EXHIBIT 10.2
LETTER OF AGREEMENT (OVORKHANGAI AIMAG OPTION AGREEMENT) BETWEEN
THE COMPANY AND TON FEI XXXX XXXX & ASSOCIATES, DATED NOVEMBER 25, 2003
OPTION AGREEMENT
(All dollar amounts herein expressed in United States dollars,
unless indicated to the contrary)
THIS AGREEMENT made effective as of the 25th day of November 2003.
BETWEEN:
Mongolian Explorations Ltd.
A Nevada State Corporation with an address at
Suite 0000-000 Xxxx Xxxxxx Xxxxxx, Xxxxxxxxx, XX, Xxxxxx, X0X 0X0
(the "XXX")
OF THE FIRST PART
AND:
Ton Fei Xxxx Xxxx and Associates
0000 Xxxx 00xx Xxxxxx, Xxxxxxxxx, X.X., Xxxxxx, X0X 0X0
(the "Tham")
OF THE SECOND PART
WHEREAS:
X. Xxxx is the owner of mineral licenses located in Outer Mongolia.
X. Xxxx has agreed to grant an exclusive option to XXX to acquire up to 100%
interest in a mineral license representing approximately 118,000 hectares
located in Ovurkhangai Aimag of Mongolia on terms subject to the conditions of
this Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of exploration
expenditures (see Section 2) and cash payment $20,000 and 500,000 unrestricted
free trading common stock in the name of Ton Fei Xxxx Xxxx, both due by December
31, 2003, the parties agree as follows:
1. DEFINITIONS
For the purposes of this Agreement the following words and phrases shall have
the following meanings, namely:
a) "Exploration and Development" means any and all activities comprising or
undertaken in connection with the exploration and development of the
Property, the construction of a mine and mining facilities on or in
proximity to the Property and placing the Property into commercial
production;
b) "Exploration Expenditures" means all reasonable and necessary monies
expended on or in connection with Exploration and Development as determined
in accordance with generally accepted accounting principles including,
without limiting the generality of the foregoing:
I. the cost of entering upon, surveying, prospecting and drilling on the
Property;
II. the cost of any geophysical, geochemical and geological reports or
surveys relating to the Property;
III. all filing and other fees and charges necessary or advisable to keep
the Property in good standing with any regulatory authorities having
jurisdiction;
IV. all rentals, royalties, taxes (exclusive of all income taxes and
mining taxes based on income and which are or may be assessed against
any of the parties hereto) and any assessments whatsoever, whether the
same constitute charges on the Property or arise as a result of the
operation thereon;
V. the cost, including rent and finance charges, of all buildings,
machinery, tools, appliances and equipment and related capital items
that may be erected, installed and used from time to time in
connection with Exploration and Development;
VI. the cost of construction and maintenance of camps required for
Exploration and Development;
VII. the cost of transporting persons, supplies, machinery and equipment in
connection with Exploration and Development;
VIII.all wages and salaries of persons engaged in Exploration and
Development and any assessments or levies made under the authority of
any regulatory body having jurisdiction with respect to such persons
or supplying food, lodging and other reasonable needs for such
persons;
IX. all costs of consulting and other engineering services including
report preparation;
X. the cost of compliance with all statutes, orders and regulations
respecting environmental reclamation, restoration and other like work
required as a result of conducting Exploration and Development; and
XI. all costs of searching for, digging, working, sampling, transporting,
mining and procuring, other minerals, ores, and metals from and out of
the Property;
c) "Mineral License" means the mineral license described in Schedule B to this
Agreement, including: (i) any replacement or successor licenses; and (ii)
all mining leases and other mining interests derived from any such
licenses;
d) "Option" means the option to acquire up to 100% undivided interest in and
to the Property as provided in this Agreement;
e) "Option Period" means the period from the date of this Agreement to and
including the date of exercise or termination of the Option;
f) "Property" means the Mineral License and the Property Rights;
g) "Property Rights" means all licenses, permits, easements, rights-of-way,
certificates and other approvals obtained by either of the parties either
before or after the date of this Agreement in connection with the Mineral
Licenses; and
h) "Ton Fei Xxxx Xxxx and Associates" means Tham.
2. GRANT AND EXERCISE OF OPTION
Tham hereby grants to XXX the sole and exclusive right and option to acquire up
to a 100% undivided interest in and to the Property free and clear of all
charges, encumbrances and claims on the following terms and subject to the
following conditions:
(a) The Option shall be exercised by XXX upon the following conditions:
(i) incurring Exploration Expenditures totaling up to $300,000 on the
Property as follows:
1) $10,000 on or before February 28, 2004;
2) an additional $35,000 on or before February 28, 2005;
3) an additional $75,000 on or before December 31, 2005; and
4) an additional $180,000 on or before December 31, 2006.
(b) In the event that XXX spends, in any of the above periods, less than the
specified sum, XXX must pay to Tham the difference between the amount of
actual expenditures and the required specified sum within 30 says after the
respective required time period in full satisfaction of the Exploration
Expenditures to be incurred. In the event that XXX spends, in any period,
more than the specified sum, the excess shall be carried forward and
applied to the Exploration Expenditures to be incurred in succeeding
periods.
(d) Upon exercise of the Option in full by December 31, 2006, a 100% undivided
right, title and interest in and to the Property shall vest to XXX free and
clear of all charges, encumbrances and claims, subject only the payment of
a 1.5% Net Smelter Return Royalty ("NSR") to Tham realized from production
on the Property. Net Smelter returns shall be the gross proceeds received
by XXX, the manager and operator (the "Manager") of the Property, in any
year from the sale of ore (being any material containing minerals of
commercial economic value including any concentrates or other products
derived there from) from the mining operation on the Property, less
successively:
(i) custom smelting costs, treatment charges and penalties including, but
not being limited to, metal losses, penalties for impurities and
charges for refining, selling and handling by the smelter, refinery
or other purchaser; and
(ii) costs of handling, transporting and insuring ores, minerals and other
materials or concentrates from the Property or from a concentrator,
whether situated on or off the Property, to a smelter, refinery or
other place of treatment; and
(iii) ad valorum taxes and taxes based upon production, but not income
taxes.
3. RIGHT OF ENTRY
During the Option Period, XXX, its servants, agents and workmen and any persons
duly authorized by XXX, shall have the right of access to and from and to enter
upon and take possession of and prospect, explore and develop the Property in
such manner as XXX in its sole discretion may deem advisable for the purpose of
incurring Exploration Expenditures, and shall have the right to remove and ship
there from ores, minerals, metals, or other products recovered in any manner
there from as per in accordance with Mongolian mining and mineral laws and
regulations.
4. COVENANTS OF XXX
XXX covenants and agrees that during the term of this Agreement:
a) XXX shall keep the Property clear of all liens, encumbrances and other
charges;
b) XXX shall carry on all operations on the Property in a good and workmanlike
manner and in compliance with all applicable local governmental regulations
and restrictions including but not limited to the posting of ay reclamation
bonds as may be required by any local governmental regulations or
regulatory authorities;
c) XXX shall pay or cause to be paid any rates, taxes, duties, annual fees
and/or claim maintenance fees, royalties, workers' compensation or other
assessments or fees levied with respect to its operations thereon on a
timely basis;
d) XXX shall pay the yearly claim maintenance payments necessary to maintain
the claims in good standing on a timely basis;
e) XXX shall maintain books of account in respect of its expenditures and
operations on the Property and, upon reasonable notice, shall make such
books available for inspection by representatives of Tham;
f) XXX shall allow any duly authorized agent or representative of Tham to
inspect the Property at reasonable times and intervals and upon reasonable
notice given to XXX;
g) XXX shall allow Tham access at reasonable times to all maps, reports,
sample results and other technical data prepared or obtained by XXX in
connection with its operations on the Property;
h) XXX shall indemnify and save Tham harmless of and from any and all costs,
claims, loss and damages whatsoever incidental to or arising out of any
work or operations carried out by or on behalf of XXX on the Property,
including any liability of an environmental nature.
i) XXX must develop honestly the following information, reports and statements
in due time. One copy each of the following in English and Mongolian shall
be forwarded to Tham who will the pass them to the necessary parties to be
the Geology Mining and Inspection Service (GMIS) of Mongolia and the
Minerals Authority (MA) of Mongolia respectively.
i. Work plan on prospecting and exploration. (within 30 days of
acquiring option).
ii. Annual report on any prospecting activities taken place on the
property.
iii. Reports and safety on the labor safety engineering where necessary.
iv. Provided that the agreement is terminated, XXX shall forward one copy
to Tham of a report on any work done on the property if work is done
in the duration of the agreement within 30 days of the termination of
the agreement.
v. Shall develop within 30 days of the work plan on the nature and
environmental protection and shall them presented and approved by the
Governor of the county and district doing so obtaining an official
attestation thereon from the concerned Governor.
vi. In conducting the prospecting and exploration work, the first
priority shall be to employ the citizens where necessary of Mongolia.
j) XXX has not been involved in any litigation, government investigation or
other government proceeding and, to the best knowledge of XXX and its
existing shareholders, no litigation, government investigation or other
government proceeding is threatened against XXX.
k) XXX must take steps to make itself aware of local mining and mineral laws,
rules and regulations, and required deadlines for filing and payments of
due and fees.
l) XXX hereby represents and warrants that it has full corporate power and
authority to enter into this Agreement and the entering into of this
Agreement does not conflict with any applicable local laws or with its
charter documents or any contract or other commitment to which it is party;
and the execution of this Agreement and the performance of its terms have
been duly authorized by all necessary corporate actions including the
resolution of its board of directors.
5. COVENANTS OF XXXX
Xxxx hereby represents and warrants to XXX and covenants with XXX that:
a) The Property is in good standing with all local regulatory authorities
having jurisdictions and all required claim maintenance payments have been
made to date;
b) Tham is, and at all times during the term of this Agreement will be, the
recorded holder and beneficial owner of all of the Property free and clear
of all liens, charges and claims of others and no outstanding taxes or
rentals are due in respect of any of the mineral licenses;
c) The Mineral Licenses have been duly and validly located and recorded
pursuant to the local laws of the jurisdiction in which the Property is
situate;
d) It has not done anything whereby the mineral claims comprising the Property
may be in any way encumbered;
e) It has full corporate power and authority to enter into this Agreement and
the entering into of this Agreement does not conflict with any applicable
local laws or with its charter documents or any contract or other
commitment to which it is party;
f) The execution of this Agreement and the performance of its terms have been
duly authorized by all necessary parties.
g) Tham has not been involved in any litigation, government investigation or
other government proceeding and, to the best knowledge, no litigation,
government investigation or other government proceeding is threatened
against Tham.
6. ASSIGNMENT
With the consent of the other party, which consent shall not be unreasonably
withheld, each of XXX and Xxxx has the right to assign all or any part of its
fully owned interest in this Agreement and or in the Property, subject to the
terms and conditions of this Agreement and per the rules and regulations of
Mongolian mining and mineral laws. It shall be a condition precedent to any such
assignment that the assignee of the interest being transferred agrees to be
bound by the terms of this Agreement, insofar as they are applicable.
If either party (an "Selling Party") should receive a bona fide offer from an
independent third party (the "Proposed Purchaser") dealing at arm's length with
the Selling Party to purchase all or a part of its interest in the Property,
which offer the Selling Party desires to accept, or if the Selling Party intends
to sell all or a part of its interest in the Property:
a) The Selling Party shall first offer (the "Offer") such interest in writing
to the other party (the "Other Party") upon terms no less favorable than
those offered by the Proposed Purchaser or intended to be offered by the
Selling Party, as the case may be.
b) The Offer shall specify the price, terms and conditions of such sale, the
name of the Proposed Purchaser and shall, in the case of an intended offer
by the Selling Party, disclose the person or persons to whom the Selling
Party intends to offer its interest and, if the offer received by the
Selling Party from the Proposed Purchaser provides for any consideration
payable to the Selling Party otherwise than in cash, the Offer shall
include the Selling Party's good faith estimate of the cash equivalent of
the non-cash consideration.
c) If within a period of 60 days of the receipt of the Offer the Other Party
notifies the Selling Party in writing that it will accept the Offer, the
Selling Party shall be bound to sell such interest to the Other Party on
the terms and conditions of the Offer. If the Offer so accepted by the
Other Party contains the Selling Party's good faith estimate of the cash
equivalent of the non cash consideration as aforesaid, and if the Other
Party disagrees with the Selling Party's best estimate, the Other Party
shall so notify the Selling Party at the time of acceptance and the Other
Party shall, in such notice, specify what it considers, in good faith, the
fair cash equivalent to be and the resulting total purchase price. If the
Other Party so
notifies the Selling Party, the acceptance by the Other Party shall be
effective and binding upon the Selling Party and the Other Party, and the
cash equivalent of any such non-cash consideration shall be determined by
binding arbitration and shall be payable by the Other Party, subject to
prepayment as hereinafter provided, within 60 days following its
determination by arbitration. The Other Party shall in such case pay to the
Selling Party, against receipt of an absolute transfer of clear and
unencumbered title to the interest of the Selling Party being sold, the
total purchase price which is specified in its notice to the Selling Party
and such amount shall be credited to the amount determined following
arbitration of the cash equivalent of any non-cash consideration.
d) If the Other Party fails to notify the Selling Party before the expiration
of the time limited therefore that it will purchase the interest offered,
the Selling Party may sell and transfer such interest to the Proposed
Purchaser at the price and on the terms and conditions specified in the
Offer for a period of 60 days, but the terms of this paragraph shall again
apply to such interest if the sale to the Proposed Purchaser is not
completed within such 60 days.
e) Any sale hereunder shall be conditional upon the Proposed Purchaser
delivering a written undertaking to the Other Party, in form and substance
satisfactory to its counsel, to be bound by the terms and conditions of
this Agreement.
7. CONFIDENTIALITY OF INFORMATION
Each of XXX and Tham shall treat all data, reports, records and other
information of any nature whatsoever relating to this Agreement and the Property
as confidential, except where such information must be disclosed for public
disclosure requirements of a public company.
8. TERMINATION
a) Until such time as the Option is exercised pursuant to this Agreement shall
terminate upon any of the following events:
1) upon the failure of XXX to make a payment or incur Exploration
Expenditures required by and within the time limits prescribed;
2) in the event that XXX, not being at the time in default under any
provision of this Agreement, gives 30 day's written notice to Tham of
the termination of this Agreement;
3) in the event that XXX shall fail to comply with any of its obligations
hereunder, and within 30 days of receipt by XXX of written notice from
Tham of such default, XXX has not:
a) cured such default, or commenced proceedings to cure such default
and prosecuted same to completion without undue delay; or
b) given Tham notice that it denies that such default has occurred.
b) Upon termination of this Agreement, XXX shall:
1) transfer any interest in title to the Property, if any, in good
standing to Tham free and clear of all liens, charges, and
encumbrances;
2) turn over to Tham copies of all maps, reports, sample results,
contracts and other data and documentation in the possession of XXX
or, to the extent within MEL's control, in the possession of its
agents, employees or independent contractors, in connection with its
operations on the Property; and
3) ensure that the Property is in a safe condition and complies with all
environmental and safety standards imposed by any duly authorized
regulatory authority.
c) Upon the termination of this Agreement, XXX shall cease to be liable to
Tham in debt, damages or otherwise save for the performance of those of its
obligations which theretofore should have been performed.
d) Upon termination of this Agreement, XXX shall vacate the Property within a
reasonable time after such termination, but shall have the right of access
to the Property for a period of six months thereafter for the purpose of
removing its chattels, machinery, equipment and fixtures.
e) In the event that XXX gives notice that it denies that a default has
occurred, XXX shall not be deemed in default until the matter shall have
been determined finally through such means of dispute resolution as such
matter has been subjected to by either party.
9. FORCE MAJEURE
The time for performance of any act or making any payment or any expenditure
required under this Agreement shall be extended by the period of any delay or
inability to perform due to fire, strikes, labor disturbances, riots, civil
commotion, wars, acts of God, any present or future law or governmental
regulation, any shortages of labor, equipment or materials, or any other cause
not reasonably within the control of the party in default, other than lack of
finances.
10. ARBITRATION
All questions or matters in dispute under this Agreement shall be submitted to
arbitration pursuant to the terms hereof:
a) It shall be a condition precedent to the right of any party to submit any
matter to arbitration pursuant to the provisions hereof, that any party
intending to refer any matter to arbitration shall have given not less than
10 days' prior notice of its intention to do so to the other party,
together with particulars of the matter in dispute. On the expiration of
such 10 days, the party who gave such notice may proceed to refer the
dispute to arbitration as provided in paragraph (c).
b) The party desiring arbitration shall appoint one arbitrator, and shall
notify the other party of such appointment, and the other party shall,
within 15 days after receiving such notice, either consent to the
appointment of such arbitrator which shall then carry out the arbitration
or appoint an arbitrator, and the two arbitrators so named, before
proceeding to act, shall, within 30 days of the appointment of the last
appointed arbitrator, unanimously agree on the
appointment of a third arbitrator to act with them and be chairman of the
arbitration herein provided for. If the other party shall fail to appoint
an arbitrator within 15 days after receiving notice of the appointment of
the first arbitrator, the first arbitrator shall be the only arbitrator. If
the two arbitrators appointed by the parties shall be unable to agree on
the appointment of the chairman, the chairman shall be appointed under the
provisions of the Arbitration Act of the State of Nevada. Except as
specifically otherwise provided in this section, the arbitration herein
provided for shall be conducted in accordance with such Act. The chairman,
or in the case where only one arbitrator is appointed, the single
arbitrator, shall fix a time and place in Nevada, for the purpose of
hearing the evidence and representations of the parties, and he shall
preside over the arbitration and determine all questions of procedure not
provided for under such Act or this section. After hearing any evidence and
representations that the parties may submit, the single arbitrator, or the
arbitrators, as the case may be, shall make an award and reduce the same to
writing, and deliver one copy thereof to each of the parties. The expense
of the arbitration shall be paid as specified in the award.
c) The parties agree that the award of a majority of the arbitrators, or in
the case of a single arbitrator, of such arbitrator, shall be final and
binding upon each of them.
11. NOTICES
Any notice, election, consent or other writing required or permitted to be given
hereunder shall be deemed to be sufficiently given if delivered or mailed
postage prepaid or if given by telegram, telex or telecopier, addressed as
follows:
In the case of Tham: Ton Fei Xxxx Xxxx and Associates
0000 Xxxx 00xx Xxxxxx, Xxxxxxxxx, XX, Xxxxxx, X0X 0X0
In the case of XXX: Mongolian Explorations Ltd.
Suite 1605 - 000 Xxxx Xxxxxx Xx., Xxxxxxxxx, XX
Xxxxxx, X0X 0X0
and any such notice given as aforesaid shall be deemed to have been given to the
parties hereto if delivered, when delivered, or if mailed, on the third business
day following the date of mailing, or, if telegraphed, telexed or telecopied, on
the same day as the telegraphing, telexing or telecopying thereof. Any party may
from time to time by notice in writing change its address for the purposes of
this Section 11.
12. GENERAL TERMS AND CONDITIONS
a) The parties hereto hereby covenant and agree that they will execute such
further agreements, conveyances and assurances as may be requisite, or
which counsel for the parties may deem necessary to effectually carry out
the intent of this Agreement.
b) This Agreement shall constitute the entire agreement between the parties
with respect to the Property. No representations or inducements have been
made save as herein set forth. No changes, alteration or modifications of
this Agreement shall be binding upon either party until and unless a
memorandum in writing to such effect shall have been signed by all parties
hereto. This Agreement shall supersede all previous written, oral or
implied understandings between the parties with respect to the matters
covered hereby.
c) Time shall be of the essence of this Agreement.
d) The titles to the sections in this Agreement shall not be deemed to form
part of this Agreement but shall be regarded as having been used for
convenience of reference only.
e) Wherever possible, each provision of this Agreement shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision shall be prohibited by or be invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
f) The Schedule and/or Exhibit to this Agreement shall be construed with and
as an integral part of this Agreement to the same extent as if they were
set forth verbatim herein.
g) Defined terms contained in this Agreement shall have the same meanings
where used in the Schedule and/or Exhibit.
h) This Agreement shall be governed by and interpreted in accordance with the
laws of the State of Nevada applicable therein.
i) This Agreement shall enure to the benefit of and be binding upon the
parties hereto and their respective heirs, executors, administrators,
successors and assigns.
13. AGREEMENT TO BE BOUND
XXX hereby agrees to be bound by the terms of the Agreement to the extent that
they are applicable to MEL's interest in the Property upon exercise of the
Option by XXX.
WITNESS WHEREOF this Agreement has been executed by the parties hereto as of the
day and year first above written.
MONGOLIAN EXPLORATIONS LTD. TON XXX XXXX AND ASSOCIATES
by its authorized signatory: by its authorized signatory:
/s/ Xxxx Xxxxx /s/ Ton Fei Xxxx Xxxx
------------------------------ -----------------------------
Xxxx Xxxxx, President, Director Signature of Authorized Signatory
SCHEDULE A
MINERAL CLAIMS DESCRIPTION
1 102 00'00" 46 19'10" 8 102 28'50" 46 07'40"
2 102 24'50" 46 19'10" 9 102 28'50" 46 01'00"
3 102 24'50" 46 16'40" 10 102 26'00" 46 01'00"
4 102 28'50" 46 16'40" 11 102 26'00" 46 05'00"
5 102 28'50" 46 10'00" 12 102 23'00" 46 05'00"
6 102 26'00" 46 10'00" 13 102 23'00" 46 01'00"
7 102 26'00" 46 07'40" 14 102 00'00" 46 01'00"
[GRAPHIC OMITTED]
SCHEDULE B
MINERAL LICENSE NUMBER 6524X
The license is granted by the Office of Geological and Mining Cadastre of the
Mineral Resources Authority of Mongolia on the basis of Article 14 of the
Minerals Law of Mongolia in recognition of the Holder's conducting the
prospecting of mineral resources on the prospecting area, involving 118,223
hectares of square, located in the place named Bichigt of Uyamga, Taragt,
Khairkhandulaan soums (counties) of Uvurkhangai Aimag (province) for a period of
3 years in conformity with the terms and conditions and rules and regulations,
stipulated by the Minerals Law.
