LEASE AGREEMENT
This Lease Agreement is made this 18th day of September, 2003,
by and between LKA International, Inc., a Nevada corporation (LKA), and Au
Mining, Inc., a Colorado corporation (Au Mining).
RECITALS:
1. LKA owns certain real and personal property interests including
patented and unpatented mining claims, water rights, buildings, fixtures,
improvements, equipment, and permits situated in Hinsdale County, Colorado,
which are collectively referred to herein as the "Property" and more
particularly described in Exhibit A, attached hereto.
2. Au Mining owns personal property and equipment which it
purchased in connection with its operations on the Property.
3. LKA and Au Mining are currently subject to a Lease Purchase
Agreement dated July 1, 1997, by which Au Mining leases the Property, and has
exercised its option to purchase the Property. In connection with the
exercise of the option to purchase, Au Mining has executed a Promissory Note
and Deed of Trust as set forth in the Lease Purchase Agreement, copies of
which are attached hereto as Exhibit B.
4. LKA and Au Mining now wish to terminate the existing Lease
Purchase Agreement, including Au Mining's option to purchase any portion of
the Property, and enter into a new lease agreement. The new lease agreement
shall include a lease of the current workings on the Golden Wonder Property
solely, and development and expansion of the Golden Wonder Property beyond its
current workings. The Golden Wonder Property is more particularly described
in Exhibit C, attached hereto. This lease shall specifically exclude any
portion of the Xxx Xxx Mine and Millsites as such are described in Exhibit A,
and Au Mining shall have no further rights or interest to such property.
DEFINITIONS:
For purposes of this Agreement:
1. The term "current workings" shall mean production on the Golden
Wonder Property contained in levels 1-6 of the Golden Wonder Mine, and areas
of the Golden Wonder Property which are necessarily incident to the production
on levels 1-6.
a. The term "new development" shall include, but not be limited
to, expansion and development of a lower level to the Golden Wonder Property,
and such other areas of the Golden Wonder Property as may be agreed by the
parties. Such term shall also include all necessary activities incident to
such expansion and the development of new reserves, including permitting,
bonding, staking, drilling, purchasing equipment, paying employees, etc.
NOW, THEREFORE, for good and sufficient consideration as expressed
herein, the parties agree as follows:
1. TERMINATION OF PRIOR AGREEMENT.
1.1 Upon execution of this Lease Agreement, the Lease Purchase
Agreement dated July 1, 1997, shall terminate, and all terms and conditions
stated therein shall be of no further force or effect.
1.2 Upon execution of this Lease Agreement, LKA shall xxxx the
original Promissory Note signed by Au Mining, "cancelled," and shall release
the Deed of Trust recorded on September 20, 2002, in the Hinsdale County
public records at Reception No. 92509. Such instruments shall thereafter be
of no further force nor effect, Au Mining shall no longer have an option to
purchase any portion of the Property, and Au Mining shall thereafter have a
lease interest only in the Golden Wonder Property.
2. LEASE OF CURRENT WORKINGS.
2.1 LKA shall continue to lease to Au Mining the current
workings on the Golden Wonder Property, including all surface and subsurface
areas, permits, claims, easements, ore on-site, rights-of-way, equipment and
all improvements located on, or associated with, the current workings on the
Golden Wonder Property.
2.2 Throughout the term of this Agreement and thereafter, LKA
shall continue to own the Golden Wonder Property, as well as any additional
real or personal property, claims (patented or unpatented) easements, mineral
and water rights or any other such properties associated with, adjoining or
enhancing further development of the Golden Wonder claims and/or workings
acquired by either LKA or Au Mining. Au Mining shall continue to own all
personal property, including equipment, owned by Au Mining as of the date of
this Agreement or thereafter purchased by Au Mining.
2.3 Lease Term. The lease term shall run from the date of
execution of this Lease Agreement through September 1, 2008, or for such
further period as the parties agree to in writing.
2.4 Responsibility for Costs, Work and Fees. Au Mining shall be
responsible for providing all funds necessary to continue its operations in
the current workings on the Golden Wonder Property. Au Mining shall also be
responsible for payment of all property taxes, assessments, claim and permit
filings, performance bonds and any other fees associated with Au Mining's
activities in the current workings on the Golden Wonder Property. Copies or
other evidence of filings or payments made in this regard will be provided to
LKA prior to any lawfully required filing dates.
2.5 Removal and Sale of Ore. Au Mining may remove and sell
precious ores in, on and underlying the Golden Wonder Property in any
reasonable and lawful manner, as determined by Au Mining, provided that the
following conditions are met:
2.5.1 Within 30 days of removal, Au Mining shall notify LKA,
in writing, of all ore removed from the Golden Wonder Property. Such
notification shall include all documentation reasonably necessary to determine
the amount, weight, and value of all ores and/or ore concentrates or metals
removed. Such documentation shall include, but not be limited to, legal
weight/scale slips, mill and smelter receipts, settlement records and/or cash
sale receipts.
2.5.2 Au Mining shall cause a representative sample of all
ores, concentrates or metal removed from the Golden Wonder Property to be
assayed by an independent, certified assayer. Copies of all such assays shall
be included in the documentation described in Section 2.5.1 and 5.2.3 of this
Agreement.
2.5.3 Minimum Royalty Payments
Au Mining shall pay to LKA a minimum annual royalty of
$50,000 per calendar quarter ($200,000 per year). All such payments shall be
due within ten days of the first day of each calendar quarter.
2.6 Net Smelter Payments.
2.6.1 To LKA. Au Mining shall pay to LKA a royalty equal to
ten percent (10%) of all proceeds received from the current workings of the
Golden Wonder Property, or to which Au Mining is entitled to receive, after
customary and usual deductions for assaying, transportation costs, smelting
charges and penalties, severance taxes, and any state and federal royalties,
if required, or similar charges for which Au Mining receives no material
benefit, from the sale of ore, metals and/or concentrates or any other product
or substance produced from the current workings on the sixth level and above
of the Golden Wonder Property. Such royalty shall be known as a "net smelter
royalty." Net Smelter Payments shall be cumulative and applied to satisfy the
"Minimum Royalty Payments" required in 2.5.3 above.
2.6.2 Distribution of Payments. Ore removed from the
current workings of the Golden Wonder Property shall be sold under the current
Au Mining and Barrick-Goldstrike contract, or a more favorable future
contract. Au Mining will pay the royalties as set forth above to LKA within
ten (10) business days of receipt from Barrick-Goldstrike, or other ore
purchasers, with copies of accompanying documentation.
3. NEW DEVELOPMENT.
3.1 Scope of Project. LKA and Au Mining will discuss and agree
upon the parameters of the new development prior to the commencement of work
on the new development. Any necessary or desired changes in such parameters
will be agreed upon by the parties before work continues.
3.2 Viability of New Development. If at any time, LKA or Au
Mining believe the new development is not proceeding at a rate sufficient to
justify expenses incurred, if it appears to LKA or Au Mining that future
production will not warrant expenses incurred, or if funding is not available,
either party may cease work and funding on the new development unless and
until the parties agree otherwise, or redefine the nature of the new
development in writing. In addition, LKA agrees to promptly notify Au Mining
of any adverse information regarding LKA's financial situation or ability to
fund or continue to fund the new development.
3.3 Generation of Funds. LKA intends to generate and provide
funding for the new development of the Golden Wonder Property. The parties
will discuss and agree upon a method for providing funds for additional
equipment beyond that currently budgeted for, or additional capitalization if
such becomes necessary, either through the raising of additional funds, or
distributing profits from production in the current workings in a different
manner.
3.4 Use of Funds. Funds to be generated and provided by LKA
will be utilized by Au Mining primarily to permit and drive a new lower level
access tunnel or such other areas as agreed by the parties which will allow
further exploration development and production of the Golden Wonder Property.
The funds generated by LKA will also be utilized for direct project costs such
as: permitting, taxes, utilities, property acquisition, equipment procurement
and repair, labor, supply, engineering, freight, ore processing, assay, any =
required specialty insurance, etc. LKA will not provide funds for non-cash
items, or indirect project costs, such as depreciation, general insurance
obligations of Au Mining as required by this Lease Agreement.
3.5 Application for Funds. Funds necessary for the purchase of
rail, electric cable, timber, and necessary equipment will be agreed upon and
funded in advance. Twice monthly, Au Mining will submit an itemization with
supporting documentation for all expenses incurred or to be expended,
including labor, supply, utilities, workers compensation insurance, etc, and
proof of timely payment as necessary for permits, assessments, etc., for the
new development. Within ten (10) days of receipt of such itemization, LKA
will disburse funds to Au Mining to meet all approved expenditures. In
addition, Au Mining principals, Xxxxx Xxxxxx and Xxx Xxxxx, will be paid
$5,000.00 each, twice monthly, for their work in the new development until
commercial mining commences.
3.6 On-Site Work. As the on-site operator, Au Mining will be
responsible for all on-site operations of the new development, including, but
not limited to, project progress, hiring and supervising personnel, procuring
equipment and supplies, maintaining compliance with local, state, and federal
requirements, etc.
4. TERMS AND OBLIGATIONS UPON COMMENCEMENT OF THE NEW DEVELOPMENT.
Upon commencement of the new development, the parties' lease terms
and obligations shall be restructured as follows:
4.1 Continuation of Net Smelter Royalty. Au Mining will
continue to pay to LKA a 10% net smelter royalty on any and all ore removed
from the current workings (6th level and above) on the Golden Wonder Property
as defined in Section 2.6.1.
4.2 Royalty to LKA. If LKA has fully funded any new
development, LKA will receive a net profit royalty of 40% on production from
such newly developed areas And Au Mining will retain 60% of the net profits on
production from such newly developed areas. All approved costs of production,
including those identified in Section 3.6, shall be deducted prior to either
party receiving payment.
4.3 Proportionate Interest. If LKA is unable or unwilling to
fully fund any new development but such new development is nonetheless
completed and production commences, LKA will receive a net profit royalty
proportionate to its contribution. For example, if LKA funds only one-half
the cost of any new development then LKA's share of the net profit royalty
shall be reduced by one-half and Au Mining will retain the remaining net
profit.
4.4 Lease Term. The lease term upon commencement of the new
development shall be for a term of five (5) years and will commence on
September 1, 2003. The lease terms will apply to the entire Golden Wonder
Property, including current workings unless the term is extended in writing by
the parties.
5. GENERAL PROVISIONS. These general provisions are applicable to
the entire Lease Agreement.
5.1 Additional Future Development. If LKA desires to undertake
additional projects on the Golden Wonder Property, and Au Mining does not wish
to participate, LKA may proceed at its own cost, and will obtain the full
benefit of any resulting profit. If Au Mining desires to undertake additional
projects on the Golden Wonder Property, and such projects are approved by LKA,
but LKA does not wish to participate, Au Mining may proceed at its own cost
and will split any net smelter return, 90% to Au Mining, and 10% to LKA.
5.2 Representations, Rights and Responsibilities of Au Mining.
5.2.1 Rights on Property. As the on-site operator, Au
Mining shall have the right, legal authority and responsibility for all
mining, developing, exploring, constructing facilities required for such
purposes, maintaining access to and from the Golden Wonder Property,
conducting assessment work, disposing of waste material, and all associated
activities. Au Mining shall safely conduct all such activities in accordance
with generally accepted mining industry standards and all applicable laws and
regulations governing such activity.
5.2.2 Au Mining shall conduct all activities on the Golden
Wonder Property in a manner which will not materially impair or preclude the
current viability or future exploration and development of the Golden Wonder
Property, except as necessary to conduct operations contemplated by this
Agreement. If Au Mining causes or determines that a condition exists that may
impair the Golden Wonder Property, then Au Mining agrees to notify LKA
immediately and cease activity in the "affected area" of the Golden Wonder
Property until LKA and Au Mining jointly determine and agree upon steps
required to remedy the problem.
5.2.3 Au Mining agrees to provide to LKA, on a timely basis,
all maps, reports, significant discoveries, assays, milling formulas, metals
recovery information, milling techniques and results and all other materially
relevant information pertaining to the Golden Wonder Property and its economic
viability.
5.2.4 Insurance. Au Mining and LKA shall each be separately
responsible for providing and funding their own insurance needs, and shall
indemnify and hold the other party harmless should the lack of any necessary
insurance give rise to liability to that party charged with the obligation of
providing insurance.
5.3 Representations, Rights, and Responsibilities of LKA.
5.3.1 Ownership of Property. LKA represents that it is the
sole owner of the Golden Wonder Property and as such has authority to enter
into this Agreement. LKA further represents that it is aware of nothing that
would prevent or inhibit Au Mining's rights to mine the Golden Wonder Property
or to engage in expansion and development of the Golden Wonder Property as
contemplated by this Agreement, and that it has not knowingly violated any
laws, ordinances, regulations, or rules relating to the disposal of wastes,
toxic or hazardous chemicals, and that it shall remain in compliance
with such rules or regulations with reference to all such materials.
5.3.2 Right of Inspection. LKA shall have the right to
inspect the Golden Wonder Property at any reasonable time, at its own expense,
provided that such inspections do not directly interfere with Au Mining's
activities on the Golden Wonder Property. LKA shall give Au Mining at least
24 hours prior notice of LKA's intended inspection.
5.4 Sale or Assignment.
5.4.1 Au Mining. Au Mining shall not pledge, assign or
transfer its rights under the terms of this Agreement without the express
written authorization of LKA. Au Mining also agrees not to take any action or
engage in any activity that will encumber the title of the Golden Wonder
Property.
5.4.2 LKA. LKA agrees not to sell, assign, mortgage, convey
or otherwise encumber the Golden Wonder Property unless the instrument of such
an assignment or conveyance specifically contains a reference to this
Agreement and provides that so long as Au Mining is not in default of the
terms of this Agreement then Au Mining shall continue in possession of the
Golden Wonder Property and enjoy all rights guaranteed by this Agreement. LKA
agrees to provide Au Mining with sixty (60) days prior written notice of any
such sale or conveyance. Au Mining shall have a first right of refusal to
purchase LKA's interest in the Golden Wonder Property.
5.5 Indemnification. Au Mining agrees to indemnify, hold
harmless and defend LKA from any claims arising from Au Mining's activities on
or involving the Property. LKA agrees to indemnify, hold harmless and defend
Au Mining against any actions or liabilities that may arise as a result of
LKA's previous activities on, or related to, LKA's ownership of the Property,
including liabilities associated with the reclamation obligations of LKA which
predate this Agreement. In the event that Au Mining is prevented from mining
the Property, or engaging in exploration and development as contemplated by
this Agreement (as a result of LKA's previous activities or negligence), then
LKA, at its sole expense, shall take whatever action is reasonably required to
remedy the problem in a timely manner.
5.6 Default Provisions. Upon default by either party, the other
party may terminate this Lease Agreement and recover damages incurred as a
result of such default, or may seek specific performance of the terms of this
agreement. Prior to instituting any action for termination of the Lease
Agreement, damages, or specific performance, the non-defaulting party must
deliver written notice of the default to the other party, which notice shall
provide for thirty (30) days in which the other party may cure the default.
5.6.1 Purpose of Default Provisions. Without limiting the
rights of either party under this Section, the parties agree that unforeseen
circumstances may arise which could make performance by either or both parties
difficult or impossible from time to time, but not necessarily rise to the
level of "force majeure" as set forth below. It is therefore the intent of
the parties to work through such periods and not to rely on the default
provisions set forth above to terminate the Lease Agreement, unless there are
repeated instances of default, or a party is not acting in good faith to
prevent default under the terms of this Lease Agreement.
5.7 Force Majeure. If either party to this Agreement is
delayed, interrupted or prevented from performing its obligations under the
terms of this Agreement by reasons of "force majeure," then that party will be
temporarily relieved from its obligations until the period or event giving
rise to the force majeure has lapsed. Force Majeure conditions include
disabilities arising from causes beyond the reasonable control or expectation
of the affected party including, acts of God, accidents, fires, labor trouble,
unavailability of supplies and equipment, orders or requirements of courts
and/or government agencies (provided that such orders do not result from the
negligence or inappropriate activities of the affected party), or the
inability to obtain environmental or operating permits that may be required by
governmental authorities.
5.8 Notices. Notices, payments and other communications
required by this Agreement shall be effective on the day of receipt and shall
be addressed as follows:
LKA International, Inc.
0000 00xx Xxxxxx Xxxxx XX
Xxx Xxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Au Mining, Inc.
00000 Xxxxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
(000) 000-0000
Facsimile: (000) 000-0000
5.9 Binding Agreement. The rights, duties, and obligations created by
this Agreement shall be binding upon the parties, their heirs, executors,
administrators, sublessees and assigns. Both Au Mining and LKA represent that
they are not acting as agents for others and are participating in this
Agreement for their sole benefit.
5.10 Severability. If any one or more provisions of this Agreement
shall be determined to be invalid, unenforceable, or illegal, the remaining
provisions shall not be affected or impaired.
5.11 Entire Agreement. The entire agreement of parties is as herein
written. The parties are not bound by any agreements, understandings,
conditions or inducements other than those set forth in this Agreement. No
change, alteration, or amendment of any of the terms of this Agreement shall
be valid unless such changes are in writing and signed by both parties.
5.12 Construction of Agreement. This Agreement shall be construed in
accordance with the laws of the State of Colorado. If either party to this
Agreement employs legal counsel or brings an action at law or other proceeding
against the other party to enforce any of the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorney's fees and other
expenses directly associated with such action. Any judgment secured by the
prevailing party shall include these fees and expenses. This Agreement was
drafted by counsel representing both parties after written consent. This
Agreement may not be construed in favor of or against either party.
LKA International, Inc., a Nevada corporation
/s/ Xxx X. Xxxxxxx Date: 9-18-03
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By: Xxx X. Xxxxxxx, President
Au Mining, Inc., a Colorado corporation
/s/ Xxxxx X. Xxxxxx Date: 8/29/2003
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By: Xxxxx Xxxxxx, President and Shareholder
/s/ Xxx Xxxxx Date: 8-29-03
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By: Xxx Xxxxx, Officer and Shareholder
