[LETTERHEAD OF
KENNECOTT CANADA EXPLORATION, INC.]
24 November, 1997
Xx. Xxxxxx Xxxxxxx
President
La Teko Resources Ltd.
000 Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxxx Xxxxxxxx X0X 0X0
Xxxxxx
Re: Mt. Distin Project, Cape Nome Recording District Alaska
Scheelite Dome Project, Mayo Mining District, Yukon Territory
Dear Xx. Xxxxxxx:
Further to the previous discussions between Kennecott Exploration Company and
Kennecott Canada Exploration, Inc. (collectively, "Kennecott") and La Teko
Resources, Ltd. ("La Teko"), this letter confirms the intent of Kennecott to
negotiate an agreement granting to La Teko a transfer of one hundred percent
(100%) of Kennecott's interests in the above referenced projects (collectively,
the 'Projects"). The projects are more particularly described in Exhibit "A"
hereto. An agreement between Kennecott and La Teko should include, but not be
limited to, the following terms:
1. Kennecott shall assign to La Teko one hundred percent (100%) of Kennecott's
right, title, and interest (the "Assignment") in the Mt. Distin Project
("MD Project"), subject to the conditions set forth in that certain
Exploration Agreement and Option to Lease dated 15 May, 1995 by and between
Bering Straits Native Corporation, Golden Glacier, Inc., and Kennecott; and
that certain Mineral Lease Agreement dated 5 August, 1996, by and between
Xxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx, Xxxxxxx X. Xxxxxx, and Xxxxxxxxx
(collectively, the "MD Agreements").
2. As consideration for granting such Assignment, La Teko shall assume all
obligations of Kennecott for payments and expenditures required by the MD
Agreements as follows:
Payments Expenditures
-------------------------------
Xxxxxx Xxxxxx Straits ------------
-------------------------------
1998 US$10,000 US$15,000 US$125,000
1999 US$10,000 US$20,000 US$150,000
2000 US$25,000 US$20,000 US$150,000
2001 US$25,000 US$20,000 US$200,000
2002 US$25,000 US$20,000 US$250,000
Total US$95,000 US$95,000 US$875,000
As additional consideration for making such Assignment, La Teko shall issue
to Kennecott common shares of La Teko on the following schedule:
30,000.........Closing
40,000.........First Anniversary of Option Agreement
50,000.........Second Anniversary of Option Agreement
80,000.........Third Anniversary of Option Agreement
500,000.........Production Decision
Kennecott's right to receive such shares shall be contingent upon La Teko
not surrendering the MD Project to Bering Straits Native Corporation.
3. Kennecott shall also grant to La Teko an exclusive option to purchase (the
"Option") all of Kennecott's right, title, and interest in the Sheelite
Dome Project ("SD Project"), subject to Kennecott's right to reacquire an
interest in the SD Project as set forth in Paragraph 6 below. As
consideration for Kennecott granting such Option, La Teko shall make
payments to the underlying landowner, and Exploration Expenditures for the
benefit of the SD property in the following amounts:
Year Payments Expenditures
---- --------- ------------
1998 C$ 70,000 C$150,000
1999 C$ 65,000 C$200,000
2000 C$ 0 C$200,000
2001 C$ 0 C$250,000
--------- ---------
Total C$135,000 C$800,000
4. If at any time after exercising its Option, La Teko intends to initiate
development of the SD Project, La Teko shall notify Kennecott in writing
and concurrently provide Kennecott with a copy of the feasibility study
recommending the operation of a mine on the SD property. Kennecott shall
have the right to advise La Teko within sixty (60) days whether it wishes
to reacquire a forty-nine percent (49%) interest in the SD Project. If
Kennecott wishes to exercise its reacquisition right, it will do so by
providing written notice of its intent to La Teko, and within thirty days
thereafter providing La Teko with payment of an amount equal to one hundred
and fifty percent (150%) of forty-nine percent (49%) of the expenditures
incurred by La Teko on the SD Project.
5. After Kennecott has exercised its reacquisition right, Kennecott and La
Teko shall operate the SD Project as a joint venture, incorporating such
terms as well be negotiated before execution of the Option Agreement.
Thereafter, each party shall contribute its share of development
expenditures in relation to its current participating interest. La Teko
shall have the option of managing the joint venture, or appointing
Kennecott as manager.
6. In the event Kennecott notifies La Teko that Kennecott will not exercise
its right to reacquire an interest in the SD Project, Kennecott's interest
in the SD Project shall be converted automatically to the right to receive
two percent (2%) of net smelter returns from any mine located thereon.
7. Exploration Expenditures shall be made at La Teko's sole discretion and on
such parts of the Projects as La Teko may deem appropriate. For the
purposes of satisfying the Option, Exploration Expenditures shall mean
cash, expenses, and obligations spent or incurred by La Teko on exploration
and development activities on or for the Projects, including but not
limited to, all fees and assessment work required to keep the Projects in
good standing, all expenditures for geophysical, geological, and
geochemical work of direct benefit to the Projects, all surveys, drilling,
assaying, metallurgical testing and engineering, administration, and all
other expenditures directly benefiting the Projects. If La Teko fails to
make the required Exploration Expenditures or Payments in any given year,
the Option Agreement will terminate automatically. The parties agree that,
except for year one (1), which shall be a firm commitment, the Exploration
Expenditures set forth above shall be a requirement to extend the contract
from year to year, and not an obligation to make expenditures. La Teko may
terminate the Option Agreement at any time for any reason or no reason,
upon sixty (60) days written notice to Kennecott.
8. Until La Teko exercises its Option, Kennecott shall retain title to the
Projects, as appropriate. La Teko shall reimburse Kennecott for the
payment of all taxes and fees required to keep the Projects in good
standing. Payment of such taxes and fees shall be included in Exploration
Expenditures. Upon La Teko exercising its Option, Kennecott shall
immediately transfer title of the Projects to La Teko. Such transfer shall
be subject to the provisions of Paragraphs 4,5, 6, 9, and 10.
9. La Teko may relinquish title to the Projects, or any part thereof, at any
time upon written notice to Kennecott. Kennecott shall have the right to
retain, or after the Option is exercised, reacquire such claims at no cost.
10. Kennecott shall have a right of first refusal on any transfer of La Teko's
interest in the SD Project. In the event Kennecott exercises its right to
reacquire an interest in the SD Project, the preemptive rights contained in
the joint venture agreement shall apply to transfers of interests by either
party. Such preemptive right restrictions shall not apply to any transfer
to an affiliated company.
11. Closing of Option and Assignment Agreements shall be subject to:
(a) VSE regulatory approval; and
(b) Amendment of the agreement with Bering Straits Native Corporation on
terms acceptable to both parties.
12. The paragraphs set forth above are intended by the parties to be the terms
of the final Option and Assignment Agreements. The parties intend to be
immediately bound by this paragraph 11 and those set forth below.
Immediately upon the execution of this Letter Agreement and until such time
as a final Option Agreement is executed between the parties, Kennecott
shall grant to La Teko the right to:
(a) Enter in, under, and upon the Projects as La Teko's sole risk; and
(b) Inspect and copy any geological or other data in Kennecott's
possession relating to the Projects.
13. Kennecott represents and warrants that as of the effective date of this
Letter Agreement that:
(a) It has title to the claims comprising the Projects, subject to the
paramount title of the United States of America and Canada;
(b) To the best of its knowledge, it has paid all taxes, assessments,
charges, fees, and other levies imposed upon or required with respect
to the Projects, and has filed all returns and reports required
therefor;
(c) To the best of its knowledge, there are no actual, pending, or
threatened lawsuits or administrative actions affecting the Projects;
and
(d) It has full authority to enter into the transaction contemplated
herein.
14. The parties agree to meet at such times and places as are mutually
convenient or necessary to negotiate the Option Agreement. Each party
shall bear its own costs for the negotiation and registration of such
Option Agreement. The parties shall close the option Agreement prior to
the close of business on 13 February, 1998. La Teko shall have until 9
January, 1998 to conduct due diligence on the Projects. On or before 9
January, 1998, La Teko shall give Kennecott written notice of its intent to
close the Option Agreement. If La Teko intends to close, it shall forward
a bank draft for C$30,000 to Kennecott to cover land costs on the SD
Project due on 13 January, 1998. In the event that Kennecott does not
receive such bank draft in the time specified, this Letter Agreement shall
automatically terminate and, subject to VSE approval, La Teko shall issue
15,000 of its common shares to Kennecott as a break-up fee. In the event
that VSE approval is not given, La Teko shall reimburse Kennecott for its
direct expenses in relation to the proposed transaction in cash.
Thereafter, the parties shall have no further liability or obligation to
one another.
15. Either party may assign its rights under this Letter Agreement to an
affiliated company.
16. The parties agree that any confidential information exchanged shall not be
disclosed to any third party without written permission. Neither party
shall issue any press release or other public announcement concerning the
subject matter of this letter without the written permission of the other
party.
17. This Agreement shall be construed under the laws of the Province of British
Columbia, Canada, without regard to conflicts of law.
If these terms are acceptable to you, please execute this Letter Agreement in
the appropriate space below.
KENNECOTT EXPLORATION COMPANY
/s/ X.X. Xxxxxx Director, Strategic Development
KENNECOTT CANADA EXPLORATION, INC.
/s/ X. X. Xxxxxx, Vice President
ACCEPTED: LA TEKO RESOURCES LTD.
/s/ Xxxxx X. Xxxxxxx
Date: 24 November, 1997
