Exploration Agreement And Option To Purchase

EXPLORATION AGREEMENT
AND
OPTION TO PURCHASE


EXPLORATION AGREEMENT WITH OPTION TO PURCHASE (the "Agreement") dated as of October 21, 1997, ("Effective Date") among HOMESTAKE MINING COMPANY OF CALIFORNIA, a California corporation, having its principal place of business at 650 California Street, San Francisco, CA 94108 ("Homestake") and PIOCHE-ELY VALLEY MINES, INC., a Nevada corporation, having its principal place of business at 10830 North Central Expressway, Suite 175, Dallas, Texas 75231 ("Pioche-Ely Valley").


1. Property. The property subject to this Agreement includes those certain patented and unpatented mining claims owned by Pioche-Ely Valley all more particularly described in Exhibit A hereto, hereafter collectively referred to as the "Property".


2. Representations; Indemnity of Pioche-Ely Valley.


(a) Homestake represents to Pioche-Ely Valley and Pioche-Ely Valley represents to Homestake that (i) the representing corporation is a corporation duly incorporated and in good standing in its state of incorporation; (ii) the representing corporation is qualified to do business and is in good standing in the State of Nevada; (iii) all corporate and other actions required to authorize the representing corporation to enter into and perform this Agreement have been properly taken; (iv) the representing corporation is not and will not be after the giving of notice and passage of time, in breach or violation of any other agreement or obligation by entering into or performing this Agreement or any transaction contemplated by it; (v) this Agreement has been duly executed and delivered by the representing corporation; and, (vi) this Agreement is valid and binding upon the representing corporation in accordance with its terms.


(b) Pioche-Ely Valley represents that it is in exclusive possession of and owns a 100% undivided interest in and to the Property, subject only to the paramount title of the United States in that portion of the Property comprised of unpatented mining claims, except for that portion of the Property known as the Poorman Area more particularly described in Exhibit A - Part II, in which the Pioche-Ely Valley owns an 85% undivided interest.


(c) Pioche-Ely Valley represents that to the best of its knowledge and as of the Effective Date of this Agreement the unpatented claims included in the Property have been properly located and monumented; location and any required validation work have been properly performed; location notices and certificates have been properly recorded or filed; all filings required to maintain the unpatented mining 2 claims in good standing, including evidence of location and assessment work, or the equivalent thereof, under the Federal Land Policy and Management Act of 1976, 43 U.S.C. Section 1744, and other applicable state, federal and local law, have been properly made; all assessment work required to hold the unpatented mining claims has been properly performed (or deferred or excused) through the assessment year ending September 1, 1992; and all required affidavits of assessment work have been properly and timely filed.


(d) Pioche-Ely Valley represents that as of the Effective Date all rentals to the United States government pursuant to the United States Interior and Related Agencies Appropriations Act of 1993 and the Omnibus Budget Reconciliation Act of 1993 required to be paid to hold the unpatented claims included in the Property in good standing through August 31, 1998 have been paid in a timely manner and affidavits of payment of maintenance fees and of intention to hold mining claims have been properly and timely recorded in Lincoln County.


(e) Pioche-Ely Valley represents that the Property is free and clear of all mortgages, liens, charges, pledges, security interests and encumbrances, including any lease, right or license, except taxes not yet due and payable. Prior to the formation of the Joint Venture contemplated by Section 11 and while this Agreement is still in effect, Pioche-Ely Valley at its own expense shall take all action necessary to cure any defect in or remove any cloud on title to the Property suffered or allowed by such party, including participation in judicial proceedings and recordation of any unrecorded documents. If after notice or demand to take any such action, Pioche-Ely Valley fails to do so, such failure shall constitute the irrevocable authorization for Homestake to take all such action in such party's name and credit the reasonable costs and expenses of doing so, including attorney's fees, against the Purchase Price provided for in Section 5(b) or any other amounts payable to Pioche-Ely Valley hereunder or under the Joint Venture contemplated by Section 11; provided, in any event Homestake shall be solely responsible for removing any lien or encumbrance now or subsequently placed on the Property related to Homestake's work or operations on or in respect to the Property. Each party agrees to cooperate with the other party and to take such reasonable actions, execute and deliver such reasonable documents, and otherwise provide such reasonable assistance as is useful or necessary to permit the cure of any title defect.


(f) Pioche-Ely Valley makes no representation or warranty whatsoever, express or implied, as to the existence of any discovery on any of the unpatented claims constituting the Property.


(g) Pioche-Ely Valley represents to Homestake that as of the date of its execution of this Agreement and except as disclosed in that certain Property Transaction, Pioche-Ely Valley Mines, Phase I and Phase II Environmental Assessment, Preliminary Draft dated June 20, 1997 prepared by JBR Environmental Consultants, (i) Pioche-Ely Valley has no knowledge of any toxic or hazardous


-2- 3 substances on, in or under the Property; (ii) Pioche-Ely Valley has no notice or knowledge of any release or discharge of any toxic or hazardous substance from the Property at any time or times; and (iii) Pioche-Ely Valley has no notice or knowledge of any investigation or proceeding by any federal, state or local government or agency thereof that might lead to the listing some or all of the Property under the Comprehensive Environmental Response and Liability Act of 1980, as amended, or any state or local law or regulation dealing with the control of toxic or hazardous substances, materials or wastes. Pioche-Ely Valley agrees to defend, indemnify, and hold Homestake and its Affiliates harmless from all cost, liability, loss, damage, claim, expense or contribution, including reasonable attorneys' fees, arising out of or related to any breach of the representations contained in this Section 2, all of which shall survive termination of this Agreement, including any termination arising out of exercise of the vesting of Homestake's interest as provided in Section 11. For all purposes of this Agreement "Affiliate" shall mean any person, partnership, joint venture, corporation or other form of enterprise which directly or indirectly controls, or is controlled by, or is under common control with, a signatory. For purposes of the preceding sentence, the word "control" shall mean possession, directly or indirectly, of the power to direct or cause direction of management and policies through ownership of voting securities, contract, voting trust or otherwise.


3. Liens; Title.


(a) Pioche-Ely Valley shall not during the term of this Agreement create, suffer or allow any liens or encumbrances on the Property without the consent of Homestake or unless expressly subordinated to Homestake's rights hereunder. Except for liens or encumbrances consented to or subordinated to Homestake's interests as expressly provided above, Homestake, at its option, may discharge any lien or encumbrance on the Property or any interest therein, acquire all the rights of the holder thereof, and credit Homestake's reasonable costs and expenses of doing so, including reasonable attorney's fees, against Expenditures.


(b) Upon execution hereof, Pioche-Ely Valley shall provide Homestake with copies of all data and information in Pioche-Ely Valley's or its Affiliates' possession related to title to the Property and copies of all unrecorded documents related thereto in Pioche-Ely Valley's or its Affiliates' possession.


(c) Neither Homestake's execution of this Agreement, nor Homestake's failure to disapprove Pioche-Ely Valley's title, shall constitute an admission of or estoppel as to the validity of Pioche-Ely Valley's title to all or any part of the Property.


(d) Pioche-Ely Valley shall at its sole cost and expense, use good faith efforts to immediately acquire the outstanding 15% interest in the Poorman Area and all such interests acquired by Pioche-Ely Valley shall automatically be subject to the terms


-3- 4 and conditions of this Agreement and the Joint Venture Agreement contemplated by Section 11 without further payment or obligation on the part of Homestake. Pioche-Ely Valley shall give notice of its acquisition of any of the outstanding interest(s) to Homestake within 15 days following such acquisition and Homestake and Pioche-Ely Valley shall execute and deliver to Homestake an appropriate amendment to this Agreement reflecting such ownership. In the event Pioche-Ely Valley is not successful in acquiring some or all of the outstanding interests in the Poorman Area within 120 days following the Effective Date, then Homestake may acquire the outstanding interests; any such interest so acquired shall be subject to the terms and conditions of this Agreement and any amounts paid for such interests shall at Homestake's election be credited against either Homestake's expenditures pursuant to Sections 7(a) and (b) or payments pursuant to Section 8(b). If Homestake's interest vests pursuant to Section 11 at a time when neither Pioche-Ely Valley nor Homestake have acquired the Poorman Area, then Homestake shall have earned and vested its interest in 100% of the 85% undivided interest owned by Pioche-Ely Valley in the Poorman Area and Pioche-Ely Valley shall have no right, title, or interest of any kind in or to the Poorman Area.


4. Homestake's Right to Possession and Use; Conditions of Use.


During the term of this Agreement and subject to the terms and conditions of this Agreement, Homestake shall have the sole and exclusive possession, occupancy and the quiet enjoyment of the Property and the exclusive rights to carry out such geological, geochemical, and geophysical tests and investigations as are useful or necessary to determine whether Homestake desires to develop a commercial mining operation on the Property under the terms and conditions of this Agreement, including but not limited to the rights to:


(i) enter, occupy, use, explore and evaluate the Property and to extract, remove, store and dispose of in connection with such exploration and evaluation such quantity of ores, minerals, water and waste as is reasonably useful or necessary by means of underground or surface mining and sampling techniques and workings including but not limited to drilling and bulk sampling by Homestake;


(ii) use any part of the Property for stockpiles and waste dumps of rock or ore in connection with exploration, evaluation, and development of the Property and other property jointly explored, evaluated or developed; and


(iii) erect, construct, use and maintain on the Property such roads, impoundments, pipelines, wells, power lines, facilities, buildings, structures, machinery and equipment as Homestake may require for the conduct of its operations on the Property or other property jointly explored, evaluated or developed.


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(iv) Homestake will use good faith efforts to conduct all of its operations on the Property in a sound and minerlike manner and will comply fully with the provisions of the Workmen's Compensation Laws of the State of Nevada and will carry and maintain adequate and reasonable liability insurance for operations such as those contemplated by Homestake under this Agreement.


(v) Homestake shall during normal business hours and on reasonable notice make available to Pioche-Ely Valley at such place or places and as they are normally maintained by Homestake, all factual (but not interpretive) maps, samples, assays, drill logs, analytical reports, metallurgical reports or studies and other information and data accumulated hereunder, and all records, accounts, and documents in the possession of Homestake or its Affiliates and their agents which pertain to the Property and the Agreement.


(vi) Homestake agrees to defend, indemnify and hold Pioche-Ely Valley harmless from and against any cost, liability, loss, damage, claim, expense or contribution (including reasonable attorney's fees) including death, personal injury, or damage to property arising out of or related to Homestake's negligence or willful misconduct or violations of law on or in connection with Homestake's activities on the Property including, but not limited to any violation by Homestake of applicable provisions of federal or state law intended to protect the environment.


(vii) Pioche-Ely Valley and its authorized agents who are experienced in mining operations, shall at Pioche-Ely Valley's sole risk and expense have the right to inspect the Property for the purpose of confirming that Homestake is conducting its operations in the manner required by this Agreement. All such inspections shall be made upon reasonable prior notice to Homestake, in a reasonable manner conforming to Homestake's safety rules and regulations, and so as not to interfere with Homestake's operations. Pioche-Ely Valley agrees to defend, indemnify, and hold Homestake harmless from all cost, liability, loss, damage, claim, expense or contribution (including attorneys fees) including death, personal injury, or damage to property arising out of or related to the acts of omissions of Pioche-Ely Valley, its employees, contractors, agents and representatives on the Property. The indemnities in subsection (vi) and this subsection (vii) shall survive termination of this Agreement.


5. Homestake's Option to Purchase.


(a) Promptly after Homestake's execution of this Agreement, Homestake shall pay Owner $100.00 as the entire and separate consideration for the term of the Option.


(b) Owner hereby grants to Homestake the exclusive and irrevocable option to purchase an undivided 85% interest in the Property, including but not limited


-5- 6 to any rights resulting from application of Sections 2(e), 6(c) and (d), ("Option") for a total purchase price of $3,000,000.


(c) Within ten days after the Effective Date, Owner and Homestake shall execute with a disinterested person selected by Homestake ("Depository") escrow instructions in the form attached at Exhibit B and Owner shall sign, acknowledge and deposit with the Depository deeds in the form attached as Exhibits B-1 and B-2 conveying to Homestake 85% of the 100% interest of Pioche-Ely Valley to the Property other than the Poorman Area and 100% of Pioche-Ely Valley's 85% interest in the Poorman Area to be held by the Depository.


(d) Homestake may exercise the Option at any time while this Agreement is in effect by giving Owner notice of its election to do so specifying the effective date of the purchase and by paying to the Depository the purchase price. On the effective date of the purchase, this Agreement shall terminate, except with respect to payment of the purchase price and the representations and warranties of Owner contained herein. The rights and obligations of the parties to each other shall be governed by the deeds and the Joint Venture Agreement as provided in Section 11 below.


(e) Title to the Property acquired by exercise of the Option must vest in Homestake, if at all, within twenty years following the death of the last surviving descendant of Elizabeth II, Queen of the United Kingdom, who is alive on the Effective Date.


6. Maintenance; Modification of Form of Property.


(a) Except as otherwise provided in Section 6(b), during the term of this Agreement, Homestake, unless it sooner terminates this Agreement, shall in Pioche-Ely Valley's name make all payments and perform all acts or other obligations reasonably necessary as provided in Sections 6(b) and 6(c), to maintain in good standing, and to preserve and protect title to the Property, including but not limited to the payment of all property, sales, use, gross receipts, severance, ad valorem, occupation and privilege taxes, net annual proceeds taxes and any other taxes on minerals, mining or the proceeds from mining whether now or later enacted required to be paid, unless contested in good faith.


(b) Unless it terminates this Agreement on or before June 1 or any year, Homestake shall (i) pay to the United States of America during the term of this Agreement (and promptly provide evidence thereof to Pioche-Ely Valley) such rentals and other fees and (ii) use good faith efforts to perform such additional acts and obligations as are or may be required to maintain each unpatented mining claim then constituting part of the Property in good standing th ...