes incapable of
acting, then such Member shall appoint a successor arbitrator within five (5)
days of such notice of disability. In the event such Member fails to appoint the
required successor within such time, the other Member may apply, on notice to
the other party, to the American Arbitration Association for the appointment of
such necessary arbitrator, and such appointment shall be made within twenty (20)
days of such application.

          17.7.5 Status of Member-Appointed Arbitrators. Member-appointed
arbitrators are expected to be nonneutral and to observe the ethical standards
applicable to

                                      -48-

<PAGE>
nonneutral arbitrators under canon VII of the Code of Ethics for Arbitrators in
Commercial Disputes of the American Arbitration Association then in effect.

          17.7.6 Cost of Arbitration. Each Member shall bear the expense of the
arbitrator appointed by or for such Member, its own counsel, experts, and
presentation of proof. The Members shall share equally the expense of the
additional arbitrator and all other expenses of the arbitration.

     17.8 Further Assurances. Each of the Members agrees that it shall take from
time to time such actions and execute such additional instruments as may be
reasonably necessary or convenient to implement and carry out the intent and
purpose of this Agreement.

     17.9 Survival of Terms and Conditions. The provisions of this Agreement
shall survive its termination to the full extent necessary for their enforcement
and the protection of the Member in whose favor they run.

     17.10 Confidentiality and Public Statements. Except as otherwise provided
in this Section 17.10, the terms and conditions of this Agreement and all data,
reports, records and other information of any kind whatsoever developed or
acquired by any Member in connection with this Agreement shall be treated by the
Members as confidential (hereinafter "confidential information") and neither
Member shall reveal or otherwise disclose such confidential information to third
parties without the prior written consent of the other Member.

          The foregoing restrictions shall not apply to the disclosure of
confidential information to:

          17.10.1 Any Affiliate;

          17.10.2 Any Authorized Person;

          17.10.3 Any public or private financing agency or institution;

          17.10.4 Any contractors or subcontractors that the Members may engage;

          17.10.5 Employees and consultants of the Members;

          17.10.6 Any third party to which a Member contemplates the transfer,
sale, assignment, encumbrance or other disposition of all or part of its
Participating Interest pursuant to Article 16; provided, however, that in any
such case only such confidential information as such third party shall have a
legitimate business need to know shall be disclosed, and the third party shall
have agreed in writing supplied to, and enforceable by, the other Member to
protect the confidential information from further disclosure, to use such
confidential information solely for such purpose and to otherwise be bound by
the provisions of this Section 17.10. Such writing shall not preclude parties
from discussing and completing a Transfer with the other Member.

                                      -49-

<PAGE>
The Member disclosing confidential information shall be responsible and liable
for any use or disclosure of the confidential information by such Members in
violation of this Agreement and such other writing;

          17.10.7 Confidential information that otherwise comes into the public
domain through no fault of the Members; or

          17.10.8 Confidential information that is required, in the opinion of
either Member's counsel, to be disclosed to any federal, state or local
government or appropriate agencies and departments thereof or that is required,
in the opinion of either Member's counsel, to be publicly announced, to the
extent required by law.

          The provisions of this Section 17.10 shall apply during the term of
this Agreement and shall continue to apply to any Member that forfeits,
surrenders, assigns, transfers or otherwise disposes of its Participating
Interest for the two-year period following the date of such occurrence.

          Except as otherwise provided in this Agreement or except as required
by law in the opinion of either Member's counsel, neither Member shall make any
public announcement or public disclosure with regard to the Company, including
confidential and nonconfidential information, without the prior written consent
of the other Member as to the content and timing of such announcement or
disclosure, which consent shall not be unreasonably withheld. In the event a
public announcement or disclosure is required by law, the Member making such
announcement or disclosure shall consult with the other Member as to the
contents of such announcement or disclosure prior to making it.

     17.11 Entire Agreement; Successors and Assigns. This Agreement, including
all attached Exhibits, contains the entire understanding of the Members and
supersedes all prior agreements and understandings between the Members related
to the subject matter hereof. This Agreement shall be binding upon and inure to
the benefit of the respective successors and permitted assigns of the Members.

          The Members have executed this Agreement as of the Effective Date.

PEGASUS GOLD                                    MINERA ANDES INC.
INTERNATIONAL, INC.

By: /s/ THOMAS BURKHART                 By: /s/ ALLEN V. AMBROSE
        -------------------------               -------------------------
        Thomas Burkhart                         Allen V. Ambrose
Its:    Vice President, Exploration     Its:    President


                                      -50-

<PAGE>
                                    EXHIBIT B
                                    ---------

                              ACCOUNTING PROCEDURE
                              --------------------


     The financial and accounting procedures to be followed by the Operator and
the Members under the Agreement are set forth in this Exhibit. References in
this Accounting Procedure to Sections and Articles are to those located in this
Accounting Procedure unless it is expressly stated that they are references to
the Agreement. The purpose of this Accounting Procedure is to establish
equitable methods for determining charges and credits applicable to Operations
under this Agreement. The Operator and the Members intend that none of them
shall lose or profit by reason of the division of responsibility between the
Operator and the other Members, but that the Operator should be fully reimbursed
by the Members for its costs, expenses and overhead in carrying out the work of
the Company and reasonably compensated for its service. The Members shall meet
and in good faith endeavor to agree upon changes deemed necessary to correct any
unfairness or inequity. Terms that are used as defined terms in this Accounting
Procedure shall have the meaning given to them in the Agreement. If there is a
conflict between the provisions of the Accounting Procedure and those of the
Agreement, the provisions of the Agreement shall control. In accordance with
Section 3.2.2 of the Agreement, certain expenditures specified below shall not
be chargeable to the Company Account during the Initial Contribution Period.

                          ARTICLE 1. GENERAL PROVISIONS

     1.1 Accounting Records. The Operator shall maintain complete accounting
records in accordance with this Accounting Procedure, sufficient to provide a
record of revenues and expenditures and periodic statements of financial
position and the results of operations for managerial, tax, regulatory or other
financial reporting purposes. Such records shall be retained for the duration of
the period allowed the Members for audit and for the periods necessary to comply
with tax and other regulatory requirements. The records shall reflect all
obligations, advances and credits of the Members.

     1.2 Reports. Except as to income tax matters, each Member to the Agreement
is responsible for preparing its own accounting reports to meet the requirements
of any governmental authority having jurisdiction over such Member. Operator
shall cooperate in furnishing Non-Operator statements and billings in such form
as required to discharge such responsibilities.

     1.3 General Limitation. In addition to the other limitations of this
Exhibit B, if the Operator engages Affiliates to provide services, it shall do
so on terms no less favorable to the Company than would be the case with
unrelated persons providing services of an equivalent quality in arm's-length
transactions and the charges made by Operator to the Company Account for use of
personnel or supplies or equipment of Operator or its Affiliates at the Property
may be no higher than would be the case with such unrelated persons in
arm's-length transactions.

                                EXHIBIT B, PAGE 1

<PAGE>
                      ARTICLE 2. CHARGES TO COMPANY ACCOUNT

     Subject to the limitations set forth below, Operator shall charge the
Company Account with the following:

     2.1 Rentals, Royalties and Other Payments. Property maintenance costs,
rentals, royalties, license fees, permit fees and other payments necessary to
acquire and maintain property, technology and equipment used in the Operations.

     2.2 Labor and Employee Benefits.

          2.2.1 Salaries and wages of the Operator's employees directly engaged
in Operations, including bonuses of employees assigned to full-time work on
Operations, and including salaries or wages of employees to the extent they are
temporarily assigned to the Operations and directly employed in Operations.

          2.2.2 The Operator's actual cost of established plans for employees'
group life insurance, hospitalization, pension, retirement, stock purchase,
thrift, bonus (except production or incentive bonus plans under a union contract
based on actual rates of production, costs savings and other production factors,
and similar nonunion bonus plans customary in the industry or necessary to
attract competent employees, which bonus payments shall be considered salaries
and wages under Section 2.2.1 or 2.11, rather than employees' benefit plans) and
wages chargeable under Section 2.2.1 or 2.11, provided that the plans are
limited to the extent feasible to those customary in the industry.

          2.2.3 Costs of assessments imposed by governmental authority which
assessments are applicable to salaries and wages chargeable under Sections 2.2.1
and 2.11, including all penalties except those resulting from the willful
misconduct or gross negligence of the Operator or breaches by Operator of the
Agreement.

          2.2.4 Those costs in Section 2.2.2 and 2.2.3 may be charged on a "when
and as paid basis" or by "percentage assessment" on the amount of salaries and
wages. If percentage assessment is used, the rate shall be applied to wages or
salaries excluding overtime and bonuses. Such rate shall be based on the
Operator's cost experience, and it shall be periodically adjusted to ensure that
the total of such charges fairly approximates the actual cost of such charges to
the Operator.

          2.3 Assets. Costs of all Assets purchased or furnished (subject to
provisions below when furnished by a Member).

          2.4 Transportation. Reasonable transportation costs incurred in
connection with the transportation of employees, equipment, material and
supplies as required in the conduct of Operations and relocation costs of
employees permanently assigned and directly engaged in the

                                EXHIBIT B, PAGE 2

<PAGE>
conduct of Operations, including transportation of employees' families and their
personal and household effects, all subject to the following limitations:

          2.4.1 If employees are transported to and from the property wholly or
partly by commercial airlines, economy, coach, business or tourist class rates
shall be charged if practicable unless the distance traveled is greater than
3,000 miles.

          2.4.2 If material is moved from the Operator's warehouse or other
properties, no charge shall be made greater than that which would be made by an
independent third party contractor from the nearest reliable supply store or
railway receiving point where such material is available.

          2.4.3 If surplus material is moved to the Operator's warehouse or
other storage point, no charge shall be made greater than that which would be
made by an independent third party contractor from the nearest reliable supply
store or railway receiving point where such material is available. Operator may
charge storage fees to such Joint Operation based on current market rates, if
material is stored in Operator's warehouse. No charges shall be made for moving
material to other properties belonging to Operator.

     2.5 Services.

          2.5.1 The cost of contract services, utilities and other services
procured from outside sources, other than services described in Section 2.7 and
2.12. If contract services are performed by an Affiliate of the Operator, the
cost charged to the Company Account shall not be greater than that for which
comparable services are available in the open market. The cost of professional
consultant services procured from outside sources shall not be charged to the
Company Account unless approved by the Management Committee, except during the
Initial Contribution Period.

          2.5.2 The direct costs of using the Operator's exclusively owned
facilities in support of Company activities, provided that the charges may not
exceed those currently prevailing in the vicinity.

     2.6 Insurance Premiums. Premiums paid or accrued for insurance acquired for
the protection of the Members pursuant to the Agreement.

     2.7 Damages and Losses. All costs in excess of insurance proceeds necessary
to repair or replace damages or losses to any Assets resulting from any cause
other than the willful misconduct or gross negligence of the Operator.

     2.8 Legal Expenses. All legal costs and expenses of litigation approved by
the Management Committee. Routine legal expenses are included under Section
2.12.

     2.9 Audit. Cost of annual audits under the Agreement.

                                EXHIBIT B, PAGE 3

<PAGE>
     2.10 Taxes. All taxes (except income taxes) of every kind and nature
assessed or levied upon or in connection with the Assets, the production of
Products of Operations which have been paid by the Operator for the benefit of
the Members. Each Member is separately responsible for income taxes that are
attributable to its respective Participating Interest.

     2.11 District and Camp Expense (Field Supervision and Camp Expenses). A pro
rata portion of (i) the salaries and expenses of the Operator's superintendent
and other employees serving Operations whose time is not allocated directly to
such Operations, and (ii) the costs of maintaining and operating an office and
any necessary suboffice and (iii) the costs to Operator of all necessary camps,
including housing facilities for employees, used for Operations. The expense of
those facilities, less any revenue from the facilities, shall include
depreciation or a fair monthly rental in lieu of depreciation of the investment.
Such charges shall be apportioned for all Properties served by the employees and
facilities on an equitable basis consistent with the Operator's general
accounting practice and generally accepted accounting principles, all as further
approved by the Management Committee.

     2.12 Administrative Charge. Beginning on the Effective Date, the Operator
shall charge the Joint Account each month a sum as provided below, which shall
be a liquidated amount to reimburse the Operator for its actual home office
overhead and general and administrative expenses of its conduct of Operations,
and which shall be in lieu of any management fee: five percent (5%) of Allowable
Costs during the Exploration Period (including the Initial Contribution Period
but subject to the limits provided in Section 3.1.2(2) of the Limited Liability
Company Agreement and two percent (2%) of Allowable Costs during the Development
Period and the Mining Period. Under no circumstances shall the administrative
charge in any Contract Year exceed $1,000,000 and there shall be no "carry
forward" or "carry back" from one Contract Year to another.

          The term "Allowable Costs" as used in this Section 2.12 shall mean all
charges to the Company Account except: (i) the administrative charge defined in
this Section 2.12; (ii) depreciation, depletion or amortization of tangible or
intangible assets; (iii) charges for real property rentals and royalties; and
(iv) labor and labor overhead as referred to in Section 2.2.

          The following representative list of items comprising the Operator's
home office expenses are expressly covered by the administrative charge provided
in this Section 2.12 to the extent incurred for the necessary and proper conduct
of the Operations:

          2.12.1 Administrative supervision, which includes services rendered by
officers and directors of the Operator for Operations, except to the extent that
such services represent a direct charge to the Company Account, as provided for
in Section 2.2;

          2.12.2 Accounting, billing and record keeping in accordance with
governmental regulations and the provisions of the Agreement, and preparation of
reports;


                                EXHIBIT B, PAGE 4

<PAGE>
          2.12.3 Handling of any tax matters, including any protests, except any
outside professional fees;

          2.12.4 Routine legal services by the Operator's legal staff (both
inside and outside); and

          2.12.5 Rentals and other charges for records and storage space,
telephone service and office supplies.

     2.13 Fines and Penalties. Fines, penalties, and other costs imposed for
violation of, or compliance with, federal, state, and local laws incurred in
connection with the conduct of operations, unless caused by the willful
misconduct or gross negligence of the Operator.

     2.14 Environmental Compliance Fund. Costs of reasonably anticipated
Environmental Compliance which, on a Program basis, shall be determined by the
Management Committee and shall be based on proportionate contributions in an
amount sufficient to establish a fund, which through successive proportionate
contributions during the term of this Agreement, will pay for ongoing
Environmental Compliance conducted during Operations and which will aggregate
the reasonably anticipated costs of mine closure, post-Operations Environmental
Compliance and Continuing Obligations.

     2.15 Other Expenditures. Any reasonable direct expenditure, other than
expenditures covered by the foregoing provisions, incurred by the Operator for
the necessary and proper conduct of Operations.

                 ARTICLE 3. BASIS OF CHARGES TO COMPANY ACCOUNT

     3.1 Purchases. Materials, equipment, machinery and supplies ("Materials")
purchased and services procured shall be charged at prices paid by the Operator
after deduction of all discounts actually received. The Operator shall maintain
reasonable inventory levels adequate to sustain Operations in accordance with
the guidelines set by the Management Committee.

     3.2 Material Furnished by the Operator. At its discretion, the Operator may
furnish Material from the Operator's stock under the following conditions:

          3.2.1 New Material (Condition"A"). New material transferred from the
Operator's properties shall be priced f.o.b. the nearest reputable supply store
or railway receiving point, where like Material is available, at current
replacement cost of the same kind of Material (hereafter "New Price").


                                EXHIBIT B, PAGE 5

<PAGE>
          3.2.2 Used-Material (Condition "B").

               (1) Material in sound and serviceable condition and suitable for
reuse without reconditioning shall be classified as Condition "B" and priced at
fair market value.

               (2) All charges to the Company Account for used Material shall be
separately identified in sufficient detail to provide for reasonable review of
such items.

               (3) Charges to the Company Account for used Material in excess of
$25,000 (U.S.) per item shall be subject to prior review and approval by the
Management Committee.

     3.3 Premium Prices. Whenever Material is not readily obtainable at prices
specified in Sections 3.1 and 3.2, the Operator may charge the Company Account
for the required Material on the basis of the Operator's direct cost and
expenses incurred in procuring such Material; provided, however, that prior
notice of the proposed charge is given to the Management Committee, whereupon
any Member shall have the right, by notifying the Operator within 10 days of the
delivery of the notice from the Operator, to furnish at the usual receiving
point all or part of its share of Material suitable for use and acceptable to
the Operator. If a Member so furnishes Material in kind, the Operator shall make
appropriate credits to its account.

     3.4 Warranty of Material Furnished by the Operator and Members. Neither the
Operator nor any Member warrants the Material furnished beyond any dealer's or
manufacturer's warranty.

                         ARTICLE 4. DISPOSAL OF MATERIAL

     4.1 Disposition Generally. The Operator shall have no obligation to
purchase a Member's interest in Material. The Management Committee shall
determine the disposition of major items of surplus Material; provided, however,
that the Operator shall have the right to dispose of normal accumulations of
junk and scrap Material either by transfer to the Members as provided in Section
4.2 or by sale. The Operator shall credit the Members in proportion to their
Participating Interest for all Material sold under this Article 4.

     4.2 Division in Kind. Division of Material in kind between the Members
shall be in proportion of their respective Participating Interests, and
corresponding credits shall be made to the Company Account.

     4.3 Sales. Sales of Material to third parties shall be credited to the
Company Account at the net amount received. Any damages or claims by the
Purchaser shall be charged back to the Company Account if and when paid.


                                EXHIBIT B, PAGE 6

<PAGE>
                      ARTICLE 5. BASIS OF PRICING MATERIAL
                        TRANSFERRED FROM COMPANY ACCOUNT

     5.1 New Price. The term "New Price" as used in this Article 5 shall have
the same --------- meaning given in Article 3.

     5.2 New Material. New Material (Condition "A") procured for the Company
Account but never used shall be priced at 100 percent of current New Price (plus
applicable transfer taxes, if any).

     5.3 Good Used Material. Good used Material (Condition "B") in sound and
serviceable condition, suitable for reuse without reconditioning shall be priced
at fair market value.

     5.4 Transfers to Operator. No Material shall be transferred to the Operator
without prior approval of the Management Committee.

     5.5 Major Transfers. Disposition of Material with a fair market value in
excess of $10,000 (US) shall be subject to prior approval of the Management
Committee.

                             ARTICLE 6. INVENTORIES

     6.1 Periodic Inventories. At reasonable intervals, but not less than once a
year, inventories shall be taken by the Operator, which shall include all such
Material as is ordinarily considered controllable by operators of mining
properties. A copy of each inventory shall be given to each Member within 30
days of completion.

     6.2 Reconciliation and Adjustment of Inventories. Within a reasonable time
after each inventory, Operator shall prepare a reconciliation of inventory with
charges to the Joint Account and a list of overages and shortages, and shall
submit the list to the Management Committee. Inventory adjustments shall be made
by the Operator to the Company Account for overages and shortages. The Operator
shall be held accountable to the Venture only for shortages due to Operator's
lack of reasonable diligence.


                                EXHIBIT B, PAGE 7

<PAGE>
                                    EXHIBIT C
                                    ---------

                                 TAX PROVISIONS
                                 --------------



                          ARTICLE 1. TAX MATTERS MEMBER

     1.1 Designation. Each Member designates the Operator, as designated from
time to time pursuant to Article VI and other provisions of the Agreement, as
the Tax Matters Member for the purpose of Sections 6221 through 6232 of the
Internal Revenue Code of 1986, as amended (the "Code") and any similar state
statute. The Tax Matters Member shall prepare and file federal and state income
tax returns on behalf of the Partnership. The Operator shall act as Tax Matters
Member so long as that Member is the Operator or until replaced as Tax Matters
Member by unanimous vote of the Management Committee, whichever is earlier. In
the event of a change in the Tax Matters Member, the Member serving as Tax
Matters Member at the end of a taxable year shall continue as Tax Matters Member
with respect to all matters concerning such year.

     1.2 Information Submission and Review. Each Member agrees to timely furnish
to the Tax Matters Member such information as it may have that is required for
proper preparation of returns. The Tax Matters Member shall prepare and timely
file federal and state income tax returns for the Company and shall use its best
efforts in doing so. Prior to filing Company returns, the Tax Matters Member
shall submit to each Member for comment and approval a copy of the Company
return no later than 45 days before the due date, including any extensions of
time to file such return. Approval of the Company return shall not be withheld
without reasonable cause. Absence of a negative response within 30 days of
receipt by a Member shall conclusively be deemed to be consent by that Member to
the return as prepared. The Members shall furnish such information (including,
without limitation, information specified in Section 6230(e) of the Code) as the
Tax Matters Member may reasonably request to permit it to provide the Internal
Revenue Service sufficient information to allow proper notice to the Members in
accordance with Section 6223 of the Code. The Tax Matters Member shall keep each
Member informed of all administrative and judicial proceedings for adjustment at
the Company level of Company items in accordance with Section 6223(g) of the
Code.

     1.3 Inconsistent Treatment. Unless otherwise agreed in writing by the
Management Committee, no Member shall file a statement identifying an
inconsistency in the treatment on its return with the treatment of a Company
item on the Company return or elect to have Section 6222(b)(2) of the Code
apply. Each Member shall give prompt notice to the other Member of any
correspondence or communication to or from taxing authorities regarding any
aspect of the Company or its Operations.

     1.4 Extensions. The Tax Matters Member shall not agree to an extension of
the period of limitation for making assessments as provided under Section
6229(b)(1)(B) of the Code

                                EXHIBIT C, PAGE 1

<PAGE>
without first obtaining the written consent of the other Member. Any Member,
with respect to itself only, may agree to an extension of the period of
limitation for making assessments as provided under Section 6229(b)(1)(A) of the
Code.

     1.5 Request for Administrative Adjustments. No Member shall file, pursuant
to Section 6227 of the Code, a request for administrative adjustment of Company
items for any taxable year without first notifying all other Members. If all
other Members agree with the requested adjustment, the Tax Matters Member shall
file a request for administrative adjustment on behalf of the Company. If
unanimous consent is not obtained within 30 days, or within the period required
to timely file the request for administrative adjustment, if shorter, any
Member, including the Tax Matters Member, may file a request for administrative
adjustment on its own behalf.

     1.6 Judicial Proceedings. Any Member intending to file a petition under
Sections 6226, 6228 or other sections of the Code with respect to any Company
item or other tax matters involving the Company, shall notify the other Members
of such intention and the nature of the contemplated proceeding. If the Tax
Matters Member is the Member intending to file such petition, the notice shall
be given within a reasonable time to allow the other Members to participate in
choosing the forum in which such petition will be filed. If the Members do not
agree on the appropriate forum, it shall be decided by majority vote. Each
Member shall have a vote in accordance with its Participating Interest. If a
majority cannot agree, the Tax Matters Member shall choose the forum. If any
Member intends to seek review of any court decision rendered as a result of a
proceeding instituted under the preceding part of this Section 1.6, such Member
shall notify the other Members of its intended action.

     1.7 Settlements. The Tax Matters Member shall not bind any other Member to
a settlement agreement without first obtaining the written concurrence of any
such Member. Any other Member who enters into a settlement agreement with
respect to any Company items, as defined by Section 6231(a)(3) of the Code,
shall notify the other Members of such settlement agreement and its terms within
90 days after the settlement.

     1.8 Fees and Expenses. Any Member may engage legal counsel, certified
public accountants, or others on its own behalf and at its sole cost and
expense. Any reasonable item of expense, including but not limited to fees and
expenses for legal counsel, certified public accountants, and others, that the
Tax Matters Member incurs on behalf of the Company in connection with any
return, audit, assessment, litigation, or other proceeding regarding any Company
item shall constitute proper charges to the Company Account and shall be borne
by the Members as any other direct charge to the Company Account pursuant to the
Agreement; provided, however, that the foregoing is subject to such approvals of
the Management Committee and budget requirements as are required in the
Agreement.

     1.9 Survival. The provisions of this Article 1, including but not limited
to the obligation to pay fees and expenses contained in Section 1.8, shall
survive dissolution of the Company or termination of any Member's interest in
the Company and shall remain binding on

                                EXHIBIT C, PAGE 2

<PAGE>
the Members for a period of time necessary to resolve with the Internal Revenue
Service, the Department of the Treasury and any state agency any and all matters
regarding federal or state income taxation of the Company for the tax year(s) in
which such Member was a member in the Company

                            ARTICLE 2. TAX ELECTIONS

     2.1 Entity Created for Tax Purposes. The Members recognize and intend that
the Agreement creates a limited liability company for federal and state income
tax purposes, and no Member shall elect to be, or to have the arrangement
evidenced by the Agreement and this Exhibit, excluded from application of any
provisions of Subchapter K of the Code, or any equivalent state income tax
provision.

     2.2 Tax Matters Member's Elective Authority. The Tax Matters Member shall
make the following elections on behalf of the Company under the Code and the
regulations adopted thereunder and any similar state statutes:

          2.2.1 To adopt the calendar year as the annual accounting period and
taxable year pursuant to Section 706(b)(1) of the Code.

          2.2.2 To adopt the accrual method of accounting;

          2.2.3 To deduct currently all development costs to the maximum lawful
extent as provided in Section 616 of the Code, subject to the provisions of
Section 291 of the Code;

          2.2.4 To compute cost recovery deductions using the most rapid
permissible method;

          2.2.5 To amortize start-up expenditures, if any, over a 60-month
period in accordance with Section 195(c) of the Code and any similar state
statutes;

          2.2.6 To treat advance royalties as deductions from gross income for
the year paid or accrued to the extent permitted by law;

          2.2.7 To apply, under Section 754 of the Code, the special basis
adjustment rules of Sections 734(b) and 743(b) of the Code, if a Member requests
that such an election be made. Such election shall be filed with the first
return for any taxable year in which there has been a transfer of all or a
portion of a Member's interest in the Company; and

          2.2.8 To make additional elections as may be approved by the
Management Committee that will provide accuracy in the returns or minimize the
tax liability of one Member without increasing the tax liability of the other
Member.


                                EXHIBIT C, PAGE 3

<PAGE>
                           ARTICLE 3. CAPITAL ACCOUNTS

     3.1 Capital Accounts. A separate account shall be established and
maintained for each Member in accordance with Treas Reg ss. 1.704-1(b)(2)(iv) (a
"Capital Account"). Such Capital Account shall be increased by (i) the amount of
money contributed by the Member to the Company, (ii) the fair market value (as
agreed upon by the Members) of property contributed by the Member to the Company
(net of liabilities secured by such contributed property that the Company is
considered to assume or take subject to pursuant to the provisions of Section
752 of the Code), and (iii) allocations to the Member of Company income and gain
(or items of income and gain), including income and gain exempt from tax, and
shall be decreased by (iv) the amount of money distributed to the Member by the
Company, (v) the fair market value of property distributed to the Member by the
Company (net of liabilities secured by such distributed property that the Member
is considered to assume or take subject to pursuant to the provisions of Section
752 of the Code), (vi) allocations to the Member of expenditures of the Company
not deductible in computing its taxable income and not properly chargeable to a
capital account, and (vii) allocations to the Member of Company loss and
deduction (or items of loss and deduction), excluding items described in (vi)
above and percentage depletion to the extent it exceeds the adjusted tax basis
of the depletable property to which it is attributable (taking into account the
provisions of Section 3.2 below).

     3.2 Revaluations. The Capital Accounts of the Members shall reflect the
fair market value of property in all events in which reflection of such value is
permissible or required under Treas Reg ss. 1.704-1(b)(2)(iv)(d) or (f). In the
event that the Capital Accounts of the Members are, in accordance with the
preceding sentence, computed with reference to a book value of any Asset that
differs from its adjusted tax basis then the Capital Accounts shall be adjusted
for depreciation, depletion, amortization, and gain or loss as computed for book
purposes with respect to such Asset in accordance with Treas Reg ss.
1.704-1(b)(2)(iv)(g). Revaluation shall be computed using the procedure
described in the last sentence of Section 5.1.

     3.3 Transfer of Interest. If any interest in the Company is transferred in
accordance with the terms of the Agreement, the transferee shall succeed to the
Capital Account of the transferor to the extent it relates to the transferred
interest, except as provided in Treas Reg ss. 1.704-1(b)(2)(iv)(1).

     3.4 Compliance with Regulations. The foregoing provisions, and other
provisions of this Exhibit relating to maintenance of Capital Accounts and
allocation of income, gain, loss, deduction, and credit, are intended to comply
with Treas Reg ss. 1.704-1(b), and shall be interpreted and applied in a manner
consistent with that Regulation. If the Management Committee determines by
unanimous vote that it is prudent to modify the manner in which Capital
Accounts, or any debits or credits thereto, are computed in order to comply with
Treas Reg ss. 1.704-1(b), the Management Committee may make such modification,
provided that the modification is not likely to have a material effect on the
amount distributable to any Member upon liquidation of the Company pursuant to
Article 5.


                                EXHIBIT C, PAGE 4

<PAGE>
                             ARTICLE 4. ALLOCATIONS

     The Members further agree that all items of income, gain, loss, deduction
and credit shall, subject to Article 5, be allocated as follows:

     4.1 Expenditures, Costs and Expenses. Expenditures (but not expenditures
that are reflected in improvements subject to allowances for depreciation under
Section 167 of the Code) and all other classes of costs and expenses (including
delay or other rentals, royalties, bonuses and other payments attributable to
the Company that are necessary to acquire and maintain any interest in property)
of the Company, including expenditures of the Company described in Section
705(a)(2)(B) of the Code, shall be allocated to each Member in accordance with
its respective contribution to such costs, expenses and expenditures.

     4.2 Depreciation and Loss. Except as provided in Section 4.10, depreciation
and loss with respect to a depreciable Asset shall be allocated among the
Members in accordance with their respective contributions to the original basis
of the Asset that gives rise to the depreciation or loss deduction and to the
original basis of any improvement to any such Asset.

     4.3 Depletion and Loss. Except as provided in Section 4.10, cost depletion
and any loss with respect to a depletable property (as defined in Section 614 of
the Code) shall be allocated to the Members in accordance with their respective
contributions to the adjusted basis of the depletable property. Percentage
depletion under Section 613 of the Code shall be allocated (i) in the same
manner as cost depletion to the extent it does not exceed cost depletion and
(ii) to the extent percentage depletion exceeds cost depletion, to the Members
in the same proportion as their distributive share of gross income from-the
depletable property (as determined under Section 613(c) of the Code) for the
year in which such depletion is allowable.

     4.4 Other Deductions and Losses. Except as provided in Section 4.10, all
deductions and losses not described in Sections 4.1 through 4.3 above shall be
allocated among the Members in accordance with their respective contributions to
the costs producing each such deduction or to the adjusted basis of the Asset
producing each such loss.

     4.5 Distributed Property. All unrealized income, gain, deduction or loss
associated with Products or other property distributed in kind to any Member
shall be reflected in the Capital Accounts of the Members as if such Products or
other property had been sold by the Company for fair market value, as agreed by
the Members.

     4.6 Gain on Depreciable Assets. Except as provided in Section 4.10, any
gain recognized on sale or other disposition of a depreciable Asset shall be
allocated (i) to the extent such gain does not exceed the amount of depreciation
claimed with respect to such Asset, to the Members in proportion to the amount
of such depreciation previously allocated to, or claimed by, them, and (ii) to
the extent of any remaining gain to the Members in accordance with their
Participating Interests.


                                EXHIBIT C, PAGE 5

<PAGE>
     4.7 Exploration Recapture and Depletion Disallowances. Any recapture of
exploration expenses under Section 617(b)(1)(A) of the Code, and any increase in
taxable income realized by reason of the disallowance of depletion under Section
617(b)(1)(B) of the Code, shall be allocated to the Members in the same manner
as the related exploration expenses or depletion deductions were allocated.

     4.8 Other Income and Gain. Except as provided in Section 4.10, all other
items of income and gain (including any unrealized income or gain from
distribution of Products) shall be allocated to the Members in accordance with
their Participating Interests; provided however, that if, after allocations
required by Sections 4.1 through 4.7 and 4.10, the Capital Accounts of the
Members do not bear the same relationship to each other as do their
Participating Interests, then gain and income (other than any unrealized income
or gain from distribution of Products) shall be allocated to the deficient
Member as necessary to cause the Capital Accounts of the Members to bear the
same relationship to each other as do their Participating Interests.

     4.9 Credits. All tax credits shall be allocated to the Members in
proportion to their Participating Interests at the time the credit is allowed.
Any credit recapture shall be allocated to the Members in the same proportion as
the related credit was allocated.

     4.10 Section 704(c) of the Code. In accordance with Section 704(c) of the
Code, income, gain, loss and deductions with respect to property contributed to
the Company by a Member or with respect to property reflected in Capital
Accounts pursuant to Section 3.2 at a value other than its adjusted basis for
tax purposes shall, solely for tax purposes, be allocated among the Members so
as to take account of the variation between the basis of the property to the
Company and its fair market value at the time of contribution or revaluation.

     4.11 Respective Contributions. In determining a Member's respective
contribution to a cost or expense in any year, all Members shall be considered
to contribute to each class of cost or expense in the same proportion that the
funds contributed by a Member for that year bear to the funds contributed by all
Members for that year. Payments made with income of the Company shall be
considered as funded with contributions by each Member equal to the product of
its Participating Interest and such payments. Costs or expenses paid with
proceeds of Company borrowing shall be considered as funded with contributions
by each Member equal to the product of the amount of the borrowing and that
Member's Participating Interest at the time of the borrowing.

     4.12 Minimum Gain Chargeback. Notwithstanding anything in Article 4 of this
Exhibit C to the contrary, if there is a net decrease in Company minimum gain
for a Company taxable year, then each Member shall be allocated items of income
and gain for such year (and if necessary for subsequent years) in proportion to,
and to the extent of, an amount equal to the greater of (i) the portion of such
Member's share of the net decrease in Company minimum gain during such year that
is allocable to the disposition of Company property subject to one or more
nonrecourse liabilities of the Company, or (ii) the deficit balance in such
Member's capital account at the end of such year. Further, if there is a net
decrease during a Company taxable

                               EXHIBIT C, PAGE 6

<PAGE>
year in the minimum gain attributable to a Member's nonrecourse debt, then any
Member with a share of the minimum gain attributable to such debt at the
beginning of such year shall be allocated items of income and gain in accordance
with Treas Reg 1.704-1T(b)(4)(iv)(h)(4). This Paragraph 4.12 is intended to
comply with the minimum gain chargeback requirement of Treas. Reg.
1.704-1T(b)(4)(iv)(e) and (h) and shall be interpreted consistently therewith.

     4.13 Curative Allocations. The allocation set forth in Paragraph 4.12 is
intended to comply with certain requirements of Treas. Reg. 1.704-1T(b)(4).
Paragraph 4.12 may not be consistent with the manner in which the Members intend
to divide Company distributions. Accordingly, the Operator is authorized by this
Paragraph 4.13 to divide other allocations of profits, losses, and other items
among the Members so as to prevent Paragraph 4.12 from distorting the manner in
which Company distributions will be divided among the Members pursuant to this
Exhibit C. In general, the Members anticipate that this will be accomplished by
specifically allocating other profits, losses, and items of income, gain, loss,
and deduction among the Members so that the net amount of the allocations
pursuant to Paragraph 4.12 and such special allocations to each Member is zero.
However, the Operator shall have discretion to accomplish this result in any
reasonable manner.

                        ARTICLE 5. TERMINATION PROCEDURE

     If the Company or a Member's interest in the Company is "liquidated" within
the meaning of Treas Reg ss. 1.704-1(b)(2)(ii)(g) then, notwithstanding any
other provision of this Exhibit to the contrary, the following steps shall be
taken:

     5.1 Actual and Hypothetical Gain or Loss. The Capital Accounts of the
Members shall be adjusted to reflect any gain or loss realized by the Company or
that would be realized by the Company if the Assets had been sold at their fair
market value at the time of liquidation as follows: If the Capital Accounts of
the Members do not bear the same relationship to each other as do their
Participating Interests, then (i) income and gain shall be allocated to
deficient Members as necessary to cause the Capital Accounts of the Members to
bear the same relationship to each other as do their Participating Interests;
and (ii) any remaining gain or income and all losses shall be allocated to the
Members in accordance with Participating Interests. The fair market value of the
Assets shall be determined by the Members; provided, however, that if the
Members fail to agree on the fair market value of any Asset, its fair market
value shall be determined in accordance with Section 6.2. Notwithstanding the
foregoing, if the liquidation occurs during the Initial Contribution Period, and
there is a distribution of property to Pegasus pursuant to Section 3.2 and
Section 13.4, then any unrealized gain or loss arising by reason of such
transfer and subject to Section 4.5 of this Exhibit C (taking into account the
provisions of Section 3.2 of this Exhibit C) shall be allocated to Pegasus and
reflected in its Capital Account. For purposes of this Section 5.1, allocations
shall be considered to be made first from actual income or gain to the extent of
such income or gain and then from hypothetical income or gain to the extent of
such income or gain.


                                EXHIBIT C, PAGE 7

<PAGE>
     5.2 Deficit Restoration. Following the adjustments described in Section
5.1, any Member with a negative balance in its Capital Account or, in the case
of liquidation of the interest of a Member without liquidating the Company, that
Member, shall contribute the amount of cash to the Company necessary to
eliminate any deficit balance in its Capital Account. Such contribution shall be
made by the end of the taxable year in which the liquidation occurs (or, if
later, within 90 days after the date of such liquidation).

     5.3 Liquidations After the Initial Contribution Period. Following the
adjustments described in Sections 5.1 and 5.2, if the liquidation occurs after
the Initial Contribution Period and Capital Account balance of any Member
(stated as a percentage of the Capital Account balances of all Members) is not
equal to the Member's Participating Interest, then any Member whose Capital
Account balance is less than its Participating Interest shall have the option,
but not the obligation, exercisable within 30 days after determination of final
Capital Account balances and before distribution of Assets in kind, to
contribute a sufficient amount of cash to the Company to cause its Capital
Account balance and Participating Interest to be in parity.

     5.4 Distribution of Assets. After making the foregoing adjustments and
contributions, in the case of actual liquidation of the Company, the net
proceeds of liquidation of the Assets or, if applicable, the Assets themselves
shall be distributed and applied by the Company in the following order of
priority:

          5.4.1 To payment of debts and liabilities of the Company other than
debts to the Members;

          5.4.2 To payment of debts and liabilities of the Company to the
Members;

          5.4.3 To payment of expenses of liquidation;

          5.4.4 To establishment of any reserves that the Members may agree are
reasonably necessary for any contingent or unforeseen liabilities or obligations
of the Company; and

          5.4.5 To the Members to the extent of any positive balances in their
Capital Accounts, in accordance with Treas Reg ss. 1.704-1(b).

     In the case of liquidation of the interest of a Member without liquidating
the Company, after making the adjustments and contributions required by Sections
5.1 and 5.2 and allowed by Section 5.3, Assets or the net proceeds of
liquidation of Assets shall be distributed to the liquidated Member in an amount
equal to that Member's positive Capital Account balance, if any, in accordance
with Treas Reg ss. 1.704-1(b). Assets distributed to the Members pursuant to
this Section 5.4 shall be deemed to have a fair market value equal to the value
assigned to them pursuant to Section 5.1. In case of actual liquidation of the
Company, unless the Members expressly agree otherwise, each Member shall receive
an undivided interest in each and every

                                EXHIBIT C, PAGE 8

<PAGE>
Asset determined by the ratio of the amount of that Member's Capital Account to
the total of all Members' Capital Accounts.

                              ARTICLE 6. CONFLICTS

     6.1 Conflicts with Agreement. In the event of a conflict or inconsistency,
whether it be direct or indirect, between the terms and conditions of this
Exhibit and the terms and conditions of any other Article of the Agreement or
any Exhibit attached thereto, the terms and conditions of this Exhibit shall
govern and control.

     6.2 Fair Market Value. If the Members are unable to agree upon the fair
market value of Assets for any purpose of this Exhibit, then they shall select a
qualified appraiser who shall determine fair market value. If the Members are
unable to agree upon an appraiser for this purpose, then each shall choose an
appraiser and the chosen appraisers shall agree upon a third, who shall
determine fair market value for purposes of this Exhibit.

                            ARTICLE 7. DEFINED TERMS

     7.1 Meaning of Capitalized Terms. Capitalized terms used in this Exhibit
that are not defined in this Exhibit shall have the meaning given such terms in
the Agreement to which this Exhibit is attached.


                                EXHIBIT C, PAGE 9

<PAGE>
                                   EXHIBIT "D"

            TO THE LIMITED LIABILITY COMPANY AGREEMENT ("Agreement")
                                DATED _____, 1997
                                 BY AND BETWEEN
                  PEGASUS GOLD INTERNATIONAL, INC. ("Pegasus")
                                       AND
                          MINERA ANDES ("Minera Andes")

                            Net Profits Royalty Deed
                            ------------------------


     THIS DEED (the "Deed") is entered into and made effective this ____ day of
_______, 199__ (the "Effective Date"), by Arroyo Verde Company, a Washington
limited liability company (the "Company"), and ________________________, a
______________ corporation ("Grantee").

     1. Conveyance of Royalty Interest. Pursuant to Section 4.7 of the Limited
Liability Company Agreement dated ____________, 19__ (the "Agreement"), and in
consideration of Grantee's relinquishment of its Participating Interest in the
Company, the Company grants and conveys unto Grantee a Net Profits Royalty as
more particularly described below. Capitalized terms not otherwise defined in
this Deed shall have the meanings assigned to them in the Agreement.

     2. No Covenant to Explore or Produce. The nature, location, conduct and
extent of the Company's investigation, exploration, examination, development,
working, mining, milling or other beneficiation operations on the Property, if
any, and the cessation and resumption of such activities, shall be at the sole
discretion of the Company. The Members agree that the valuable consideration
given for this Deed is in lieu of any express or implied covenant of diligent
development or any other implied covenant applicable to this Deed. A default by
the Company in payment of the Net Profits Royalty shall not work a rescission of
this Deed.

     3. Net Profits Royalty.

          3.1 Net Profits Royalty. The Company agrees to pay Grantee a
production royalty equal to ten percent (10%) of the Net Profits (the "Net
Profits Royalty") from the Sale or Deemed Sale of Mineral Products mined and
sold from the Property. All gold and silver ore mined and removed from the
Property may be processed first into dore' by heap leaching, milling or any
other method generally accepted in the mining industry now or in the future, or
may be sold to any third party as raw ore or concentrates. If gold and silver
dore' are produced by the Company, then the dore' shall be processed into
Refined Material either in the Company's own facilities or through any
commercially reasonable custom refining contract. The Net Profits Royalty on
Mineral Products other than gold and silver that are processed into

                                EXHIBIT D, PAGE 1

<PAGE>
Refined Material before sale (including without limitation gold or silver ore
sold raw or as concentrates) shall be based upon Payments received by the
Company for the Sale of such Mineral Product. The Net Profits Royalty on gold
and silver processed into Refined Material shall be based upon the Deemed
Payments received for the Deemed Sale of Refined Material. The Net Profits
Royalty shall not apply to any Mineral that is used or consumed on the Property.

          3.2 Definitions. For the purpose of calculating the Net Profits
Royalty:

               (a) "Deductions" shall mean:

                    (1) All costs and expenses mining and processing Mineral
Products including without limitation the capital cost of production facilities
and the cost of replacing, expanding, modifying, altering or changing such
facilities from time to time at the discretion of the Company. Costs and
expenses of improvements (such as haulage ways or mill facilities) that are also
used in connection with workings other than the Properties shall be charged to
the Properties only in the proportion that their use in connection with the
Properties bears to their total use.

                    (2) ad valorem real property and personal property taxes,
and all taxes, other than income taxes, applicable to the Assets and the
Operations, including without limitation all mining taxes, sale taxes,
employment taxes, severance taxes, royalties, license fees and governmental
levies of a similar nature.

                    (3) all expenses incurred relative to the sale of Mineral
Products, including without limitation ore treatment costs, charges, penalties,
or refining charges and all umpire charges, whether such charges or penalties
are made by the Company, the purchaser of the Product or a third party; all
transportation, storage and insurance costs incurred in connection with the
transportation of the Mineral Products from the mine to a mill or other
treatment facility and from such facility to the place and time of a final Sale
or Deemed Sale, and any commissions paid on the Sale of such Mineral Products.

                    (4) all amounts payable to the Operator of the Company as
compensation for services.

                    (5) the actual cost of investment incurred by the
nonwithdrawing Member prior to the beginning of Mining which shall include all
expenditures for Exploration and Development of the Property incurred by the
nonwithdrawing Member subsequent to the withdrawing Participant acquiring a Net
Profits Royalty interest.

                    (6) interest on moneys borrowed or advanced (the term
"advanced" shall also include internal funds utilized by the Company in lieu of
borrowed funds) for costs and expenses subsequent to the withdrawing Participant
acquiring this Net Profits Royalty, at an annual rate equal to five (5)
percentage points over the prime rate in effect from

                                EXHIBIT D, PAGE 2

<PAGE>
time to time for commercial loans quoted by the Bank of America, at its main
branch in San Francisco, California, to its most creditworthy customers, but in
no event in excess of the maximum permitted by law.

                    (7) an allowance for reasonable working capital and
inventory.

                    (8) an allowance for reasonably anticipated reclamation
costs.

                    (9) an allowance for overhead expenditures in accordance
with generally accepted accounting procedures.

     It is intended that the nonwithdrawing Member shall recoup from net cash
flow all of its contributions for Exploration, Development, Mining, and
marketing Mineral Products before any Net Profits Royalty are distributed to any
person holding a Net Profits Royalty interest. No deduction shall be made for
income taxes, depreciation, amortization or depletion. If in any year after the
beginning of Mining an operating loss relative is incurred, the amount of such
operating loss shall be considered as and be included with outstanding costs and
expenses and carried forward in determining Net Profits Royalty for subsequent
periods. If the Company Operator causes any processing, refining, handling or
sales of Mineral Products to be performed by an Affiliate of the Operator, the
cost of such services, for the purpose of calculating Deductions shall not be
more than Operator would have paid a nonaffiliated third party for such
services.

               (b) "Deemed Payments" shall mean the Fair Market Value of Refined
Material upon a Deemed Sale of refined gold and silver mined from and
attributable to the Property;

               (c) A "Deemed Sale" shall occur upon the deposit of Refined
Material mined from and attributable to the Property into the Company's
consignment account by a refiner;

               (d) "Fair Market Value" of Refined Material mined from and
attributable to the Property shall be determined on a unit basis as follows:

                    (i) Refined gold bullion shall be valued on the basis of the
     average of the daily London Bullion Brokers Second Gold Fixing for the five
     (5) business days prior to the deposit of the bullion into the Company's
     account at the refiner's place of business;

                    (ii) Refined silver bullion shall be valued on the basis of
     the average of the daily Handy & Harman Noon Silver Quotation for the five
     (5) business days prior to the deposit of the bullion into the Company's
     account at the refiner's place of business.


                                EXHIBIT D, PAGE 3

<PAGE>
               (e) "Minerals" means all minerals and mineral resources of any
kind or nature.

               (f) "Mineral Products" means all materials and ores on or in the
Property which contain Minerals and which are sold, processed or refined for
their Mineral content and all products derived from such processing or refining
including without limitation dore bullion, precipitates and concentrates of
Minerals.

               (g) "Net Profits" shall mean Payments plus Deemed Payments minus
Deductions;

               (h) "Payments" shall mean the gross amount of payments received
by the Company from the Sale of Mineral Products mined and Sold from and
attributable to the Property other than Refined Material (excluding profits or
proceeds of futures contracts, forward sales, hedging or any other similar
marketing mechanism);

               (i) "Refined Material" shall mean gold and silver mined and
removed from and attributable to the Property and refined to final gold and
silver bullion standards of at least 99.95 percent pure gold and 99.9 percent
pure silver; and

               (j) A "Sale" of Mineral Products, other than Refined Material,
shall occur upon the passing of title from the Company in conjunction with the
physical delivery of the Mineral Products to a buyer.

          3.3 Payment. The Net Profits Royalty shall be paid to Grantee
quarterly within 30 days after the end of each calendar quarter in which the
relevant Net Profits are realized. Payments or tenders of royalties may be made
by mailing or delivering cash, or the Company's bank draft or wire transfer, to
Grantee's agent on or before the date for payment. Payment shall be accompanied
by a settlement sheet indicating the calculation of the Net Profits Royalty by
the Company, and stating the number of units of Mineral Products Sold, or Deemed
Sold, the Payments or Deemed Payments received and the amount of Deductions.
Each settlement sheet provided by the Company shall be deemed correct and
binding upon Grantee unless the Company receives a written objection from
Grantee within one year after the Company's payment under this Section 3.3.

          3.4 Futures Contracts. The Company shall have no duty to account to
Grantee, and Grantee shall have no interest or right of participation in, any
profits or proceeds of futures contracts, forward sales, hedging or any other
similar marketing mechanism employed by the Company or its affiliates with
respect to any Minerals produced from the Property. The Net Profits Royalty
shall be based solely on the Payments or Deemed Payments received for Mineral
Products produced and sold from and attributable to the Property. The Company
shall have no duty to fulfill any futures contracts, forward sales, hedging or
other contracts that the Company or any of its affiliates may hold with Mineral
Products from the Property.


                                EXHIBIT D, PAGE 4

<PAGE>
          3.5 Payment in Kind. The Company shall have the right to pay any Net
Profits Royalty due to Grantee in kind by directing a refiner to deposit into a
separate consignment account, in Grantee's name, an amount of refined gold or
silver equal in value to the Net Profits Royalty owed. The value of gold or
silver shall be Fair Market Value as of the date of payment.

          3.6 Sampling. No Net Profits Royalty will be due on any Minerals
extracted or removed from the Property for the purposes of sampling, testing,
analysis or evaluation in order to determine Mineral values and metallurgical
properties of such Minerals.

          3.7 Payment. Payments shall be made directly to the Member in
question.

          3.8 The Company's Taxpayer I.D. Nos. For the purposes of reporting to
the Internal Revenue Service payments made by the Company to Grantee, Grantee's
Taxpayer I.D. or Social Security No. is as follows:
_____________________________________ ------------------------------.

          3.9 No Obligation to Produce. The Company shall have no obligation,
express or implied, to explore for or to produce any Mineral Product from the
Property, nor, if the Company is producing gold and silver, to sell or save any
substance other than gold and silver; provided, however, that the Company shall
not receive any Payment or Deemed Payment from the Sale or Deemed Sale of any
Mineral Product removed from the Property without payment to Grantee of
royalties contemplated by this Deed. If the Company stockpiles upon other lands
any Minerals produced from and attributable to the Property, the rights and
liens of Grantee in and to such Minerals stockpiled on other lands shall not be
divested, but shall be the same in all respects as though such materials have
been stockpiled on the Property. If the other lands are not owned by the
Company, the Company shall obtain from the owners of the other lands a properly
executed instrument under which the owners of the other lands recognize the
interests and liens Grantee in and to ore and Minerals produced from the
Property prior to any such stockpiling.

          3.10 Sales to Affiliates. If Mineral Products other than Refined
Materials mined from and attributable to the Property are Sold to any Affiliate
of the Company, then the Payments received by the Company shall be deemed to be
no less than the Fair Market Value of such Mineral Products.

          3.11 Commingling. The Company may commingle ore from the Property with
ore from property owned by third persons, provided that commingling occurs only
after the Company has measured and sampled the ore in accordance with sound
mining and metallurgical practices for moisture and gross recoverable mineral or
metal content and assayed the samples to determine the percentage of recoverable
Mineral content or other methods consistent with generally accepted industry
standards. The Company shall keep accurate records showing weights, percentage
of moisture and gross recoverable Mineral content of the ore or other records
consistent with generally accepted industry standards. Mineral value shall be

                                EXHIBIT D, PAGE 5

<PAGE>
allocated between the Grantee's ore and other ore on the basis of gross
recoverable Mineral content or other allocations consistent with generally
accepted industry standards. The Company may use any procedures acceptable in
the mining and metallurgical industry which the Company believes to be accurate
and cost-effective for the type of mining and processing activity being
conducted, and the Company's choice of such procedures shall be final and
binding on Grantee. In addition, comparable procedures may be used by the
Company to apportion among the commingled ores any penalty charges imposed by
the refiner on commingled ores or concen trates.

          3.12 Assignment of Royalty. Grantee agrees that it will not make or
accept any bona fide offer to sell or otherwise assign or transfer any interest
in the royalty interest described in this Deed without first offering to sell or
otherwise assign or transfer such rights to the Company on the same terms and
conditions or on cash-equivalent terms and conditions. Grantee will give notice
of any such offer to the Company in writing identifying the proposed purchaser
and specifying the terms of the offer in full, and Grantee will keep such offer
open for acceptance by the Company for at least 30 days from its receipt by the
Company. If the Company fails to give notice of its acceptance of the offer
within such 30-day period, Grantee will be free to make or accept such offer (or
any like offer more favorably to Grantee) to such identified purchaser for a
period of 90 days. Any proposed assignment or transfer after such 90-day period
shall once again be subject to the rights of the Company as specified in this
paragraph.

     4. Inspection. The Company agrees to keep full, true and accurate accounts
showing the tonnages and all shipments and Sales or Deemed Sales of all Mineral
Products mined from and attributable to the Property and all receipts in
connection with such Sales or Deemed Sales. Said accounts and receipts may be
inspected by Grantee once annually at any reasonable time, and in a reasonable
manner so as to not unreasonably interfere with the Company's operations after
Grantee has given the Company five (5) days written notice of the date of such
inspection. In addition, Grantee may visit and inspect the Property at any
reasonable time after five (5) business days written notice of the date of such
inspection, at Grantee's sole risk and expense, in a reasonable manner so as to
not unreasonably interfere with the Company's operations. The Company may
require Grantee's representatives to execute waivers releasing the Company from
liability for personal injury while on the Property. Grantee shall indemnify and
hold the Company, its Members, and their respective owners, directors, officers,
employees and agents harmless for all damages arising out of any death, personal
injury or property damage sustained by Grantee, its officers, directors,
employees or other agents while in or upon the Property, unless such death,
injury or damage arises solely as a result of the Company's gross negligence or
willful misconduct.

     5. Lesser Interest. If it is determined by a court of competent
jurisdiction or by binding agreement that the Company owned, on the date of this
Deed a lesser interest in the Property or in the Minerals and Mineral Products
contained in any portion of the Property than the interest shown on attached
Appendix I for reasons other than the gross negligence or willful misconduct of
a Member of the Company other than the Grantee, then each and every sum

                                EXHIBIT D, PAGE 6

<PAGE>
otherwise payable to Grantee under the Net Profits Royalty provisions above
shall be multiplied by a fraction, the numerator of which is the percentage
interest in the Property or in the Minerals and Mineral Products owned by the
Company and the denominator of which is the percentage interest in such portion
of the Property or in the Minerals and Mineral Products from such portion of the
Property shown on attached Appendix I. Failure of the Company to timely reduce
any royalties or payments shall not impair the Company's right to subsequently
make such reductions.

     6. Notices. All notices provided for in this Deed shall be in writing and
delivered personally or by courier, or by electronic transmission or by
certified mail, and shall be deemed given upon actual receipt by the addressee,
as shown by certified mail or courier receipt or electronic confirmation of
transmission, to the following addresses (unless otherwise changed by written
notice of the parties):

To the Company:


To the Grantee:

     7. Notice of Assignment. No change in ownership of Grantee's royalty
interest shall be binding on the Company until after the Company has been given
notice consisting of certified copies or documents necessary to establish a
complete chain of title from Grantee in compliance with Argentinean law. No
other type of notice, whether actual or constructive, shall be binding on the
Company, and the Company may continue to make payments as if no change had
occurred. No present or future division of Grantee's ownership as to all or any
part of said lands shall enlarge the obligations or diminish the rights of
Grantee, and the Company may disregard any such division.

     8. Further Assurances. Grantee agrees to execute, or provide such further
assurances as may be reasonably requested by the Company, whenever requested to
do so by the Company.

     9. Applicable Law. This Deed shall be construed in accordance with and
governed by the laws of the State of Washington and the United States.



                                EXHIBIT D, PAGE 7

<PAGE>
          The Members have executed this instrument, by duly authorized officer,
as of the Effective Date.

                                       The Company:





                                       By:_________________________________



                                       Grantee



                                       By:_________________________________


[acknowledgments]

                                EXHIBIT D, PAGE 8

<PAGE>
                                    EXHIBIT E

                     ARROYO VERDE PROJECT, CHUBUT ARGENTINA
                         EXPLORATION PROGRAM AND BUDGET
                              YEAR ONE (1997-1998)


     The first year planned exploration program at Arroyo Verde comprises a
systematic evaluation in three phases. Allowances for flexibility in the work
plan are assumed depending upon the results and interpretations developed in
each phase. Work totaling $397,725 is planned as outlined below:

PHASE I

Detailed geologic mapping, re-logging drill cuttings and orientation geophysical
and geochemical studies.
Duration: 3 months
Projected expenditure: $48,300

PHASE II

Grid survey, geophysical and geochemical surveys.
Duration: 2 months
Projected expenditure: $119,300

PHASE III

2,000 meter reverse-circulation drilling program
Duration: 2.5 months
Projected expenditure: $230,125


                                EXHIBIT E, PAGE 1

<PAGE>
<TABLE>
<CAPTION>

                 PHASE I: DETAILED MAPPING, ORIENTATION SURVEYS

-------------------------------------------------------------------------------
   Description                    Rate          Amount        Cost
   -----------                    ----          ------        ----
-------------------------------------------------------------------------------
<S>                           <C>            <C>             <C>

Geologist                      $275/day        75 days       $20,625
-------------------------------------------------------------------------------
4WD Vehicle                   1,100/month     2.5 months       2,750
-------------------------------------------------------------------------------
Fuel                           $0.25/km        5,000 km        1,250
-------------------------------------------------------------------------------
Food/Supplies                   $15/day        75 days         1,125
-------------------------------------------------------------------------------
Lodging/Food                    $70/day        75 days         5,250
-------------------------------------------------------------------------------
Field Supplies                                                   800
-------------------------------------------------------------------------------
Phone, Miscellaneous                                             500
-------------------------------------------------------------------------------
Maps, Reproduction                                             2,000
-------------------------------------------------------------------------------
Geophysics Orientation Survey                                  8,000
-------------------------------------------------------------------------------
Geochemistry Orientation Survey                                4,000
-------------------------------------------------------------------------------
Land and Legal                                                 2,000
-------------------------------------------------------------------------------
PHASE 1 TOTAL                                                $48,300
-------------------------------------------------------------------------------

</TABLE>


                                EXHIBIT E, PAGE 2

<PAGE>
<TABLE>
<CAPTION>

           PHASE II: GRID SURVEYS, GEOPHYSICAL AND GEOCHEMICAL SURVEYS

-------------------------------------------------------------------------------
   Description                    Rate          Amount        Cost
   -----------                    ----          ------        ----
-------------------------------------------------------------------------------
<S>                           <C>              <C>            <C>
Geologist                       $275/day         50 days       $13,750
-------------------------------------------------------------------------------
2 Samplers                      $75/day          40 days         3,000
-------------------------------------------------------------------------------
Surveying                                        1,500 ha       10,000
-------------------------------------------------------------------------------
Two 4WD Vehicles              $1,100/month       2 months        4,400
-------------------------------------------------------------------------------
Fuel                            $0.25/km         5,000 km        1,250
-------------------------------------------------------------------------------
Food/Lodging                    $75/day          200 days       15,000
-------------------------------------------------------------------------------
Field Supplies                                                   1,000
-------------------------------------------------------------------------------
Phone, Misc.                                                       500
-------------------------------------------------------------------------------
Maps, Reproduction                                               2,000
-------------------------------------------------------------------------------
Geophysics (method to be                                        50,000
decided)
-------------------------------------------------------------------------------
Biogeochemistry                $21/sample      400 samples       8,400
-------------------------------------------------------------------------------
Enzyme Leach                   $25/sample      400 samples      10,000
-------------------------------------------------------------------------------
Land and Legal                                                   5,000
-------------------------------------------------------------------------------
PHASE II TOTAL                                                $119,300
-------------------------------------------------------------------------------

</TABLE>
                                EXHIBIT E, PAGE 3

<PAGE>
<TABLE>
<CAPTION>


                        PHASE III: DRILLING--2,000 METERS

-------------------------------------------------------------------------------
   Description                    Rate          Amount        Cost
   -----------                    ----          ------        ----
-------------------------------------------------------------------------------
<S>                           <C>               <C>             <C>
Geologist                       $275/day           75 days       $20,625
-------------------------------------------------------------------------------
Jr. Geologist                   $100/day           60 days         6,000
-------------------------------------------------------------------------------
Drilling                       $50/meter         2,000 meters    100,000
-------------------------------------------------------------------------------
Two 4WD Vehicles              $1,100/month        2.5 months       5,500
-------------------------------------------------------------------------------
Fuel                            $0.25/km         6,000 km X 2      3,000
-------------------------------------------------------------------------------
Food/Lodging                    $75/day          6 X 60 days      27,000
-------------------------------------------------------------------------------
Drill Supplies                                                     2,000
-------------------------------------------------------------------------------
Assays                         $25/sample       1,400 samples     35,000
-------------------------------------------------------------------------------
Dozer                                                             10,000
-------------------------------------------------------------------------------
Mobe/Demobe                                                        6,000
-------------------------------------------------------------------------------
Environmental Report                                               5,000
-------------------------------------------------------------------------------
Land and Legal                                                    10,000
-------------------------------------------------------------------------------
PHASE III TOTAL                                                 $230,125
-------------------------------------------------------------------------------


                                         TOTAL FOR 1997 - 1998: $397,725
</TABLE>

                                EXHIBIT E, PAGE 4