Exploration rights have been granted to Duncan Park in two separate agreements.
The following information is included for historical reference. All of the contractual requirements for acquisition have been met, resulting in the Current Situation described in the Red Lake Property section.
On March 7, 2010, following upon a letter of intent dated November 28, 2009, the Corporation entered into an option and joint venture arrangement (the “Dome Option Agreement”) with Sphere with respect to 13 unpatented mining claims covering 34 units in the Dome, Byshe and Heyson Townships in Ontario’s Red Lake Gold District, generally referred to as the Dome Property (the “Property”). Subsequently, 4 unpatented mining claims covering 5 mining units were added to the Dome Property at nominal cost.
Under the terms of the Dome Option Agreement, the Corporation would join Sphere in exploring the Property, which had been optioned by Sphere from Global Minerals Limited ("Global"). Sphere has granted Duncan Park the option to acquire its option to acquire a 75% interest in the Property, subject to the following:
- 1. A 2% net smelter royalty (“NSR”) held by the original property owners, one percent of which may be acquired for $1,750,000 and one percent of which is subject to a right of first refusal in favour of Sphere and Duncan Park;
- 2. Satisfaction of the terms of the Global/Sphere agreement, which are essentially the making of the payments and incurring the exploration expenses set out below and the issue to Global by Sphere of 500,000 shares of Sphere each year for three years; and
- 3. Sphere’s right to claw back from Duncan Park a 51% undivided interest in the Property by paying Duncan Park an amount equal to four times Duncan Park's expenditures on the Property, which right must be exercised by Sphere within 30 days following the earn-in date, and payment must be made within a further 30 days.
For Duncan Park to acquire Sphere's option to acquire a 75% interest in the Property, Duncan Park was required to make cash payments of $25,000 per year to Global, issue to Sphere two million Duncan Park shares per year for three years, and make staged exploration expenditures of $75,000 in year one, $350,000 in year two and $500,000 in year three, all of which has been done.
The Option Agreement contemplates that Sphere will act as operator of the Property during the option period with Duncan Park having the right to approve all work plans and budgets. It also contemplates that shortly after the earn-in date the continuing parties will enter into a joint venture agreement to carry on the exploration, which is in process.
On January 21, 2011, Sphere entered into an agreement with Global to acquire the Dome mining claims from Global. This agreement, which required Duncan Park approval, extinguished all prior agreements with Global and contains a clause in which Sphere acknowledges that this has no effect on the Duncan Park interest as defined under the prior agreements.
On December 23, 2010, the Corporation entered into a Letter of Intent, which has since been superseded on March 29, 2011 by a definitive agreement (the “Definitive Agreement”) with Sphere and Camp McMan Red Lake Gold Mines Inc. (“Camp McMan”) with respect to funding the exploration of 17 patented mining claims and 11 licenses of occupation (the “McManus Claims”) covering approximately 324 hectares, which expand the Red Lake property.
Sphere is entitled to earn a 100% interest in the Claims, subject to the satisfaction of certain conditions as set out below, pursuant to a letter agreement (the “Letter Agreement”) which has since been incorporated into the Definitive Agreement, that it has entered into with Camp McMan.
The McManus Claims abut the Dome property, add approximately 65% to the size of the Red Lake property and square up and fill in the north-eastern section of the property.
The Definitive Agreement provides that Duncan Park will join Sphere in participating in the Camp McMan Option Agreement and will fund Sphere’s earn-in costs as set out below and thereby earn all of Sphere’s rights to the Claims, subject to Sphere’s right to clawback a 51% interest in the property by the payment to Duncan Park of four times the expenditures made by Duncan Park (“Sphere’s Clawback Right”).
Sphere’s financial obligations (which are to be funded by Duncan Park under the Definitive Agreement as described above) and share issuance obligations pursuant to the agreement with Camp McMan are:
In addition, Sphere is obligated to make the tax payments on the Claims.
The making of the required option and tax payments and share issuances and incurring the exploration costs, Sphere will have earned a 100% interest in the Claims, including the residue of surface rights with respect thereto, subject only to a 3½% Net Smelter Royalty (“NSR”) interest on all metals produced from the McManus Claims to Camp McMan. Sphere also has the right to buy down the NSR interest from 3½% to 2% for $500,000 per ½%. Upon Sphere earning its interest in the Claims, Sphere is obligated to make annual advance royalty payments of $10,000 until either it exercises this NSR buy-down option or a decision is made to enter production. As noted above, under the Definitive Agreement Duncan Park will have earned the above-mentioned 100% interest in the Claims and the above-mentioned NSR buy-down right, and will be responsible for the above-mentioned advance royalty payments, all subject to Sphere’s 51% Clawback Right upon the payment to Duncan Park of four times the amount spent by Duncan Park. Further, should Sphere fail to issue the required Sphere shares, Duncan Park would be called upon to issue Duncan Park shares on the ratio of .347 Duncan Park shares for every required Sphere share.
Duncan Park has made all of the option payments due and insured all of the exploration costs required to completed the earn-in. The only remaining olbigation to complete the earn-in is to make the $50,000 and $75,000 option payments due on or before 2012 and 2013 respectively.