SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________to________
Commission File Number: 0-13078
LEADVILLE MINING & MILLING CORPORATION
(Exact name of small business issuer as specified in its charter)
NEVADA 13-3180530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
76 Beaver Street, New York, NY 10005
(Address of principal executive offices)
Issuer's telephone number, including area code: (212) 344-2785
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding at October 31, 2000
Common Stock, par value 26,824,014 Shares
$.001 per share
Transitional Small Business Format (check one); Yes [_] No [X]
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying financial statements are unaudited for the interim periods, but
include all adjustments (consisting only of normal recurring accruals), which we
consider necessary for the fair presentation of results for the three months
ended October 31, 2000.
Moreover, these financial statements do not purport to contain complete
disclosure in conformity with generally accepted accounting principles and
should be read in conjunction with our audited financial statements at, and for
the fiscal year ended July 31, 2000.
The results reflected for the three months ended October 31, 2000 are not
necessarily indicative of the results for the entire fiscal year.
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LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEET
OCTOBER 31, 2000
(Unaudited)
ASSETS
Current Assets:
Cash $ 72,659
Loans Receivable 16,050
Other Current Assets 9,653
------------
Total Current Assets 98,362
------------
Property and Equipment (Net of
Accumulated Depreciation of $361,754) 1,343,897
------------
Other Assets:
Mining Reclamation Bonds 47,750
Security Deposit 3,667
------------
Total Other Assets 51,417
------------
Total Assets $ 1,493,676
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accrued Expenses and Taxes $ 105,810
Note Payable - Current Portion 4,908
------------
Total Current Liabilities 110,718
Long Term Liabilities:
Note Payable - Net of Current Portion 4,264
------------
Total Liabilities 114,982
------------
Commitments and Contingencies
Stockholders' Equity:
Common Stock, Par Value $.001 Per Share;
Authorized 150,000,000 shares; Issued and
Outstanding 26,824,014, Shares 26,824
Capital Paid In Excess of Par Value 12,001,237
Deficit Accumulated in the Development Stage (10,649,367)
------------
Total Stockholders' Equity 1,378,694
------------
Total Liabilities and Stockholders' Equity $ 1,493,676
============
The accompanying notes are an integral part of the financial statements.
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LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Period
September 17, 1982
Three Months Ended (Inception)
October 31, To
2000 1999 October 31, 2000
------------ ------------ ----------------
<S> <C> <C> <C>
Revenues:
Sales $ 4,577 $ -- $ 4,577
Interest Income 653 244 712,158
Miscellaneous -- 400 26,276
------------ ------------ ------------
Total Revenues 5,230 644 743,011
------------ ------------ ------------
Costs and Expenses:
Mine Expenses 323,684 159,306 3,736,123
Selling, General and Administrative Expenses 519,923 76,559 7,155,237
Depreciation 956 1,329 361,754
Loss on Write-Off of Investment -- -- 10,000
Loss on Joint Venture -- -- 101,700
------------ ------------ ------------
Total Costs and Expenses 844,563 237,194 11,364,814
------------ ------------ ------------
Loss Before Provision For Income Taxes (839,333) (236,550) (10,621,803)
Provision For Income Taxes 170 170 27,564
------------ ------------ ------------
Net Loss $ (839,503) $ (236,720) $(10,649,367)
============ ============ ============
Net Loss Per Share $ (.03) $ (.01)
============ ============
Average Common Shares Outstanding 26,150,013 20,393,990
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The Period
September 17, 1982
Three Months Ended (Inception)
October 31, To
2000 1999 October 31, 2000
------------ ------------ ----------------
<S> <C> <C> <C>
Cash Flow From Operating Activities:
Net Loss $ (839,503) $ (236,720) $(10,649,367)
Adjustments to Reconcile Net Loss to
Net Cash Used By Operating Activities:
Depreciation 956 1,329 361,754
Loss on Write-Off of Investment -- -- 10,000
Loss From Joint Venture -- -- 101,700
Value of Common Stock Issued For Services 15,170 -- 1,957,404
Compensation Portion of Options Exercised 426,550 -- 1,874,606
Changes in Operating Assets and Liabilities:
Increase in Other Current Assets (6,474) (431) (9,653)
Increase in Security Deposit -- -- (3,667)
Increase (Decrease) in Accrued Expenses
and Taxes 52,296 12,088 105,810
------------ ------------ ------------
Net Cash Used By Operating Activities (351,005) (223,734) (6,251,413)
------------ ------------ ------------
Cash Flow From Investing Activities:
Purchase of Property and Equipment -- -- (1,705,650)
Investment in Joint Venture -- -- (101,700)
Investment in Privately Held Company -- -- (10,000)
------------ ------------ ------------
Net Cash Used By Investing Activities -- -- (1,817,350)
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
For The Period
September 17, 1982
Three Months Ended (Inception)
October 31, To
2000 1999 October 31, 2000
----------- ----------- ----------------
<S> <C> <C> <C>
Cash Flow From Investing Activities:
(Increase) Decrease in Loans Receivable $ (1,500) $ (1,000) $ (16,050)
Increase in Loans Payable - Officers -- -- 18,673
Repayment of Loans Payable - Officers -- -- (18,673)
Increase in Note Payable -- 13,223 11,218
Decrease in Note Payable (1,228) -- (2,046)
Increase in Loan Payable -- 12,500 --
Proceeds From Sale of Common Stock 383,570 136,499 8,610,063
Commissions on Sale of Common Stock -- -- (5,250)
Expenses of Initial Public Offering -- -- (408,763)
Purchase of Certificate of Deposit - Restricted -- -- (5,000)
Purchase of Mining Reclamation Bond (6,600) -- (42,750)
----------- ----------- -----------
Net Cash Provided By Financing Activities 374,242 161,222 8,141,422
----------- ----------- -----------
Increase (Decrease) In Cash and Cash Equivalents 23,237 (62,512) 72,659
Cash and Cash Equivalents - Beginning 49,422 106,893 --
----------- ----------- -----------
Cash and Cash Equivalents - Ending $ 72,659 $ 44,381 $ 72,659
----------- ----------- -----------
Supplemental Cash Flow Information:
Cash Paid For Interest $ -- $ -- $ --
----------- ----------- -----------
Cash Paid For Income Taxes $ 170 $ 170 $ 27,013
----------- ----------- -----------
Non-Cash Financing Activities:
Issuance of Common Stock as Commissions
on Sales of Common Stock $ 58,530 $ -- $ 403,480
----------- ----------- -----------
Issuance of Common Stock as Payment for Expenses $ -- $ -- $ 192,647
----------- ----------- -----------
Issuance of Common Stock For
Property and Equipment $ -- $ -- $ 4,500
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
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LEADVILLE MINING AND MILLING CORP.
(A DEVELOPMENT STAGE ENTERPRISE
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
(Unaudited)
NOTE 1 - Basis of Presentation
In the opinion of the Company, the accompanying unaudited financial statements
reflect all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
cash flows for the periods presented.
Results of operations for interim periods are not necessarily indicative of the
results of operations for a full year due.
NOTE 2 - Subsequent Events
In December 2000, the Company entered into a letter of intent for an option to
purchase from AngloGold of North American Inc. 100% of the issued and
outstanding stock of Minera Chanante S.A. de C.V., a wholly-owned subsidiary of
AngloGold North American Inc. Minera Chanante's assets consist or will consist
of certain exploitation and exploration concessions in the States of Sonora and
Chihuahua, Mexico. Pursuant to the letter of intent, from the date of the letter
of intent through the date three months after the execution of the definitive
stock purchase option agreement, the Company will be permitted to complete its
due diligence on the acquisition. The option will expire if the Company does not
exercise it by the end of the due diligence period. For a period of 12 months
after the execution of the option, the Company will be responsible for making
all rental and maintenance payments on Minera Chanante's properties
(approximately $126,000). If at the end of that 12 month period, the Company
decides that it still wants to own Minera Chanante, the Company will make an
additional $50,000 payment to AngloGold of North American Inc. If the Company
decides that it does not want to continue to own Minera Chanante, the Company
must sell the shares back to AngloGold for $1.00. Assuming that the Company does
not sell it back, AngloGold will be entitled to an ongoing net smelter returns
royalty of between 2% and 4%, plus a 10% net profits interest until the total
net profits interest payment received by AngloGold equals $1,000,000.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Cautionary Statement on Forward-Looking Statements
Except for the historical information contained herein, certain of the matters
discussed in this quarterly report are "forward-looking statements," as defined
in Section 21E of the Securities Exchange Act of 1934, which involve certain
risks and uncertainties, which could cause actual results to differ materially
from those discussed herein including, but not limited to, risks relating to
changing economic conditions, changes in the prices of minerals and the results
of testing and actual mining.
We caution readers that any such forward-looking statements are based on our
current expectations and beliefs but are not guarantees of future performance.
Actual results could differ materially from those expressed or implied in the
forward-looking statements.
Three Months Ended October 31, 2000 Compared to Three Months Ended October 31,
1999
Results of Operations
During the first fiscal quarter ended October 31, 2000 exploration continued at
the Hopemore mine both underground and on the surface in search of mineable
gold.
At the Hopemore mine, 7th level the exploratory drift on vein #69, 7L-428
continued in a southeasterly direction encountering gold and silver
mineralization on an average 4-foot width, the length of the structure. Long
hole drilling was also carried out at the terminus of the drift to test the
walls and the vein ahead of the drift. The #69 vein is considered to be the
feeder system to the overlaying Silica Stope, ore body. The grades to date
reveal a series of small high-grade gold shoots along a generally, lower grade
mineral trend. The site is presently undergoing evaluation pursuant to possible
further exploration.
Long hole drilling has also been performed on the Hopemore 6th level at a
location where intense mining occurred at the turn of the last century. No assay
results have yet been received.
R.C. drilling including Phase I and Phase II have been completed and the results
are being evaluated. Phase III R.C. drilling will be guided by information
gained from the evaluation. General observations to date revealed a large
envelope of gold/silver mineralization associated with near surface carbonate
rock units, overlain by approximately 100 feet of porphyry sill material. Core
areas within the zone reveal economic grades of gold and silver generally
associated with open pit/heap leach type of mining operations. The mineral trend
appears to trend to the north-northeast and east. We continue to seek an
expanded land position in that direction.
R.C. Drilling also took place on newly acquired ground to the west of the
Hopemore Mine, in the areas of the great magnetic anomaly. Three R.C. holes were
drilled within the anomaly and
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encountered disseminated gold/silver mineralizations at depths of 150 to 200
feet. The results were encouraging and will serve as the catalyst for further
exploration.
In December 2000, we entered into a letter of intent for an option to purchase
from AngloGold of North American Inc. 100% of the issued and outstanding stock
of Minera Chanante S.A. de C.V., a wholly-owned subsidiary of AngloGold North
American Inc. Minera Chanante's assets consist or will consist of certain
exploitation and exploration concessions in the States of Sonora and Chihuahua,
Mexico. Pursuant to the letter of intent, from the date of the letter of intent
through the date three months after the execution of the definitive stock
purchase option agreement, we will be permitted to complete our due diligence on
the acquisition. The option will expire if we do not exercise it by the end of
the due diligence period. For a period of 12 months after the execution of the
option, we will be responsible for making all rental and maintenance payments on
Minera Chanante's properties (approximately $126,000). If at the end of that 12
month period, we decide that we still want to own Minera Chanante, we will make
an additional $50,000 payment to AngloGold of North American Inc. If we decide
that we do not want to continue to own Minera Chanante, we must sell the shares
back to AngloGold for $1.00. Assuming that we do not sell it back, AngloGold
will be entitled to an ongoing net smelter returns royalty of between 2% and 4%,
plus a 10% net profits interest until the total net profits interest payment
received by AngloGold equals $1,000,000.
The most advanced concession is the El Chanante gold property, located
approximately 25km northeast of Caborca, in Sonora, Mexico. A total of 199 drill
holes are present and suggest a resource of one million ounces of gold. The
stripping ratio is about 1.4 to l.
We generated de minimis revenues from operations during the three months ended
October 31, 2000 of $4,577 and no revenue for October 31, 1999. There were de
minimis non-operating revenues during the three months ended October 31, 2000
and 1999 of $653 and $644, respectively.
Over all, costs and expense increased by $607,369 (approximately 256%) from
October 31, 1999 ($237,194) to October 31, 2000 ($844,563).
Mine expenses increased by $164,378 (approximately 103%) from October 31, 1999
($159,306) to October 31, 2000 ($323,684). The increase in mine expenses
resulted primarily from expanded work at the mine.
Selling, general and administrative expenses increased by $443,664 approximately
(579%) from October 31, 1999 ($76,559) to October 31, 2000 ($519,923) primarily
due to increase in the cost of raising capital.
As a result, our net loss for the three months ended October 31, 2000 was
$839,503, which was $602,783 (approximately 255%) more than our October 31, 1999
loss of $236,720.
Liquidity and Capital Resources
As of October 31, 2000, we had a deficit working capital of $12,356. We can only
continue as a going concern if we obtain additional capital. We anticipate that
we will need approximately $1,150,000 in order to carry out our plans for the
remainder of fiscal 2001, which includes the costs of administration, and mine
related activities in both Colorado and Mexico.
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To the extent that cash flow is unavailable, management intends to raise all
necessary capital through the sale of its securities and/or debt financing.
There can be no assurance, however, that such funds will be raised. We have
raised approximately one million dollars through the sale of securities since
October 31, 2000.
Specific plans to obtain financing will most likely include private placements
of our securities to institutions, private individuals and/or investment groups.
During the three-month ended October 31, 2000, we raised approximately $383,570
through the sale of common stock. These investments have enabled us to initiate
R.C. drilling from the surface, core drilling and long hole drilling from
underground and to drive tunnels and drifts from the Hopemore 7th level and
conduct metallurgical testing of B-zone minerals.
Environmental Issues
We do not expect that environmental issues will have an adverse material effect
on our liquidity or earnings. Before any mining development or mining
exploration or construction of milling facilities could begin, it was necessary
to meet all environmental requirements and to satisfy the regulatory agencies in
Colorado that our proposed procedures fell within the boundaries of sound
environmental practice. We are bonded to insure procedures and reclamation of
any areas disturbed by our activities. In 1997, the Mined Land Reclamation Board
reviewed our permit and bond and determined that an increase in the bond was
necessary. At that time, we placed an additional $6,000 in escrow against any
future indemnity. We again increased the bond by an additional $24,550 and
$5,600 respectively on March 14, 2000 and July 25, 2000. On October 19, 2000, we
again increased the bond by an additional $6,600.
Part of the Leadville Mining District was declared a Superfund site. Several
mining companies and one individual were declared defendants in a possible
lawsuit. We were not named a defendant or Possible Responsible Party. We did
respond in full detail to a lengthy questionnaire prepared by the Environmental
Protection Agency ("EPA") regarding our proposed procedures and past activities
in November 1990. To our knowledge, the EPA has initiated no further comments or
questions.
We do include in all our internal revenue and cost projections a certain amount
for environmental and reclamation costs on an ongoing basis. This amount is
determined at a fixed amount of $1.50 per ton of material to be milled on a
continual, ongoing basis to provide for further tailing disposal sites and to
reclaim the tailings disposal sites in use. At this time, there does not appear
to be any environmental costs to be incurred by us beyond those already
addressed above. No assurance can be given that environmental regulations will
not be changed in a manner that would adversely affect our planned operations.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
During the quarter ended October 31, 2000, we issued the following shares of our
common stock pursuant to the exemption from registration provided by Section
4(2) of the Securities Act of 1933: In August 2000, we sold an aggregate of
729,564 shares to fourteen individuals for an aggregate of $155,770 and issued
1,060,000 shares to two individuals for commissions, expenses and services for
an aggregate value of $439,770. In September 2000, we sold an aggregate of
271,364 shares to five individuals for an aggregate of $62,700 and issued 15,000
shares to one individual for expenses and services for an aggregate value of
$1,950. In October 2000, we sold an aggregate of 723,989 shares to sixteen
individuals for an aggregate of $167,100.
Item 3. Defaults Upon Senior Securities
None.
Item 4 Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
Letter of Intent signed December 15, 2000 with AngloGold North America Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
LEADVILLE MINING & MILLING CORPORATION
Registrant
By: /s/ Gifford A. Dieterle
------------------------------
Gifford A Dieterle
President/Treasurer
Date: December 19, 2000
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LEADVILLE MINING & MILLING CORP.
76 Beaver Street - Suite 500
New York, New York 10005
December 13, 2000
Mr. Jerry Bateman
AngloGold North America Inc.
5251 DTC Parkway, Suite 700
Englewood, CO 80111
Fax No.: 303-889-0707
Dear Jerry:
Pursuant to the ongoing discussions we have had with your company, this
letter is to confirm the conditions under which Leadville Mining and Milling
Corporation ("LMMI") would acquire from AngloGold North America Inc.
("AngloGold") an exclusive option to purchase all of the issued and outstanding
stock (the "Stock") of Minera Chanate S.A. de C.V. ("Minera Chanate"), a
wholly-owned subsidiary of AngloGold, which owns (or will own prior to the
execution of the Stock Purchase Option Agreement referred to below) (i) certain
exploitation and exploration concessions which together comprise the El Chanate
Property located in Sonora, Mexico, as more particularly described on Exhibit A
attached hereto (together with any ancillary rights associated therewith, the
"El Chanate Property") and (ii) certain additional exploration concessions in
the states of Sonora and Chihuahua, Mexico, as more particularly described on
Exhibit B attached hereto (together with any ancillary rights associated
therewith, the "Additional Property;" the concessions at the El Chanate Property
and the concessions within the Additional Property will be collectively referred
to as the "Properties").
The definitive agreement (the "Stock Purchase Option Agreement") by which
AngloGold would grant to LMMI the option to purchase the Stock would contain the
terms and conditions set forth below, as well as such other terms and conditions
as are usual and customary in a transaction of this nature and as may be agreed
upon by AngloGold and LMMI. All dollar amounts set forth herein are in United
States dollars.
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1. Stage 1 -- Due Diligence Period (3 months) For and in consideration of
$5,000 in hand previously paid by LMMI to AngloGold, prior to the execution of
the Stock Purchase Option Agreement, and during a 3-month option period
commencing on the date of execution of the Stock Purchase Option Agreement (the
"Due Diligence Period"), LMMI shall be free to conduct a due diligence review of
(a) title to, (b) surface ownership of, (c) environmental conditions at, and (d)
geological, engineering, metallurgical, political and other conditions at or
affecting the Properties, as well as any other matters LMMI reasonably deems
necessary, and AngloGold will cooperate fully with LMMI in conducting such
reviews.
2. Stage II -- Option to Acquire Stock and Evaluation Period (9 months). On
or prior to the last day of the Due Diligence Period, LMMI shall have the right,
in its sole discretion, to notify AngloGold that LMMI wishes to acquire the
Stock. In the event LMMI timely exercises the option, the transfer of the Stock
shall occur as soon as reasonably practicable, for no additional consideration,
as set forth in the Stock Purchase Option Agreement. If LMMI fails to timely
exercise the option to purchase the Stock, the Stock Purchase Option Agreement
will terminate.
During the initial 12-month period commencing on the date of execution of
the Stock Purchase Option Agreement (which, including the Due Diligence Period,
will be referred to hereinafter as the "Evaluation Period"), LMMI will be
responsible for (a) making all rental/maintenance payments and filings required
during that period to maintain the concessions at the El Chanate Property (which
the parties agree will amount to approximately $54,000 in payments due twice
during the Evaluation Period, once in January of 2001 and again in July of
2001), or, if any concessions are dropped, termination payments in a similar
amount; (b) making all rental/maintenance payments required during that period
to maintain the concessions at the Additional Property (which the parties agree
will amount to approximately $9,000 in payments due twice during the Evaluation
Period, once in January of 2001 and again in July of 2001), or, if any
concessions are dropped, termination payments in a similar amount; and (c)
diligently working towards converting the eleven exploration concessions at the
El Chanate Property to exploitation concessions (assuming the data derived from
those concessions warrant such a conversion). If LMMI, at any time during the
Due Diligence Period, elects to terminate the Stock Purchase Option Agreement,
LMMI shall nevertheless be responsible for making the payments and filings due
in January and July of 2001 to maintain the concessions at the Properties, or,
if any concessions are dropped, to terminate such concessions. AngloGold agrees
that it will provide to LMMI a schedule of the anticipated rental/maintenance
payments for the concessions at the Properties as soon as practicable and prior
to the execution of the Stock Purchase Option Agreement.
During the entire Due Diligence Period, AngloGold will grant (or cause
Minera Chanate to grant) to LMMI the sole and exclusive right to go on the
Properties for the purpose of conducting exploration and development activities.
At the beginning of the Due Diligence
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Period, AngloGold will make available to LMMI all data and information
concerning the Properties in AngloGold's possession or reasonably available to
AngloGold. Notwithstanding the prior grammatical paragraph, during the Due
Diligence Period, AngloGold will cooperate with LMMI by timely delivering
payments, notices and the like to applicable governmental agencies (assuming
such payments, notices and the like are timely prepared by LMMI and provided to
AngloGold).
3. Stage III -- End of Evaluation Period. On or prior to the last day of
the Evaluation Period, if LMMI desires to continue to hold all or any portion of
the concessions at the Properties, LMMI must make an additional $50,000 payment
to AngloGold. If LMMI does not wish to hold any of the concessions at the
Properties, LMMI must similarly notify AngloGold on or prior to the last day of
the Evaluation Period, and thereafter, as soon as practicable and in accordance
with the Stock Purchase Option Agreement, LMMI will offer to convey all of the
issued and outstanding stock of Minera Chanate (or any successor entity) to
AngloGold. If LMMI timely makes the additional $50,000 payment, but thereafter
decides to abandon any particular concession(s), LMMI shall offer to convey
those concession(s) to AngloGold, for a consideration of one dollar, and if such
offer is not made at least 90 days prior to the date(s) any semi-annual payment
required to hold such concession(s) is due, then LMMI will be required to make
such payment.
4. Stage IV -- Additional Consideration for Purchase of Stock and Joint
Venture Option. As additional consideration for the purchase of the Stock (in
addition to the payments referred to above), in the event LMMI exercises its
option to purchase the Stock and does not convey all of the issued and
outstanding stock of Minera Chanate or any successor entity back to AngloGold as
described in paragraph 3 above, AngloGold shall reserve a net smelter returns
royalty ("NSR Royalty") as follows:
Gold Price %NSR
---------- ----
Less than $300/oz. 2%
$300/oz. to $350/oz. 3%
Greater than $350/oz. 4%
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Upon the commencement of commercial production for any deposit of ore from
any of the concessions at the Properties, in addition to the NSR Royalty,
AngloGold shall be entitled to receive a 10% net profits interest ("NPI") until
a total of $1,000,000 has been paid to AngloGold based on production from any of
those concessions, at which time the NPI shall be extinguished. If LMMI
exercises the option, and thereafter the drill indicated resource at the El
Chanate Property or any of the Additional Properties exceeds two million ounces
of contained gold, AngloGold shall have a one-time option to buy back a 51%
interest in the entity holding the El Chanate Property and/or the Additional
Properties, whichever is applicable, by paying to LMMI an amount equal to two
times 51% of the project costs incurred by LMMI from the date of the Exploration
Agreement forward on or related to the El Chanate Property. AngloGold's buy back
right shall be subject to the execution and delivery by the parties of a
mutually agreeable mining venture agreement, using the Rocky Mountain Mineral
Law Foundation Forms 5 and 5A as models, subject to whatever modifications and
additional provisions are mutually agreeable to the parties and as are necessary
for the mining venture agreement to be valid and enforceable under applicable
Mexican federal, state and local laws.
5. Representations and Warranties. The Stock Purchase Option Agreement is
to contain, among other provisions, representations and warranties from
AngloGold (a) that to the best of its knowledge, Minera Chanate holds title to
the Properties, free and clear of all claims, liens, encumbrances and defects
arising by, through or under it, and that to the best of its knowledge it has
performed all actions and made all payments necessary to keep the Properties in
good standing through the effective date of the Stock Purchase Option Agreement;
(b) that AngloGold has no knowledge of any litigation or administrative actions
affecting the Properties; (c) that to the best of its knowledge there are no
adverse environmental conditions at the Properties; and (d) that to the best of
its knowledge Minera Chanate owns no assets and is subject to no liabilities or
obligations other than those connected with the Properties.
6. Confidentiality. This letter and its contents are intended to be
confidential and are not to be disclosed to or discussed with any third party,
except to legal counsel and advisors assisting LMMI in its evaluation of or
conduct of activities on the Properties, or to the extent disclosure is required
by law or stock exchange rule.
7. No Assignment. Neither this letter, nor any of the rights, duties or
obligations of the parties hereunder may be assigned by either party without the
prior written consent of the other party hereto; provided, however, that no such
consent shall be required for an assignment by LMMI to a wholly-owned Mexican
subsidiary or in connection with a corporate merger, reorganization or other
consolidation involving LMMI.
It is understood that this letter, except for paragraphs 6 and 7 and the
payment obligations set forth in paragraph 2, is not intended to and does not
constitute a binding agreement, and until the Stock Purchase Option Agreement is
executed and delivered, neither party shall have any legal obligation to proceed
with the transaction described in this letter. Notwithstanding the foregoing,
the execution of this letter shall constitute the binding agreement of AngloGold
through January 31, 2001, to refrain from entering into any discussions,
negotiations or agreements with any third party regarding the conveyance of any
interest in the Properties, or any joint venture, farm-out or other arrangement
affecting activities at the Properties. In addition, the
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parties agree to work diligently and in good faith towards the execution of a
Stock Purchase Option Agreement as soon as reasonably practicable. If the
foregoing is acceptable to you, please so indicate by signing duplicate
originals of this letter in the space provided below, and returning one fully
executed original to me. The parties hereby agree that faxed and/or counterpart
copies of this letter may serve as originals for all intents and purposes.
Yours very truly,
/s/ Gifford A. Dieterle
----------------------------------------
Gifford Dieterle, President
Leadville Mining and Milling Corporation
Accepted and agreed to this 15 day of December, 2000.
By /s/ Jim Komandina
------------------------------------
CEO and President
of AngloGold North America Inc.
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