Document:

exv10w6

 

Exhibit 10.6

TERM SHEET

ATASPACA PROJECT, PERU

This Term Sheet is to confirm our understanding and define the new terms
between Minera del Suroeste S. A. C. (MISOSA), subsidiary of Southwestern
Resources Corporation (SWR) of Vancouver, Canada, and Bear Creek Mining
Company, Sucursal del Perú (BCMC), branch of Bear Creek Mining Company of
Arizona, U. S. A., regarding an option/joint venture to explore the Ataspaca
Project located in the department of Tacna, Peru. Upon acceptance of this Term
Sheet, the parties will be mutually bound to the terms contained herein and
will thereafter execute an appropriate agreement between the parties to embody
the terms agreed upon.

MISOSA has acquired from Mr. Jorge Nelson Rivera Novoa, through a private
contract (Exhibit “B”, which will be considered to be an integral part of this
Term Sheet) the rights to one mineral concession (the “Concession”) as
described in Exhibit “A” (the “Property”), and BCMC desires to participate in
an option/joint venture to explore this Concession.

BCMC and MISOSA agree to the following terms:

	1.	 	To earn an indirect 50% (fifty percent) in the Property (the “Option”)
BCMC must expend, at the discretion of BCMC as it sees fit, US$50,000 in
direct costs within one year thereafter.
	 
	2.	 	BCMC will have exercised the Option upon its notification to MISOSA by
way of an officer’s certificate confirming that BCMC has incurred
US$50,000 in exploration expenditures, as specified in Section 1, and is
not otherwise in default hereunder.
	 
	3.	 	The Management Committee formed under Section 4 will appoint BCMC as
operator (“Operator”) for the period prior to the exercise of the Option
and thereafter provided that BCMC’s interest in the Joint Venture (as
defined in Section 6) is not less than 50%. The Operator will prepare and
deliver to the parties:

	 	a.	 	Programs and budgets, at least annually and in any event within
30 (thirty) days prior to the end of each program, for presentation
to the Management Committee; and
	 
	 	b.	 	Exploration summaries of exploration activities and results
each quarter and a detailed report within 30 (thirty) days of
completion of each program describing exploration activities, results
and any conclusions or recommendations of the Operator.

	4.	 	A Management Committee, which will be formed upon execution of this Term
Sheet, will be responsible for approving work programs and budgets and for
determining the general policies and direction to be adopted by the
Operator. The Management Committee will consist of four (4)
representatives, two (2)

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	 	 	representatives appointed by each party. The two (2) representatives from
each party will be collectively entitled to the number of votes equal to
such party’s percentage interest in the Joint Venture. However, during
the period prior to the exercise of the Option, the representatives
appointed by BCMC will be entitled to 51 (fifty-one) votes and the
representatives appointed by MISOSA will be entitled to 49 (forty-nine)
votes at meetings of the Management Committee. Decisions of the
Management Committee, including a production decision, require a simple
majority of votes.
	 
	5.	 	Unless otherwise specified herein, each of the parties will fund programs
and vote at the Management Committee meetings according to their then
present interest in the Joint Venture. Programs and budgets will be
reviewed and voted upon by the Management Committee within 30 (thirty)
days of presentation to the Management Committee.
	 
	6.	 	Upon BCMC exercising the Option the parties will form a joint venture or
agree upon another appropriate structure pursuant to Section 7 (the “Joint
Venture”) to conduct such further work on the Property as the Management
Committee decides. BCMC’s initial interest in the Joint Venture will be
50% (fifty percent) and MISOSA’s interest 50% (fifty percent).
	 
	7.	 	Prior to the exercise of the Option, BCMC and MISOSA will jointly and in
good faith endeavor to determine the appropriate corporate and transaction
structure in which the Joint Venture and the Property should be held with
a view to maximizing organizational and operational efficiencies and to
minimizing tax and other related legal concerns of BCMC and MISOSA. Such
structure is intended to be implemented prior to the exercise of the
Option. If the parties are unable to agree on a corporate and transaction
structure, then the corporate and transaction structure will be that of
the Joint Venture established under Section 6.
	 
	8.	 	If a party elects in writing not to contribute to a program and budget
approved by the Management Committee within 30 (thirty) days of such
approval or if a party fails to fully contribute to a cash call approved
by the Management Committee within 30 (thirty) days of a specified payment
date, then that party’s interest will be diluted on a straight-line basis
at 100% (one hundred percent) of the rate of expenditure by the
contributing party. Upon dilution of a party’s interest to 10% (ten
percent), that party’s interest will be converted to a 5% (five percent)
interest in net profits from the Property. Net profits means the amount
by which total revenues from the sale of products from the Property exceed
all costs, including any other royalty payments, incurred by the Joint
Venture after the commencement of commercial production. For purposes of
the dilution calculation, MISOSA will be deemed to have expended an amount
equivalent to BCMC’s expenditures hereunder upon exercise of the Option.
If a diluting party is the Operator then upon commencement of dilution of
its interest, such party will be deemed to have resigned as Operator and
the other party will be automatically appointed as Operator.

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	9.	 	If either party (the “Acquiring Party”) acquires any interest in mineral,
surface or water rights (“Acquired Rights”) within 5 (five) kilometers of
the outside boundary of the Concession (the “Area of Interest”) then such
party will offer the Acquired Rights, at cost, to the other party. If the
other party elects within 30 (thirty) days to have the Acquired Rights
held hereunder on behalf of the parties or, after the exercise of the
Option, transferred to the Joint Venture and form part of the Property
then the Acquiring Party will so transfer all its interest in the Acquired
Rights and be reimbursed for its out of pocket expenses. If the Acquired
Rights are acquired prior to the exercise of the Option and MISOSA is the
Acquiring Party, BCMC will reimburse MISOSA for its out of pocket
expenses, which costs will be applied to BCMC’s expenditures under Section
1; or if BCMC is the Acquiring Party then such acquisition costs will be
applied to its expenditures under Section 1. If the other party does not
elect to have the Acquired Rights so transferred then the Acquiring Party
will retain all its interest in such acquired rights and the Acquired
Rights will not be included as part of the Property and will be excluded
from the Area of Interest.
	 
	10.	 	If BCMC elects to abandon any of the mineral concessions comprising the
Property or terminate the agreement prior exercising the Option then it
will return such mineral concessions or the Property, as the case may be,
to MISOSA in good standing free and clear of all liens and encumbrances
and make all payments of taxes (“vigencias”) and expenditures on behalf of
MISOSA required to maintain the Property, including all obligations
specified in Peru’s mining laws relating to maintenance of the Property
and all legal and administrative costs associated therewith (collectively
the “Good Standing Fee”) which become due or are required to be made
during the calendar year in which the abandonment or termination occurs.
	 
	11.	 	If a party wishes to dispose of any or all of its interest in the
Property or Joint Venture it must first offer such interest to the other
party on terms no less favorable and expressed in cash terms, and the
other party will have 60 (sixty) days thereafter to accept such offer.
	 
	12.	 	If any party is prevented from or delayed in performing any obligation
hereunder by any cause beyond its reasonable control, excluding only lack
of financing, then the time for performance of an obligation will be
extended for the period equivalent to the total period of the cause of the
delay. If either party is in default of any of its obligations it will
not lose its rights hereunder unless, within 30 (thirty) days of notice of
default from the other party, the defaulting party fails to take and
pursue reasonable action to cure the default.
	 
	13.	 	Each party agrees that all data and information regarding the Property
will be treated as confidential and will not be disclosed by it to any
third parties, except as required by law.
	 
	14.	 	Any dispute hereunder will be resolved by arbitration by a single
arbitrator in accordance with the rules of, but not necessarily under, the
American Arbitration

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	 	 	Association. The laws of the Republic of Peru will govern this Term Sheet
and any formal agreement.
	 
	15.	 	If the Management Committee is deadlocked on approving a program and
budget then the program will be determined by special arbitration
according to the procedures established under Section 14. In such
arbitration, each party will be entitled to submit to the arbitrator its
proposal for the program and budget and the arbitrator will be entitled to
choose from among the submissions received but will not be entitled to
make any other award. The program and budget chosen by the arbitrator
will be deemed to be a program and budget approved by the Management
Committee.
	 
	16.	 	The parties agree to be mutually bound by the above terms and conditions
which will form the basis for an Option/Joint Venture Agreement between
BCMC and MISOSA regarding the Property, subject to approval of the
Peruvian government regarding a foreign entity acquiring rights to explore
and exploit mineral deposits within the 50 (fifty) kilometer border area.
The parties agree to execute, as soon as possible, a formal option
agreement.
	 
	17.	 	This Term Sheet replaces in its entirety the Term Sheet signed between
SWR and BCMC on August 4th, 2000.

	 	 	 
	Agreed, accepted and confirmed this 23rd

day of May 2002 by MINERA DEL

SUROESTE S. A. C	 	
Agreed, accepted and confirmed this      

day of May 2002 by BEAR CREEK

MINING COMPANY — SUCURSAL DEL

PERU

	 	 	 
	“C. Richard Petersen”	 	
“Andrew T. Swarthout”
	
	 	

	by: C. Richard Petersen

Managing Director	 	
by: Andrew T. Swarthout

President

4exv10w7

 

Exhibit 10.7

July 31, 2002

Mr. Andy Swarthout

Mr. David Volkert

Bear Creek Mining Company

8340 N. Thornydale Rd. #110-263

Tucson, AZ 85741

RE: LETTER OF INTENT

Gentlemen,

Pursuant to our recent discussions, Bear Creek Mining Company, an
Arizona Corporation (“BCMC”) wishes to acquire the exclusive right to earn
an interest in the La Pampa Property in the Department of Lambayeque, Perú
(the “Property”), the mineral rights to which are held by are held by Minera
Solitario Peru S.A.C. (“MSP”). MSP is a wholly owned subsidiary of
Solitario Resources Corporation of Denver, Colorado (“Solitario”). The
Property consists of a 19 square kilometer area near Chongoyape Perú, a more
definitive description of which is shown on Exhibit A attached.

	1.	 	a) Subject to the Conditions (as hereinafter defined), this Letter of
Intent sets forth terms under which BCMC will have an option to acquire an
interest in the Property by way of the acquisition of a sharehold interest
in a new corporate entity (“Newco”) to be formed by MSP under the laws of
Perú and which shall hold as its sole assets the Property and its initial
capital. MSP shall create Newco prior to such time as BCMC exercises it
option to acquire an interest in Newco (the “Option Period”). MSP and
BCMC may enter into an Operating Agreement at such time as BCMC deems
appropriate which provides for the detailed terms under which BCMC shall
conduct exploration during the Option 

 

 

	 	 	Period and under which MSP and BCMC
may jointly invest in the property
through Newco after BCMC has vested its interest in Newco. The Operating
Agreement shall be mutually agreed upon by the Parties and which shall form
a basis for the development and mining of the Property by Newco based upon
terms commonly accepted in the mining industry.
	 
	 	 	b) During the Option Period, MSP agrees to provide the Property
exclusively to BCMC free of any encumbrance or title defect and will pay
expenses to remedy any such defects which may be discovered to have existed
prior to signing of this Letter of Intent. Should the Parties decide to
acquire additional mineral rights within two kilometers of the boundaries of
the claims shown on Exhibit A those rights shall be incorporated into and be
an integral part of the Property.
	 
	2.	 	a) In order to acquire a 51% interest in Newco, BCMC shall undertake the
following cumulative work commitments with respect to the Property over a
period of five years, which five year period begins on the date of signing
of this Letter of Intent:

	 	 	 	 	 	 
	Year	 	Expenditure (US$)
	
	 	

	 	1
	 	 	100,000	 
	 	2
	 	 	300,000	 
	 	3
	 	 	700,000	 
	 	4
	 	 	1,300,000	 
	 	5
	 	 	2,100,000	 
	 
	 	 	
	 
	Total
	 	 	4,500,000	 
	 
	 	 	
	 

	 	 	Allowable costs allocable to the work commitment shall relate to direct
costs expended on exploration and related activities and reasonable
administration costs which directly relate to expenditures on the Property
as is generally accepted within the mining industry. Solitario shall have
the right to verify work expenditures upon prior notice to BCMC.
	 
	 	 	b) For as long as BCMC is earning its right to exercise its option
under the terms of this Letter of Intent or the Operating Agreement, BCMC
shall make all surface rights, lease and tax payments with respect to the
Property, defend its good standing and pay the annual holding costs
(derechos de vigencia) for the claims as required by Peruvian law. All
payments by BCMC for surface rights (servidumbre), acquisition of surface
titles, and mineral rights shall be deemed to be applicable to the work
commitment. At the signing of this Letter Agreement 

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	 	 	the derechos de vigencia
for year 2001 were paid in arrears in June 2002. BCMC makes a firm
commitment to pay of the derechos de vigencia for year
2002 payable not later than June 30, 2003, which are estimated to be
approximately $6,000.
	 
	 	 	c) BCMC commits to complete at least 1000 meters of exploration drilling
within the first year of the Option Period subject to the Conditions,
including the condition in Section 2(f) below.
	 
	 	 	d) At any time after completion of 1000 meters of drilling, BCMC may
withdraw from the Agreement by notifying Solitario of termination in
writing. Notwithstanding notification of termination by BCMC, obligations
in relation to property payments by BCMC under section 2(b) above shall
endure for a period of forty-five days after the date of notification of
termination.
	 
	 	 	e) BCMC may accelerate the schedule of its work commitment to earn its right
to exercise its option by completing its investment of $4,500,000 at any
time during the five year Option Period, at which time BCMC will have been
deemed to have fulfilled its work commitment and may exercise its option to
acquire an interest in Newco.
	 
	 	 	f) Upon signing of this Letter of Intent BCMC will endeavor to acquire
the surface rights to perform exploration from the title holder(s) of the
Property under favorable terms and within a reasonable time frame. Should
this acquisition require more than four months, the effective date of the
work commitments as described in Section 2(a) of this Letter of Intent shall
be postponed for such period in excess of four months as is required to
acquire such rights but not to exceed an additional period of six months.
	 
	3.	 	a) Upon fulfillment of its work commitments BCMC may exercise its option
to receive a 51% sharehold interest in Newco. This transfer of corporate
interest will be recorded in the books of Newco by way of a sale of shares
for a nominal amount representing 51% of the initial capital of Newco.
The parties shall mutually agree on the manner of this transfer which
provides the most favorable tax treatment for both parties.
	 
	 	 	b) Upon completion of the initial earn-in requirements and notification
to Solitario of the exercise of its option to acquire a 51% interest in
Newco, BCMC 

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	 	 	may concurrently elect to increase its corporate interest in the
Company from 51% to 65% by committing to complete a bankable feasibility
study within two years of the election. BCMC shall earn the additional 14%
of the shares in the
Company upon completion of the bankable feasibility study and the accounts
of the Newco shall be accordingly adjusted.
	 
	 	 	c) The Shareholders of Newco shall record that the initial contribution
of each Party upon the earn in of BCMC’s 51% (or 65%) interest will be
deemed to be in proportion to the actual expenses incurred by BCMC in
earning its interest. For greater certainty, the formula IPI= [A/(A+B)]
describes the initial contribution of the Parties where IPI (the Initial
Participating Interest) of BCMC equals either 51% or 65% and A represents
the actual expenditure incurred by BCMC to earn the corresponding interest
and B represents the deemed initial contribution of Solitario.
	 
	 	 	e) Subsequent to earn in by BCMC the Participating interest of each
party may, from time to time, be calculated using a similar formula to that
shown in Section 3(d): PI = [A/(A+B)] where in PI is equal to the
Participating Interest of Party 1 and A is the Initial Contribution of Party
1 plus its additional contributions, and B is the other Party’s Initial
Contribution plus additional contributions. Should either Party’s
Participating Interest be diluted to 10% then the diluting Party’s interest
shall revert to a 2.5% Net Smelter Return as defined in Exhibit B.
	 
	4.	 	The Bylaws of Newco shall generally conform to the terms of the Operating
Agreement and the appointment of its Directors shall be mutually agreed
upon by the parties to the Operating Agreement for so long as the
Operating Agreement is in force. The Operating Agreement shall: 1)
specify procedures for the approval of budgets, cash calls, reporting,
notifications etc., all in accordance with standard mining practice, 2)
provide that, following the Option Period, the shareholders of the Company
shall bear the costs of exploration, development and mining in proportion
to each party’s ownership of the shares of the Company, 3) that the voting
representation on the Board of Directors of Newco shall be in proportion
to each Party’s Participating Interest and 4) other provisions as are
required by mutual agreement and standard mining practice to facilitate
the operational and administrative functions of the company.
	 
	5.	 	The Letter of Intent or the Operating Agreement shall terminate upon the
earlier to occur of the following:

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	 	(i)	 	after written notice by BCMC to Solitario pursuant to the terms of
Section 2(d);
	 
	 	(ii)	 	BCMC fails to complete the cumulative work commitments on the
anniversary dates of the work commitment schedule shown in Section 2(a)
subject to the terms of Section 2(f);
	 
	 	(iii)	 	the mutual agreement of both parties;
	 
	 	(iv)	 	the parties cease to own an interest in the Property; and
	 
	 	(v)	 	failure of BCMC to acquire access rights within ten months of the
signing of this Letter of Intent as provided for in Section 2(f).

	6.	 	BCMC will be the operator of the project during the term of the option.
	 
	7.	 	During the Option Period BCMC agrees to provide Solitario with quarterly
written reports of factual and interpretive data as well as more frequent
updates regarding material results and, as needed, for corporate reporting
requirements.
	 
	8.	 	Draft releases of information to the public by a Party shall be provided
to the other Party for comment and approval, such review to occur in a
timely manner.
	 
	9.	 	This Letter of Intent is subject to the following conditions (the
“Conditions”):

	 	(i)	 	satisfactory completion by BCMC of due diligence in respect of the
adequacy of mineral title of the Property not to exceed a period of
thirty (30) days; and
	 
	 	(ii)	 	the acquisition of surface rights as contemplated by Section 2(f)
above.

	10.	 	Until such time as a definitive form of agreement is executed, the terms
of this Letter of Intent will be binding on the parties.
	 
	11.	 	This Letter of Intent shall be interpreted in accordance with and governed
by the laws of Colorado.

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The parties express their agreement to the terms of this Letter of Intent by
signing below.

	 	 	 
	Solitario Resources Corporation

4251 Kipling St. #390

Wheat Ridge, CO 80033	 	 
	 	 	 
	By “Walt Hunt”
	 	 
	
	 	 
	         
               
               
               
               
               
               	 	
Date:           
               
               
         
	 	 	 
	 	 	 
	Bear Creek Mining Company	 	 
	 	 	 
	By “Andrew T. Swarthout”	 	 
	
	 	 
	         
               
               
               
               
               
               	 	
Date:           
               
               
         

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EXHIBIT A

The claims comprising the Property:

	 	 	 	 	 	 	 	 	 	 	 	 	 
	DERECHO	 	CODIGO	 	ASIENTO	 	FICHA
	
	 	
	 	
	 	

	La Pampa uno
	 	 	01-00168-99	 	 	 	02	 	 	 	16376	 
	La Pampa dos
	 	 	01-00191-99	 	 	 	02	 	 	 	16336	 

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EXHIBIT B

Net Smelter Return

The Party with the majority share of the La Pampa Project shall pay to the
diluting Party with respect to the substances produced and sold form the
Property two and one half percent (2.5%) of the “Net Returns” received by the
majority Party from the sale of the substances produced. The term “Net
Returns” shall mean the total receipts from the mint, refinery, smelter or
other purchaser less only (i) the transportation costs from the Property to the
place of sale, if paid by the majority Party and (ii) the costs, penalties,
treatment charges and other charges paid by the majority Party to, or deducted
from, the amount paid by the mint, refinery, smelter or other purchaser. Net
Returns royalties payable hereunder shall be paid within forty-five (45) days
following the end of each calendar quarter in which the majority Party receives
the Net Returns. Payments shall be made to the diluting Party at the address
of record in this agreement or to such depository or address that the diluting
Party shall designate to the majority Party in writing. Net Returns payments
shall be accompanied by a statement setting forth the amount of substances
sold, the total received therefore and the method used to determine the Net
Returns payable. Each such statement shall be deemed correct and binding upon
the diluting Party unless the diluting Party shall dispute the accuracy thereof
in writing within six (6) months following the end of the calendar year in
which the Net Return was paid. The diluting Party shall have the right to
audit the accounting of the Net Return calculations of the majority Party.

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