<PAGE> 1
As filed with the Securities and Exchange Commission on
___________________, 1997. Registration No. 333-35511
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
----------------------------------
FORM SB-2/A-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------------------
ROYAL SILVER MINES, INC.
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(Exact name of Registrant specified in charter)
Utah 1330 87-0306609
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(State of (Primary Industrial (I.R.S. Employer
Incorporation) Classification) I.D.#)
10220 N. Nevada
Suite 270
Spokane, Washington 99218
Tel: (509) 466-3144
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(Address, including zip code of principal place of business and
telephone number, including area code of Registrant's principal
executive offices.)
Conrad C. Lysiak
Attorney and Counselor at Law
West 601 First Avenue, Suite 503
Spokane, Washington 99204
(509) 624-1475
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(Name, address, including zip code and telephone number, including area
code of agents for service.)
Approximate date of commencement date or proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box [x].
The Exhibit Index for this Registration Statement begins on sequential
page number 147.
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Proposed Proposed
Title of Maximum maximum
each class of offering aggregate
securities to Amount to be price per offering Amount of
be registered registered Share [1] price registration fee
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<S> <C> <C> <C> <C>
Units each
consisting of:
one Share
of Common Stock
$0.01 par value 6,000,000 $ 0.75 $ 4,500,000 $ 1,363.64
and One Redeemable
Common Stock Purchase
Warrant exercisable
until September
1, 2000 6,000,000 $ 0.00 $ 0 $ 0.00
Shares of Common
Stock Issuable
Upon the Exercise
of Redeemable
Common Stock
Purchase Warrants 6,000,000 $ 1.40 $ 8,400,000 $ 2,545.45
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TOTAL REGISTRATION FEE $12,900,000 $ 3,909.09
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</TABLE>
[1] Estimated solely for the purpose of calculating the registration
fee.
The Registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states
that the registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until
this registration statement shall be come effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE> 3
ROYAL SILVER MINES, INC.
CROSS REFERENCE SHEET PURSUANT TO
RULE 404 (a) AND ITEM 501 (b) OF REGULATION S-B
Form S-B Item #
and Caption Caption in Prospectus
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1 Front of Registration
Statement and Outside Front
Cover of Prospectus FACING PAGE; CROSS REFERENCE SHEET;
OUTSIDE FRONT COVER PAGE
2 Inside Front and
Outside Back Cover of
Pages of Prospectus INSIDE FRONT COVER PAGE; OUTSIDE
BACK COVER PAGE
3 Summary Information and
Risk Factors PROSPECTUS SUMMARY; RISK FACTORS;
THE COMPANY
4 Use of Proceeds PROSPECTUS SUMMARY; USE OF PROCEEDS
5 Determination of
Offering Price OUTSIDE FRONT COVER PAGE; PLAN OF
DISTRIBUTION
6 Dilution DILUTION
7 Selling Securityholders NOT APPLICABLE
8 Plan of Distribution INSIDE FRONT COVER PAGE; PLAN OF
DISTRIBUTION
9 Legal Proceedings BUSINESS
10 Directors, Executive
Officers, Promoters
and Control Persons MANAGEMENT
11 Security Ownership of
Certain Beneficial
Owners and Management MANAGEMENT
12 Description of
Securities OUTSIDE FRONT COVER PAGE;
DESCRIPTION OF SECURITIES; PLAN OF
DISTRIBUTION
13 Interest of Named Experts
and Counsel LEGAL MATTERS; EXPERTS
<PAGE> 4
Form S-B Item #
and Caption Caption in Prospectus
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14 Disclosure of Commission
Position on Indemnification
for Securities Act
Liabilities BUSINESS
15 Organization Within
Last 5 Years THE COMPANY; BUSINESS
16 Description of Business PROSPECTUS SUMMARY; BUSINESS
17 Management's Discussion
and Analysis or Plan of
Operation MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
18 Description of Property BUSINESS
19 Certain Relationships and
Related Transactions MANAGEMENT
20 Market for Common Equity
and Related Stockholder
Matters DIVIDEND POLICY; PRINCIPAL
SHAREHOLDERS; SHARES AVAILABLE FOR
FUTURE SALES
21 Executive Compensation MANAGEMENT
22 Financial Statements FINANCIAL STATEMENTS
23. Changes In and Disagreements
with Accountants on
Accounting and Financial
Disclosures NOT APPLICABLE
<PAGE> 5
PROSPECTUS
ROYAL SILVER MINES, INC.
6,000,000 UNITS - $4,500,000 Maximum
CONSISTING OF 6,000,000
SHARES OF COMMON STOCK,
6,000,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
Each Unit consists of one (1) share of Common Stock, $0.01 par
value, and one (1) Redeemable Common Stock Purchase Warrant (the
"Units"). The Common Stock, Redeemable Common Stock Purchase Warrants
are being offered as a Unit. They are immediately detachable and
separately tradeable. Each Redeemable Warrant ("Redeemable Warrant")
entitles the holder to purchase one share of Common Stock at a price of
$1.40, until September 1, 2000. The Redeemable Warrants are callable
by the Company upon thirty (30) days written notice provided that the
bid price of the Company's Common Stock trades above $3.00 per share
for ninety (90) consecutive trading days. The Redeemable Warrants and
the terms of exercise thereof are more fully described herein. See
"Description of Securities." The Units are being offered on a best
efforts no minimum, 6,000,000 Units maximum basis. The offering period
is ninety (90) days from the effective date. The offering period can
be extended by the Company up to one hundred eighty (180) days from the
effective date.
Shares of the Company's Common Stock are quoted on the OTC
Bulletin Board (the "Bulletin Board"), operated by the National
Association of Securities Dealers, Inc., under the symbol "RSMI." On
September 21, 1997 the last sale price of the Common as reported on the
Bulletin Board was $0.75.
THIS SECURITIES ARE HIGHLY SPECULATIVE. THEY INVOLVE A HIGH
DEGREE OF RISK AND IMMEDIATE SUBSTANTIAL DILUTION. THEY SHOULD BE
PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A TOTAL LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" (at page 9) AND
"DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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Price to Proceeds to
Public[1] Commission [2] Company [2]
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Per Unit $ 0.75 $ 0.075 $ 0.675
Maximum Offering $ 4,500,000 $ 450,000 $ 4,050,000
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<PAGE> 6
[1] The Company intends to offer the Units directly to the public
through its officers and directors on a "best efforts-non minimum
basis - 6,000,000 Units maximum." The Company may also offer the
Units through brokers and dealers who are members of or registered
with the National Association of Securities Dealers, Inc ("NASD"),
who will receive a commission of up to $0.075 per Unit sold.
Payment for the Units shall be made by check or money order
payable to the Company and must be delivered to the Company along
with a duly executed subscription agreement in the form attached
hereto to 10220 N. Nevada, Suite 270, Spokane, Washington 99218.
[2] The figures for commission to be paid and proceeds assumes a 10%
commission will be paid on all Units sold in this Offering and
does not reflect the payment of expenses in connection with this
Offering estimated at $30,000.
The Company currently plans to offer the Units for sale in the
states of Colorado, Georgia, Illinois, New York and Washington, D.C.,
and possibly in the United Kingdom, Switzerland, France, Netherlands
and Canada. No assurances can be given that the Units will in fact be
available for offer and sale in any such jurisdictions. The Company
may also seek to offer and sell the Units in other jurisdictions.
ROYAL SILVER MINES, INC.
10220 North Nevada
Suite 270
Spokane, Washington 99218
(509) 466-3144
The date of this Prospectus is October 1, 1997.
THE OFFERING IS MADE SUBJECT TO WITHDRAWAL, CANCELLATION, OR
MODIFICIATION BY THE COMPANY WITHOUT NOTICE. THE COMPANY RESERVES THE
RIGHT, IN ITS SOLD DISCRETION, TO REJECT ANY AND ALL SUBSCRIPTIONS, AND
NO SUBSCRIPTION WILL BE EFFECTIVE UNTIL ACCEPTED BY THE COMPANY.
FEDERAL LAW REQUIRES THAT ANY BROKER OR DEALER PARTICIPATING IN
THE ISSUANCE OF CERTAIN SECURITIES, INCLUDING THOSE OFFERED HEREBY,
DELIVER A COPY OF THE PRELIMINARY PROSPECTUS TO ANY PERSON WHO IS
EXPECTED TO RECEIVE A CONFIRMATION OF SALE AT LEAST 48 HOURS PRIOR TO
THE MAILING OF SUCH CONFIRMATION.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY
ANYONE TO ANY PERSON IN ANY STATE, TERRITORY, OR POSSESSION OF THE
UNITED STATES IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED BY
THE LAWS THEREOF, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
AS HERETOFORE INDICATED, THE UNITS OFFERED BY THIS PROSPECTUS ARE
PURELY SPECULATIVE IN NATURE, THE COMPANY MAKES NO GUARANTEES,
WARRANTIES OR OTHER REPRESENTATIONS TO THE CONTRARY.
<PAGE> 7
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PROSPECTUS SUMMARY
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THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS.
The Company ROYAL SILVER MINES, INC. (the "Company") formerly
known as Consolidated Royal Mines, Inc., and also,
Royal Minerals, Inc., is a U.S. mineral resource
company incorporated under the laws of the State
of Utah. The Company is engaged in the business
of acquiring and exploring mineral properties
containing silver, lead, copper, zinc and other
mineralization, with a primary emphasis on base
metals. See "Business."
The Company's offices are located at 10220 N.
Nevada, Suite 270, Spokane, Washington 99218. The
Company's telephone number is (509) 466-3144.
The Offering The Company is selling 6,000,000 Units. Each Unit
consisting of one (1) share of Common Stock,
$0.01 par value, and one (1) Redeemable Common
Stock Purchase Warrant (the "Redeemable
Warrants"). Each Redeemable Warrant entitles the
holder to purchase one share of Common Stock at a
price of $1.40, until September 1, 2000. The
Redeemable Warrants are callable by the Company
upon thirty (30) days written notice provided that
the bid price of the Company's Common Stock trades
above $3.00 per share for ninety (90) consecutive
trading days. The Units are being offered on a
"best efforts, no minimum - 6,000,000 Units
maximum" basis. See "Description of Securities."
<TABLE>
<CAPTION>
50% of the 100% of the
Offering sold Offering sold
<S> <C> <C>
Units being Offered. . . 3,000,000 6,000,000
Shares Outstanding . . . . 13,406,732 13,406,732
Shares to be Outstanding[1] . . 16,406,732 19,406,732
Gross Proceeds from the
Offering . . . . . 2,250,000 4,500,000
Estimated Expenses of the Offering
including Selling Commissions . 255,000 480,000
Net Proceeds to the Company After
Deducting Estimated Expenses . . 1,995,000 4,020,000
</TABLE>
<PAGE> 8
[1] Does not include 6,000,000 shares reserved for issuance upon the
exercise of the Redeemable Warrants. In the event that some or
all of the 6,000,000 additional shares are issued through exercise
of the Redeemable Warrants, of which there can be no assurance,
the public investors' percent of ownership would increase while
the private investors percent of ownership would decrease.
Use of Proceeds The net proceeds available to the Company upon
completion of this offering and after deducting
the commissions and estimated offering expenses
will be approximately $1,995,000 if 50% of the
Units are sold and $4,020,000 if 100% of the Units
are sold. The Company intends to use the proceeds
to finance its work programs in Chile, Argentina
and Mexico; for administrative expenses; and, for
working capital. See "Use of Proceeds" and
"Proposed Business."
Risk Factors Investment in the Units should be considered
highly speculative. The Company has no current
operating history and is subject to all of the
inherent risks of a developing business
enterprise. The Company is in need of additional
capital and has no revenues. There are non-arms
length transactions with affiliates involving
conflicts of interest. The Company does not
anticipate paying any dividends on its Common
Stock.
Price Per Unit $ 0.75
Selected Financial
Information The Company has no operating history and maybe
considered a developmental enterprise. The
Company has no revenues and there is no assurance
that the Company will ever have material revenues
or that its operations will be profitable. The
following financial data summarizes certain
information concerning the Company is based upon
the financial statements and notes, thereto,
contained in this Prospectus. See "Financial
Statements."
<PAGE> 9
Balance Sheet at September 30, 1996 (Audited) and June 30, 1997
(Unaudited):
<TABLE>
<CAPTION>
09/30/1996 06/30/1997
(Audited) (Unaudited)
<S> <C> <C>
Assets
Current Assets . . . . $ 806,440 $ 1,234,713
Total Assets . . . . . 5,605,357 6,174,102
Current Liabilities . . . 119,867 33,342
Stockholders' Equity . . . 5,485,490 6,140,760
Total Liabilities
& Stockholders' Equity. . . . 5,605,357 6,174,102
Net Tangible Book Value Per Share . $ 0.52 $ 0.46
</TABLE>
Transfer Agent OTC Stock Transfer
231 East 2100 South
Salt Lake City, Utah 84115
(801) 485-5555
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RISK FACTORS
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THE UNITS BEING OFFERED INVOLVE A HIGH DEGREE OF RISK AND,
THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT
BE PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS
OF THEIR ENTIRE INVESTMENT. PROSPECTIVE INVESTORS SHOULD READ THE
ENTIRE PROSPECTUS AND CAREFULLY CONSIDER AMONG THE OTHER FACTORS AND
FINANCIAL DATA DESCRIBED HEREIN, THE FOLLOWING RISK FACTORS DESCRIBED
HEREIN:
1. Recent Status as a Public Reporting Company. The Company
became a fully reporting public company on January 23, 1995. The
Company has no current operating history and is subject to all risks
inherent in a developing business enterprise. The likelihood of
success of the Company must be considered in light of the problems,
expenses, difficulties, complications, and delays frequently
encountered in connection with a new business in general and those
specific to the natural resource industry and the competitive and
regulatory environment in which the Company will operate.
2. Exploration Stage Company. Mineral exploration,
particularly for gold and silver, is highly speculative in nature,
frequently is nonproductive, and involves many risks, often greater
than those involved in the actual mining of mineralization. Such risks
can be considerable and may add unexpected expenditures or delays to
the Company's plans. There can be no assurance that the Company's
mineral exploration activities will be successful or profitable. Once
mineralization is discovered, it may take a number of years from the
initial phase of drilling until production is possible, during which
<PAGE> 10
time the economic feasibility of production may change. A related
factor is that exploration stage companies use the evaluation work of
professional geologists, geophysicists, and engineers for estimates in
determining whether to acquire an interest in property or to commence
exploration or development work. These estimates generally rely on
scientific estimates and economic assumptions, and in some instances
may not be correct, and could result in the expenditure of substantial
amounts of money on a property before it can be determined whether or
not the property contains economically recoverable mineralization. The
economic viability of a property cannot be determined until extensive
exploration and development has been conducted and a comprehensive
feasibility study performed. The Company currently does not have any
such feasibility studies, and has not yet prepared feasibility studies
on any of its properties. Moreover, the market prices of any minerals
produced are subject to fluctuation, which may negatively affect the
economic viability of properties on which expenditures have been made.
The Company is not able to determine at present whether or not, or the
extent to which, such risks may adversely affect the Company's strategy
and business plans.
3. Lack of Revenue. The Company needs additional capital but
currently has no revenues. Substantial expenditures are required to
establish ore reserves through drilling, to determine metallurgical
processes to extract the mineralization from the ore and, in the case
of new properties, to construct mining and processing facilities. The
Company lacks a constant and continual flow of revenue. The Company
currently holds certain royalty interests in several mining properties
previously sold, but there is no assurance that the Company will
receive royalty payments, or that the Company will otherwise receive
adequate funding to be able to finance its exploration activities. The
Company is looking for revenue sources on an on-going basis, but there
can be no assurance that such sources can be found or that, if
available, the terms of such financing will be commercially acceptable
to the Company. Because of the Company's need for additional capital
to fund its present operations, to complete the acquisition of certain
mineral rights, and to provide for further exploration and development,
the lack of consistent revenue could be a detrimental factor in the
progress of the Company.
4. Realization of Investments in Mineral Properties and
Additional Capital Needs. The ultimate realization of the Company's
investments in mineral properties is dependent upon the success of
future property sales, the existence of economically recoverable
reserves, the ability of the Company to obtain financing or make other
arrangements for development and upon future profitable production.
The Company expects to finance its operations for Fiscal 1997 through
the sale of equity securities, joint venture arrangements (including
project financing), and the sale of interests in mineral properties.
The Company does not have sufficient capital of its own to explore and
develop its mineral properties and there can be no assurance that the
Company will be successful in obtaining the required funds to finance
its long-term capital needs.
<PAGE> 11
5. Retention and Attraction of Key Personnel. The Company's
success will depend, in large part, on its ability to retain and
attract highly qualified personnel. The Company's success in retaining
its present staff and in attracting additional qualified personnel will
depend on many factors, including its ability to provide them with
competitive compensation arrangements, equity participation and other
benefits. There is no assurance that the Company will be successful in
retaining or attracting highly qualified individuals in key management
positions.
6. Regulatory Concerns. Environmental and other government
regulations at the federal, state and local level pertaining to the
Company's business and properties may include: (a) surface impact; (b)
water acquisition; (c) site access; (d) reclamation; (e) wildlife
preservation; (f) licenses and permits; and, (e) maintaining the fees
for unpatented mining claims. See "Business - Government Regulation
and Environmental Concerns."
7. Working Capital Deficits; Accumulated Deficit; Working
Capital Deficit; Auditor's Report. Although it commenced operations
more than two years ago, the Company remains in the development stage.
At June 30, 1997, the Company had a working capital of $1,201,371 and
an accumulated deficit of $4,505,108, which deficits and losses are
expected to continue for the foreseeable future. The Company's
operations are subject to numerous risks associated with the mining
industry.
8. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its Officers and Directors who exercise control over the day to day
affairs of the Company. There can be no assurance as to the volume of
business, if any, which the Company may succeed in obtaining, nor that
its proposed operations will prove to be profitable. See "Proposed
Business" and "Management."
9. Indemnification of Officers and Directors for Securities
Liabilities. The Bylaws of the Company provide that the Company may
indemnify any Director, Officer, agent and/or employee as to those
liabilities and on those terms and conditions as are specified in the
Utah Business Corporation Act. Further, the Company may purchase and
maintain insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against the
liability insured against. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such
Officers, Directors, agents and employees for losses incurred by the
Company as a result of their actions. Further, the Company has been
advised that in the opinion of the Securities and Exchange Commission,
indemnification is against public policy as expressed in the Securities
Act of 1933, as amended, and is, therefore, unenforceable.
10. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
The shareholders purchasing in this offering may be further diluted in
their percentage ownership of the Company in the event additional
<PAGE> 12
shares are issued by the Company in the future. Cumulative voting in
the election of Directors is not provided for. Accordingly, the
holders of a majority of the shares of Common Stock, present in person
or by proxy, will be able to elect all of the Company's Board of
Directors. See "Description of the Securities."
11. Public Shareholders will Suffer the Greatest Losses if the
Company is Unsuccessful. If the Company's future operations are
successful, the present shareholders will realize substantial benefits
from the Company's growth. If the Company's future operations are
unsuccessful, the persons who purchase the Warrants and Shares offered
hereby will sustain the principal losses of such cash investment. See
"Dilution."
12. Potential Future Sales Pursuant to Rule 144. Approximately
13,406,732 shares of Common Stock. At June 30, 1997, there are issued
and outstanding of which 6,339,594 shares are "Restricted Securities"
as that term is defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one (1) year
holding period, may sell within any three month period, an amount which
does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. Rule 144 also permits the sale of
shares, under certain circumstances, without any quantity limitation,
by persons who are not affiliates of the Company and who have
beneficially owned the shares for a minimum period of two (2) years.
Hence, the possible sale of these restricted shares may, in the future
dilute an investors percentage of free-trading shares and may have a
depressive effect on the price of the Company's securities and such
sales, if substantial, might also adversely effect the Company's
ability to raise additional equity capital. See "Description of
Securities - Shares Eligible for Future Sale."
13. No Escrow - No Minimum Offering - Funds Immediately Available
for Use by the Company. There is no minimum number of shares that must
be sold in this Offering and there is no escrow of funds, accordingly,
the proceeds from this Offering will be immediately available to the
Company and there will be no refunds.
14. No Dividends. The holders of the Common Stock are entitled
to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefore. To date, the Company has not
paid any cash dividends. The Board does not intend to declare any
dividends in the foreseeable future, but instead intends to retain all
earnings, if any, for use in the Company's business operations. As the
Company will be required to obtain additional financing, it is likely
that there will be restrictions on the Company's ability to declare any
dividends. See "Dividend Policy" and "Description of Securities."
15. Substantial and Immediate Dilution. Purchasers of Units will
incur immediate and substantial dilution in the net tangible book value
of the shares. The shares purchased in this offering will be diluted
by $0.25 from the offering price of $0.75, if the minimum offering is
sold and $0.23 if the maximum offering is sold. See "Dilution."
<PAGE> 13
16. No Firm Commitment to Purchase Units. The Units offered
herein are offered on a best efforts basis by the Company and no
commitment exists by anyone to purchase all or any portion of the
Units being offered, and the Company can give no assurance that any
Units will be sold. See "Plan of Offering."
17. Warrants. The exercise by the holders of the Warrants to be
sold pursuant to this offering is subject to the Company either
maintaining the effectiveness of the registration statement, of which
this Prospectus forms a part, on a current basis or filing an effective
registration statement with the Securities and Exchange Commission and
complying with the appropriate state securities laws. While the
Company has agreed to use its best efforts to so make the underlying
stock available for the Warrantholders, no assurance can be given that
at the time that a Warrantholder seeks to exercise the right to
purchase the Company's stock that an effective registration statement
will in fact be in, effect. The Company is obligated under the Warrant
Agreements to maintain this Prospectus current by making such
post-effective amendments as may be necessary from time to time. See
"Description of Securities - Redeemable Warrants."
18. Redeemable Warrants. The Warrants are by the Company. Each
Redeemable Warrant entitles the holder to purchase one share of Common
Stock at a price of $1.40, until September 1, 2000. The Warrants are
callable by the Company upon thirty (30) days written notice provided
that the bid price of the Company's Common Stock trades above $3.00 for
ninety (90) consecutive trading days, if the holder does not exercise
the Redeemable Warrants, the Redeemable Warrants will loose all value.
See "Description of Securities - Redeemable Warrants."
19. No Underwriter. The Company has not retained an underwriter
to assist in offering the Units. The Units are being offered by the
Company and selected dealers and there is no assurance the Company and
selected broker/dealers are capable of selling all, or any, of the
Units offered. The Company's Officers have experience in the
securities industry, and some of the Officers were employed as
representatives in the securities industries, however, the Officers and
Directors of the Company have no experience in the offer and sale of
securities on behalf of an issuer and, consequently, may be unable to
complete the sale of the Units even with the assistance of selected
dealers. In the event an underwriter is retained by the Company, this
Offering would be suspended until the Company's registration statement,
including this Prospectus, was amended to reflect such retention. The
registration statement would then require additional review and
clearances by regulatory authorities, and the Company could be expected
to incur significant additional legal and accounting cost. See "Plan
of Offering."
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE
PURCHASE OF THE UNITS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
ANY PERSON CONSIDERING AN INVESTMENT IN THE UNITS OFFERED HEREBY SHOULD
BE AWARE OF THESE AND OTHER FACTORS SET FORTH IN THIS PROSPECTUS. THE
SHARES SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO ABSORB A
TOTAL LOSS OF THEIR INVESTMENT IN THE COMPANY AND HAVE NO NEED FOR A
RETURN ON THEIR INVESTMENT.
<PAGE> 14
- ---------------------------------------------------------------------
DILUTION
- ---------------------------------------------------------------------
As of June 30, 1997, the Company had 13,406,732 shares of Common
Stock outstanding with a net tangible book value of approximately $0.46
per share.
The discussion and computations which follow do not give effect to
the exercise of Common Stock Redeemable Warrants to be issued to
investors in this offering. There may be additional dilution with the
exercise of the Common Stock Redeemable Warrants. See "Financial
Statements."
As of June 30, 1997, the net tangible book value of the Company
was $6,140,760 or approximately $0.46 per share. Assuming the sale by
the Company of all offered Units (6,000,000) at the public offering
price of $0.75 per Unit, and assuming no other changes to the Company's
financial position, the net tangible book value of the Company would be
$10,160,760 or approximately $0.52 per share. This represents an
immediate dilution of $0.23 per share to new investors; and an
immediate increase in the net tangible book value of shares held by
present shareholders of $0.06 per share.
Assuming the sale by the Company of fifty percent of the offering
three million (3,000,000) Units and assuming no other changes to the
Company's financial position, the net tangible book value of the
Company would be $8,135,760 or approximately $0.50 per share. This
represents an immediate dilution of $0.25 per share to new investors;
and an immediate increase in the net tangible book value of Units held
by present shareholders of $0.04 per share.
"Net tangible book value" is the amount that results from
subtracting the total liabilities, deferred costs, and intangible
assets of the Company from its total assets. "Dilution" is the
difference between the public offering price and the net tangible book
value of the shares immediately after the offering. Additionally,
dilution is calculated based on book value of the Company's assets,
which may not necessarily reflect the actual market value of such
assets.
<PAGE> 15
The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
Assuming 50% Assuming 100%
of the Units of the Units
Sold Sold
<S> <C> <C>
Public offering price per
share [1] . . . . . $ 0.75 $ 0.75
Net tangible book value per
share before offering [2] . . $ 0.46 $ 0.46
Increase per share attri-
attributable to
existing investors . . . $ 0.00 $ 0.00
Net tangible book value per
share after offering . . . $ 0.50 $ 0.52
Dilution of net tangible
book value per share to
new investors . . . $ 0.25 $ 0.23
</TABLE>
[1] Offering price before deduction of offering expenses.
[2] Determined by dividing the number of shares of Common Stock
outstanding into the net tangible book value of the Company.
[3] Does not give effect to the issuance of up to 6,000,000 shares of
Common Stock reserved for issuance upon exercise of the Redeemable
Warrants held by investors in this offering.
[4] All computations are on a per share basis.
- ---------------------------------------------------------------------
SELECTED FINANCIAL DATA
- ---------------------------------------------------------------------
The selected financial data presented below has been derived from
the financial statements of the Company, which financial statements
have been examined by Williams & Webster, P. S., independent public
accountants, as indicated in their report included elsewhere herein.
The information below should be read in conjunction with the Company's
Financial Statements and the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations." For the reasons set forth in the "Prospectus Summary -
Risk Factors" the information shown below may not be indicative of the
Company's future results of operations.
<PAGE> 16
<TABLE>
<CAPTION>
June 30 June 30 September September November
1997 1996 30, 1996 30, 1995 30, 1994
(Unaudited) (Unaudited) (Audited) (Audited) (Audited)
<S> <C> <C> <C> <C> <C>
Statement of Operations and
Accumulated Deficit Data:
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Operating Expenses $ 1,463,455 $ 929,984 $ 2,045,082 $ 962,735 $ 211,796
Net loss $(1,447,291) $ (937,393) $(2,045,082) $ (962,735) $(211,796)
Net Loss per share $ (0.12) $ (0.11) $ (0.22) $ (0.15) $ (0.03)
Balance Sheet Data:
Work Capital
(Deficit) $ 1,201,371 $ 261,027 $ 686,573 $ (665,274) $ 25,754
Total Assets $ 6,174,102 $5,243,891 $ 5,605,357 $4,056,698 $ 366,620
Long-term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Stockholders'
Equity $ 6,140,760 $5,188,755 $ 5,485,490 $3,235,376 $ 276,321
</TABLE>
- ---------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ---------------------------------------------------------------------
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto.
Financial Condition, Liquidity and Capital Resources.
There is considerable risk in any mining venture, and there can be
no assurance that the Company's operations will be successful or
profitable. Exploration for commercially minable ore deposits is
highly speculative and involves risks greater than those involved in
the discovery of mineralization. Mining companies use the evaluation
work of professional geologists, geophysicists, and engineers in
determining whether to acquire an interest in a specific property, or
whether or not to commence exploration or development work. These
estimates are not always scientifically exact, and in some instances
result in the expenditure of substantial amount of money on a property
before it is possible to make a final determination as to whether or
not the property contains economically minable ore bodies. The
economic viability of a property cannot be finally determined until
extensive exploration and development work, plus a detailed economic
feasibility study, has been performed. Also, the market prices for
mineralization produced are subject to fluctuation and uncertainty,
which may negatively affect the economic viability of properties on
which expenditures have been made. During the development stage of the
Company, from inception to June 30, 1997, the Company accumulated a
deficit of $4,455,108.
<PAGE> 17
At June 30, 1997, $4,472,096 of the Company's total assets of
$6,174,102 were investments in mineral properties. Additional
exploration is required to substantiate or determine whether these
mineral properties contain ore reserves that are economically
recoverable. The realization of these investments is dependent upon
the success of future property sales, the existence of economically
recoverable reserves, the ability of the Company to obtain financing,
the Company's success in carrying out its present plans or making other
arrangements for development, and upon future profitable production.
The ultimate outcome of these investments cannot be determined at this
time; accordingly, no provision for any asset impairment that may
result, in the event the Company is not successful in developing or
selling these properties, has been made in the Company's financial
statements.
Liquidity and Capital Resources.
The Company currently has no revenues but, as explained above, has
an accumulated deficit. Although it has recurring losses from
operations, the Company has increased its operating capital and
improved its financial condition and ability. Regarding its losses
from operations, the Company cannot assure that it will be able to
fully carry out its plans as budgeted without additional operating
capital. At June 30, 1997, the Company had working capital of
$1,201,371. This amount is a significant improvement in liquidity and
capital resources from its working capital position of $390,852 at
December 31, 1996 and of $686,573 at September 30, 1996. In the nine
months ending June 30, 1997, the Company's working capital has
increased by $514,798 primarily because of the cash stock sales of
$1,868,250 in the second quarter and the reduction of all remaining
short-term debt, which are partially offset by funding of the Company's
general and administrative expenses. During the same nine month
period, the Company's cash increased from $688,716 to $1,123,602.
In the second quarter of fiscal 1997, the Company reduced its
short-term debt position to $0 by paying off a $35,000 promissory note.
The Company has continued to reduce its accrued expenses and accounts
payable. Accordingly, the Company's current liabilities shrank from
$119,867 at September 30, 1996 to $33,342 at June 30, 1997. The
Company has no long-term debt.
The Company has estimated that it will need minimal capital
resources of approximately $40,000-50,000 per month to meet its
estimated expenditures for fiscal 1997. In 1996, acting on
instructions from the Board, several key members of management, in
particular the CEO of the Company, met with experienced financial and
investment firms through out Europe and North America and negotiated
preliminary terms and arrangements for such capital fund raising.
During the second fiscal quarter of 1997, the Company raised $1,871,250
in funds, primarily through the private placement of shares and
warrants. The Company is continuing with the previously described
negotiations and various alternatives to raise capital.
<PAGE> 18
The Board of Directors reasonably believes that the Company is
able to engage in nearly any size operation or scope of mining activity
depending on the circumstances and merits of each proposed operation or
mining activity. Accordingly, the Board has not limited the size of
operation or scope of project which it believes is reasonable for
management to consider in achieving the Company's business plan.
Therefore, management has been authorized to consider and review
numerous proposals and, upon satisfactory assessment, to then make a
specific determination as to an estimated range of funding amounts that
each such proposal reasonably might require.
Inasmuch as the Company has not yet determined in detail the
specifications of the project, operation or mining activity that it
intends to undertake, management is not able at this time to provide a
detailed listing or exact range of operation costs, including increases
in general and administrative expense, if any. However, the Company
plans to fund any substantial increases in general and administrative
expense principally from joint venture revenues or funds it may receive
or savings it may realize through corporate restructuring or business
combination arrangements. Funds required to finance the Company's
exploration and development of mineral properties are expected to come
primarily from the contributions of its joint venture participants, and
from the funds generated from such joint ventures and other lease or
royalty arrangements.
As a result of negotiations in July and August 1997, the Company
reached an amended agreement with Oregon LTDA on one of the mining
properties in Chile. As part of this agreement, the Company can obtain
the mineral rights to this portion of the Mocha concession for
payments of $500,000 by July 31, 2002, $1,000,000 by July 31, 2003,
$1,000,000 by July 31, 2004, $1,500,000 by July 31, 2005, with Oregon
LTDA retaining no residual rights.
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs. The Company currently is
seeking alternate sources of working capital sufficient to increase the
funding of additional general and administrative expenses that may
become necessary as the Company's business plan develops, and to
continue meeting its ongoing payment obligations for its leases to
governmental entities.
RESULTS OF OPERATIONS
Comparison of the Nine Months Ended June 30, 1996 and June 30, 1997,
respectively.
General and administrative expenses increased from $929,984 during
the first three quarters of fiscal 1996 to $1,463,455 during the first
three quarters of fiscal 1997. This increase is principally due to an
increased level of expenditures in acquiring and exploring the
<PAGE> 19
Company's recent acquisitions in Argentina and Chile. Also, during the
second quarter of fiscal 1997 the Company wrote off $238,887 of mineral
properties associated with its investment in the Bunker Hill Mine. As
a result, during the nine months of fiscal 1996 compared to the first
nine months of fiscal 1997, the Company's net loss increased from
$937,393 to $1,447,291, while the net loss per share increased from
$0.11 to $0.12 per share.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans for
material capital expenditures during the remainder of its current
fiscal year for which it does not have a reasonably available source of
payment. It is uncertain what effect this decision may have with
respect to restricting capital expenditures.
On the one hand, if the Company were to continue such restriction,
the likely effect might be adverse to the preservation of its assets
and capital base, thereby narrowing the scope of plans for future
operations and constricting liquidity. On the other hand, if the
Company were to discontinue such restriction without an increase in
sustained cash flow, the likely effect of that might be an increase in
accumulated deficits which could be adverse to the Company's financial
condition with respect to liabilities and stockholders' equity.
Therefore, while the Company continues to seek a joint venture
participant and additional sources of capital for financing operations
during the remainder of its current fiscal year, the Company will
continue to carefully monitor its capital expenditures.
- ---------------------------------------------------------------------
USE OF PROCEEDS
- ---------------------------------------------------------------------
The proceeds from the sale of the Units offered hereby will be
approximately $982,500 if 25% of the Units are sold, approximately
$1,995,000 if 50% of the Units are sold, approximately $3,007,500 if
75% of the Units are sold and $4,020,000 if 100% of Units are sold.
The Company intends to utilize the proceeds from the sale of the Units
to finance its work programs in Chile, Argentina and Mexico; for
administrative expenses; and, for working capital as follows:
<PAGE> 20
<TABLE>
<CAPTION>
Assuming Assuming Assuming Assuming
Sale of Sale of Sale of Sale of
100% of 75% of 50% of 25% of
Shares Shares Shares Shares
<S> <C> <C> <C> <C>
Exploration - Mocha Project $ 300,000 $ 300,000 $ 200,000 $ 0
Exploration/Development
Mexico $ 1,200,000 $ 750,000 $ 300,000 $ 100,000
Property Payments $ 350,000 $ 350,000 $ 350,000 $ 350,000
General and Administrative $ 400,000 $ 400,000 $ 400,000 $ 400,000
Working Capital
and General Corporate $ 1,620,000 $ 1,057,500 $ 645,000 $ 82,500
Equipment Purchases $ 150,000 $ 150,000 $ 100,000 $ 50,000
Total $ 4,020,000 $ 3,007,500 $ 1,995,000 $ 982,500
</TABLE>
The figures set forth above are estimated and cannot be calculated
precisely at the present time. Until required for working capital, the
net proceeds may be invested temporarily in short-term obligations such
as certificates of deposit issued by banks and short term government
obligations. The Company reserves the right to amend the use of
proceeds, by vote of a majority of the Board of Directors.
It is anticipated that the maximum estimated proceeds from the
Offering will be sufficient to fund operations for a period of
approximately twenty-four (24) months. It is, however, impossible to
predict what additional expenses may be since the costs of operations
associated with development stage companies frequently involve
unanticipated expenditures. Management currently believes that the
Company will require additional capital. If the Company should be
unable to meet currently unanticipated expenses, the Company expects
that it will have cash requirements for working capital which will have
to be met through bank indebtedness or through the private or public
sale of the Company's debt or equity securities. There can be no
assurance that the Company would be able to obtain such financing or
that such financing, if available, would be on terms and conditions
acceptable to the Company. If the Company were unable to obtain needed
funds, it could be forced to curtail or cease its activities. See
"Risk Factors - Need for Additional Financing."
- ---------------------------------------------------------------------
DIVIDEND POLICY
- ---------------------------------------------------------------------
The Company has never paid a cash dividend on its Common Stock and
does not expect to pay a cash dividend in the foreseeable future, but
intends to devote all funds to the operations of its business. See
"Risk Factors - No Dividends Anticipated."
<PAGE> 21
- ---------------------------------------------------------------------
GLOSSARY
- ---------------------------------------------------------------------
Acid Mine Drainage Acidic run-off water from mine waste dumps
and mill tailings ponds containing sulfide
minerals. Also refers to ground water pumped
to surface from mines.
Adit An opening driven horizontally into the side
of a mountain or hill for providing access to
a mineral deposit.
Alteration Any physical or chemical change in a rock or
mineral subsequent to its formation. Milder
and more localized than metamorphism.
Anticline An arch or fold in layers of rock shaped like
the crest of a wave.
Assay A chemical test performed on a sample of ores
or minerals to determine the amount of
valuable metals contained.
Backfill Waste material used to fill the void created
by mining an orebody.
Ball Mill A steel cylinder filled with steel balls into
which crushed ore is fed. The ball mill is
rotated, causing the balls to cascade and
grind the ore.
Basement Rocks The underlying or older rock mass. Often
refers to rocks of Precambrian age which may
be covered by younger rocks.
Base Metal Any non-precious metal (e.g. copper, lead,
zinc, nickel, etc.).
Bedding The arrangement of sedimentary rocks in
layers.
Block Caving An inexpensive method of mining in which
large blocks of ore are undercut, causing the
ore to break or cave under its own weight.
Breccia A rock in which angular fragments are
surrounded by a mass of fine-grained
minerals.
Bulk Mining Any large-scale, mechanized method of mining
involving many thousands of tons of ore being
brought to surface per day.
<PAGE> 22
Cathode A rectangular plate of metal, produced by
electrolytic refining, which is melted into
commercial shapes such as wirebars, billets,
ingots, etc.
Chalcocite A sulfide mineral of copper common in the
zone of secondary enrichment.
Channel Sample A sample composed of pieces of vein or
mineral deposit that have been cut out a
small trench or channel, usually about ten cm
wide and two cm deep.
Chute An opening, usually constructed of timber and
equipped with a gate, through which ore is
drawn from a stope into mine cars.
Complex Ore An ore containing a number of minerals of
economic value. The term often implies that
there are metallurgical difficulties in
liberating and separating the valuable
metals.
Cone Crusher A machine which crushes ore between a
gyrating cone or crushing head and an
inverted, truncated cone known as a bowl.
Concentrate A fine, powdery product of the milling
process containing a high percentage of
valuable metal.
Conglomerate A sedimentary rock consisting of rounded,
water-worn pebble or boulders cemented into a
solid mass.
Contact A geological term used to describe the line
or plane along which two different rock
formations meet.
Core The long cylindrical piece of rock, about an
inch in diameter, brought to surface by
diamond drilling.
Crosscut A horizontal opening driven from a shaft and
(or near) right angles to the strike of a
vein or other orebody.
Cut-and-fill A method of stopping in which ore is removed
in slices, or lifts, and then the excavation
is filled with rock or other waste material
(backfill), before the subsequent slice is
extracted.
<PAGE> 23
Cyanidation A method of extracting exposed gold or silver
grains from crushed or ground ore by
dissolving it in a weak cyanide solution.
May be carried out in tanks inside a mill or
in heaps of ore out of doors.
Decline An underground passageway connecting one or
more levels in a mine, providing adequate
traction for heavy, self-propelled equipment.
Such underground openings are often driven in
an upward or downward spiral, much the same
as a spiral staircase.
Development Work carried out for the purpose of opening
up a mineral deposit and making the actual
ore extraction possible.
Development Drilling Drilling to establish accurate estimates of
mineral reserves.
Diamond Drill A rotary type of rock drill that cuts a core
of rock that is recovered in long cylindrical
sections, two centimeters or more in
diameter.
Dilution (mining) Rock that is, by necessity, removed along
with the ore in the mining process,
subsequently lowering the grade of the ore.
Dip The angle at which a vein, structure or rock
bed is inclined from the horizontal as
measured at right angles to the strike.
Disseminated Ore Ore carrying small particles of valuable
minerals spread more or less uniformly
through the hose rock.
Dore Unparted gold and silver poured into molds
when molten to form buttons or bars. Further
refining is necessary to separate the gold
and silver.
Drift A horizontal underground opening that follows
along the length of a vein or rock formation
as opposed to a cross-cut which crosses the
rock formation.
Drill-Indicated Reserves The size and quality of a potential orebody
as suggested by widely spaced drill holes;
more work is required before reserves can be
classified as probable or proven.
<PAGE> 24
Due Diligence The degree of care and caution required
before making a decision; loosely, a
financial and technical investigation to
determine whether an investment is sound.
Electrolytic Refining The process of purifying metal ingots that
are suspended as anodes in an electrolytic
bath, alternated with refined sheets of the
same metal which act as starters or cathodes.
Environmental Impact
Study A written report, compiled prior to a
production decision, that examines the
effects proposed mining activities will have
on the natural surroundings.
Epithermal Deposit A mineral deposit consisting of veins and
replacement bodies, usually in volcanic or
sedimentary rocks, containing precious
metals, or, more rarely, base metals.
Exploration Work involved in searching for ore, usually
by drilling or driving a drift.
Face The end of a drift, crosscut or stope in
which work is taking place.
Fissure An extensive crack, break or fracture in
rocks.
Float Pieces of rock that have been broken off and
moved from their original location by natural
forces such as frost or glacial action.
Flotation A milling process in which valuable mineral
particles are induced to become attached to
bubbles and float, and others sink.
Footwall The rock on the underside of a vein or ore
structure.
Fracture A break in the rock, the opening of which
allows mineral bearing solutions to enter. A
"cross-fracture" is a minor break extending
at more-or-less right angles to the direction
of the principal fractures.
Free Milling Ores of gold or silver from which the
precious metals can be recovered by
concentrating methods without resort to
pressure leaching or other chemical
treatment.
<PAGE> 25
Galena Lead sulfide, the most common ore mineral of
lead.
Gossan The rust-colored capping or staining of a
mineral deposit, generally formed by the
oxidation or alteration of iron sulfides.
Grab Sample A sample from a rock outcrop that is assayed
to determine if valuable elements are
contained in the rock. A grab sample is not
intended to be representative of the deposit,
and usually the best-looking material is
selected.
Grade The average assay of a ton of ore, reflecting
metal content.
Hangingwall The rock on the upper side of a vein or ore
deposit.
Head Grade The average grade of ore fed into a mill.
Heap Leaching A process involving the percolation of a
cyanide solution through crushed ore heaped
on an impervious pad or base to dissolve
minerals or metals out of the ore.
High Grade Rich ore. As a verb, it refers to selective
mining of the best ore in a deposit.
Host Rock The rock surrounding an ore deposit.
Hydrometallurgy The treatment of ore by wet processes (e.g.,
leaching) resulting in the solution of a
metal and its subsequent recovery.
Intrusive A body of igneous rock formed by the
consolidation of magma intruded into other
rocks, in contrast to lavas, which are
extruded upon the surface.
Lagging Planks or small timbers placed between steel
ribs along the roof of a stope or drift to
prevent rocks from falling, rather than to
support the main weight of the overlying
rocks.
Lens Generally used to describe a body of ore that
is thick in the middle and tapers towards the
ends.
<PAGE> 26
Level The horizontal openings on a working horizon
in a mine; it is customary to work mines from
a shaft, establishing levels at regular
intervals, generally about 50 meters or more
apart.
Limestone A bedded, sedimentary deposit consisting
chiefly of calcium carbonate.
Lode A mineral deposit in solid rock.
Metamorphic Rocks Rocks which have undergone a change in
texture or composition as the result of heat
and/or pressure.
Mill A processing plant that produces a
concentrate of the valuable minerals or
metals contained in an ore. The concentrate
must then be treated in some other type of
plant, such as a smelter, to affect recovery
of the pure metal.
Milling Ore Ore that contains sufficient valuable mineral
to be treated by the milling process.
Mineable Reserves Ore reserves that are known to be extractable
using a given mining plan.
Mineral A naturally occurring homogeneous substance
having definite physical properties and
chemical composition and, if formed under
favorable conditions, a definite crystal
form.
Mineralized Material
or Deposit A mineralized body which has been delineated
by appropriate drilling and/or underground
sampling to support a sufficient tonnage and
average grade of metal(s). Under SEC
standards, such a deposit does not qualify as
a reserve until a comprehensive evaluation,
based upon unit cost, grade, recoveries, and
other factors, conclude economic feasibility.
Muck Ore or rock that has been broken by blasting.
Native Metal A metal occurring in nature in pure form,
uncombined with other elements.
Net Profit Interest A portion of the profit remaining after all
charges, including taxes and bookkeeping
charges (such as depreciation) have been
deducted.
<PAGE> 27
Net Smelter Return A share of the net revenues generated from
the sale of metal produced by a mine.
Open Pit A mine that is entirely on surface. Also
referred to as open-cut or open-cast mine.
Ore Material that can be mined and processed at a
positive cash flow.
Ore Pass Vertical or inclined passage for the downward
transfer of ore connecting a level with the
hoisting shaft or a lower level.
Orebody A natural concentration of valuable material
that can be extracted and sold at a profit.
Ore Reserves The calculated tonnage and grade of
mineralization which can be extracted
profitably; classified as possible, probable
and proven according to the level of
confidence that can be placed in the data.
Oreshott The portion, or length, of a vein or other
structure, that carries sufficient valuable
mineral to be extracted profitably.
Oxidation A chemical reaction caused by exposure to
oxygen that results in a change in the
chemical composition of a mineral.
Participating Interest A company's interest in a mine, which
entitles it to a certain percentage of
profits in return for putting up an equal
percentage of the capital cost of the
project.
Patent The ultimate stage of holding a mineral claim
in the United States, after which no more
assessment work is necessary because all
mineral rights have been earned.
Patented Mining Claim A parcel of land originally located on
federal lands as an unpatented mining claim
under the General Mining Law, the title of
which has been conveyed from the federal
government to a private party pursuant to the
patenting requirements of the General Mining
Law.
Pillar A block of solid ore or other rock left in
place to structurally support the shaft,
walls or roof of a mine.
<PAGE> 28
Porphyry Any igneous rock in which relatively large
crystals, called phenocrysts, are set in a
fine-grained groundness.
Precambrian Shield The oldest, most stable regions of the
Earth's crust, the largest of which is the
Canadian Shield.
Prospect A mining property, the value of which has not
been determined by exploration.
Proven and Probable
Mineral Reserves Reserves that reflect estimates of the
quantities and grades of mineralized material
at a mine which the Company believes could be
recovered and sold at prices in excess of the
cash cost of production. The estimates are
based largely on current costs and on
projected prices and demand for such
mineralized material. Mineral reserves are
stated separately for each such mine, based
upon factors relevant to each mine. Proven
and probable mineral reserves are based on
calculations of reserves provided by the
operator of a property that have been
reviewed but not independently confirmed by
the Company. Changes in reserves represent
general indicators of the results of efforts
to develop additional reserves as existing
reserves are depleted through production.
Grades of ore fed to process may be different
from stated reserve grades because of
variation in grades in areas mined from time
to time, mining dilution and other factors.
Reserves should not be interpreted as
assurances of mine life or of the
profitability of current or future
operations.
Probable Reserves Resources for which tonnage and grade and/or
quality are computed primarily from
information similar to that used for proven
reserves, but the sites for inspection,
sampling and measurement are farther apart or
are otherwise less adequately spaced. The
degree of assurance, although lower than that
for proven reserves, is high enough to assume
continuity between points of observation.
<PAGE> 29
Proven Reserves Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes and for which the
grade and/or quality is computed from the
results of detailed sampling. The sites for
inspection, sampling and measurement are
spaced so closely and the geologic character
is so well defined that size, shape, depth
and mineral content of reserves are well
established. The computed tonnage and grade
are judged to be accurate, within limits
which are stated, and no such limit is judged
to be different from the computed tonnage or
grade by more than 20 percent.
Raise A vertical or inclined underground working
that has been excavated from the bottom
upward.
Rake The trend of an orebody along the direction
of its strike.
Reclamation The restoration of a site after mining or
exploration activity is completed.
Recovery The percentage of valuable metal in the ore
that is recovered by metallurgical treatment.
Replacement Ore Ore formed by a process during which certain
minerals have passed into solution and have
been carried away, while valuable minerals
from the solution have been deposited in the
place of those removed.
Reserves That part of a mineral deposit which could be
economically and legally extracted or
produced at the time of the reserve
determination. Reserves are customarily
stated in terms of "Ore" when dealing with
metalliferous minerals.
Resources The calculated amount of material in a
mineral deposit, based on limited drill
information.
Rib Samples Ore taken from rib pillars in a mine to
determine metal content.
Rockbolting The act of supporting openings in rock with
steel bolts anchored in holes drilled
especially for this purpose.
<PAGE> 30
Rockburst A violent release of energy resulting in the
sudden failure of walls or pillars in a mine,
caused by the weight or pressure of the
surrounding rocks.
Rock Mechanics The study of the mechanical properties of
rocks, which includes stress conditions
around mine openings and the ability of rocks
and underground structures to withstand these
stresses.
Room-and-Pillar Mining A method of mining flat-lying ore deposits in
which the mined-out area, or rooms, are
separated by pillars of approximately the
same size.
Rotary Drill A machine that drills holes by rotating a
rigid, tubular string of drill rods to which
is attached a bit. Commonly used for
drilling large-diameter blastholes in open
pit mines.
Royalty An amount of money paid at regular intervals
by the lessee or operator of an exploration
or mining property to the owner of the
ground. Generally based on a certain amount
per ton or a percentage of the total
production or profits. Also, the fee paid
for the right to use a patented process.
Run-of-Mine A loose term used to describe ore of average
grade.
Sample A small portion of rock or a mineral deposit,
taken so that the metal content can be
determined by assaying.
Secondary Enrichment Enrichment of a vein or mineral deposit by
minerals that have been taken into solution
from one part of the vein or adjacent rocks
and redeposited in another.
Shaft A vertical or steeply inclined excavation for
the purpose of opening and servicing a mine.
It is usually equipped with a hoist at the
top which lowers and raises a conveyance for
handling personnel and materials.
Shear or Shearing The deformation of rocks by lateral movement
along unnumberable parallel planes, generally
resulting from pressure and producing such
metamorphic structures as cleavage and
schistosity.
<PAGE> 31
Shrinkage Stopping A stopping method which uses part of the
broken ore as a working platform and as
support for the walls of the stope.
Siderite Iron carbonate, which when pure, contains
48.2% iron; must be roasted to drive off
carbon dioxide before it can be used in a
blast furnace. (Roasted product is called
sinter.)
Skarn Name for the metamorphic rocks surrounding an
igneous intrusive where it comes in contact
with a limestone or dolomite formation.
Solvent Extraction-Electrowinning
G(SX/EW) A metallurgical technique, so far applied
only to copper ores, in which metal is
dissolved from the rock by organic solvents
and recovered from solution by electrolysis.
Sphalerite A zinc sulfide mineral; the most common ore
mineral of zinc.
Step-out Drilling Holes drilled to intersect a mineralization
horizon or structure along strike or down
dip.
Stockpile Broken ore heaped on surface, pending
treatment or shipment.
Stope Underground excavation from which ore has
been extracted either above or below mine
level.
Stratigraphy Strictly, the description of bedded rock
sequences; used loosely, the sequence of
bedded rocks in a particular area.
Strike The direction, or bearing from true north, of
a vein or rock formation measured on a
horizontal surface.
Stringer A narrow vein or irregular filament of a
mineral or minerals traversing a rock mass.
Stripping Ratio The ratio of tons removed as waste relative
to the number of tons or ore removed from an
open pit mine.
Sublevel A level or working horizon in a mine between
main working levels.
Sulfide A compound of sulfur and some other element.
<PAGE> 32
Tailings Material rejected from a mill after more of
the recoverable valuable minerals have been
extracted.
Tailings Pond A low-lying depression used to confine
tailings, the prime function of which is to
allow enough time for heavy metals to settle
out or for cyanide to be destroyed before
water is discharged into the local watershed.
Trend The direction, in the horizontal plane, or a
linear geological feature (for example, an
ore zone), measured from true north.
Troy Ounce Unit of weight measurement used for all
precious metals. The familiar 16-ounce
avoirdupois pound equals 14.583 Troy Ounces.
Unpatented Mining Claim A parcel of property located on federal lands
pursuant to the General Mining Law and the
requirements of the state in which the
unpatented claim is located, the paramount
title of which remains with the federal
government. The holder of a valid,
unpatented lode mining claim is granted
certain rights including the right to explore
and mine such claim under the General Mining
Law.
Vein A mineralized zone having a more or less
regular development in length, width and
depth which clearly separates it from
neighboring rock.
Volcanogenic A term used to describe the volcanic origin
of mineralization.
Vug A small cavity in a rock, frequently lined
with well-formed crystals. Amethyst commonly
forms in these cavities.
Wall Rocks Rock units on either side of an orebody. The
hanging-wall and footwall rocks of an
orebody.
Waste Barren rock in a mine, or mineralized
material that is too low in grade to be mined
and milled at a profit.
Winze An internal shaft.
Zone of Oxidation The upper portion of an orebody that has been
oxidized.
<PAGE> 33
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BUSINESS
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General
Royal Silver Mines, Inc. (the "Company"), formerly known as
Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a
U.S. mineral resource company incorporated under the laws of the State
of Utah. The Company is engaged in the business of acquiring and
exploring mineral properties containing silver, copper and zinc. Prior
to September 30, 1995, the Company acquired all of the outstanding
securities of Celebration Mining Company ("Celebration"), a development
stage company, pursuant to a share exchange agreement and plan of
reorganization ("Reorganization"). Unless indicated differently by the
context, all references to the Company herein shall refer to Royal
Silver Mines, Inc., the corporate entity that resulted from the
business combination of Consolidated Royal Mines, Inc. and Celebration.
Prior to the Reorganization, Celebration was a non-public, closely
held Washington corporation. It was formed in February 1994 to
identify and acquire mineral properties for subsequent exploration and
development, if warranted, through equity financing and joint venture
arrangements. The Reorganization has been accounted for as a purchase
by Celebration of the Company. Celebration was treated as the
acquiring company for financial reporting purposes because its
shareholders constituted greater than 50 percent of the combined
shareholder group at the time of reorganization. In conformity with
generally accepted accounting principles and the Company's accounting
policy, Celebration is recognized as the predecessor entity.
Consequently, Celebration's assets and liabilities were not adjusted in
the accompanying financial statements. On the other hand, for purposes
of reporting statutory and corporate authority, the Company is deemed
to be the acquiring corporation, and Celebration is now a wholly-owned
subsidiary of the Company. Prior to the Reorganization, the Company
had been a majority-owned subsidiary of Centurion Mines Corporation
("Centurion"). Currently, however, Centurion holds an approximate 8.9%
shareholder interest in the Company and is an affiliate and related
party of the Company.
The Company operates its business as an exploration stage company,
meaning that it intends to receive income from property sales, joint
ventures, or other business arrangements with larger companies, rather
than developing and placing its properties into production on its own.
As discussed in greater detail below in the section entitled
"Business - The Company's Strategy and Business Plan," a substantial
portion of the Company's assets consist of investments in mineral
properties for which additional exploration is required to determine if
they contain mineralization that is economically recoverable. The
realization of these investments is contingent to a large extent upon
the success of the Company's property transactions as a whole, the
<PAGE> 34
existence of economically recoverable metals and other mineralized
material, the ability of the Company to obtain financing or make other
arrangements for development, and upon future profitable production.
History
The Company was incorporated in Utah on April 6, 1969 as Royal
Resources, Inc. for the purpose of acquiring and developing mineral
properties. The Company changed its name to Royal Minerals, Inc., on
January 6, 1983, and became a public company in July 1984. The Company
complied with the Securities and Exchange Commission reporting
requirements until August 1986, at which time the Company filed Form 15
with the Commission and suspended further reporting requirements. On
January 31, 1992, Centurion owned 82.3 percent of the Company's common
stock. See "Business - Centurion's Acquisition and Control of the
Company." Also on January 31, 1992, the Company shareholders
authorized a 5-for-1 reverse stock split, and on March 4, 1994,
authorized a 4-for-1 reverse stock split of the common stock of the
Company. On March 17, 1994, the Company changed its name to
Consolidated Royal Mines, Inc. On November 22, 1994, the Company filed
a registration statement on Form 10 and renewed its reporting
requirements, effective January 23, 1995. During the fourth quarter of
Fiscal 1995, the Company revised its business plan to concentrate on
the acquisition of silver properties. That change in focus prompted
Consolidated Royal Mines, Inc. and Celebration Mining Company to
implement the Reorganization, which closed on August 8, 1995, and to
change the Company's name to Royal Silver Mines, Inc., effective
September 18, 1995.
Strategy and Business Plan
The Company's mission is to explore for and, if warranted, develop
its mineral properties. The Company's strategy is to conduct an
initial evaluation of its properties, and after determining the
geological merit of each, proceed with additional exploration either by
utilizing the Company's own funds or by seeking joint ventures with
major mining companies who will then commit their funds in exchange
for an interest in the project. The Company expects in this way to
achieve an increase in the value of its assets and to economize the use
of its own funds.
The Company has determined that it will focus on exploration and
development of base metal and silver properties because management
believes supply/demand fundamentals for these metals are currently
favorable and are projected to remain favorable for the long term.
These supply/demand characteristics are driven primarily by increasing
affluence in developing countries and particularly by demand form the
Far East. Management also believes that base metal and silver deposits
are not being discovered as rapidly as supplies are being depleted.
These factors create a high likelihood of stable and favorable focus
metal prices overall, and possible significant price increases in
selected commodities such as silver and zinc in the near future.
<PAGE> 35
Management intends to expand growth by focusing on silver and base
metal properties in North America, Mexico, Chile and Argentina. The
Company intends to explore, develop, joint venture, discover and
accumulate reserves, identify and acquire undervalued properties and
reserves, and/or operate mining properties. The Company's strategy for
each will vary on a case-by-case basis.
Properties
Chilean Properties - Mocha Prospect
Background
The prospect was submitted in early 1997 to the Company through
one of the directors of the Company and a field exam was made
immediately by personnel working in Argentina at the time. The
decision to begin to acquire and unitize the Mocha District was based
on a number of factors:
1. More than 50% of a known large porphyry system at Mocha is covered
by Tertiary gravels and ignimbrites (post-mineral cover).
2. The best grade primary and oxide copper, noted from surface
sampling and drilling, is on the west side of the prospect just
before going under the post-mineral cover. On average, the cover
is believed to be less than 200 meters in thickness.
3. A large north-south trending aeromagnetic low anomaly west of
Mocha has never been tested by exploratory drilling. These
anomalies are often indicative of major copper porphyry systems.
Since 1995, several junior and major mining companies have held
land positions and attempted unsuccessfully to make a deal on the
principal claim group held by the Escala family of Santiago, Chile. In
January of 1997, the Oregon and Chilean Exploration Mining Company,
LTDA, staked 95 "pedimentos" or exploration claims totaling 28,300
hectares surrounding the known Mocha District claims of the Escala
family and Conoco Minerals, and including the large aeromagnetic low
anomaly 5-7 kilometers west of Mocha.
The Company has been successful at consolidating the District.
Final agreements were signed on June 23, 1997 and July 31, 1997 between
the Company and the Escala and Oregon LTDA properties. Negotiations
are also underway for the Conoco Minerals claims which are of lesser
area and importance. Approximately US$75,000 has been spent in
front-end payments. An additional US$75,000 has been spent in claim
staking, legal fees, and geologic studies. Only one US$25,000 payment
is due in the next six months.
The entire and total amount of the Escala property is US$5,000,000
payable as follows:
<PAGE> 36
On signing US$ 50,000
6 months US$ 100,000
12 months US$ 160,000
18 months US$ 300,000
24 months US$ 300,000
30 months US$ 500,000
36 months US$ 800,000
48 months US$1,395,000
60 months US$1,395,000
Notwithstanding the preceding, should the Company exercise the
option to purchase within the terms of 48 months from the date of the
signing of the option to purchase contract, the price of said contract
shall amount to US$4,510,000 of which the unpaid balance shall be due-
in-full at such time.
In addition to the purchase price stated hereinabove, the Company
will pay annually to the Sellers in equal parts an amount equal to 2%
of the net smelter return obtained by the beneficiary or its cessionary
as a result of the exploitation of any of the properties which are
acquired. The parties agree to negotiate, in good faith, an amount for
the N.S.R. buy-out which will become an integral part of the option to
purchase contract.
Under the terms of the agreement with the Oregon, LTDA, which was
signed on July 31, 1997, the Company can acquire a 100% interest in the
28,300 hectare claim block according to the following schedule:
On signing US$ 25,000
3 months US$ 25,000
6 months US$ 25,000
9 months US$ 25,000
12 months US$ 25,000
15 months US$ 25,000
18 months US$ 25,000
21 months US$ 25,000
36 months US$ 156,000
60 months US$ 500,000
72 months US$1,000,000
84 months US$1,000,000
96 months US$1,500,000
The Company is further obligated to spend $200,000 in work commitments
in the first three years.
Location and Access
The Mocha District is located in northern Chile and lies
approximately on the 19E48'30" south meridian at 69E16'30" west
longitude (See Figure 1). This area is within Region I of Chile,
Iquique Province, Comuna de Huara. The prospect is approximately 100
kilometers east-northeast of the coastal city of Iquique and 60
<PAGE> 37
kilometers west of the Bolivian border. Access is by paved and gravel
roads which requires about three hours to drive from Iquique via Huara.
The property lies along a southwesterly trending intermittent stream,
Quebrada Tarapaca, at an average elevation of 2300 meters. The farming
pueblo of Mocha is located near the northeastern corner of the
property.
History of the Prospect
Prospect pits, shallow shafts, and small adits were driven into
the oxide copper showings at Mocha many years ago, probably pre-1940.
The first systematic exploration for porphyry-type mineralization at
Mocha was carried out by the United Nations special fund mineral survey
in late 1961 and 1962 and included geologic mapping, soil sampling, and
six shallow diamond drill holes.
Conoco Minerals, Inc., optioned the prospect in late 1980 and in
1981 conducted geology, geochemistry, and geophysics culminating in
eleven core holes totaling nearly 5000 meters and three rotary holes
totaling approximately 850 meters.
The United Nations and Conoco core drilling activities outlined a
minimum of several hundred million tons with an overall grade of
0.4%-0.6% copper as a mixture of primary sulfides, secondary sulfides,
and oxides. Conoco personnel recognized the importance of intense
biotitization hosting the primary sulfides.
ASARCO optioned the property in 1995 and drilled thirty-three
shallow RVC (reverse circulation) angle holes within the previously
drilled and exposed area with the hope of increasing the
secondary-enriched copper resource. ASARCO was only able to delineate
a secondary enriched global resource approximately 41.9 million tons of
0.51% copper. Some problems may have been encountered with ASARCO'S
RVC drilling as assay results were lower than assays in adjacent core
holes. No attempt was made by ASARCO to discover higher grade primary
sulfides, oxide copper, or explore the vast covered area to the west.
Geology
The Mocha District is located within and on the west side of a
30-40km (19.25 mile) wide, north-south trending up-thrown block of
Mesozoic and Paleozoic rocks. This structural block extends at least
500 km to the south and includes the El Abra and Chuquicamata Districts
(See Figure 2). The block was uplifted in later Tertiary time
offsetting Tertiary gravels and ignimbrites believed to be 10-15
million years in age. A major north-south fault zone locally known as
the West Fissure occupies an axial position within the
Mesozoic-Paleozoic block.
<PAGE> 38
The West Fissure is believed to have had a major component of net
left lateral displacement since Mesozoic time. The West Fissure,
however, fails to displace a 4.3 million year ignimbrite near Quebrada
Blanca, and therefore has been inactive since that time. Spatial
regional relationships suggest that the West Fissure, or its ancestral
equivalent, influenced the localization of the porphyry copper deposits
not only in the El Abra-Chuquicamata-Tesoro region, but also the
cluster of deposits in the Copaquiri-Quebrada Blanca-Collahuasi region.
The West Fissure is covered by gravels north of Copaquiri but also may
correspond to northerly trending structural zones near Cerro Colorado
and Mocha. The West Fissure also extends for several hundred
kilometers to the south of Chuquicamata. Therefore, the location of
several distinct regional clusters of porphyry copper deposits appear
to have been influenced by this important fault zone extending over a
strike length of at least 500 km (310 miles).
In recent years, a more subtle east-west structural component has
also been recognized in several of the important porphyry copper
districts along the West Fissure trend. In the Copaquiri-Quebrada
Blanca-Collahuasi, Cerro Colorado, and Mocha Districts, the overall
trend of copper mineralization and/or the alignment of known prospects
appears to be at least in part east-west and partially offset by
north-south faults. The east-west controlling structure at Mocha may
extend as far to the east as the famous Potosi district in Bolivia.
Exploration Potential
The drilling programs in 1961 (United Nations), 1981 (Conoco), and
1995 (ASARCO), demonstrated that a large sulfide copper resource
(250,000,000 tons) of overall grade between 0.4% - 0.6% copper) exists
mostly within intensive biotized rocks in the exposed portion of the
Mocha District.
A preliminary examination of existing data and subsequent field
work by the Company indicates that this large resource is only
partially exposed. The overall trend of better copper grades (0.4% Cu)
appears to be 700 meters wide, trending east-west, with better values
of oxide and primary sulfides to the west, and heading under
post-mineral cover. A separate and distinct secondary sulfide zone is
also possible to the west, as is additional oxide copper. Also, a
large north-south trending aeromagnetic low is present on the prospect,
approximately seven (7) kilometers west of Mocha. This anomaly could
represent another porphyry system or possibly a faulted extension of
Mocha.
A ground magnetic survey is recommended to further delineate this
anomaly. Additional geophysics, including gravity to help estimate the
thickness of the overburden, could be useful. An IP survey could aid
in delineating the extent of sulfides under the postmineral cover.
However, even without geophysics at Mocha, a good drilling target
exists immediately west of the known porphyry-type mineralization.
<PAGE> 39
The Company's geologists believe that the potential exists for
discovery of a deposit in excess of 750 million tons at grades
exceeding 0.5% copper. This estimate is based on known data and
extrapolation of the size of the potential zone to the west and to
depth. This estimate is also in line with other major copper deposits
in Chile and to the south of Mocha within the same trend.
The Company is confident the project is of high interest to major
mining companies. This view is based not only upon the geologic factors
discussed above, but also because world demand for copper is growing
rapidly necessitating aggressive exploration for new copper deposits.
The Company has already had numerous contacts with several major
companies confirming this hypothesis. The Company believes that a
property of the size discussed above would ultimately be developed into
a mine, and that the Company's share of the project would be of such
magnitude that it would add very dramatically to stockholder equity.
Strategy for Mocha
Management has determined that a flexible approach to Mocha in the
next six months will maximize its value to the Company. The Company
does not intend to fully explore the property on its own, but will at
some point joint venture the property to a major mining company. The
timing of signing such a joint venture is critical to the Company.
The project will be more valuable to the Company shareholders if
the company undertakes some geophysical work and preliminary drilling
of its own to prove continuity of the mineral system to the west. This
action will improve the Company's negotiating posture dramatically
since the greatest exploration risk of the project is that the
mineralization does not continue to the west, and such work will likely
diminish this risk is successful.
Therefore, the Company strategy can be summarized as follows;
either
1. Immediately (within two months) joint venture the project to a
major mining company, or;
2. Conduct an initial geophysical and drilling program on the project
to be completed within four months and then seek to joint venture
the project to a major mining company, this latter goal to be
completed within seven months.
It is the belief of management that path #2 would be preferable
and would maximize the value of the Mocha property for the Company.
However, the Company would not undertake any further exploration of the
project unless the Company nets in excess of $2.5 million from this
fundraising. The Company has allocated a maximum of $300,000 for
further exploration at Mocha. See "Use of Proceeds."
<PAGE> 40
However, since the Company is already in negotiations with a
number of major companies on Mocha, it is possible, perhaps likely,
that an offer will be received that is so advantageous to the Company
that an immediate joint venture of the project would be both prudent
and fiscally advantageous. Management will continue to evaluate Mocha
closely as new developments occur.
Other Chilean Opportunities
The Company intends to expand its presence in Chile and currently
is evaluating other mining opportunities which have presented
themselves. Many attractive Chilean mining properties are owned or
controlled by established Chilean families, some of whom, so far, have
been unwilling to negotiate with major mining companies. The Company
has not and will not comment on the reasons for these various states of
impasse.
Management has been approached by several large companies to act
as an intermediary between the families and the major company to assist
in negotiations. It is believed that by conducting negotiations and
signing mineral deals, the Company can gain a percentage ownership,
joint venture partnership and/or royalty interest in a number of
ventures in Chile, thereby increasing the Company's chances of
participation in a property that is ultimately successfully developed
into a mine.
Mexican Properties
Manatial Project
The Company has acquired four formerly producing mines; the
Manantial, Zopilote, Jabalina and Frazadas located in the El Zopilote
District, Nayarit, Mexico. The Company acquired the property from
Roberto Whetton, the owner of the previous operator of the mines,
Minera Nival. Under the terms of the acquisition the Company will
spend a minimum of $250,000 annually on exploration and/or development
until the mines are brought back into production. The Company will pay
a 10% net profits royalty to Minera Nival to a maximum of $5,000,000.
The Manantial Project consists of four concessions which total 458
hectares and is located 25 kilometers east of Ruiz, Nayarit, Mexico.
Ruiz is 200 kilometers south of Mazatlan and 150 kilometers north of
Puerto Vallarta. Tepic, the capital of Nayarit, is 65 kilometers south
of Ruiz. (See Figure 4.)
Mining by the Indians pre-dates Spanish colonization. The Spanish
mined the area and developed a port at San Blas in conjunction with the
mining operation. A German company operated the mines and a smelter
from 1890 to 1910 when they shutdown due to the Mexican Revolution.
Records indicate the Germans were mining high grade silver ores grading
1.5 kilograms silver per tonne (about 45 ounces) and an undisclosed
amount of gold.
<PAGE> 41
The mines are developed on silver, lead and zinc veins in andesite
volcanic rocks and which are named the Manantial, Zopilote, Jabalina
and Frazadas veins. The Minera Nival data indicate that reserves
sufficient to operate a profitable mining operation can be developed by
further exploration. The Company is planning an exploration drilling
program to develop the necessary reserves to re-open the mines. (See
Figure 5.)
The Frazadas vein was being mined by Minera Nival and is developed
on two levels, with 100 meters between levels. The vein averages 3
meters in width and grades 14% zinc, 2% lead, and 3 ounces silver per
tonne. The vein extends for a known strike of 400 meters and is open
down dip and on strike. The vein width and continuity make the
Frazadas vein amenable to high productivity mechanized mining methods.
The Zopilote vein is southwest of and sub-parallel to the Frazada
vein. The mine workings consist of a 160 meter deep shaft with several
levels developed, the extent of which is unknown. The German company
records indicate that high grade silver with some lead and zinc were
mined, and it appears that most of the early district production came
from the Zopilote. The Zopilote mine is inaccessible and Minera Nival
did no work on the vein.
The Jabalina mine consists of a long drift developed on the
westerly strike projection of the Zopilote vein. The workings are
about 300 meters vertically below the Zopilote and terminate 600 meters
from the down dip projection of the Zopilote. The Germans were driving
to develop the vein at a lower elevation, but never reached their
target. They did mine on at least two other different veins within
this trend. While conducting exploration from the Jabalina tunnel,
Minera Nival sampled a one meter vein that assayed 0.19 ounces gold per
ton and 19.3 ounce silver per ton. The Company believes that reserves
can be developed by extending the Jabalina drift 600 meters to the dip
projection of the Zopilote and evaluating this 300 by 600 meter block
of ground by drilling and raising. The Company also believes other
targets may be of interest within the Jabalina mine.
The Manantial vein consists of a least five veins averaging 1.5
meters in width and grading 13 to 20 ounces silver per ton with a
significant gold credit. The mine is developed on two levels and is
accessed by crosscuts from the surface. The mine is a complex of sub-
parallel veins of varying strike and dip averaging 50 meters in length.
Minera Nival drilling indicates zones between the veins contain
disseminated and stockwork mineralization. The Manantial vein system
will be explored by drilling to determine if it is a stockwork vein
system and its potential.
Overall, the Company believes the Zopilote District is a large
mineral system that may be part of a volcanic caldera complex. A
$250,000 exploration program is planned for the Summer of 1997.
<PAGE> 42
Argentina Properties
In January of 1997, the Company acquired an option to purchase
twelve separate mine claim groups in La Rioja Province, Argentina.
(See Figures 1 and 2.) Under the terms of the option agreement, the
Company can purchase the properties on or before March 1, 2000 by the
payment of $4.5 million in cash or $5.5 million in the Company's common
shares. The original owners will retain a 1.9% net smelter return
royalty on future production. The Company is required to spend
$200,000 on the property prior to May 1, 1998, an additional $300,000
prior to March 1, 1999 and an additional $400,000 prior to March 1,
2000.
The acquisition includes 12 separate properties which have all
been advanced to the status of mines, meaning that the title to the
mineral rights has been deeded. A brief description of the most
advanced properties, which are known as Veta Capricho and Salto de Albi
is included here. These properties are located at an average elevation
of about 10,000 feet above sea level.
Veta Capricho
The Veta Capricho prospect, located in the Los Metalitos gorge,
was acquired by the current owners in the early 1970's and has been
held for approximately 25 years. Access to the region is generally
possible via 4-wheel drive vehicle from Jague. The final 15 mile route
to the prospect is currently undergoing improvement. This work is
being partially funded by the Company and partially funded by the
Provincial government of La Rioja Province.
The prospect appears to be a series of stacked siliceous
stratiform sulfide occurrences. The principal host rocks are quartz-
mica schists, feldspathic gneisses and lesser amphibolite of the
Precambrian Espinal Formation. Structure is dominated by a large
north-south trending anticline, parallel to the gorge. The principal
sulphide zone can be traced on surface for more than 6000 feet in a
north-south direction, ranges in thickness from 3 feet to more than 60
feet, and dips to the west 30 degrees to 80 degrees, parallel to the
stratigraphy. Abundant oxide iron, copper, and manganese stain define the
zone at surface. The massive to disseminated unoxidized metal mineralization,
principally seen in one short adit, consists of specular hematite,
chalcocite, bornite, chalcopyrite, galena, and sphalerite. Quartz and
possible carbonate minerals are the gangue minerals. Thirteen samples
taken by Company personnel in January were located along approximately
1500 feet of strike length of the prospect. These samples returned an
average grade of over 7.5% copper, 5% combined lead-zinc and 4 ounces
of silver.
<PAGE> 43
In a detailed surface sampling program conducted by the Company's
personnel in April 1997, some 20 channel samples were collected which
averaged 1.75% copper, 6% combined lead-zinc and 2 ounces of silver.
The Company plans to conduct a diamond drilling programs to test the
down dip extension of this promising zone.
Salto de Albi
The Salto de Albi porphyry copper system is located within the
Albi ravine. The complex is roughly oval in shape, 3000 feet long in
a northeast direction and 2000 feet wide. Surface outcrops are
oxidized yellow and red-brown. Northeast-trending quartz-feldspar
porphyry dikes, as much as tens of feet in width, are common along the
northwest border of the complex. Copper-molybdenum mineralization
appears to be best defined near the quartz-feldspar porphyry dikes and
within intense potassically altered volcanic rocks. Historic sampling
in the vicinity of the porphyry dikes has indicated a near vertical
mineralized zone at surface exceeding 500 feet in width and 2500 feet
in length with overall copper grades possibly exceeding 1% copper, with
accompanying tin, silver and molybdenum credits. Lower grade copper
values surround this higher grade zone. The Salto de Albi system is
believed to have the potential to host in excess of 100,000,000 tons of
porphyry mineralization.
United States Properties
The Company in 1995 and 1996 had focused its efforts on acquiring
former producing silver properties in the United States with a strategy
of exploring for additional reserves and if justified, re-opening the
properties. However, due to the increasingly difficult regulatory
environment prevalent in the United States, management, consistent with
a majority of the North American mining industry, has chosen to re-
focus the Company's efforts offshore in countries where the regulatory
framework is not punitive and obstructionist, but is evaluated as being
cooperative and amenable to capital investment. Mexico, Chile and
Argentina are viewed as favorable by management.
Although the United States properties host important silver and
base metal mineralization and are long-term assets of the Company, no
work is contemplated on these properties near term unless metal prices
rise sufficiently to offset the regulatory risks of operating in the
United States.
Crescent Mine
In February 1995, Celebration Mining, Inc., ("Celebration") a
wholly owned subsidiary, entered into an agreement to acquire a long
term mineral lease on the Crescent Mine. The Crescent Mine is an
underground mine, located in the Coeur d'Alene Mining District of
Shoshone County, Idaho, about five miles east of Kellogg, Idaho.
<PAGE> 44
Operations of the Crescent Mine began prior to 1917 and produced
in excess of 25 million ounces of silver. The mine is currently not in
operation and is flooded to approximately the 1200 foot level. The
most current ore reserve report that the Company has been able to
obtain was prepared in 1985 by Norman A. Radford, a registered
professional geologist. That report indicated that the Crescent Mine
contained 141,000 tons of probable reserves averaging 31 ounces of
silver per ton of mineralized material. At current silver prices, the
Company cannot assure that any of the mineralization could be mined at
a profit.
The Crescent Mine property consists of 12 patented mining claims,
associated unpatented claims and two Idaho state leases, and is located
immediately adjacent to and west of the world-famous Sunshine Mine
(Sunshine Mining Company, SSC-NYSE). The Sunshine Mine has produced
nearly 400 million ounces of silver since its inception, making it the
largest primary silver mine in the world. The structural and
stratigraphic features which have produced the ore deposits in the
Sunshine Mine are also present in the Crescent Mine.
Host rocks in the Crescent Mine, in common with the rest of the
District, are members of the Precambrian Belt Super Group. Three
formations are present in the mine in descending order: Wallace, St.
Regis, and Revett. The most favorable rocks in the Crescent Mine are
the Lower St. Regis and Upper Revett quartzites. These rocks occur in
the Crescent Mine from the 1,200-foot level downward. The Coeur
d'Alene "Silver Belt" ore structures are frequently narrow, fragmented,
and sinuous, and have exhibited great vertical continuity. For this
reason, they have been discovered and mined at levels deeper than is
generally the case in other mining districts. The ore at the Crescent
Mine occurs in thin veins steeply dipping to the south. These veins
may vary in thickness from several inches to several feet. The
Alhambra and the Syndicate Faults are major reverse faults and both are
present in the Crescent Mine.
The Crescent is developed to a depth of 5,100 feet by two vertical
shafts. The majority of past production from the Crescent Mine
occurred in the Revett formation between the 3,100 level and the 4,300
level. In the mid-1980's, the No. 2 shaft was deepened to the 5,100
level, which opened an additional 800 feet of favorable Revett
quartzites for development of the downward extensions of the East
Footwall and Hook veins, the two major veins in the mine.
The Company's timing to re-establish production from the Crescent
will be dependent upon silver prices. Management estimates that a
price of at least $6.00 per ounce would need to be sustained for a
period of six months to justify the capital investment necessary to de-
water the lower workings of the mine and rehabilitate the stopes. As
of August 29, 1997, the Comex Spot price for silver was $4.67. The
Company believes that a processing agreement for Crescent ore can be
negotiated with the neighboring Sunshine Mine on a favorable basis.
<PAGE> 45
During the 1996 fiscal year, the Company's field activities at the
Crescent Mine were limited to an unsuccessful attempt to re-open the #3
level portal. The portal was filled with unconsolidated glacial till
and it was determined that a much more expensive program will be
required given the bad ground. Due to the low silver price, no attempt
to dewater the lower mine was contemplated during the 1996 fiscal year.
Vipont Mine
The Vipont Mine is located in the Ashbrook Mining District, a
remote area in the extreme northwestern corner of Box Elder County,
Utah, approximately ten miles east of the Nevada state line and one
mile south of the Idaho state line near the headwaters of the Little
Birch Creek. It is accessible by asphalt, gravel and dirt roads. The
mine property consists of 53 patented (deeded) mining claims covering
nearly 1,000 acres with a 25% undivided interest owned by Celebration.
The Vipont Mine has in the past been a significant silver
producer. Its greatest period of activity was from 1919 through mid-
1923 after the passage of the Pittman Silver Purchase Act ("Pittman
Act") which authorized the purchase of 200,000,000 ounces of silver.
The Mine closed in August 1923 with the expiration of the Pittman Act
after producing nearly 1,000,000 ounces of silver per year. Some
leasing was done in the 1930's and the Mine was closed in 1942 when
Congress passed War Order L-208 closing all gold and silver mines. The
Company has no plans in the immediate future for any further
development of the property.
Conjecture Mine
In late August 1995, the Company acquired six patented and six
unpatented mining claims comprising the Conjecture Mine property. The
Conjecture property is located in the Lakeview Mining District of
Idaho, some 30 miles to the northwest of the Coeur d'Alene mining
district. The rock groups of the Lakeview District are the same
Precambrian belt series associated with the world-class silver deposits
of the Coeur d'Alene mining district to the southeast
The history of the Lakeview District in general, and the
Conjecture Mine in particular, has shown sporadic high grade silver
production from shallow workings since the late 1800's. Production on
a neighboring property occurred as recently as 1987. However, within
the Lakeview District, only the Conjecture Mine itself has been
developed to any significant depth.
In the early 1960's, Federal Resources of Salt Lake City, Utah
invested approximately $3 million in shaft sinking and underground
development at the Conjecture Mine. In all, Federal Resources
completed a 2,000 foot deep vertical shaft and nearly 12,000 feet of
drifts, cross-cuts and raises. This work established a block of
mineralized material of 336,000 tons at a grade of 11 ounces per ton of
silver, and .03 ounces of gold, with a lead and zinc credit.
<PAGE> 46
An additional block of 370,000 tons of similar grade was listed as
a possible block of mineralization between the levels. Since obtaining
the property, the Company has not been able to reconfirm these
estimates, although an independent report done in 1981, by Richard W.
Morris, essentially verified the earlier numbers.
The Company's geologists have noted the striking similarities
between the Lakeview District and the nearby Coeur d'Alene District.
High grade silver mineralization has been shown to extend laterally for
over two miles, and vertically for over 3,000 feet in the Conjecture
Mine. The same rock unit sequence (i.e., Wallace, St. Regis, Revett)
is found in both districts, with the same important ore minerals
(tetrahedrite, galena, sphalerite) defining productive ore shoots.
However, within the Lakeview District, only the Conjecture shaft has
penetrated the less favorable Wallace formation into the better
quartzite units.
Bismark Mine Property
In September 1995, the Company obtained a 10-year lease on three
patented mining claims in Shoshone County, known as the Bismark claims.
The claims lie about one mile south of the main shaft of the Sunshine
Mine and are surrounded by Sunshine holdings. The property is
developed by a 1,500 foot adit which was driven to the northeast to
intersect the Bismark vein. The Company has re-opened and re-timbered
the portal of the Bismark adit to permit accessing and sampling of the
Bismark vein.
The geology of the Bismark claims, given the proximity to the
Sunshine Mine, is highly favorable to ore deposition. The Bismark vein
lies entirely with the Revett formation, which is the most favorable
rock unit for ore emplacement in the Coeur d'Alene mining district.
Limited exploration by Sunshine Mining Company on their 2,600 level
established the downward projection of mineralization in the Bismark
vein structure.
Bismark Mining Company, the property owner and lessor, will
receive a 2.5 percent net smelter return on commercial production from
the claims under the terms of the Company's lease.
Coeur d'Alene Syndicate Property
No significant mineral production has occurred on the Coeur
d'Alene Syndicate property and there are no known reserves. In
September 1995, the Company acquired fee simple ownership of the 24
patented mining claims that comprise the property, located in Burke
Canyon six miles northeast of Wallace, Idaho. The property is an
undeveloped portion of ground centered between the Star-Morning Mine on
the east and the Frisco and Black Bear Mines on the west.
<PAGE> 47
Geologists have long considered the Syndicate property to be an
outstanding exploration target where the highly productive Star fault
turns to the southwest and intersects the Commander fault. This
structural anomaly, occurring in favorable Revett and Burke formation
quartzite rocks is exactly what develops major ore shoots within the
Coeur d'Alene district. The property is currently developed by an adit
from the Black Bear property, but could ultimately be accessed by the
deep shafts of the Star Mine.
The Liberal King Mine
In the fourth quarter of Fiscal 1995, the Company acquired fee
simple ownership of the Liberal King Mine, consisting of five patented
claims located southwest of the Bunker Hill Mine in the Pine Creek area
of the Coeur d'Alene Mining District. At the time the mine was last
operated by Spokane National in the 1960's, that company reported a
defined block of mineralized material totaling 81,000 tons at 12
percent zinc and 2.5 ounces of silver. In the early 1980's, Cominco-
American conducted an exploration program on the Liberal King property
in search of a large, stratabound zinc-silver deposit. Such potential
has not been fully explored at this time. The Company has not been
able to evaluate this property at this time, and no current reserve
estimates can be given.
Summary of U.S. Properties
Overall, the Company's U.S. properties have low holding costs and
are being held as part of the Company's strategy of acquiring
undervalued base metal and silver assets which are currently out of
favor. As noted above, the Company plans no significant expenditures
on these properties until metal prices, particularly that of silver,
rise significantly and secondly, until the regulatory climate improves
markedly to allow the orderly and cost-effective permitting and
operation of mining properties.
Private Placements
In July 1995, the Company completed a private placement of 8,700
shares through two Regulation S offerings, both at a price of $2.00 per
share, for a total of $17,400. During September 1995, the Company
completed a private placement of 179,000 shares of common stock through
a domestic offering at a price of $1.50 per share for a total of
$241,650 after expenses. During the twelve months ended September 30,
1996, the Company placed 1,949,332 shares of its common stock for
$2,958,314 in cash. The Company also issued 406,050 shares of its
common stock in lieu of outstanding debt of $570,919, plus accrued
interest. The stock was issued at $1.50 per share for a total value of
$609,075.
<PAGE> 48
On January 30, 1997, the Company sold 200,000 Units at $0.75 to
Britannia Holdings Limited ("Britannia"). Each Unit consisted of one
share of Common Stock, and one Warrant. Each Warrant allows Britannia
to purchase one share of Common Stock at $1.25 per share. The Warrants
expire two years from issuance. The Company also granted Britannia the
option to purchase 335,000 Units on or before February 14, 1997 and
600,000 Units on or before March 24, 1997. The Units were sold pursuant
to Reg. S of the Securities Act of 1933.
On the 30th day of January, 1997, the Company sold to Britannia
Holdings Limited ("Britannia"), Channel Islands, 200,000 Units, at
$0.75 per Unit or a total of $150,000. The Registrant also granted
Britannia an option to purchase an additional 335,000 Units on February
14, 1997 and an additional 800,000 Units on March 3, 1997. Neither of
the foregoing options has been exercised as of the date hereof. Each
Unit consists of one share of Common Stock and one warrant to purchase
one additional share of Common Stock at $1.25 per share. The warrants
will expire two years from the date of closing of each transaction.
The Units were issued in reliance upon the transaction exemption
afforded by Regulation S, as promulgated by the Securities and Exchange
Commission, under the Securities Act of 1933, as amended. As of the
5th day of February, 1997, Britannia Holdings Limited had not exercised
any warrants.
On the 14th day of February, 1997, the Registrant sold to
Britannia Holdings Limited ("Britannia"), Channel Islands, 335,000
Units, at $0.75 per Unit or a total of $251,250. The Registrant
previously granted Britannia an option to purchase an additional
800,000 Units on March 3, 1997. The option exercise date of March 3,
1997 has been extend by mutual agreement of the parties to March 24,
1997. On January 30, 1997, the Registrant sold 200,000 Units to
Britannia in consideration of $150,000 as previously reported on Form
8-K filed with the Commission. Each Unit consists of one share of
Common Stock and one warrant to purchase one additional share of Common
Stock at $1.25 per share. The warrants will expire two years from the
date of closing of each transaction. The Units were issued in reliance
upon the transaction exemption afforded by Regulation S, as promulgated
by the Securities and Exchange Commission, under the Securities Act of
1933, as amended. As of the 26th day of February, 1997, Britannia
Holdings Limited had not exercised any warrants.
On the 26th day of February, 1997, the Company sold to Louk
Jongen, ("Jongen"), Holland, 100,000 Units, at $0.75 per Unit or a
total of $75,000. Each Unit consists of one share of Common Stock and
one warrant to purchase one additional share of Common Stock at $1.25
per share. The warrants will expire two years from the date of
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, Jongen had not exercised any
warrants.
<PAGE> 49
On the 5th day of March, 1997, the Company sold to NCL Investments
Limited ("NCL"), London, England, 136,000 Units, at $0.75 per Unit or
a total of $102,000. Each Unit consists of one share of Common Stock
and one warrant to purchase one additional share of Common Stock at
$1.25 per share. The warrants will expire two years from the date of
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, NCL had not exercised any warrants.
Competition
The mining industry is very competitive. There is a high degree
of competition to obtain favorable mining properties and suitable
mining prospects for drilling, exploration, development and mining
operations. The Company encounters competition from a handful of other
similarly-situated mining companies in the silver mining industry in
connection with the acquisition of properties capable of profitably
producing silver and other mineralization. The Company is unable to
ascertain the exact number of such competitor companies.
Transactions with Centurion
The Company has disclosed pertinent information and financial data
with respect to its transactions with Centurion. See "Certain
Transactions."
Patents, Trademarks, Licenses, Franchises
The Company does not own any patents, trademarks, licenses,
franchises, or concessions, except for patented mining claims granted
by governmental authorities and private land owners. See "Glossary."
Seasonability
The Company's business is generally not seasonal in nature except
to the extent that weather conditions at certain times of the year may
affect the Company's access to its properties.
Government Regulation and Environmental Concerns
U. S. Regulations
The Company is committed to complying and, to its knowledge, is in
compliance with all governmental and environmental regulations. The
Company's activities in the United States are subject to extensive
federal, state and local laws and regulations controlling not only the
mining of and exploration for mineral properties, but also the possible
effects of such activities upon the environment. Permits from a
variety of regulatory authorities are required for many aspects of mine
operation and reclamation. The Company cannot predict the extent to
<PAGE> 50
which future legislation and regulation could cause additional expense,
capital expenditures, restrictions and delays in the development of the
Company's U.S. properties, including those with respect to unpatented
mining claims.
The Company's activities are not only subject to extensive
federal, state, and local regulations controlling the mining of and
exploration for mineral properties, but also the possible effects of
such activities upon the environment. Future legislation and
regulations could cause additional expense, capital expenditures,
restrictions and delays in the development of the Company's properties,
the extent of which cannot be predicted. Also, as discussed above,
permits from a variety of regulatory authorities are required for many
aspects of mine operation and reclamation. In the context of
environmental permitting, including the approval of reclamation plans,
the Company must comply with known standards, existing laws and
regulations that may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted and how
stringently the regulations are implemented by the permitting
authority. The Company is not presently aware of any specific material
environmental constraint affecting its properties that would preclude
the economic development or operation of any specific property.
However, the general obstructionist regulatory environment within the
United States impedes development of its properties and the Company
plans to do limited work in the United States, unless metal prices rise
significantly or the regulatory environment grows dramatically more
favorable to industry.
At present, the Company does not have any environmental control
facilities. Thus, the Company has not made any material capital
expenditures for environmental controls, other than the nominal costs
of preparing the plans and contingencies for such environmental
controls, measures and facilities as may be required in its future
activities.
If the Company becomes more active on its U.S. properties, it is
reasonable to expect that compliance with environmental regulations
will increase costs to the Company. Such compliance may include
feasibility studies on the surface impact of the Company's proposed
operations; costs associated with minimizing surface impact; water
treatment and protection; reclamation activities, including
rehabilitation of various sites; on-going efforts at alleviating the
mining impact on wildlife; and permits or bonds as may be required to
ensure the Company's compliance with applicable regulations. It is
possible that the costs and delays associated with such compliance
could become so prohibitive that the Company may decide to not proceed
with the exploration, development, or mining operations on any of its
mineral properties.
<PAGE> 51
Offshore Regulation
The Company is aware of comparable environmental regulation in
offshore countries where it operates. The Company is committed to full
compliance with these regulations and has engaged legal counsel in
Mexico, Chile and Argentina who will, in part, assist the Company to
assure compliance.
The Company is prepared to engage additional professional, if
necessary, to ensure regulatory compliance but in the near term expects
its activities to require minimal regulatory oversight. If the Company
expends the scope of its activities in the future it is reasonable to
expect expenditures on compliance to rise. Based upon the experience
of other companies with which the Company is familiar, management
believes the costs of environmental regulation offshore will be
somewhat lower than costs typical of the United States.
Employees
The Company has seven employees. The Company arranges for much of
its work through contracts with various consultants. The Company may
contract with additional consultants from time to time, as required by
its operations. Consultants are treated as independent contractors.
Centurion's Acquisition and Control of the Company
In October 1991, Centurion entered into negotiations with the
officers and directors of the Company for the acquisition and control
of the Company. In November 1991, Centurion's Board of Directors
approved this acquisition. Subsequently, Centurion entered into
subscription and investment agreements with several of the Company's
principal shareholders, whereby Centurion exchanged 174,743 restricted
shares of Centurion stock and $1,600 cash for shares of the Company's
common stock constituting 37.2 percent ownership of the Company's
outstanding shares. On January 10, 1992, the Company's Board of
Directors authorized the exchange of 100,000 post-split shares of the
Company's common stock for approximately 4,196 acres of unpatented
mining claims and state and private mineral leases from Centurion. On
January 31, 1992, at the Company's annual shareholders meeting, the
shareholders authorized the purchase of approximately 17,000 acres of
mining properties from Centurion for 1,250,000 post-split shares of the
Company's common stock. This acquisition of shares gave Centurion an
82.3 percent controlling interest in the Company. Because of the
changes in the control of shareholdings brought about by the
Reorganization with Celebration, Centurion currently holds
approximately 14 percent of the Company's outstanding common stock. Of
this, the Company has been granted an assignable option to repurchase
up to half of Centurion's position at a price of $1.75 at any time
prior to October 1, 1998.
<PAGE> 52
Subsidiaries
The Company currently has four subsidiaries. Celebration Mining
Corporation was incorporated in the State of Washington in February
1994. In conjunction with pursuing its activities in Mexico, Chile and
Argentina, the Company has established wholly owned subsidiaries in
each country. Minera Plata Real was incorporated in Mexico in February
1997. Minera Plata Real was incorporated in Chile in June 1997.
Minera Plata Real was incorporated in Argentina in March 1997.
Reorganization with Celebration
In May and June 1995, the Company's management began negotiations
with management of Celebration regarding a merger or other
reorganization plan of the two companies. On June 28, 1995, the boards
of directors of both companies approved a reorganization and the
companies signed an agreement based on a share exchange. The Company
would acquire 100 percent of Celebration's interest in the Vipont Mine
Joint Venture, the Crescent Mine Lease, the Australia Joint Venture,
and the option rights to acquire up to 50 percent of the mineral rights
on the Prospect Mine Property in Madison County, Montana.
The Celebration shareholders approved the Reorganization and share
exchange agreement at an August 8, 1995 shareholder meeting. In
exchange for 100 percent of the issued and outstanding Celebration
shares, the Company agreed to issue to the Celebration shareholders
4,143,750 shares of the Company's common stock that together would
represent ownership of 63 percent of the Company's shareholdings
outstanding immediately following the Reorganization. Also, the
Company agreed to honor all of the stock rights held by various
Celebration shareholders and which were subject to certain conditions
and events.
Some of those stock rights had been granted contingent upon the
repayment of notes, and others had been granted as options under
consultant agreements. In total, those stock rights permitted the
purchase or receipt of approximately 1,755,000 additional shares of the
Company's common stock. If all of the shares underlying various stock
rights were added to the initial group of 4,143,750 shares exchanged in
the Reorganization, that would result in a total issuance from the
share exchange of approximately 5,898,750 shares, or 71 percent
ownership by the Celebration shareholders. However, to date, none of
the overhanging stock rights have been exercised.
In December 1995, stock rights to receive approximately 190,795
shares were extinguished when the Company converted debt of $570,919 in
principal, plus interest, by issuing common stock. The noteholders of
that debt amount received approximately 406,050 shares in full
satisfaction of the debt.
<PAGE> 53
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MANAGEMENT
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The following table sets forth the name, age and position of each
Officer and Director of the Company:
Name Age Position
Howard M. Crosby 45 President and a member of the Board
of Directors
Robert E. Jorgensen 44 Executive Vice President, Treasurer
and a member of the Board of
Directors
John Ryan 35 Vice President of Corporate
Development and a member of the
Board of Directors
Thomas Henricksen 50 Secretary and a member of the Board
of Directors
Jerry Stacey 52 Vice President of Operations
Ronald Kitching 66 Member of the Board of Directors
Kevin Stulp 41 Member of the Board of Directors
The authorized number of directors of the Company is presently
fixed at ten. Each director serves for a term of one year that expires
at the following annual shareholders' meeting. Each officer serves at
the pleasure of the Board of Directors and until a successor has been
qualified and appointed. There are no family relationships, or other
arrangements or understandings between or among any of the directors,
executive officers or other person pursuant to which such person was
selected to serve as a director or officer.
Set forth below is certain biographical information regarding each
director and executive officer of the Company:
Howard M. Crosby - President and a member of the Board of Directors.
Since February 1994, Mr. Crosby is the President and a member of
the Board of Directors. Since 1989, Mr. Crosby has been president of
Crosby Enterprises, Inc., a family-owned business advisory and public
relations firm. From September 1992 to May 1993, Mr. Crosby was
employed by Digitran Systems, Inc., of Logan, Utah, in the marketing
department. In May of 1993, Mr. Crosby entered into a business
consulting relationship with Centurion Mines Corporation, and has
<PAGE> 54
served as president and director of Mammoth Mining Company and Gold
Chain Mining Company, both Centurion subsidiaries. In July, 1992, Mr.
Crosby filed a Chapter 13 petition for bankruptcy. The reorganization
plan was approved in October 1992. Mr. Crosby received a B.A. degree
from the University of Idaho in 1974.
Robert E. Jorgensen - Executive Vice President, Treasurer and a member
of the Board of Directors
Since August 1995, Mr. Jorgensen has been the Executive Vice
President, Treasurer and a member of the Board of Directors of the
Company. Mr. Jorgensen has served as vice-president, secretary and
director of Celebration Mining Company, a Nevada public company. From
1987 to 1991, Mr. Jorgensen was an investment broker and owner of RCL
Northwest, Inc., a regional investment firm. Mr. Jorgensen was a
broker with Cohig & Associates, Inc., from January 1992 to May 1992.
In May 1992, Mr. Jorgensen retired from the brokerage business and has
since been a private investor. Mr. Jorgensen filed for protection
under Chapter 7 of the Bankruptcy Code in August 1992. Mr. Jorgensen
received a degree in Business Administration from the University of
Idaho.
John Ryan - Vice President of Corporate Development and a member of the
Board of Directors
Since April 8, 1997, Mr. Ryan has been a member of the Board of
Directors and since September 1996, Mr. Ryan has been Vice President of
Corporate Development. Mr. Ryan is a professional mining engineer.
Mr. Ryan has served as a consultant in mine engineering services, and
will continue in these activities during his tenure, as well as, engage
in other matters in accordance with the direction and assignment of the
Board of Directors. In addition to his professional degree in Mining
Engineering, which he received from the University of Idaho, Mr. Ryan
also holds a juris doctorate (J.D.) law degree from the Boston College
School of Law.
Thomas Henricksen - Secretary and a member of the Board of Directors
Since February 5, 1997, has been the Secretary and a member of the
Board of Directors of the Company. Mr. Henricksen is a professional
geologist who is currently working as an independent consulting
geologist specializing in precious and base metal exploration projects
in North and South America. From 1991 to July 1996, Mr. Henricksen was
regional manager for Kennecott Exploration, where he was responsible
for overseeing all exploration activities in Alaska and the Pacific
Northwest. Prior to working for Kennecott, Mr. Henricksen was senior
geologist for U.S. Borax from 1977 to 1991. Mr. Henricksen holds a
Ph.D. in economic geology from Oregon State University and a B.S.
degree in geology from the University of Wisconsin-Oshkosh.
<PAGE> 55
Jerry Stacey - Vice President of Operations.
Since August 1995, Mr. Stacey has been the Vice President of
Operations. Mr. Stacey is a professional mining engineer with over 20
years experience in open pit and underground mining. Between 1974 and
1981, Mr. Stacey worked in senior supervisory positions as a Shift
Foreman for the Anaconda Company; as mine superintendent for Day Mines
at the Sherman Mine, mining 1,000 tons per day of silver ore; as mine
manager for Choctaw Mining supervising the construction and operation
of a tungsten mine and mill complex; as mine manager for Mountain
Mineral's barite mines in British Columbia; and as a mine manager at
the Goodnews Bay platinum placer operation. In 1981, Mr. Stacey formed
General Mine Services Corp., a mine consulting and contracting firm for
junior mining and exploration companies, where he continued as CEO
until 1994, when he joined with Celebration Mining Company and has
continued full time as Vice President of Operations with the Company.
His current responsibilities focus on the engineering, design,
installation, and operation of complete mine and metallurgical plants
involving base and precious metals and industrial minerals. Mr. Stacey
received a B.S. Degree in Mining Engineering from Montana Tech in 1974
while working in Butte, Montana mines.
Ronald Kitching - Member of the Board of Directors.
Since August 1995, Mr. Kitching has been a member of the Board of
Directors of the Company. Prior to his retirement five years ago, Mr.
Kitching was involved in the mining industry for over 35 years holding
various positions, including serving as president of Overland Drilling
Company, an Australian exploration drilling company, and as co-founder
of Glindeman-Kitching Enterprises, an exploration drilling company.
Mr. Kitching has served as a director for Celebration Mining Company
since May 1994.
Kevin Stulp - Member of the Board of Directors
Mr. Stulp was appointed to the Board of Directors of the Company
to fill the vacancy created by the resignation of Hal Cameron. Since
August 1995, Mr. Stulp has been an independent consultant in the fields
of volume electronics and manufacturing, general business consulting,
business strategy, business use of the Internet, automation and
integration through computers, and financial analysis. From July 1994
to July 1995, Mr. Stulp was Director of Manufacturing Reengineering for
Compaq Computer Corporation, Houston, Texas. From September 1992 to
June 1994, Mr. Stulp was Director of Manufacturing for Compaq Computer
Corporation. From September 1986 to September 1992, Mr. Stulp was PCA
Operations Manager for Compaq Computer Corporation. From December 1983
to September 1986, Mr. Stulp held various positions with Compaq
Computer Corporation, including industrial engineer, new products
planner and manufacturing manager. From July 1980 to December 1983,
Mr. Stulp was a financial planner with Texas Instruments, Houston,
<PAGE> 56
Texas. Mr. Stulp holds the degree of Masters in Business
Administration and the degree of Bachelor of Science Mechanical
Engineering, both from the University of Michigan, and the degree of
Bachelor of Science from Calvin College, Grand Rapids, Michigan.
Indemnification
The Company's Bylaws provide that the Company's directors and
officers will be indemnified to the fullest extent permitted by the
Utah Corporation Code, however, such indemnification shall not apply to
acts of intentional misconduct; a knowing violation of law; or, any
transaction where an officer or director personally received a benefit
in money, property, or services to which to the director was not
legally entitled.
The Company has been advised that in the opinion of the
Securities and Exchange Commission indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is,
therefore, unenforceable.
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CERTAIN TRANSACTIONS
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Certain of the directors and/or officers of the Company also serve
as directors and/or officers of other companies involved in natural
resource exploration and development and, consequently, there exists
the possibility for such directors and officers to be in a position of
conflict. Any decision made by such directors and officers involving
the Company, as the case may be, will be made in accordance with their
duties and obligation to deal fairly and in good faith with the Company
and such other companies. In addition, such directors and officers are
required to declare and refrain from voting on any matter in which such
directors and officers may have a conflict of interest. In this
respect, Howard Crosby, who was the President of Celebration and of the
Company at the time of the Reorganization, refrained from voting on any
matter related to the Reorganization or any other matter pertaining to
both companies.
The Company has engaged in transactions with its officers,
directors and principal shareholders, including the issuance of the
initial shares of the Company. Such transactions may be considered as
not having occurred at arm's length. The Company may be engaged in
transactions with management and others involving conflicts of
interest, including conflicts on salaries and other payments to such
parties, as well as business opportunities which may arise. In this
regard, the directors of the Company are involved in other companies
and may have conflicts of interest in allocating time between the
Company and other entities to which they are affiliated.
<PAGE> 57
Relationships and Transactions Pertaining to the Company.
During Fiscal 1994, the Company carried over the previous balance
owed by Centurion of $5,055 and loaned Centurion $8,075, resulting in
cumulative total advances made by the Company to Centurion of $13,130.
Also during Fiscal 1994, Centurion accrued $54,335 of the Company's
taxes, loaned $83,700 to the Company, and paid $140,932 of the
Company's expenses (including certain land costs), resulting in total
advances made by Centurion to the Company of $278,967. Centurion
repaid these and previous amounts by paying certain of the Company's
expenses and by transferring to the Company $467,236 of mineral
properties. Thus, for Fiscal 1994 transactions between the Company and
Centurion, including balance carryovers, the net cumulative result was
a balance of $265,838 owed by the Company to Centurion.
During Fiscal 1995, Centurion made net total advances to the
Company of $38,086. The net result was a balance of approximately
$300,000 owed by the Company to Centurion, which the Company repaid
prior to the end of Fiscal 1995 by issuing 200,000 shares of its common
stock to Centurion at the then prevailing market price of $1.50 per
share.
Relationships and Transactions Pertaining to Celebration.
In May 1994, Celebration issued, pursuant to Board resolution, an
aggregate of 1,000,000 shares of common stock to Extol International
Corporation, an affiliate of Howard M. Crosby, an officer and director
of the Company, and 500,000 shares of Common Stock to Robert Jorgensen,
an officer and director of the Company, in exchange for a transfer of
the rights under an option on the Montana Property. Messrs. Crosby and
Jorgensen are considered founders of the Company. The Company has not
received a fairness opinion or other valuation of the rights
transferred in exchange for the shares issued to Mr. Jorgensen and
Extol International Corporation. The cost basis of the rights under
the Montana Property was estimated to be $4,000. The perceived value
of the shares issued was determined as of the time of transfer by
Messrs. Crosby and Jorgensen as sole officers and directors of the
Company. The determination was not based on arms length negotiations.
In June 1994, the Company repaid to Crosby Enterprises, Inc., an
affiliate of Howard M. Crosby, $20,000 for funds advanced on the
Montana Property prior to the transfer of the rights under the option
to the Company.
In August 1994, Celebration issued 100,000 shares of Common Stock
to Ronald Kitching, a director, as compensation for his services as a
director. Messrs. Crosby and Jorgensen also received compensation from
the Company as executive officers.
<PAGE> 58
In August 1994, Thomas Miller, a director of Celebration until
August 8, 1995, received options to purchase up to 400,000 shares as
compensation for his consulting services in field exploration
management through August 1995. Mr. Miller was also an officer,
director and principal shareholder of United Silver Mines, Inc., the
Company's Joint Venture Partner on the Vipont Property and its
subsidiary, Bannock Silver Mining Company.
- ---------------------------------------------------------------------
MANAGEMENT REMUNERATION
- ---------------------------------------------------------------------
Summary Compensation.
The following table sets forth the compensation paid by Royal
during each of the last three fiscal years to its Chief Executive
Officer, and to the other four most highly compensated officers and
executive officers, but only if the total annual salary and bonus of
any such executive officer exceeded $100,000 for Fiscal 1995 (the
"Named Executive Officers"). This information includes the dollar
value of base salaries, bonus awards and number of stock options
granted, and certain other compensation, if any.
<TABLE> SUMMARY COMPENSATION TABLE
<CAPTION>
(a) (b) (c) (d) (e) (f)[1] (g) (h) (i)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crosby 1996 $78,000 $0 $0 $ 0 0 $0 $0
President 1995 $48,000 $0 $0 $ 0 0 $0 $0
1994 $16,000[2] $0 $0 $40,000 0 $0 $0
1993 $0 $0 $0 $ 0 0 $0 $0
Named Executive
Officers
- ------
None n/a n/a n/a n/a n/a n/a n/a n/a
</TABLE>
(a) Name and principal position. (b) Year.
(c) Salary($)(1). (d) Bonus($).
(e) Other annual compensation($).
Long-Term Compensation.
Awards. (f) Restricted stock.
(g) Options.
Payouts.
(h) LTIP payouts($). (i) All other compensation.
[1] The above shares were issued for Directors fees, for service to
the Company. No awards were made for service to Celebration.
[2] This represents salary received as an officer of Celebration,
$4,000 per month, beginning with June 1994.
<PAGE> 59
Other than the Company's Stock Option and Award Plan, there are no
retirement, pension, or profit sharing plans for the benefit of the
Company's officers and directors.
Option/SAR Grants Table.
Information concerning individual grants of stock options, whether
or not in tandem with stock appreciation rights ("SARs"), and
freestanding SARs made during Fiscal 1996 to the CEO and each of the
Named Executive Officers, if any, is reflected in the table below.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Alterative to
Annual Rates of Stock (f) and (g)
Price Appreciation Grant Date
Individual Grants for Option Term Value
(a) (b) (c) (d) (e) (f) (g) (h)
Number of Percent of
Securities Total Options/ Grant
Underlying SARs Granted Exercise Expira- Date
Options/SAR to Employees or Base tion Present
Name Granted (#) in Fiscal Year Price Date 5%($) 10%($) Value $
<S> <C> <C> <C> <C> <C> <C> <C>
Crosby 0 0 n/a n/a n/a n/a n/a
Named Executive
Officers
None n/a n/a n/a n/a n/a n/a n/a
</TABLE>
Aggregated Option/SAR Exercises and Fiscal 1996 Year-End
Option/SAR Value Table. The following table sets forth certain
information with respect to each exercise, if any, of stock options and
SARs during Fiscal 1996 by the CEO and each of the Named Executive
Officers, if any, and the Fiscal 1996 year-end value of unexercised
options and SARs. The dollar values in columns (c) and (e) are
calculated by determining the difference between the fair market value
of the underlying stock and the exercise price or base price of the
options at exercise or Fiscal 1996 year-end, respectively. The stock's
fair market value on September 30, 1996 was $1.1875 per share. There
are no outstanding option awards to management. Even if there were, it
is possible they might never be exercised. Actual gains realized, if
any, on stock option exercises and Common Stock holdings are dependent
on the future performance and value of the Common Stock and overall
stock market conditions. There can be no assurance that projected
gains and values would be realized.
<PAGE> 60
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996
AND OPTION/SAR VALUES AT SEPTEMBER 30, 1996
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End($)
Dollar
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
Crosby 0 $0 0/0 0/0
Executive
Officers
None n/a n/a n/a n/a
</TABLE>
Long-Term Incentive Plan Awards.
The Company does not have any formalized long-term incentive plan
(excluding restricted stock, stock option and SAR plans) that provides
compensation intended to serve as incentive for performance to occur
over a period longer than one fiscal year, whether such performance is
measured by reference to financial performance of the Company or an
affiliate, the Company's stock price, or any other measure.
Compensation of Directors.
Directors receive for their services a retainer fee payable in
shares of the Company's Common Stock, currently at the rate of 2,500
shares per quarter of completed service. During Fiscal 1996, 150,000
shares were awarded to directors as compensation. The Board has not
implemented a plan to award options, authorized under the Company's
Stock Option and Award Plan and none have been granted. There are no
contractual arrangements with any member of the Board of Directors,
other than the employment and salary arrangements for compensating two
of its members for their service as executive officers: Howard Crosby
as President and CEO, and Robert Jorgensen as Executive Vice President
and Treasurer.
Compensation Committee Interlocks and Insider Participation.
There are no compensation committee interlocks. With respect to
insider participation, Howard Crosby, Hal Cameron and Carlos Chavez,
participated in deliberations of the Company's Board of Directors
during Fiscal 1996, concerning executive officer compensation.
<PAGE> 61
Board of Directors Report on Executive Compensation.
The following is a summary of the Board of Directors Report:
It is the Board's responsibility to review and set compensation
levels of the executive officers of the Company, evaluate the
performance of management and consider management appointments and
related matters. All decisions are decisions of the full Board. The
Board considers the performance of the Company and how compensation
paid by the Company compares to compensation generally in the mining
industry and among similar companies. In establishing executive
compensation, the Board bases its decisions, in part, on achievement
and performance regarding broad-based objectives and targets relating
to the continued acquisition of favorable silver properties and the
progress of exploration and development of such properties, as well as
the Company's financial performance.
For Fiscal 1996, the Company's executive compensation policy
consisted of two elements: base salary and stock awards. The policy
factors which determine the setting of these compensation elements are
largely aimed at attracting and retaining executives considered
essential to the Company's long-term success. The granting of stock is
designed as an incentive for executives to keep management's interests
in close alignment with the interests of shareholders. The Company's
executive compensation policy seeks to engender committed leadership to
favorably posture the Company for continued growth, stability and
strength of shareholder equity.
The Company paid salaries to its officers for the fiscal year-
ended September 30, 1996, as follows:
<TABLE>
<S> <C>
Howard Crosby, $78,000 yearly
President
Robert Jorgensen, $72,000 yearly
Executive Vice President
and Treasurer
Jerry Stacey, $70,000 yearly
Vice President of Operations
John Ryan, $48,000 yearly
Vice President of Corporate
Development
</TABLE>
These amounts were approved by the Board in recognition of the
work and efforts and in completing the acquisition of a large number of
silver mining properties prior to the end of Fiscal 1996.
<PAGE> 62
Further, the Board recognized the significant role of these four
individuals in managing the Company's principal office in Spokane,
Washington and in raising funds for the Company's exploration and
development activities. Finally, the Board of Directors took into
account the reasonableness of these salaries in comparison with
Executive salaries within the mining region. On the basis of the above
factors, the Board determined that these salaries were proper and
fitting. No other officers received a salary during Fiscal 1996.
With respect to stock awards during Fiscal 1996, the Board of
Directors did not change the amount of shares, 2,500 per quarter, which
each director is entitled to receive as partial compensation for
service to the Company.
The Board believes that executive compensation during Fiscal 1996
substantially reflects the Company's compensation policy and the Board
anticipates paying a like sum during the fiscal year ending September
30, 1997.
On January 8, 1997, the Company filed a Form S-8 Registration
Statement with the Commission registering 831,775 shares of Common
Stock for resale by certain shareholders of the Company. The Form S-8
is incorporated herein by reference as if set forth in full.
- ---------------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
- ---------------------------------------------------------------------
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth as of October 4, 1996, the
beneficial ownership of Common Stock with respect to: (1) All persons
known to the Company to be the beneficial owners of more than five
percent of the outstanding shares of Common Stock (the "Principal
Shareholders"); (2) Each director and director nominee of the Company;
(3) Each Named Executive Officer (as that term is defined in the
section entitled "Executive Compensation," below) who is listed in the
"Summary Compensation Table," below; and, (4) All directors and
executive officers as a group. At August 31, 1997, the number of
shares of common stock of the Company issued and outstanding was
13,406,732.
<PAGE> 63
<TABLE>
<CAPTION>
50% of 100% of
Common Stock Number of Percent Offering Offering
Beneficially Owned Shares of Class Sold [7] Sold [8]
1. Name and Address of
Principal Shareholders
<S> <C> <C> <C> <C>
Centurion Mines Corporation 1,146,180 8.55% 6.99% 5.91%
331 South Rio Grande, Suite 201
Salt Lake City, UT 84101
Howard Crosby [1] 606,000 4.52% 3.69% 3.12%
105 N. First, Suite 232
Sandpoint, ID 83864
Robert E. Jorgensen [2] 587,000 4.38% 3.58% 3.02%
2719 W. Strong Rd.
Spokane, WA 99208
Britannia Holdings Ltd. [3] 2,135,000 15.92% 13.01% 11.00%
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
2. Directors
Howard Crosby [1] 606,000 4.52% 3.69% 3.12%
Robert E. Jorgensen [2] 587,000 4.38% 3.58% 3.02%
Thomas Henricksen [4] 5,500 0.04% 0.03% 0.03%
John Ryan [5] 30,000 0.22% 0.18% 0.15%
Ronald Kitching 157,500 1.17% 0.96% 0.81%
Kevin Stulp 164,000 1.22% 1.00% 0.85%
3. Named Executive Officers (Excluding
Any Director Named Above)
Jerry Stacy [6] 22,800 0.17% 0.14% 0.12%
4. All Directors and Executive Officers
as a Group (7 Persons) 1,572,800 11.72% 9.58% 8.10%
</TABLE>
All shares are owned beneficially and of record, unless otherwise
noted.
[1] Mr. Crosby is a director, executive officer and 50% shareholder of
Extol International Corp., a privately-held Washington
corporation. As a 50% shareholder, Mr. Crosby holds indirect
beneficial ownership of one-half of the restricted shares retained
by Extol following the closing of the share exchange with
Celebration. Also, the Board approved the release of a previously
authorized grant of 200,000 restricted shares to Crosby
Enterprises, Inc. for its work in putting together for the Company
no fewer than five major business proposals, culminating in the
reorganization with Celebration. Mr.
Crosby holds indirect beneficial ownership of those restricted
shares as a director, executive officer and majority shareholder
of Crosby Enterprises, a private, closely-held Washington
corporation. Mr. Crosby holds all remaining shares in his name,
15,000 shares of which he received in Fiscal 1995 as partial
compensation for his service as a director and executive officer.
<PAGE> 64
Does not include Warrants to purchase 850,000 shares of Common
Stock.
[2] The Company notes that in addition to the awards of shares for his
service as a director and officer of the Company, Mr. Jorgensen
initially received 550,000 restricted shares as part of the share
exchange with Celebration. Does not include Warrants to purchase
550,000 shares of Common Stock.
[3] Does not include Warrants to purchase 2,135,000 shares of Common
Stock.
[4] Does not include Warrants to purchase 125,000 shares of Common
Stock.
[5] Does not include Warrants to purchase 200,000 shares of Common
Stock.
[6] Does not include Warrants to purchase 300,000 shares of Common
Stock.
[7] Does not include Warrants issued in connection with this offering
to purchase up to 3,000,000 shares of Common Stock.
[8] Does not include Warrants issued in connection with this offering
to purchase up to 6,000,000 shares of Common Stock.
- ---------------------------------------------------------------------
DESCRIPTION OF THE SECURITIES
- ---------------------------------------------------------------------
Description of Units
Each Unit consists of one (1) share of the Company's Common Stock,
$0.01 par value per share, and one (1) Redeemable Common Stock Purchase
Warrant (the "Redeemable Warrants"). Each Redeemable Warrant
("Redeemable Warrant") entitles the holder to purchase one share of
Common Stock at a price of $1.40, until September 1, 2000. The
Warrants are callable by the Company upon thirty (30) days written
notice provided that the bid price of the Company's Common Stock trades
above $3.00 for ninety (90) consecutive trading days. No fractional
shares will be issued upon exercise of the Redeemable Warrants. The
exercise price of the Redeemable Warrants is subject to adjustment in
certain cases and the Company has the option of extending the
Redeemable Warrant exercise dates. The Common Stock and Redeemable
Warrants will be separately transferable immediately upon issuance.
The Company is presently authorized to issue 100,000,000 shares of
its $0.01 par value Common Stock. Presently 13,406,732 shares are
issued and outstanding and a maximum of 6,000,000 Units are offered for
sale pursuant to this Prospectus. The holders of the Company's Common
<PAGE> 65
Stock are entitled to one vote per share on each matter submitted to
vote at any meeting of shareholders. Shares of Common Stock do not
carry cumulative voting rights and, therefore, a majority of the
outstanding Common Stock will be able to elect the entire Board of
Directors and, if they do so, minority shareholders would not be able
to elect any members to the Board of Directors. Upon the close of the
offering, the public shareholders may be able to elect the Board of
Directors.
Rights of Common Stock Shareholders
Shares of Common Stock do not carry cumulative voting rights and,
therefore, a majority of the outstanding Common Stock will be able to
elect the entire Board of Directors and, if they do so, minority
shareholders would not be able to elect any members to the Board of
Directors. See "Capitalization" and "Risk Factors - Cumulative Voting,
Preemptive Rights and Control."
Shareholders of the Company have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common
Stock is not subject to redemption and carries no subscription or
conversion rights. In the event of liquidation of the Company, the
shares of Common Stock are entitled to share equally in corporate
assets after satisfaction of all liabilities. The shares of Common
Stock, when issued, will be fully paid and non-assessable.
There are no outstanding options, warrants or rights to purchase
shares of the Company's Common Stock, other than as disclosed herein.
Dividends
Holders of Common Stock are entitled to receive such dividends as
the Board of Directors may from time to time declare out of funds
legally available for the payment of dividends. The Company seeks
growth and expansion of its business through the reinvestment of
profits, if any, and does not anticipate that it will pay dividends in
the foreseeable future.
Description of Redeemable Warrants
The Redeemable Warrants will be issued under warrant certificates
(the "Warrant Certificate") to be dated as of the date of this
Prospectus, between the Company and OTC Stock Transfer, as Warrant
Agent (the "Warrant Agent"). A copy of the Redeemable Warrant
Certificate is filed as an exhibit to the registration statement and
also may be examined at the office of the Company or of the Warrant
Agent. The following summary of certain provisions of the Warrant
Certificate does not purport to be complete and is qualified in its
entirety by reference to the Warrant Certificates.
<PAGE> 66
Each Redeemable Warrant entitles the holder to purchase one share
of Common Stock at a price of $1.40 per share, until September 1, 2000.
The Redeemable Warrants are callable by the Company upon thirty (30)
days written notice provided that the bid price of the Company's Common
Stock is above $3.00 per share for ninety (90) consecutive trading
days. At the time a Redeemable Warrant is exercised, the exercise
price for the Redeemable Warrant shall be paid in full. Prior to
expiration, the Redeemable Warrants may be exchanged, transferred or
exercised by the registered Warrantholder by presenting the Redeemable
Warrants to the Warrant Agent. See "Risk Factors - Redeemable
Warrants."
The Redeemable Warrants do not confer on the holders thereof any
voting or other rights of a stockholder of the Company.
The Company will have authorized and reserved for sale the stock
purchasable upon exercise of the Redeemable Warrants. When delivered,
such shares of stock shall be fully paid and non-assessable.
The Exercise Price and the number of shares issuable upon exercise
of the Redeemable Warrants are subject to adjustment upon the
occurrence of certain events, including the issuance of any Common
Stock as a dividend or any stock split or reverse split as a dividend.
Adjustments in the number of shares issuable or in the Exercise Price
or both shall also be made in the event of any merger other
reorganization.
The Warrant Certificates will provide that the Company and the
Warrant Agent may, without the consent of the holders of the Redeemable
Warrants, make changes in the Warrant Certificates which do not
adversely effect, alter or change the rights, privileges or immunities
of the registered holders of the Redeemable Warrants.
The Company may pay a solicitation fee of 10% of the exercise
price of the Warrants to any NASD registered representative who, if
after one year from the effective date of the registration statement
the Warrants are called, causes the exercise thereof prior to the
expiration as set forth in the Warrant Agreement, subject however, to
the provisions of the NASD Notice to Members 81-38 (September 22,
1981). NASD Notice to Member 81-38 provides that an NASD registered
representative may not receive compensation as a result of any of the
following transactions: (1) the exercise of Redeemable Warrants where
the market price of the underlying security is lower than the exercise
price; (2) the exercise of Redeemable Warrants held in any
discretionary account (3) the exercise of Redeemable Warrants where
disclosure of compensation arrangements has not been made in documents
provided to customers both as part of the original offering and at the
time of exercise; and, (4) the exercise of Redeemable Warrants in
unsolicited transactions.
<PAGE> 67
Unless granted an exemption from Rule 10b-6 of the Securities and
Exchange Act of 1934, the Selling Agent and any soliciting
broker/dealers will be prohibited from engaging in any market making
activities with regards to the Company's securities for the period from
nine (9) business days prior to any solicitation of the exercise of any
Warrants until the later of the termination of the solicitation
activity or the termination (by waiver or otherwise) of any right that
the Selling Agent and soliciting broker/dealers may have to receive a
fee for the exercise of Warrants following such solicitation. As a
result, the Selling Agent and soliciting broker/dealers may be unable
to continue to provide a market for the Company's securities during
certain periods while the Warrants are exercisable.
Other Warrants
Currently, there are Warrants to purchase 6,686,666 shares of
Common Stock at various prices. The foregoing number does not include
the Redeemable Warrants which are part of this offering.
Preferred Stock.
10,000,000 shares of preferred stock, $0.01 par value (the
"Preferred Shares") are authorized for issuance. No Preferred Shares
are issued and outstanding and there are no plans to issue any
Preferred Shares at the present time. The relative rights,
preferences, designations, rates, conditions, privileges, limitations,
dividend rates, conversion rights, preemptive rights, voting rights,
rights and terms of redemption, liquidation preferences and sinking
terms thereof shall be determined by the Board of Directors, without
any further vote or action by shareholders. The Board of Directors,
without shareholder approval may issue Preferred Shares with dividend
rights, liquidation preferences or other rights that are superior to
the rights of holders of Common Stock.
Transfer Agent
OTC Stock Transfer, 2310 East 2100 South, Salt Lake City, Utah
84115 is the transfer agent for the Company's $0.01 par value Common
Stock and Redeemable Warrants.
The Company's Common Stock is traded on the Bulletin Board
operated by the National Association of Securities Dealers, Inc. under
the symbol RSMI. The prices listed below were obtained from the
National Quotation Bureau, Inc., and are the highest and lowest bids
reported during each fiscal quarter for the period December 31, 1994,
through September 30, 1996. These bid prices are over-the-counter
market quotations based on interdealer bid prices, without markup,
markdown, or commission and may not necessarily represent actual
transactions:
<PAGE> 68
<TABLE>
Fiscal Quarter Ended High Bid ($) Low Bid ($)
- -------------------- ------------ -----------
<S> <C> <C>
December 31, 1994 4.125 3.000
March 31, 1995 2.500 1.125
June 30, 1995 3.750 0.875
September 29, 1995 3.124 2.750
December 31, 1995 2.87 2.43
March 31, 1996 2.75 2.25
June 30, 1996 2.94 1.62
September 30, 1996 2.12 1.00
December 31, 1996 1.35 0.75
March 31, 1997 1.56 0.91
June 30, 1997 1.15 0.63
</TABLE>
On September 21, 1997, the average of the high bid and low ask
quotation for the Company's common shares as quoted on the NASDAQ
Bulletin Board was $0.75.
The approximate number of holders of common stock of record on
September 21, 1997, was 605.
Since its inception, the Company has not paid any dividends on its
common shares. The Company does not anticipate that dividends will be
paid in the foreseeable future.
There is no market for the Redeemable Warrants and none is
expected to develop. In the event a market for the Redeemable Warrants
develops, the shares of Common Stock and Redeemable Warrants may be
traded separately. See "Risk Factors - No Market for the Warrants."
- ---------------------------------------------------------------------
PLAN OF OFFERING
- ---------------------------------------------------------------------
The Company through its Officers and Directors is offering to the
public 6,000,000 Units of the Company consisting of one (1) share of
$0.01 par value Common Stock, and one (1) Redeemable Common Stock
Warrant. The Units are offered on a "best efforts - no Units minimum -
6,000,000 Units maximum" basis, at a purchase price of $0.75 per Unit.
The Company will use its best efforts to find purchasers for the Units
offered hereby within a period of ninety (90) days from the date of
this Prospectus, subject to an extension for an additional period not
to exceed ninety (90) days (a total of one hundred eighty (180) days).
The Company's Officers and Directors will receive no commissions or any
other form of remuneration in connection with the sale of the Units.
<PAGE> 69
The Company may utilize the services of registered broker/dealers
(the "Selling Agents") who are licensed members of the National
Association of Securities Dealers (the "NASD") to sell the Units
offered hereby. In that event, such Selling Agents will receive up to
ten percent (10%) of the purchase price as expenses and sales
commissions. If no Selling Agents are utilized, the net proceeds to
the Company of the offering will be increased accordingly and added to
the Company's working capital.
The Company has not received any indications of interest from any
member of the NASD. No assurance can be given that any NASD member
will participate in the offering, and even if they do participate there
is no commitment as to the actual amount of participation.
- ---------------------------------------------------------------------
LITIGATION
- ---------------------------------------------------------------------
The Officers and Directors of the Company certify that to the best
of their knowledge, neither the Company nor any of its Officers and
Directors are parties to any legal proceeding or litigation. Further,
the Officers and Directors know of no threatened or contemplated legal
proceedings or litigation. None of the Officers and Directors have
been convicted of a felony or none have been convicted of any criminal
offense, felony and misdemeanor relating to securities or performance
in corporate office. To the best of the knowledge of the Officers and
Directors, no investigations of felonies, misfeasance in office or
securities investigations are either pending or threatened at the
present time.
- ---------------------------------------------------------------------
LEGAL MATTERS
- ---------------------------------------------------------------------
Legal matters in connection with the Common Stock of the Company
to be issued in connection with the offering will be passed upon for
the Company by Conrad C. Lysiak, Attorney and Counselor at Law, West
601 First Avenue, Suite 503, Spokane, Washington 99204.
- ---------------------------------------------------------------------
EXPERTS
- ---------------------------------------------------------------------
The financial statements of the Company appearing in this
Prospectus and the Registration Statement have been examined by the
accounting firm of Williams & Webster, P.S., Certified Public
Accountants, 601 West Riverside, Suite 1970, Spokane, Washington 99201,
as indicated in its report contained herein. Such financial statements
are included in this Prospectus in reliance upon the said report, given
upon such firm's authority as an expert in auditing and accounting.
<PAGE> 70
- ---------------------------------------------------------------------
ADDITIONAL INFORMATION
- ---------------------------------------------------------------------
The Company has filed with the Securities and Exchange Commission,
450 Fifth Street, N.W. Washington D.C. 20549, a registration statement
under the Act, as amended with respect to the Units offered hereby.
This Prospectus does not contain all of the information set forth in
the registration statement, exhibits and schedules thereto. For
further information with respect to the Company and the Units,
reference is made to the registration statement, exhibits and
schedules, copies of which may be obtained from the Commission's
principals officers in Washington, D.C., upon payment of the fees
prescribed by the Commission.
<PAGE> 71
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Audited Financial Statements
September 30, 1996 and 1995
<PAGE> 72
C O N T E N T S
Independent Auditors' Reports . . . . . . F-1
Balance Sheets . . . . . . . . . F-2
Statements of Operations . . . . . . . . F-3
Statements of Stockholders' Equity . . . . . . F-4
Statements of Cash Flows . . . . . . . F-10
Notes to the Financial Statements . . . . . . F-13
<PAGE> 73
Williams & Webster, P.S.
Certified Public Accountants
Seafirst Financial Center
601 W. Riverside, Suite 1970
Spokane, WA 99201-0611
Tel: (509) 838-5111
Fax: (509) 624-5001
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Royal Silver Mines,
Inc. (a development stage company) as of September 30, 1996, and the
related statements of operations, shareholders' equity, and cash flows
for the year then ended, and from inception on February 17, 1994
through September 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Royal
Silver Mines, Inc. as of September 30, 1996, and the results of their
operations and their cash flows for the year then ended and from
inception on February 17, 1994 through September 30, 1996 in conformity
with generally accepted accounting principles.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
December 13, 1996
F-1
<PAGE> 74
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, September 30,
<S> 1996 1995
ASSETS <C> <C>
CURRENT ASSETS
Cash $ 688,716 $ 151,698
Note receivable 100,000 -
Interest receivable 333 -
Prepaid expenses 17,391 4,350
__________ ___________
TOTAL CURRENT ASSETS 806,440 156,048
__________ ___________
MINERAL PROPERTIES 4,785,665 3,869,515
PROPERTY AND EQUIPMENT
Furniture and equipment 15,802 11,629
Less - accumulated depreciation (2,809) (589)
__________ ___________
TOTAL PROPERTY AND EQUIPMENT 12,993 11,040
__________ ___________
OTHER ASSETS
Deferred debt issuance costs, net - 19,736
Organization costs, net 259 359
__________ ___________
TOTAL OTHER ASSETS 259 20,095
__________ ___________
TOTAL ASSETS $ 5,605,357 $ 4,056,698
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 25,135 $ 60,026
Payable to related parties 289 289
Accrued expenses 34,443 90,088
Notes payable 60,000 670,919
__________ __________
TOTAL CURRENT LIABILITIES 119,867 821,322
__________ ___________
LONG-TERM DEBT - -
COMMITMENTS AND CONTINGENCIES - -
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
10,649,854 and 7,757,063 shares
issued and outstanding,
respectively 106,499 77,571
Additional paid-in capital 8,436,808 4,120,540
Deficit accumulated during
development stage (3,057,817) 962,735
__________ ___________
TOTAL SHAREHOLDERS' EQUITY 5,485,490 3,235,376
__________ ___________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,605,357 $ 4,056,698
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 75
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period From
February 17,
1994
Ten months (inception)
Year ended ended through
September 30, September 30, September 30,
1996 1995 1996
_____________ _____________ _____________
<S> <C> <C> <C>
REVENUES $ - $ - $ -
___________ ___________ ___________
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral leases 8,122 843 8,965
Depreciation and amortization 35,736 59,822 98,069
Officers and directors compensation 492,715 209,733 831,948
Other administrative expenses 1,298,975 273,246 1,652,006
___________ ___________ ___________
Total expenses 1,835,548 543,644 2,590,988
___________ ___________ ___________
OPERATING LOSS (1,835,548) (543,644) (2,590,988)
___________ ___________ ___________
OTHER EXPENSES
Interest expense (9,534) (62,557) (72,091)
Loss on disposition of assets (200,000) (144,738) (344,738)
___________ ___________ ___________
Total other expenses (209,534) (207,295) (416,829)
___________ ___________ ___________
NET LOSS $(2,045,082) $ (750,939) $(3,007,817)
=========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.22) $ (0.17) $ (0.53)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,221,191 6,342,816 5,596,841
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 76
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance
02/17/94 - $ - $ - $ - $ -
_________ ________ _________ __________ __________
Issuance in
May 1994
of shares
at $.002
per share
to officers
and directors
in exchange
for assignment
of mining
property
option 2,250,000 22,500 (18,500) - 4,000
Issuance in
July 1994 of
shares for
cash at $.402
in private
placement, net
of costs 1,050,000 10,500 411,116 - 421,616
Issuance in
August 1994
of shares to
a director
in exchange
for services,
valued at
$.417 per
share 150,000 1,500 61,000 - 62,500
Net loss for
the year
ended
November
30, 1994 - - - (211,796) (211,796)
_________ ________ __________ __________ _________
Balance,
November 30,
1994 3,450,000 34,500 453,616 (211,796) 276,320
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4
<PAGE> 77
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance, forward
11/30/94 3,450,000 34,500 453,616 (211,796) 276,320
_________ ________ __________ __________ _________
Issuance of
shares in
debt offering
at $.03
per share 416,250 4,163 9,712 - 13,875
Issuance of
shares for
mineral
properties
valued at
$1.00 per
share 262,500 2,625 259,875 - 262,500
Issuance of
shares for
cash at $1.00
per share 15,000 150 14,850 - 15,000
Stock issuance
costs - - (58,202) - (58,202)
Issuance of
shares to
acquire
Consolidated
Royal Mines,
Inc. at $.15
per share 2,434,563 24,346 335,750 - 360,096
Issuance of
shares to
directors and
employees for
services at
prices ranging
from $2.00
to $2.50
per share 12,750 127 29,473 - 29,600
_________ ________ __________ __________ _________
Balance
forward 6,591,063 65,911 1,045,074 (211,796) 899,189
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5
<PAGE> 78
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 6,591,063 65,911 1,045,074 (211,796) 899,189
_________ ________ __________ __________ _________
Issuance of
shares in
exchange for
mineral
properties
at prices
ranging
from $3.13
to $3.25
per share 800,000 8,000 2,530,126 - 2,538,126
Issuance of
shares for
cash at
prices
ranging from
$1.50 to
$2.00 per
share 166,000 1,660 247,340 - 249,000
Issuance of
shares in
exchange for
debt at $1.50
per share 200,000 2,000 298,000 - 300,000
Net loss for
the ten
months ended
September
30, 1995 - - - (750,939) (750,939)
_________ ________ __________ __________ _________
Balance,
September 30,
1995 7,757,063 $ 77,571 $4,120,540 $ (962,735) $3,235,376
_________ ________ __________ __________ _________
Issuance of
shares for
cash at
$1.50 per
share 1,176,832 11,769 1,754,010 - 1,765,779
_________ ________ __________ __________ _________
Balance
forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6
<PAGE> 79
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION> Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 8,933,895 89,340 5,874,550 (962,735) 5,001,155
_________ ________ __________ __________ _________
Issuance of
shares to
directors and
employees for
services at
$1.50
per share 222,700 2,227 331,823 - 334,050
Issuance of
shares in
exchange for
debt and accrued
interest at $1.50
per share 406,050 4,060 605,015 - 609,075
Issuance of
shares for
cash at
$2.20
per share 150,000 1,500 328,500 - 330,000
Issuance of
warrants
for cash
at $.05 per
warrant - - 41,068 - 41,068
Issuance of
shares for
cash at
$1.62 per
share 65,000 650 104,650 - 105,300
Issuance of
shares for
cash to
directors and
employees
at prices
ranging
from $1.62
to $2.08 per
share 107,500 1,075 181,175 - 182,250
_________ ________ __________ __________ _________
Balance
forward 9,885,145 98,852 7,466,781 (962,735) 6,602,830
_________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-7
<PAGE> 80
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 9,885,145 98,852 7,466,781 (962,735) 6,602,830
_________ ________ __________ __________ _________
Issuance of
shares for
cash at
$0.75 per
share 200,000 2,000 147,985 - 149,985
Issuance of
shares for
cash at $1.70
per share 250,000 2,500 422,500 - 425,000
Cancellation
of 35,000
shares
received in
exchange for
return of
mining
property (35,000) (350) (109,025) - (109,375)
Payment to
Centurion Mines
for option to
repurchase
stock - - - (50,000) (50,000)
Issuance of
shares for
joint venture
in mining
property
at $1.50
per share 100,000 1,000 149,000 - 150,000
Repurchase of
25,000 shares
issued for
joint venture
at $1.40
per share (25,000) (250) (34,750) - (35,000)
_________ ________ __________ __________ _________
Balance
forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508
__________ ________ __________ __________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-8
<PAGE> 81
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
<TABLE>
<CAPTION>
Total
Common Stock Additional
Number Paid-in Accumulated Stockholders
of Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance,
forward 10,375,145 103,752 8,042,491 (1,012,735) 7,133,508
_________ ________ __________ __________ _________
Issuance of
shares for
mining
property
at $1.50
per share 20,000 200 29,800 - 30,000
_________ ________ __________ __________ _________
Issuance of
shares to
noteholders
for extension
of notes
at $1.50
per share 39,375 394 58,669 - 59,063
Issuance of
shares for
services at
$1.50 per
share 215,334 2,153 320,848 - 323,001
Stock
issuance
costs - - (15,000) - (15,000)
Net loss for
the year
ended
September
30, 1996 - - - (2,045,082) (2,045,082)
_________ ________ __________ __________ _________
Balance,
September 30,
1996 10,649,854 $106,499 $8,436,808 $(3,057,817) $5,485,490
========== ======== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-9
<PAGE> 82
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> From
February 17,
For the year For the Ten 1994 (Inception)
Ended Months Ended Through
September 30, September 30, September 30,
1996 1995 1996
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (2,045,082) $ (750,939) $ (3,007,817)
______________ ______________ ______________
Adjustments to reconcile
net loss to net cash used
by operating activities:
Depreciation and
amortization 35,736 59,822 100,616
Issuance of common stock
for services 657,051 29,600 749,151
Write-off of joint
venture costs 150,000 - 150,000
Changes in assets and liabilities:
Note receivable (100,000) - (100,000)
Interest receivable (333) - (333)
Prepaid expenses (13,041) 22,627 (17,391)
Other assets 19,836 (23,137) (3,801)
Accounts payable (34,891) 53,727 25,135
Accrued expenses (55,645) 90,088 34,443
Payable to
related parties - 300,289 300,289
______________ ______________ ______________
Net cash used in operating
activities (1,386,369) (217,923) (1,769,708)
______________ ______________ ______________
Cash flows from investing
activities:
Purchase and development of
mineral properties (979,043) (455,418) (1,604,836)
Purchase of
fixed assets (4,173) (11,629) (15,802)
______________ ______________ ______________
Net cash provided used in
investing activities (983,216) (467,047) (1,620,638)
______________ ______________ ______________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-10
<PAGE> 83
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION> From
February 17,
For the year For the Ten 1994 (Inception)
Ended Months Ended Through
September 30, September 30, September 30,
1996 1995 1996
<S> <C> <C> <C>
Cash flows from financing
activities:
Stock issuance and offering
costs (15,000) (58,202) (144,835)
Proceeds received on
long-term debt - 675,000 675,000
Payments made on
notes payable (40,000) (74,206) (114,206)
Issuance of common stock
for cash 2,958,314 264,000 3,659,814
Payment for option to re-
purchase stock (50,000) - (50,000)
Issuance of common
stock for accrued
interest 38,158 - 38,158
Issuance of common stock for
extension of notes payable
maturation 59,063 - 59,063
Payment for return of stock
issued for mining property
interest (35,000) - (35,000)
Payment of joint
venture costs (50,000) - (50,000)
Issuance of warrants
for cash 41,068 - 41,068
______________ ______________ ______________
Net cash provided by financing
activities 2,906,603 806,592 4,079,062
Net increase - cash $ 537,018 $ 121,622 $ 688,716
______________ ______________ ______________
Cash, beginning
of period 151,698 30,076 -
Cash, end of period $ 688,716 $ 151,698 $ 688,716
============= ============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11
<PAGE> 84 ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION> From
February 17,
For the year For the Ten 1994 (Inception)
Ended Months Ended Through
September 30, September 30, September 30,
1996 1995 1996
______________ ______________ ______________
<S> <C> <C> <C>
Supplemental cashflow disclosure:
Income taxes $ - $ 250 $ 350
Interest $ 5,715 $ 17,683 $ 23,398
Non-cash financing activities:
Common stock issued for
services rendered $ 657,051 $ 29,600 $ 749,151
Common stock issued
for mineral
properties $ 180,000 $ 2,800,626 $ 2,980,626
Common stock issued for
exchange for debt $ 570,917 $ 313,875 $ 922,950
Common stock issued in
acquisition of
Consolidated Royal
Mines, Inc. $ - $ 360,096 $ 360,096
Option rights acquired
in exchange for a
payable $ - $ - $ 79,000
Common stock issued for
assignment of mining
property options $ - $ - $ 4,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-12
<PAGE> 85 ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS.
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the State of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration was
organized on February 17, 1994 as a Washington Corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an Agreement and
Plan of Reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration control the company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of the
assets or liabilities of Royal in the exchange as the market value
approximated the net carrying value.
Royal is the acquiring entity for legal purposes and Celebration is the
surviving entity for accounting purposes.
The $4,785,665 cost of mineral properties included in the accompanying
balance sheet as of September 30, 1996 is related to exploration
properties. The Company has not determined whether the exploration
properties contain ore reserves that are economically recoverable. The
ultimate realization of the Company's investment in exploration
properties is dependent upon the success of future property sales, the
existence of economically recoverable reserves, the ability of the
Company to obtain financing or make other arrangements for development
and upon future profitable production. The ultimate realization of the
Company's investment in exploration properties cannot be determined at
this time and, accordingly, no provision for any asset impairment that
may result, in the event the Company is not successful in developing or
selling these properties, has been made in the accompanying financial
statements. F-13
<PAGE> 86
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS - continued.
The Company is actively seeking additional capital and management
believes the properties can ultimately be sold or developed to enable
the Company to continue its operations. However, there are inherent
uncertainties in mining operations and management cannot provide
assurances that it will be successful in this endeavor. Furthermore,
the Company is in the development stage as it has not realized any
significant revenues from its planned operations.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
Accounting Method.
The Company's financial statements are prepared using the accrual
method of accounting.
Loss Per Share.
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year The weighted
average number of shares was calculated by taking the number of shares
outstanding and weighing them by the amount of time they were
outstanding.
The outstanding warrants were not included in the computation of loss
per share because the exercise price of the outstanding warrants is
higher than the market price of the stock, thereby causing the warrants
to be antidilutive.
Cash Equivalents.
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Mineral Properties.
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights and
leases are expensed as incurred. When a property reaches the
production stage, the related capitalized costs will be amortized,
using the units of production method on the basis of periodic estimates
of ore reserves. Mineral properties are periodically assessed for
impairment of value and any losses are charged to operations at the
time of impairment.
F-14
<PAGE> 87
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued.
Mineral Properties - continued.
Should a property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion of
capitalized costs attributable to properties sold. Capitalized costs
are allocated to properties sold based on the proportion of claims sold
to the claims remaining within the project area.
Concentration of Risk.
The Company maintains its cash accounts in primarily one commercial
bank in Spokane, Washington. Accounts are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. The Company's
cash balance exceeds that amount by $588,716 at September 30, 1996.
Provision For Taxes.
At September 30, 1996, the Company had net operating loss carryforwards
of approximately $3,130,000 that may be offset against future taxable
income through 2011 No tax benefit has been reported in the financial
statements as the Company believes there is a 50% or greater chance the
net operating loss carryforwards will expire unused. Accordingly, the
potential tax benefits of the net operating loss carryforwards are
offset by a valuation allowance of the same amount.
Recently Issued Accounting Standards.
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets."
This new standard is effective for years beginning after December 15,
1995 and would change the Company's method of determining impairment of
long-lived assets. Although the Company has not performed a detailed
analysis of the impact of this new standard on the Company's financial
statements, the Company does not believe that adoption of the new
standard will have a material effect on the financial statements.
In October 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Stock-Based Compensation " (FAS 123).
The new statement is effective for fiscal years beginning after
December 15, 1995.
F-15
<PAGE> 88
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued.
Recently Issued Accounting Standards - continued.
FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options, and other
equity instruments to employees based on fair value. Companies that do
not adopt the fair value accounting rules must disclose the impact of
adopting the new method in the notes to the financial statements.
Transactions in equity instruments with non-employees for goods or
services must be accounted for on the fair value method. The Company
currently intends to adopt the fair value accounting prescribed by FAS
123. However, the Company intends to continue its analysis of FAS 123
to determine its ultimate effect in the future.
Restatement.
The restatement of the financial statements have resulted in certain
changes in presentation which have no effect on the net losses or
shareholder's equity for September 30, 1995 or the year then ended.
NOTE 3 - MINERAL PROPERTIES.
Utah Mining Property Joint Venture.
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the State
of Utah. Under the terms of the agreement, United contributed real
properties for an initial 75% interest in the joint venture, and
Celebration was to remove all liens associated with the real properties
by paying $175,000 to a bank which was the primary lien holder for its
initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned promissory
note. The property was auctioned in a public auction in May, 1995 and
by virtue of Celebration's first position lien, Celebration was able to
successfully bid the full amount of the underlying promissory note.
Although additional expenditures have been made on the property through
September 30, 1996, no further funds toward the joint venture have been
expended by Celebration, which owns an undivided 25% interest in the
property.
F-16
<PAGE> 89
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 3 - MINERAL PROPERTIES (Continued).
Shoshone County Idaho Mineral Lease.
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho state leases. In connection with this lease,
Celebration paid $50,000 and issued 175,000 shares of common stock. In
addition, 10,000 shares were issued to a new director for his
assistance in obtaining this lease. Celebration subsequently paid
$950,000 for the option of extending its lease for an additional
forty-nine years. When, and if, the property achieves gross sales of
$40,000,000, Celebration will be obligated to pay an additional .5%
royalty on future sales. Furthermore, beginning after September 1,
1995, and at such time as the average price of silver has reached $6.00
per ounce for a 30-day period, Celebration is obligated to spend not
less than $2,000,000 during the subsequent 36 months to de-water and
repair the mine. Thereafter, Celebration will be required to maintain
the mine in a condition to allow it to be put into production within
sixty days. There are certain claims by the U.S. Environmental
Protection Agency and the County on this property for which the lessor
is obligated to pay. In the event these claims are not satisfactorily
resolved, they may effect Celebration's rights to the property.
Australian Mineral Property Joint Venture.
In March 1995, Celebration entered into a joint venture agreement with
an Australian company for exploration of a certain mineral property in
Australia.
Under the original terms of the joint venture agreement, Celebration
acquired a 10% interest by paying $100,000 in April 1995. No
additional funds where paid or required to be paid subsequent to the
initial payment.
Washington and Idaho Mineral Properties.
During the year ended September 30, 1995, Celebration purchased through
the issuance of 800,000 shares of its common stock, various mineral
properties located in the States of Washington and Idaho. The mineral
properties were recorded at the fair market value of the shares paid on
the date of issuance ranging from $3.13 to $3.25 per share for a total
purchase price of $2,538,126.
F-17
<PAGE> 90
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 3 - MINERAL PROPERTIES (Continued).
In May 1996, the Company sold back the Frisco Standard Silver Mine to
its original seller in exchange for the same price (35,000 shares of
Royal stock) received by the seller when the mine was purchased. The
shares received were cancelled and no gain or loss was recorded on the
transaction.
The Company's proposed future mining activities will be subject to
laws and regulations controlling not only the exploration and mining of
mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may necessitate
additional capital outlays, affect the economics of a project, and
cause changes or delays in the Company's activities.
The total mineral properties at September 30, 1996 are
classified as follows:
Mineral properties under joint ventures $ 366,510
Other mineral properties 4,419,155
____________
Total Mineral Properties $ 4,785,665
============
The Company's mineral properties are valued at the lower of cost or net
realizable value.
NOTE 4 - PROPERTY AND EQUIPMENT.
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are expensed
as incurred. Depreciation of property and equipment is determined
using the straight-line method over the expected useful lives of the
assets of five years.
NOTE 5 - INTANGIBLE ASSETS.
Deferred debt issuance costs and organization costs are recorded at
cost. Amortization of these intangible assets is determined using the
straight-line method over the expected useful lives of the assets as
follows:
Description Useful Lives
___________________________ ____________
Deferred debt issuance costs 1 year
Organization costs 5 years
F-18
<PAGE> 91
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 6 - COMMON STOCK.
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.003 to $.625 per share, which is the fair market value of the shares
on the date of issuance.
During the year ended September 30, 1995, the Company issued 12,750
shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share, which
is the fair market value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note 3)
and sold 176,000 shares of common stock for $264,000 cash.
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The stock
was issued at $1.50 per share in payment of $300,000 of the then
outstanding debt (See Note 10). The Company also issued 277,500 shares
in connection with the issuance of notes payable (See Note 9). (See
also the disclosure in Note 1).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock for $2,958,314 in cash. The Company also
issued 222,700 shares to directors and employees for services rendered
valued at $1.50 per share, which is the fair market value of the shares
on the date of issuance.
Also during the year ended September 30, 1996, the Company issued
100,000 shares of its common stock for a joint venture in a mining
property and 20,000 common shares for a mining property (See Note 12).
The stock issued was valued at $1.50 per share, which is the fair
market value to the shares at the date of issuance.
In the same twelve-month period, the Company also issued 406,050 shares
of its common stock in payment of outstanding debt of $570,917 and
accrued interest of $38,158. The stock was issued at $1.50 per share
for a total value of $609,075. In addition, the Company issued 39,375
shares of common stock to noteholders for extending the maturity date
of their loans. Again, the shares were valued at $1.50 each, which is
the fair market value of the shares when issued.
F-19
<PAGE> 92
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS.
In January 1992, the shareholders of Royal approved a 1992 Stock Option
and Stock Award Plan under which up to ten percent of the issued and
outstanding shares of the Company's common stock could be awarded based
on merit of work performed. As of September 30, 1996, 12,750 shares of
common stock have been awarded under the Plan.
Also during the year ended September 30, 1996, the Company issued
215,334 shares of its common stock for services received. The shares
were valued at $1.50 per share, which is the fair market value of the
shares at the date of issuance.
Celebration, prior to the exchange agreement with Royal, had granted
securities to certain shareholders which represented rights to purchase
or receive shares of Celebration's common stock. These options were
assumed by the Company after the merger at a rate of 1.5 shares for
each option still outstanding. Thus, the Company has granted options,
with varying conditions and requirements, to purchase a total of
1,455,000 shares of its common stock.
There are 255,000 of the stock options exercisable at $1.50 per share
which expire March 21, 2000. The remaining 1,200,000 stock options are
exercisable at $0.93 per share and expire on August 31, 2001. As of
September 30, 1996, none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999.
On March 22, 1996, the Board of Directors approved the issuance of
warrants to an investor to purchase 625,000 shares of common stock of
the Company in partial completion of a private placement of stock.
These warrants are exercisable until September 30, 1998, at a price of
$1.50 per share, which is 67% of the closing price on March 22, 1996.
On April 10, 1996, following the close of the second quarter of fiscal
1996, the Board of Directors authorized the issuance of 420,666
warrants to unaffiliated investors as part of the private placement of
stock. These warrants are exercisable until April 12, 1997 at prices
ranging from $2.50 to $2.625 per share. As of September 30, 1996,
320,666 warrants have been issued (but not exercised) for a total
amount of $41,068.
F-20
<PAGE> 93
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 8 - ADDITIONAL PAID-IN CAPITAL.
The following is a summary of additional paid-in capital at September
30, 1996 and September 30, 1995:
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
_____________ _____________
<S> <C> <C>
Applicable to:
Common stock $8,395,740 $4,120,540
Stock warrants 41,068 -
__________ __________
$8,436,808 $4,120,540
========== ==========
</TABLE>
NOTE 9 - NOTES PAYABLE.
In February 1995, Celebration raised $555,000 through the issuance of
promissory notes. During the second quarter ended March 31, 1996,
$470,000 of the total amount plus accrued interest of $29,265 was
converted into 332,800 shares of the Company's common stock, leaving an
amount owing of $85,000, which was further reduced by cash payments to
$60,000 at September 30, 1996.
The notes bear interest at 10% per annum and will be due on the earlier
of January 1, 1997 or the closing of any public offering of equity
securities by the Company. The note holders also received 277,500
shares of Celebration's common stock. A 10% commission was charged by
an underwriter on the sale of almost all of the notes.
In April 1995, Celebration raised $120,000 in 10% convertible
debentures. In late 1995, $105,000 of the total amount plus accrued
interest of $4,810 was converted into 73,250 shares of the Company's
common stock, leaving an amount owing of $15,000. During the third
quarter ended September 30, 1996, this remaining $15,000 plus accrued
interest was paid.
NOTE 10 - RELATED PARTY TRANSACTIONS.
After receiving advances from a related party for payment of operating
expenses, the Company approved the issuance of 200,000 shares of common
stock in payment of $300,000 of the then outstanding balance (See Note
6). The balance outstanding at September 30, 1996 was $289.
F-21
<PAGE> 94
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 11 - FUTURE LEASE OBLIGATIONS.
The Company is obligated under its lease arrangements to make
additional lease payments subsequent to September 30, 1996 as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, Amount
<S> <C>
1997 $ 9,440
1998 4,500
1999 4,500
2000 and thereafter 22,500
_________
Total $ 40,940
=========
</TABLE>
NOTE 12 - OPTIONS WITH PLACER MINING CORPORATION.
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a
silver-lead-zinc mine in Shoshone County, Idaho. After issuing 100,000
shares valued at $1.50 per share and spending a non-refundable $50,000
on this option, the Company elected to renegotiate this option
agreement and entered into a second option agreement with Placer on
September 18, 1996.
In the second agreement, the Company paid $100,000 in September 1996
for the nonassignable option of acquiring a 100% interest in the Bunker
Hill Mine. In order to exercise this option, the Company must issue
500,000 shares of its common stock to Placer by May 10, 1997 and pay
Placer either $7,000,000 by that date or $4,000,000 by that date and
$3,500,000 by May 10, 1998. Under the terms of this agreement, the
Company will pay Placer a 2 3/4% net smelter return royalty in
perpetuity with stipulated annual advance minimum royalty payments to
Placer ranging from $100,000 (in 1999) to $250,000 (in years 2002
through 2010). All advance minimum royalties paid are to be credited
against actual production royalties.
At September 30, 1996, the Company had expended $101,715 in option and
related expenses toward the purchase of the Bunker Hill Mine. These
costs are included in the cost of mineral properties (Note 3) on the
Company's balance sheet.
F-22
<PAGE> 95
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Notes to the Financial Statements
September 30, 1996
NOTE 13 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION.
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock
held by Centurion for the exercise price of $1.75 per share during the
two-year period ending September 30, 1998. The cost of this two-year
stock purchase option was $50,000, which was paid by the Company and
charged to stockholders' equity (accumulated deficit).
At September 30, 1996, no shares were acquired from Centurion under
this option agreement.
<PAGE> 96
ROYAL SILVER MINES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
June 30, 1997 and September 30, 1996
<PAGE> 97
C O N T E N T S
Accountant's Review Report F-1
Balance Sheets F-2 - F-3
Statements of Operations F-4
Statements of Stockholders' Equity F-5 - F-9
Statements of Cash Flows F-10 - F-11
Notes to the Financial Statements F-12 - F-24
<PAGE> 98
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Royal Silver
Mines, Inc. (a development stage company) as of June 30, 1997, and
the related statements of operations, shareholders' equity, and cash
flows for the nine months ended June 30, 1997 and 1996, and for the
period from February 17, 1994 (inception) through June 30, 1997. The
review was conducted in a accordance with Statements on Standards for
Accounting and Review Services issued by the American Institute of
Certified Public Accountants. All information included in these
financial statements is the representation of the management of Royal
Silver Mines, Inc.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
The balance sheet for the year ended September 30, 1996 was audited
by us and we expressed an unqualified opinion on it in our report
dated December 13, 1996. We have not performed any auditing
procedures since that date.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
July 23, 1997
F-1
<PAGE> 99
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,123,602 $ 688,716
Note receivable 100,000 100,000
Interest receivable 5,958 333
Prepaid expenses 5,153 17,391
----------- -----------
TOTAL CURRENT ASSETS 1,234,713 806,440
----------- -----------
MINERAL PROPERTIES 4,727,096 4,785,665
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 133,534 -
Furniture and equipment 15,185 15,802
Less
accumulated depreciation (6,610) (2,809)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 142,109 12,993
----------- -----------
OTHER ASSETS
Investments 70,000 -
Organization costs, net 184 259
----------- -----------
TOTAL OTHER ASSETS 70,184 259
----------- -----------
TOTAL ASSETS $ 6,174,102 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 100
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION> June 30, September 30,
1997 1996
(Unaudited) (Audited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 15,355 $ 25,135
Payable to related parties - 289
Accrued expenses 17,987 34,443
Notes payable - 60,000
----------- -----------
TOTAL CURRENT LIABILITIES 33,342 119,867
----------- -----------
LONG-TERM DEBT - -
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
13,423,904 and 10,649,854 shares
issued and outstanding,
respectively 133,751 106,499
Additional paid-in capital 10,512,117 8,436,808
Deficit accumulated during
development stage (4,505,108) (3,057,817)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 6,140,760 5,485,490
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 6,174,102 $ 5,605,357
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 101
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
June 30, June 30,
1997 1996
<S> <C> <C>
REVENUES $ - $ -
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral properties 22,732 2,758
Depreciation and amortization 10,683 616
Officers and directors compensation 85,499 54,999
Other general and administrative 272,799 219,682
------------ -----------
Total expenses 391,713 278,055
------------ -----------
OPERATING (LOSS) (391,713) (278,055)
------------ -----------
OTHER INCOME (EXPENSES)
Interest income 16,190
Interest expense - (2,159)
Loss on disposition of assets - -
------------ -----------
Total other income (expenses) 16,190 (2,159)
------------ -----------
NET LOSS $ (375,523) $ (280,214)
------------ -----------
NET LOSS PER COMMON SHARE $ (0.03) $ (0.03)
============ ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 13,423,904 9,396,915
============ ===========
The accompanying notes are an integral part of these financial
statements.
F-4a
<PAGE> 102
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Operations, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS (Continued)
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
REVENUES $ - $ - $ -
------------ ----------- ------------
GENERAL AND ADMINISTRATIVE
EXPENSES
Mineral properties 261,619 8,122 270,584
Depreciation and
amortization 28,855 21,776 126,924
Officers and directors
compensation 329,911 266,215 1,161,859
Other general and
administrative 843,070 633,871 2,495,076
------------- ----------- ------------
Total expenses 1,463,455 929,984 4,054,443
------------- ----------- ------------
OPERATING (LOSS) (1,463,455) (929,984) (4,054,443)
------------- ----------- ------------
OTHER INCOME (EXPENSES)
Interest income 20,190 20,190
Interest expense (2,257) (7,409) (74,348)
Loss on disposition of
assets (1,769) - (346,507)
------------- ----------- ------------
Total other income
(expenses) 16,164 (7,409) (400,665)
------------- ----------- ------------
NET LOSS $ (1,447,291) $ (937,393) $ (4,455,108)
------------- ----------- ------------
NET LOSS PER
COMMON SHARE $ (0.12) $ (0.11) $ (0.64)
============= =========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES
OUTSTANDING 11,804,654 8,742,325 6,974,672
============= =========== ============
</TABLE>
F-4b
<PAGE> 103
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION> Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance February 17, 1994 - $ -
Issuance in May 1994 of shares at
$0.002 per share to officers and
directors in exchange for assignment
of mining property option 2,250,000 22,500
Issuance in July 1994 of shares
for cash at $0.402 in private
placement, net of costs. 1,050,000 10,500
Issuance in August 1994 of shares
to a director in exchange for
services, valued at $0.417 150,000 1,500
Net loss for the year ended
November 30, 1994 - -
--------- --------
Balance, November 30, 1994 3,450,000 34,500
Issuance of shares in debt
offering at $0.03 per share 416,250 4,163
Issuance of shares for mineral
properties valued at $1.00 per
share 262,500 2,625
Issuance of shares for cash at
$1.00 per share 15,000 150
Stock issuance costs - -
--------- --------
Balance forward 4,143,750 41,438
--------- --------
The accompanying notes are an integral part of these financial
statements.
F-5a
<PAGE> 104
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance February 17, 1994 $ - $ - $ -
Issuance in May 1994 of shares
at $0.002 per share to
officers and directors in
exchange for assignment
of mining property option (18,500) - 4,000
Issuance in July 1994 of
shares for cash at $0.402
in private placement,
net of costs. 411,116 - 421,616
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $0.417 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - (211,796) (211,796)
--------- ---------- ----------
Balance, November 30, 1994 453,616 (211,796) 276,320
Issuance of shares in debt
offering at $0.03 per share 9,712 - 13,875
Issuance of shares for mineral
properties valued at $1.00
per share 259,875 - 262,500
Issuance of shares for cash at
$1.00 per share 14,850 - 15,000
Stock issuance costs (58,202) - (58,202)
--------- ---------- ----------
Balance forward $ 679,851 $ (211,796) $ 509,493
--------- ---------- ----------
</TABLE>
F-5b
<PAGE> 105
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 4,143,750 $ 41,438
Issuance of shares to acquire
Consolidated Royal Mines, Inc.
at $0.15 per share 2,434,563 24,346
Issuance of shares to directors
and employees for services at
prices ranging from $2.00 to
$2.50 per share 12,750 127
Issuance of shares in exchange for
mineral properties at prices ranging
from $3.13 to $3.25 per share 800,000 8,000
Issuance of shares for cash at
prices ranging from $1.50 to
$2.00 per share 166,000 1,660
Issuance of shares in exchange for
debt at $1.50 per share 200,000 2,000
Net loss for the ten months ended
September 30, 1995 - -
--------- --------
Balance, September 30, 1995 7,757,063 $ 77,571
--------- --------
The accompanying notes are an integral part of these financial
statements.
F-6a
<PAGE> 106
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 679,851 $ (211,796) $ 509,493
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$0.15 per share 335,750 - 360,096
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to
$2.50 per share 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13 to
$3.25 per share 2,530,126 - 2,538,126
Issuance of shares for
cash at prices ranging
from $1.50 to $2.00 per
share 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 298,000 - 300,000
Net loss for the ten
months ended September
30, 1995 - (750,939) (750,939)
----------- ---------- -----------
Balance,
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
----------- ---------- -----------
</TABLE>
F-6b
<PAGE> 107
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward September 30, 1995 7,757,063 $ 77,571
Issuance of shares for cash at
$1.50 per share 1,176,832 11,769
Issuance of shares to directors
and employees for services at
$1.50 per share 222,700 2,227
Issuance of shares in exchange
for debt and accrued interest
at $1.50 per share 406,050 4,060
Issuance of shares for cash at
$2.20 per share 150,000 1,500
Issuance of warrants for cash
at $0.05 per warrant - -
Issuance of shares for cash at
$1.62 per share 65,000 650
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 107,500 1,075
Issuance of shares for cash at
$0.75 per share 200,000 2,000
Issuance of shares for cash at
$1.70 per share 250,000 2,500
---------- ---------
Balance forward 10,335,145 $ 103,352
---------- ---------
The accompanying notes are an integral part of these financial
statements.
F-7a
<PAGE> 108
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward
September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376
Issuance of shares for
cash at $1.50 per share 1,754,010 - 1,765,779
Issuance of shares to
directors and employees
for services at $1.50
per share 331,823 - 334,050
Issuance of shares in
exchange for debt and
accrued interest at
$1.50 per share 605,015 - 609,075
Issuance of shares for
cash at $2.20 per share 328,500 - 330,000
Issuance of warrants for cash
at $0.05 per warrant 41,068 - 41,068
Issuance of shares for
cash at $1.62 per share 104,650 - 105,300
Issuance of shares for
cash to directors and
employees at prices
ranging from $1.62
to $2.08 per share 181,175 - 182,250
Issuance of shares for
cash at $0.75 per share 147,985 - 149,985
Issuance of shares for
cash at $1.70 per share 422,500 - 425,000
----------- ---------- -----------
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
----------- ---------- -----------
</TABLE>
F-7b
<PAGE> 109
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 10,335,145 $ 103,352
Cancellation of 35,000 shares
received in exchange for return
of mining property (35,000) (350)
Payment to Centurion Mines for
options to repurchase stock - -
Issuance of shares for joint venture
in mining property at $1.50 per share 100,000 1,000
Repurchase of 25,000 shares issued for
joint venture at $1.40 per share (25,000) (250)
Issuance of shares for mining
property at $1.50 per share 20,000 200
Issuance of shares to noteholders for
extension of notes at $1.50 per share 39,375 394
Issuance of shares for services at
$1.50 per share 215,334 2,153
Stock issuance costs - -
Net loss for the year ended
September 30, 1996 - -
---------- ---------
Balance, September 30, 1996 10,649,854 $ 106,499
---------- ---------
The accompanying notes are an integral part of these financial
statements.
F-8a
<PAGE> 110
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 8,037,266 $ (962,735) $ 7,177,883
Cancellation of 35,000
shares received in
exchange for return of
mining property (109,025) - (109,375)
Payment to Centurion
Mines for options to
repurchase stock - (50,000) (50,000)
Issuance of shares for joint
venture in mining property
at $1.50 per share 149,000 - 150,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (34,750) - (35,000)
Issuance of shares for mining
property at $1.50 per share 29,800 - 30,000
Issuance of shares to
noteholders for extension of
notes at $1.50 per share 58,669 - 59,063
Issuance of shares for services
at $1.50 per share 320,848 - 323,001
Stock issuance costs (15,000) - (15,000)
Net loss for the year ended
September 30, 1996 - (2,045,082) (2,045,082)
----------- ------------ ------------
Balance, 09/30/96 $ 8,436,808 $(3,057,817) $ 5,485,490
----------- ----------- -----------
</TABLE>
F-8b
<PAGE> 111
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 10,649,854 $ 106,499
Issuance of shares for cash at
$0.75 per share 2,491,000 24,910
Stock issuance costs - -
Issuance of shares to directors
and employees for services at
$1.00 per share 80,000 800
Issuance of shares for services
at $1.25 per share 98,250 982
Payment for extension of warrants
for one year - -
Issuance of shares to directors
and employees for services at
$1.00 per share 30,500 305
Issuance of shares for services
at $1.00 per share 25,500 255
Payment for extension of warrants
for one year - -
Net loss for the nine months
ended June 30, 1997 - -
---------- ---------
Balance, June 30, 1997 13,375,104 $ 133,751
========== =========
The accompanying notes are an integral part of these financial
statements.
F-9a
<PAGE> 112
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Shareholders' Equity (Deficit), has been formatted to fit across two
pages.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued)
(Unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 8,436,808 $ (3,057,817) $ 5,485,490
Issuance of shares for
cash at $0.75 per share 1,843,340 - 1,868,250
Stock issuance costs (30,000) - (30,000)
Issuance of shares to
directors and employees
for services at $1.00
per share 79,200 - 80,000
Issuance of shares for services
at $1.25 per share 121,829 - 122,811
Payment for extension of
warrants for one year 3,000 - 3,000
Issuance of shares to
directors and employees for
services at $1.00 per share 30,195 - 30,500
Issuance of shares for services
at $1.00 per share 25,245 - 25,500
Payment for extension of
warrants for one year 2,500 - 2,500
Net loss for the nine months
ended June 30, 1997 - (1,447,291) (1,447,291)
------------ ------------ -----------
Balance, June 30, 1997 $ 10,512,117 $ (4,505,108) $ 6,140,760
============ ============ ===========
</TABLE>
F-9b
<PAGE> 113
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION> Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $ (1,447,291) $ (937,393) $ (4,455,108)
Adjustments to reconcile
net loss to net cash used
by operating activities:
Loss on sale of equipment 1,769 - 1,769
Depreciation and
amortization 28,855 21,776 129,471
Issuance of common stock
for services 258,811 239,850 1,007,964
Write-off of joint
venture costs - - 150,000
Changes in assets and liabilities:
Note receivable - - (100,000)
Prepaid expenses (11,563) 547 (28,956)
Interest receivable (5,625) - (5,958)
Mineral properties 238,887 - 238,887
Other assets - - (3,801)
Accounts payable (9,780) (56,489) 15,355
Accrued expenses (16,456) (15,622) 17,987
Payable to related parties (289) - 300,000
------------ ----------- ------------
Net cash used in
operating activities (962,682) (747,331) (2,732,390)
------------ ----------- ------------
Cash flows from investing activities:
Sale of assets 500 - 500
Purchase and development of
mineral properties (180,318) (975,851) (1,785,154)
Purchase of investments (70,000) - (70,000)
Purchase of fixed assets (136,364) (3,003) (152,166)
------------ ----------- ------------
Net cash provided used in
investing activities (386,182) (978,854) (2,006,820)
------------ ----------- ------------
The accompanying notes are an integral part of these financial
statements.
F-10a
<PAGE> 114
In order to transmit these documents to the SEC via EDGAR, Royal
Silver Mines, Inc., a development stage enterprise, Statements of
Cash Flows, has been formatted to fit across two pages.
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Cash flows from financing activities:
Stock issuance and
offering costs (30,000) (15,000) (174,835)
Proceeds received on
long-term debt - - 675,000
Payments made on notes
payable (60,000) (15,000) (174,206)
Issuance of common stock for
cash 1,868,250 1,945,779 5,528,064
Payment for extension of
warrants 5,500 - 5,500
Payment for option to
repurchase stock - - (50,000)
Issuance of common stock for
accrued interest - - 38,158
Issuance of common stock for
extension of notes payable
maturation - - 59,063
Payment for return of stock
issued for mining property
interest - - (35,000)
Payment of joint venture
costs - - (50,000)
Issuance of warrants for
cash - 41,068 41,068
------------ ------------ ------------
Net cash provided by
financing activities 1,783,750 1,956,847 5,862,812
------------ ------------ ------------
Net increase in cash $ 434,886 $ 230,662 $ 1,123,602
------------ ------------ ------------
</TABLE>
F-10b
<PAGE> 115
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
February 17,
Nine months ended 1994
(inception)
June 30, June 30, through
1997 1996 June 30, 1997
<S> <C> <C> <C>
Net increase in cash
(balance forward) $ 434,886 $ 230,662 $ 1,123,602
Cash, beginning of period 688,716 151,698 -
----------- --------- -----------
Cash, end of period $ 1,123,602 $ 382,360 $ 1,123,602
=========== ========= ===========
Supplemental cashflow disclosure:
Income taxes $ - $ - $ 350
Interest $ 6,042 $ - $ 29,440
Non-cash financing activities:
Common stock issued for
services rendered $ 258,811 $ 239,850 $ 1,007,964
Common stock issued for
mineral properties $ - $ - $ 2,980,626
Common stock issued for
exchange for debt $ - $ 609,075 $ 922,950
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ - $ 360,096
Option rights acquired in
exchange for a payable$ - $ - $ 79,000
Common stock issued for
assignment of mining
property options $ - $ - $ 4,000
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11
<PAGE> 116 ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the State of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration
was organized on February 17, 1994 as a Washington Corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an Agreement and
Plan of Reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration control the company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of
the assets or liabilities of Royal in the exchange as the market
value approximated the net carrying value. Royal is the acquiring
entity for legal purposes and Celebration is the surviving entity for
accounting purposes.
The $4,727,096 cost of mineral properties included in the
accompanying balance sheet as of June 30, 1997 is related to
exploration properties. The Company has not determined whether the
exploration properties contain ore reserves that are economically
recoverable. The ultimate realization of the Company's investment in
exploration properties is dependent upon the success of future
property sales, the existence of economically recoverable reserves,
the ability of the Company to obtain financing or make other
arrangements for development and upon future profitable production.
The ultimate realization of the Company's investment in exploration
properties cannot be determined at this time and, accordingly, no
provision for any asset impairment that may result, in the event the
Company is not successful in developing or selling these properties,
has been made in the accompanying financial statements.
F-12
<PAGE> 117
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Company is actively seeking additional capital and management
believes the properties can ultimately be sold or developed to enable
the Company to continue its operations. However, there are inherent
uncertainties in mining operations and management cannot provide
assurances that it will be successful in this endeavor. Furthermore,
the Company is in the development stage as it has not realized any
significant revenues from its planned operations.
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Loss Per Share
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year The weighted
average number of shares was calculated by taking the number of
shares outstanding and weighing them by the amount of time they were
outstanding.
The outstanding warrants were not included in the computation of loss
per share because the exercise price of the outstanding warrants is
higher than the market price of the stock, thereby causing the
warrants to be antidilutive.
Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents.
Mineral Properties
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights
and leases are expensed as incurred. When a property reaches the
production stage, the related capitalized costs will be amortized,
using the units of production method on the basis of periodic
estimates of ore reserves. Mineral properties are periodically
assessed for impairment of value and any losses are charged to
operations at the time of impairment.
F-13
<PAGE> 118
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Should a property be abandoned, its capitalized costs are
charged to operations. The Company charges to operations the
allocable portion of capitalized costs attributable to properties
sold. Capitalized costs are allocated to properties sold based on
the proportion of claims sold to the claims remaining within the
project area.
Concentration of Risk
The Company maintains its cash accounts in primarily one commercial
bank in Spokane, Washington. Accounts are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000. One of the
Company's cash accounts is a business checking account with a balance
of $104,037 and a certificate of deposit in the amount of $5,000 at
June 30, 1997 which in aggregate exceed the FDIC threshold by $9,037.
The remaining cash account is a "liquid asset account" in the amount
of $1,014,565, which is invested in a portfolio of U.S. Treasury
notes/bonds.
Provision For Taxes
At June 30, 1997, the Company had net operating loss carryforwards of
approximately $4,100,000 that may be offset against future taxable
income through 2011. No tax benefit has been reported in the
financial statements as the Company believes there is a 50% or
greater chance the net operating loss carryforwards will expire
unused. Accordingly, the potential tax benefits of the net operating
loss carryforwards are offset by a valuation allowance of the same
amount.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued a new
statement titled "Accounting for Impairment of Long-Lived Assets."
This new standard is effective for years beginning after December 15,
1995. In complying with this standard, the Company has reviewed its
long-lived assets at June 30, 1997 and concluded that no events or
changes in circumstances have transpired which indicate that the
carrying value of its assets may not be recoverable. The Company
does not believe that adoption of the new standard will have a
material effect on its financial statements in the current fiscal
year.
F-14
<PAGE> 119 ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In October 1995, the Financial Accounting Standards Board issued a
new statement titled "Accounting for Stock-Based Compensation" (FAS
123). The new statement is effective for fiscal years beginning
after December 15, 1995. FAS 123 encourages, but does not require,
companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on
fair value. Companies that do not adopt the fair value accounting
rules must disclose the impact of adopting the new method in the
notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be
accounted for on the fair value method. The Company currently
intends to adopt the fair value accounting prescribed by FAS 123.
However, the Company intends to continue its analysis of FAS 123 to
determine its ultimate effect in the future.
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the
State of Utah. Under the terms of the agreement, United contributed
real properties for an initial 75% interest in the joint venture, and
Celebration was to remove all liens associated with the real
properties by paying $175,000 to a bank which was the primary lien
holder for its initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned
promissory note. The property was auctioned in a public auction in
May, 1995 and by virtue of Celebration's first position lien,
Celebration was able to successfully bid the full amount of the
underlying promissory note. Although additional expenditures have
been made on the property through June 30, 1997, no further funds
toward the joint venture have been expended by Celebration, which
owns an undivided 25% interest in the property.
Shoshone County Idaho Mineral Lease (Crescent Mine)
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho state leases. In connection with this lease,
Celebration paid $50,000 and issued 175,000 shares of common stock.
In addition, 10,000 shares were issued to a new director for his
assistance in obtaining this lease. Celebration subsequently paid
F-15
<PAGE> 120
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
$950,000 for the option of extending its lease for an additional
forty-nine years. When, and if, the property achieves gross sales of
$40,000,000, Celebration will be obligated to pay an additional 0.5%
royalty on future sales. Furthermore, beginning after September 1,
1995, and at such time as the average price of silver has reached
$6.00 per ounce for a 30-day period, Celebration is obligated to
spend not less than $2,000,000 during the subsequent 36 months to
de-water and repair the mine. Thereafter, Celebration will be
required to maintain the mine in a condition to allow it to be put
into production within sixty days. There are certain claims by the
U.S. Environmental Protection Agency and the County on this property
for which the lessor is obligated to pay. In the event these claims
are not satisfactorily resolved, they may effect Celebration's rights
to the property.
Australian Mineral Property Joint Venture
In March 1995, Celebration entered into a joint venture agreement
with an Australian company for exploration of a certain mineral
property in Australia. Under the original terms of the joint venture
agreement, Celebration acquired a 10% interest by paying $100,000 in
April 1995. No additional funds where paid or required to be paid
subsequent to the initial payment.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased
through the issuance of 800,000 shares of its common stock, various
mineral properties located in the States of Washington and Idaho.
The mineral properties were recorded at the fair market value of the
shares paid on the date of issuance ranging from $3.13 to $3.25 per
share for a total purchase price of $2,538,126.
In May 1996, the Company sold back the Frisco Standard Silver Mine to
its original seller in exchange for the same price (35,000 shares of
Royal stock) received by the seller when the mine was purchased. The
shares received were canceled and no gain or loss was recorded on the
transaction.
The Company's proposed future mining activities will be subject to
laws and regulations controlling not only the exploration and mining
of mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may
necessitate additional capital outlays, affect the economics of a
project, and cause changes or delays in the Company's activities.
F-16
<PAGE> 121
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
Chilean Properties
During the quarter ended June 30, 1997, the Company acquired options
on a 100-square mile concession in northern Chile known as Mocha.
The Mocha prospect is a large porphyry copper system at the northern
end of one of the world's most prolific copper belts.
Under the terms of the first of the option agreements, the Company
can acquire a 100% interest in the concession by cash payments of
$371,000 and work commitments of $200,000 on or before August 1,
2000.
In another agreement on an adjoining privately owned property, which
covers the bulk of the known resource at Mocha, Royal Silver has the
option to acquire a 100% interest in the property, less a 2% retained
net smelter return royalty, for cash payments of $5,000,000 in a
series of payments ending June 23, 2002.
Argentina Properties
On February 10, 1997 the Company announced that it has negotiated an
option to buy 12 different potential mine sites in Argentina. Under
the agreement, the Company can buy the properties on or before March
1, 2000, by paying $4,500,000 in cash or $5,500,000 in Royal Silver
common stock, subject to certain conditions including the Seller's
retention of a 1.95% net smelter royalty on the mines. To date, none
of the properties have been acquired.
Mexico Properties
On January 20, 1997, the Company executed an agreement to acquire
four mining concessions in Nayarit, Mexico. The agreement calls for
a purchase price of $5,000,000 to be paid at the rate of 10% of
pre-tax net profits from production. Under the agreement, the
Company is obligated to pay the property owner $50,000 per year or,
alternatively, to spend $250,000 on exploration and development
annually until the properties are brought into production or
forfeited.
At June 30, 1997, no funds had been expended to maintain,
acquire, explore or develop the aforementioned Mexican properties.
F-17
<PAGE> 122
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 3 - MINERAL PROPERTIES (Continued)
Mexico Properties (continued)
The total mineral properties of the Company at June 30, 1997 are
classified as follows:
Mineral properties under joint ventures $ 366,510
Other mineral properties 4,360,586
Total Mineral Properties $ 4,727,096
The Company's mineral properties are valued at the lower of cost or
net realizable value.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are
expensed as incurred. Depreciation of property and equipment is
determined using the straight-line method over the expected useful
lives of the assets of five years.
NOTE 5 - INVESTMENTS
During the quarter ended June 30, 1997, the Company invested $70,000
in 200,000 shares of Metalline Mining stock. This investment
represents approximately 5.7% of the total outstanding stock in
Metalline Mining at the time of purchase. This stock is being valued
at cost, which is substantially less than the market value of $1.68
per share at June 30, 1997.
NOTE 6 - INTANGIBLE ASSETS
Deferred debt issuance costs and organization costs are
recorded at cost. Amortization of these intangible assets is
determined using the straight-line method over the expected useful
lives of the assets as follows:
Description Useful Lives
Deferred debt issuance costs 1 year
Organization costs 5 years
F-18
<PAGE> 123 ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 7 - COMMON STOCK
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.003 to $.625 per share, which is the fair market value of the
shares on the date of issuance.
During the year ended September 30, 1995, the Company issued
12,750 shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share,
which is the fair market value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note
3) and sold 176,000 shares of common stock for $264,000 cash.
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The stock
was issued at $1.50 per share in payment of $300,000 of outstanding
debt (See Note 9). The Company also issued 277,500 shares in
connection with the issuance of notes payable (See Note 9). (See
also the disclosure in Note 1).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock for $2,958,314 in cash. The Company also
issued 222,700 shares to directors and employees for services
rendered valued at $1.50 per share, which is the fair market value of
the shares on the date of issuance.
Also during the year ended September 30, 1996, the Company issued
100,000 shares of its common stock for a joint venture in a mining
property and 20,000 common shares for a mining property (See Note
11.) The stock issued was valued at $1.50 per share, which is the
fair market value of the shares at the date of issuance.
In the same twelve-month period, the Company also issued 406,050
shares of its common stock in payment of outstanding debt of $570,917
and accrued interest of $38,158. The stock was issued at $1.50 per
share for a total value of $609,075. In addition, the Company issued
39,375 shares of common stock to noteholders for extending the
maturity date of their loans. Again, the shares were valued at $1.50
each, which is the fair market value of the shares when issued.
Also during the year ended September 30, 1996, the Company issued
215,334 shares of its common stock for services received. The shares
were valued at $1.50 per share, which was the fair market value of
the shares at the date of issuance.
F-19
<PAGE> 124
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 7 - COMMON STOCK (Continued)
On January 30, 1997, the Company sold 200,000 "units" at $0.75 per
unit for $150,000 cash. Each unit consists of one share of common
stock and one warrant to purchase one additional share of common
stock at $1.25 per share within the next two years. The Company also
granted the purchaser an option to purchase an additional 335,000
units, which were exercised on February 14, 1997 for $0.75 per unit,
and an additional 1,600,000 units which were exercised on March 17,
1997 for $0.75 per unit.
On February 7, 1997, The Company filed Form SB-2 with the Securities
and Exchange Commission in order to register 625,000 warrants,
625,000 common stock shares issuable upon the exercise of those
warrants, and 166,000 shares of common stock held outside the
Company.
During the nine months ended June 30, 1997, the Company issued
234,250 shares of its common stock for services received. The shares
were valued at prices ranging from $1.00 to $1.25 per share, which
was the fair market value of the shares at the date of issuance.
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS
In January 1992, the shareholders of Royal approved a 1992 Stock
Option and Stock Award Plan under which up to ten percent of the
issued and outstanding shares of the Company's common stock could be
awarded based on merit of work performed. As of June 30, 1997,
12,750 shares of common stock have been awarded under the Plan.
Celebration, prior to the exchange agreement with Royal, had granted
securities to certain shareholders which represented rights to
purchase or receive shares of Celebration's common stock. These
options were assumed by the Company after the merger at a rate of 1.5
shares for each option still outstanding. Thus, the Company has
granted options, with varying conditions and requirements, to
purchase a total of 1,455,000 shares of its common stock. There are
255,000 of the stock options exercisable at $1.50 per share which
expire March 21, 2000. The remaining 1,200,000 stock options are
exercisable at $0.42 per share and expire on August 31, 2001. As of
June 30, 1997, none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999. As of June 30, 1997, none of these
warrants have been exercised.
F-20
<PAGE> 125
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
On March 22, 1996, the Board of Directors approved the issuance of
warrants to an investor to purchase 625,000 shares of common stock of
the Company in partial completion of a private placement of stock.
These warrants are exercisable until September 30, 1998, at a price
of $1.50 per share, which is 67% of the closing price on March 22,
1996.
On April 10, 1996, following the close of the second quarter of
fiscal 1996, the Board of Directors authorized the issuance of
420,666 warrants to unaffiliated investors as part of the private
placement of stock. These warrants were originally exercisable until
April 12, 1997 at prices ranging from $2.50 to $2.625 per share.
120,000 of these warrants were extended for one year (until April 12,
1998) in exchange for cash payments received of $3,000 in March and
April 1997. The balance of these warrants expired unexercised at
April 12, 1997.
On October 15, 1996, the Board of Directors approved the issuance of
warrants to employees and consultants to purchase 600,000 shares of
the Company's common stock at a price of $1.50 per share. The
warrants, which are exercisable for a five-year period , were issued
as compensation for services performed. As of June 30, 1997, none of
the warrants have been exercised.
On February 15, 1997, the Board of Directors approved the issuance of
warrants to employees and consultants to purchase 750,000 shares of
the Company's common stock at a price of $1.20 per share. As of June
30, 1997, none of the warrants have been exercised.
In the three months ended March 31, 1997, the Board of Directors
approved the issuance of warrants to investors to purchase 2,491,000
shares of the Company's common stock as part of the private placement
of stock. These warrants are exercisable until March 26, 1999 at a
price of $1.25 per share. None of these warrant have been exercised
as of June 30, 1997.
On April 25, 1997, the Board of Directors approved the issuance of
warrants to consultants to purchase 200,000 shares of the Company's
common stock at a price of $1.125 per share during the three-year
period ending April 30, 2000. As of June 30, 1997, none of these
warrants have been exercised.
F-21
<PAGE> 126
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 9 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at June 30,
1997 and September 30, 1996:
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
<S> <C> <C>
Applicable to:
Common stock $ 10,465,549 $ 8,395,740
Stock warrants 46,568 41,068
------------ -----------
$ 10,512,117 $ 8,436,808
============ ===========
</TABLE>
NOTE 10 - NOTES PAYABLE
In February 1995, Celebration raised $555,000 through the issuance of
promissory notes. During the second quarter ended March 31, 1996,
$470,000 of the total amount plus accrued interest of $29,265 was
converted into 332,800 shares of the Company's common stock, leaving
an amount owing of $85,000, which was further reduced by cash
payments to $35,000 at December 31, 1996. The notes bear interest at
10% per annum and are payable upon demand. The note holders also
received 277,500 shares of Celebration's common stock. A 10%
commission was charged by an underwriter on the sale of almost all of
the notes.
In April 1995, Celebration raised $120,000 in 10% convertible
debentures. In late 1995, $105,000 of the total amount plus accrued
interest of $4,810 was converted into 73,250 shares of the Company's
common stock, leaving an amount owing of $15,000. During the fourth
quarter ended September 30, 1996, this remaining $15,000 plus accrued
interest was paid.
NOTE 11 - RELATED PARTY TRANSACTIONS
After receiving advances from a related party for payment of
operating expenses, the Company approved the issuance of 200,000
shares of common stock in payment of $300,000 of the then outstanding
balance (See Note 6). The balance outstanding at June 30, 1997 was
$0.
F-22
<PAGE> 127
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 12 - FUTURE LEASE OBLIGATIONS
The Company is obligated under its lease arrangements to make
additional lease payments subsequent to June 30, 1997 as follows:
<TABLE>
<CAPTION>
Year Ended
September 30, Amount
<S> <C>
1997 $ 5,351
1998 4,500
1999 4,500
2000 and thereafter 22,500
--------
Total $ 36,851
========
</TABLE>
NOTE 13- OPTIONS WITH PLACER MINING CORPORATION
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a
silver-lead-zinc mine in Shoshone County, Idaho. After issuing
100,000 shares valued at $1.50 per share and spending a
non-refundable $50,000 on this option, the Company elected to
re-negotiate this option agreement and entered into a second option
agreement with Placer on September 18, 1996.
In the second agreement, the Company paid $100,000 in September 1996
for the non-assignable option of acquiring a 100% interest in the
Bunker Hill Mine. In order to exercise this option, the Company must
issue 500,000 shares of its common stock to Placer by May 10, 1997
and pay Placer either $7,000,000 by that date or $4,000,000 by that
date and $3,500,000 by May 10, 1998. Under the terms of this
agreement, the Company will pay Placer a 2 3/4% net smelter return
royalty in perpetuity with stipulated annual advance minimum royalty
payments to Placer ranging from $100,000 (in 1999) to $250,000 (in
years 2002 through 2010). All advance minimum royalties paid are to
be credited against actual production royalties.
Subsequent to March 31, 1997, due to regional environmental concerns
and the prospect of related litigation, the Company concluded that it
would not exercise its option on the Bunker Hill Mine. Accordingly,
the $238,887 in option costs and related expenses toward the purchase
of this property were written off during the quarter ended March 31,
1997.
F-23
<PAGE> 128
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 1997
NOTE 14 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an
option from Centurion to purchase up to 800,000 shares of its common
stock held by Centurion for the exercise price of $1.75 per share
during the two-year period ending September 30, 1998. The cost of
this two-year stock purchase option was $50,000, which was paid by
the Company and charged to stockholders' equity (accumulated
deficit).
Effective April 15, 1997, the aforementioned stock option agreement
was renegotiated (at no cost to the Company) and amended to extend
the exercise period until September 30, 1999 and to revise the
exercise price to $1.50 per share during this same period.
At June 30, 1997, no shares were acquired from Centurion under this
option agreement.
F-24
<PAGE> 129
UNTIL OCTOBER 1, 1997, (NINETY DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE
REQUIRED TO DELIVER A PROSPECTUS.
TABLE OF CONTENTS
Prospectus Summary . . 7 ROYAL SILVER MINES, INC.
Risk Factors . . . 9
Dilution . . . . 14 6,000,000 Units consisting
Selected Financial Data . 15 of 1 shares of Common Stock
Management's Discussion and 1 Redeemable Common
and Analysis of Stock Warrants
Financial Condition and
Results of Operations . 16
Use of Proceeds . . 19
Dividend Policy . . 20
Glossary . . . 21
Business . . . . 33 __________________________
Management . . . 53 PROSPECTUS
Certain Transactions . 56 __________________________
Management Remuneration . 58
Principal Shareholders . 62 DATED: OCTOBER 1, 1997
Description of the Securities64
Plan of Distribution . . 68 ROYAL SILVER MINES, INC.
Litigation . . . 69 10220 North Nevada
Legal Matters . . . 69 Suite 270
Experts . . . . 69 Spokane, Washington 99218
Additional Information . 70 (509) 466-3144
Financial Statements . F-1
No dealer, salesman or any other person has been authorized to give any
information or to make any representations other than those contained
in this Prospectus in connection with the offer contained in this
Prospectus and, if given or made, such information must not be relied
upon as having been authorized by the Company. Neither the deliver nor
any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the Company
since the date hereof. This Prospectus does not constitute an offer to
sell or the solicitation of an offer to buy an security other than the
shares of Common Stock offered by this Prospectus, nor does it
constitute an offer to sell or a solicitation of an offer to buy the
shares of Common Stock by anyone in any jurisdiction in which such
offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so, to any person to
whom it is unlawful to make such offer or solicitation.
<PAGE> 130
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 22. Indemnification of Directors and Officers.
The only statutes, charter provisions, bylaws or other
arrangements under which any controlling person, Director or Officer of
the Registrant is insured or indemnified in any manner against
liability which he may incur in his capacity as such are set forth
below.
The Utah Statutes provides for indemnification where a person who
was or is a party or is threatened to be made a party to any
threatened, pending or contemplated action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than action by
or in right of a corporation), by reason of fact he is or was a
Director, Officer, employee or agent of a corporation or serving
another corporation at the request of the corporation, against expenses
(including attorneys' fees), judgments, fines, and amounts paid in
settlement, actually and reasonably incurred by him if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interest of the corporation and, with respect to criminal
action or proceeding, had no reasonable cause to believe his conduct
unlawful. Lack of good faith is not presumed from settlement or nolo
contendere plea. Indemnification of expenses (including attorneys'
fees) allowed in derivative actions except in the case of misconduct in
performance of duty to corporation unless the Court decides
indemnification is proper. To the extent any such person succeeds on
the merits or otherwise, he shall be indemnified against expenses
(including attorneys' fees). Determination that the person to be
indemnified met applicable standards of conduct, if not made by the
Court, is made by the Board of Directors by majority vote of quorum
consisting of the Directors not party to such action, suit or
proceeding or, if a quorum is not obtainable or a disinterested quorum
so directs, by independent legal counsel or by the stockholders.
Expenses may be paid in advance upon receipt of undertakings to repay
unless it shall ultimately be determined that he is entitled to be
indemnified by the corporation. The Corporation may purchase indemnity
insurance. In so far as indemnification for liability arising from the
Securities Act of 1933 may be permitted to Directors, Officers or
persons controlling the Company, it has been informed that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
<PAGE> 131
ITEM 23. Other Expenses of Issuance and Distribution.
The following table sets forth all expenses in connection with the
issuance and distribution of the shares being registered. All the
amounts shown are estimates, except the registration fee.
<TABLE>
<S> <C>
Registration Fee - SEC . . . . $ 4,363.63
NASD Fee . . . . . . . 5,000.00
Printing and Engraving . . . . 2,000.00
Legal Fees and Disbursements . . . 15,000.00
Accounting Fees . . . . . 2,000.00
Transfer Agent Fees . . . . . 1,000.00
Blue Sky Fees and Expenses . . . 636.37
Selling Agent Commission . . . . 600,000.00
TOTAL . . . . . . . $630,000.00
</TABLE>
<PAGE> 132
ITEM 24. Recent Sales of Unregistered Securities.
The following table set forth information as to recent sales of
the Registrant's Common Stock since the formation of the Registrant,
all of which shares were not registered under the Securities Act of
1933, as amended:
<TABLE>
<CAPTION>
Amount of
Shares Consideration Date of
Name of Owner Acquired Cash/Other Sale
- ---------------------------------------------------------------------
<S> <C> <C> <C>
144 "RESTRICTED" SECURITIES
Spenst Hansen 20,000 Director Services 01/01/94
4734 South 2700 West
Salt Lake City, UT 84127
James Kontes 10,000 Director Services 01/01/94
P. O. Box 112
Firth, ID 83236
H. E. Cameron 10,000 Director Services 01/01/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Alan Seelos 10,000 Director Services 01/01/94
150 South 600 East
#5-B
Salt Lake City, UT 84102
A. Franklin Adams & 10,000 Officer Services 01/01/94
M. Lee Adams
5738 South Redwood Road
#127
Salt Lake City, UT 84123
Barry F. Katona 10,000 Director Services 01/01/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Crosby Enterprises,
Inc. 400,000 Finder's Fee 02/02/94
105 North First Mining Property
Suite 232 Acquisition and
Sandpoint, ID 83864 Montanore
<PAGE> 133
Keystone Surveys, Inc 400,000 Finder's Fee 02/02/94
331 South Rio Grande Mining Property
Suite 208 Acquisition and
Salt Lake City, UT 84101 Montanore
Spenst Hansen 100,000 Officer and 03/17/94
4734 South 2700 West Director Services
Salt Lake City, UT 84127
Hal E. Cameron 50,000 Director Services 03/17/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Alan Seelos 50,000 Director Services 03/17/94
150 South 600 East
#5-B
Salt Lake City, UT 84102
James C. Kontes 50,000 Director Services 03/17/94
P. O. Box 112
Firth, ID 83236
Barry F. Katona 50,000 Director Services 03/17/94
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Howard Crosby 5,000 Director Services 04/01/95
105 North First Avenue
Suite 232
Sandpoint, ID 83864
Spenst Hansen 2,500 Director Services 04/01/95
4734 South 2700 West
Salt Lake City, UT 84127
E. Hal Cameron 5,000 Director Services 04/01/95
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Laroy Orr 2,500 Officer Services 04/01/95
1020 Adams Avenue
Ogden, UT 84404
Carlos M. Chavez 5,000 Director Services 05/01/95
815 Yale Avenue
Salt Lake City, UT 84105
<PAGE> 134
R. Allison Carman 1,000 Consulting Services 05/01/95
4287 South 4580 West
Salt Lake City, UT 84120
Howard Crosby 5,000 Director Services 06/30/95
105 North First Avenue
Suite 232
Sandpoint, ID 83864
Spenst Hansen 2,500 Director Services 06/30/95
4734 South 2700 West
Salt Lake City, UT 84127
E. Hal Cameron 5,000 Director Services 06/30/95
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Laroy Orr 2,500 Officer Services 06/30/95
1020 Adams Avenue
Ogden, UT 84404
Extol Inter-
national Corp. 425,000 Officer/Director 06/28/95
105 North First Services and
Suite 232 Founding Stock
Sandpoint, ID 83864
Extol Inter-
national Corp. 1,075,000 Officer/Director 06/28/95
105 North First Services and
Suite 232 Founding Stock
Sandpoint, ID 83864
Lovon Fausett 37,500 Mining Property 06/28/95
P. O. Box 968 Acquisition
Osburne, ID 83849
Fausett International 187,500 Mining Property 06/28/95
P. O. Box 968 Acquisition
Osburne, ID 83849
William Jacobson 37,500 Mining Property 06/28/95
P. O. Box 631 Acquisition
Mullen, ID 83846
Robert E. Jorgensen 200,000 Officer/Director 06/28/95
10220 Nevada Services and
Suite 270 Founding Stock
Spokane, WA 99218
<PAGE> 135
Robert E. Jorgensen 550,000 Officer/Director 06/28/95
10220 Nevada Services and
Suite 270 Founding Stock
Spokane, WA 99218
Craig C. Condron 12,000 Basis is $0.42 06/28/95
7205 West Kendick Road per share, as
Nine Mile Falls, WA 99026 adjusted for splits
Craig C. Condron
& Linda Condron 18,750 Basis is $0.42 06/28/95
7205 West Kendick Road per share, as
Nine Mile Falls, WA 99026 adjusted for splits
Brush Prairie Minerals 25,000 Mining Property 08/30/95
905 North Pines Road Acquisition
Suite A
Spokane, WA 99206
Washington Mining Co. 200,000 Mining Property 08/30/95
905 North Pines Road Acquisition
Suite A
Spokane, WA 99206
Conjecture Silver
Mines, Inc. 80,000 Mining Property 08/30/95
6619 North Cedar Road Acquisition
Suite A
Spokane, WA 99208
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
Centurion Mines
Corporation 50,000 Debt Conversion 08/31/95
P. O. Box 2365 at $1.50 per share
Salt Lake City, UT 84110
<PAGE> 136
Joyce & Welson Stump
Living Trust 3,000 $1.50 per share 09/05/95
1313 Campbell
Toledo, OH 43607
Carl F. Peterson 10,000 $1.50 per share 09/06/95
27670 Groesbeck Hwy
Roseville, MI 48066
IRA F/B/O
Israel A. Englander 166,000 $1.50 per share 09/07/95
c/o Millennium Partners
111 Broadway
New York, NY 10006
Laroy Orr 2,500 Consulting Services 11/20/95
1020 Adams Avenue
Ogden, UT 84404
Craig C. Condron 18,334 Note Conversion 12/29/95
7205 West Kendick Road
Nine Mile Falls, WA 99026
Elite Discount
Health Foods 18,334 Note Conversion 12/29/95
6700 West Charleston
Las Vegas, NV 89102
Joseph A. Tedesco 18,334 Note Conversion 12/29/95
3904 South Ridgeview
Spokane, WA 99206
Binder 1989 Trust 18,334 Note Conversion 12/29/95
276 East Hillcrest Drive
Suite 203
Thousand Oaks, CA 91360
Peter H. Morkill 18,334 Note Conversion 12/29/95
13212 Bracken Fern Drive
Gig Harbor, WA 98332
F. E. Hambleton 73,334 Note Conversion 12/29/95
920 N.W. View Ridge Court
Camas, WA 98607
Bruce W. Franklin 18,334 Note Conversion 12/29/95
3631 Brookside Drive
Bloomfield, MI 48302
Robert H. Laugen 7,334 Note Conversion 12/29/95
15904 North Scribner Branch Road
Spokane, WA 99207
<PAGE> 137
Howard Stang 7,334 Note Conversion 12/29/95
20307 North Little Spokane Drive
Colbert, WA 99005
Michael L. Wallach 18,334 Note Conversion 12/29/95
12117 Riverwood
Spokane, WA 99218
Paul H. Swy 7,334 Note Conversion 12/29/95
290 Substation Road
Temperance, MI 48182
Robert C. Roosen Trust 18,334 Note Conversion 12/29/95
2756 North Green Valley Parkway
Suite 700
Henderson, NV 89104
Invest L'Inc Bridge
Fund 18,334 Note Conversion 12/29/95
1901 North Rosette Road
Suite 1030
Schauburg, IL 60195
Charles W. Wafer 36,666 Note Conversion 12/29/95
17684 Los Morros
Rancho Sante Fe, CA 92067
Gregg Longmeier 7,334 Note Conversion 12/29/95
16008 North Dalton Road
Spokane, WA 99208
Frances G. Strickfaden 18,334 Note Conversion 12/29/95
4212 Wellington Drive
Fort Collins, CO 80526
Reisha Forshpan 7,334 Note Conversion 12/29/95
3177 Dona Marta Drive
Studio City, CA 91604
John P. Bender 7,334 Note Conversion 12/29/95
1194 Eagle Nest Court
Milton, MI 48381
James F. O'Connell 7,334 Note Conversion 12/29/95
400 South Jefferson
Suite 450
Spokane, WA 99204
Charles Wafer 22,000 Basis is $0.42 as 12/29/95
17684 Los Morros adjusted for splits
Rancho Santa Fe, CA 92067
<PAGE> 138
D. R. Shipman 22,000 Basis is $0.42 as 12/29/95
716 LaSalle Street adjusted for splits
Ottowa, IL 61350
Dennis W. Garland & 11,000 Basis is $0.42 as 12/29/95
Alice C. Garland adjusted for splits
13801 North Riverbluff Land
Spokane, WA 99208
Leonard M. Tweten 22,000 Basis is $0.42 as 12/29/95
1301 Spring Street adjusted for splits
#273
Seattle, WA 98104
Frances G. Strickfaden 18,750 Basis is $0.42 as 01/11/96
4212 Wellington Drive adjusted for splits
Fort Collins, CO 80526
Fred Hoeppner 12,000 Basis is $0.42 as 01/19/96
1573 South Unita Way adjusted for splits
Denver, CO 80231
Edward A. Gray 7,500 Basis is $0.42 as 01/29/96
11419 115th Lane N.E. adjusted for splits
Kirkland, WA 98033
Edward Gray 3,750 Note Extension 03/20/96
11419 115th Lane N.E.
Kirkland, WA 98033
Paul Brown 9,375 Note Extension 03/20/96
11709 North Fairwood Drive
Spokane, WA 99218
D.R. Shipman 9,375 Note Extension 03/20/96
716 LaSalle Street
Ottowa, IL 61350
Dennis Garland 9,375 Note Extension 03/20/96
13801 N. Riverbluff Lane
Spokane, WA 99208
Howard Crosby 40,000 $1.62 per share 07/23/96
105 North First Avenue
Suite 232
Sandpoint, ID 83864
Robert Jorgensen 17,500 $1.62 per share 07/23/96
2719 West Strong Road
Sandpoint, ID 83864
<PAGE> 139
Spenst Hansen 40,000 $1.62 per share 07/23/96
4734 South 2700 West
Salt Lake City, UT 84127
Centurion Mines
Corporation 100,000 $1.50 per share 07/23/96
P. O. Box 2365
Salt Lake City, UT 84110
John Ryan 10,000 $1.62 per share 07/23/96
619 Lunceford Lane
Couer d'Alene, ID 83814
Ben Pellum 50,000 $1.62 per share 07/23/96
3864 South 1845 West
#E204
West Valley, UT 84119
Keystone Surveys 15,000 $1.62 per share 07/23/96
331 South Rio Grande
Suite 208
Salt Lake City, UT 84101
Cohig & Associates 15,000 Finder's Fee 07/29/96
6300 South Syracuse Way Mining Property
Suite 430
Englewood, CO 80111
J. Wylie Harris, Jr. 60,000 Consulting Fees 02/21/97
602 N. Main Street Property
Salem, AK 72576
REGULATION "S" SECURITIES
Metallurgical Refining 3,700 $1.70 per share 07/18/95
P. O. Box 81 Australian JV
Brisbane Market
QLD 4106 Australia
Ages, (AUST) Pty, Ltd. 5,000 $1.70 per share 07/18/95
463 Savages Road Australian JV
Brookfield
Queensland 4609 Australia
Delten Trading, S.A. 200,000 $1.50 per share 10/04/95
60 Market Street
Belize City, Belize
CJC Holdings Pty, Ltd. 20,000 $1.50 per share 12/20/95
16 Ord Street
Western Perth
Western Australia
<PAGE> 140
James Oleynick 50,000 $1.50 per share 12/20/95
1500 - 700 West Georgia Street
Vancouver, B.C.
Canada V7Y 1J1
James W. Prier,
ITF RRSP 15,000 $1.50 per share 12/20/95
1715 - 750 West Pender Street
Vancouver, B.C.
Canada V6C 2T8
Jonathan A. Rubenstein 50,000 $1.50 per share 12/20/95
205 - 10711 Cambie Road
Richmond, B.C.
Canada V6X 3G5
Internation Consultant 25,000 $1.50 per share 12/29/95
475 Keith Road
West Vancouver, B.C.
Canada V7T 1L6
Killeba Holdings, Ltd. 200,000 $1.50 per share 01/11/96
102 Langeherrentaise Street
Antwerten 2018 Belgium
Shelley Mason 20,000 $1.50 per share 03/14/96
3441 Dundas Street
Vancouver, B.C.
Canada V5K 1R5
Pacific Int'l
Securities 34,000 $1.50 per share 04/01/96
1500 - 700 West Georgia Street
Vancouver, B.C.
Canada V7Y 1J1
Jim Oleynick 34,000 $1.50 per share 04/01/96
1500 - 700 West Georgia Street
Vancouver, B.C.
Canada V7Y 1J1
Thomas E. Rafael
& RRSP 23 5,000 $1.50 per share 04/20/96
475 Keith Road
West Vancouver, B.C.
Canada V7T 1L6
Stephen Katz 50,000 $1.50 per share 04/04/96
1758 West 4th Avenue
Vancouver, B.C.
Canada
<PAGE> 141
Int'l Consultants 41,000 $1.50 per share 05/06/96
475 Keith Road
West Vancouver, B.C.
Canada V7T 1L6
Rush & Company 150,000 $2.20 per share 05/14/96
100 Wall Street
New York, NY 10005
Siegler & Co. 250,000 $1.70 per share 07/01/96
Nominees for Femitage Global
Mining Investment Fund, Ltd.
Chemical Bank
Ground Floor/Receiving Window
4 New York Plaza
New York, NY
Newark Sales Corp. 200,000 $0.75 per share 08/19/96
377 Langleleem Street
Antwerten 2018 Belgium
Britannia Holdings 200,000 $1.00 per share 01/29/97
Limited
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
Britannia Holdings 335,000 $1.00 per share 02/14/97
Limited
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
Louk Jongen 100,000 $1.00 per share 02/25/97
Total Investment
Services b.v.
Ooisestraat 4
4054 MN Echteld
Holland
NCL Investment Limited 136,000 $1.00 per share 03/04/97
Barlett House
9 - 12 Basinghall Street
London, England EC2V 5NS
Credit Suisse 100,000 $1.00 per share 03/07/97
(UK) Limited
Five Cabot Square
London, England E14 4QR
<PAGE> 142
Britannia Holdings 1,600,000 $1.00 per share 03/24/97
Limited
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
Portsalon Investment 20,000 $1.25 per share 03/25/97
Seefeldstr. 214
Zurich 8034
Switzerland
<PAGE> 143
ITEM 25. Exhibits.
The following documents are incorporated herein by reference from
the Registrant's Form 10, as filed with the Securities and Exchange
Commission.
Number Document
- ---------------------------------------------------------------------
3.1 Articles of Incorporation.
3.2 Articles of Amendment.
3.3 Amendment to Articles of Incorporation Limiting Director
Liability.
3.4 Bylaws.
10.1 Sale of Mining Properties By Centurion Mines Corporation to
Royal Minerals, Inc. - June 1992 through September 1993.
10.2 Deed with Reservation of Mineral Royalty - January 1992 to
Kennecott.
10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to
Kennecott.
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
10.5 Deed and Assignment with Reservation of Mineral Royalty -
August 1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty -
December 1992 (6,320 acres) to Kennecott.
The following documents are incorporated herein by reference from
the Registrant's Current Report on Form 8-K, dated August 8, 1995, as
filed with the Securities and Exchange Commission:
2.01 Agreement and Plan of Reorganization.
3.05 Articles of Share Exchange (Utah).
3.06 Articles of Share Exchange (Washington).
4.01 Subscription and Investment Agreement.
4.02 Stock Purchase Option Certificate.
19.01 Material Furnished to Celebration Securityholders.
20.01 Letter from Royal to Share Exchange Securityholders.
<PAGE> 144
The following documents are incorporated herein by reference from
the Registrant's Form S-8 Registration Statement filed with the
Commission on July 17, 1995.
4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1
to the Plan.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on February 10, 1997:
10.7 Vipoint Joint Venture Agreement.
10.8 Option to Joint Venture with Placer Mining Corporation, dated
April 19, 1996.
10.9 Amendment to Option to Joint Venture with Placer Mining
Corproation dated the 22nd day of July, 1996.
10.10 Exploration Agreement and Purchase/Joint Venture Option.
10.11 Purchase Agreement with Imperial Energy Corp.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on September 12, 1997:
5.1 Opinion of Conrad C. Lysiak.
The following documents are included as exhibits hereto:
10.12 Unilateral option to Purchase Mining Concessions from
Sociedad de Exploarciones Y Explotaciones Mineras Oregon
Limitada.
10.13 Modification of Unilateral Purchase Option Contract of Mining
Concessions.
10.14 Unilateral option to Purchase Mining Concessions from
Compania Minera San Enrique S.C.M. Y Otra.
24.1 Consent of Williams and Webster, P.S.
24.2 Consent of Conrad C. Lysiak.
28.1 Warrant Agreement.
28.2 Selling Agent Agreement.
All other schedules and exhibits are omitted, as the required
information is not applicable or is not present in amount sufficient to
require submission of the schedule or because the information required
is included in the financial statements and notes thereto.
<PAGE> 145
ITEM 26. Undertakings.
A. The undersigned Registrant hereby undertakes: To provide to the
Underwriters, if any, at the closing specified in the Underwriting
Agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
B. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post effective amendment to this registration statement:
(a) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and,
(c) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, as amended, each such post-effective amendment
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
C. Insofar as indemnification for liabilities arising under the
securities Act of 1933 may be permitted to Directors, Officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Director, Officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by a Director, Officer or controlling person in
connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public
policy as expressed in the Act and shall be governed by the final
adjudication of such issue.
<PAGE> 146 SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing of this Form SB-2 Registration Statement and has duly
caused this Amendment No. 1 to the Form SB-2 Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
Spokane, Washington, on this 29th day of September, 1997.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby, President
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears below
constitutes and appoints Howard M. Crosby as true and lawful attorney-in-fact
and agent, with full power of substitution, for his and in his name, place
and stead, in any and all capacities, to sign any and all amendment
(including post-effective amendments) to this registration statement, and to
file the same, therewith, with the Securities and Exchange Commission, and to
make any and all state securities law or blue sky filings, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite or necessary to be done in about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying the confirming all that said attorney-in-fact and
agent, or any substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Form SB-2 Registration Statement has been signed by the
following persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Howard M. Crosby President and a member September 29, 1997
of Directors
/s/ Robert E. Jorgensen Executive Vice President September 29, 1997
Treasurer and a member
of the Board of Directors
/s/ John Ryan Vice President of September 29, 1997
Corporate Development and
Member of the Board of Directors
/s/ Thomas Henricksen Secretary and a member September 29, 1997
of Board of Directors
/s/ Jerry Stacey Vice President September 29, 1997
of Operations
/s/ Ronald Kitching Member of the Board September 29, 1997
of Directors
/s/ Kevin Stulp Member of the Board September 29, 1997
of Directors
<PAGE> 147
EXHIBIT INDEX
The following documents are incorporated herein by reference from the
Registrant's Form 10, as filed with the Securities and Exchange Commission.
Number Document
- ---------------------------------------------------------------------
3.1 Articles of Incorporation.
3.2 Articles of Amendment.
3.3 Amendment to Articles of Incorporation Limiting Director Liability.
3.4 Bylaws.
10.1 Sale of Mining Properties By Centurion Mines Corporation to Royal
Minerals, Inc. - June 1992 through September 1993.
10.2 Deed with Reservation of Mineral Royalty - January 1992 to
Kennecott.
10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to Kennecott.
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
10.5 Deed and Assignment with Reservation of Mineral Royalty - August
1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty - December
1992 (6,320 acres) to Kennecott.
The following documents are incorporated herein by reference from the
Registrant's Current Report on Form 8-K, dated August 8, 1995, as filed with
the Securities and Exchange Commission:
2.01 Agreement and Plan of Reorganization.
3.05 Articles of Share Exchange (Utah).
3.06 Articles of Share Exchange (Washington).
4.01 Subscription and Investment Agreement.
4.02 Stock Purchase Option Certificate.
19.01 Material Furnished to Celebration Securityholders.
20.01 Letter from Royal to Share Exchange Securityholders.
<PAGE> 148
The following documents are incorporated herein by reference from the
Registrant's Form S-8 Registration Statement filed with the Commission on
July 17, 1995.
4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1 to the
Plan.
The following documents are incorporated herein by reference from the
Registrant's Form SB-2 Registration Statement filed with the Commission on
February 10, 1997:
10.7 Vipoint Joint Venture Agreement.
10.8 Option to Joint Venture with Placer Mining Corporation, dated April
19, 1996.
10.9 Amendment to Option to Joint Venture with Placer Mining Corproation
dated the 22nd day of July, 1996.
10.10 Exploration Agreement and Purchase/Joint Venture Option.
10.11 Purchase Agreement with Imperial Energy Corp.
The following documents are incorporated herein by reference from the
Registrant's Form SB-2 Registration Statement filed with the Commission on
September 12, 1997:
5.1 Opinion of Conrad C. Lysiak.
The following documents are included as exhibits hereto:
10.12 Unilateral option to Purchase Mining Concessions from Sociedad de
Exploarciones Y Explotaciones Mineras Oregon Limitada.
10.13 Modification of Unilateral Purchase Option Contract of Mining
Concessions.
10.14 Unilateral option to Purchase Mining Concessions from Compania
Minera San Enrique S.C.M. Y Otra.
24.1 Consent of Williams and Webster, P.S.
24.2 Consent of Conrad C. Lysiak.
28.1 Warrant Agreement.
28.2 Selling Agent Agreement.
All other schedules and exhibits are omitted, as the required
information is not applicable or is not present in amount sufficient to
require submission of the schedule or because the information required is
included in the financial statements and notes thereto.
</TABLE>
<PAGE> 1
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
REPERTORY N0. 364
UNILATERAL OPTION TO PURCHASE
MINING CONCESSIONS
COMPANIA MINERA ROYAL SILVER LIMITADA
FROM
SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS
OREGON LIMITADA
*****
*****************
**************************************
25864/M28&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&/but.
In Santiago, Chile, on the thirty first of July of 1997, before
me, ALBERTO HERMAN MONTAUBAN, attorney, Notary Public replacing
the head of office of the Twenty second Notary of this
jurisdictional territory Mr. Humberto Santelices Narducci, posted
to this city, number zero forty-seven Avenida El Bosque Norte,
Las Condes, have appeared: Mr. JAIME ALFREDO ARIAS FARIAS,
Chilean, married, geologist, National ID number five million,
one hundred eighty-one thousand, seventy-six dash seven,
representing, as will be accredited by SOCIEDAD DE EXPLORACIONES
Y EXPLOTACIONES MINERAS OREGON LIMITADA, both domiciled for this
purpose in Antofagasta, 1932 Bernardo O'Higgins Avenue, Suite 41,
and passing through this city, hereafter also called the
"Offering party", and CESAR ANDRES LOPEZ ALARCON, Chilean,
married, attorney, National ID number nine million, five
hundred eighty-one thousand, one hundred twenty-six dash four,
representing, as will be accredited, "ROYAL SILVER MINES INC."
and the latter, in turn, representing MINERA ROYAL SILVER
LIMITADA, draft transfer company, Tax ID number seventy-seven
million, three thousand four hundred ten dash eight, both
residing, for these purposes, at Calle Bombero Adolfo Ossa 1010,
Suite 501, Santiago, hereafter also known as "Royal Silver" or
the "Beneficiary"; those who appear here are of legal age, and
have accredited their identity with me with the documents
referred to, do declare: FIRST: Mining Properties and
statements.- A) SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES
MINERAS OREGON LIMITADA is the owner of the rights of the
following mining exploration concessions in process, located in
the mining seat of Mocha, Huara-Pisagua Commune, Iquique
Province, First Region of Tarapaca, named: ONE) "BERMEJOS",
registered on page 470 under the number 308 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
<PAGE> 2
corresponding to the year 1997. TWO) "QUIMLI", registered on
page 471 under the number 309 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. THREE) "ZAPATA", registered on page 469 under the
number 307 in the Registry of Discoveries of the Conservator of
Mines of Pozo Almonte corresponding to the year 1997. FOUR)
"ORAN', registered
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
on page 468 under the number 306 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. FIVE) "POSITOS", registered on page 467 under the
number 306 in the Registry of Discoveries of the Conservator of
Mines of Pozo Almonte corresponding to the year 1997. SIX)
"GLADIOLO", registered on page 443 under the number 281 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. SEVEN) "VIOLETA",
registered on page 416 under the number 254 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. EIGHT) "ITURBE", registered on
page 480 under the number 318 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. NINE) "HUMAHUACHA", registered on page 481 under the
number 319 in the Registry of Discoveries of the Conservator of
Mines of Pozo Almonte corresponding to the year 1997. TEN)
"GUEMES", registered on page 482 under the number 320 in the
Registry of Discoveries of the Conservator of
(handwritten note in right margin) 1917
Mines of Pozo Almonte corresponding to the year 1997. ELEVEN)
"AGASTACO",
(handwritten note) 28/453
registered on page 483 under the number 321 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. TWELVE) "MATAN", registered on
page 480 under the number 322 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. THIRTEEN) "ANTILLA", registered on page 478 under the
number 316 in the Registry of Discoveries of the Conservator of
Mines of Pozo Almonte corresponding to the year 1997. FOURTEEN)
"TAFI", registered on page 477 under the number 315 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. FIFTEEN) "ANDALGALA",
<PAGE> 3
registered on page 476 under the number 314 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SIXTEEN) "CHEPES", registered on
page 473 under the number 311 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. SEVENTEEN) "TORTOLAREJOS", registered on page 509
under the number 347 in the Registry of Discoveries of the
Conservator of Mines of Pozo Almonte corresponding to the year
1997.
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
EIGHTEEN) "MALBRAN", registered on page 472 under the number 310
in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. NINETEEN)
"PATQUIA", registered on page 475 under the number 313 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. TWENTY) "CHUMBICHA",
registered on page 474 under the number 312 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. TWENTY-ONE) "PENA", registered
on page 508 under the number 346 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. TWENTY-TWO) "TARTAGAL", registered on page 479 under
the number 317 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
TWENTY-THREE) "CAFAYALE", registered on page 415 under the number
253 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. TWENTY-FOUR)
"TINOGASTA", registered on page 466 under the number 304 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. TWENTY-FIVE) "JACHAL",
registered on page 465 under the number 303 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. TWENTY-SIX) "ROQUE", registered
on page 507 under the number 345 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. TWENTY-SEVEN) "HONDO", registered on page 506 under
the number 344 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
TWENTY-EIGHT) "ESTERO", registered on page 505 under the number
343 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. TWENTY-NINE)
"RECREO", registered on page 504 under the number 342 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte
(Handwritten note) (49)
<PAGE> 4
corresponding to the year 1997. THIRTY) "MODESTO", registered on
page 503 under the number 341 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. THIRTY-ONE) "OMISTE", registered on page 502 under
the number 340 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
THIRTY-TWO) "SARAVIA", registered on page 501 under the number
339 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. THIRTY-THREE)
"CHARCAS", registered on page 500 under the number 338 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. THIRTY-FOUR) "LLANO",
registered on page 499 under the number 337 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. THIRTY-FIVE) "MONTE", registered
on page 498 under the number 336 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. THIRTY-SIX) "FRIAS", registered on page 493 under the
number 331 in the Registry of Discoveries of the Conservator of
Mines of Pozo Almonte corresponding to the year 1997.
THIRTY-SEVEN) "VILLAZON", registered on page 497 under the number
335 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. THIRTY-EIGHT)
"MAESTRO", registered on page 496 under the number 334 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. THIRTY-NINE) "CHICHASO",
registered on page 495 under the number 333 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FORTY) "CAMACHO", registered on
page 494 under the number 331 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. FORTY-ONE) "AYACUCHO", registered on page 492 under
the number 330 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
FORTY-TWO) "PALMERO", registered on page 491 under the number 329
in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. FORTY-THREE)
"BENINO", registered on page 490 under the number 328 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. FORTY-FOUR) "COLQUE",
registered on page 489 under the number 327 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FORTY-FIVE) "ESPOSOS",
registered on page 488 under the number 326 in the
<PAGE> 5 (Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. FORTY-SIX) "QUIJARRO",
registered on page 487 under the number 325 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FORTY-SEVEN) "SUIPACHA",
registered on page 486 under the number 324 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FORTY-EIGHT) "BUSTILLOS",
registered on page 485 under the number 323 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FORTY-NINE) "RON", registered on
page 456 under the number 294 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. FIFTY) "DANTAS", registered on page 457 under the
number 295 in the Registry of Discoveries of the Conservator of
Mines of Pozo Almonte corresponding to the year 1997. FIFTY-ONE)
"FREITAS", registered on page 458 under the number 296 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. FIFTY-TWO) "GOUVEA",
registered on page 459 under the number 297 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FIFTY-THREE) "LEMOS", registered
on page 460 under the number 298 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. FIFTY-FOUR) "MORONHA", registered on page 462 under
the number 300 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
FIFTY-FIVE) "JOHANNA", registered on page 463 under the number
301 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997.FIFTY-SIX) "BELEN",
registered on page 446 under the number 284 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FIFTY-SEVEN) "YOVANKA",
registered on page 464 under the number 302 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. FIFTY-EIGHT) "NOBUCO",
registered on page 461 under the number 299 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997.
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
<PAGE> 6
FIFTY-NINE) "VIRGINIA", registered on page 448 under the number
286 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. SIXTY) "MARGARITA",
registered on page 444 under the number 282 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SIXTY-ONE) "CASCADA", registered
on page 450 under the number 288 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. SIXTY-TWO) "TULIPAN", registered on page 449 under
the number 287 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
SIXTY-THREE) "RODRIGO", registered on page 447 under the number
285 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. SIXTY-FOUR)
"MARYLIN", registered on page 445 under the number 283 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. SIXTY-FIVE) "BARTOLO",
registered on page 442 under the number 280 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SIXTY-SIX) "GUMIEL", registered
on page 432 under the number 270 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. SIXTY-SEVEN) "CAMPERO", registered on page 433 under
the number 271 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
SIXTY-EIGHT) "TUMUSLA", registered on page 434 under the number
272 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. SIXTY-NINE) "RICO",
registered on page 435 under the number 273 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SEVENTY) "ANILLO",
registered on page 436 under the number 274 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SEVENTY-ONE) "SOLIS", registered
on page 451 under the number 289 in the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. SEVENTY-TWO) "CAMERINO", registered on page 452 under
the number 290
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. SEVENTY-THREE)
"CABRAL", registered on page 453 under the number 291 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. SEVENTY-FOUR) "RIBEIRO",
registered on page 454 under the number 292 in the Registry of
<PAGE> 7
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SEVENTY-FIVE) "GUANABARA",
registered on page 455 under the number 293 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SEVENTY-SIX) "PARI",
registered on page 417 under the number 255 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SEVENTY-SEVEN) "PARADETI",
registered on page 418 under the number 256 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SEVENTY-EIGHT) "MOXAS",
registered on page 419 under the number 257 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SEVENTY-NINE) "MAMORE",
registered on page 420 under the number 258 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. EIGHTY) "ABUNA", registered on
page 421 under the number 259 in the Registry of Discoveries of
the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. EIGHTY-ONE) "FORTIN", registered on page 437 under
the number 275 in the Registry of Discoveries of the Conservator
of Mines of Pozo Almonte corresponding to the year 1997.
EIGHTY-TWO) "CUELLAR", registered on page 438 under the number
276 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. EIGHTY-THREE)
"SEOANE", registered on page 439 under the number 277 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. EIGHTY-FOUR) "JUNIN",
registered on page 440 under the number 278 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. EIGHTY-FIVE) "INGAVI",
registered on page 441 under the number 279 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997.
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
EIGHTY-SIX) "ITENES", registered on page 422 under the number 260
in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. EIGHTY-SEVEN)
"BAURES", registered on page 423 under the number 261 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. EIGHTY-EIGHT) "COIMBRA",
registered on page 424 under the number 262 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. EIGHTY-NINE) "CELSO", registered
on page 425 under the number 263 in the Registry of Discoveries
<PAGE> 8
of the Conservator of Mines of Pozo Almonte corresponding to the
year 1997. NINETY) "CASTEDO", registered on page 427 under the
number 265 in the Registry of Discoveries of the Conservator of
Mines of Pozo Almonte corresponding to the year 1997.
NINETY-ONE) "BALLIVIAN", registered on page 426 under the number
264 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. NINETY-TWO)
"WARNES", registered on page 428 under the number 266 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997.
NINETY-THREE) "MOLDES", registered on page 429 under the number
267 in the Registry of Discoveries of the Conservator of Mines of
Pozo Almonte corresponding to the year 1997. NINETY-FOUR)
"IRALA", registered on page 430 under the number 268 in the
Registry of Discoveries of the Conservator of Mines of Pozo
Almonte corresponding to the year 1997. NINETY-FIVE) "SENDA",
registered on page 431 under the number 269 in the Registry of
Discoveries of the Conservator of Mines of Pozo Almonte
corresponding to the year 1997. SECOND: The Offering party
declares and guarantees that with regard to the mining
concessions noted in the first clause preceding, he has exclusive
and inclusive ownership rights; these were acquired under just
deed, in good faith, in accordance with law, rules and other
applicable norms; that the process of constituting these is
being carried out according to the law, rules and other
applicable norms; that they have no mortgages, obligations,
prohibitions, litigations, embargoes nor any other legal or
voluntary measure which may affect, perturb or embarrass their
free disposition or alienation and with their mineral patents
current; that other concessions of his ownership and/or of
related persons do not exist nor are known - understanding as
such, for the purposes of this contract, those referred to under
Article 100 of Law 18045 - which are in effect in the area noted
in the "Cadastral Plan"
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
which, signed by the parties, is added as a private attachment to
this contract, understood to form a part of the same. The
foregoing is without prejudice of the real prohibitions and
obligations which are constituted by this instrument. The
circumstances and events to which the preceding statement refer
have for "Royal Silver" the character of being essential and
definitive for the completion of this contract and the eventual
completion of the proposed sale and purchase contract. THIRD:
By means of the present document, the offering party offers
<PAGE> 9
irrevocably a purchase option and unilaterally obliges itself to
sell, cede and transfer to Compania Minera Royal Silver Limitada,
represented on this record by Mr. Cesar Andres Lopez Alarcon, the
mining exploration concessions noted in the first clause of this
contract. For the purposes mentioned, the offering party of
course and by means of this instrument expresses his consent to
the eventual sale and purchase of said mining concessions. The
beneficiary, for his part, in this record declares the offer and
the purchase option received and reserves the ability to freely
act on it within the time limits and the conditions stipulated in
the present contract. Also comprised in the current contract:
a) The inherent water rights, or according to the dispositions
of article 110 of the Mining Code, those which correspond
according to Mining Concessions, those which are constituted or
acquired by the Offering Party or persons related to it in regard
to the Mining Concessions and those who benefit or could benefit
the Mining Concessions and that the Offering Party and persons
related to it may come to possess, have, use or dispose of any
title; b) The rights of any kind over superficial terrain,
including ownership and/or easements, which might come to
correspond to the Mining Concessions and/or that the Offering
Party or persons related to it may obtain as a fruit of the
Mining Concessions: c) any other petition or manifestation, be
this pure and simple, or in the use of a preferred right which
may be conferred by a previous petition, which the Offering Party
or persons related to it may present in the Area of Interest,
indicated in the cadastral plan attached to the current
instrument, as well as the mining concessions which may be
derived from them; and d) in general, all other rights and goods
which currently may belong to or may come to belong in the future
to the Offering Party or persons related to it and which may be
necessary or convenient to construct and/or develop and/or
exploit a mine and/or factory and which may be found in the Area
of Interest. All of the rights and goods mentioned in the
preceding four paragraphs are understood to be ceded and
transferred by the Offering Party to the Beneficiary, at the
moment Royal Silver exercises its option, without further cost to
the latter, and without prejudice, that the Offering Party, in
order to put into practical effect that which is agreed to,
should as soon as possible: i) obtain from the persons related to
it the transfer in its favor, to later be included in the
Contract, of those rights and goods mentioned in the preceding
which are in their name, or whose possession, free use of and/or
mere occupation may be in the hands of such related persons; ii)
deliver all the legal records on said rights and goods to Royal
Silver; iii) submit, together with Royal Silver, however many
public and/or private documents may be required to
<PAGE> 10
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
expressly include said rights and goods in the Contract; and,
iv) at the time of inclusion in the Contract, show that the
events indicated in the First Article are in effect and
therefore, will make similar declarations concerning those
contained in the article just alluded to. On its part, the
Offering Party is obliged to carry out, opportunely and in its
case, all the actions, steps and paperwork which may be necessary
or pertinent to the correct and proper constitution, protection
and shielding of the Mining Concessions, as for example, a
manifestation of the use of the preferential right which may be
conferred by a petition, request for survey, opposition to a
request for a survey and/or suits for nullification of superposed
concessions and the relocation of meets and bounds and for the
processing and/or extension, in its case, of the mining
concessions that may eventually be constituted by the Offering
Party, by itself or through third parties, in the superficial
area of the Mining Concessions. All costs which occur on the
occasion of compliance with the obligations indicated in this
clause to the Offering Party, will be the exclusive obligation of
the Beneficiary. The cost of making and shielding new mining
possessions or exploration concessions on lands located within
the Area of Mining Concessions and which the Offering Party may
present upon previous request, expressly and in writing by Royal
Silver, will be the obligation of the latter. Lack of compliance
with the obligations mentioned in this clause on the part of the
Offering Party will empower Royal Silver to carry out itself the
paperwork that should have been done by the former. With the aim
that Royal Silver may proceed with the paperwork that the
Offering Party should have done, the latter confers a free and
special mandate on Royal Silver, as far reaching as the law may
require, so that it, by means of its directors or guardians which
it may specially designate, may represent the Offering Party
legally or extra-legally, and may in its name carry out all the
paperwork, steps, measures and actions necessary or conducive to
the proper formation, protection and shielding of the Mining
Concessions, being provided for in this case with the powers in
both sub-paragraphs of the Seventh Article of the Code of Civil
Procedure, which are given as reproduced. The delivery of this
mandate to Royal Silver in no case obligates the latter to
exercise it; if it exercises it, it will not be obliged to make
report and does not revoke other powers which may have been given
previously. FOURTH: The parties agree that the present option
contract will be governed by the dispositions of Article 169 of
the Mining Code, and additionally, by Articles 99 and 101 of the
Business Code, in such a way that it is absolutely within the
<PAGE> 11
power of "Royal Silver" to manifest or not its consent to perfect
the proposed purchase and sale contract. FIFTH: In the event
that "Royal Silver" opts to purchase the mining exploration
concessions offered in sale, it should so indicate by means of a
written public document made before the same Notary who
authorizes this contract, or before the person who replaces or
substitutes for him under any title, within the limit of three
years from the date of the present instrument. By the simple act
of subscription by "Royal Silver" or its assignee to the referred
public document of acceptance, it will be understood that the
purchase/sale has been perfected,
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
with the understanding that it is composed of this option
contract and said acceptance document. The holder of an
authorized copy of both documents is empowered to require the
pertinent registrations, sub-registrations and annotations.
SIXTH: If the beneficiary declares its intent not to reach an
agreement on the proposed purchase and sale contract at any time
within the three year limit stipulated in the previous clause,
and declares it thusly by means of a public document before the
Notary who authorizes it, or does not pay completely and
opportunely any of the payments of the price which are stipulated
in the seventh clause, the purchase option and the irrevocable
offer formulated by the present instrument, will no longer, ipso
facto, be valid, and in that event the beneficiary renounces
requesting the return of any amounts which it may have delivered
to the Offering Party, these amounts remaining for the benefit of
the latter as indemnization for any and all obligations
contracted in anticipation. In this case, there will be an
immediate lifting of all prohibitions and obligations which may
have been formed by reason of this contract, with no further step
than showing to the respective Conservator of Mines the
corresponding document of public declaration or by a certificate
from the Notary who carries out this function which shows that
the stipulated time limits have expired without the beneficiary
having accepted the offer and exercised the option or not having
made the stipulated payment of the price. SEVENTH: The price of
the proposed purchase/sale is the amount equivalent in pesos of
national currency to $356,000 dollars of the United States of
America, at the average bank dollar established in conformity
with number six of Title 1 of Chapter 1 of the Compendium of
International Exchange Norms by the Chilean Central Bank, for the
day before the payment is made, and is to be found published in
the Official Newspaper on the day of payment, commonly called the
"observed dollar"; on the dates of payment, and under the form
<PAGE> 12
and conditions which follow: a) the sum equivalent in pesos of
the national currency of $25,000 dollars of the United States of
America which will be paid by this act by cash payment, on check
number 31467 of ABN Amro Bank [Chile], of an equal amount and
which the Offering Party declares receiving to its complete and
total satisfaction; b) The sum equivalent in national currency of
$25,000 dollars of the United States of America, payable no later
than three months from the date of this contract; c) The sum
equivalent in national currency of $25,000 dollars of the United
States of America payable six months from the date of the present
document; d The sum equivalent in national currency of $25,000
dollars of the United States of America payable nine months from
the date of the present document; e) With the sum equivalent in
national currency of $25,000 dollars of the United States of
America payable twelve months from the date of the present
document; f) With the sum equivalent in national currency of
$25,000 dollars of the United States of America payable fifteen
months from the date of the present document; g) With the sum
equivalent in national currency of
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
$25,000 dollars of the United States of America payable eighteen
months from the date of the present document; h) With the sum
equivalent in national currency of $25,000 dollars of the United
States of America payable twenty-one months from the date of the
present document; and i) With the sum equivalent in national
currency of $156,000 dollars of the United States of America
payable thirty-six months from the date of the present document.
In addition, and having it understood that it not be a part of
the previously indicated price, "Royal Silver" is obligated by
this document to spend, within the time limit of three years from
the date of this contract, the sum equivalent in pesos of the
national currency to $200,000 dollars of the United States of
America to cover, and without this enumeration being restrictive,
the costs related to the formation of the definitive mining
property in the individually noted concessions of the first
clause, geological, geochemical, and geophysical surveys,
ditches, probes, proposals for and operation of measurements, and
in general, all types of investigation which will allow a
qualitative and quantitative evaluation of the exploration
concessions already noted individually. With all this, in the
event that "Royal Silver" exercises the option and declares its
willingness to accept the offer while the time limit of
thirty-six months stipulated in this clause is still pending, it
<PAGE> 13
will be a condition for the exercise of the option and the
acceptance to be valid that "Royal Silver" make ahead of time all
the payments for the purchase and sale price which might be
pending, and which in the same fashion, may have spent and so
have credited to the Offering Party, by means of receipts,
invoices, honorarium vouchers, and other basic pertinent
documentation, the sum of $200,000 dollars referred to in this
clause. The making of each of the payments of the price will be
done at the place of business of "Royal Silver", upon the signing
by the Offering Party of the corresponding public document of
receipt. In this case, it will be understood that the payment
obligation has been complied with integrally and completely, with
the delivery to the Notary who authorizes this document, or his
successor or replacement, of a promissory note made out to the
Offering Party, in pesos of the national currency for the amount
of the stipulated payment, calculated in the way described in
this clause. The Notary will deliver to the Offering Party the
corresponding promissory note upon the signing of the
corresponding document of receipt. EIGHTH: The Offering Party
delivers to the Beneficiary the individual mining concessions in
the first clause, expressly authorizing "Royal Silver" to be
able, at the corresponding legal opportunity, by the persons it
may designate, to enter its own materials into the mining
properties, and to carry out in them every type of work of
prospecting, reconnaissance, searching, and in general,
investigations which permit a qualitative and quantitative
evaluation of the concessions, and to introduce into the
concessions all types of equipment and machinery to carry out the
work of reconnaissance and prospecting and to install camps for
the personnel who will work in them, and the Offering Party
should facilitate whatever is necessary for these purposes.
"Royal Silver" is obligated to
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
deliver to the Offering Party a report on the exploratory work
carried out and its results, in the event the option is not
exercised or it is nullified for any of the causes stipulated in
the sixth clause. NINTH: The Offering Party makes, in this
action, a voluntary prohibition that it will not damage, remove,
or carry out actions and contracts regarding the mining
concessions indicated in the first clause, without previous
written consent from "Royal Silver", whose respective
registration in the Registry of Prohibitions of the Conservator
of Mines can be required by the holder of an authorized copy of
this document. The foregoing is without prejudice to the
registering of the present contract with the Registry of
<PAGE> 14
Mortgages and Obligations in conformity with Article 169 of the
Mining Code. TENTH: If, during the time this contract is in
force, the beneficiary thinks it necessary or convenient to
request concessions for mining exploration or exploitation,
concessions for water use, civil and mining easements,
concessions, free loans or destinations of superficial soil, it
may do so assuming their costs, understanding that they form a
part of the option for all legal purposes. In the event that the
option contract becomes void for any cause, the concessions or
rights which may have been obtained over the shielded terrain by
the belongings which are a subject of the present contract, will
be transferred to the Offering Party without any cost to the
latter. ELEVENTH: Without prejudice from Article 1901 of the
Civil Code, "Royal Silver" may at any time, being authorized from
now on by the Offering Party without need for prior notice, sell,
cede, transfer, or by any means dispose of all or part of its
rights in this contract, if the purchaser or cessionary always
states in the contract which serves as title to his acquisition
that he will comply with exactly the same and all of the
obligations which "Royal Silver" has contracted by virtue of this
contract, in the same terms and as if this contract had been
agreed to by said cessionary and obligating itself to impose the
same obligations to any later cessionary. TWELFTH: It will
correspond to "Royal Silver" to assume the obligation to shield
the mining concessions which are the subject of this contract by
means of the complete and timely payment of the respective mining
patents prior to receipt of proofs of the respective payments
given by the Offering Party. THIRTEENTH: The mining concessions
are sold as is, in the condition they may be in on the day of
agreement to this contract, with all of their uses, customs,
rights and active and passive easements, free from debt,
obligations, prohibitions, litigations, embargoes, purchase/sale
contracts for in situ minerals, rents, or any other kind of
action or contract, obligations, real and personal rights which
may impede the free use, enjoyment, disposition and delivery of
the mining concessions indicated individually in the first clause
and in the same conditions stated in the second clause. The
Offering Party will be responsible for the guarantee required by
the law. FOURTEENTH: The present contract will obligate all
successors to any deed of the Offering Party. FIFTEENTH: In the
event of the termination of this option contract, "Royal Silver"
will have 90 days to
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
<PAGE> 15
vacate the concessions and to remove from them all the machinery,
equipment and construction which may have been placed on them.
In the event that "Royal Silver" finds itself impeded by weather
conditions or other unavoidable causes, the time limit will be
extended for a reasonable period after the impediment has been
removed. SIXTEENTH: It is noted and declared that this present
contract is governed by Chilean law. The same is agreed to with
respect to the proposed sale/purchase contract, as well as the
eventual modifications of either one. SEVENTEENTH: The expenses
and fees which are generated on the occasion of this present
contract and on the offered purchase/sale contract, and the fees
for registrations in the respective Conservator of Mines, will be
the responsibility of "Royal Silver". This latter will not
respond to any instance of taxes and other personal charges to
the Offering Party which derive from the option and/or the
purchase/sale referred to. EIGHTEENTH: All difficulties,
differences of opinion, disputes or controversies which may come
up between the Offering Party, on the one hand, and "Royal
Silver" and/or its cessionaries on the other hand, related to the
stipulations of the present contract, which may be related to its
validity, interpretation, compliance or resolution, will be
resolved by an arbitrator. The parties designate by this action
for that purpose Mr. Samuel Lira Ovalle and in the event that he
can not or does not wish to accept the charge, they designate Mr.
Juan Luis Ossa Bulnes, and in the event that he, in turn can not
or will not accept the charge, the parties designate Mr. Claudio
Illanes Rios, who will have the character of arbitrating
arbitrator. Mr. Lira, or Mr. Ossa, or Mr. Illanes, as may be the
case, is empowered to decide on the rules of procedure, including
that concerning the form of notification of the parties, but
should in any case make the first notification personally, or in
compliance with the statutes of Article 44 of the Civil Procedure
Code. If the previously named persons are unavailable, the
Arbitrator will be designated by common agreement between the
parties, and if that agreement is lacking, the designation will
be made by the Civil Judge in Santiago who is so scheduled, but
in this last case the arbitrator, who will act as the only
resort, should be an attorney and will act as an arbitrator in
the procedure and as an administrative law judge in the finding,
with the designation falling only on a person who has been a
lawyer to the Supreme Court or the Appeals Court for two
consecutive periods. The site of the tribunal will be the city
of Santiago. The decision rendered will not be subject to
appeal, (a right ) which both parties expressly waive. The
arbitrator is empowered, in the event that it be necessary to
obtain compliance with the respective contract and if he
considers it proper, to sign representing the Offering Party the
public document in which is completed the purchase/sale of the
mining exploitation concessions indicated in the first clause.
NINETEENTH: While the present option contract is in effect, and
as long as the offered purchase/sale has not been agreed to,
"Royal Silver" may demand the resolution ipso-facto of the same
<PAGE> 16
if the title deeds of the mining concessions indicated
individually in the first clause are not prepared according to
law and in the conditions stated in the second clause, or if the
defects which they
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
may have are not resolvable, in the opinion of the attorneys for
the parties. In the case of resolvable defects, the Offering
Party is obliged to give its complete cooperation for the search,
giving, and delivery of the documents required to resolve the
defects, and is obliged to carry out, at its own expense, all the
procedures and measures which may be necessary. But, if said
resolvable defects are of such importance that they might affect
the rights of "Royal Silver" or its cessionaries or place in
danger the development of the exploration or of the project,
while those defects are not resolved or cured, "Royal Silver" may
suspend the price payments, and extend for an equal time period
the time limits that "Royal Silver" has for exercising its
rights. Once the offered purchase/sale is agreed to, the
obligation to resolve and cure will continue according to the
law. TWENTIETH: If compliance with any obligation emanating
from this contract, or with the time limit for the exercising of
a right by any of the parties, is impeded by chance circumstance
or dire necessity, the time limit for compliance with the
obligation or for the exercise of the right, as it may be, is
extended for a time equal to the lapse during which the chance
circumstance or dire necessity exists. TWENTY-FIRST: All
communication between the parties which has no specially
designated format in this contract will be done by Fax, followed
by notarized, certified letter, to the places of business
indicated in this contract. For the purposes of this contract,
the parties locate their places of business in the city of
Santiago, expressly extending the competence of their
jurisdictional bodies. TWENTY-FIRST: (sic) The holder of an
authorized copy of the present instrument is empowered to require
the registration, sub-registration and annotations which must
take place in the corresponding registries of the competent
Conservators of Mines. The appearance of Mr. Jaime Arias Farias
in representation of Sociedad de Exploraciones y Explotaciones
Mineras Oregon Limitada is contained in a Writ by public
document dated the twentieth of February 1990, made before Notary
Mr. Jose Luis Gumucio Barros, deputy for Mr. Humberto Santelices
Narducci. The appearance of Mr. Cesar Andres Lopez Alarcon in
representation of "Compania Minera Royal Silver Limitada" and of
"Royal Silver Mines Incorporated", is contained in a Writ by
public document dated the ninth of July 1997, made in the
<PAGE> 17
Notary office in Santiago of Mr. Humberto Santelices Narducci and
the power probated in the same Notary office under the number 15
dated 9 July 1997, respectively, appearances which are not
inserted because they are known to the parties and to the
authorizing Notary. In proof and with prior reading, are signed.
- In witness of (Illegible initials). -
(illegible signature) (illegible signature)
Jaime Alfredo Arias Farias Cesar Andres Lopez Alarcon
THIS IS A FAITHFUL COPY OF THE ORIGINAL PUBLIC DOCUMENT SANTIAGO
01 APR 1997
(Illegible signature)
(Illegible Seal ) (Partially illegible stamped title )
XXII Notary Santiago
<PAGE> 1
MODIFICATION OF UNILATERAL PURCHASE OPTION CONTRACT
OF MINING CONCESSIONS
COMPANIA MINERA ROYAL SILVER LIMITADA
FROM
SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON LIMITADA
APPEARING: In Santiago, a (blank space) have presented
themselves JAIME ARIAS FARIAS, Chilean, married, geologist,
residing in Antofagasta, Avenida Bernardo O'Higgins 1932, Office
41, and on a trip to here, National ID number five million, one
hundred and eighty-one thousand, seventy-six dash seven,
representing, as will be accredited, SOCIEDAD DE EXPLORACIONES Y
EXPLOTACIONES MINERAS OREGON LIMITADA, both with residence for
this purpose in Antofagasta, Avenida Bernardo O'Higgins 1932,
Office 41, and on a trip here, in future called "Oregon: or the
"Offering Party" and CESAR ANDRES LOPEZ ALARCON, Chilean,
married, attorney, National ID number nine million, five hundred
eighty thousand one hundred twenty-six dash four, representing as
will be accredited, "ROYAL SILVER MINES INC." and this, in turn,
representing MINERA ROYAL SILVER LIMITADA, a draft transfer
company of its denomination, National Tax ID number seventy-seven
million, three thousand, four hundred ten dash eight, both
residing for these purposes at Calle Bombero Adolfo Ossa number
1010, Office 501, hereafter also called "Royal Silver" or the
"Beneficiary", of legal age, who prove their identity with the
documents already cited, do state: FIRST: Those appearing here,
for the present instrument, have come to modify the seventh
clause of the unilateral purchase option contract for mining
concessions made before this Notary, under Repertory number three
hundred sixty-four, dated thirty-one July nineteen hundred and
ninety-seven, replacing it with the following: "SEVENTH: The
price of the proposed purchase/sale is the quantity equivalent in
pesos of the national currency to the average set in accordance
with Number Six of Title 1 of Chapter 1 of the Compendium of
International Exchange Norms by the Central Bank of Chile, for
the day prior to making the payment and which is published in the
Diario Oficial on the same day of payment, commonly called the
"observed dollar", on the dates for payment, and in the manner
and conditions set forth in the following: a) With the sum of
twenty-five thousand dollars of the United States of America
payable in cash on the thirty-first day of July of nineteen
hundred and ninety-seven, by check number 31467 of ABN Amro Bank,
Chile, for that amount and which the Offering Party declares
receiving to its complete and total satisfaction; b) With the
sum equivalent in pesos of the national currency of twenty-five
thousand dollars of the United States of America, payable no
later than the thirty-first of October, nineteen hundred and
ninety-seven; c) The sum equivalent in pesos of the national
currency of twenty-five thousand dollars of the United States of
America payable no later than the thirty-first of January,
nineteen hundred and ninety-eight; d) The sum equivalent in
pesos of the national currency of twenty-five thousand dollars of
the United States of America payable no later than the thirtieth
<PAGE> 2
of April, nineteen hundred and ninety-eight; e) The sum
equivalent in pesos of the national currency of twenty-five
thousand dollars of the United States of America payable no later
than the thirty-first of July, nineteen hundred and ninety-eight;
f) The sum equivalent in pesos of the national currency of
twenty-five thousand dollars of the United States of America
payable no later than the thirty-first of October, nineteen
hundred and ninety-eight; g) The sum equivalent in pesos of the
national currency of twenty-five thousand dollars of the United
States of America payable no later than the thirty-first of
January, nineteen hundred and ninety-nine; h) The sum
equivalent in pesos of the national currency of twenty-five
thousand dollars of the United States of America payable no later
than the thirtieth of April, nineteen hundred and ninety-nine;
Additionally, as a surcharge, and once the conditions set forth
in the following are met, "Royal Silver" or its cessionary is
obliged by this action to pay "Oregon" the following sums of
money: ONE: The sum equivalent in pesos of the national
currency of five hundred thousand dollars of the United States of
America payable no later than the thirty-first of July, of the
year two thousand and two; TWO: The sum equivalent in pesos of
the national currency of one million dollars of the United States
of America payable no later than the thirtieth of July, of the
year two thousand and three; THREE: The sum equivalent in pesos
of the national currency of one million dollars of the United
States of America payable no later than the thirty-first of July,
of the year two thousand and four; FOUR: The sum equivalent in
pesos of the national currency of one million five hundred
thousand dollars of the United States of America payable no later
than the thirtieth of July, of the year two thousand and five.
This surcharge will be payable only in the event that, together,
the following conditions are met: a) That all the rights over
the mining concessions belonging to "Oregon" have been
transferred to "Royal Silver" or to its cessionary; and, b)
That "Royal Silver" or its cessionary, at the moment the
surcharge payments become payable, are in material and legal
possession of all of the rights of "Oregon" over the respective
concessions, free from all embargoes, obligations, or
prohibitions. With all this, in the event that "Royal Silver"
were to exercise its option and show its willingness to accept
the offer within the pending time limit of twenty-one months
stipulated in this clause for the payment of the price of two
hundred thousand dollars of the United States of America already
referred to, it will be a condition for the exercise of the
option and its acceptance to go into effect, that "Royal Silver"
make ahead of time all payments for the purchase/sale price which
may be pending. The making of each of the payments for the price
will be done be means of delivery to the Notary who authorizes
this document, or his successor or replacement, of a promissory
note made out to the Offering Party, in pesos of the national
currency for the amount of the stipulated payment, calculated in
the way described in this clause. The Notary will deliver the
<PAGE> 3
corresponding promissory note upon the signing by the Offering
Party of the corresponding document of receipt." SECOND: The
holder of an authorized copy of the present instrument is
empowered to require the registration, sub-registrations and
annotations which should take place in the corresponding
registries of the competent Conservators of Mines. The
appearance of Mr. Jaime Arias Farias, to represent Sociedad de
Exploraciones y Explotaciones Mineras Oregon Limitada is shown by
a public document of Executor dated the twentieth of February
nineteen hundred and ninety, made before the Notary Mr. Jose Luis
Gumucio Barros, deputy for Mr. Humberto Santelices Narducci. The
appearance of Mr. Cesar Andres Lopez Alarcon to represent
"Compania Minera Royal Silver Limitada" and "Royal Silver Mines
Incorporated", is shown in the public document dated 9 July 1997,
made at the Notary Office of Santiago of Mr. Humberto Santelices
Narducci and in the power protocol given by the same Notary under
the number 15 dated 9 July 1997, respectively, appearances which
are not included by reason of being known to the parties and to
the authorizing Notary.- In proof and with prior reading, those
who here appeared have signed the present instrument. - In
witness of. -
Jaime Arias Farias
National ID No 5.181.076-7
pp. SOCIEDAD DE EXPLORACIONES Y EXPLOTACIONES MINERAS OREGON
LIMITADA
Cesar Andres Lopez Alarcon
National ID No 9.581.126-4
pp. COMPANIA MINERA ROYAL SILVER LIMITADA
<PAGE> 1 (Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
REPERTORY No249
***
*****
UNILATERAL OPTION TO PURCHASE
MINING CONCESSIONS
*****
(handwritten) 23/7
"COMPANIA MINERA ROYAL SILVER LIMITADA"
FROM
"COMPANIA MINERA SAN ENRIQUE S.C.M. Y OTRA"
***
*****
25788/30 &&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&/allo
In Santiago, Chile, on the twenty-third of July of 1997, before me,
ALBERTO HERMAN MONTAUBAN, attorney, Notary Public replacing the
head of office of the Twenty second Notary of this jurisdictional
territory Mr. Humberto Santelices Narducci, posted to this city,
number zero forty-seven Avenida El Bosque Norte, Las Condes, have
appeared: Mr. PEDRO ENRIQUE ESCALA BALTRA, Chilean, married and
with complete separation of properties, attorney, National ID
number four million, one hundred one thousand, four hundred
seventy-one dash seven, and Mr. FERNANDO ANDRES ESCALA BALTRA,
Chilean, married, licensed in law, National ID number six million,
three hundred forty thousand, four hundred eighteen dash seven,
both representing, as will be shown at the end, "COMPANIA MINERA
SAN ENRIQUE S.C.M.", Tax ID number eighty-seven million, seven
hundred fourteen thousand, one hundred dash four, and "COMPANIA
MINERA COBRE IQUIQUE S.C.M.", National Tax ID number eighty-three
million, seven hundred seven thousand, three hundred dash two, both
domiciled for this purpose at Calle Marchant Pereira number 201,
Office 802, Providencia, Santiago, hereafter also called the
"Owners" or the "Offering party", on the one hand; and, on the
other, Mr. CESAR ANDRES LOPEZ ALARCON, Chilean, married, attorney,
National ID number nine million, five hundred eighty-one thousand,
one hundred twenty-six dash four, representing, as will be
accredited, "ROYAL SILVER MINES INCORPORATED", and the latter in
turn representing "COMPANIA MINERA ROYAL SILVER LIMITADA", National
Tax ID number seventy-seven million, three thousand, four hundred
ten dash eight, Chilean draft transfer company, hereafter also
called "Royal Silver" or the "Beneficiary", both residing, for
<PAGE> 2
these purposes, at Calle Bombero Adolfo Ossa 1010, Suite 501,
Santiago; those who appear here are of legal age, and have
accredited their identity with me with the documents referred to,
do declare: FIRST: Mining Properties and statements.- A)
"Compania Minera San Enrique S.C.M." is the owner of the mining
properties producers of copper, gold and silver, located in the
mining seat of Mocha, Huara-Pisagua Commune, Iquique Province,
First Region of Tarapaca, named: ONE) "SAN ENRIQUE PRIMERA,
SEGUNDA Y TERCERA", whose survey records and approving resolution
are registered on page 481 and one following under the number 71 in
the Registry of Properties of the Conservator of Mines of Iquique
from the year 1937. -
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
Said survey records and approving resolution are presently re-
registered on page 66 number 9 of the Registry of Properties of the
Conservator of Mines of Pozo Almonte, from the year 1981; TWO)
"MARIA INES UNO AL CUARENTA", whose survey records and approving
resolution are registered on page 419 and one following under the
number 24 in the Registry of Properties of the Conservator of Mines
of Iquique corresponding to the year 1961. Said survey records and
approving resolution are presently re-registered on page 57 and
following, number 8 of the Registry of Properties of the
Conservator of Mines of Pozo Almonte, from the year 1981; THREE)
"TADEO UNO AL DIEZ", whose survey records and approving resolution
are registered on page 1 under the number 1 in the Registry of
Properties of the Conservator of Mines of Iquique corresponding to
the year 1945. Said survey records and approving resolution are
presently re-registered on page 83, number 12 of the Registry of
Properties of the Conservator of Mines of Pozo Almonte, from the
year 1981. - "Compania Minera San Enrique S.C.M." acquired the
title deed to the mining properties individually noted in numerals
one, two and three preceding by payment effected on the
corresponding public document of incorporation of company dated
three October 1980, granted before the Notary of Santiago Mr.
Samuel Fuchs Brotfeld, which was registered on page 78 number 48 of
the Registry of Properties of the Conservator of Mines of Iquique,
in the year 1980, and are presently re-registered on page 103,
number 16 of the Registry of Properties of the Conservator of Mines
of Pozo Almonte, from the year 1981. FOUR) "GLORIA UNO AL SIETE,
whose survey records and approving resolution are registered on
page 41 under the number 16 in the Registry of Properties of the
Conservator of Mines of Pozo Almonte in the year 1982. - "Compania
Minera San Enrique S.C.M." acquired the title deed to these
properties at auction, as is shown in the public document dated 25
July 1996, granted before the Notary Public of the Associated
<PAGE> 3
Communes of Camina, Huara, Pica and Pozo Almonte, Mr. Enso Arnoldo
Gonzalez Gonzalez, registered on page 762, number 174 of the
Registry of Properties of the Conservator of Mines of Pozo Almonte
from the year 1996. - FIVE) "DONA MARIA TERCERA UNO AL CUARENTA",
whose survey records and approving resolution are registered under
the name of "Compania Minera San Enrique S.C.M. on page 64, number
29 in the Registry of Properties of the Conservator of Mines of
Pozo Almonte in the year 1997. - It has been shown that "Compania
Minera San Enrique S.C.M." acquired the rights arising from the
demonstration of said mining properties via purchase/sale according
to the public document dated 11 July 1995,
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
given before the Notary of Santiago Mr. Felix Jara Cadot and
registered on page 3467, number 2051 of the Registry of Discoveries
of the Conservator of Mines of Pozo Almonte, for the year 1995. -
B) "Compania Minera Cobre Iquique S.C.M." is owner of the mining
properties producers of copper, gold and silver, located in the
mining seat of Mocha, Huara-Pisagua Commune, Iquique Province,
First Region of Tarapaca, named: ONE) : MARCELINA OR MARCELINA
PRIMERA", whose survey records and approving resolution are
registered on page 112 under the number 25 in the Registry of
Properties of the Conservator of Mines of Iquique corresponding to
the year 1936. Said survey records and approving resolution are
presently re-registered on page 71, number 10 of the Registry of
Properties of the Conservator of Mines of Pozo Almonte, from the
year 1981. - TWO) "MARCELINA CUARTA Y QUINTA", whose survey
records and approving resolution are registered on page 166 under
the number 34 in the Registry of Properties of the Conservator of
Mines of Iquique corresponding to the year 1938. This survey
record and approving resolution are presently re-registered on page
75 and following, number 11 of the Registry of Properties of the
Conservator of Mines of Pozo Almonte, from the year 1981. - THREE)
"PASCUALA PRIMERA Y SEGUNDA", whose survey records and approving
resolution are registered on page 96 under the number 17 in the
Registry of Properties of the Conservator of Mines of Iquique
corresponding to the year 1948. - Said survey records and
approving resolution are presently re-registered on page 91, number
13 of the Registry of Properties of the Conservator of Mines of
Pozo Almonte, from the year 1981. - FOUR) "ANGELA", whose survey
records and approving resolution are registered on page 336 and
following, under the number 197 in the Registry of Properties of
the Conservator of Mines of Iquique corresponding to the year 1992.
Said survey records and approving resolution are presently re-
registered on page 125 and following, number 19 of the Registry of
Properties of the Conservator of Mines of Pozo Almonte, from the
<PAGE> 4
year 1981. - FIVE) "ADELA", whose survey records and approving
resolution are registered on page 335 and following, under the
number 196 in the Registry of Properties of the Conservator of
Mines of Iquique corresponding to the year 1912. Said survey
records and approving resolution are presently re-registered on
page 123 and following, under number 18 of the Registry of
Properties of the Conservator of Mines of Pozo Almonte, from the
year 1981. - All of these properties were acquired by "Compania
Minera Cobre Iquique Ltda.", today "Compania Minera Cobre Iquique
S.C.M.", via purchase from "Compania Minera San Enrique S.C.M.",
according to public document dated 6 January 1986, given before the
Notary of Santiago Mr. Felix Jara Cadot, registered on page 11 and
following, number 2, of the Registry of Properties of the
Conservator of Mines of Pozo Almonte, from the year 1986. - All of
the preceding individually indicated mining properties
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
will be hereafter called, together or separately, according to the
requirements of the text, "Mining Concessions". - C) Statements.
- - The "Offering Parties" state and guarantee: One. - That the
"Mining Concessions" described in the previous letters A) and B)
are of their exclusive ownership, and are free from mortgages,
obligations, embargoes and prohibitions, promises and options of
any type, from renters and occupiers of any type. - Two. - That
the mining patents which correspond to the "Mining Concessions"
indicated in the preceding letters A) and B) have been properly
canceled to this date and Three. - That the "Offering Parties"
have no knowledge of any legal action or pending judgment which may
affect or may be related in any manner with the "Mining
Concessions". Also included in the present contract the inherent
water rights, or which, according to the dispositions of Article
110 of the Mining Code, may correspond to the "Mining Concessions".
If, during the validity of this contract the "Beneficiary" may deem
it necessary to present, require or request showings, requests,
mining concessions for explorations and exploitation, water use
concessions, civil and mining easements or administrative
concessions intended for the best development of exploration and
exploitation of the "Mining Concessions" subject to this contract
and within the area of interest which the parties establish in a
private document prepared on this same date, then these may be
requested only in the name of the "Offering Parties" or the
"Beneficiary", but the costs of processing and constitution will
always be a charge of the latter. In the event the definitive
purchase/sale is carried out, all the showings, requests, mining
concessions, water use rights, easements, administrative and other
concessions which are in the name of the "Offering Parties" and
<PAGE> 5
within the indicated "area of interest" are understood to be
included in the purchase/sale, without any change in the agreed
upon price and should be transferred to the "Beneficiary" or its
cessionaries together with the "Mining Concessions" which are the
subject of this contract. If, on the contrary, the present option
is ended or lapses for any of the causes listed in this instrument,
the new showings, requests and mining concessions which may have
been made in the name of the "Beneficiary" and which are partially
or totally within the area of interest which the parties have
defined according to the foregoing statement, as well as the
applications or concessions for water use, easements and
administrative concessions which may have required or made for the
development and exploration of the deposits described by the
"Mining Concessions" the subject of this option, even when these
last might lie outside of said area of interest, should be
transferred by the "Beneficiary" to the "Offering Parties" within
the time limit of 60 days from the date on which a termination or
lapsing of this contract may have occurred, without any cost to the
"Offering Parties". The foregoing will govern particularly with
respect to the exploration concessions, showings, and exploitation
concessions which the "Beneficiary" may have acquired and derived
from the requests carried out by the
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
Sociedad de Exploraciones y Explotaciones Mineras Oregon Limitada
on land covered by the mining properties of the "Offering Parties"
and for a distance of up to two kilometers from the perimeter of
said mining properties. SECOND: Unilateral Purchase Option. -
By means of the present instrument, the "Offering Parties" offer
irrevocably and oblige themselves unilaterally to sell, cede and
transfer to the "Beneficiary", under terms to be described, the
"Mining Concessions" indicated individually in letters A) and B) of
the preceding clause, as well as the eventual rights to which they
will gain title as indicated in letter C) preceding, and which
Royal Silver, within the time limits here agreed to, agrees to
purchase and acquire. For the purposes mentioned the "Offering
Parties", by way of this instrument, declare of course their
consent for the eventual purchase/sale of said "Mining Concessions"
and rights. The "Beneficiary", on its part, limits itself in this
action to declare admissible the cited offer, reserving for itself
the power of exercising the option freely within the time limits
and the conditions which this contract presents.- Given the
unilateral character of the present contract, and in agreement with
the dispositions of Article 169 of the Mining Code, it is within
the power of "Royal Silver" to agree or not to agree to the
<PAGE> 6
proposed purchase/sale. THIRD: Time limits to exercise the
purchase option.- In the event the decision of the "Beneficiary"
is to accept the purchase offer and to agree to the proposed
purchase/sale contract, said decision should be shown via public
document at any time within the time limit which begins with the
subscription of the present contract and ends in sixty months
counted from the same date, but always that the payments of the
purchase/sale price stipulated in the fourth clause are up to date.
If there are still unmade payments, then on the same action of
acceptance the "Beneficiary" will have to pay in their entirety all
the payments of the price which are pending, without the prejudice
of reducing the purchase/sale price agreed to in the fourth clause
in the event of exercising the option within the limit of 48 months
from the date of this instrument. The public document of
acceptance of the offer, by which the definitive purchase/sale is
completed, should be given before the Notary Public that authorizes
the present document, or by his replacement or successor in the
position or before the Notary Public designated by common agreement
between the parties. The "Beneficiary" should communicate ahead of
time to the "Offering Parties" its decision to exercise the option
and accept the offer, be means of certified letter delivered
through a Notary Public to the address of the "Offering Parties"
indicated in this instrument, for the purpose of concurrence by the
latter for the receipt of the corresponding payment of the price.
"Royal Silver" may declare its decision not to agree to the
proposed purchase/sale at any time within the time limits agreed to
for the exercise of the option, by means of a statement given by
public document, whose delivery should be made to the "Offering
Parties" in the same form expressed earlier, and by which should
proceed the lifting and the cancellation of all the registrations,
sub-registrations and annotations which may have occurred in the
corresponding Registry of the Conservator of Mines, motivated by
this contract or in
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
relation to it. The expenses of cancellation and lifting referred
to will be the exclusive responsibility of Royal Silver. In the
event that "Royal Silver" states its decision to desist in the
purchase/sale, the payments of the purchase/sale price whose due
date comes after communicating said decision to desist will not be
owed. FOURTH: Price of the proposed purchase/sale.- The sole and
total price of the proposed purchase/sale of all the "Mining
Concessions" specified in the first clause, letters A) and B) and
the other goods and rights referred to in letter C), is the
quantity of five million dollars of the United States of North
America, payable in the equivalent currency of the Republic of
<PAGE> 7
Chile, at the value of the average banking dollar established in
conformity with Number 6 of Title One of Chapter One of the
Compendium of International Exchange Norms for the Central Bank of
Chile, for the day prior to the date of payment and published in
the Diario Official on the same date of payment, commonly called
the "observed dollar", in the amounts and on the dates specified
next: a) In the current action, the amount of fifty thousand
dollars of the United States of North America, in cash, by check
number 31460 of ABN Amro Bank, Chile in that amount, to the order
Mr. Pedro Enrique Escala Baltra, and that the "Offering Parties"
declare receipt to their complete satisfaction; b) Within the
first twenty days of the month of January of 1998, the amount of
one hundred thousand dollars of the United States of North America;
c) Within the first twenty days of the month of July of 1998, the
amount of one hundred sixty thousand dollars of the United States
of North America; d) Within the first twenty days of the month of
January of 1999, the amount of three hundred thousand dollars of
the United States of North America; e) Within the first twenty
days of the month of July of 1999, the amount of three hundred
thousand dollars of the United States of North America; f) Within
the first twenty days of the month of January of 2000, the amount
of five hundred thousand dollars of the United States of North
America; g) Within the first twenty days of the month of July of
2000, the amount of eight hundred thousand dollars of the United
States of North America; h) Within the first twenty days of the
month of July of 2001, the amount of one million, three hundred
ninety-five thousand dollars of the United States of North America;
i) Within the first twenty days of the month of July of 2002, the
amount of one million, three hundred ninety-five thousand dollars
of the United States of North America. If "Royal Silver" declares
its willingness to agree to the offered purchase/sale contract no
later than within the first twenty days of July of 2001, the
purchase price will be reduced to the sum of four million, five
hundred ten thousand dollars of the United States of North America,
having to pay completely at that time all remainder of the price
which may be pending on that date until the sum previously
indicated is completed. The making of the payments indicated by
the aforementioned letters b) through i) will be within the power
of the "Beneficiary" and in no case obligatory, except if "Royal
Silver" may desire to continue with this contract, in which case it
must make each of said
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
payments, completely, on the indicated dates, to maintain in effect
the option rights corresponding for the time until the next
immediate payment due date. Lack of timely payment by any of the
<PAGE> 8
due dates of the price previously indicated will cause by full
right the lapsing of the present option contract, under the terms
which follow. The price here agreed to will be one and total,
whether or not the "Beneficiary" opts for one, some or all of the
"Mining Concessions" and other rights referred to in the present
contract. For legal purposes, it is understood that one-third of
the total price agreed to corresponds to the "Mining Concessions"
owned by "Compania Minera Cobre Iquique S.C.M." and the remaining
two-thirds to the "Mining Concessions" owned by "Compania Minera
San Enrique S.C.M.". - FIFTH: Place and form of payment. - The
making of each of the payments just mentioned will be carried out
by the Notary who, as Titular, Interim or Deputy, holds the
position for the Twenty-second Notary of Santiago, currently
located on Avenida El Bosque Norte 147, Comuna de Las Condes, upon
the signature of the corresponding public document of receipt by
the person designated by the "Offering Parties" to receive the
payment. The making of each payment will done by means of a
nominative bank promissory note, to the name of the person
designated by the "Offering Parties". Without prejudice of the
preceding, complete and timely compliance with the optional charge
or obligation of "Royal Silver" with the "Offering Parties" to make
the payments of the price mentioned in the previous clause will be
understood, with the delivery to the aforementioned Notary within
the stipulated due dates, a bank promissory note made as mentioned
before and for the amount corresponding to the payment being dealt
with. The Notary will only deliver the promissory note to the
person designated by the "Offering Parties" upon signature of the
corresponding public document of receipt. The notary fees incurred
by reason of these payments will be the responsibility of the
"Beneficiary". SIXTH: In the event of acceptance of the offer by
the "Beneficiary" or its cessionaries, all the payments indicated
by the fourth clause become part of the price and will be imputed
to it. If, on the contrary, the "Beneficiary" declares at any
moment within the time limit for validity of the option its
decision not to exercise the option right given by the present
document or this becomes lapsed for any of the causes contemplated
in this instrument, "Royal Silver" will not carry a responsibility
of any kind and all of the moneys received by the "Offering
Parties" will remain in its control and benefit, without any
obligation for reimbursement, and for the purpose of compensatory
indemnization, unique, total and complete, of all emerging damages,
lucrum cessans or damages of any type, material or eventual, now or
in the future, which the "Offering Parties" might have experienced
by reason of the present option contract, be it because of
agreement, execution, or termination, as well as for any other
reason related to it and without obligation for any further
payment. The preceding is without prejudice to the responsibility
of "Royal Silver" to comply with the obligations established in the
eleventh clause. - SEVENTH: Surcharge. - In addition to the
purchase/sale price indicated in the fourth clause and which
reaches
<PAGE> 9
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
the amount of five million dollars of the United States of North
America or of four million, five hundred ten thousand dollars of
the United States of North America, whichever is the case, "Royal
Silver" will make annual payments to the "Offering Parties" by
reason of a surcharge or greater price, the sum of money equivalent
to two percent of the net smelting return, hereafter called "net
smelting return" or "NSR", which may be obtained by the
"Beneficiary" or its cessionaries as a result of the exploitation
of any of the "Mining Concessions" which are acquired by virtue of
the present contract. It will be understood for these purposes by
"net smelting return" or "NSR", the gross quantity that "Royal
Silver" may have received for the sale of concentrates and/or
precipitates already exploited of equal or superior value, coming
from the properties that "Royal Silver" may have acquired from the
"Offering Parties" by virtue of this contract, with deductions,
successively, of: a) all the corresponding and proper charges,
expenses, fines or adjustments for the smelting, refining,
management and sale, which have been incurred by the smelter,
refinery or other final buyer of the concentrates or precipitates
or other products so exploited; b) expenses for insurance and
transportation from the exploiting properties or plants, whether or
not this latter is located inside or outside of the properties, to
the smelting, refining or other place of processing or to the place
where concentrates or precipitates are received by third parties;
c) all expenses for sampling or assaying carried out or incurred
relative to sampling or assaying carried out after the
concentrates, precipitates or other products thus exploited may
have been removed for the purpose of determining their composition;
and d) taxes of any type and ad-valorem fees directly related to
the production being exported. There will be a stipulated
surcharge or "NSR" only if, together, "Royal Silver" or its
cessionaries: a) develop a mining exploitation project which
includes one or more of the "mining Concessions" referred to in the
first clause of this contract; b) from said concessions minerals
are extracted which are exploited until they are left in a state of
concentrate and/or precipitate, whatever its purity may be; c)
the concentrates and/or precipitates are sent to a smelter or a
refinery or are sold to a third party and returns are received
which, once the deductions previously indicated are carried out,
may produce the "net smelting return". For the payment of the
surcharge stipulated here, in the month of January of each year
"Royal Silver" will deliver to the "Offering Parties" or their
cessionaries a liquidation of the "net smelting return" received
during the previous calendar year, with sufficient documentation to
<PAGE> 10
determine its origins, which will be placed at the disposal of the
"Offering Parties" together with the corresponding value of the
surcharge established in the liquidation. If the "Offering
Parties" make no comment concerning the liquidation within ninety
days following its receipt, it will be understood that they have
definitively approved the liquidation and its payment. In the
event the "Offering Parties" have comments regarding said
liquidation and payment, they can require "Royal Silver" or its
cessionaries authorization for access to the related documentation,
who will be obliged to make them available, but
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Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
can only be reviewed by external auditors designated by the
"Offering Parties" and at their cost, and whose honoraria will be
reimbursed by "Royal Silver" if the comments are well-founded and
true. If the "Offering Parties" formulate comments, the
"Beneficiary" will have 60 days to declare if they accept or reject
them. If they were to be accepted by the "Beneficiary", it should
pay the difference within 30 days. If they were to be rejected or
the "Beneficiary" says nothing within the indicated 60 days, the
"Offering Parties" or their cessionaries have recourse to the
arbitrator designated in the present contract. The payment of the
surcharge agreed upon will be made at the offices of the "Offering
Parties" indicated in the present contract, upon delivery of the
corresponding receipt. Owing to the fact that the agreed upon
surcharge has a conditional and/or contingent character, and , for
the same reason, no resolutionary action is derived from it, and
even in the event that said surcharge is not owed, the "Offering
Parties", with all the more reason, come to renounce of course said
resolutionary actions. As a consequence, when the surcharge agreed
to according to what is stipulated here is not owed, the "Offering
Parties" will only be able to take action to demand their payment
if this is not done according to the agreement, for which purpose
they may also go before the arbitrator designated in this
instrument. EIGHTH: Other rights and obligations of Royal Silver.
One): "Royal Silver" may carry out in the mining concessions which
are the subject of the present contract, from now and during all
the time which it remains in effect, all types of work of
reconnaissance, prospecting, search and in general, investigations
which allow it to make qualitative and quantitative assessments of
the same, able for those purposes to introduce into the lands
comprised by the mining concessions, all types of equipment and
machinery, of their own or of third parties, to carry out the work
of investigation, reconnaissance, prospecting and exploration and
to install camps for the personnel who will work in them. In the
<PAGE> 11
aforementioned activities, "Royal Silver" will follow all the
mining safety procedures and norms in force in Chile, having
exclusive responsibility for any accident, damage or destruction
caused by its fault to properties and persons. If the contract
does not become effective, the promised buyer must remove, within
90 days of the lapsing, at its own cost, all this equipment and
machinery, except those installations whose removal could produce
deterioration, slides, demolition of existing works in the mining
concessions. In this contrary case, this equipment will remain for
the benefit of the "Offering Parties", at no cost to them. - In
the event of abandonment or lapsing, the minerals which are dug up
and the rubble accumulated by the end of the option which exist on
the mining concessions, will always continue to be property of the
"Offering Parties". Two) While the current option contract is in
effect, the "Offering Parties" may not initiate the exploitation of
the mining properties included in this contract, while the purchase
option has not been exercised and by which the offered
purchase/sale in this contract will be completed.
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Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
Three): While this purchase option is in force, it will be the
obligation of the "Beneficiary" to provide the necessary funds for
the payment of patents to shield the "Mining Concessions" indicated
individually in the first clause of this document, as well as the
rest of the concessions for exploration and exploitation which are
made in conformity with the statements in the first clause, letter
C). With that purpose, within the first fifteen days of March of
each year, the "Beneficiary" must deliver to the "Offering
Parties" the value which corresponds to the annual patent for each
of the respective concessions so that these can proceed with their
payment by the legal due date, with authorized copies of the proof
of said payment which must be remitted to the "Beneficiary".
NINTH: Form of sale and indemnification.- The mining concessions
will be sold as is, in the conditions in which they are found on
the day of agreement to the present contract, with all their uses,
rights, customs and easements if they exist, free from obligations,
prohibitions, litigations, embargoes, resolutionary actions,
contracts for the delivery of minerals or of rents, or any other
kind of action which could impede the free use, enjoyment,
disposition and delivery of all the "Mining Concessions" and other
goods referred to in the first clause. The "Offering Parties" will
be responsible for the guarantee in accordance with the law.
TENTH: Guarantee and prohibition from obligation and alienation.
- - By this action, the "Offering Parties" voluntarily make a
prohibition on themselves to neither obligate nor alienate, without
prior written consent from "Royal Silver", the "Mining Concessions"
<PAGE> 12
which are the subject of this contract and which are individually
indicated in the first clause, whose registration may be demanded
from the corresponding Conservator of Mines by the holder of an
authorized copy of this document. This prohibition will continue
while the option right which has been given to the "Beneficiary" is
in effect and is without prejudice of the legal effects which, in
accordance with Article 169 of the Mining Code, emanate from the
registration of the current option contract in the corresponding
Registry of Mortgages and Obligations of the Conservator of Mines.
ELEVENTH: Lapsing and termination of the option contract.- The
present option contract will lapse and remain without effect,
without need of judicial statement, in either of the following
cases: a) If the "Beneficiary" simply stops making completely and
in a timely way any of the payments indicated in letters b) through
i) of the fourth clause; b) If the "Beneficiary" does not make
its decision to agree to the definitive purchase/sale contract by
the sixtieth from the date of this instrument; and c) If the
"Beneficiary", at any time while the present contract is in effect,
indicates its intent to not agree to the definitive purchase/sale
contract by means of a statement given and notified in public
document in the form established in the third clause. In the event
that "Royal Silver" decides to not exercise its option in
accordance with letter c) preceding or it is understood that it
will not be exercised in accordance with letters a) or b)
preceding, "Royal Silver" is obligated to: One) Deliver to the
"Offering Parties", without any cost to them, all the geological
information resulting from sampling, bores, drilling and sounding,
witness, maps, and in general,
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Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
all the antecedents obtained by reason of the works of exploration
and reconnaissance carried out by "Royal Silver" in the "Mining
Concessions" which are the subject of this contract; Two) Make a
declaration by written public document, at least if it had been
done in accordance with letter c) preceding, in which it is
indicated that the option has lapsed, and the lifting and
cancellation is proceeding of all the registrations, sub-
registrations and annotations which may have occurred in the
Registries of the corresponding Conservator of Mines, by reason of
this contract or relative to it. If said statement is not made
within ten days of producing the corresponding cause of the lapse,
the parties empower and give a mandate to make said document to the
arbitrators who will be designated further on, by which the
respective arbitrator must make a simple written requirement from
the "Offering Parties" and with prior proof of the occurrence of
one of the causes of a lapse, and being empowered the holder to
<PAGE. 13
require the lifting and cancellation of said registrations. Three)
Cede and transfer to the "Beneficiaries", in accordance with the
stipulation in the first clause, letter C) and without any cost for
them, the new showings, requests and mining concessions which may
have been made in the name of the "Beneficiary" and which may be
located totally or partially within the area of interest which the
parties have defined in a private document attached to this
contract, as well as the applications or concessions for water use,
easements and administrative concessions which may have been
required or made for the development and exploitation of the
deposit conformed by the "Mining Concessions" which is the subject
of this option, even when the latter are to be found outside said
area of interest. The foregoing will govern especially with regard
to the concessions of exploration, showings and concessions of
exploitation which the "Beneficiary" may have obtained and which
are derived from the requests carried out by the Sociedad de
Exploraciones y Explotaciones Mineras Oregon Limitada on lands
covered by the mining properties of the "Offering Parties" and up
to a distance of two kilometers from the perimeter of said mining
properties. TWELFTH : Ceding of rights and obligations. - One)
"Royal Silver" may at any time, being authorized from now on by the
Offering Party, sell, cede, transfer, or by any means dispose of
all or part of its rights in this contract, if the purchaser or
cessionary always states in the contract which serves as title to
his acquisition: a) His consent pure and simple to each and every
stipulation of this contract; b) That he assumes and that he will
comply with exactly the same and all of the obligations, or to the
proportion in which they have been acquired, which "Royal Silver"
has contracted by virtue of this contract, in the same terms and as
if this contract had been originally agreed to by said cessionary;
c) A clause subjecting any later sale, cession, transfer or other
disposition, of all or a part of the rights emanating from this
contract, to the same restrictions contained in the current
stipulation. Only, compliance with antecedent consigned
requirements, will make the sale, cession, transfer or disposition
opposable to the "Offering Parties". In the event that the sale,
cession or transfer is partial, the obligations will always be
considered
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Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
indivisible; Two) All the times that in this contract reference
has been made to "Royal Silver" or to the "Beneficiary", to the
"Offering Parties", to their rights, obligations, charges and any
other thing which affects them or in any way is their
responsibility, it will be understood that it will refer to their
respective cessionaries, acquirers, heirs, continuators or legal
<PAGE> 14
successors by any name, except that it be expressly set or can be
understood from the context that it is otherwise; Three) Once the
purchase/sale contract is agreed to, the "Owners" may sell, cede,
transfer or in any way alienate or obligate the right to receive
the surcharge or "NSR" agreed to in the seventh clause of this
contract. Never the less, "Royal Silver" will have the right to
purchase, with preference from any other acquirer, the right to
receive the indicated surcharge. As a consequence, every time the
"Owners" receive an offer of purchase from third parties, they
must, before accepting the offer, communicate it to "Royal Silver".
In said communication there should be indicated at a minimum the
following: a) Price of the cession in Chilean currency and in
dollars of the United States of North America. If the offer
contains a proposal of payment distinct from cash, an estimate
should be included in the communication of the good faith of said
proposal; b) Form and timing of the payment; c) Date on which
the sale contract of the "NSR" will be final. "Royal Silver" will
have thirty days from receipt of the communication to accept or
reject the offer. If within the said time limit, the "Beneficiary"
notifies the "Owners" that it accepts the offer, the latter are
obliged to sell to "Royal Silver" the right to receive the agreed
upon surcharge, under the terms or conditions indicated in the
communication. In the event that "Royal Silver" does not declare
anything within the said limit, it is understood that it is opting
not to acquire the cited rights and the "Offering Parties" are
empowered to alienate said rights to the third party from whom the
respective purchase offer was received. - If such alienation is
not completed for any cause and/or the "Offering Parties" receive
another offer, the indicated procedure will be repeated.
THIRTEENTH: Applicable law. It is entered into the record that
the present unilateral contract is governed by Chilean law and
especially by the dispositions of the Mining Code of 1983,
particularly by its Article 169. The same is agreed to with regard
to its eventual modifications and complements and to the proposed
purchase/sale contract. FOURTEENTH: Expenses for Notaries and
registrations. The Notary expenses and fees which are generated on
the occasion of the present contract, of the proposed purchase/sale
contract and the fees for the registration in the respective
Conservator of Mines, as well as their lifting and cancellation, if
they were to occur, will be the exclusive responsibility of "Royal
Silver". The latter will absolutely not be responsible for the
taxes or other personal charges to the "Offering Parties" derived
from the option contract and/or the purchase/sale alluded to.
FIFTEENTH: Arbitration. All difficulties related to the
interpretation, application, compliance, validity, force,
resolution, reach, efficacy or for any other cause related to the
present option contract o to the proposed purchase/sale,
<PAGE> 15
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
that is agreed to between the "Offering Parties", on the one hand,
and "Royal Silver" or its cessionaries, on the other, will be
resolved by an arbitrating arbitrator, who will resolve the matter
of that case only and against whose resolution there will be no
appeal.- The parties designate, from this moment forward, to hold
said position, Mr. Samuel Lira Ovalle, and if he is unavailable
and thus successively, they designate Mr. Eulogio Perez-Cotapos
Garcia, Juan Luis Ossa Bulnes and Mario Diez Urzua. In the event
that none of the preceding can accept the charge for any reason or
is unable to accept it, the Arbitrator will be designated by common
agreement between the parties, and if that agreement is lacking,
the designation will be made by the Civil Judge in the city and
commune of Santiago who is so scheduled. In this last case the
designation should fall on an attorney with residence in Santiago,
who is or has been titular professor of mining law, mining
economics, civil or commercial, of the University of Chile or the
Catholic University of Chile and/or a lawyer to the Supreme Court
or the Appeals Court for at least three years, who will have to
make resolution in his role as administrative law judge, but as an
arbitrator regarding the procedure. The arbitration judgment will
be done in the city of Santiago.- SIXTEENTH: Representatives of
the parties. By the present instrument, for all legal purposes of
this contract and of the proposed one, inclusive of arbitrations,
the "Offering Parties" confer power and designate and have
designated, as is recorded in the power given in the Extraordinary
Stockholders Board Meetings which are consigned in this same
instrument, to Mr. Pedro Enrique Escala Baltra and to Mr. Fernando
Andres Escala Baltra, who will be empowered to act together or
separately, with the powers which were conferred in said Board
Meetings, and whose place of business is understood to be Calle
Marchant Pereira number 201, Office 802, Providencia, Santiago,
unless they both give another address, in writing, to "Royal
Silver". In turn, "Royal Silver" designates as its executor, for
all the purposes of the present contract and for the proposed
contract, Mr. Cesar Andres Lopez Alarcon and Mr. Thomas Alva
Henricksen, who may act together, separately or indistinguishably,
being especially empowered, but without limitation to it, to appear
at the documentation for the rectification, clarification, and the
modification of the present contract, for cession of rights and
obligations, to be notified of all communications between the
parties or of the resolutions of the arbitrator in the case of the
previous clause and for any other action related to this contract
or the offered purchase/sale, in such a way that it will not be
necessary to designate and make appear any other executor. In
order to act in judgments, the executors are empowered from this
<PAGE> 16
point forward with all powers referred to in both sub-paragraphs of
Article 7 of the Code of Civil Procedure. The designation of
executors made in this clause will be understood to be valid for
the purposes of the present contract and the offered one, until
such time as "Offering Parties" and/or "Royal Silver" may designate
other executors by public document and communicate it reciprocally.
SEVENTEENTH: Communications between the parties. The
communications between the parties will be carried out in writing,
via certified letter, telex, telefax or telegram, directed to the
addresses that the parties indicated at the appearance or to that
other which will be
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
communicated to each other in said way and properly in advance,
except if in the text of the present contract there is expressly
established a different way of communication, announcement or
notification.- If it is by fax to the "Offering Parties", the fax
number is (five six - two) two two five six zero five three of
Santiago; to the "Beneficiary", fax number (five six- two) six
nine five - five two three three, of Santiago and (one - five zero
nine) four six six - three three two one, of Spokane, state of
Washington, United States of America.- EIGHTEENTH: Setting of
address. For all the purposes of the present contract and of the
offered one, all those who appear here set and will set their
address in the city and Commune of Santiago and they submit and
will submit to the competence of the arbitration tribunal.
NINETEENTH: Titles and documents: It is entered into the record
that all legal documentation related to the titles of the "Mining
Concessions" which are the subject of the present contract, as well
as the payment tickets for the mining patents which shield them,
have been delivered to the "Beneficiary". In any case, the
"Offering Parties" will be responsible for the eviction in
conformity with the law.- TWENTIETH: Unforeseen chance and dire
necessity. The events of unforeseen chance or dire necessity will
be governed by the pertinent norms of the Chilean Civil Code.-
TWENTY-FIRST: Powers to the holder. The holder of an authorized
copy of the present document is empowered to require the
registrations and annotations which may be necessary in the
respective registries.- Also empowered are the attorneys Pedro
Enrique Escala Baltra and Cesar Andres Lopez Alarcon that together
they may correct errors of fact or omission which the parties may
have made in this contract, being able for that purpose to present
one or more memoranda to the respective Conservator and/or deliver
or sign the public documents or instruments necessary or convenient
for said precise objective.- TWENTY-SECOND: Extraordinary Board
Meeting of Stockholders: Present at this action Mr. Pedro Enrique
<PAGE> 17
Escala Baltra, Mr. Fernando Andres Escala Baltra, both previously
indicated individually, Mrs. Marcela Paz Josefina Escala Baltra,
Chilean, homemaker, married with complete separation of properties
from Mr. Manuel Laudelino Vicuna Cares, living at Calle Santa
Blanca number 1634, Lo Barnechea, Santiago, National ID number four
million, four hundred sixty-five thousand, seven hundred seventy-
eight dash three, the three foregoing persons in their own right
and also as the sole heirs of Mr. Enrique Escala Barros and Mrs.
Ida Odilla Baltra Mondaca, y Mr. Hugo Javier Canas Herrera,
Chilean, in the mining industry, married with complete separation
of property, living at Avenida Los Leones number 2922 apartment
603, Providencia, Santiago, national ID number three million, four
hundred twenty-eight thousand, four hundred forty-three dash one,
all of the preceding in their character as the only and actual
members of the contractual mining companies "Compania Minera San
Enrique S.C.M." and "Compania Minera Cobre Iquique S.C.M.", those
who appear here, being of legal age, who have shown their identity
with the aforementioned documents, do declare: that they
constitute an Extraordinary Board Meeting of Stockholders for the
companies named in conformity with the dispositions of Article 185
of the Mining
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
Code and their respective statutes and, in the presence of the
Notary Public who authorizes this instrument and under the
presidency of member Mr. Pedro Enrique Escala Baltra, have adopted,
by unanimity of the attending members, who represent the total of
all stock in which the capital of said contractual mining companies
is divided, the following agreements: First: To offer irrevocably
and to unilaterally oblige each of the named contractual mining
companies, to sell, cede and transfer to "Compania Minera Royal
Silver Limitada" the mining concessions individually indicated in
letters A) and B) of the first clause of this same instrument and
eventually, the rest of the goods and rights referred to in the
letter C) of the same clause, and that "Compania Minera Royal
Silver", optionally, agrees to purchase and acquire it. For the
purposes mentioned, from this point forward, the Board gives its
consent to the eventual purchase/sale of said mining concessions,
goods and rights. Second: As a consequence of the preceding
agreement, to complete the unilateral purchase option contract set
by this document, in conformity with the terms, stipulations,
statements and obligations which are a part of each of the clauses
and which the Board ratifies, reiterates, makes theirs and has them
as is as the express agreement of the present Board. Third: For
all the more reason in regard to what was stated in the previous
agreement, the price of the proposed purchase/sale, its eventual
<PAGE> 18
reduction subject to the condition which is stated, the surcharge
agreed to, the goods included in the unilateral purchase option
contract and the later purchase/sale, and the remaining
stipulations, terms, conditions, time limits and procedures of the
aforementioned option contract and the proposed purchase/sale, are
those which are established and are contained in the present public
document, which faithfully reflects the terms and conditions of the
letter of intent dated 23 June 1997 signed by Mr. Cesar Andres
Lopez Alarcon representing "Royal Silver Mines Inc." and the
members Mr. Pedro Enrique Escala Baltra and Mr. Fernando Andres
Escala Baltra, terms, conditions, stipulations and essential
elements, of mere and accidental character which this Board
recognizes, makes theirs and gives as reproduced, expressly
ratifying the action taken by the indicated members. Fourth:
Empower, in the widest terms which are given under law, the members
Mr. Pedro Enrique Escala Baltra and Mr. Fernando Andres Escala
Baltra to act together or separately or indistinguishably, to
represent the contractual mining companies whose stockholders met
in Extraordinary Board Meeting, to complete the unilateral option
contract which is composed of each and every one of the preceding
clauses in this same public document. The executors have been and
are expressly and specially empowered to agree to all and any
stipulations, be they of essence, of nature or merely accidental,
to agree to binding clauses, designate arbitrators, to impose on
themselves with regard to the mining concessions which are the
subject of said contract a voluntary prohibition to obligate and
alienate, and to agree
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
to actions and contracts, obligations which have been and are
considered convenient and necessary and are composed by the present
public document. Fifth: Give power, designate as executors and
representatives of the contractual mining companies,
indistinguishably, Mr. Pedro Enrique Escala Baltra and Mr. Fernando
Andres Escala Baltra, who may act individually or in conjunction,
understood to have the address of Calle Marchant Pereira number
201, Office 802, Providencia, Santiago de Chile, an address which
the Board also sets as the address of the companies named for the
purposes of this instrument, with said executors empowered to, but
not limited to, receive in their own name all the payments of the
agreed upon purchase/sale price, to give documents of receipt,
cancellation and final discharge, to rectify, clarify and modify as
may be required the referred to option contract and the proposed
purchase/sale contract, to appear for the documents referred to and
for the ceding of rights and obligations, to be notified of all
communications between the parties or the resolutions of the
<PAGE> 19
arbitrator and of any other action related to the option contract
already referred to, in such a way that it not be necessary to hold
new Stockholder Meetings and designate and make appear another
executor, the executors being given, in the judicial area, all the
powers referred to in both sub-paragraphs of Article 7 of the Civil
Procedure Code. The designation of such executors is understood to
be valid for all the purposes of the aforementioned unilateral
option contract and the offered purchase/sale contract, as long as
both contractual mining companies, whose Boards meet and agree in
this action, do not designate other commonly empowered persons by
means of public document and communicate this to "Compania Minera
Royal Silver Limitada" or to its cessionaries. Sixth: Hereby
place into the record that these Extraordinary Board Meetings are
held in this city and without announcement since there were present
all stockholders representing the total of all stocks in which the
respective company capital of the companies being dealt with is
divided. Seventh: Empower the holder of an authorized copy of
this document to require the filing and annotations which are the
subject of Article 190, final sub-paragraph of the Mining Code.
The appearance of Mr. PEDRO ENRIQUE ESCALA BALTRA AND OF MR.
FERNANDO ANDRES ESCALA BALTRA, to represent "COMPANIA MINERA SAN
ENRIQUE S.C.M." and "COMPANIA MINERA COBRE IQUIQUE S.C.M.",
represents the Boards of Stockholders of said companies and which
is declared in this present public document. The appearance of Mr.
CESAR ANDRES LOPEZ ALARCON to represent "COMPANIA MINERA ROYAL
SILVER LIMITADA" and ROYAL SILVER MINES INCORPORATED", is shown in
the public document dated 9 July 1997, made at the Notary Office of
Santiago of Mr. Humberto Santelices Narducci and in the power
protocol given by the same Notary under the number 15 dated 9 July
1997, respectively, appearances which are not included by reason of
being known to the parties and to the authorizing Notary.-
(Illegible Stamp)
Authorized Copy
(Seal & Initial)
Humberto Santelices Narducci
Notary Public
XXII Notary of Santiago Chile
In proof and with prior reading, are signed. - In witness of
(Illegible initials). -
(illegible signature) (illegible signature)
PEDRO ESCALA BALTRA FERNANDO ESCALA BALTRA
4.101.471-7 6.340.418-7
(illegible signature)
CESAR LOPEZ ALARCON
9.581.126-4
<PAGE> 20
(illegible signature) (illegible signature)
MARCELA ESCALA BALTRA HUGO CANAS HERRERA
4.465.7778-3 3428443-1
(Illegible signature)
THIS IS A FAITHFUL COPY OF THE ORIGINAL PUBLIC DOCUMENT SANTIAGO
23 JUL 1997
(Illegible signature )
ALBERTO HERMAN MONTAUBAN
Deputy Notary
XXII Notary Office Santiago
(Partially Illegible Seal of the Notary Public
of the XXII Notary of Santiago,
Humberto Santelices Narducci)
(Illegible stamped title)
(Illegible Seal with initials)
<PAGE> 1
WILLIAMS & WEBSTER, P.S.
Certified Public Accountants
601 West Riverside
Suite 1970
Spokane, Washington 99201-0611
(509) 838-8111
FAX (509) 624-5001
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Royal Silver Mines, Inc.
Spokane, Washington
We consent to the use of our audit report dated December 13,
1996, on the financial statements of Royal Silver Mines, Inc. as
of September 30, 1996, and the use of our review report dated
July 23, 1997, on the financial statements of Royal Silver Mines,
Inc. As of June 30, 1997, and the inclusion of our name under the
headings "Selected Financial Data" and "Experts" in the Form SB-2
Registration Statement filed in September 1997.
/s/ Williams & Webster P.S.
Williams & Webster, P.S.
Spokane, Washington
September 26, 1997
<PAGE> 1
CONRAD C. LYSIAK
Attorney and Counselor at Law
601 West First Avenue
Suite 503
Spokane, Washington 99201
(509) 624-1475
FAX: (509) 747-1770
CONSENT
I HEREBY CONSENT to the inclusion of my name in
connection with the Form SB-2 Registration Statement filed with
the Securities and Exchange Commission as attorney for the
registrant, Royal Silver Mines, Inc. and to the reference to my
firm under the subcaption "Legal Matters."
DATED this 29th day of September, 1997.
Yours truly,
/s/ Conrad C. Lysiak
<PAGE> 1
WARRANT AGREEMENT
ROYAL SILVER MINES, INC., a Utah corporation (the
"Company"), and OTC STOCK TRANSFER, INC. ("OTC"), 231 East 2100
South, Salt Lake City, Utah 84115, a Utah corporation (the
"Warrant Agent"), agree as follows:
1. Purpose. The Company proposes to publicly offer
and issue 6,000,000 units (the "Units"), each Unit consisting one
(1) shares of Common Stock, $0.01 par value, and one (1)
Redeemable Common Stock Purchase Warrant. The Common Stock and
Redeemable Common Stock Purchase Warrants are being offered as a
Unit. The are immediately detachable and separately tradeable.
2. Warrants. Each Warrant will entitle the registered
holder of a Warrant (the "Warrant Holder") to purchase from the
Company one share of Common Stock at an exercise price of $1.40
per warrant. A Warrant Holder may exercise all of any number of
Warrants resulting in the purchase of a whole number of Shares.
3. Exercise Period. The Warrants may be exercised
until September 1, 2000 (the "Expiration Date") except as
provided by Section 12 of this Agreement. After the Expiration
Date, any unexercised warrants will be void and all rights of
Warrant Holders shall cease. Further, the Redeemable Warrants
are callable by the Company upon thirty (30) days written notice
provided that the bid price of the Company's Common Stock trades
above $3.00 per share for ninety (90) consecutive trading days.
4. Detachability. A Warrant Certificates are
immediately detachable from a Share certificate contained in a
Unit.
5. Certificates. The Warrant Certificates shall be in
registered form only and shall be substantially in the form set
forth in "Exhibit A" attached to this Agreement. Warrant
Certificates shall be signed by, or shall bear the facsimile
signature of, the President of the Company and the Secretary of
the Company and if such Warrant Certificate shall contain the
signature of an officer of the Company who shall have ceased to
be such officer before such Warrant Certificate is countersigned,
issued and delivered, such Warrant Certificate shall be
countersigned, issued and delivered with the same effect as if
such person had not ceased to be such officer. Any Warrant
Certificate may be signed by, or made to bear the facsimile
signature of, any person who at the actual date of the
preparation of such Warrant Certificate shall be a proper officer
of the Company to sign such Warrant Certificate even though such
person was not such an officer upon the date of the Agreement.
<PAGE> 2
6. Countersigning. Warrant Certificates shall be
manually countersigned by the Warrant Agent and shall not be
valid for any purpose unless so countersigned. The Warrant Agent
hereby is authorized to countersign and deliver to, or in
accordance with the instructions of, any Warrant Holder any
Warrant Certificate which is properly issued.
7. Registration of Transfer and Exchanges. Subject to
the provisions of Section 4, the Warrant Agent shall from time to
time register the transfer of any outstanding Warrant Certificate
upon records maintained by the Warrant Agent for such purpose
upon surrender of such Warrant Certificate to the Warrant Agent
for transfer, accompanied by appropriate instruments of transfer
in form satisfactory to the Company and the Warrant Agent and
duly executed by the Warrant Holder or a duly authorized
attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued in the name of and to the transferee
and the surrendered Warrant Certificate shall be cancelled.
8. Exercise of Warrants. Exercise of a Warrant is
subject to the Company maintaining an effective registration
statement with the Securities and Exchange Commission and
complying with the applicable state securities laws of the
residence of the Warrant Holder. Subject to the foregoing the
following will applicable:
a. Any one Warrant or any multiple of one Warrant
evidenced by any Warrant Certificate may be exercised on or
after the Exercise Date, an on or before the Expiration
Date. A Warrant shall be exercised by the Warrant Holder by
surrendering to the Warrant Agent the Warrant Certificate
evidencing such Warrant with the exercise form on the
reverse of such Warrant Certificate duly completed and
executed and delivering to the Warrant Agent, by good check
or bank draft payable to the order of the Company, the
Exercise Price for each Share to be purchased.
b. Upon receipt of a Warrant Certificate with the
exercise from thereon fully executed together with payment
in full of the Exercise Price for the Shares for which
Warrants are then being exercised, the Warrant Agent shall
requisition from any transfer agent for the Shares, and upon
receipt shall make delivery of, certificates evidencing the
total number of whole Shares for which Warrants are then
being exercised in such names and denominations as are
required for delivery to, or in accordance with the
instructions of, the Warrant Holder. Such certificates for
the Shares shall be deemed to be issued, and the person
which such Shares are issued of record shall be deemed to
have become a holder of record of such Shares, as of the
date of the surrender of such Warrant Certificate any
payment of the Exercise Price, which ever shall last occur,
<PAGE> 3
provided that if the books of the Company with respect to
the Shares shall be deemed to be issued, and the person to
whom such Shares are issued of record shall be deemed to
have become a record holder of such Shares, as of the date
on which such books shall next be open (whether before, on
or after the Expiration Date) but at the Exercise Price,
whichever shall have last occurred, to the Warrant Agent.
c. If less than all the Warrants evidenced by a
Warrant Certificate are exercised upon a single occasion, a
new Warrant Certificate for the balance of the Warrants not
so exercised shall be issued and delivered to, or in
accordance with, transfer instructions properly given by the
Warrant Holder until the Expiration Date.
d. All Warrant Certificates surrendered upon
exercise of the Warrants shall be cancelled.
e. Upon the exercise, or conversion of any
Warrant, the Warrant Agent shall promptly deposit the
payment into an escrow account established by mutual
agreement of the Company and the Warrant Agent at a
federally insured commercial bank. All funds deposited in
the escrow account will be disbursed on a weekly basis to
the issuer once they have been determined to be collected,
the Warrant Agent shall cause the shares certificate(s)
representing the exercised warrants to be issued.
f. Expenses incurred by OTC Stock Transfer, Inc.
while acting in the capacity as Warrant Agent will be paid
by the Company. These expenses, including delivery of
exercised share certificate to the shareholder, will be
deducted from the exercise fee submitted prior to
distribution of funds to the Company. A detailed accounting
statement relating to the number of shares exercised, names
of registered warrant holder and the net amount of
exercised, funds remitted will be given to the Issuer with
the payment of each exercise amount.
g. At the time of exercise of the Warrants(s),
the transfer fee is to be paid by the Company. In the event
the Warrant Holders must pay the fee and fails to remit
same, the fee will be deducted from the proceeds prior to
distribution to the Company.
9. Taxes. The Company will pay all taxes attributable
to the initial issuance of Shares upon exercise of Warrants. The
Company shall not, however, be required to pay any tax which may
be payable in respect to any transfer involved in any issue of
Warrant Certificates or in the issue of any certificates of
Shares in the name other than that of the Warrant Holder upon the
exercise of any Warrants.
<PAGE> 4
10. Mutilated or Missing Warrant Certificates. If any
Warrant Certificate is mutilated, lost, stolen or destroyed, the
Company and the Warrant Agent may, on such terms as to indemnify
or otherwise as they may in their discretion impose (which shall,
in the case of a mutilated Warrant Certificate, include the
surrender thereof), and upon receipt of evidence satisfactory to
the Company and the Warrant Agent of such mutilation, loss, theft
or destruction, issue a substitute Warrant Certificate of like
denomination or tenor as the Warrant Certificate so mutilated,
lost, stolen or destroyed. Applicants for substitute Warrant
Certificate shall comply with such other reasonable regulations
and pay any reasonable charges as the Company or the Warrant
Agent may prescribe.
11. Reservation of Shares. For the purpose of
enabling the Company to satisfy all obligations to issue Shares
upon exercise of Warrants, the Company will at all times reserve
and keep available free from preemptive rights, out of the
aggregate of its authorized but unissued shares, the full number
of Shares which may be issued upon the exercise of Warrants will
upon issue be fully paid and nonassessable by the Company and
free from all taxes, liens, charges and security interests with
respect to the issue thereof.
12. Governmental Restrictions. If any Shares issuable
upon the exercise of Warrants require registration or approval of
any governmental authority, the Company will endeavor to secure
such registration or approval; provided that in no event shall
such Shares be issued, and the Company shall have the authority
to suspend the exercise of all Warrants, until such registration
or approval shall have been obtained; but all Warrants, the
exercise of which is requested during any such suspension, shall
be exercisable at the exercise Price. If any such period of
suspension continues past the Expiration Date, all Warrants, the
exercise of which have been requested on or prior to the
Expiration Date, shall be exercisable upon the removal of such
suspension until the close of business on the business day
immediately following the expiration of such suspension.
13. Adjustments. If prior to the exercise of any
Warrants, the Company shall have effected one or more stock
split-ups, stock dividends or other increases or reductions of
the number of shares of its $0.01 par value Common Stock
outstanding without receiving compensation therefore in money,
services or property the number of shares of Common Stock subject
to the Warrant granted shall, (i) if a net increase shall have
been effected in the number of outstanding shares of the
Company's Common Stock, be proportionately increased, and the
cash consideration payable per share shall be proportionately
reduced, and, (ii) if a net reduction shall have been effected in
the number of outstanding shares of the Company's Common Stock,
be proportionately reduced and the cash consideration payable per
share be proportionately increased.
<PAGE> 5
14. Notice to Warrant Holders. Upon any adjustment as
described in Section 13, the Company within 20 days thereafter
shall (i) cause to be filed with the Warrant Agent a certificate
signed by a Company officer setting forth the details of such
adjustment, the method of calculation and the facts upon which
such calculation is based, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein, and
(ii) cause written notice of such adjustments to be given to each
Warrant Holder as of the record date applicable to such
adjustment. Also, if the Company proposes to enter into any
reorganization, reclassification, sale of substantially all of
its assets, consolidation, merger, dissolution, liquidation or
winding up, the Company shall give notice of such fact at least
20 days prior to such action to all Warrant Holders which notice
shall set forth such facts as indicated the effect of such action
(to the extent such effect may be known at the date of such
notice) on the Exercise Price and the kind and amount of the
share or other securities and property deliverable upon exercise
of the Warrants. Without limiting the obligation of the Company
hereunder to provide notice to each Warrant Holder, failure of
the Company to give notice shall not invalidate corporate action
taken by the Company.
15. No Fractional Warrants or Shares. The Company
shall not be required to issue fractions of Warrants upon the
reissuance of Warrants, any adjustments as described in Section
13 or otherwise; but the Company in lieu of issuing any such
fractional interest, shall round up or down to the nearest full
Warrant. If the total Warrants surrendered by exercise would
result in the issuance of a fractional shares, the Company shall
not be required to issue a fractional share but rather the
aggregate number of shares issuable will be rounded up or down to
the nearest full share.
16. Rights of Warrant Holders. No Warrant Holder, as
such, shall have any rights of a shareholder of the Company,
either at a law or equity, and the rights of the Warrant Holders,
as such, are limited to those rights expressly provided in this
Agreement or in the Warrant Certificates. The Company and the
Warrant Agent may treat the registered Warrant Holder in respect
of any Warrant Certificates as the absolute owner thereof for all
purposes notwithstanding any notice to the contrary.
17. Warrant Agent. The Company hereby appoints the
Warrant Agent to act as the agent of the Company and the Warrant
Agent hereby accepts such appointment upon the following terms
and conditions by all of which the Company and every Warrant
Holder, by acceptance of his/her Warrants, shall be bound:
<PAGE> 6
a. Statements contained in this Agreement and in
the Warrant Certificates shall be taken as statements of the
Company. The Warrant Agent assumes no responsibility for
the correctness of any of the same except such as describes
the Warrant Agent or for action taken or to be taken by the
Warrant Agent.
b. The Warrant Agent shall not be responsible for
any failure of the Company to comply with any of the
Company's covenants contained in this Agreement or in the
Warrant Certificates.
c. The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the
Company) and the Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder in
respect of any action taken, suffered, or omitted by it
hereunder in good faith and in accordance with the opinion
or the advice of such counsel, provided the Warrant Agent
shall have exercised reasonable care in the selection and
continued employment of such counsel.
d. The Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder for
any action taken in reliance upon any notice, resolution,
wavier, consent, order, certificate or other paper, document
or instrument believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
e. The Company agrees to pay to the Warrant Agent
reasonable compensation for all services rendered by the
Warrant Agent in the execution of this Agreement, to
reimburse the Warrant Agent for all expenses, taxes and
governmental charge and all other charges of any kind in
nature incurred by the Warrant Agent in the execution of
this Agreement and to indemnify the Warrant Agent and save
it harmless against any and all liabilities, including
judgments, costs and counsel fees, for this Agreement except
as a result of the Warrant Agents's negligence or bad faith.
f. The Warrant Agent shall be under no obligation
to institute any action, suit or legal proceeding or to take
any other action likely to involve expense unless the
Company or one or more Warrant Holders shall furnish the
Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred in connection with
such action, suite or legal proceeding, but this provision
shall not effect the power of the Warrant Agent to take such
action as the Warrant Agent may consider proper, whether
with or without any such security or indemnity. All rights
of action under this Agreement or under any of the Warrants
may be endorsed by the Warrant Agent without the possession
<PAGE> 7
of any of the Warrant Certificates or the production thereof
at any trail or other proceeding relative thereto, and any
such action, suit or proceeding instituted by the Warrant
Agent shall be brought in its name as Warrant Agent, and any
recovery of judgment shall be for the ratable benefit of the
Warrant Holders as their respective rights or interest may
appear.
g. The Warrant Agent and any shareholder,
director, officer or employee of the Warrant Agent may buy,
sell or deal in any of the Warrants or other securities of
the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or
contact with or lend money to the Company or otherwise act
as fully and freely as though it were not Warrant Agent
under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
18. Successor Warrant Agent. Any corporation into
which the Warrant Agent may be merged or converted or with which
it may be consolidated, or any corporation resulting from any
merger, conversion or consolidation to which the Warrant Agent
shall be a party, or any corporation succeeding to the corporate
trust business of the Warrant Agent, shall be the successor to
the Warrant Agent hereunder without the execution or filing of
any paper or any further act of a party or the parties hereto.
In any such event or if the name of the Warrant Agent is changed,
the Warrant Agent or such successor may adopt the
countersignature of the original Warrant Agent and may
countersign such Warrant Certificates either in the name of the
predecessor Warrant Agent or in the name of the successor Warrant
Agent.
19. Change of Warrant Agent. The Warrant Agent may
resign or be discharged by the Company from its duties under this
Agreement by Warrant Agent or the Company, as the case may be,
giving notice in writing to the other, and by giving a date when
such resignation or discharge shall take effect, which notice
shall be sent at least 30 days prior to the date so specified.
If the Warrant Agent shall resign, be discharged or shall
otherwise become incapable of acting, the Company shall appoint a
successor to the Warrant Agent. If the Company shall fail to
make such appointment within a period of 30 days after it has
been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by any Warrant Holder
or after discharging the Warrant Agent, then any Warrant Holder
may apply to the District Court for Salt Lake County, Utah for
the appointment of a successor to the Warrant Agent. Pending
appointment of a successor to the Warrant Agent, either by the
Company or by such Court, the duties of the Warrant Agent shall
be carried out by the Company. Any successor Warrant Agent,
<PAGE> 8
whether appointed by the Company or by such Court, shall be a
bank or a trust company, in good standing, organized under the
laws of the State of Utah or of the United States of America,
having its principal office in Salt Lake City, Utah and having at
the time of its appointment as Warrant Agent, a combined capital
and surplus of at least four million dollars. After appointment,
the successor Warrant Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed and the former
Warrant Agent shall deliver and transfer to the successor Warrant
Agent any property at the time held by it thereunder, and execute
and deliver any further assurance, conveyance, act or deed
necessary for effecting the delivery or transfer. Failure to
give any notice provided for in the section, however, or any
defect therein, shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of
the successor Warrant Agent, as the case may be.
20. Notices. Any notice or demand authorized by this
Agreement to be given or made by the Warrant Agent or by any
Warrant Holder to or on the Company shall be sufficiently given
or made if sent by mail, first class, certified or registered,
postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent), as follows:
ROYAL SILVER MINES, INC.
10220 N. Nevada
Suite 270
Spokane, Washington 99218
Any notice or demand authorized by this Agreement to be given or
made by any Warrant Holder or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by mail, first
class, certified or registered, postage prepaid, addressed (until
another address is filed in writing by the Warrant Agent with the
Company), as follows:
OTC STOCK TRANSFER, INC.
231 East 2100 South
Salt Lake City, Utah 84115
Any distribution, notice or demand required or authorized by this
Agreement to be given or made by the Company or the Warrant Agent
to or on the Warrant Holder shall be sufficiently given or made
if sent by mail, first class, certified or registered, postage
prepaid, addressed to the Warrant Holders at their last known
addresses as they shall appear on the registration books for the
Warrant Certificates maintained by the Warrant Agent.
<PAGE> 9
21. Supplements and Amendments. The Company and the
Warrant Agent may from time to time supplement or amend this
Agreement without the approval of any Warrant Holders in order to
cure any ambiguity or to correct or supplement any provision
contained herein which may be defective or inconsistent with any
other provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder with the Company
and the Warrant Agent may deem necessary or desirable.
22. Successors. All the covenants and provisions of
this Agreement by or for the benefit of the Company or the
Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
23. Termination. This Agreement shall terminate at
the close of business on the Expiration Date or such earlier date
upon which all Warrants have been exercised; provided, however,
that if exercise of the Warrants is suspended pursuant to Section
12 and such suspension continues past the Expiration Date, this
Agreement shall terminate at the close of business on the
business day immediately following expiration of such suspension.
The provisions of Section shall survive such termination.
24. Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be deemed to be a contract
made under the laws of the State of Utah and for all purposes
shall be construed in accordance with the laws of said state.
25. Benefits of this Agreement. Nothing in this
Agreement shall be construed to give any person or corporation
other than the Company, the Warrant Agent and the Warrant Holder
any legal or equitable right, remedy or claim under this
Agreement; but this Agreement shall be for the sole and exclusive
benefit of the Company, the Warrant Agent and the Warrant
Holders.
26. Counterparts. This Agreement may be executed in
any number of counterparts, each of such counterparts shall for
all purposes be deemed to be an original and all such
counterparts shall together constitute but one and the same
instrument.
<PAGE> 10
Dated this _____ day of ________________, 1997.
ROYAL SILVER MINES, INC.
(a Utah corporation)
SEAL
ATTEST: BY: __________________________________
Title: ___________________________
_________________________________
Secretary
OTC STOCK TRANSFER, INC.
(a Utah corporation)
SEAL
ATTEST: BY: __________________________________
Title: ___________________________
_________________________________
Secretary
<PAGE> 11
EXHIBIT A
WARRANTS CERTIFICATE
THIS IS TO CERTIFY that, for value received,
or registered assigns (the "Warrant Holder"), is the registered owner
of the above-indicated number of Warrants expiring at 5:00 p.m.,
Pacific Standard Time (PST), on September 1, 2000 (the "Expiration
Date"). Each full Warrant entitles the Warrant Holder to purchase
from ROYAL SILVER MINES, INC. (the "Company"), a Utah corporation,
until September 1, 2000 one fully paid and nonassessable share of the
Company's Common Stock ($0.01 par value per share) at the purchase
price of $1.40 (the "Exercise Price") in lawful money of the United
States of America for each full Warrant represented hereby upon
surrender of this Warrant Certificate, with the exercise form hereon
duly completed and executed, with payment of the Exercise Price at the
office of OTC Stock Transfer (herein called the "Warrant Agent"), 231
East 2100 South, Salt Lake City, Utah 84115, but only subject to the
conditions set forth herein and in a Warrant Agreement dated as of
_______________, 1997 (the "Warrant Agreement") between the Company
and the Warrant Agent. The Redeemable Warrants are callable by the
Company upon thirty (30) days written notice provided that the bid
price of the Company's Common Stock trades above $3.00 per share for
ninety (90) consecutive trading days.
The Exercise Price, the number of shares purchasable upon exercise of
each Warrant, the number of Warrants outstanding and the Expiration
Date are subject to adjustments upon the occurrence of certain events
set forth in the Warrant Agreement. Reference is hereby made to the
provisions on the reverse side of this Warrant Certificate and the
provisions of the Warrant Agreement, all of which are hereby
incorporated by reference in and made a part of this Warrant
Certificate and which shall for all purposes have the same effect as
though fully set forth at this place.
Upon due presentment for registration for transfer of this Warrant
Certificate at the office of the Warrant Agent a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in
the aggregate a like number of Warrants, subject to any adjustments
made in accordance with the provisions of the Warrant Agreement shall
be issued to the transferee in exchange for this Warrant Certificate,
subject to the limitations provided in the Warrant Agreement, upon
payment of the transfer fee and any tax or other governmental charge
imposed in connection with such transfer.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants
during the exercise period and in the manner stated hereon. Exercise
of the Warrants is subject to the Company maintaining an effective
registration statement with the Securities and Exchange Commission and
complying with the state securities laws of the residence of the
Warrant Holder. The Exercise Price shall be payable in lawful money
<PAGE> 12
of the United States of America by certified or cashier's check
payable to the order of the Company. Upon any exercise of any
Warrants evidenced by this Warrant Certificate in an amount less than
the number of Warrants so evidenced there shall be issued to the
Warrant Holder a new Warrant Certificate evidencing the number of
Warrants not so exercised. No adjustment shall be made for any
dividends on any shares issued upon exercise of this Warrant.
No Warrant may be exercised after 5:00 p.m., PST, on the Expiration
Date and any Warrant not exercised by such time shall become void.
This Warrant Certificate shall not be valid unless manually
countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its President and by its Secretary, each by a facsimile
of his signature, and has caused a facsimile of its corporate seal to
be imprinted hereon.
Dated: _____________________________________, 199___.
ROYAL SILVER MINES, INC.
BY: ____________________________
Howard Crosby, President
BY: ____________________________
Thomas Henricksen, Secretary
Countersigned:
OTC STOCK TRANSFER, INC.
BY: ________________________________
Title: _________________________
<PAGE> 1
6,000,000 UNITS
ROYAL SILVER MINES, INC.
(a Utah corporation)
PARTICIPATING DEALER'S AGREEMENT
You are invited to participate as a Participating Dealer
("Participating Dealer") in an offering of up to 6,000,000 Units
of ROYAL SILVER MINES, INC., a Utah corporation, 10220 North
Nevada, Suite 270, Spokane, Washington 99218 (the "Company"), to
be offered to the public at $0.75 per share. Each Unit consists
of one (1) shares of Common Stock, $0.01 par value, and one (1)
Redeemable Common Stock Purchase Warrant. The Common Stock and
Redeemable Common Stock Purchase Warrants are being offered as a
Unit. They are immediately detachable and separately tradeable.
Each Redeemable Warrant ("Redeemable Warrant") entitles the
holder to purchase one share of Common Stock at a price of $1.40
until September 1, 2000. The Redeemable Warrants are callable by
the Company upon thirty (30) days written notice provided that
the bid price of the Company's Common Stock trades above $3.00
per share for ninety (90) consecutive trading days. The Units
are more particularly described in the enclosed Prospectus,
additional copies of which will be supplied in reasonable
quantities upon request. The Company is offering the shares
subject to the terms of: (i) this Agreement, and (ii) the
Company's instructions which may be forwarded to the
Participating Dealers from time to time. This invitation is made
by the Company only if the Company's shares may be lawfully
offered in your state. The terms and conditions of this
invitation are as follows:
1. Acceptance of Orders. Orders received from the
Participating Dealer will be accepted only at the price, in the
amounts, and on the terms which are set forth in the Company's
offering memorandum.
2. Selling Concession. As a Participating Dealer, you will
be allowed on all shares sold by you a commission of ten percent
(10%) of the total sales price ($0.75 per share) as shown in the
Company's offering memorandum.
3. Status of Dealers. The Participating Dealer agrees to
purchase the Company's shares for its customers only through the
Company, and all such purchases shall be made only upon order
already received by the Participating Dealer from its customers.
In all sales of the Company's shares to the public, the
Participating Dealer shall confirm as agent for another. The
Participating Dealer agrees that no member of the National
Association of Securities Dealers, Inc., will allow commissions
to any non-member broker/dealer, including foreign broker/dealers
registered pursuant to the Securities Act of 1934.
<PAGE> 2
4. Delivery of Funds. The Participating Dealer will
promptly transmit (not later than noon of the next business day)
to the Company all funds received from the purchasers and will
transmit to the Company a confirmation or a record of each sale
which will set forth the name, address and social security number
of each individual purchaser, the number of shares purchased,
and, if there is more than one registered owner, the form of
ownership in which the certificate or certificates are to be
issued, e.g., joint tenancy or tenancy in common. Also, each
Participating Dealer shall report, in writing, to the Company,
the number of the Company's shares which have been sold in each
state and the number of persons in each such state who purchased
shares from the Participating Dealer. Each sale may be rejected
by the Company, and if rejected, the Company will return to you
all funds paid by the purchaser which have been received by the
Company. In such event, the Participating Dealer will return to
the Purchaser within five (5) business days after actual receipt
from the Company the full purchase price paid by the Purchaser.
5. Payment. Payment for the shares shall accompany all
confirmations and applications and shall be in clearing house
funds. All checks and other orders for the payment of money
shall be made payable to ROYAL SILVER MINES, INC. and shall be
delivered to it not later than 12 o'clock noon of the next
business day following receipt. The shares sold by the
Participating Dealer shall be available for delivery at the
office of the Company, unless other arrangements are made with
the Company for delivery.
6. Dealer's Undertakings. No person is authorized to made
any representations concerning the Company's shares except those
contained in the Company's offering memorandum. The
Participating Dealer will not sell the Company's shares pursuant
to this Agreement unless the offering memorandum is furnished to
the purchaser at least 48 hours prior to the mailing of the
confirmation of sale, or is sent to such person under such
circumstances that it would be received by him 48 hours prior to
his receipt of a confirmation of the sale. The Participating
Dealer agrees not to use any supplemental sales literature of any
kind without prior written approval of the Company unless it is
furnished by the Company for such purpose. In offering and
selling the Company's shares, the Participating Dealer will rely
solely on the representations contained in the Company's offering
memorandum. The Participating Dealer understands that during the
ninety (90) day period after the first date upon which the shares
of the Company are bona fide offered to the public, all Dealers
effecting transactions in the Company's shares may be required to
deliver the Company's offering memorandum to any purchasers
thereof prior to or concurrent with the receipt of the
confirmation of sale [see Rule 256(g) under the Securities Act of
1933, as amended]. Additional copies of the offering memorandum
will be supplied by the Company in reasonable quantities upon
request.
<PAGE> 3
7. Conditions of Offering. All sales will be subject to
delivery by the Company or Certificates evidencing the shares.
The Company has reserved the right, without notice, to cancel or
modify the Offering and to reject any order, in whole or in part.
8. Failure of Order. In an order is rejected or if an
payment is received which proves insufficient or worthless, any
compensation paid to the Participating Dealer shall be returned
either by the Participating Dealer's remittance in cash or by a
charge against the account of the Participating Dealer, as the
Company may elect.
9. Representations and Agreements of Participating Dealer.
By accepting this Agreement, the Participating Dealer represents
that it is registered as a broker/dealer under the Securities
Exchange Act of 1934, as amended; is qualified to act as Dealer
in the states or other jurisdictions in which it offers the
Company's shares; is a member in good standing of the National
Association of Securities Dealers, Inc.; and will maintain such
registration, qualifications, and memberships throughout the term
of this Agreement. The Participating Dealer agrees to comply
with all applicable federal laws; the laws of the states or other
jurisdictions concerned; and the Rules and Regulations of the
National Association of Securities Dealers, Inc. Further, the
Participating Dealer agrees that it will not offer or sell the
Company's shares in any state or jurisdiction except as the
Company shall advise the Participating Dealer in writing that the
shares are exempt from registration in particular states. The
Participating Dealer shall not be entitled to any compensation
during any period in which it has been suspended or expelled from
membership in the National Association of Securities Dealers,
Inc.
10. Dealer's Employees. By accepting this Agreement, the
Participating Dealer has assumed full responsibility for thorough
and proper training of its representatives concerning the selling
methods to be used in connection with the offer and sale of the
Company's shares, giving special emphasis to the principles of
full and fair disclosure to prospective investors and the
prohibitions against "Free-riding and Withholding."
12. Indemnification. The Company agrees to indemnify,
defend, and hold the Participating Dealer and each person, if
any, who controls the Participating Dealer within the meaning of
Section 15 of the Securities Act of 1933, as amended (the "Act"),
free and harmless from and against any and all losses, claims,
demands, liabilities, and expenses (including reasonable legal
and other expense incurred by each such Participating Dealer and
controlling person in connection with defending or investigating
any such claims or liabilities, whether or not resulting in any
liability to the Participating Dealer or any controlling person),
which the Participating Dealer or controlling person may incur
<PAGE> 4
under the Act or at common law or otherwise, but only to the
extent that such losses, claims, demands, liabilities and expense
shall arise out of or be based upon any untrue statement or
alleged untrue statement of a material fact contained in the
registration statement, or in the offering memorandum, or in any
amendment or amendments to the registration statement or the
offering memorandum, or in any application or other papers,
hereinafter collectively called "Blue Sky Applications," executed
by any Participating Dealer with the written approval of the
Company for filing in any state or states in order to qualify the
Securities covered by this Agreement, or shall arise out of or be
based upon any omission or alleged omission to state therein any
material facts required to be stated in the registration
statement or the offering memorandum, in any Amendment or
Amendments, in any Blue Sky Application, or necessary to make the
Statements in any thereof not misleading, provided, however, that
the Indemnity Agreement shall not apply to any such losses,
claims, demands, liabilities or expenses arising out of or based
upon any untrue statement or alleged untrue statement of a
material fact contained in the registration statement or the
offering memorandum, or in any Blue Sky Application, or arising
out of or based upon the omission or alleged omission to state
therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, which
statement or omission was made in reliance upon information
furnished to the Company by the Participating Dealer in writing
expressly for use in the registration statement or offering
memorandum, or in any Amendment or Amendments, or was made by the
Participating Dealer in any Blue Sky Application not in reliance
upon information furnished by the Company. The Participating
Dealer agrees to give the Company an opportunity to participate
in the defense or preparation of the defense of any action
brought against the Participating Dealer or controlling persons
of the Participating Dealer to enforce any such claim or
liability, and the Company shall have the right to so
participate. The Agreement of the Company under the indemnity is
expressly conditioned upon notice of any such action having been
sent by the Participating Dealer or controlling persons, as the
case may be, to the Company, by letter or telegram, promptly
after the commencement of such action against the Participating
Dealer or controlling persons, such notice either being
accompanied by copies of papers served or filed in connection
with such action or by a statement of the nature of the action to
the extend known to the Participating Dealer. Failure to notify
the Company within a reasonable time of any such action shall
relieve the Company of its respective liabilities under the
foregoing indemnity, but failure to notify the Company as herein
provided shall not relieve it from any liability which it may
have to the Participating Dealer or controlling persons other
than on account of the Indemnity Agreement.
<PAGE> 5
12. Participating Dealer's Indemnification. The
Participating Dealer hereby agrees to indemnify and to hold
harmless the Company and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act of
1933, as amended, from and against any and all losses, claims,
damages or liabilities to which the Company may become subject
under the Securities Act of 1933, as amended, or otherwise,
insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon
information contained in the registration statement, offering
memorandum, or other document filed with the Securities and
Exchange Commission to the extent such information is supplied by
the Participating Dealer to the Company for inclusion therein, or
is based upon alleged misrepresentations or omissions to state
material facts in connection with statements made by the
Participating Dealer or the Participating Dealer's salesmen
orally or by other means; and the Participating Dealer will
reimburse the Company for legal or other expenses reasonably
incurred in connection with the investigation or the defending of
any such action or claim. The Company shall, after receiving the
first Summons or other legal process disclosing the nature of the
action being served upon it, in any proceeding in respect of
which indemnity may be sought by the Company hereunder, promptly
notify the Participating Dealer in writing of the commencement
thereof. In case any such litigation be brought against the
Company, the Company shall notify the Participating Dealer of the
commencement thereof and the Participating Dealer shall be
entitled to participate in (and, to the extent the Participating
Dealer shall which, to direct) the defense thereof at the
Participating Dealer's own expense, but such defense shall be
conducted by counsel of good standing satisfactory to the
Company. If the Participating Dealer shall fail to provide such
defense, the Company may defend such action at the Participating
Dealer's cost and expense. The Participating Dealer's obligation
under this paragraph shall survive the termination of this
Agreement.
13. Expenses. No expenses will be charged to Participating
Dealers. A single transfer tax, if any, on the sale of the
shares by the Participating Dealer to its customers will be paid
when such certificates are delivered to the Participating Dealer
for delivery to its customers. However, the Participating Dealer
will pay its proportionate share of any transfer tax or any other
tax (other than the single transfer tax described above) if any
such tax shall be from time to time assessed against the Company
and other Participating Dealers.
<PAGE> 6
14. Communications. All communications to the Company
should be sent to the address shown in the opening paragraph of
this Agreement. Any notice to the Participating Dealer shall be
properly given if mailed or telephoned to the Participating
Dealer at the address specified in its Form of Acceptance. This
Agreement shall be construed according to the laws of the state
of Utah.
15. Assignment and Termination. This Agreement may not be
assigned by the Participating Dealer without the Company's
consent. This Agreement (except as otherwise specified above)
will terminate upon the termination of the Offering except that
either party may terminate this Agreement at any time be giving
written notice to the other.
16. Acceptance. If you desire to become a Participating
Dealer, please advise us immediately by signing and returning to
us the Form of Acceptance attached hereto.
Dated this _____ day of _______________, 1997.
ROYAL SILVER MINES, INC.
BY: _____________________________
Howard M. Crosby, President
<PAGE> 7
FORM OF ACCEPTANCE
ROYAL SILVER MINES, INC.
10220 N. Nevada
Suite 270
Spokane, Washington 99218
Gentlemen:
We agree to become a Participating Dealer with respect to
the offering of shares of Royal Silver Mines, Inc. at the public
offering price of $0.75 per share as outlined in your
Participating Dealer's Agreement. We acknowledge receipt of the
Participating Dealer's Agreement and of the Prospectus dated
____________, 1997. We agree to subscribe on the terms set forth
in the Participating Dealer Agreement for _____________ shares of
Royal Silver Mines, Inc. and to make payment for such securities
with three (3) days of the confirmation from you of our order but
not later than noon of the next business day after the receipt of
funds from a customer. We further confirm to you that we are
members in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and we agree to abide by
the Rules and Regulations of the NASD. We further agree that we
will not reallow commissions to any broker/dealer, including
foreign broker/dealers, registered pursuant to the Securities
Exchange Act of 1934, who are not members in good standing of the
NASD.
Dated this _____ day of ___________________, 1997.
___________________________________
Participating Dealer
BY: _______________________________
Title: ________________________
Authorized Officer or Partner
Address of Record:
__________________________________
__________________________________
__________________________________
IRS Employer Identification No.
-----------------------------------
=================================================================
RESERVED FOR COMPANY ACTION
Share Allocation: _______________________________
Dollar Allocation: ______________________________
BY: _______________________________
Authorized Officer
