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REPUBLIC OF LIBERIA)


MONTSERRADO COUNTY)


























MINERAL EXPLORATION AGREEMENT


BETWEEN





THE REPUBLIC OF LIBERIA





AND








MAGMA MINERAL RESOURCES INC.


 THIS MINERAL EXPLORATION AGREEMENT is entered into, by and


between the REPUBLIC OF LIBERIA, through its Government represented


by the Deputy Minister for Operations of the Ministry of Lands. Mines &


Energy (hereinafter referred to as the "Govornmont")


AND





MAGMA MINERAL RESOURCES INC., a corporation existing and doing


business under the laws of Liberia represented by Len Lindstrom its Chief


Executive Officer (hereinafter referred to as the "Operator"), hereby:





WITNESSETH:


WHEREAS, title to Minerals within the territory of the Republic of Liberia is


vested in the Republic of Liberia (the Republic) and all rights related to the


exploration for and exploitation of such minerals pertain exclusively to the


Republic; and


WHEREAS, the Ministry of Lands, Mines & Energy through the Minister of


Lands, Mines & Energy is by law charged with the responsibility of


administering the mineral laws of the Republic and in that process to ensure


the efficient development of the mining industry; and


WHEREAS, the Operator has successfully completed a program o!


reconnaissance work of the selected areas, and


WHEREAS, the Government is determined to accelerate the development of


the mining industry of Liberia, and therefore desires to promote the


Development of minerals which may exist m exploration areas for the


economic and social benefit of Liberia and recognizes that a large capital


expenditure is necessary to ensure that such minerals are economically and


efficiently developed; and


WHEREAS Government agrees to grant the Operator such mineral rights


and privileges in consideration of the undertaking by the Operator to make


annual payments, and to pay rents, royalties and other fees hereinafter


prescribed and to perform and observe the terms and conditions of this


agreement;


NOW, THEREFORE, for and in consideration of the premises, the mutual


promises exchanged between the parties hereto (the Parties), terms and


conditions herein contained, the Parties hereto mutually agree as follows:














2


 1.0 DEFINITIONS





Unless the context shall otherwise clearly indicate, the following terms


wherever used in this Agreement shall have the respective meanings


set forth below:


1.1 Affiliate: Means a Person that controls, is controlled by or is under


common control with the Operator. For purposes of this section control


means the possession, directly or indirectly, by one person of more than


fifty percent (50%) of the equity of or the voting power in another person


1.2 Associated Minorals l ho term "Associated Minerals" means any


mineral, metal element or precious or semi-precious stone(s) Other than


Gold which is found, discovered, mined, removed, extracted or otherwise


produced as an incident to the Operators activities in exploiting a Gold


Deposit or Deposits


1.3 Centro: tho term "Centre" means the International Centre for Settlement


of Investment Disputes established under the auspices of the


International Bank for Reconstruction and Development.


1.4 Convention: the term “Convention" means the Convention on the


Settlement of Investment Disputes between States and Nationals of


Other States opened to signature at Washington. DC. United States of


America on March 18, 1965.


1.5 Effective Date: The term "Effective Date" means the date, provided i


Section 26, on which this Agreement shall become effective


1.6 Exploration Area: The term "Exploration Area" means at any particular


time the area or areas then designated in accordance with Section 3.2


but only during the Exploration Period.


1.7 Exploration Period: The term "Exploration Period" means the period


described in Section 2.1.


1.8 Gold Deposit: The term "Gold Deposit" means a deposit whose


predominate economic value, as determined by the result of exploratory


drilling, is attributable to the Gold contained therein and winch is of such


character as to permit the economic production thereof


1.9 Government The term "Government” includes all of the branches,


divisions, instrumentalities and agencies of the Government ol the


Republic ot Liberia.














3


1.10 Infrastructure: The term "infrastructure" means assets of the following


types


(a) Immovable transportation and communication facilities (including


roads bridges, railroads, airports, landing strips and landing pads


for aircraft, hangars and other airport facilities, garages, channels,


tramways. pipelines and radio, telephone, telegraph,


telecommunications, and electronic or other forms of


communications facilities);


(b) Immovable port facilities (including docks, harbors, piers, jetties,


breakwaters, terminal facilities and warehouses, and loading and


unloading facilities);


(c) Immovable power, water and sewerage facilities (including electrical


generating plants and transmission lines, dams, water drain;, water


supply systems and Systems for disposing of tailings, plant waste


and sewage).


(d) Immovable public welfare facilities (including schools hospitals and


public halls);


(e) Miscellaneous immovable facilities used primarily in connection with


the operation of other facilities (including offices, machine shops


foundries, repair shops and warehouses): and.


(f) Movable facilities and equipment affixed to and used as an integral


part of the immovable facilities described in paragraphs (a) through


(e).


1.11 Operations and Activities The term ’Operations and Activities’ means


the exploration, mining and management operations of- MAGMA


MINERAL RESOURCES INC


1.12 Operator The term ’Operator means MAGMA MINERAL


RESOURCES INC.


1.13 Plant and Equipment The term “Plant and Equipment" means the


following assets (other than infrastructure) used for Operations and


Activities:


(a) Movable and immovable facilities and equipment to mine, crush


sluice, dredge, wash, screen, dry. beneficiate. and otherwise


explore for or produce Gold and/or Associated Minerals.


(b) Movable and immovable facilities and equipment used primarily m


connection with the operation of the foregoing (including offices


machine shops, foundnes. repair shops and warehouses).





4


(c) Movable and immovable facilities and equipment tot the


maintenance of personnel (including dwellings, stores, mess halls


and recreational facilities), and


(d) Movuble facilities and equipment used in connection with any of the


infrastructure


1.14 Produce The term "Produce" as used m lelerence to Gold. Associate


Minerals or any other mineral deposit shall include dnll. develop, extract,


strip, mine, sluice, dredge, process (including benefioate. concentrate or


otherwise treat), stockpile, transport, load, sell and export, for the


account of the operator.


1.15 Production: The term "Production" as used in reference to GokJ


Associated Minerals or any other minerals, shall mean the commercial


exploitation of Minerals found in the Exploration Area and all activities in


respect of or incidental thereto, including the design, construction,


installation, fabrication, operation, maintenance, drilling development,


extraction, stripping, mining, sluicing, dredging, processing (including


beneficiation, concentration or other treatment), stockpiling


transportation, loading, sale and exportation by the Operator








2.0 TERM OF THE AGREEMENT


2.1 The term of this Agreement shall commence on the Effective Date and


shall expire at the earlier of (a) such time as the Operator shall have


completed exploration activities, or (b) three (3) years after the


Effective Date, with an extension of another (2) years at the option of


the Operator plus any penod of renewal to which the Government may


agree








3.0 EXPLORATION RIGHTS:


3.1 Grant of Exploration Rights: On the terms and conditions herein


provided the Government hereby grants to the operator, during the


period hereinafter defined, commencing with the Effective Date plus


any extension of such penod to which the Government may agree


(referred to herein as the "Exploration Period”) the exclusive right to


explore for Gold. Diamonds, Associated Minerals and any other


mineral deposit ( except iron ore ) in the Exploration Area

















5


 3.2 Exploration Area





(a) The Exploration areas shall lie in Nimba-South, Nimba County


as identified on the attached map. with metes and bounds or


coordinates attached hereto as Appendix "A"


(b) The Operator shall commence exploration as soon as possible


after the Effective Date but not later than 180 days after the


Effective Date.


(c) At the end of the Exploration Period, the Exploration Area shall


cease to exist


3.3 Surrender of Exploration Area Unless the Minister and the Operator


otherwise agree:


(a) At or before the end of the initial term of the Exploration Period,


the Operator shall surrender a minimum of fifty percent (50%) of


the Original exploration area


(b) At or before the end of the extension of the Exploration Period, me


Operator shall surrender the remairvder of the Exploration Area


and, upon such surrender, the Exploration License shall


automatically terminate


(c) Notwithstanding paragraphs 3.3 (b) above, if the Operator wishes


to retain all of. or any part of. the Exploration area upon expiry of


the exploration period it shall have the right to do so by apply* g


for a mineral development agreement over the area


3.4 Minimum Expenditures


(a) Commencing no later than six (6) months after the Effective Date,


the Operator shall diligently and without interruption explore for


gold, associated minerals and any other mineral depot* within the


Exploration Area, and should the Operator fail to so comply in


accordance with the provisions of this section, then this


Agreement shall be liable to cancellation


(b) During the Exploration Period, the Operator shall expend not less


than Two United States Dollars (US$2 00) per acre during each


calendar year as Exploration Costs, the latter being defined tp


comprise all of the Operator’s managerial and corporate costs


related to exploration











I*


 4.0 Pilot Mining Rights





The Operator in addition to exploration, is hereby also granted the


right to produce gold, associated minerals and any other mineral under


a pilot mining plan to be approved by the Minister of Lands Mines and


Energy.


5.0 Mineral Dovolopmont Agroomont





During or by the expiry of the Exploration Period, the Operator may


apply for a Mineral Development Agreement. This agreement shall be


concluded in accordance with the Minerals and Mining I aws ind


Regulations of Liberia





6.0 INCIDENTAL RIGHTS:


6.1 Grant of Rights: Subject to the terms and conditions herein provided,


and solely for the purposes incidental to the exercise of the rights


granted to the Operator under Sections 3 and 4 of this Agreement, the


Government hereby grants to the Operator the right, within the


Exploration Areas:


(a) To acquire, build, and construct Infrastructure. Plant and


Equipment, and other facilities, and to maintain and operate the


same:


(b) To remove, extract and use solely for its own exploration


purpose, Irec of tax or other charge or fee imposed Dy the


Government, any water, gravel, sand. clay, stone and timber


(except protected fauna and flora), provided however, that where


any land, villages, houses, person or watering places for animals


have been supplied water by right through custom, the Operator


shall not deprive them of a constant and reasonably supply of


usable water, nor shall the Operator, without the Government's


consent, interfere with any water or other rights enjoyed by


anyone under any agreement with the Government


6.2 Reservation of Rights: The Government reserves the right, on


reasonable notice to and after consultation with, the Operator, to


construct roads, highways, railroads, telegraph and telephone lines and


other lines of communication within the Exploration Area


6.3 Condemnation: If the use of any privately owned or occupied property


within the Exploration Area is reasonably required for the conduct of


operations hereunder and the Operator is unable to come to an


agreement with the owner or occupant of such property for such use,


the Operator may request the Government, which request shah not ot


unreasonably denied, to exercise its right ot eminent domain with


respect to such property. The Operator shall reimburse the


Government for any compensation paid or payable to the private owner


or occupant as a result of the Government's exercise of such right








7.0 INFRASTRUCTURE


7.1 Construction by Operator: The Operator shall, at its own cost


undertake the construction, installation and improvement ot all or any


part of the infrastructure All such Infrastructure shall be maintained


and operated by the Operator in a reasonably good manner.


7.2 The Government warrants not to exercise its rights to expropriate land


in the Exploration Area if such expropriation Shall in any way hinder the


development of the Operation and Activities


8.0 CONDUCT OF OPERATIONS


8.1 Best Exploration Practices: The Operator shall conduct all of its


operations hereunder using appropriate modem and effective Plant


and Equipment. Infrastructure, materials and methods Such


operations shall be conducted in a proper ana workmanlike manner


with due diligence, efficiency and economy, in accordance with the


laws of Liberia and with the best mining and engineenrig practices


used by efficient operators in similar operations, elsewhere in the


world








8.2 Maximum Economic Operation


(a) The Operator shall use its best efforts to produce Gold and


associated minerals from each Pitot Mining Area and at the


maximum capacity of each Production Area consistent with the


optimum economic development of all Production Areas


Production shall not be restricted to high grades of Gold and other


minerals, to the neglect of lower grades.

















K


 (b) The Operator shall use its best efforts to sell Gold and any


Associated Minerals produced at the maximum prices possible in


the light of the prevailing international market prices and


conditions, and in accordance with good competitive business


practices generally accepted at the time. The Operator hereby


undertakes to sell at least 95% of all Gold or Associated Minerals


within forty- five (45) days after their production Notwithstanding


the foregoing, with the pnor approval of the Government, the


Operator shall have the right to delay the sale of a greater


proportion of the Gold, and/or Associated Minerals produced


beyond the said forty five (45) day period, upon such terms and


conditions as the parties may agree








9.0 HEALTH AND SAFETY


The Operator shall install, maintain and use modern health and safety


devices and shall practice modern health and safety procedures and


precautions (including, regular safety training instruction for its


employees) as are in accordance with the best exploration and mining


engineering practices, and acceptable labor safety standard In this


respect, the Operator shall comply with health and safety rules


regulations, and Laws ol the Government.





10.0 EMPLOYMENT. TRAINING AND SECONDMENT


10.1 Employment of Liberians: The Operator shall not employ foreign


unskilled labor. To the maximum extent feasible, the Operator shall


employ Liberian citizens at all levels


10.2 Training of Liberians The Operator shall provide on a' continuing


basis for the training of its Libenan employees, in order to qualify them


for skilled, technical administrative and managerial positions.


10.3 At least two (2) professionals (mining engineers/geologists) from


the Ministry shall be seconded to the Operator's operations at the


expense of the Operator








11.0 CONSERVATION


11.1 The Operator shall encourage economic and social development


dunng the term of his operation and shall provide for meetings on a


regular basis between representatives of the Operator and the local


communities for the purposes of considering and making


recommendations to the Operator and to the Government with respect


to matters of community interest, such that it shall not hinder the


Operator’s work


v


11.2 Natural Resources: The Operator shall take preventive, corrective


and/or restorative measures to ensure that all streams and water


bodies within or bordering Liberia, all dry land surfaces, and the


atmosphere be protected from pollution, contamination or damage


resulting from operations hereunder, as per Section 7 0 hereof, and


that any existing pollution, contamination and damage of or to such


water bodies, land surfaces, and atmosphere resulting from operations


hereunder be rectified, and that the terrain, in general, be restored to


and left in a usable state for purposes which are economically or


socially desirable.








12.0 ADEQUATE CAPITAL AND STOCK OWNERSHIP


The Operator shall provide all capital necessary tor the economic and


profitable exploration for Gold and Associated Minerals and the


production of these Minerals under this Agreement. In this connection,


the Operator shall at all times maintain a reasonable and prudent


capital structure.








13.0 TAXATION


13.1 In General The Operator shall be liable to all taxes, fees, duties,


excises, and other charges imposed by Liberian Laws of general


application, except as may be otherwise provided by other laws and


administrative regulations granting exemptions from customs duties


and excise taxes


13.2 INCOME TAX. The Operator shall be subject to Liberian Income lax


Law of General Application, except that notwithstanding any provisions


of such laws, the rate of tax applicable to all the taxable income of the


Operator shall be thirty percent (30%).








14.0 ROYALTIES


14.1 Gold The Operation shall pay to the Government a royalty in respect


of all gold discovered during exploration and produced under pilot


mining The amount of such royalty shall be 3% of the selling prices


f o b Monrovia for the Gold and Diamond The royalty shall be paid


within thirty days of export.

















I0


14.2 Associated Minerals and other Mineral Deposits: The Operator


shall also pay to the Government a Royalty in respect of any


Associated Minerals or any other mineral, as defined In Section 1.2


produced hereunder and shipped or otherwise disposed of by the


Operator. The amount of said royalty shall be negotiated and agreed


upon by the parties.


15.0 Exploration Fees and SURFACE RENTAL








15.1 The Operator shall make an annual payment of Five Thousand


United States Dollars (US$5.000 00) for the grant or renewal of the


Exploration License


15.2 The Operator shaH make annual lump sum rental payments of


US$20,000 00 to the Government for all unsurrendered portions of the


Exploration Area in the first two years and Eighteen US Cents (US$0 18) per


acre thereafter The Operator shall also make a payment of Three United


States Dollars (US$3.00) per acre for all areas oporatod under pilot mining


16.3 The first payment for the exploration license fee and surface


rental shall be made in accordance with a plan to be mutually agreed between


the parties Subsequent payments shall be made within thirty (30) days after


each subsequent anniversary of the Effective Date


16.0 RECORDS. REPORTS, AND INSPECTION


16.1 Aval lability of Records The Operator sha* maintain at its


principal office *i Liberia, or at such other office as the Government


may approve


(a) Copies of all maps, geological, mmmg. or other earth science


reports and mineral analysis (together with an field data which


supports such reports or data), production records, marketing


report and any other data obtained or compiled by the Operator


as a result mining Operations and Activities. All information data


and material specified in this paragraph shall be in a form


suitable tor reproduction, use or processaig as Vie cate may


be The Operator she! have the right to temporariy ramove


such samples and other data from such location and (on pnor


notice to the Government) from Liberia for the purpose of stody


and evaluation




















II


(b) The Operator shall keep the Government fully informed of all


Operations and Activities, wherever conducted and of its plans


respect thereof The Government shall have the right to monitor


exploration and pilot mining operations and Activities from time to


time and a reasonable number of Government personnel may.


upon prior notice to the Operator, at reasonable times and subject


to compliance with the Operator’s security requirements, attend


and inspect Mining Operations and Activities conducted in Liberia


(c) Within thirty (30) days after the end of each calendar quartoi, the


Operator shall provide the Government with a report on al


Operations and Activities for that calendar quarter including


Minerals recovered and sold. Within ninety (90) days after the end


of each Financial Year, the Operator shall furnish the Government


with a report on all Mining Operations for that Financial Year,


including Minerals recovered and sold


16.3 Reports. The Opeiatoi shall submit such repoits to the Government, in


such form, in such detail, and at such time, as may be required by law.


or as the Government may otherwise require with respect to


exploration, production, employment and training, marketing and such


other matters as may be related to the conduct of operations


hereunder.





16.4 Inspection: The Government may, upon reasonable notification to the


Operator, inspect the books and records of the Operator, and any ali


facilities and area related to the Operator's operation as provided


hereunder The Operator shall make its appropriate employee available


to render assistance with respect to any such inspection.


16.5 Confidentiality of Operator’s Reports: The Government shall treat all


information supplied by the Operator hereunder as confidential and


shall not reveal such information to a third party without the prior


wntten consent of the Operator which consent shall not be


unreasonably withheld


Financial information about the Operator shall however be treated as


confidential for a period of one (1) year, commencing as of the date of


submission of such information. The Government may nevertheless


use any such information received from the Operator for the purpose of


prepanng and publishing general records or statistics on natural


resources or other conditions in Liberia, and in connection with any


dispute between the Government and the Operator

















12


17.0 NON-ASSIGNABIUTY





This Agreement and any interest therein may not be transferred or


assigned, or mortgaged, pledged or otherwise encumbered, in whole or


in part, without the Government's prior written approval unless to an


affiliate. However, any request to joint-venture any rights to a third


party, will be fully allowed and any assignment that is legally required


to protect the interest of the joint-venture partner will be accepted





18.0 FORCE MAJEURE


18.1 Except as provided in this Section, failuie on the pad ot the Operator to


comply with any of the conditions hereof (except the obligation to make


payment of monies to the Government) shall not be grounds for


cancellation or give the Government any claim for damages insofar as


such failure arises from force majeure. if the Operator has taken nil


appropriate precautions, due care and reasonable alternative


measures with the objective of avoiding such failure and of carrying out


its obligations hereunder


The Operator shall take all reasonable measures to cure such laiure


and to fulfill the terms and conditions herool with a minimum of delay


The Operator shall notify the Government withm fourteen (14) days of


an event of force majeure affecting its ability to fulfill the terms and


conditions hereof or any event which may endanger the natural


resources of Liberia and similarly notify the Government of efforts


being made to rest normal conditions within twenty-four (24) hours


thereof For purpose of this Section 17. force majeure includes an act


of God, war, insurrection, civil commotion, earthquake, storm, flood or


any other extraordinary event which the Operator could not reasonably


be expected to prevent or control, but shaB not include any event


caused by a faBure to observe the best mining and engineering


practices or by the negligence of the Operator or any of its employees


or contractors ft. as a consequence of force majeure operations


hereunder remain in substantially total suspension for an unmterruptea


period of more than six months, the duration of the term of th«


Agreement shall be extended by the time of such suspensions



































13


 1* 2 Except m hereinafter prowded. the tome tor the performance of any


obkgatoon (except the obkgatoon to make payment of money) of the


Operator under or arising out of this Agreement which performance *


hindered prevented or delayed by force majeure as well as any other


tome periods and dates set forth m this Agreement, snal be extended


by the period of delay but not longer than the continuance thereof and


such additional period as may be reasonable *i the circumstances, and


the Operator shall not be liable m damages or otherwise to the other


nor shall any action, claim or demand be taken or made against the


Operator by reason solely of such delay in the performance of such


obligation





18.3 The Operator shall use al reasonable diligence to remove the cause of


the force majeure as quickly as practicable after notice of the same


shall have come to its attention save and except that this provision


Shan not in and of itself require the Operator to settle any stnke.


lockout, ban 'go slow" activity stoppage restraint of labor or other


similar ("Industrial Dispute")








19.0 SURRENDER OF OPERATOR S RIGHT


Dunng the Exploration Period, the Operator may surrender by not less


than sixty (60) days notice to the Government, all its rights hereunder


in respect of all or any part of the Exploration Area and the Operator


shall be relieved of all obligations in respect of area so surrendered


except those obligations that may have accrued poor to the Effective


Date of. or arising out of or rolated to the surrender








20.0 SECTION 24: FINANCIAL REPORTING AND CURRENCY


24.1 Accounting. Al of the Operator s accounting under this Agreement


shal be in Dolars and al amounts paid or received and obkgatoon*


incurred or transactions carried out in currency that is legal tender m


the Republic or m any Foreign Currency other than Dollars shall be


converted to Dollars w accordance with and pursuant to generally


accepted accounting principles w the United Kingdom. Canada or


internationally accepted (except to the extent inconsistent with the


terms of this Agreement) based upon the Prevailing Market Rate of


Exchange of Dollars and any such currency at the date of the


applicable transaction


24.2 Exchange Control. The Operator shall at all times have the right,


without restriction, directly or indirectly, of the Government, to obtain,


hold, deal with and disburse funds in such manner, currencies and


places as it chooses Without prejudice to the generality of the


foregoing, the Operator shall have the unrestncted and unencumbered


right to sell and receive payment for Minerals in any currency, including


the currency in which the Minerals are sold, and all proceeds therefrom


may be deposited in bank accounts outside of the Republic and field


there or remitted therefrom to anywhere in the world, in any currency,


Notwithstanding the foregoing, the Operator shall maintain at least one


bank account with a bank or financial institution in the Republic. The


Operator shall also have the right to acquire from, and sell to, any


Person currency that is legal tender in the Republic at the Prevailing


Market Rate of Exchange Additionally, any and all transactions


between the Government and the Operator dealing with or referring to


currency that is legal tender in the Republic will be converted to Dollars


at the Prevailing Market Rate of Exchange on the date of such


transaction. Currency gains or losses for purposes of Section 20 shall


be determined by reference to the Prevailing Market Rate of Exchange


24.3 Curroncy of Payment. Payment of the Operator's direct obligations to


the Government for Taxes and Duties payable under Sections 20. 21


22 and 23 of this Agreement shall be in Dollars, unless the Parties


otherwise agree. Any obligation originally stated in currency that is


legal tender in the Republic, or in any currency other than Dollars, will


be converted to Dollars at the Prevailing Market Rate of Exchange on


the date such obligation is paid, or shall fall due. whichever is eadier


However, the Operator shall make payments of sums it collects or


behalf of the Government, including, but not limited to. taxes withheld


from the salaries or wages of the employees of the Operator and any


other sums payable to other Persons from which a portion is r.quued


by Law to be withheld or retained by tne Operator on behalf of the


Government, in the currency in which such salaries or wages or such


other sums are collected The Operator shall have the right to make all


other payments whether to the Government or to other Persons in


currency that is legal tender in the Republic


24.4 Right to Remit and Receive Payments. The Operator sfiai have the


right to remit and receive in Dollars all payments of dividends, interest,


pnncipal and other property payable items arising from, as a result of.


or related to Operations, and to do so free of Taxes and Duties on such


remittances or receipts, and without penalties, any required total or


partial surrender, exchange or confiscation of such Dollars, or other


direct or indirect restrictions on such remittances or receipts

















15


24.5 Audit





a The Operator shall cause its books of accounts to be auditec


within three (3) months, or such longer period of time as the


Minister may approve, after the dose of each Financial or Fiscal


Year by an internationally recognized independent auditor


selected by the Operator and satisfactory to the Government and


a copy of the annual financial statement duly certified by said


auditor shad be furnished to the Government within twenty (20>


days after its recent by the Operator The foregoing shall not. in


any way. imply acceptance of any such audit or certification by the


Government, or predude the Government from auditing such


books of accounts but at the Government's expense


b. The foregoing shall not in any way imply acceptance of any such





audit or certification by the Government or preclude the


Government from auditing such books of accounts at its own


expense and as provided under Law. provided that the


Government shall provide the Operator with a copy of any such


audit within forty five (45) days of rece<>t However, once either


the Government or the Operator has audited any book of


accounts the financial statement thus audited shall be corsider.-o


acceptable and the audit results binding and conclusive as to its


findings, unless a Party shall have indicated to the contrary wilt


ninety (90) days alter its receipt of a copy of the audited financi.il


statement.


c If the Operator has. pursuant to this Agreement, underpaid its





liability for Taxes and Duties the Government may. subject to the


Revenue and Finance Law, assess interest and penalties but rot


to exceed the London Interbank Offering Rale (LIBOR) existing ai


the lime of such assessment, plus one (1) peicentage pomt


multiplied by the amount underpaid If LIBOR should cease to be


reported, then the rate to be applied shall be another agreed


substitute rate If the Operator has overpaid its liability for Taxes


and Duties then, at its option, it may elect either to be reimbursed


by the Government or to apply such overpayment against future


Taxes and Duties





d In case a review of records or books oirfside of the Republic is


required the Operator writ cooperate to provide the Government


with copies of the information, books and records needed to


complete the audit If the Government nonetheless deems it


necessary for any part of such audit to be performed outside of


the Republic, the cost of associated travel will be borne by the


Government











16


 SECTION 25: INCIDENTAL RIGHTS





25.1 Grant of Rights Subject to the terms and conditions heroin provided


and solely for the purposes incidental to the exercise of tho rights


granted to the Operator under Sections 3 and 4 of this Agreement, the


Government hereby grants to the Operator the right, within the


Exploration Areas:


(a) To acquire, build, and construct Infrastructure. Plant and


Equipment, and other facilities, and to maintain and operate the


same:


(b) To remove, extract and use, solely for its own exploration


purpose, free of tax or other charge or fee imposed by the


Government, any water, gravel, sand, clay, stone and timber


(except for protected species, insofar as they do not interfere with


or hinder Operations): provided however, that where any land


villages, houses, person, or watering places for animals have


been supplied water by right through custom, the Operator shall


not deprive them of a constant and reasonably supply of usable


water, nor shall the Operator, without the Government's consent,


interfere with any water or other rights enjoyed by anyone under


any agreement with the Government The Government will


provide information to the Operator of any such agreements


affecting the Exploration Area upon the Operator’s request


25.2 Imports. The Operator shafl be entitled to xnport and use m respect of


Operations, and subsequently export any and aU machinery,


equipment, consumable items, fuels, explosives and any other thing


whatsoever reasonably requiied with respect to Operations and in


accordance with the terms of this Agreement, provided, however, that


the Operator shall not re-export fuels and explosives surplus to


requirements if such surplus can be sokJ at competitive international


prices within the Republic. The Operator shall at all time comply with


Law regarding the safe use. sale, disposal and security of explosives


25.3 Taxes on Resale. The Operator may sell, in the Republic, all imporleo


items that are no longer needed for Operations However if such


imports were exempted from Taxes and Duties, the Operator shall fulfill


all formalities required in connection with the payment by the purchaser


of all Taxes and Dubes on the depreciated value of the imports


imposed on such sales by Law




















17


SECTION 26: ASSIGNMENT AND ENCUMBRANCE





26.1 Right of Assignment. The Operator shall have the right to assign or


otherwise dispose of all or part of its interest under this Agreement wrth


the prior written consent of the Government (which consent shall not be


unreasonably withheld) provided, however, that such consent shall not


be required in the case of an assignment or other disposition to an


Affiliate in which latter event the Operator shall not be relieved of its


obligations under this Agreement other than to the extent fulfilled by the


Affiliate


26.2 Right to Encumbor. The Operator shall have the nght to mortgage,


charge or otherwise oncumber all or part of its interest under this


Agreement for the purpose of raising, from one or more Affiliates or


third parties, financing for its obligations under this Agreement, but any


power of sale arising under any such mortgage, charge or other


encumbrance shall only be exercised with the prior written consent of


the Minister, which consent shall not be unreasonably withheld


26.3 Notice of Assignment or Encumbrance. The Operator shall


promptly give Notice to the Minister of any assignment, mortgage,


charge or other disposition or encumbrance pursuant to this Section


26








SECTION 27: TERMINATION


27.1 Termination by the Operator. During the Exploration Period the


Operator may surrender by not less than sixty (60) days notice to the


Government, all its rights hereunder in respect of all or any pan of the


Exploration Area, and the Operator shall be relieved of all obligations m


respect of area so surrendered except those obligations that may have


accrued poor to the Effective Date of. or arising out of or related to the


surrender


27.2 Termination by the Government Subject to the provisions of


Section 29. the Government shall have the right to terminate this


Agreement if any of the following events (hereinafter called "Events of


Default") shall occur and be continuing


a) where the Operator shall fail to make any of the payments


described in this Agreement on the doe payment date and such


default is not cured within thirty (30) days after notice by the


Government (or within such longer period as may be specified m


said notice),











is


b) where the Operator shall materially fail to comply with its


obligations or any other conditions under this Agreement and such


failure shall have a materially adverse effect on the Government


and is not cured within ninety (90) days after notice by the


Government or within such period as may be specified in said


notice;


c) where the Operator shall (i) voluntarily dissolve, liquidate or wind


up its affairs, or make an assignment of all or substantially all of its


assets for the benefit of creditors other than an assignment made


to secure indebtedness incurred in the ordinary course of


business, (ii) file a petition or application to any tribunal for the


appointment of a trustee or receiver for all or any substantial pan


of the Operator's assets, (ill) commence any proceedings for its


bankruptcy, reorganization, arrangement. insolvency or


readjustment of debt under the laws of any jurisdiction, whether


now or hereafter in effect, or if any such petition or application is


filed, or any such proceedings are commenced against it. shall


indicate its approval thereof, consent thereto or acquiescence


therein, or (iv) if any order is entered appointing any such trustee


or receiver, or adjudicating the Operator bankrupt or insolvent, or


approving the petition in any such proceedings, and provided that


the Operator shall fail to take corrective measured) to have such


order removed or lifted within sixty (60) days


d. where the Operator shall fail to carry out Exploration as required


by Section 5.1. cease Exploration for a period of twelve (12)


consecutive months or cease Production with respect to ail


Production Areas for a period of twenty four (24) consecutive


months unless such failure or cessation is consented to by the


Government or is caused by a state of force majeure in particular


relating to security issues preventing safe access to the


Exploration or Production Areas


27.3 Opportunity to Cure. In the case of an alleged Event of Default


described in Section 27.2. the Government before taking any further


action, shall provide Notice to the Operator of the alleged occurrence of


such Event of Default and of the Government’s views in that regard


and shall offer the Operator a fair opportunity to consult with the


Government to resolve the matter If. after a reasonable period of time


of consultation, the Government is of the reasonable opinion that the


matter cannot be resolved by further consultation, the Government may


then send to the Operator Notice of the Government s intention to


terminate this Agreement If the Event of Default is not cured within


sixty (60) days after said Notice, or within such longer period as may


be necessary to allow a reasonable period of time to effect such cure,


then this Agreement shall be terminated








IV


27.4 Disputes Regarding Events of Default Notwithstanding the


provisions of Sections 27.2 and 27.3, if the Operator disputes whether


there has been an Event of Default described in Sector 27.2 ana


within sixty (60) days after receipt by the Operator of the Government s


Notice of its intention to terminate, refers such dispute to arbitration m


accordance with Section 29. then termination of this Agreement shall


not take effect until the finality of. and in accordance with, an arbitration


award upholding the Government s right to terminate.








SECTION 29: ARBITRATION


29.1 Submission to Arbitration. Any dispute between the Government


and the Operator arising out of. m relation to or in connection with this


Agreement or its formation, or the validity, interpretation, performance


termination. enforceatxWy or breach of this Agreement (including any


dispute concerning whether the Government or the Operator has


violated or is in breach of this Agreement or of any Law affecting the


rights, obligations or duties of any Party under this Agreement), for


which resolution oy suormssion to an expert is not specifically provided


elsewhere this Agreement shall be exclusively and finally settled by


binding arbitration pursuant to the Convention m accordance with the


rules of the Centre in effect on the Effective Date except to the extent


in conflict with this Section 29 which shall prevail in that event The


Parties agree that this Agreement and the Operator s Operations


pursuant thereto constitute an "investment" by reason of the


expenditure of a considerable amount of money in the Republic .in.)


that for purposes of Article 25(1) of the Convention, any dispute subject


to this Section 29 is a legal dispute arising directly out of an


investment. Either of the Parlies to such dispute may institute


arbitration proceedings by giving Notice to the other Party and Notice


to the Secretary-General of the Centre including in each a statement of


the issues in dispute





29.2 Nationality for Purposes of Arbitration. The Operator is


incorporated in Liberia and notwithstanding the incorporation in the


Republic of any of the Operator's successors or assignees, or of any of


its other Affiliates, all such entities shall be treated for purposes of


arbitration under this Section 29 as nationals of the United States of


America for purposes of the Convention and of this Agreement, except


that the Operator and any other such entity may. alternatively, elect to


be treated instead as a national ol any othor state of which undei the


Convention, international law or the law of such slate it is a national




















20


29.3 Arbitrators. Any arbitral tribunal constituted pursuant to th«s


Agreement shall consist of one (1) arbitrator to be appointed by the


Government, one (1) arbitrator to be appointed by Operator and one


(1) arbitrator, who shall be the president of the tribunal and shall be a


citizen neither of the Republic nor of the United States of America (or of


any other state of which a Party is a national under Section 29 2) to be


appointed by the Secretary-General of the Centre No such arbitrator


shall have an interest in the matters in dispute.


29.4 Referee. At the request of a Party, any matter otherwise subject to


arbitration under this Agreement shall instead be referred for resoiuton


to a single referee to be appointed by the Secretary-General of the


Centre, or of any successor entity as provided for by Section 29 10


below, except for any dispute arising out of or related to Sections 3. 4


5. 6. 20. 21, 23. 24. 27. 29. 31 and 33 and Sections 18.7 18 8 and


18.9 of this Agreement, which must be referred to arbitrators appointed


pursuant to Section 29.3 above unless the Parties jointly agree that any


such dispute is not material, in which event it may be referred to the


referee for decision at the option of either party. The decision of the


referee shall be rendered pursuant lo Section 29.6 of this Agreement


(except as regards the requirement for a decision by majority vote) and


shall be final and binding unless appealed by any Party to arbitrators


appointed as provided in this Section 29.3. who shall examine the


referee’s decision only as to manifest enor of law. findings of fact that


are not supported by any credible evidence, and abuse of aiXhonty


misconduct or other unauthorized act by the referee


29.5 Venue. Arbitration proceedings conducted pursuant to this Agreement


shall be field in Washington, D.C or such other place as the Parties


may agree and shall be conducted in the English language I he costs


of the proceedings shall be assessed and borne in such manner ns the


arbitral tribunal shall decide. Any procedural issues that cannot bt


determined under the arbitral rules ol the Centre shall be determined


pursuant to applicable law as set forth in Section 33 below


29.6 Award. The arbitrators shall, by majority vote, render a written


decision slating the reasons lor ll>oir award within three (3) months


after any hearing conducted has been concluded Any monetary


award shall be assessed and payable in Dollars (determined at the


Prevailing Market Rate of Exchange as of the date of the award if the


award involved an obligation expressed in any currency other than


Dollars) through a bank designated by the recipient, and in the case of


an award to the Operator, shall be exempt from any Taxes and Duties


imposed by Government Each Party shall bear its own costs mid


attorney fees.














2I


Neither Party shall have any liability lot either consequential damage*


(except for purposes of set off) or exemplary or punitive damages, but


interest at a rate not to exceed the London Inter-bank Offering Rate


(LIBOR) existing at the time of such award, plus one (1) percentage


point, multiplied by the amount of the award, ahull be assessed from


the date of any monetary award until Its satisfaction If LIBOR should


cease to be reported, then the rate to be applied shall be another


substitute rate agreed to by a majority of the arbitrators In any case


the liability of the Operator shall be lanited to the net book value of its


investment m the Republic at the hme of the award. If the decision of


the arbitral tribunal is adverse to the Operator, then the arbitral tribunal


may. in its discretion, specify a reasonable penod of grace to cure any


defect or default on the part of the Operator, provided that such period


of grace shall not exceed one hundred eighty (180) days for the making


of any payment required by such award


29.7 Waiver of Sovereign Immunity. The Government fiereby irrevocably


waives all claims of immunity from the Arbitrators' jurisdiction, and from


the enforcement of any arbitral awurd rendered by a tribunal


constituted pursuant to this Agreement including immunity from service


of process and immunity from fhe jurisdiction of any court situated in


any state, country or nation


29.8 Reservation of Rights. The right lo refer a claim or dispute lo


arbitration hereunder shall not be affected by the (act that a claimant or


respondent has received fui or partial compensation from another


Person for a loss or nfury that m the object of the daim or depute end


any such other Person may participate m such proceedings by right of


subrogation





29.9 Nature of Award. The Parties agree that the arbitral award of any


arbitral tribunal constituted pursuant to this Agreement may contain


such orders (including orders for specific performance other equitable


relief or monetary damages) m leaped of or affecting any of the Parties


(and any loss or damago suffered by any of them) as such arbitral


tnbunal determines to be appropriate in the circumstances The


Parties, subject to their respective obligations contained elsewhere in


this Agreement, shall take all such actions as are necessary to give full


and complete effect to the award which, in accordance with Ms terms,


shall be binding upon and enforceable against them


























22


29.10 Successor*. The consent to the jurisdiction of the Centre at set forth


in this Section 29 shall equally bind any successor of or successors-m-


Interest to either Party to this Agreement Should the Centre be


replaced by. or its functions be substantially conferred upon or be


transferred to, any new international body of a similar type and


competence, the Parties shall have the right to submit any disput.- to


such body for settlement by arbitration in accordance with the


foregoing provisions of this Section 29








23.0 NOTICES


(a) AM notices requests, reports approvals consents designations


or other communications (coaectivety referred to heresi as


“communications") required by. provided for. in. or relative to this


Agreement shall be in writing All communications shall be


delivered, in case of Ihe Government to


The Minister of Lands. Mines & Energy


Ministry of Landa, Mines & Energy


P.O. Box 10-9024


1000 Monrovia 10, Liberia


And in the case of the Operator to


The President


MAGMA MINERAL RESOURCES INC.


Monrovia, Liberia





or such other address as may be designated m writing by the


Operator


A delivery of a communication shall be deemed effective only





when mailed, postage prepaid and return recent requested


telefaxed or. hand-delivered and rece*rt





(b) Nothing in this Section shal be deemed to refceve the Operator


from fifcng any report, return or other communication required by


Liberian Laws of general application at the time and si the manner


therein prescribed


























23


24.0 NONWAIVER





The failure of either party at any time to require performance by the


other party of any provisions hereunder shall m no way affect the right


of that party thereafter to enforce the same or shal it effect the party's


right to enforce any of the other provisions of this Agreement nor shall


the waiver by either party of the breach of any provisions hereof be


taken or held to be a waiver of any subsequent breach of such


provision or as a wavier of the provision itself


25.0 AFFIRMATIONS


25.1 The Operator shad, during the term of this Agreement and for such


period thereafter as may be reasonable, continue to have corporate


existence as well as aM corporate rights, powers, purposes and duties


set forth and described in this Agreement and in its Articles of


Incorporation and By-Laws, as the same may from time-to-time be


amended in accordance with their terms


25.2 The ownersh*) of any Mneral shal pass from the Government to the


Operator at the bme that the Mmeral m the Exploration Area is


excavated by the Opeiatur


25.3 Subject to the obligations of the Operator and the Government


elsewhere contained in this Agreement, the Operator shall ensure that


it complies with the Agreement.


25.4 The Government and Operator shall each be the beneficiary of the


nghts granted to it under this Agreement No other person shall have


any nghts under this Agreement unless a Party or unless otheiw.se


specifically provided in this Agreement


25.5 Each Party shall execute such documents and do such furfiier things


as may be necessary to give ful and complete effect to the provisions


of this Agreement








26.0 EFFECTIVE DATE: This Agreement shall become effective and be


binding on the Parties when executed by them.


























24


IN WITNESS WHEREOF, the Parties have executed this Agreement, through


their respective duly authorized representatives, on the day, month and year


indicated below.


Signed in_originals on the ^day of AD 2005














IN PRESENCE OF: FOR THE GOVERNMENT OF THE


REPUBLIC OFLIBERIA:



































FOR THE OPERATOR:




















MAGMA MINERAL RESOURCES INC.
























































25


Mineral and Exploration Area for Magma Mineral Resources Inc., Nimba South


 UTM Coordinates of the Mineral and Exploration Area for Magma Mineral





Resourse Inc., Nimba South





r


Point Easting Northing


0 490000 705000


1 490000 720000


2 495000 720000


3 495000 725000


4 500000 725000


5 500000 730000


6 515000 730000


7 515000 735000


8 525000 735000


9 525000 740000


10 530000 740000


11 530000 700000


12 520000 700000


13 520000 690000


14 515000 690000


15 515000 710000


16 52000C 710000


17 520000 715000


18 525000 715000


19 525000 720000


20 515000 720000


21 515000 715000


22 510000 715000


23 510000 710000


24 505000 710000


25 505000 _ 705000


490000





Area = 1000 Sq Km