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MINERAL PRODUCTION SHARING AGREEMENT

MPSA No. 163-2000-V
  
 
This MINERAL PRODUCTION SHARING AGREEMENT ( "Agreement") is made and entered into in Quezon City, Philippines, this ______ day of SEP 12 2000 by and between:
 
 
THE REPUBLTC OF THB PHILIPPINES, hereinafter referred to as the
GOVERNMENT, represented in this act by the Secretary of the Department of
Environment and Natural Resources, with offices at the Department
Natural Resources Building, Visayas Avenue, Diliman, Quezon City
 
and
 
UNGAY-MALOBAGO MINES, INC., a corporation duly organized and existing under the laws of the Republic of the Philippines, with offices at JTKC Center, 3rd Floor, 2155 Pasong Tamo, Makati City and represented in this act by its President Mr. Dominador R. Aytona, as authorized by its Board of Directors (please refer to ANNEX "A), and
 
RAPU-RAPU MINERALS, INC. a corporation duly organized and existing under the laws of the Republic of the Philippines, with offices at Suite 23, Legaspi Suites, 178 Salcedo St. Legaspi Village, Makati City, and represented in this act by its Director Mr. Roderick R.C. Salazar III, as authorized by its Board of Directors (please refer to ANNEX "A-1")

both referrred herein as the "CONTRACTOR"


 
WITNESSETH:
 
WHEREAS, the 1987 Constitution of the Republic of the Philippines provides in Article
XII, Section 2 thereof that all lands of the public domain, waters, minerals, coal,
petroleum, and other natural resources are owned by the State and that their exploration,
development and utilization shall be under the full control and supervision of the State;
 
 
WHEREAS, the Constitution further provides that the State may directly undertake such
activities, or it may enter into a Co-Production, Joint Venture, or Mineral Production
Sharing Agreement with Filipino citizens, or cooperatives, partnerships, corporations or
associations at least sixty per centum of whose capitalization is owned by such citizens;
 
WHEREAS, The government desires to avail itself of the financial resources, technical competence and skills which contractors are capable of applying to the mining operations of the project contemplated herein
WHEREAS, the Contractor desires to join and assist the Government in the sustainable development and utilization for commercial purposes of certain gold, copper, silver and other associated minerals existing in the Contract Area ( as herein defined);

WHEREAS, the Contractor has access to all the financing, technical competence,
technology and environmental management skills required to promptly and effectively carry out the objectives of this Agreernent;

NOW, THEREFORE, for and in consideration of the foregoing premises, the mutual it is hereby stipulated and agreed as covenants, terms and conditions hereinafter set forth, follows:

SECTION I

SCOPE

1.1 This Agreement is a Mineral Production Sharing Agreement entered into pursuant
to the provisions of the Act and its implementing rules and regulations. The
primary purpose of this Agreement is to provide for the sustainable development
and commercial utilization of certain gold, copper, silver and other mineral
deposits existing within the Contract Area, with all necessary services, technology
and financing to be fumished or arranged by the Contractor in accordance with
the provisions of this Agreement. The Contractor shall not, by virtue of this
Agreement, acquire any title over the Contract/Mining Area without prejudice to
the acquisition by the Contractor of the land/surface rights through any mode of
acquisition provided for by law.

1.2 The Contractor shall undertake and execute, for and on behalf of the Government sustainable mining operations in accordance with the provisions of this Agreement, and is hereby constituted and appointed, for the purpose of this Agreement, as the exclusive entity to conduct mining operations in the Contract Area.

1.3 The Contractor shall assume all the exploration risk such that if no minerals in
commercial quantity are developed and produced, it will not be entitled to
reimbursement.

1.4 During the term of this Agreement, the total value of production and sale of
minerals derived from the mining operations contemplated herein shall be
accounted for and divided between the Government and the Contractor in
accordance with Section VIII hereof.

SECTION Ⅱ

As used in this Agreement,the following words and terms,whether singular or plural,
shall have the following respective meaning:
 
2.1 Act refers to Republic Act No. 7942, otherwise known as the "Philippine Mining Act of 1995".

2.2 Agreement means this Mineral Production Sharing Agreement.

2.3 Associated Minerals mean other ores/minerals which occur together with the
principal ore/mineral.

2.4 Bangko Sentral means Bangko Sentral ng Pilipinas.

2.5 Budget means an estimate of expenditures to be made by the Contractor in the mining operations contemplated hereunder to accomplish the Work Program for
each particular period.

2.6 Calendar Year or Year means a period of twelve (12) consecutive months
starting with the first day of January and ending on December 31, while "Calendar
Quarter" means a period of three consecutive months with the first calendar
quarter starting with the first day of January.

2.7 Commercial Production means the production of sufficient quantity of minerals to sustain economic viability of mining operations reckoned from the date of
commercial operation as declared by the Contractor or as stated in the feasibility
study, whichever comes first.

2.8 Constitution or Philippine Constitution means the 1987 Constitution of the
Republic of the Philippines adopted by the Constitutional Convention of 1986 on
October 15, 1986 and ratified by the People of the Republic of the Philippines on
February 2,1987.

2.9 Contract Area means the area onshore or offshore delineated under the Mineral
Production Sharing Agreement subject to the relinquishment obligations of the
Contractor and properly defined by latitude and longitude or bearing and distance'

2.10 Contract Year means a period of twelve (12) consecutive months counted from the Effective Date of this Agreement or from the anniversary of such Effective
Date.

2.11 Contractor means UNGAY-MALOBAGO MINES, INC. AND RAPU-RAPU
MINERALS, INC. or its assignee or assignees of interest under this Agreement:
provided, That the assignment of any of such interest is accomplished pursuant to
the pertinent provisions of the implementing rules and regulations of the Act-

2.12 Declaration of Mining Feasibility means a document proclaiming the presence of minerals in a specific site that are recoverable by socially acceptable,
environmentally safe and economically sound methods specified in the Mine
Development Plan.

2.13 Department or DENR means the Department of Environment and Natural Resources.

2.14 Director means the Director of Mines and Geosciences Bureau.

2.15 Effective Date means the date of execution of this Agreement by the Contractor and by the Secretary on behalf of the Government. In case an Exploration Permit/Temporary Exploration Permit had been availed of by the Contractor, the Effective Date of this Agreement shall be the date of issuance of said Exploration Permit.
2.16 Environment means all facets of man's surroundings. physical, ecological, aesthetic, cultural, economic, historic, institutional and social.

2.17 Exploration means searching or prospecting for mineral resources by geological, geophysical and geochemical surveys, remote sensing, test pitting, trenching,drilling, shaft sinking, tunneling, or any other means for the purpose of determining the existence, extent, quality, and quantity of mineral resources and the feasibility of mining them for profit.

2.18 Exploration Period shall mean the time period from the Effective Date of this
Agreement which shall be for two (2) years, renewable for like periods but not to
exceed a total term of eight (8) years subject to the pertinent provisions of the
implementing rules and regulations of the Act.

2.19 Force Majeure means acts or circumstances beyond the reasonable control of the Contractor including, but not limited to war, rebellion, insurrection, riots, civil
disturbances, blockade, sabotage, embargo, strike, lockout, any dispute with
surface owners and other labor disputes, epidemics, earthquake, storm, flood, or
other adverse weather conditions, explosion, fire, adverse action by the
Government or by any of its instrumentality or subdivision thereoq act of God or
any public enemy and any cause as herein described over which the affected party
has no reasonable control.

2.20 Foreign Exchange means any currency other than the currency of the Republic the Philippines acceptable to the Government and the Contractor.

2.21 Government means the Government of the Republic of the Philippines or any of its agencies and instrumentalities

2.22 Gross Output means the actual market value of the minerals or mineral products from each mine or mineral land operated as a separate entity, without any
deduction for mining, processing, refining, transporting, handling, marketing, or
any other expenses. Provided, That if the minerals or mineral products are sold or
consigned abroad by the Contractor under C.I.F. terms, the actual cost of ocean
freight and insurance shall be deducted: Provided further, That in the case of
mineral concentrates which are not traded in commodity exchanges in the
Philippines or abroad such as copper concentrate, the actual market value shall be
the world price quotation of the refined mineral products contained therein
prevailing in the said commodity exchanges, after deducting the smelting ,refining,
treatment, insurance, transportation and other charges incurred in the process of
converting mineral concentrates into refined metal traded in those commodity
exchanges.

2.23 Mine Development refers to work undertaken to prepare an ore body or a
mineral deposit for mining, including the construction of necessary infrastructure
and related facilities.

2.24 Minerals mean all naturally occurring inorganic substances in solid, liquid, gas or any intermediate state excluding energy materials such as coal, petroleum, natural gas, radioactive materials and geothermal energy.

2.25 Mineral Products mean materials derived from mineral ore/rocks and prepared into marketable state by metallurgical processes which include beneficiation,



2.26 Mining Area means that portion of the Contract Area identified by the Contractor as defined and delineated in a Survey Plan duly approved by the
Director/concerned Regional Director for purposes of development and,/or
utilization and sites for support facilities.

2.27 Mining Operations means mining activities involving exploration, feasibility study, environmental impact assessment, development, utilization, mineral processing, and mine rehabilitation

2.28 Notice means notice in writing, telex or telecopy (authenticated by answer back or confirmation received) addressed or sent as provided in Section 16.2 of this Agreement.

2.29 Ore means naturally occurring substance or material from which a mineral or element can be mined and/or processed for profit.

2.30 Pollution means any alteration of the physical, chemical and/or biological
properties of any water, air and/or land resources of the Philippines, or any
discharge thereto of any liquid, gaseous or solid wastes or any production of
unnecessary noise or any emission of objectionable odor, as will or is likely to
create or render such water, air, and land resources harmful, detrimental or
injurious to public health, safety or welfare or which will adversely affect their
utilization for domestic, commercial, industrial, agricultural, recreational or other
legitimate purposes.

2.31 Secretary means the Secretary of the Department of Environment and Natural Resources.

2.32 State means the Republic of the Philippines.

2.33 Work Program means a document which presents the plan of major mining
operations and the corresponding expenditures of the Contractor in its Contract
Area during a given period of time, including the plan and expenditures for
development of host and neighboring communities and of local geoscience and
mining technology, as submitted and approved in accordance with the
implementing rules and regulations of the Act.

SECTION III

TERM OF AGREEMENT

3.1 This Agreement shall have a term of twenty-five (25) years from Effective Date,
and may be renewed thereafter for another term not exceeding twenty five (25)
years. The renewal of this Agreement, as well as the changes in the terms and
conditions thereof, shall be upon mutual consent by the parties. In the event the
Govemment decides to allow mining operations thereafter by other Contractor,
this must be through competitive public bidding. After due publication of notice,
the Contractor shall have the right to equal the highest bid upon reimbursement of all reasonable expenses of the highest bidder.

SECTION IV

CONTRACT AREA
 
4.1 Size, Shape, and Location of Contract Area. This Agreement covers a total area of one hundred sixty seven & 8625110000 hectares (167.8625 has.), situated at Malobago, Rapu-Rapu, Albay and bounded by the following technical description
(please refer to ANNEX "B" - l:50,000 scale Location Map/Sketch Plan):

LINE BEARING DISTANCE

l-2 S89° -49'E 300.00M
2‐ 3 S00° -11'W 900.00M
3-4 N89° -49'W 300.00M
4‐ 5 S00° -11'W 197.75M
5-6 S45° -11'W 4265M
6-7 N44° 49'W 300.00M
7-8 N44° -49'W 300.00M
8-9 N45° -11'W 300.00M
9-10 N44° -49'W 300.00M
10-11 S45° -11'W 300.00M
11-12 N44° -49'W 300.00M
12-13 N45°-11'E 600.00M
13-14 N00° -11'E 321.32M
14-15 N00° …11'E 476.44M
15‐ 16 S89° -49'E 600.00M
16-17 S89°-49'E 300.00M
17-18 600.00M
18-19 S89° -49'E 300.00M
19-1 300.00M

Tie Point: Triangulation Station Rapu-Rapu, USC 4,756.81 Meters to corner No.
S70 05'W 4,756.81 Meters to corner No.1 of Contract Area.
 
SECTION V

EXPLORAT10N PERIOD

5.1 Timetable for Exploration - The Contractor shall commence Exploration
activities not later than three (3) months after the Effective Date for a period of
two (2) years, renewable for like periods but not to exceed a total term of eight
(8) years, subject to annual review and approval by the Director to evaluate
compliance with the terms and conditions of this Agreement: Provided, That
further renewal may be granted by the Secretary under circumstances as defined in the implementing rules and regulations of the Act.

5.2 Work Programs and Budgets - The Contractor shall strictly comply with the
approved Exploration and Environmental Work Programs together with their
corresponding Budgets (please refer to ANNE)GS "C" and "D").
 
The amount to be spent by the Contractor in conducting exploration activities
under the terms of this Agreement during the Exploration Period shall not be less
than that specified in the approved Work Programs, such that during the first two (2) years of the Exploration Period, this amount shall be as follows:

For the Exploration Work Program:
1st Contract Year : P 9,969,56100
2nd Contract Year: P 11,309,09900

TOTAL: P21,278,66000

For the Environmental Work Program
Total: P 2,120,00000

In the event of renewal of the Exploration Period, the amount to be spent every
year shall first be agreed upon by the parties.

In the event of termination ofthis Agreement, the Contractor shall only be obliged
to expend the pro-rata amount for the period of such Contract Year prior to
termination. If during any Contract Year, the Contractor should expend more than
the amount to be expended as provided above, the excess may be subtracted from
the amount required to be expended by the Contractor during the succeeding
Contract Years, and should the Contractor, due to unforeseen circumstances or
with the consent ofthe Government, expend less during a yeaq then the deficiency
shall be applied to the amount to be expended during the succeeding Contract
Years.

5.3 Relinquishment of Total/Portion of the Contract Area - During the Exploration
Period, the Contractor may relinquish totally or partially the original Contract
Area. After the Exploration Period and prior to or upon approval of the
Declaration ofMining Project Feasibility, the Contractor shall finally relinquish any
ion ofthe Contract Area not necessary for mining operations and not covered
by any Declaration of Mining Project Feasibility.

5.4 Survey of the Contract Area - The Contractor shall cause the survey of the
perimeter of the Contract Area through an application for survey, complete with
requirements, filed with the concerned Regional Office simultaneous with the
submission of the Declaration of Mining Project Feasibility. Survey retums shall
be submitted to the concerned Regional Director for approval within one (l) year
from receipt of the Order of Survey complete with the mandatory requirements
stated in the implementing rules and regulations of the Act.

5.5 Declaration of Mining Project Feasibility - During the Exploration Period, the
Contractor shall submit to the Director through the concerned Regional Director,
a Declaration of Mining Project Feasibility together with a Mning Project
Feasibility Study, a Three (3)-Year Development and Construction or Commercial
Operation Work Program, a complete geologic report of the area and an
Environmental Compliance Certificate. The Declaration of Mining Project
Feasibility, Mining Project Feasibility Study Report and Work Programs are
subject to approval by the Director.

Failure of the Contractor to submit a Declaration of Mining Project Feasibility
during the Exploration Period shall be considered a substantial breach of this Agreement.

5.6 Reporting


a. Periodic Reports - During the Exploration Period, the Contractor shall
submit to the Director through the concerned Regional Director, quarterly
and annual accomplishment reports under oath on all activities conducted in
the Contract Area from the Effective Date of this Agreement. The quarterly
repo( shall be submitted not later than fifteen (15) days at the end of each
Calendar Quarter while the annual accomplishment report shall be submitted
not later than thirty (30) days from the end of each Calendar Year. Such
information shall include detailed financial expenditures, raw and processed
geological, geochemical, geophysical and radiometric data plotted on a map
at a minimum 1:50,000 scale, copies of originals of assay results, duplicated
samples, field data copies of originals from drilling reports, maps,
environmental work program implementation and detailed expenditures
showing discrepancies/deviations with approved exploration and
environmental plans and budgets as well as all other information of any kind
collected during the exploration activities. All information submitted to the
Bureau shall be subject to the confidentiality clause of this Agreement.
 
b. Final Report - The Contractor shall submit to the Director through the
Director, a final report under oath upon the expiration
of the Exploration Period which shall be in the form and substance
comparable to published professional reports of respectable international
institutions and shall incorporate all the findings in the Contract Area
including location of samples, assays, chemical analysis, and assessment of
mineral potentials together with a geologic map of 1:50,000 scale at the
minimum showing the results of the exploration. Such report shall also
include detailed expenditures incurred during the Exploration Period. In
case of diamond drilling, the Contractor shall, upon request of the
Director/concerned Regional Director, submit to the Regional Office a
quarter of the core samples which shall be deposited in the Regional Office
Core Library for safekeeping and reference.

c. Relinquishment Report - The Contractor shall submit a separate relinquishment report with a detailed geologic report of the relinquished area accompanied by maps at a scale of l:50,000 and results of analyses and
detailed expenditures, among others.

SECTION VI

DEVELOPMENTAND CONSTRUCTION PERIOD

6.1 Timetable - The Contractor shall complete the development of the mine including the construction of production facilities within thirty six (36) months from the approval of the Declaration of Mining Project Feasibility, subject to such extension based on justifiable reasons as the Director may approve, upon recommendation of the Regional Director.

6.2 Reporting

a. Annual - The Contractor shall submit, within sixty (60) days after December
31 of each year, to the Director tkough the concerned Regional Director,
an amual report which states the major activities, achievements and detailed
expenditures during the year covered, including maps, assays, rock and
progress during the year covered, including maps, assays, rock and mineral analysis and geological and environmental reports progress during the Development and Construction Period.


b. Final Report - Within six (6) months from the completion of the development
and construction activities, the Contractor shall submit a final report to the
Director through the concerned Regional Director. Such report shall
integrate all information in maps of appropriate scale and quality as well as in
monographs or reports in accordance with international standards,

SECTION VII

OPERATING PERIOD
 
7.1 Timetable - The Contractor shall submit, within thirty (30) days before completion of mine development and construction of production facilities, to the Director through the concerned Regional Director, a Three-Year Commercial Operation Work Program. The Contractor shall commence commercial utilization
immediately upon approval of the aforesaid Work Program. Failure of the
Contractor to commence Commercial Production within the period shall be
considered a substantial breach of the Agreement.

7.2 Commercial Operation Work Program and Budget - During the Operating Period, the Contractor shall submit to the Director through the concerned Region Director, Work Programs and Budgets covering a period of three (3) years each, which shall be submitted not later than thirty (30) days before the expiration of the period covered by the previous Work Program.

The Contractor shall conduct Mining Operations and other activities for the
duration of the Operating Period in accordance with the duly approved Work
and corresponding Budgets and any modification thereof shall be subject
to approval by the Director.

7.3 Expansion and Modification of Facilities - The Contractor may make expansions, modifications, improvements, and replacements of the mining facilities and may add new facilities as the Contractor may consider necessary for the operations: Provided, That such plans shall be embodied in an appropriate Work Program approved by the Director.

7.4 Reporting

a. Quarterly Reports - Beginning with the first Calendar Quarter following the
commencement of the Operating Period, the Contractor shall submit, within
thirty (30) days after the end of each Calendar Quarter, to the Director
through the concemed Regional Dtector, a Quarterly Report stating the
production tonnage terms ores, concentrates, and their corresponding grades and other types of products; value, destination of sales or exports and to whom sold; terms of sales and expenditures.

b. Annual Reports - During the Operating Period, the Contractor shall submit
within sixty (60) days from the end of each Calendar Year, to the Director
through the concerned Regional Director, indicating in sufficient detail:

b.1 The total tonnage of ore reserves, whether proven, probable, or inferred, the
total tonnage of ores, kind by kind, broken down between tonnage mined,
tonnages transported fiom the minesite and their corresponding destination,
tonnases stockpiled in the mine and elsewhere in the Philippines, tonanges


sold or committed for export (whether actually shipped from the Philippines
or not), tonnages actually shipped from the Philippines (with full details as to
purchaser, destination and terms of sale), and if known to the Contractor,
tonnages refined, processed or manufactured in the Philippines with full
specifications as to the intermediate products, by-products or final products
and of the terms at which they were disposed;

b.2. Work accomplished and work in progress at the end of the year in question
with respect to all the installations and facilities related to the utilization
prograrq including the investment actually made or committed;

b.3. Profile of work force, including management and staff, stating particularly
their nationalities, and for Filipinos, their place of origin (i,e., barangay,
towq province, region); and

b.4. Ownership ofthe Contractor, particularly with respect to nationality.

The Contractor shall also comply with other reporting requirements provided
under Section 270 of the implementing rules and regulations of the Act.

SECTION VIII

FISCAL REGIME

8.1 General Principle - The fiscal regime of this Agreement shall be governed by the principle according to which the Government expects a reasonable return in
ic value for the utilization of non-renewable mineral resources under its
national sovereignty while the Contractor expects a reasonable return on its
investment with special account to be taken for the high risk of exploration , the
terms and conditions prevailing elsewhere in the industry and any special efficiency
to be gained by a particularly good perlormance ofthe Contractor.

8.2 Registration Fees - Within fifteen (15) days upon receipt of the notice of approval of the MPSA from the concerned Regional Office, the Contractor shall cause the registration of this Agreement with the said Regional Office and pay the
registration fee at the rate provided in the existing rules and regulations. Failure
ofthe Contractor to cause the registration ofthis Agreement within the prescribed
period shall be sufficient ground for cancellation ofthe same

8.3 Occupation Fees - Prior to registration of this Agreement and at the same date
every year thereafter, the Contractor shall pay to the concemed MunicipaUCity
Treasurer an occupation fee over the Contract Area at the annual rate
provided in the existing rules and regulations. If the fee is not paid on the date
specified, the Contractor shall pay a surcharge of twenty five percentum (257o)
ofthe amount due in addition to the occupation fees.

8.4 Share of the Government - The Government Share shall be the excise tax on
mineral products at the time of removal and at the rate provided for in Republic
Act No. 7729 amending Section 151 (a) of the National Internal Revenue Code, as
amended, as well as other taxes, duties, and fees levied by existing laws.
prescribed under existing laws and regulations.

For purposes of determining the amount of the herein Govemment Share, the
Contractor shall strictly comply with the auditing and accounting requirements prescribed under existing laws and regulations.

The Govemment Share shall be allocated in accordance with Sections 290 ail, 292

of Republic Act No. 7160, otherwise known as "The Local Govemment Code of

1991".

85



Pricing of Sales - The Contractor shall endeavor to obtain the best achievable price

for its production and pay the lowest achievable marketing commissions and

related fees. The Contractor shall seek to strike a balance between long-term sales

comparable to policies followed by independent producers in the intemational

mining industry.















The Contractor shall likewise seek a balanced distribution among consumers.

Insofar as sales to Contractor's affiliates are concerned, prices shall be at arm's

length standard and competing offers for large scale and long-term contracts shall

be procured. The Bureau shall be furnished a copy of the said Sales Agreement

subject to confidentiality between the Bureau and the Contractor.



-



Associated Mnerals

If minerals other than gold, copper, silver and other

associated minerals are discovered in commercial quantities in the Contract Area,

the value thereof shall be added to the value ofthe principal mineral in computing

the Govemment share.



SECT10N IX



WORK PROGRAMS

Submission to Govel■ lrnent― WIthn the peHods stated hereit the Contractor shall



and submit to the Director through the concerned Regional Director, a

Work Program and corresponding Budget for the Contract Area stating the

Mining Operations and expenditures which the Contractor proposes to carry out

during the period covered with the details and particulars set forth elsewhere in

this Agreement or in the supporting documents.



of



-



92



Work Program

Should the

Govemment's Examination and Revision

Govemment wish to propose a revision to a certain specific feature in the Work

Program or Budget, it shall, within thiry (30) days after receipt thereof, provide a

Notice to the Contractor specifying in reasonable detail its reasons therefor.

Promptly thereafter, the Govemment and Contractor will meet and endeavor to

agree on the revision proposed by the Government. In any event, the revision of

any portion of said Work Program or Budget in which the Government shall fail to

notify the Contractor ofthe proposed revision shall, insofar as possible, be carried

out as prescribed herein. Ifthe Government should fail within sixty (60) days from

receipt thereof to notify Contractor of the proposed revisions, the Work Program

and Budget proposed by the Contractor shall be deemed to be approved.



93



Contractor's Changes to Work Program - It is recognized by the Government and

the Contractor that the details of any Work Program may require changes in the

light of chaaging circumstances. The Contractor may make such changes:

Provided, That it shall not change the general objective of the Work Program:

Provided further, That changes which entail a variance of at least twenty

percentum (20%) shall be subject to the approval ofthe Director.



94



The Government's approval ofa proposed Work Program and Budget will not be

unreasonabけ



wihhdd



,ヵ



_







11



SECTION X



ENVIRONMENTAL PROTECTION AND MINE SAFETY AND HEALTH



10.1 The Contractor shall manage its Mining Operations in a technically, financially, socially, culturally and environmentally responsible manner to achieve the


sustainable development objectives and responsibilities as provided for under the


implementing rules and regulations of the Act;

10.2 The Contractor shall prepare a plan of mining so that its damage to the environment will be minimal. To the extent possible, control of pollution and the transformation of the mined-out areas or materials into economically and socially
productive forms must be done simultaneously with mining;



10.3 The Contractor shall submit an Environmental Work Program during the Exploration Period as prescribed in the implementing rules and regulations of the Act;

10.4 An Environmental Compliance Certificate (ECC) shall be secured first by the Contractor prior to the conduct of any development works, construction of production facilities and/or mine production activities in the Contract Area;
on the environmental/geological condition, nature
operations and technology to be employed in the Contract Area;

10.5 The Contractor shall submit, within thirty (30) days prior to the beginning of every calendar year, an Annual Environmental Protection and Enhancement Program (AEPEP), using MGB Form 16-3, which shall be based on the approved EPEP. The AEPEP shall be implemented during the year for which it was submitted. To implement its AEPEP, the Contractor shall allocate annually three to five percent (3%-5%) of its direct mining and milling costs depending on the environmental/geologic conditional nature and scale of operations and technology employed in the Contract Area;

10.7bThe Contractor shall establish a Mine Rehabilitation Fund (MRF) based on the financial requirements of the approved EPEP as a reasonable environmental deposit to ensure satisfactory compliance with the commitment/strategies of the EPEP/AEPEP and availability of funds for the performance of the EPEP/AEPEP during the specific project phase. The MRF shall be deposited as Trust Fund in a government depository bank and shall be used for physical and social rehabilitation of areas affected by mining activities and for research on the social,technical and preventive aspects of rehabilitation;
 
10.8 The Contractor shall set up mitigating measures such as mine waste and mill tailings disposal system, mine rehabilitation or plan, water quality monitoring to minimize land degradation, air and water pollution, acid rock drainage changes in hyrdogeology;


injuries to persons or properties caused by Mining Operations of the
Contractor and indemnify the Government for any expenses or costs incurred
by the Government by reason of any such claims, accounts, demands or
actions;



j.In the development of the community:



j.1.To recognize and respect the rights, customs and traditions of indigenous
cultural communities over their ancestral lands and to allocate royalty
payment of not less than one percent (1%) of the value of the gross output of
minerals sold;

j.2 To coordinate with proper authorities in the development of the mining
community and for those living in the host and neighboring communities
through social infrastructure, livelihood programs, education, water,
electricity and medical services. Where traditional self-sustaining income and
the community activities are identified to be present, the Contractor shall
assist in the preservation and/or enhancement of such activities;

j.3.To allot annually a minimum of one percent (1%) of the direct mining and
milling costs necessary to implement the activities undertaken in the
development of the host and neighboring communities. Expenses for
community development may be charged against the royalty payment of at
least one percent (1%) of the gross output intended for the concerned
indigenous cultural community;



j.4.To give preference to Filipino citizens who have established domicile in the
neighboring communities, in the hiring of personnel for its mining operations.
If necessary skills and expertise are currently not available, the Contractor
must immediately prepare and undertake a training and recruitment program
its expense;

j.5. To incorporate the Mining Project Feasibility Study the planned
expenditures necessary to implement ( l) to ( 3) of this Section;
incorporate

k. In the development of Mining Technology and Geosciences:

k.1 In the course of its operations, to produce geological, geophysical,
geochemical and other types of maps and reports that are appropriate in scale
and in format and substance which are consistent with the internationally
accepted standards and practices. Such maps shall be made available to the
scientific community in the most convenient and cost effective forms, subject
to the condition that the Contractor may delay release of said information for
a reasonable period of time which shall not exceed three (3) years;

k.2 To systematically keep the data generated from the Contract/Mining Area
such as cores, assays and other related information, including economic and
financial data and make them accessible to students, researchers and other
persons responsible for developing mining, geoscience and processing
technology subject to the condition that the Contractor may delay release of
data to the science and technology community within a reasonable period of
time which shall not exceed three (3) years;



10.9 The Contractor shall be responsible for the submission of a final mine rehabilitation and/or decommissioning plan including its financial requirements and incorporating the details and particulars set forth in the implementing rules and regulations of the Act.
10.10 The Contractor shall be responsible in the monitoring of environmental safety and health conditions in the Contract Area and shall strictly comply with all the rules and regulations embodied under Mines Administrative Order No. MRD-51, Series of 1991, otherwise known as the "Revised Mine Safety Rules and Regulations"

10.11 The Contractor shall be responsible for the submission of a final mine rehabilitation and/or decommissioning plan including its financial requirements and incorporating the details and particulars set forth in the implementing rules and regulations of the Act.



SECTION XI



RIGHTS AND OBLIGATIONS OF THE PARTIES



11.1 Obligations of the Contractor:

a. To exclusively conduct sustainable Mining Operations within the Contract
Area in accordance with the provisions of the Act and and regulations;



b. To its implementing rules construct and operate any facilities specified under the Mineral Agreement or approved Work Program;



c. To determine the exploration, mining and treatment process to be utilized in
the Mining Operations;



d.To extract, remove, use and dispose of any tailings as authorized by
an approved Work Program;

e.To secure all permits necessary or desirable for the purpose of Mining Operations



f. To keep accurate technical records about the mining operations as well as
financial and marketing accounts and make them available to Government


representatives authorized by the Director for the purpose of assessing the
performance and compliance of the Contractor with the terms of this
Agreement. Authorized representatives of other Government Agencies may
also have access to such accounts in accordance with existing laws, rules and
regulations



g.To fumish the Bureau all the data and information gathered from


the Contract Area and that all the books of accounts and records shall be open for inspection;

h.To allow access to Government during reasonable hours in inspecting the
Contract Area and examining pertinent records for purposes of monitoring
compliance with the terms of this Agreement;

i. To hold the Government free and harmless from all claims and accounts of all kinds, as well as demands and action arising out of the accidents or







k.3 To transfer to the Government or local mining company the appropriate
technology it may adapt in the exploration, development and commercial
utilization of the minerals in the Contract Area;





k.4 To allocate research and development budget for the advancement of mining technology and geosciences in coordination with the Bureau, research
institutions, academe, etc.;





k.5 To replicate data, maps and reports cited in (k.1) and (k.2) and furnish the
Bureau for archiving and systematic safekeeping which shall be made
available to the science and technology community for conducting research
and undertaking other activities which contribute to the development of
mining, geoscience and processing technology and the corresponding
national pool of manpower talents: Provided, however, that the release of
data, maps and the like shall be similarly constrained in accordance with (k.l)
and (k,2) above;

l. To incorporate in the Mining Project Feasibility Study the planned expenditures necessary to implement all the plans and programs set forth in this Agreement; and





m. To pay all other taxes and fees mandated by existing laws, rules and regulations





11.2 Rights of the Contractor





The Contractor shall have the right:

a. To conduct Mining Operations within the confines of its Contract/Mining
Area in accordance with the terms and conditions hereof and that it shall not
interfere with the rights of other Contractors/Lessees/Operators/ Permittees;





b.Of possession of the Contract Area, with full right of ingress and egress
to occupy the same, subject to surface and easement rights;

c. To use and have access to all declassified geological, geophysical, drilling,
production and other data relevant to the mining operations;

d. To sell, assign, transfer, convey or otherwise dispose of all its rights, interests and obligations under the Agreement subject to the approval of the
Government;

e. To employ or bring into the Philippines foreign technical and specialized
personnel, including the immediate members of their families as may be
required in the operations of the Contractor, subject to applicable laws and
regulations: Provided, That if the employment connection of such foreign
persons with the Contractor ceases, the applicable laws and regulations on
immigration shall apply to them. Everytime foreign technologies are utilized
and where alien executives are employed, an effective program of training
understudies shall be undertaken. The alien employment shall be limited to
the required approval under existing laws, rules and regulations;





f. To enjoy easement rights and use of timber, water and other natural
resources in the Contract Area subject to pertinent laws, rules and
regulations and the rights of third parties;

g. Of repatriation of capital and remittance of profits, dividends and interest on
loans, subject to existing laws and Bangko Sentral rules and regulations;
and

h. To import when necessary all equipment, spare parts and raw materials
required in the operations in accordance with existing laws and regulations,





11.3 Obligation of the Government



The Government shall:

a. Ensure that the Contractor has the Government's full cooperation in the
exercise of the rights granted to it under this Agreement;



b. Use its best efforts to ensure the timely issuance of necessary permits and
similar authorizing documents for use of the surface of the Contract Area;
and

c. To cooperate with the Contractor in its efforts to obtain financing
contemplated herein from banks or other financial institutions: Provided,
That such financing arrangements will in no event reduce the Contractor's
obligation on Government rights hereunder.



SECTION XⅡ



ASSETS AND EQUIPMENT

12.1 The Contractor shall acquire for the Mining Operations only such assets that are reasonably estimated to be required in carrying out such Mining Operations.

12.2 All materials, equipment, plant and other installations erected or placed on the Contract Area of a movable nature by the Contractor shall remain the property of the Contractor. The Contractor shall have the right to remove and re-export such materials and equipment, plant and other installations from the Philippines, subject to existing rules and regulations. In case of cessation of Mining Operations on public lands occasioned by its voluntary abandonment or withdrawal, the Contractor shall have a period of one (1) year from the time of cessation within which to remove its improvements; otherwise, all social infrastructures and facilities shall be turned over or donated tax free to the proper government authorities, national or local, to ensure that said infrastructures and facilities are continuously maintained and utilized by the host and neighboring communities.

SECTION XⅢ



EMPLOYMENT AND TRAINING OF PHILIPPINE PERSONNEL



13.1 The Contractor agrees to employ, to the extent possible, qualified Filipino
personnel in all types of mining operations for which they are qualified; and after consent of the


Government, prepare and undertake an extensive training programme suitable to Filipino nationals in all levels of employment. The objective of said programme shall be to reach within the time table set forth below the following targets of "Filipinization" .

    Unskilled(%)     Skilled (%)     Clerical (%)    Professional(%) Management(%)

Year 1 100            100                  100                    100                   60
Year 2  100            100                  100                    100                 60
 Year 3 100             100                100                     100                  60
Year 5   100            100                100                      100                 60
Year 7     100           100               100                    100                    60
Year 10     100      100                  100                     100                  60
Year 15   100          100                100                      100                 60

13.2 Cost and expenses of training such Filipino personnel and the Contractor's own employees shall be included in the Operating Expenses.

13.3 The Contractor shall not discriminate on the basis of gender and shall respect the right of women workers to participate in policy and decision-making processes affecting their rights and benefits.

SECTION XⅣ

ARBITRATION

14.1 The Government and the Contractor shall consult with each other in good shall exhaust all available remedies to settle any and all disputes or
disagreements arising out of or relating to the validity, interpretations,
enforceability, or performance of this Agreement before resorting to arbitration as provided for in Section 14.2 below.


14.2 Any disagreement or dispute which can not be settled amicably within a period of one (1) year from the time the issue was raised by a Party shall be settled by a tribunal of three (3) arbitrators, This tribunal shall be constituted as follows. one to be appointed by the Contractor and another to be appointed by the Secretary. The first two appointed arbitrators shall consider names of qualified persons until agreement on a mutually acceptable Chairman of the tribunal is selected. Such arbitration shall be initiated and conducted pursuant to Republic Act No. 976, otherwise known as the "Arbitration Act".


In any event, the arbitration shall be conducted applying the substantive laws of the Republic of the Philippines

14.3 Each party shall pay fifty per centum (50%) of the fees and expenses of the Arbitrators and the costs of arbitration. Each party shall pay its own costs and attorney's fee.


SECTION XV

SUSPENSION OR TERMINATION OF CONTRACT TAX INCENTIVES AND CREDITS




15.1 This Agreement may be suspended for failure of the Contractor: (a) to comply with any provision or requirement of the Act and./or its implementing rules and regulations; (b) to pay taxes, fees and/or other charges demandable and due the Government

15.2  This Agreement terminates or may be terminated for the following causes. (a) expiration of its term, whether original or renewal; (b) withdrawal from the Agreement by the Contractor; (c) violation by the Contractor of the Agreements terms and conditions; (d) failure to pay taxes, fees/or charges or financial obligations for two (2) consecutive years, (e) false statement or omission of facts by the Contractor; and (I) any other cause or reason provided under the Act and its implementing rules and regulations, or any other relevant laws and regulations.

15.3 All statements made in this Agreement shall be considered as conditions and essential parts hereof and any falsehood in said statements or omission of facts which may alter, change or affect substantially the fact set forth in said statements shall be a ground for its revocation and termination.



15.4 The Contractor may, by giving due notice at any time during the term of this Agreement, apply for its cancellation due to causes which, in the opinion of the Contractor, render continued mining operation no longer feasible or viable. In this case, the Secretary shall decide on the application within thirty (30) days from notice. Provided, That the Contractor has met all the financial, fiscal and legal obligations.



15.5 No delay or omissions or course of dealing by the Government shall impair any of its rights under this Agreement, except in the case of a written waiver. The Government's right to seek recourse and relief by all other means shall not be construed as a waiver of any succeeding or other default unless the contrary intention is reduced in writing and signed by the party authorized to exercise the waiver



15.6 In case of termination, the contractor shall pay all the fees and other liabilities due up to the end of the year in which the termination becomes effective. The Contractor shall immediately carry out the restoration of the Contract Area in accordance with good mining industry practice.

15.7 The withdrawal by the contractor from the Mineral Agreement shall not release it from any and all financial, environmental, legal and fiscal obligations under this Agreement;

15.8 The following acts or omission, inter alia shall constitute breach of contract upon which the Government may exercise its right to terminate the Agreement:

a. Failure of the Contractor without valid reason Production within the period prescribed; and



b) Failure of the contractor to conduct mining operations and other activities in
accordance with the approved Work programs and./or aly modification
thereof as approved by the Director.

15.9 The Government may suspend and cancel tax incentives and credits if the Contractor fails to abide by the terms and conditions of said incentives and credits.








SECTION XVI



OTHER PROVISIONS



16.1 Any terms and conditions resulting from repeal or amendment of any existing laws or regulations or from the enactment of a law, regulation or administrative order shall be considered a part of this Agreement.

16.2 Notice

All notices, demands and other communications required or permitted hereunder shall be made in writing, telex or telecopy and shall be deemed to have been duly given notice, in the case of telex or telecopy, if answered back or confirmation received, or if delivered by hand, upon receipt or ten days after being deposited in the mail, airmail postage prepaid and addressed as follows:

IF to the Government

THE SECRETARY
Department of Environment and Natural Resources
DENR Building , Visayas Avenue
Diliman. Quezon City

If to the Contractor:

THE PRESIDENT

Ungay-Malobago Mines, Inc.
JiKC Center, 3'd Floor
2155 Pasong Tamo, Makati City;

THE PRESIDENT
Rapu-Rapu Mnerals, Inc.
Suite z:,- Legaspi Suites, 178 Salcedo St.
Legaspi Village, Makati City

Either party may substitute or change such address on notice thereof to the other party,

16.3 Governing Law

This Agreement and the relation between the parties hereto shall be governed by and construed in accordance with the laws of the Republic of the Philippines. The Contractor hereby agrees and obliges itself to comply with the provisions of the Act, its implementing rules and regulations and other relevant laws and regulations.

16.4 Suspension of Obligation

a. Any failure or delay on the part of any party in the performance of its
obligation or duties hereunder shall be excused to the extent attributable to
Force Majeure.



b) If Mning Operations are delayed, curtailed or prevented by such Force
Majeure causes, then the time for enjoying the rights and carrying out the
obligations thereby affected, the term of this Agreement and all rights and
obligations hereunder shall be extended for a period equal to the period
involved.

c) The Party, whose ability to perform its obligations is affected by such Force
Majeure causes, shall promptly give Notice to the other in writing of any
such delay or failure of performance, the expected duration thereof and its
anticipated effect and shall use its efforts to remedy such delay, except that


neither Party shall be under any obligation to settle a labor dispute.



16.5 Amendments



This Agreement shall not be annulled, amended or modified in any respect except by mutual consent in writing of the herein parties.







IN WITNESS WHEREOF,the Parties hereto have executed this Agreement,as of the day and year first above written



THE REPUBLIC OF THE PHILIPPINE



BY:




ANTONIO H. CERILLES
Secretary
Department of Environment and
Natural Resources







UNGAY MALOBAGO MINES,INC.
BY:

DOMINADOR R. AYTONA
President

RAPU‐ RAPU MINERALS, INC.
BY:




RODERICK R.C. SALAZAR III


Director











,







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Republic ofthe Philippines)







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