Lease Agreement

Exhibit 10.1


LEASE AGREEMENT


by and between


MOUNT HOPE MINES, INC.


and


IDAHO GENERAL MINES, INC.


dated effective October 19, 2005


TABLE OF CONTENTS

Page


ARTICLE I

GRANT OF LEASE AND PAYMENTS TO OWNER

1

ARTICLE 2

EFFECTIVE DATE

8

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF THE PARTIES

9

ARTICLE 4

COVENANTS OF THE PARTIES

13

ARTICLE 5

TERMINATION

19

ARTICLE 6

ADDITIONAL PROPERTY

21

ARTICLE 7

-INTENTIONALLY LEFT BLANK-

21

ARTICLE S

PAYMENT OBLIGATIONS

21

ARTICLE 9

EXISTING RECLAMATION OBLIGATIONS

21

ARTICLE 10

DATA

22

ARTICLE 11

INDEMNIFICATION

22

ARTICLE 12

MISCELLANEOUS PROVISIONS

24


Exhibits

EXHIBIT " A"

THE PROPERTY

A-I

EXHIBIT " B"

EXISTING ENVIRONMENTAL CONDITIONS

B-I


LEASE AGREEMENT


THIS LEASE AGREEMENT (" Agreement" ) is made effective October 19, 2005 (the " Effective Date" ), between Mount Hope Mines, Inc., a Colorado corporation, whose address is 15480 Ventura Blvd., Suite 220, Sherman Oaks, CA 91403 (hereinafter " Owner" or the " Company" ) and Idaho General Mines, Inc., an Idaho corporation, whose address is 10 N. Post Street, Suite 610, Spokane, Washington 99201 (hereinafter referred to as " IGMI" ).


RECITALS


A.

The Company owns thirteen (13) patented mining claims and holds one hundred nine (109) unpatented lode mining claims all located in Eureka County, Nevada (the " Property" ), as more particularly described in Exhibit A attached hereto and incorporated herein by reference.


B.

The Company and IGMI entered into an Option to Lease dated November 12, 2004 (the " Option Agreement" ), pursuant to which the Company granted IGMI an option to lease the Property. IGMI has exercised that option and now desires to acquire, and the Company desires to grant to IGMI an exclusive lease of the Property, together with an exclusive right to IGMI to develop the Property for the production of minerals and mineral substances.


C.

The Property herein leased is subject to the performance of certain obligations under that certain Release and Reassignment and Assignment of Mining Properties between the Company and Exxon Corporation (" Exxon" ) dated April 25, 1991, a true and correct copy of which the Company has provided to IGMI (the " Exxon Agreement" ).


In consideration of the covenants and promises contained herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:


ARTICLE 1


GRANT OF LEASE AND PAYMENTS TO OWNER


1.1 Grant of Lease and Payments to Owner .


(a)

Lease of Property . Owner does hereby demise, lease and let the Property exclusively unto IGMI, its permitted successors and assigns, on the terms and conditions and with the rights and privileges hereinafter set forth, for the term of this Agreement. Owner hereby grants to IGMI the exclusive right and privilege to occupy the Property and to prospect for, explore and examine, develop, mine, beneficiate, remove and sell Minerals from the Property.


(i)

For purposes of the rights granted to IGMI by the Company under this Section 1.1, the Property includes the surface and subsurface of the patented and unpatented mining claims listed in Exhibit A (to the extent Owner has rights in the surface and subsurface), all veins, lodes and all Minerals contained in those mining claims, and all right, title and interest of Owner in and to all options, contracts, easements, licenses, rights-of-way, water rights and other rights, reserved or granted in, on, upon or pertaining to those mining claims.


(ii)

For purposes of this Agreement, " Minerals" shall mean all base and precious metals, including without limitation copper, lead, zinc, gold, silver, platinum, platinum-group metals, tungsten, antimony, mercury, molybdenum and all other mineral elements and mineral compounds, mineral substances, metals, ore, and ore-bearing materials, and geothermal resources (except fissionable materials, oil, gas, coal, and other hydrocarbons), whether the same are known to exist on the Property or are after the Effective Date discovered on the Property and regardless of the method of extraction, mining, or processing the same, whether known to exist or invented or developed after the Effective Date.


(b)

Term of Lease . Subject to IGMI' s right of termination contained in Article 5 and provided that IGMI makes timely payment of all Periodic Payments, Advance Royalties, Production Royalties and other payments as required under Sections 1.1(c), 1.1(d) and 1.4, the term of this Agreement shall be for a period of thirty (30) years commencing on the Effective Date hereof, and for so long thereafter as IGMI is conducting Operations on the Property. " Operations" shall include, without limitation, exploration, development or mining activities, and may consist of, among other things, geological, geochemical, and geophysical surveys, sampling of the Property, drilling, trenching, assaying, the construction of facilities and improvements and other activities which are intended to further the exploration and development of t he Property. If, before or after commencing Commercial Production (as defined in Section 1.7) from the Property, 1GMI determines, in its sole discretion, that it desires to shut down or cease Commercial Production or Operations for any reason, it shall have the right to do so and it may maintain this Agreement in full force and effect by making the Periodic Payments and Advance Royalty payments required by Section 1.1(e).


(c)

Periodic Payments and Advance Royalty . Subject to IGMI' s right of termination contained in Article 5, IGMI shall pay the following to Owner (the payments described in Sections 1.1 (c)(i)-(v) below being referred to hereinafter as " Periodic Payments" ):


(i)

Two Hundred and Fifty Thousand Dollars ($250,000.00) shall be due to Owner on the first anniversary of the Effective Date, One Hundred and Twenty-Five Thousand Dollars ($125,000.00) of which shall be paid on or before the first anniversary of the Effective Date and the remaining One Hundred and Twenty-Five Thousand Dollars ($125,000.00) of which shall be paid on or before one hundred and eighty (180) days thereafter.


(ii)

Two Hundred and Fifty Thousand Dollars ($250,000.00) shall be due to Owner on the second anniversary of the Effective Date, One Hundred and Twenty-Five Thousand Dollars ($125,000.00) of which shall be paid on or before the second anniversary of the Effective Date and the remaining One Hundred and Twenty-Five Thousand Dollars (5125,000.00) of which shall be paid on or before one hundred and eighty (180) days thereafter.


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(iii) Subject to IGMI' s right to defer this payment as provided for in Section 1.1 (c)(iv), IGMI shall pay to Owner the greater of Two Million Five Hundred Thousand Dollars ($2,500,000.00) or three percent (3%) of the Construction Capital Cost Estimate (the " Estimate" ) on or before the third anniversary of the Effective Date. Any payment made to Owner under this Section 1.1(c)(iii) shall be subject to audit and adjustment in accordance with the provisions of Section 1.8.


(iv) IGMI may defer the payment required by Section 1.1 (c)(iii) for up to three (3) years by paying to Owner on or before each of the third (3rd), fourth (4th) and fifth (5th) anniversaries of the Effective Date the sum of Three Hundred and Fifty Thousand Dollars ($350,000.00). IGMI may only elect to defer the payment required by Section 1.l(c)(iii) if after using its best efforts to secure Project Financing it is unable to secure such financing, and IGMI shall provide written notice of such deferral to the Company at least fifteen (15) days prior to each applicable anniversary of the Effective Date. No later than thirty (30) days after the end of each calendar quarter after the third (3rd) anniversary of the Effective Date and until it has obtained Project Financing or through the fifth (5th) anniversary of the Effective Date, IGMI shall provide to the Company a written summary of its efforts to secure Project Financing during that calendar quarter.


(v)

If IGMI has deferred the payment required by Section 1.l(c)(iii) and made each of the payment(s) required by Section l.l(c)(iv), not later than the sixth (6th) anniversary of the Effective Date, but in any event immediately after the closing of any Project Financing, IGMI must make the payment required by Section 1.1 (c)(iv) or elect to pay Two Million Five Hundred Thousand Dollars ($2,500,000.00) to Owner on or before that date and, if three percent (3%) of the Estimate is greater than Two Million Five Hundred Thousand Dollars ($2,500,000.00), IGMI shall make that payment and shall pay to Owner one-half of the difference between Two Million Five Hundred Thousand Dollars ($2,500,000.00) and three percent (3%) of the Estimate on each of the seventh (7th) and eight (8th) anniversaries of the Effective Date.


(vi) On or before the earlier of (A) the first anniversary of the Effective Date following IGMI' s payment of the required Periodic Payments under Section 1.1 (c)(iii) or Section 1.1 (c)(v), or (B) the ninth anniversary of the Effective Date, and on or before each anniversary of the Effective Date thereafter, IGMI shall pay to Owner a minimum advance royalty of Five Hundred Thousand Dollars ($500,000.00) (the " Advance Royalty" ).


(d)

Production Royalty . Subject to IGMI' s right of termination contained in Article 5, following the commencement of Commercial Production, IGMI shall pay to Owner and to Exxon a production royalty on Minerals produced from the Property and sold (or deemed sold) by IGMI (the " Production Royalty" ). The Production Royalty payable to Exxon shall be paid as required under and in accordance with the terms of the Exxon Agreement. The Production Royalty payable to Owner shall be the greater of Twenty Cents ($0.20) per pound of molybdenum metal (or the equivalent thereof if some other Product is sold) sold from the Property (although the parties agree that in no event may any Production Royalty payment for any Products exceed the amount of Net Returns received by IGMI for those Products) or three


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percent (3%) of the Net Returns (the " Base Percentage" ), as defined below in Section 1.1(d)(i), and shall be paid according to the payment terms of Section l.1(d)(iii). In addition, whenever the average Gross Value (as defined below) of any Products sold (or deemed sold) during any calendar quarter is greater than $12.00 per pound of molybdenum metal (or the equivalent thereof if some other Product is sold) but less than or equal to $15.00 per pound during that calendar quarter, Owner' s Production Royalty shall be increased by a full percentage point over and above the Base Percentage; and whenever the average Gross Value of any Products sold (or deemed sold) during any calendar quarter is greater than $15.00 per pound of molybdenum metal (or the equivalent thereof if some other Product is sold), Owner' s Pro duction Royalty shall be increased by two full percentage points over and above the Base Percentage. For purposes of calculating the average Gross Value of Products sold (or deemed sold) during any calendar quarter, the total proceeds received (or deemed received) by IGMI pursuant to the provisions of Section 1.1(d)(ii) for Products sold (or deemed sold) during that calendar quarter shall be divided by the total number of pounds of molybdenum metal (or the equivalent thereof if some other Product is sold) sold (or deemed sold) during that calendar quarter.


(i)

For purposes of this Agreement, " Net Returns" means the Gross Value of all ores, concentrates, Minerals or other material removed and sold (or deemed sold) from the Property (" Products" ), less the following direct out of pocket costs, charges, and expenses actually paid or incurred by IGMI with respect to such Products before or after such Products leave the Property (provided, however, that to the extent any such costs or charges are incurred with respect to facilities owned or services provided by IGMI, its parent, or any affiliates or subsidiaries, such costs or charges shall be at a rate not less favorable than charges to any other customer and not in excess of those that would be charged by an independent third party):


(a)

actual costs of transportation (including freight, insurance, security, transaction taxes, handling, port, demurrage, delay, and forwarding expenses incurred by reason of or in the course of such transportation) of Products from the Property to the place of treatment, if any, and then to the place of sale;


(b)

sales, use, severance and any other tax on or measured by mineral production (but not federal or state income tax and not any Nevada net proceeds of mines taxes); and


(c)

any royalty imposed by the United States government.


(ii)

For purposes of this Agreement, " Gross Value" shall have the following meaning for the following categories of Products mined and removed from the Property and sold by IGMI:


(a)

In the event that IGMI sells raw ore, dore9, or concentrate produced from ore mined from the Property, and such raw ore, dore9 or concentrate are the final product derived from such ore and sold by IGMI, its parent, subsidiaries, or affiliated companies, then Gross Value shall be equal to the amount of the proceeds actually received by IGMI, or its parent or any


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subsidiary or affiliate, during the calendar quarter from the sale of such raw ore, dore9 or concentrate.


(b)

If IGMI or its parent, subsidiaries or affiliated companies cause refined or processed metals (meaning Products from the Property that are processed beyond concentrate form) to be sold, the Gross Value shall be equal to the amount of the proceeds actually received by IGMI, or its parent or any subsidiary or affiliate, during the calendar quarter from the sale of such refined or processed metals.


(c)

If any sales of Products are made by IGMI to its parent or any subsidiary or affiliate, the Products shall be deemed to have been sold at prices and on terms no less favorable to IGMI than those which would have been received under similar circumstances from an unaffiliated third party.


(d)

In the event IGMI elects not to sell any Products derived from refined or processed metals, excepting Products held in the normal course of business as inventory pending sale, but instead elects to have the final product of such refined or processed metals credited to its account with any smelter, refiner or broker, such Products shall be deemed to have been sold at the average Gross Value for Products actually sold during the calendar quarter such Products are credited to or placed in IGMI' s account, or, if there are no sales of Products during the calendar quarter in question, at the average spot market price for such Products quoted by a reputable source mutually agreeable to the parties for the calendar quarter during which such Products are actually credited to or placed in IGMI' s account, and the Gross Value of such Products shall be determined based on that quarterly average price.


(iii) Production Royalties to Owner shall become due and payable quarterly on the last day of each month following the last day of the calendar quarter in which the same accrued. All such payments shall be made by wire transfer of funds in accordance with written instructions provided by the Company. Any such payments that are not timely paid shall accrue interest at a rate of twelve percent (12%) per annum until fully paid. Production Royalty payments shall be accompanied by a statement showing in reasonable detail the quantities and grades of the processed and/or refined metals or other Products produced and sold or deemed sold by IGMI, its parent, or any affiliates or subsidiaries in the preceding calendar quarter, the average monthly price determined as herein provided for processed and/or refined metals or other Products on whic h Production Royalty is due; costs, and other deductions, and any other pertinent information in sufficient detail to explain the calculation of the Production Royalty payment. If IGMI processes stockpiles of Products, or re-treats tailings or other residues produced from the Property and recovers Products which are then sold by IGMI, IGMI shall pay to Owner the Production Royalty on the Products recovered and sold from the stockpiled Products or the re-treatment of such tailings and other residues. If IGMI sells any part of said tailings and residues, it shall pay the Owner the Production Royalty at the rate specified.


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(iv) All Production Royalty payments shall be considered final and in full satisfaction of all obligations of IGMI with respect thereto (except where such payments include provisional settlement) unless the Owner gives IGMI written notice describing and setting forth a specific objection to the calculation thereof within one hundred eighty (180) days after receipt by the Owner of the quarterly statement provided for in Section l.1(d)(iii). If the Owner objects to a particular quarterly statement as herein provided, it shall have the right, upon reasonable notice and at a reasonable time, to commence an audit of IGMI' s accounts and records relating to the calculation of the Production Royalty in question, to be conducted by the Owner or consultants engaged by it. Any deficiency or ex cess determined to exist as a result of such audit shall be resolved by adjusting the next quarterly Production Royalty payment due hereunder. The Owner shall pay all costs of such audit if a deficiency of less than three percent (3%) of the amount due is determined to exist. IGMI shall pay the costs of such audit if a deficiency of three percent (3%) or more of the amount due is determined to exist. All books and records used by IGMI to calculate Production Royalties due hereunder shall be kept in accordance with U.S. generally accepted accounting principles. Failure on the part of the Owner to make claim on IGMI for adjustment by the end of such 180-day period shall establish the correctness and preclude the filing of exceptions thereto or making of claims for adjustment thereon.


(v)

The parties acknowledge and agree that IGMI shall have the exclusive right to market and sell to third parties Products produced from the Property in any manner it chooses, including without limitation the forward sale of Products on the commodity market. Owner shall have no right to participate or obligation to share whatsoever in any price protection or hedging activities of IGMI, including any sales of Products derived from the Property by IGMI on the commodity market or otherwise, or in any profits received or losses suffered by IGMI as a result of such marketing or hedging activities.


1.2 Estimate . For purposes of Section 1.1(c), the term " Estimate" shall mean IGMI' s projected costs plus ten percent (10%) for IGMI to put the Property into Commercial Production (as defined in Section 1.7), including, but not limited to, preparing the Property for mining operations and constructing the necessary mining and processing facilities for the removal and treatment of ores and minerals from the Property. In determining the costs comprising the Estimate, any mining and processing facilities for the removal and treatment of molybdenum ore shall be of a size sufficient to produce not less than Ten Million (10,000,000) pounds of molybdenum per year contained in concentrates or other saleable Product. The Estimate may not contemplate the use of mining and extractive facilities for the removal and treatment of molybdenum ore of a size that will produce less than Ten Million (10,000,000) pounds of molybdenum per year contained in concentrates or other saleable Product without the prior written consent of Owner, such consent not to be unreasonably withheld. The Estimate must be made in good faith and based on IGMI' s then current planned development of the Property as approved by its Board of Directors. Costs comprising the Estimate will include preadproduction stripping, including mining of waste; mining equipment; mine development, including equipment purchased or leased for mine development; processing plants and ancillary facilities, including crushing, grinding, screening, and flotation; development of water supply and delivery capabilities; extension of electric power from the mine plant to the nearest


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substation provided by the utility; contractor construction costs, including all indirect costs, consumables, equipment rentals, and profit. Costs comprising the Estimate shall not include plants or chemical facilities to produce products other than concentrates; financing costs; working capital; environmental compliance and permitting costs; and IGMI' s overhead or management costs. The Estimate will be provided to Owner on or before two hundred and seventy days (270) after the second anniversary of the Effective Date. The parties agree that when the Estimate is provided to Owner, it shall have been reviewed and confirmed as reasonable by an independent third party mutually agreeable to the parties (whose fees shall be paid by IGMI).


1.3

Project Financing . For purposes of this Agreement, the term " Project Financing" shall mean the securing of funds by IGMI on terms and conditions satisfactory to it, such funds to be dedicated to the development of the Property in accordance with the Estimate.


1.4

Reconciliation of As-Built Costs with the Estimate . It is the intention of the parties that the Company, inclusive of the Periodic Payments made under Section 1.l(c)(iii) or Section 1.1 (c)(v), receive as a payment three percent (3%) of the actual as built costs incurred to put the Property into Commercial Production. At the commencement of Commercial Production, those actual costs to put the Property into Commercial Production comprising the same category of costs used in determining the Estimate will be calculated by IGMI (" As-Built Costs" ). If three percent (3%) of the As-Built Costs is greater than the aggregate amount paid to the Company under Section 1.1 (c)(iii) or 1.1 (c)(v), whichever is applicable, the difference shall be paid to Owner within sixty (60) days after said additional amount has been definitely determined. If the aggregate amount paid to the Company under Section 1. 1(c)(iii) or 1.1 (c)(v) is greater than three percent (3%) of the As-Built Costs, this difference shall be offset by IGMI from the Production Royalty payable to the Owner as set forth in Section 1.1(d). The parties agree that IGMI' s calculation of As-Built Costs is subject to audit and adjustment as set forth in Section 1.8.


1.5

Credit for Periodic and Advance Royalty Payments . Each of(a) the payment of three percent (3%) of the Estimate made pursuant to Section 1.1 (c)(iii), (b) all payments made under Section 1. 1(c)(v), (c) the Advance Royalty payments made to Owner pursuant to Section 1.1 (c)(vi), and (d) any reconciliation payment made pursuant to Section 1.4, shall be offset from the Production Royalty payable to Owner. IGMI may recover the aggregate amount of the payments referred to in this Section 1.5 (the " Royalty Credit" ) by retaining fifty percent (50%) of each Production Royalty payment due to the Owner until such retained amount equals the Royalty Credit.


1.6

Delay in Reaching Commercial Production . Subject to the Owner' s right to terminate this Agreement under Section 5.1(c), Owner acknowledges and agrees that the Periodic Payments and Advance Royalty payments to be paid to Owner by IGMI constitute adequate consideration for any delays in commencement of Commercial Production or for any suspension by IGMI of exploration, development, mining, milling and processing operations by IGMI, at IGMI' s sole discretion for any period of time. The timing and manner of the conduct of all exploration, development, mining and Commercial Production at the Property under this Agreement shall be at the sole discretion of IGMI.


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1.7

Commercial Production . Commercial Production shall be deemed to have commenced on the date upon which Minerals mined from the Property are first delivered to a purchaser on a commercial basis, or on the date upon which concentrates or other Products derived therefrom are first delivered to a purchaser on a commercial basis, whichever date is earlier, it being agreed that deliveries of such Minerals, concentrates or other Products resulting from pilot or test operations shall not be considered as deliveries on a commercial basis for the purposes of this Agreement.


1.8

The Estimate and the As-Built Costs calculations shall be considered final and in full satisfaction of all obligations of IGMI with respect thereto unless Owner gives IGMI written notice describing and setting forth a specific objection to the calculation thereof within thirty (30) days after receipt by Owner of the calculations thereof If Owner objects to the reported Estimate or the As-Built Costs calculations, the Owner shall have the right, upon reasonable notice and at a reasonable time, to commence an audit of IGMI' s books, accounts and records relating to the reported Estimate or the As-Built Costs calculations, such audit to be conducted by Owner and any consultants engaged by it. Owner shall promptly notify IGMI of any identified deficiencies in those calculations, and the reported Estimate or the As-Built Costs calcula tions shall be adjusted promptly upon agreement between Owner and IGMI as to the amount of such deficiency. If such agreement cannot be reached, the amount of the deficiency shall be determined by arbitration pursuant to Section 12.17. Upon such agreement, IGMI shall immediately pay to Owner the amount of the difference between the reported and the actual Estimate or As-Built Capital Costs. Owner shall pay all costs of such audit if a deficiency of less than five percent (5%) of the reported amount is determined to exist. IGMI shall pay the costs of such audit if a deficiency of five percent (5%) or more of the reported amount is determined to exist.


1.9

Continuing Obligations . Notwithstanding an election by IGMI to terminate this Agreement, IGMI shall be obligated to make the Periodic Payments and Advance Royalty payments next coming due under Article 1 as required herein unless IGMI provides written notice of such termination not less than six (6) months before the due date of the next scheduled payment. If IGMI fails to provide the required notice within the required six (6) month period, such obligation shall survive the termination of this Agreement.


ARTICLE 2

EFFECTIVE DATE


2.1

Effective Date . The parties hereby agree that this Agreement shall be fully executed by the parties on the date the Option Agreement is executed and delivered. An unsigned copy of this Agreement shall be attached as an exhibit to the Option Agreement and two fully-executed original Agreements shall be held in escrow by Owner' s attorney, Randall E. Hubbard. Upon receipt of a written notice signed by IGMI and delivered to each of Mr. Hubbard and Owner that IGMI has exercised the Option and performed all of its obligations under Section 2.2 below (the " Notification of Exercise of Option" ), Mr. Hubbard shall insert the date of such Notification of Exercise of Option into the original executed Agreements, which shall become the Effective Date. Unless Owner objects in writing to IGMI and to Mr. Hubbard within three (3 ) business days after Owner' s receipt of the Notification of Exercise of Option from IGMI, Mr. Hubbard shall then forward duplicate originals of the Agreement to Owner and IGMI


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and the Agreement shall then be in full force and effect. If Owner does object, it shall include the reasons for its objection in the notice it provides to Mr. Hubbard and to IGMI. If Mr. Hubbard does not receive a Notification of Exercise of Option by the end of the Option Period, or if Owner timely objects to the delivery of duplicate originals of the Agreement, Mr. Hubbard shall have no obligation to deliver duplicate originals of this Agreement to either party, and neither Mr. Hubbard nor his law firm, Davis Graham & Stubbs LLP (the " Finn" ), shall have any furthe ...