-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WqPbvXkNMKXpECMmVHqke7Q3ZMu+Xl/d2XYqADfMmCYrr99XxO7PUwNHrKOQCIIo syr+VRxIY/LY/JzwWKO9uA== 0000938347-96-000002.txt : 19960402 0000938347-96-000002.hdr.sgml : 19960402 ACCESSION NUMBER: 0000938347-96-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: USMX INC CENTRAL INDEX KEY: 0000315523 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 841076625 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-09370 FILM NUMBER: 96542942 BUSINESS ADDRESS: STREET 1: 141 UNION BLVD STE 100 CITY: LAKEWOOD STATE: CO ZIP: 80228 BUSINESS PHONE: 3039854665 MAIL ADDRESS: STREET 1: 141 UNION BLVD SUITE 100 CITY: LAKEWOOD STATE: CO ZIP: 80228 FORMER COMPANY: FORMER CONFORMED NAME: U S MINERALS EXPLORATION CO DATE OF NAME CHANGE: 19880222 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year December 31, 1995 or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ______________________ to ______________________ Commission File Number 0-9370 ___________________ USMX, INC. (Exact name of registrant as specified in its charter) ___________________ Delaware 84-1076625 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 141 Union Boulevard, Suite 100 80228 Lakewood, Colorado (Zip Code) (Address of principal executive offices) (303) 985-4665 Registrant's telephone number, including area code Securities registered pursuant to Section 12(b) of the Act:None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 Par Value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Disclosure contained herein __ Disclosure not contained herein X The aggregate market value of the voting stock held by non- affiliates of the Registrant was approximately $21,812,693. This calculation is based on the closing price of the stock as reported on The Nasdaq Stock Market on March 8, 1996. The number of shares of the Registrant's $.001 par value common stock outstanding as of March 8, 1996 was 14,643,519. DOCUMENTS INCORPORATED BY REFERENCE Items 10, 11, 12 and 13 are anticipated to be included in the definitive proxy statement. Table of Contents Items 1 and 2. Business and Properties. 3 Introduction. 3 Summary of Drill-Defined Mineralization 4 History of Operations 5 The Illinois Creek Project 7 The Thunder Mountain Project 10 Montana Tunnels 12 Exploration 13 Competition 17 Markets 17 Government Contracts 18 Governmental Regulation 18 Employees 19 Financial Information about Foreign and Domestic Operations and Export Sales. 19 Glossary of Terms 21 Item 3. Legal Proceedings. 25 Item 4. Submission of Matters to a Vote of Security Holders 25 Item 5. Market For The Registrant's Common Equity And Related Stockholder Matters. 26 Item 6. Selected Financial Data 27 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 28 Liquidity and Capital Resources 28 Results of Operations 29 Trends Which May Affect Future Results of Operations 32 Item 8. Financial Statements and Supplementary Data 35 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 37 INDEX TO EXHIBITS 38 PART I Items 1 and 2. Business and Properties. Introduction. USMX, INC. (the "Company" or "USMX") is a Delaware corporation which engages in the exploration for, and development and operation of precious metal properties. The Company also evaluates base metal and non-metallic opportunities. The Company conducts its operations directly and through various operating subsidiaries. All references in this Report to the Company or USMX include all subsidiaries of USMX, INC., unless the context otherwise requires. All of the Company's 1995 production (6,266 ounces of gold) was from the Company's Goldstrike Mine near St. George, Utah. Mining was completed at the Goldstrike Mine in October 1994. The Company expects minimal future production from the Goldstrike Mine. In addition to revenues from its operations at the Goldstrike Mine in 1995, the Company also received the minimum annual advance royalty of $720,000 in connection with operations of the Montana Tunnels Mine. The Company's principal focus in 1995 was on further exploration and preliminary development of its Illinois Creek and Thunder Mountain properties. In February 1996, the Company completed its feasibility study of the Illinois Creek property and received a commitment for project financing. The Company is currently proceeding with development of this property. It is the Company's goal to commence mining at Illinois Creek in the fall of 1996. See below in these Items and Item 7 for additional discussion regarding the Company's plans and the associated risks. The Company views exploration as an important means of growth, and it typically actively explores several projects annually. In 1995, the Company's exploration efforts in the United States were concentrated on expanding the mineralization at Illinois Creek and Thunder Mountain. In addition, the Company continued its exploration efforts outside of the United States, principally in Mexico. The following map depicts the location of the Company's operating property, royalty interest, principal exploration and development properties, and offices. The original document contains a map of the western United States and Alaska depicting the above items. Summary of Drill-Defined Mineralization Set forth below are the Company's estimates of the amounts and grades of drill-defined mineralization that can be economically recovered from the Company's principal development projects. These figures are based on extensive drilling and sampling on the Company's properties and are based on assumptions believed by the Company to be reasonable regarding production costs, metallurgical recoveries and mineral prices. Although the Company believes that it has carefully prepared these estimates, there are numerous uncertainties inherent in this process, including many factors beyond the control of the Company. The accuracy of any such estimates is a function of the quality of available data and of engineering and geological interpretation and judgment. It can be expected that, as the Company conducts additional evaluation, drilling and testing with respect to its properties, these estimates will be adjusted and plans for mining could be revised. Based on its analysis of the mineral deposits detailed in the table below, it is the Company's present determination that these properties can be mined on an economic basis by the Company and that these estimates constitute reserves as that term is typically used in the mining industry. Although permitting required to initiate mining operations in the United States has become extremely complex and cannot be considered a certainty, the Company projects that, in the normal course of property development, it should be able to obtain the necessary permits to commence mining operations on these properties. However, there are strict requirements that must be satisfied in order for the Company to be permitted to commence production on its development properties and, therefore, no assurances can be given in this regard. In its Securities Act Industry Guide 7, the U. S. Securities and Exchange Commission defines the term, "reserve", as , "that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination." Insofar as the necessary permits have not been obtained on the Company's development properties, the estimates for those properties set forth in the table below have not been classified as "reserves". All references to estimates of drill-defined mineralization in this Report must be qualified with the caveat that all legal requirements for extraction of minerals have not yet been satisfied. The following table reflects drill-defined gold mineralization at each of the Company's properties at December 31, 1995. Tons (000s) Grade (Oz. Contained per ton) Ounces - Property (1) Not Permitted _____________________________________________________________________________ Illinois Creek 5,543 0.074 (3) 412,365 (4) Dewey Dome portion of Thunder Mountain(2) 5,290 0.047 248,630 _____________________________________________________________________________ Total 660,995 ============================================================================= (1) The above estimates utilize in place grades and do not reflect losses that will be incurred in the recovery process. They do include allowance for dilution of ore in the mining process. Recovery rates for each property, to the extent they are known or estimated, are provided as part of the discussion of each property below. (2) While management believes this project will be economically feasible, the Company is in the process of completing feasibility studies to confirm its economic viability. (3) Gold equivalent grade (4) Gold equivalent ounces History of Operations The Company's first producing mine, the Green Springs Mine, commenced production in June 1988. The Company completed mining, crushing and stacking operations at Green Springs in June 1990. Reclamation of pits, haul roads and waste dumps commenced in 1990 and continued through 1993. Rinsing of the heaps was initiated during 1992 to meet final closure requirements. During 1993, rinsing of the heaps and reclamation of the heaps and the plant site were completed. During the life of the Green Springs Mine, the Company received several environmental and safety awards for this operation while producing a total of 69,331 ounces of gold. The Company was particularly gratified to receive the 1992 State of Nevada Governor's Award for Excellence in Mine Reclamation in connection with several of the Company's Nevada mines (described below), including the Green Springs Mine. The award, made jointly by the State of Nevada, U.S. Bureau of Land Management and U.S. Forest Service was given to the Company in recognition of outstanding achievement in innovative design, superior mine planning and commitment to reclamation from project commencement to closure. The Company commenced open pit mining at its Casino Mine in Nevada in June 1990 and completed mining in May 1991. In July 1991, the Company commenced mining at the Winrock Mine in Nevada. Mining and crushing were completed at the Winrock Mine in June 1992. The Casino and Winrock Mines shared a common heap leaching facility. The Company produced a total of 48,953 ounces of gold from the Casino/Winrock project prior to its sale on August 27, 1993. In May 1990, the Company completed the purchase of the Alligator Ridge Mine in Nevada, which included partially leached gold ore on heaps, gold recovery facilities, a mining fleet, a mill, and approximately 26,000 acres of mineral interests in the Alligator Ridge trend. During its tenure at the Alligator Ridge Mine, the Company produced 50,188 ounces of gold. Construction of the crushing and gold recovery facilities at a satellite facility, designated the Yankee Mine, was completed during the first quarter of 1992. The Company produced 26,220 ounces of gold at the Yankee Mine between the time of initial gold production in June 1992 and its sale on August 27, 1993. The Company's Casino, Winrock, Alligator Ridge and Yankee Mines, together with surrounding exploration prospects, were sold in two separate transactions in 1993 for a total of $20 million cash, plus the assumption by the buyer of all related obligations, including reclamation liabilities. Effective November 1, 1992, the Company acquired from Tenneco Corporation (Tenneco), the stock of Tenneco Minerals Company-Utah (TMC-Utah), owner and operator of the Goldstrike Mine located approximately 35 miles northwest of St. George, Utah. Soon after the acquisition, the name of this wholly owned subsidiary was changed to USMX of Utah, Inc. Gold production from the Goldstrike Mine since November 1, 1992, has been 77,182 ounces, including 6,266 ounces of gold produced in 1995. During 1995, the Company was recognized for its reclamation efforts at the Goldstrike Mine when it received the 1995 Earth Day Award from the State of Utah Board and Division of Oil, Gas and Mining. The Goldstrike property presently consists of approximately 2,600 acres of unpatented mining claims. Access to the Goldstrike Mine is by State Highway 212 to a point approximately 21 miles northwest of St. George, then by well-maintained gravel road over a distance of approximately 14 miles. Mining operations at the Goldstrike Mine were completed in October 1994. Leaching was completed in December 1995. All disturbed areas at the Goldstrike Mine were reclaimed during 1995 except for the heaps and the plant site. Reclamation of one of the two heaps was begun near the end of 1995. Rinsing of the second heap commenced in January 1996 and is expected to continue into 1997. Once rinsing of the second heap is complete, the heap will be recontoured, covered with topsoil and seeded with various native plant species. In addition, the process plant will be dismantled and the plant site reclaimed. Management believes that adequate provision has been made in the accompanying consolidated financial statements for the cost of completing the reclamation of the Goldstrike Mine. The Company's investment in the Goldstrike Mine as of December 31, 1995, was approximately $891,000, including $91,000 in undepreciated property, plant and equipment and a $800,000 certificate of deposit provided to the State of Utah as reclamation surety. The following table sets forth gold production at each of the Company's mines over the past five years: Gold Production (Ounces) Mine 1995 1994 1993 1992 1991 ____________________________________________________________________ Green Springs - - - 2,353 4,984 Casino/Winrock (1) - - 3,190 19,745 19,979 Alligator Ridge (1) - - 4,965 10,454 16,824 Yankee (1) - - 15,299 10,921 - Goldstrike (2) 6,266 34,486 31,934 4,496 - ____________________________________________________________________ Total 6,266 34,486 55,388 47,969 41,787 ==================================================================== (1) Sold August 27, 1993 (2) Acquired effective November 1, 1992 The following table sets forth statistics regarding gold production and sales and related per ounce information:
Year Ended December 31, 1995 1994 1993 1992 1991 ________________________________________________________________________________ Ounces of gold produced 6,266 34,500 55,400 48,000 41,800 Ounces of gold sold 6,900 35,600 50,400 47,400 43,800 Per ounce statistics: Cash production costs incurred $233 $229 $289 $280 $242 Depreciation, depletion, amortization and reclamation accruals - 48 38 51 48 ________________________________________________________________________________ Production costs per ounce produced $233 $277 $327 $331 $290 ________________________________________________________________________________ Gold sales revenue $388 $383 $360 $360 $376 ________________________________________________________________________________ Production costs per ounce sold 212 269 359 335 276 Change in inventories and deferred production costs 207 46 (37) (30) (21) ________________________________________________________________________________ Cost of gold sold 419 315 322 305 255 Mining taxes 2 3 3 2 7 Production royalties 55 19 17 17 11 ________________________________________________________________________________ Costs applicable to sales 476 337 342 324 273 ________________________________________________________________________________ Gross profit (loss) -88 46 18 36 103 ================================================================================
The Illinois Creek Project Introduction The Illinois Creek Project is a moderate grade, near surface gold-silver deposit. It consists of two State of Alaska Mining Leases, totaling 62,480 acres. The underlying leaseholder is North Pacific Mining Corporation ("NPMC"), a wholly owned subsidiary of Cook Inlet Region, Inc. ("CIRI"), an Alaska Native Regional Corporation. The Illinois Creek Project is located in the western interior of Alaska. It lies approximately 57 miles southwest of Galena and 320 miles northwest of Anchorage. The exploration and development phases have been completed with the exception of permitting. All major permit applications have been submitted and have been reviewed by the State of Alaska. A 30-day public review process is currently underway. A final decision on all permits is expected in April 1996. No major federal permits will be required. Assuming the grant of the necessary permits, the Company intends to commence site development and construction in late April 1996. Field construction is anticipated to take approximately four months to complete. History The Illinois Creek Project is part of a large polymetallic hydrothermal district covering 400 square miles in the southern Kaiyuh Mountains. The area was first explored by Anaconda Minerals as part of a joint venture with CIRI in 1980. Subsequent to Anaconda Minerals' activities, the area was explored by Goldmor Group, Ltd., NPMC, and Echo Bay in association with CIRI. The Company commenced its exploration activities in August 1994. The Company has drilled 61 core holes and 89 reverse circulation holes, totaling approximately 31,000 feet. This drilling succeeded in increasing the drill-defined mineralization to about 412,000 contained equivalent ounces of gold and provided geotechnical information necessary for pit design and engineering. The Company made initial payments to NPMC totaling $100,000 in 1994 to evaluate the Illinois Creek property. Pursuant to the Company's Agreement with NPMC, the Company is required to make a $1 million, non-refundable payment to NPMC in cash or USMX stock. The Company has elected to make the payment in stock, which the Company has calculated will amount to 449,754 shares. The Company will issue these shares upon effectiveness of a registration statement covering the resale of these shares. The Company expects to file this registration statement in April 1996. In addition, if the Company obtains the necessary permits and there has been no material adverse change in the economics of the project, the Company will be required to make an additional payment to NPMC of $3 million in cash or USMX stock in exchange for title to the underlying leases. If the Company elects to pay all or part of this amount in stock, it will also be required to provide for the registration of the resale of the shares issued to NPMC. The number of shares of USMX common stock to be issued to NPMC will be based on a 30-day average of the price of the USMX stock on The Nasdaq Stock Market. NPMC also has chosen to receive a 5% net returns royalty on production from the Project. If the Company delineates the existence of additional ore reserves on the lease known as the Illinois Creek Upland Mining Lease, which increases the total proven ore reserves to at least one million ounces of equivalent gold ore reserves beyond the mineralization stated in the Company's February 1996 feasibility report, then NPMC will have the right to elect to participate in subsequent mining operations with respect to those additional reserves for a 25% working interest by reimbursing the Company 120% of NPMC's 25% share of exploration, development and capital costs incurred by the Company subsequent to February 1996 which are directly related to the delineation and/or production of the additional reserves. Pursuant to the Company's Agreement with NPMC, the Company has until December 16, 1997, to achieve Commercial Production (as defined) from the property. This period may be extended at the option of the Company for two additional one year periods upon payment by the Company of a $300,000 advance royalty, adjusted for inflation, for each one year extension. The Agreement terminates on December 16, 1999, if the Company has not achieved Commercial Production from the property by that date. Location, Access, Terrain and Climate The Illinois Creek Project site is located in the southern Kaiyuh Mountains in the western interior of Alaska. The project is located approximately 57 miles southwest of Galena and 23 miles east of the Yukon River. It is equidistant from Fairbanks and Anchorage which lie approximately 320 miles to the east and southwest of the Project, respectively. Access to the site is by air. Equipment and supplies will be transported to the site by land, sea and air. Equipment and supplies will be transported from Seattle, Washington to Anchorage, Alaska by barge. From Anchorage, it will travel by truck or rail to Nenana. From Nenana, it will be moved down river on barge to Galena. From Galena, it will be lifted by air to the site. The site will be connected to the personnel camp and airport by a 6.5 mile road which has been partially constructed. A C-133 aircraft will be required to transport the large, oversized mining equipment. The C-133 is a retired military plane which has not been certified for commercial use by the FAA. The Company has been assisted by the Alaska Industrial Development and Export Authority ("AIDEA"), a political subdivision of the State of Alaska, in obtaining a waiver from the FAA for use of the C-133. The Company has entered into a Cost Reimbursement Agreement with AIDEA pursuant to which AIDEA will undertake a feasibility analysis and negotiate with the Company a proposed use and indemnification agreement with respect to the lease of aircraft equipment. Finalization of these arrangements in the near future is essential to the Company's construction plans for the summer of 1996. In addition, there is only one such airworthy aircraft currently available for use by the Company. There is also one additional C-133 available to supply spare parts, if needed. If the Company is unable to transport all of the components it currently plans to transport using the C-133 aircraft, substantial delays and additional costs could be incurred as the components would have to be cut into smaller pieces, transported to the site using smaller aircraft and reassembled at the site. The local area consists of moderate hills (elevations ranging from 200 to 1,000 feet), the flood plains of the Little Mud and Innoko Rivers, Illinois Creek, local warm springs and California Creek south of the site, and the wetlands to the west of the Project site along the Yukon River. These wetlands are not expected to be affected by the Project facilities. The climate is sub-arctic and characterized by large, seasonal extremes in temperature and daylight. Average winter temperatures are -7 F to 20 F; mean summer temperatures range from 35 F to 67 F. Regional extremes are -63 F to 93 F. Precipitation averages 15 to 18 inches annually, including 81 inches of snow. Snow depth at the site ranges from 24 to 36 inches during a typical winter. Historically, September is the heaviest rainfall month with an average of 8.3 inches. Freeze-up on the Yukon River normally occurs in late October to early November; breakup normally occurs in early to mid May. Accordingly, the shipping schedule on the Yukon River will typically be limited to a period between approximately May 25 and September 25. Drill-defined Mineralization In February 1996, the Company completed a comprehensive feasibility study pertaining to the Illinois Creek deposit. Based on this study, the Company believes that the deposit contains 5.54 million tons of mineable drill-defined mineralization at a gold grade of 0.069 ounces of gold per ton and 1.467 ounces of silver per ton, yielding a gold equivalent grade of 0.074 ounces of gold per ton. The calculation was based on a gold price of $400 per ounce and a 0.025 ounce gold equivalent per operating ton cut off grade. The average stripping ratio over the planned life of the project is 2.79:1. An additional 479,000 tons of low grade material exists within the limits of the ultimate pit design. This material has an average equivalent grade of 0.024 ounces per ton. This indicates the presence of an additional 11,369 equivalent ounces of gold that will be leachable under present economic parameters. Metallurgy Metallurgical recovery from the run-of-mine ore is projected to be approximately 85% of contained gold and 25% of contained silver. Year round leaching will be conducted if it proves to be economic. Gold production for 1996 should be approximately 20,000 ounces, assuming timely receipt of permits and other regulatory approvals and assuming a startup date of September 1. See Item 7. Geology The deposit occurs as a large gossan zone striking east- northeast and dipping 40 to 70 degrees to the southeast, hosted within a thick sequence of quartzites which are carbonate rich. The gossan has been intersected by drilling over strike length of 12,000 feet and to a depth of greater than 1,500 feet. Oxidation of the mineralization is complete to a depth of at least 1,100 feet below the present surface. Economic gold-silver mineralization is present in portions of the gossan, and is associated with elevated levels of copper and/or lead, hydrothermal or remobilized silica, earthy hematite, and poorly defined structural features. Supergene enrichment of both gold and silver in near surface locations is also apparent. Plan of Operations The Company has retained Lyntek, Inc. to provide detailed engineering, procurement and construction management services. D. H. Blattner and Sons, Inc. has been selected to complete all construction earthworks, and to serve as the mining contractor. Previous activities by other mining companies have resulted in some infrastructure on the property including a 25 person camp, a 4,500 foot air strip suitable for DC-6 and C-133 aircraft, a vehicle maintenance/sample preparation building, and miscellaneous other buildings and pieces of equipment. The existing airstrip is 6.5 miles by road from the mine site and will be utilized by the Company for transportation purposes. The vehicle maintenance/sample preparation building is usable in its present condition. Also, the existing personnel camp will be used by the Company's exploration staff. The Company plans to construct a 90-person camp north of the airstrip. A well will provide potable water for the camp. Water for process mining will come from a source located near the mid-point of the main access road from the airfield to the mine site. Electrical power will be generated using diesel powered generator sets. Waste heat from the generators will be used to heat the process building. In addition to the process building, also to be constructed are a modular assay laboratory, a truck maintenance shop and a modular administration building. Communications will be by satellite. The deposit will be developed as a conventional open- pit mine. It will be operated on a seasonal basis. Mining will be conducted during the warmest six months of the year, normally May through October. Trucks and front-end loaders will be used to mine, haul and stack the ore in a valley fill lined impoundment. Heap leaching followed by carbon adsorption/desorption/electrowinning will be used to extract the gold. The process system is designed to recover the annual scheduled amount of gold production in eight months. Due to excessive costs of transporting burnt lime to the site, lime will be produced on-site utilizing a local source of dolomitic limestone. The Company has contracted for the refurbishing and transport to the site of a diesel-fired rotary kiln. The mine operating schedule will be ten hours per shift, two shifts per day, six days per week. Three crews will rotate on a four-week on, two-week off schedule. The Company currently expects to employ approximately 54 people at Illinois Creek, with a like number of personnel to be employed by the mine contractor. Total pre-production capital costs, including approximately $4.7 million in working capital, are currently estimated at about $26.6 million, exclusive of property acquisition costs of $4 million to be paid to NPMC as outlined above. As of December 31, 1995, the Company's investment in Illinois Creek was approximately $4 million. See Item 7. The Thunder Mountain Project Introduction The Company proposes to conduct gold and silver mining activities at the Dewey Mine in the Thunder Mountain Mining District in eastern Valley County, Idaho, approximately 100 miles northeast of Boise, Idaho. The proposed Dewey mining operations are part of the Thunder Mountain Project and consist of the development of a gold and silver ore deposit located on patented mining claims administered by the Idaho Department of Lands. The Company proposes to initiate construction of the Dewey Mine facilities in the summer of 1997. In January 1996, the Company submitted a Notice of Intent to Operate ("NOI") with the Idaho Department of Lands, which is currently being reviewed. A feasibility study will be ongoing throughout 1996 to refine the project design and economics. History Gold was discovered in the Thunder Mountain area in 1894 at the site of what is now known as the Dewey Mine. During the period from the initial discovery until 1942, various operators reportedly produced approximately 31,000 ounces of gold and 16,000 ounces of silver from both underground and surface placer workings. Renewed interest in the district began in earnest during the early 1970s due to rising gold prices. After exploration by several major mining companies, a portion of the property, the Sunnyside Mine area, was placed into production by Coeur d'Alene Mines Corporation ("Coeur d'Alene") as an open pit, heap leach operation in 1986. Between 1986 and 1990, Coeur d'Alene reportedly produced 120,000 ounces of gold and 240,000 ounces of silver from the combined Sunnyside, Goldbug and Lightning Peak pits. After reclaiming the property, Coeur d'Alene terminated its leases with Thunder Mountain Gold, Inc. in December 1990. At the adjacent Dewey Mine, the Dewey Mining Company constructed a 450 ton per day mill and the property was operated as an open pit mine (Golden Reef Joint Venture) during 1981. In the mid 1980s, the Dewey Mine became the subject of litigation which was resolved in favor of the Dewey Mining Company late in 1991. Effective July 9, 1993, the Company entered into an Exploration and Option to Purchase Agreement ("Agreement") with Dewey Mining Company, Thunder Mountain Gold, Inc. and two individuals (the foregoing companies and individuals described below collectively as "Owners"). The Owners control approximately 5,500 acres in the Thunder Mountain Mining District consisting of both patented and unpatented mining claims. Pursuant to the terms of the Agreement, the Company was granted the sole and exclusive right to explore for and develop minerals on the property in exchange for advance royalty payments totaling $100,000. In addition, the Company committed to spend, and did spend, a minimum of $500,000 evaluating the property prior to April 1, 1995. The Agreement requires that, before the Company can put the property into commercial production, it must prepare and deliver to the Owners a feasibility study regarding the project. In 1995, the Company extended the term of the agreement through April 30, 1996, by making an additional advance royalty payment in the amount of $150,000. The Company has the option to further extend the Agreement through April 30, 1997, by paying an additional advance royalty payment of $200,000. The Company intends to so extend the Agreement. The Agreement further provides the Company with the option for a final extension until April 30, 1998, in exchange for an additional advance royalty payment of $250,000. The advance royalty payments may be recovered by the Company for seven years after payment should the Owners elect to receive royalties under options (a) or (c) below. The Agreement terminates if the Company fails to deliver a feasibility study to the Owners by the end of the last year's extension under the Agreement or if the Company exercises its right to terminate the Agreement at any time. Within 90 days after the Company provides the Owners with a feasibility study, the Owners may elect to (a) participate in subsequent efforts to the extent of a 30% working interest, plus receive a 1.5% royalty, or (b) receive a 30% net profits interest, or (c) receive a 5% net returns royalty from production. If the Owners elect to receive a 5% net returns royalty, the Company will be obligated to make advance royalty payments of $200,000 within thirty days after commencement of Commercial Production (as defined in the Agreement), and $250,000 each year thereafter. If the Owners fail to notify the Company of their election prior to the end of the 90 day election period they will be deemed to have made an election to receive a 5% net returns royalty. The Agreement provides that, once the Owners have made their election, the Company shall have one year within which to achieve Commercial Production. If the Company fails to achieve Commercial Production within one year, the Company must either reconvey the property to the Owners or extend by one year the time period within which Commercial Production must commence by paying an advance royalty of $200,000 to the Owners. If Commercial Production has not begun by the end of the extension period, the Company may obtain one final extension of one year within which to achieve Commercial Production by paying the Owners an additional advance royalty of $250,000. In addition to the advance royalty payments and the work commitments outlined above, the Company is obligated to pay all fees necessary to maintain the unpatented mining claims through August 31 of the calendar year in which the extension year expires. The area of the Company's primary activity lies approximately 4,000 feet west of the Sunnyside deposit previously mined by Coeur d'Alene. The results of the Company's drilling during 1993 were favorable, including a number of intersections that exceed 100 feet in thickness and average in excess of 0.10 ounces of gold per ton. The Company was also successful in extending the deposit along strike into an area that was not previously drilled. During 1994, the Company drilled a total of 104 exploration and development holes on the property, helping to define the margins and high grade core of the Dewey deposit. As of December 31, 1995, the Company has expended a total of $2.3 million on the property. Location, Access, Terrain and Climate The Dewey Mine lies within the Thunder Mountain District in eastern Valley County, Idaho. Access to the District is obtained via U.S. Highway 95 to Cascade, Idaho, then east 42 miles to Landmark, Idaho on Forest Highway 22, then north and east approximately 57 miles on U.S. Forest Service roads to the property. The Thunder Mountain Mining District is currently accessible by vehicle about seven months out of the year from late May to late November. Local elevations range from approximately 7,300 to 9,000 feet. The District forms a 5,980-acre enclave of patented and unpatented land within the Frank Church Wilderness Area administered by the Krassel District of the Payette National Forest. Due to the location of the property, and based on the experience of operations previously conducted at the Dewey Mine and at nearby existing operations, future mining operations of the Company would be seasonal, but processing may be conducted year around. Drill-defined Mineralization The Company's internal engineering staff updated the mine model in 1995. This work indicated the presence of preliminary floating cone mineable open pit drill-defined mineralization of 5,290,000 tons with an average grade of 0.047 ounces of gold per ton containing approximately 248,630 ounces of gold. The calculation was based on a gold price of $400 per ounce and a 0.031 gold ounce per ton operating cutoff grade. The estimated stripping ratio of waste to ore for this mineralization is approximately 1.02:1. Further, metallurgical test work completed in 1995 indicated the material is amenable to heap leaching, and an 85% gold recovery factor was used in the mine model. Additional potential is known to exist within the Thunder Mountain property. The presence of other drill- indicated gold mineralization has been identified by the earlier exploration programs conducted by the Company as well as other mining companies. During 1996, limited exploration is planned at Thunder Mountain in conjunction with the ongoing geotechnical and environmental work needed to generate data for mine design and permitting. Geological mapping and geochemical surveys will be completed on several outlying targets to be tested in the future after issuance of permits. Plan of Operations The Dewey Mine deposit is a bulk tonnage, heap- leachable ore body and is located on several patented lode mining claims in the central portion of the Thunder Mountain Mining District. The Company is currently conducting a feasibility study to determine the optimum design by which to profitably exploit this deposit. It is presently anticipated that conventional open pit/heap leach techniques will be used. The fluid management system will be designed as a zero discharge system. Due to the remote location of the deposit, the Company will be required to generate its own electrical power. The Company plans to use a contract miner to develop and operate the open pit mine. The preliminary production schedule is for a six to eight month per year mining system, two shifts per day, seven days per week. The number of mine operating days is estimated at 210 to 240, depending on weather. Processing would occur at least 250 days per year, and perhaps would run throughout the year. The Company would expect to employ approximately 75 to 100 people at the Dewey Mine. Geology The Thunder Mountain Mining District is localized in the central portion of a caldera complex underlain by Challis Volcanics as well as graben-fill, pyroclastic- derived sediments. The Dewey Dome ore deposit is hosted by the pyroclastic sediments, and the Sunnyside, Goldbug and Lightning Peak deposits mined by Coeur d'Alene were hosted by the volcanics. Known concentrations of economic gold mineralization are controlled by a combination of structure and stratigraphy. Permitting During 1995, limited geotechnical and baseline environmental work was conducted while the Company was re- evaluating the project based on heap leaching of the ore for recovering gold. On January 31, 1996, based on favorable preliminary findings, the Company submitted a Notice of Intent to Operate ("NOI") with the Idaho Department of Lands and Payette National Forest. A feasibility study will be ongoing throughout 1996 to refine the project design and economics. Since permitting has only recently commenced, it is difficult to predict when necessary permits might be received. However, it seems reasonable to expect that permit approvals are attainable in 1997, which may allow for development of the project that same year. Montana Tunnels The Montana Tunnels property is located in the Colorado Mining District, Jefferson County, Montana, 22 miles south of Helena. Montana Tunnels consists of approximately 9,300 acres of patented ground plus about 1,000 acres of other mineral rights. This property was developed and is operated by Pegasus Gold Inc. ("Pegasus") pursuant to an agreement with the Company. Mine and mill construction commenced in March 1986, milling operations began in March 1987, and full operating status was achieved by Pegasus in October 1987. The Montana Tunnels Mine involves open pit mining operations and conventional milling technology. The Montana Tunnels ore is processed through a circuit which incorporates crushing, grinding, and selective flotation to produce lead and zinc concentrates, and a gravity circuit for recovery of free gold. The majority of gold and silver value is associated with the base metal concentrates. Pegasus has supplied to the Company the operating statistics for Montana Tunnels set forth in the following table: Year Ended December 31, ________________________ 1995 1994 ________________________ Ore milled (tons) 5,474,191 5,411,170 Payable metals: Tons of lead 7,399 9,374 Tons of zinc 21,611 19,814 Ounces of gold 89,231 80,179 Ounces of silver 1,073,173 1,085,257 As of December 31, 1995, Pegasus estimates that the Montana Tunnels Mine has proven and probable ore reserves of approximately 24,000,000 tons. The Company owns a net profits royalty interest in the Montana Tunnels Mine. The Company is entitled to the greater of a five percent net profits royalty interest or minimum advance royalties of $60,000 per month until certain construction, land acquisition and associated financing and other costs have been recovered by Pegasus ("Payback"), and a 50 percent net profits royalty interest thereafter. Payback is defined in the agreement with Pegasus to occur when 90 percent of net profits equals the sum of $250,000, plus the project costs incurred subsequent to January 1, 1986, plus interest costs imputed on these costs until September 30, 1987, the date of full operation status. Net profits, as defined, include deduction from revenues of such costs as direct operating and administration expenses, allowable new capital expenditures, property payments, management fees, interest on debt and equity financing, repayment of gold loans, repayment of certain debt obligations, and taxes other than income taxes. Based on information provided by Pegasus, the Company estimates that, as of December 31, 1995, the remaining net profit recoverable costs were $26,539,000. Depending on metal prices and production rates, Payback could be achieved which would result in increased revenue to the Company at some future date. However, even if Payback is not achieved, the Company seems reasonably assured of continued payments of $720,000 per year during the life of the Montana Tunnels Mine, now estimated by Pegasus to continue into the year 2000. During 1995, the Company received minimum annual royalties of $720,000. Exploration Due to continued threat of adverse amendment to or replacement of the U.S. mining laws as well as to other existing regulations, the Company continued in 1995 to direct its exploration activity to the evaluation of private lands in the United States, and opportunities in Latin America. Exploration for minerals, particularly for gold, is highly speculative in nature, involves many risks and frequently is nonproductive. There can be no assurance that the Company's mineral exploration efforts will be successful. Once mineralization is discovered, it usually takes a number of years from the initial phases of exploration until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish ore reserves through drilling, to determine metallurgical processes to extract the metal from the ore and, in the case of new properties, to construct mining and processing facilities. As a result of these uncertainties, no assurance can be given that the Company's exploration programs will result in the expansion or replacement of existing reserves. Cala Abajo, Puerto Rico During 1992, 1993, and 1994, the Company acquired an equity interest currently totaling approximately 80% of the outstanding common stock of Southern Gold Resources (USA), Inc., a Colorado corporation. On October 5, 1992, Southern Gold was granted an exclusive exploration permit by the Puerto Rican government covering 2,170 acres that include the Cala Abajo copper/gold deposit in west-central Puerto Rico. The prospecting permit may be extended year to year for a maximum 10 year period and gives the Company the exclusive right to conduct exploration and environmental studies and to negotiate a mining lease covering the permit area. Through June 1995, the Company incurred approximately $1.0 million in drilling, metallurgical test work, engineering and base line environmental studies and had determined the existence of mineable drill-defined mineralization of 52,649,000 tons of ore averaging 0.799% copper and 0.013 ounces of gold per ton, resulting in an equivalent copper grade of 1.134% copper. The estimate contains approximately 847,000,000 pounds of copper and 685,000 ounces of gold. The overall stripping ratio is approximately 1.13:1, including waste to be removed before mining could begin. In 1995, the Commonwealth of Puerto Rico amended its mining law to prohibit open pit mining of metal deposits on the island. The effect of the mining law, as currently amended, was to render the Company's plan for development of the Cala Abajo deposit uneconomic. Accordingly, the Company's investment was written off during the year. The Company is considering various strategies and responses to the action by the Commonwealth of Puerto Rico. Other United States Mineral Properties The Company has additional mineral properties, located in Utah, Montana, and Wyoming in the United States. These additional properties are currently being explored solely by the Company.
Investment as of Property State Status December 31, 1995 - ------------------------------------------------------------------------------------------- Goldstrike Area Utah Drilling scheduled $358,000 Baggs Creek/ Hidden Hand Montana Has small resource $68,000 Jack Springs Montana Has small resource - Elk Creek Montana Available for joint venture $89,000 Hartville Wyoming Assembling land package $14,000 Round Top Alaska Part of Illinois Creek $45,000
Mexico The Company, through its wholly owned subsidiary, MXUS S.A. de C.V. ("MXUS"), is currently investigating a number of opportunities located primarily in the northern Mexican states of Sonora, Chihuahua and Coahuila. The more significant projects the Company is currently evaluating are described below. Amargosa This property is located approximately 95 kilometers southeast of Juarez in the state of Chihuahua. The property is accessible from Juarez on Highway 2, southeast for 90 kilometers to El Porvenir, then via poorly maintained dirt roads to the project. The Company controls by denouncement approximately 15,100 acres. The Company must meet certain minimum work requirements arising from Mexican mining law to maintain its rights to the properties. In addition, if the properties are placed into production, the Company will be obligated to pay net smelter return royalties varying from 2.75% to 3.25% on production from most of the properties. A significant amount of exploration was conducted on the Amargosa polymetallic massive sulfide targets in 1994. Results of this drilling at Amargosa were geologically interesting, but no significant economic widths were encountered, or continuity between holes demonstrated by the three holes drilled. A strong magnetic anomaly was partially defined at the edge of a ground geophysical survey. The anomaly, which is as yet untested, occurs on the down-dropped side of a major fault which may be the feeder fault for the massive sulfide mineralization. This geologic setting is very similar to that of several other major massive sulfide deposits around the world, such as the Sullivan Mine in British Columbia. Although this property continues to hold a great deal of geologic interest, no economic mineralization has yet been identified. Accordingly, management recorded an impairment loss of $1.0 million in 1995. As of December 31, 1995, the Company's remaining investment in this property was approximately $315,000. Boludo Goldfields Early in 1994, MXUS acquired by lease and purchase option approximately 5,400 acres in the Boludo Goldfields placer district located approximately 121 kilometers southwest of Nogales in northwest Sonora. Access to the property is via paved highway and well maintained dirt road. During 1994, 328 backhoe pits were dug at Boludo by the Company to test for placer gold. In addition, several drill holes were put down in the hard rock targets. This drilling failed to identify significant mineralization; however the placer sampling identified a resource estimated to contain about 10.5 million cubic yards with an average grade of 0.011 ounces gold per cubic yard or about 116,000 ounces of contained gold. The original land package was trimmed back to this resource area to reduce holding costs. In 1995, the Company entered into an agreement with Resource Trend Pty Ltd, an Australian mining company, which intends to place it into production during 1996. The Company retained a royalty interest on future production from the property. The Company's investment in this project was approximately $450,000 as of December 31, 1995. Noche Buena Noche Buena is a disseminated gold prospect located approximately 45 kilometers northwest of the city of Caborca in the state of Sonora. Access from Caborca is via Highway 2 north for 60 kilometers then west via dirt road for approximately 10 kilometers. MXUS controls by denouncement approximately 18,800 acres at Noche Buena that are subject only to Mexican mineral property fees and taxes. The Company has drilled 51 reverse circulation holes on the property. Low grade gold mineralization was detected in nearly every hole over a surface area of approximately 100 acres. This property was joint ventured to Kennecott Exploration Company in 1995. As of December 31, 1995, the Company's investment in Noche Buena was approximately $366,000. Samalayuca Samalayuca is located approximately 40 kilometers south of Juarez in the state of Chihuahua, and is accessed via Highway 45 to the town of Samalayuca then via dirt roads west a few kilometers to the property. The Company controls by lease agreement and denouncement approximately 19,000 acres. The lease, executed on August 12, 1992, provides for a twenty year term. If the exploration work is successful, the owners will be paid a three percent net smelter return royalty on base metals and a four percent net smelter return royalty on precious metals produced and sold from the property. The Company makes annual advance royalties of $25,000 and must meet certain minimum work requirements. The property is a sediment hosted, stratabound copper/silver property with primary chalcocite mineralization. In the past (pre 1975), local miners shipped copper bearing quartzite to the El Paso smelter as flux. These miners were paid for the copper content of this material which ranged from one to three percent. Mining ceased when copper prices fell in the mid 1970s. The Company has conducted short hole air track drilling as well as limited rotary and core drilling since acquisition of the property. Results of this work have been inconclusive due to structural complexity and associated oxidation and to depletion of copper values near the surface. During 1995, the property was leased to Phelps Dodge. As of December 31, 1995, the Company had invested a total of $523,000 in the property. Sierra Mojada This property is located approximately 200 kilometers north of Torreon in the state of Coahuila. Access is via improved dirt road north from Torreon or by railroad from Monclova. The Company controls by denouncement approximately 11,800 acres in the district. Production from the district in the past has been significant, consisting of copper, zinc, lead and silver. The district was discovered in 1878 with most of the past production occurring between 1890 and 1945. Currently, oxide zinc is being mined by others in the district and shipped to a smelter in Monterey, Mexico. The exploration objective consists of defining new polymetallic deposits similar to those previously exploited, as well as evaluating the remaining resource in the current mines. The Company entered into an agreement with Kennecott Exploration Company in 1994 to jointly explore and develop their extensive concessions in the old Sierra Mojada mining district. Kennecott conducted geophysics and drilling on the properties in 1994 and 1995. Based on the work performed, Kennecott elected not to continue with the project. The Company plans to review the data generated by Kennecott, reduce the size of the land package and seek to interest other mining companies in the property. The Company's investment in this project was approximately $33,000 as of December 31, 1995. Other Mexican Mineral Properties The Company has additional mineral properties in Mexico as follows.
Altar, Los Apaches Sonora Available for lease $107,000 El Cajon/Las Cruces/Tecolote, Initial evaluation to La Tribu/La Reserva Sonora be completed in 1996 $123,000 El Ocuca, Las Rastras, San Miguel Sonora Under lease $153,000
Ecuador In 1995, the Company acquired all of the outstanding capital stock of Mega Minerals S.A., an Ecuadorian company. The assets of the company at the time of acquisition consisted of title to eight exploration concessions comprising approximately 80,600 acres and the right to acquire title to four additional exploration concessions comprising approximately 5,900 acres. The twelve concessions are located in the Nambija-Zamora gold belt of southern Ecuador. Initial exploration on these concessions has yielded encouraging results. Follow-up geological mapping and geochemical sampling of stream sediments anomalous in base and precious metals have identified a two kilometer by three kilometer zone of skarn type alteration with associated base metals and gold mineralization. An exploration program is being planned to further evaluate the discovery. The Company's investment in Ecuador as of December 31, 1995 totaled $222,000. Chile In 1995, USMX acquired its first exploration project in Chile through its wholly-owned subsidiary, Compania Minera USMX de Chile. The Putu property is located approximately 160 miles southwest of Santiago, Chile near the coastal city of Constitution. Ten concessions totaling 7,410 acres were staked by USMX to cover the Putu Gold Mine, as well as several other small prospects. A magnetite rich, felsic volcanic, exhalite horizon was previously mined for gold at Putu by underground methods. The Company is currently running a ground magnetic geophysical program and soil geochemical survey over the immediate mine area. Regional exploration has identified other showings of the mineralized exhalite that upon weathering have generated placer gold deposits which have been mined by the local inhabitants. The Putu project is located in a forested area near sea level with very limited outcrop exposures, similar to the Pacific Northwest of the United States. Following completion of the survey work to be performed during the first quarter of 1996, the data will be compiled and reviewed to identify profitable drilling targets. The Company's investment in Chile as of December 31, 1995, was approximately $18,000. Competition The Company has been engaged primarily in the exploration for, development, and operation of precious metal properties. The Company's current objective is to locate and acquire prospects that can be profitably mined by open pit or underground methods. The search for this type of deposit involves high risk, and development requires relatively large capital outlays and a high degree of operational expertise. The Company must compete for mineral properties with many companies, including those which are substantially larger and possess greater financial resources than the Company. The availability of mining prospects in the United States is dependent on the Company's ability to negotiate leases with property owners or locate claims pursuant to the general mining laws of the United States Increased governmental regulation of the location, exploration and development of mineral prospects, coupled with the increased withdrawal of public lands from mineral entry, as well as potential federal legislation to revise or replace the general mining laws of the U.S., could limit the availability of mineral prospects and increase the cost of those which are available. Due to the potential for adverse changes to the general mining laws of the U.S., more onerous reclamation standards and new mining claim fees, the Company continues to focus much of its exploration efforts on private lands in the United States and in Latin America. Markets If minerals are discovered under claims or leases in which the Company owns an interest, the availability of a ready market may depend on numerous factors not within the Company's control, including the extent of production by others, proximity and capacity of mills, and the effect of state and federal regulations. To date, the Company has made precious metal sales from its mines and has not been dependent on any single customer for its products. Typically, gold can be readily sold in several markets with a multitude of buyers. The Company also uses forward sales and option contracts in connection with its marketing program. Government Contracts No portion of the Company's business is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. Governmental Regulation The mining operations of the Company are subject to inspection and regulation by the Mine Safety and Health Administration of the Department of Labor ("MSHA") under provisions of the Federal Mine Safety and Health Act of 1977. The Occupation and Safety Health Administration ("OSHA") also has jurisdiction over safety and health standards not covered by MSHA. All of the Company's exploration, development and production activities are subject to regulation under one or more of the various environmental laws. These laws address emissions to the air, discharges to water, management of wastes, management of hazardous substances, protection of natural resources, protection of antiquities and reclamation of lands which are disturbed. Many of the regulations also require permits to be obtained for the Company's activities; these permits normally are subject to public review processes resulting in public approval of the activity. It is possible that future changes in these laws or regulations could have a significant impact on some portion of the Company's business, causing those activities to be economically reevaluated at that time. During the past three years, the United States Congress considered a number of proposed amendments to the General Mining Law of 1872, as amended (the "General Mining Law"), which governs mining claims and related activities on federal lands. In 1992, a holding fee of $100 per claim was imposed on unpatented mining claims located on federal lands. In October 1994, a one-year moratorium on the processing of new patent applications was approved. That moratorium has been extended pending reform of the General Mining Law. In addition, a variety of legislation is now pending before the United States Congress to amend further the General Mining Law. The proposed legislation would, among other things, change the current patenting procedures, impose royalties, and enact new reclamation, environmental controls and restoration requirements. The royalty proposals range from a 2% royalty on "net profits" from mining claims to an 8% royalty on modified gross income/net smelter returns. The extent of any such changes is not presently known and the potential impact on the Company as a result of future congressional action is difficult to predict. Although a majority of the Company's existing and planned operations are on other than federal lands, the proposed changes to the General Mining Law could adversely affect the Company's ability to economically develop mineral resources on federal lands. Environmental Regulations Mining is subject to potential risks and liabilities associated with pollution of the environment and the disposal of waste products occurring as a result of mineral exploration and production. Environmental liability may result from mining activities conducted by others prior to the Company's ownership of a property. Insurance for environmental risks (including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from exploration and production) is not generally available at a reasonable price to the Company or other companies within the industry. To the extent the Company is subject to environmental liabilities, the payment of such liabilities would reduce funds otherwise available to the Company and could have a material adverse effect on the Company. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with standards, laws and regulations which may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. It is possible that the costs and delays associated with compliance with such laws, regulations and permits could become such that the Company would not proceed with the development of a project or the operation or further development of a mine. Laws and regulations involving the protection and remediation of the environment are constantly changing and are generally becoming more restrictive. The Company has made, and expects to make in the future, significant expenditures to comply with such laws and regulations. Pending bills which affect environmental laws applicable to mining include versions which may substantially alter the Clean Water Act, Safe Drinking Water Act, Endangered Species Act and a bill which will introduce additional protection of wetlands (Wetlands Protection and Management Act). Adverse developments and operating requirements in these acts could impair the ability of the Company as well as others to develop mineral resources. Revisions to current versions of these bills could occur prior to passage. The Environmental Protection Agency ("EPA") continues the development of a solid waste regulatory program specific to mining operations under the Resource Conservation and Recovery Act ("RCRA"). Of particular concern to the mining industry is a proposal by the EPA titled "Recommendation for a Regulatory Program for Mining Waste and Materials Under Subtitle D of the Resource Conservation and Recovery Act" ("Strawman II") which, if implemented, would create a system of comprehensive federal regulation of the entire mine site. Many of these requirements would be duplicative of existing state regulations. Strawman II as currently proposed would regulate not only mine and mill wastes but also numerous production facilities and processes which could limit internal flexibility in operating a mine. To implement Strawman II as proposed, the EPA must seek additional statutory authority, which is expected to be requested in connection with Congress' reauthorization of RCRA. The Company is also subject to regulations under (i) the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") which regulates and establishes liability for the release of hazardous substances and (ii) the Endangered Species Act ("ESA") which identifies endangered species of plants and animals and regulates activities to protect these species and their habitats. Revisions to CERCLA and ESA are being considered by Congress; the impact on the Company of these revisions is not clear at this time. Employees The number of persons employed by the Company at March 8, 1996 was thirty-three. Financial Information about Foreign and Domestic Operations and Export Sales. The Company had no production from foreign mining operations and did not make export sales during 1995. During 1991, the Company incorporated USMX Mining, Inc. under the British Columbia Company Act in anticipation of a potential acquisition in the Province of British Columbia that was not consummated. USMX Mining, Inc. had no material assets or obligations as of December 31, 1995. During 1992, 1993, 1994 and 1995, MXUS S. A. de C. V., a wholly owned subsidiary of the Company, acquired the exploration rights to several properties in Mexico located in the states of Chihuahua, Sonora, Coahuila and Jalisco. The Company expended approximately $987,000,000 in Mexico in 1995 on these properties and on general reconnaissance. As of December 31, 1995, the Company's investment in Mexican properties amounted to approximately $2.1 million. In 1992, the Company caused the incorporation of a Costa Rican subsidiary, USMX de Costa Rica S. A., to facilitate potential acquisitions in Costa Rica. To date, no material expenditures or obligations have been incurred by this subsidiary. In 1994, the Company caused the formation of a Chilean subsidiary, Compania Minera USMX de Chile Limitada, to facilitate exploration in Chile. To date, no material expenditures or obligations have been incurred by this subsidiary. In 1995, the Company purchased the outstanding capital stock of Mega Minerals, S.A., an Ecuadorian company. As of December 31, 1995, the Company had invested approximately $222,000 in mining concessions and exploration thereof. Glossary of Terms The following terms are described to aid in understanding this report. Air Track Drilling See Drilling. Anomaly An anomaly is a geochemical, geophysical or other observed condition, indicated by differing empirical physical data, that may indicate the presence of mineralization in underlying bedrock. Base Metals A family of metallic elements, including copper, lead and zinc. Caldera Complex A large, basin-shaped volcanic depression created by subsidence, representative of a volcanic vent, which is characterized by a diverse assemblage of volcanic intrusive and extrusive rocks. Carbon Adsorption A process in which soluble complexes of gold and silver physically adhere without chemical reaction to the molecular surfaces of activated carbon particles. The process is used to collect gold and silver from a leach solution. The Company uses activated carbon made from coconut shells. This carbon contains five to six million square feet of molecular surface area per pound. Cash Costs Include all site costs incurred for mining, crushing, pad loading, leaching, processing and mine site general and administrative functions. Such costs exclude royalties and mining taxes which costs are triggered not by the production of gold but by its sale. Also excluded are depreciation of equipment, amortization of previously capitalized costs and accrual of reclamation costs. Revenues from the sale of by- products (principally silver) are deducted from cash costs. Contained Ounces The estimated number of ounces of precious metals contained in an orebody which is a gross measurement of ounces in the ground. The ounces ultimately recovered from the ore (recoverable ounces) will be less than contained ounces due to inherent inefficiencies in recovery methods. Cutoff Grade The lowest grade of mineralized material that can be mined and processed economically. Denouncement A process under Mexican mining law by which an exploration concession may be obtained from the Mexican government. The exploration concession is granted for a period of six years. If a mineable resource is delineated, then an exploitation concession with a term of fifty years can be obtained. Dilution An estimate of the amount of waste or low grade mineralized rock that is unintentionally mined as part of normal mining practices in extracting ore. Dore Unrefined bullion that is an alloy of gold and silver and various impurities which will be further refined to almost pure metals. Drill-Defined Mineralization Ore reserves, except that all legal requirements for extraction of minerals have not yet been satisfied. Drilling Air Track Drilling Small diameter, short hole, percussion drilling using compressed air. Core Drilling Drilling using a hollow diamond-studded bit that cuts out a rock core. This core is extracted from inside the drill rod for geological examination and assay. Infill Drilling Drilling between existing holes to better define the geology or to improve the reliability of the ore reserve calculation. Rotary Drilling Drilling with a bit that breaks the rock into chips. The chips are continually flushed from the hole (outside the drill pipe) and are collected in sequence for geological examination and assay. Reverse Circulation Drilling A type of rotary drilling that uses a double walled drill pipe. Compressed air, water or other drilling medium is forced down the space between the two pipes to the drill bit, and the drilled chips are flushed back up to the surface through the center tube of the drill pipe. Flotation A milling process for mineral concentration based on the selective adhesion of minerals to air bubbles in a water and ground-ore mixture. Air and specific chemicals are introduced into the mixture. The finely ground minerals float to the surface forming a metal rich concentrate that is skimmed off the surface. The resulting concentrates are shipped to a smelter where the final products are produced. Graben A block, generally long compared to its width, that has been downthrown along faults relative to the rocks on either side. Grade The metal or mineral content of rock, ore or drill samples. With respect to precious metals, grade is generally expressed as troy ounces per ton of rock. Gravity Concentration A method of recovering precious metals and other heavy constituents from ore in which the ore may be physically reduced in size, combined with water and then processed utilizing gravity to separate the heavier precious metals from the waste material. Heap Leaching A low cost leaching process in which ore is placed in a heap on an impermeable pad. The solvent, which in the case of gold is a weak cyanide solution, is sprinkled over the heap and is later collected after percolating through the ore and dissolving the metals, allowing subsequent gold recovery. Hydrothermal Alteration Changes in rocks or minerals caused by heated solutions. Joint Venture An arrangement whereunder two or more parties agree to jointly participate in the evaluation of a mineral property. Leaching The extraction of a soluble metallic element from ore by dissolving the metal in a solvent. Leach Pad An impermeable foundation or pad used as a base for ore during heap leaching. The pad prevents the leach solution from escaping from the circuit. Massive Sulfide Mineralization A sulfide deposit characterized by a concentration of interconnected sulfides totaling in excess of 30% of the total rock, as opposed to a disseminated or veinlike deposit. Mill A plant where ore is ground, often to fine powder, and the minerals and metals are concentrated and extracted by physical or chemical processes. Mineable That portion of a mineral deposit from which it is economically feasible to extract ore. Mineral A naturally occurring, usually inorganic and crystalline substance with characteristic physical and chemical properties that are due to its atomic arrangement. Mineralization Mineral bearing rock. Mineralization generally refers to the presence of gold, silver, or other minerals and metals which may not qualify as a commercially mineable orebody without completion of additional evaluation. Net Profits Royalty (Net Profits Interest) A royalty based on the pretax profit (proceeds) remaining after recapture of certain operating, capital and other costs. The type and manner of computation of such capital and other costs may vary considerably. Net Smelter Return Royalty (Net Returns Royalty) A royalty based on the actual sale price received for the subject metal less the cost of smelting and/or refining the material at an off-site refinery or smelter along with off- site transportation costs. Orebody A mineral deposit that can be mined at a profit under existing economic conditions. Ore Reserves That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Proven Ore Reserves Reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade is computed from the results of detailed sampling and (b) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established. Probable Ore Reserves Reserves for which quantity and grade are computed from information similar to that used for proven reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven reserves, is high enough to assume continuity between points of observation. Ounce Troy ounce which is equivalent to 31.103 grams. A troy ounce is approximately 9.7% heavier than an avoirdupois ounce. Accordingly, there are 14.58 troy ounces in an avoirdupois pound as opposed to 16 avoirdupois ounces. Oxide Ore Mineralized rock in which some of the original minerals have been oxidized. Significant for heap leach operations since oxidation often changes the original minerals to a more soluble form, and may also permit a more complete permeation of cyanide solutions throughout the mineralized rock so that particles of gold in the ore may be more readily dissolved in the leaching process. Patented Mining Claim A mining claim, usually comprising about 20 acres in area, to which the U.S. Government has conveyed title to the owner. Placer Deposit A surficial mineral deposit formed by mechanical concentration of mineral particles from weathered debris, and which contains heavy minerals and metals such as gold. Polymetallic A type of deposit that contains a suite of minerals or metals that may be valuable. Often copper, lead, zinc, silver and gold may occur together. Pyroclastic Rock A rock consisting of unreworked solid material explosively or aerially ejected from a volcanic vent. Recoverable Ounces Those ounces contained in ore which can be ultimately produced and shipped from the mine. Recovery Rate The percentage of a metal recovered in a mineral separation process. Recovery rates vary considerably depending on physical, metallurgical and economic circumstances. Refining A process for removing impurities from metals by introducing air and fluxes into the molten metal. The impurities are removed as gas or slag. Reserve See Ore Reserves Reverse Circulation Drilling See Drilling. Run of Mine Ore Ore that is loaded onto heaps directly from the mine without having been crushed. Stratabound A situation in which mineralization is essentially contained in or confined to a particular sedimentary or volcanic unit. Strike The compass direction that the long axis of a geological feature takes as it intersects the horizontal. Stripping Ratio The tonnage ratio between waste and ore in an open pit mine. Sulfide A mineral compound characterized by the linkage of sulfur with a metal. Gold mineralization characterized by the presence of sulfides is often more difficult to leach, and therefor less economic. Supergene Enriched Deposit A deposit in which the mineralization has been concentrated due to oxidation and movement by groundwater with subsequent reprecipitation in a reducing environment at or near the water table. Unpatented Mining Claim That portion of public mineral lands which a party has staked or marked out in accordance with federal and state mining laws to acquire the exclusive right to explore for and exploit the minerals which may occur on such lands. Working Interest The interest in a mineral property which entitles the owner of such interest to participate in the exploration, development, and operation of a mineral property, and to share in the revenues generated and related costs incurred. Item 3. Legal Proceedings. There are currently no legal proceedings to which the Company is a party. Item 4. Submission of Matters to a Vote of Security Holders. No matter was submitted to a vote of the Company's stockholders during the fourth quarter of the fiscal year covered by this Report. PART II Item 5. Market For The Registrant's Common Equity And Related Stockholder Matters. The Company's common stock trades on The Nasdaq National Market tier of The Nasdaq Stock MarketSM under the symbol "USMX" and the Toronto Stock Exchange under the symbol "USM". The Nasdaq Stock MarketSM is the principal market on which the Company's shares are traded. The following table shows the high and low prices and the volume traded of the Company's shares on The Nasdaq Stock MarketSM for 1994 and 1995. The closing price of the Company's common shares on December 29, 1995, on The Nasdaq Stock MarketSM was $1.97. High Low Volume 1994 First Quarter $4.75 $3.75 1,214,100 Second Quarter 4.25 2.94 948,100 Third Quarter 4.25 2.38 1,332,000 Fourth Quarter 4.19 2.38 1,423,200 1995 First Quarter 2.75 2.06 1,082,500 Second Quarter 2.94 2.13 1,648,700 Third Quarter 2.63 1.97 1,881,700 Fourth Quarter 2.06 1.75 1,347,100 At March 8, 1996, the approximate number of holders of record of the Company's Common Stock was approximately 4,000. This number does not include beneficial owners holding shares through nominee or "street" names. No cash dividends have been paid by the Company. It has been the Company's policy to use funds derived from its earnings for exploration, development and other business activities. The Company currently intends to continue this policy and does not anticipate paying cash dividends in the near future. Any determination to pay cash dividends in the future will be made by the Company's Board of Directors after consideration of the Company's financial condition, business prospects and other relevant factors. At present, the Company must first obtain the prior written consent of a bank pursuant to a Secured Revolving Credit Agreement before paying dividends or returning any capital or making any distribution of assets to the Company's stockholders. In addition, pursuant to the terms of the financing commitment with respect to the Illinois Creek Project, the Company is prohibited from paying dividends until the financing is repaid. Item 6. Selected Financial Data The selected financial data should be read in conjunction with the Consolidated Financial Statements and the notes thereto which appear elsewhere in this Report.
(Amounts in thousands except per share data) December 31, Summary of Financial Condition Data 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------- Working capital $5,094 $14,105 $19,362 $12,903 $11,427 Current assets $5,834 $14,923 $21,573 $16,427 $14,140 Total assets $17,469 $24,190 $28,808 $28,741 $26,195 Current liabilities $740 $818 $2,211 $3,524 $2,713 Long term liabilities $885 $361 $1,074 $3,290 $1,680 Stockholders' equity $15,844 $23,011 $25,523 $21,927 $20,052
Year Ended December 31, Summary of Operations Data 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------- Revenue (gold sales revenue plus net other income) $3,922 $14,866 $24,252(1)$18,043 $17,564 Net income (loss) ($6,906) $204 $2,602 $37 $1,928 Net income (loss) per share ($0.47) $0.01 $0.17 $0.00 $0.14 (1) Includes gain from the sale of the Company's Alligator Ridge assets totaling $5,000
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources Working capital at December 31, 1995, was $5.1 million. Cash and cash equivalents amounted to $5.2 million. Cash and cash equivalents decreased during 1995 by $6.8 million primarily as a result of investment in property and equipment of approximately $5.7 million, including deferred exploration costs of $1.5 million and development costs of $4.2 million ($3.1 million at Illinois Creek, Alaska, $0.7 million at Thunder Mountain, Idaho, and $0.4 at Cala Abajo, Puerto Rico), and cash used in operations of $1.3 million. These were partially offset by proceeds from the sale of property and equipment of $449,000, principally proceeds from the sale of the Company's interest in the Kinsley Mountain project in Nevada. The Company completed its feasibility study of the Illinois Creek Project in February 1996. It is the Company's goal to commence mining in the summer of 1996. The Company estimates that the costs necessary to develop the Illinois Creek Mine and place it into production will be approximately $26.6 million including approximately $4.7 million in working capital and $4.0 milllion in property acquisition costs which may be paid by the issuance of USMX common stock. The Company intends to use its internal cash resources and the proceeds of a $22 million facility to finance the development and construction costs. The commitment for this facility is subject to several conditions, including a satisfactory due diligence report from an independent engineering firm, receipt of necessary permit approvals and completion of documentation satisfactory to the lender. In order for the Company to commence mining at the Illinois Creek Mine in the summer of 1996, the facility must be obtained in the spring of 1996 and the Company must continue to make substantial development expenditures. The Company's working capital is expected to decrease substantially as the Company expends funds on the Illinois Creek Project. The Company is considering the use of internal sources of capital other than its cash resources, including its Montana Tunnels net profits interest and its holdings in Alta Gold Co. common stock. The Company has also retained a Canadian investment banking firm as its financial advisor for the purpose of formulating and implementing a plan to assist the Company in raising additional funds to partially fund the Illinois Creek and Thunder Mountain Projects and for strategic acquisitions. The Company has no firm commitment for additional financing. The Company has filed a Notice of Intent to Operate with the Idaho Department of Lands describing the Company's proposed gold and silver mining activities in the Thunder Mountain Project. Management estimates that the project would require substantial capital to place it into production, including working capital. If the project is sufficiently attractive to warrant continued development and the necessary permits are obtained, construction could begin in 1996 with the earliest completion date in 1997. Management believes that the Company will probably need to obtain additional capital to place Thunder Mountain into production. The Company's balance sheet at December 31, 1995, reflects a total of $1.2 million in accrued reclamation liabilities associated with its acquisition and operation of the Goldstrike Mine. Reclamation activities in 1996 will focus primarily on recontouring, topsoiling and planting heap number one and the completion of rinsing and commencement of recontouring and topsoiling of heap number two as well as the dismantling of the process plant and reclamation of the plant site. The goal is to gain acceptance of the Company's final closure plan by midyear and to achieve final closure by mid 1997. This reclamation is expected to be financed with internally available cash balances, cash generated from the sale of gold produced as a by product of heap rinsing and cash previously provided to the State of Utah as reclamation surety. Results of Operations The Company realized a net loss for the year ended December 31, 1995, of $6,906,000 compared with net income of $204,000 for 1994 and $2,602,000 for 1993. The loss for 1995 includes mineral property abandonments and impairments of $4,431,000. The 1994 results include a $497,000 income tax credit. This credit is primarily the result of the difference between the estimated 1993 federal income tax provision and the actual liability reflected on the income tax returns which were prepared and filed after the 1993 financial statements had been issued. The 1993 results include a gain of approximately $5,000,000 from the sale of the Company's Alligator Ridge assets in two separate transactions during the year, additional 1992 federal income taxes of $396,000 and property abandonments totaling $938,000. Fluctuations in the Company's results of operations from year to year arise primarily from four factors: (1) changes in the volume of gold sold and the selling price of gold, (2) changes in the cost of gold sold, (3) the cost of mineral properties abandoned during any given period, and (4) asset dispositions. Change in the Volume of Gold Sold and Selling Price of Gold The following table analyzes the variance in gold sales revenue for the years ended December 31, 1995, 1994, and 1993:
________________________________________________________________________________________ Revenue Variance Analysis Year Ended December 31, 1995 1994 1993 - ---------------------------------------------------------------------------------------- Ounces of gold sold 6,900 35,575 50,429 Average price realized per ounce $388 $383 $360 Change in revenue attributable to: More (less) ounces sold ($10,972,000) ($5,342,000) $1,105,000 Higher (lower) price 35,000 820,000 2,000 - ---------------------------------------------------------------------------------------- Increase (decrease) in gold sales revenue compared to the preceding year ($10,937,000) ($4,522,000) $1,107,000 ________________________________________________________________________________________
Change in Costs Applicable to Sales Cost of gold sold Cost of gold sold was $2,890,000 or approximately $419 per ounce in 1995 compared to $11,203,000 or approximately $315 per ounce in 1994 and $16,226,000 or approximately $322 per ounce in 1993. The fluctuation in the cost of gold sold is a result of the change from period to period in the mix of production from the Company's mines and the change in the cost of production throughout the life of each mine as illustrated in the table below.
Year Ended December 31, 1995 1994 1993 - --------------------------------------------------------------------------------------- Alligator Gold- Goldstrike Goldstrike Ridge(1) strike(2) Total - --------------------------------------------------------------------------------------- Ounces of gold produced 6,266 34,486 23,454 31,934 55,388 Ounces of gold sold 6,900 35,575 19,299 31,130 50,429 Per ounce statistics: Cash production costs incurred $233 $229 $268 $305 $289 Depreciation, depletion, amortiza- tion and reclamation accruals - 48 60 21 38 - --------------------------------------------------------------------------------------- Production cost per ounce produced $233 $277 $328 $326 $327 ======================================================================================= Gold sales revenue $388 $383 $360 $360 $360 - --------------------------------------------------------------------------------------- Production cost per ounce sold $212 $269 $399 $334 $359 Change in inventories and deferred production costs 207 46 (13) (52) (37) - --------------------------------------------------------------------------------------- Cost of gold sold 419 315 386 282 322 Mining taxes 2 3 3 3 3 Production royalties 55 19 19 16 17 - --------------------------------------------------------------------------------------- Costs applicable to sales 476 337 408 301 342 - --------------------------------------------------------------------------------------- Gross profit (loss) ($88) $46 ($48) $59 $18 ======================================================================================= (1) Sold August 27, 1993. (2) The Goldstrike Mine was acquired effective November 1, 1992.
Cash production costs per ounce of gold produced at the Company's Goldstrike Mine increased to $233 for 1995 from $229 for 1994 despite the fact that no mining, crushing or pad loading costs were incurred after October 1994 because a significant portion of processing costs are fixed and, therefore, do not decrease as production decreases. As the result of a reduction of the estimated remaining recoverable ounces of gold at the Goldstrike Mine, change in inventories and deferred production costs increased to $207 per ounce sold for 1995 from $46 in 1994. Mining Taxes and Royalties During 1995, the Company incurred $14,000 in mining taxes compared to $106,000 in 1994 and $149,000 in 1993. The decrease in mining taxes in 1995 and 1994 is attributable to the decrease in ounces sold compared to the previous year as a result of declining production at the Goldstrike Mine. Also, the Company incurred $379,000 in royalty expense for 1995 compared to $665,000 in 1994 and $882,000 in 1993. The increase in production royalties per ounce of gold sold is attributable to the monthly minimum royalty paid at Goldstrike through January of 1996. Cost of Mineral Properties Abandoned and Provisions for Impairments of Investments in Mineral Properties The Company periodically reviews the carrying values of its properties. In 1995, management determined that properties with an aggregate historical cost of $758,000 no longer held sufficient promise to justify the cost of maintenance. The properties abandoned in 1995 were Tule Canyon ($65,000), Divide ($63,000) and three other properties ($202,000) in the United States and La Cienega ($111,000), Jalisco Copper ($164,000) and four other properties ($153,000) in Mexico. Property abandonments were $261,000 and $938,000 in 1994 and 1993, respectively. The properties abandoned in 1994 were the Ancho Canyon, New Mexico ($221,000) and the South Pass, Wyoming ($40,000) placer properties, both of which were acquired during the year. The properties abandoned in 1993 were the Tombstone, Arizona project ($509,000), Green Springs ($183,000), Cedar Mountain ($113,000), Emigrant Springs ($89,000) and three other properties ($44,000). In 1995, the Commonwealth of Puerto Rico adopted legislation which amended the mining law to prohibit future mining of metallic deposits by open pit methods. Although the Company is considering various strategies and responses, the effect of the mining law, as currently amended, is to render the Company's plan for development of the Cala Abajo deposit uneconomic. As a result, in 1995 the Company reduced the carrying value of this property to zero and recorded an impairment loss of $1.0million. Gold production at the Company's Goldstrike Mine in Utah declined sharply in August and September of 1995. This decline in gold recovery triggered a reevaluation of the estimated remaining recoverable gold ounces in the heaps. As a result, the carrying value of Deferred mining and processing costs was reduced to the fair market value of the remaining gold bullion and dore at the refinery and the Company recorded an impairment loss of $1.6 million. Because exploration efforts to date have not yet yielded an economic deposit at the Amargosa polymetallic prospect in Chihuahua, Mexico, management determined in the fourth quarter of 1995 to reduce the carrying value of this property by $1.0 million. Asset Dispositions In April 1994, the Company sold its interest in the Kinsley Mountain Project in Elko County, Nevada to Alta Gold Co. ("Alta"). In addition to the $20,000 previously received, the Company received $380,000 in cash and Alta restricted common stock with a then market value of $200,000. In April 1995, the Company received a final cash payment of $400,000 and additional Alta restricted common stock with a then market value of $200,000. The Company received, and retained at December 31, 1995, a total of 352,711 shares of Alta restricted common stock. The cash proceeds and discounted value of the stock received were recorded as a reduction to the carrying value of the property on the Company's books. In 1995, the Company recorded a loss on this transaction of $1,000. During 1993, the Company sold its mining assets located at Alligator Ridge in White Pine County, Nevada in two separate transactions for a total of $20 million cash, plus the assumption by the buyer of all related obligations, including reclamation liabilities. After deducting the net book value of the assets sold of approximately $15 million, the Company recorded gains from these sales totaling approximately $5.0 million during 1993. The net book value of the assets sold comprised $8.3 million in deferred mining, crushing, pad loading and processing costs associated with ounces of gold in various stages of production, plus $8.9 million remaining investment in property, plant and equipment, less recorded reclamation liabilities of $2.2 million. Other Factors General and administrative expenses were higher in 1995 than 1994 principally due to legal and other professional fees paid relative to the Cala Abajo project and to salaries and related expenses of additional corporate staff. General and administrative expenses in 1994 were comparable to those incurred in 1993. Prospecting costs in 1995 were lower than 1994 as a result of the concentrated effort by the Company's exploration staff to complete development drilling at the Illinois Creek, Alaska property. Prospecting costs in 1994 were slightly higher than in 1993 due to expanded investigation of various Latin American properties in 1994. Higher interest rates in 1995 compensated for decreasing cash balances during the year. As a result, interest income for 1995 was comparable to 1994. Interest income was higher in 1994 than 1993 due to higher interest rates in 1994. Income tax expense primarily represents current and deferred federal regular and alternative minimum taxes. The entire income tax benefit of $118,000 for 1995 is the result of an adjustment to federal income taxes receivable related to 1993 net operating losses carried back to prior years. See Note 10 to the Consolidated Financial Statements for a reconciliation of the provision for income taxes for 1995, 1994 and 1993 to the statutory federal income tax rate. Trends Which May Affect Future Results of Operations As previously stated, fluctuations in the Company's results of operations arise primarily from four factors: (1) changes in the volume and selling price of gold, (2) changes in the cost of gold sold, (3) the cost of mineral properties abandoned during any given period and (4) asset dispositions. The following is management's view of trends in these factors. Change in the Volume of Gold Sold and Selling Price of Gold Volume The Company expects minimal production from its Goldstrike Mine in 1996. The Company's principal focus is on the development of its Illinois Creek and Thunder Mountain Projects. The Company is also actively involved in exploration activities and periodically considers acquisition opportunities. It is the Company's goal to commence mining at the Illinois Creek Mine in the summer of 1996. If this can be achieved by the target date of September 1, the Company forecasts production at the Illinois Creek Mine of approximately 20,000 ounces of gold in 1996. Based on the Company's feasibility study (which is currently being reviewed by an independent engineering firm, and subject to revision) the Company projects that approximately 60,000 ounces of gold could be produced in 1997. The Company projects that the drill-defined mineralization consists of 5.54 million tons grading 0.074 ounces per ton gold equivalent or approximately 412,000 contained equivalent ounces of gold. Metallurgical recovery from the run-of-mine ore is projected to be approximately 85% of contained gold and 25% of the contained silver. The Company's ability to achieve the forecasted gold production will be dependent upon many factors, some of which, such as the price of gold and climate conditions, are beyond the control of the Company. No assurance can be given that the indicated amount of gold will be recovered. As with any development project, there is no operating history upon which to base estimates of future cash operating costs and capital requirements. Estimates of mineralization, metallurgical recovery, and cash operating costs are to a large extent based on the interpretation of geologic data obtained from drill holes and other sampling techniques and feasibility reviews which derive estimates of cash operating costs based on anticipated tonnage and grades of ore to be mined and processed, the configuration of the ore body, expected recovery rates of metals from the ore, comparable facility and equipment costs, anticipated climate conditions and other factors. Accordingly, actual cash operating costs and economic returns of the Illinois Creek Project and other projects that may be undertaken by the Company may materially differ from the costs and returns initially estimated. The Company has obtained a commitment for a $22 million facility to finance development and construction costs on the Illinois Creek Project. The Company will need to promptly finalize, and commence use of funds, from this facility, in order for the Company to commence mining in the summer of 1996. Closing is subject to several conditions, including completion of a satisfactory due diligence report from an independent engineering firm, the Company's receipt of necessary permit approvals, and completion of documentation satisfactory to the lender. The Illinois Creek Project has required extensive planning by the Company, due in particular to the special logistical aspects of gaining access to the site. Transportation of equipment, construction materials, supplies and personnel to the site will involve various modes of transportation. Most goods are to be staged in Seattle, Washington, loaded into containers, and shipped by barge to Anchorage, Alaska. Materials will then be transported from Anchorage to Galena using trucks, barges and railroads. From Galena, the goods will be flown to the site using various aircraft. Major components of some of the larger mining equipment will be flown to the site using C-133 aircraft. There is only one such airworthy aircraft currently available for use by the Company. In addition, there is one additional C-133 available to supply spare parts if needed. The Company is in the process of finalizing arrangements for use of these aircraft, which requires special permission. If the Company is unable to transport all of the components it currently plans to transport using the C-133 aircraft, substantial delays and additional costs could be incurred as the components would have to be cut into smaller pieces, transported to the site using smaller aircraft and reassembled at the site. If substantial delays occur, the Company would not be able to commence mining in the summer of 1996. Due to weather conditions, mining operations cannot be conducted year-round. Therefore, if mining operations are not started in 1996 the earliest operations could commerce would be late spring of 1997. It is the Company's goal to initiate construction of the Dewey Mine facilities in the Thunder Mountain Mining District, Idaho, in the summer of 1997. In January 1996 the Company submitted a Notice of Intent to Operate with the Idaho Department of Lands, which is currently being reviewed by that agency and other state and federal agencies, including the U.S. Forest Service. The Company is presently conducting a data sufficiency review of prior studies pertaining to the Project area and previous operations conducted near the Project area. The Company intends to thereafter retain an independent environmental consulting firm to coordinate the submission of an environmental impact statement. The views of several governmental agencies, as well as any public comments received, are expected to be considered in connection with the review of the environmental impact statement. Although the Company forecasts that it has a realistic prospect of obtaining the necessary permits in 1997, there can be no assurance that this will be achieved. A feasibility study by the Company will be ongoing throughout 1996 to refine the Project design and economics. It is presently anticipated that conventional open pit/heap leaching techniques will be used. The Company will also be conducting additional metallurgical work, finalizing the acquisition of adjacent land, and making preliminary arrangements for facility construction and mining operations. The Company's operations will be subject to all of the operating hazards and risks normally incident to operation of mineral properties, such as unusual or unexpected geological formations, environmental hazards, industrial accidents, labor disputes, equipment incapability or failures, and inclement weather conditions. Such occurrences could result in damage to, or destruction of, mineral properties or production facilities, personal injury or death, environmental damage, delays in mining, monetary losses and possible legal liability. Moreover, the Company's mining operations will be subject to extensive federal, state and local laws and regulations governing production, taxes, labor standards, occupational health, waste disposal, protection and remediation of the environment, reclamation, mine safety, toxic substances and other matters. Compliance with such laws and regulations has increased the cost of planning, designing, drilling, developing, constructing, operating and closing other mines and facilities previously operated by the Company. In addition, the Company has expended significant resources, both financial and managerial, to comply with environmental protection regulations and permitting requirements and anticipates that it will continue to do so in the future. Although the Company believes that it has made adequate provision to comply with such regulations, there can be no assurance that additional significant costs and liabilities will not be incurred to comply with current and future environmental protection regulations. Moreover, it is possible that future developments, such as increasingly strict environmental protection laws, regulations and enforcement policies, and claims for damages to property and persons resulting from the Company's operations, could result in substantial costs and liabilities in the future. Price of Gold Another significant uncertainty facing the Company which could potentially impact its financial position, profitability and liquidity in the short term is the price of gold. The gold price is a function of a number of factors including investors' expectations with respect to inflation, the strength of world currencies, decisions by central banks regarding their gold reserves, and supply and demand factors, none of which is under the control of Company management. After trending downward over the past several years, making a six year low during the fourth quarter of 1992, the price of gold rebounded in 1993 reaching a high of $403 on August 3, 1993. The average market price of gold was $384 an ounce during 1995 and 1994 compared to $360 an ounce during 1993. Change in the Cost of Gold Sold The cost of gold sold which is planned to be produced at the Company's Illinois Creek Mine is estimated on the basis of the projected life of mine average cost of approximately $320 per ounce of gold including $80 per ounce of gold representing amortization of the Company's planned total capital investment in the mine and $240 per ounce of gold cash cost. Cost of Mineral Properties Abandoned The cost of mineral properties abandoned in any period is a function of the results of the Company's exploration efforts and economic considerations. The Company currently expects to invest approximately $1.5 million during 1996 for property acquisition and exploration. The Company makes every effort to maximize the results of its exploration efforts. However, exploration for economically recoverable metals involves significant risk. Accordingly, while it is probable there will be abandonment losses in the future, it is not possible to predict either the timing or amount. Item 8. Financial Statements and Supplementary Data. USMX, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1995 and 1994, For the years ended December 31, 1995, 1994 and 1993 Page -------------- Independent Auditors' Reports 35 Consolidated Financial Statements: Consolidated Statements of Financial Position F-1, F-2 Consolidated Statements of Operations F-3 Consolidated Statements of Stockholders' Equity F-4 Consolidated Statements of Cash Flows F-5, F-6 Notes to Consolidated Financial Statements F-7 thru F-20 Independent Auditors' Report To the Stockholders and Board of Directors USMX, INC.: We have audited the accompanying consolidated statements of financial position of USMX, INC. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of USMX, INC. and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. KPMG Peat Marwick LLP Denver, Colorado March 1, 1996 USMX, INC. and Subsidiaries Consolidated Statements of Financial Position (Amounts in thousands)
December 31, ---------------------- 1995 1994 ------- ------- Assets Current assets: Cash and cash equivalents $5,226 $12,014 Deferred mining and processing costs - 2,344 Consumable inventories - 34 Federal income taxes receivable 381 274 Other 227 257 ------- ------- Total current assets 5,834 14,923 ------- ------- Property, plant and equipment, at cost: Undeveloped mineral properties 2,913 4,660 Mineral properties under development 6,344 2,521 Developed mineral properties 921 921 Mine buildings and equipment 2,451 2,417 Vehicles, furniture and equipment 662 691 ------- ------- 13,291 11,210 Less accumulated depreciation, depletion and amortization (3,475) (3,418) ------- ------- Net property, plant and equipment 9,816 7,792 ------- ------- Other assets 1,819 1,475 -------- ------- Total assets $17,469 $24,190 ======== =======
USMX, INC. and Subsidiaries Consolidated Statements of Financial Position (Concluded) (Amounts in thousands except shares)
December 31, ---------------------- 1995 1994 ------- ------- Liabilities and Stockholders' Equity Current liabilities: Accounts payable $312 $197 Accrued salaries 73 32 Accrued reclamation 304 493 Other accrued liabilities 51 96 ------- ------ Total current liabilities 740 818 ------- ------ Long term liabilities: Estimated reclamation liability 885 361 ------- ------ Total long term liabilities 885 361 ------- ------ Commitments and contingencies (Note 10) Stockholders' equity: Preferred stock, $.001 par value, 20,000,000 shares authorized, none issued - - Common stock, $.001 par value, 45,000,000 shares authorized, 14,644,000 shares issued and outstanding as of December 31, 1995, 14,786,000 shares issued and outstanding as of December 31, 1994 15 15 Additional paid-in capital 15,583 15,860 Treasury stock, at cost - (16) Retained earnings 246 7,152 ------- ------- Total stockholders' equity 15,844 23,011 ------- ------- Total liabilities and stockholders' equity $17,469 $24,190 ======= ======= The accompanying notes are a part of these consolidated financial statements.
USMX, INC. and Subsidiaries Consolidated Statements of Operations (Amounts in thousands, except per share data)
Years Ended December 31, ---------------------------- 1995 1994 1993 ------ ------- ------- Sales of gold $2,678 $13,615 $18,137 Costs applicable to sales: Cost of gold sold 2,890 11,203 16,226 Mining taxes 14 106 149 Production royalties 379 665 882 ------ ------ ------ 3,283 11,974 17,257 ------ ------ ------ Gross profit (loss) (605) 1,641 880 General and administrative expenses 2,548 2,185 2,048 Prospecting costs 684 739 667 Asset abandonments, write downs and impariments 4,431 261 938 ------ ------ ------ Loss from operations (8,268) (1,544) (2,773) Other income: Royalty income (received from related party) 720 720 720 Interest income 525 518 321 Other, net (1) 13 5,074 ------ ------ ------ 1,244 1,251 6,115 ------ ------ ------ Income (loss) before income taxes and cumulative effect of change in accounting principle (7,024) (293) 3,342 Income taxe expense (benefit) (118) (497) 1,472 Income before cumulative effect of change in ------ ------ ------ accounting principle (6,906) 204 1,870 Cumulative effect on prior years (to December 31,1992) of change in method of accounting for income taxes - - 732 ------ ------ ------ Net income (loss) ($6,906) $204 $2,602 ======= ====== ====== Net Income (loss) per common share: Net Income (loss)Income before cumulative effect of change in accounting principle ($0.47) $0.01 $0.12 Cumulative effect of change in accounting principle - - 0.05 ------- ------ ------ Net income (loss) per common share ($0.47) $0.01 $0.17 ======= ====== ====== Weighted average common and common equivalent shares outstanding 14,755 14,860 15,714 ======= ====== ====== The accompanying notes are a part of these consolidated financial statements.
USMX, INC. and Subsidiaries Consolidated Statements of Stockholders' Equity
Common Stock -------------------- (Amounts in thousands except shares) Additional Number of Paid-in Treasury Retained Shares Amount Capital Stock Earnings ----------- ------ ---------- --------- --------- Balance at December 31, 1992 14,962,000 $15 $17,566 $- $4,346 Shares issued as compensation 28,000 - 50 - - Exercise of stock options 638,000 1 1,156 - - Previously issued shares submitted in partial payment for options exercised - - - (213) - Treasury stock retired (39,000) - (213) 213 - Net income - - - - 2,602 - ---------------------------------------------------- ----------- ------ -------- -------- ------- Balance at December 31, 1993 15,589,000 16 18,559 - 6,948 Shares issued as compensation 2,000 - 7 - - Exercise of stock options 198,000 - 314 - - Previously issued shares submitted in partial payment for options exercised - - 14 (14) - Repurchase of common stock - - - (3,215) - Treasury stock retired (1,003,000) (1) (3,213) 3,213 - Income tax benefit arising from the disqualifying disposition of incentive stock options - - 179 - - Net income - - - - 204 - ---------------------------------------------------- ----------- ------- -------- -------- ------- Balance at December 31, 1994 14,786,000 15 15,860 (16) 7,152 Shares issued as compensation 3,000 - 11 - - Exercise of stock options 3,000 - 6 - - Repurchase of common stock - - - (278) - Treasury stock retired (148,000) - (294) 294 - Net loss - - - - (6,906) - ---------------------------------------------------- ----------- ------- -------- -------- -------- Balance at December 31, 1995 14,644,000 $15 $15,583 $ - $246 - ---------------------------------------------------- ----------- ------- -------- -------- -------- The accompanying notes are a part of these consolidated financial statements.
USMX, INC. and Subsidiaries Consolidated Statements of Cash Flows (Amounts in thousands)
Years Ended December 31, ----------------------------- 1995 1994 1993 -------- -------- -------- Cash flows from operating activities: Cash from sales of precious metals $2,678 $13,615 $18,137 Cash paid to suppliers and employees (4,831) (12,279) (19,156) Mining taxes paid (14) (106) (149) Royalties paid in cash (379) (665) (923) Royalties received 720 720 720 Interest received 525 518 321 Other income, net (1) 13 76 Income taxes paid, net of refunds received 11 1,311 (2,352) -------- -------- -------- Net cash provided by (used in) operating activities (1,291) 3,127 (3,326) -------- -------- -------- Cash flows from investing activities: Additions to property, plant and equipment (5,674) (4,221) (4,311) Proceeds from sales of property and equipment 449 380 20,111 Investment in certificates of deposit, net - (171) (1,362) Aquisition of Goldstrike property - - (708) Other, net - 80 - ------- ------- ------- Net cash provided by (used in) investing activities (5,225) (3,932) 13,730 ------- ------- ------- Cash flows from financing activities: Proceeds from issuance of common stock 6 314 944 Repurchase of common stock (278) (3,215) - ------- ------- ------- Net cash provided by (used in) financing activities (272) (2,901) 944 ------- ------- ------- Net increase (decrease) in cash and cash equivalents (6,788) (3,706) 11,348 Cash and cash equivalents at beginning of year 12,014 15,720 4,372 ------- ------- ------- Cash and cash equivalents at end of year $5,226 $12,014 $15,720 ------- ------- ------- Supplemental Disclosure of Noncash Investing and Financing Activities The Company received $400,000 and $380,000 cash, plus 184,438 and 168,273 shares of Alta Gold Co. common stock, in 1995 and 1994 respectivly, as payment for purchase of the Company's interest in the Kinsley Mountain Property. Payment received $ 560 $ 540 $ - Discounted market value of common stock received 160 160 - ------- -------- -------- Cash Received (included in proceeds from sale of property and equipment above) $ 400 $ 380 $ - ------- -------- --------
USMX, INC. and Subsidiaries Consolidated Statements of Cash Flows (Concluded)
(Amounts in thousands) Years Ended December 31, ----------------------------------------- 1995 1994 1993 ----------- --------- ---------- Reconciliation of Net Income to Net Cash Provided by Operating Activities Net income (loss) $ (6,906) $ 204 $ 2,602 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation, depletion and amortization charged to costs and expenses 134 1,484 1,684 Cost of mineral properties abandoned 2,928 261 541 Other, net (15) 14 50 Changes in operating assets and liabilities: (Increase) decrease in deferred mining and processing costs 2,344 1,647 (2,356) Decrease (increase) in consumable inventories 34 27 (30) Depreciation, depletion and amortization included in ending inventories (Increase) decrease in federal income taxes receivable (107) 744 (1,018) Increase (decrease) in accounts payable 116 (1,044) 221 Increase (decrease) in accrued salaries 41 (153) (33) Decrease in federal income taxes payable - - (615) Increase (decrease) in other accrued liabilities (45) (35) 32 Decrease in royalties payable - - (41) Increase (decrease) in accrued and estimated reclamation 335 (874) (326) Decrease in deferred income taxes - - (92) Other changes in assets and liabilities, net (150) 233 303 ----------- ---------- ---------- Net cash provided by (used in) operating activities $ (1,291) $ 3,127 $ (3,326) =========== ========== ========== The accompanying notes are a part of these consolidated financial statements.
USMX, INC. and Subsidiaries Notes to Consolidated Financial Statements Note 1. - The Company USMX, INC. (the "Company") is a Delaware corporation which engages in the exploration for, and development and operation of precious metal properties. The Company also evaluates base metal and non-metallic situations. The Company conducts its operations directly and through various operating subsidiaries. All references herein to the Company include all subsidiaries of USMX, INC. Note 2. - Summary of Significant Accounting Policies Consolidation and basis of presentation The consolidated financial statements include the accounts of the Company and its wholly-owned and majority owned subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. Management makes various estimates and assumptions in determining the reported amounts of assets, liabilities revenues and expenses, and in the disclosure of commitments and contingencies. These estimates and assumptions will change with the passage of time and the occurrence of future events, and actual results will differ from the estimates. Cash and Cash Equivalents The Company considers cash in banks and all highly liquid investments, purchased with a maturity of three months or less, to be cash equivalents. Production Costs Production costs incurred are charged to Deferred mining and processing costs as incurred. Cost of gold sold is based on the currently estimated life of mine average cost. The amount carried in the Company's balance sheet for Deferred mining and processing costs is the lower of the difference between production costs incurred to date and the amount charged to Cost of gold sold to date or net realizable value. Mineral Properties The Company's policy is to charge to operations, costs associated with identifying prospective mineral properties and to capitalize the costs of acquiring, exploring and developing unproven mineral properties. For properties subsequently placed into production, the applicable capitalized costs are amortized using the units-of- production method, based on the ratio of tons of ore mined or processed during the year to the estimated total proven and probable ore reserves of the project. Capitalized costs related to sold or abandoned properties are charged against operations at the time the property is sold or abandoned. Proceeds from rentals and option fees relating to undeveloped mineral properties in which the Company has an economic interest are credited against capitalized property costs and no gain is recognized until all costs have been fully recovered. The Company periodically reviews the carrying value of its properties by comparing the net book value of each property to the estimated undiscounted future cash flow from the property. If the net book value exceeds the undiscounted future cash flow, an impairment is recorded. Changes in estimates and assumptions that underly management's estimate of future cash flow from the Company's mineral properties can materially impact future carrying values and operating results. Note 2. - Summary of Significant Accounting Policies (continued) Depreciation and Amortization Mine buildings and equipment are depreciated using the units-of-production method based on the ratio of tons of ore mined or ounces of gold produced during the period to the estimated total proven and probable reserves of the related property. Vehicles, furniture and office equipment are depreciated using the straight-line and the declining balance methods over estimated useful lives of two to five years. The cost of normal repairs and maintenance is charged to operations as incurred. Significant expenditures which increase the life of an asset are capitalized and depreciated over the estimated remaining useful life of the asset. Upon retirement or disposition of property and equipment, related gains or losses are recorded in operations. Reclamation Costs The Company records a liability for the estimated cost to reclaim mined land by recording charges to production costs for each ton of ore mined. The amount charged is based on management's estimate of reclamation costs to be incurred. The estimate is based on the work which is to be performed as set forth in the reclamation plan approved by the agencies responsible for granting the related mining permits. The accrued reclamation liability is reduced as reclamation expenditures are made. Certain reclamation work is performed concurrently with mining. However, the majority of reclamation expenditures is made after mining operations cease. Revenue Recognition and Hedging Transactions The Company recognizes revenue as precious metals are sold. In order to protect against the impact of falling gold prices, the Company enters into hedging transactions, the goal of which is to provide a minimum price for future production, and allow the Company to take advantage of short term increases in the gold price. Hedging transactions include spot deferred and forward sales contracts and option contracts. Contracted prices on spot deferred and forward sales and options are recognized in gold sales as production is delivered to meet the commitment. Income Taxes The Company follows Financial Accounting Standards Board Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes, ("SFAS 109"). Under the asset and liability method of SFAS 109, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. By-product Revenues Revenues from sales of by-products (principally silver) are treated as a reduction of the cost of sales. Net Income (loss) per Common Share Net income (loss) per common share is based on the weighted average number of shares of common stock and common stock equivalents outstanding during the year, unless they are anti-dilutive. Note 2. - Summary of Significant Accounting Policies (concluded) Reclassifications Certain amounts in the accompanying consolidated financial statements for the years ended December 31, 1994 and 1993, have been reclassified to conform to the classifications used in 1995. Note - Deferred mining and processing costs Deferred mining and processing costs in the accompanying consolidated statements of financial position represent mining, crushing, pad loading and processing costs associated with ounces of gold in various stages of production as follows: Inventoried Ounces of Gold at December 31, --------------------- 1995 1994 --------------------- Gold bullion and dore - 1,200 Gold in process - 9,100 Gold in crusher stockpile - - --------------------- Total estimated ounces in process - 10,300 ===================== During 1995 the Company recorded an impairment related to Deferred mining and processing costs of $1,620,000 (see Note 7.) Note 4. - Undeveloped Mineral Properties The Company views exploration as an important means of growth, and it typically actively explores several projects annually. Deferred costs at December 31, 1995 and 1994 associated with undeveloped mineral properties in various countries were as follows: Deferred Exploration Costs in Undeveloped Mineral Properties ------------------------------ 1995 1994 ------------------------------ United States $ 584,000 $ 2,000,000 Mexico 2,081,000 2,660,000 Chile 18,000 - Ecuador 230,000 - ------------------------------ Total $ 2,913,000 $ 4,660,000 ============================== Note 5. - Mineral Properties Under Development At December 31, 1995 and 1994, the Company had two mineral properties in various stages of feasibility and development as follows: Mineral Properties Under Development ----------------------------- 1995 1994 ----------------------------- Illinois Creek, Alaska $ 4,037,000 $ 955,000 Thunder Mountain, Idaho 2,307,000 1,566,000 ----------------------------- Total $ 6,344,000 $2,521,000 ============================= Illinois Creek, Alaska The Illinois Creek Project is a moderate grade, near surface gold-silver deposit. It consists of two State of Alaska Mining Leases, covering 62,480 acres. The project is located in the western interior of Alaska approximately 57 miles southwest of Galena and 320 miles northwest of Anchorage. The exploration and development phases have been completed with the exception of permitting. A final decision from the State of Alaska on all permits is expected in April 1996. No major federal permits will be required. Assuming the grant of the necessary permits, the Company intends to commence site development and construction in late April 1996. Field construction is anticipated to take approximately four months to complete. Pursuant to an agreement with the current owner of the underlying leases (the "Agreement"), the Company made initial payments to the owner of $100,000 in 1994 to evaluate the Illinois Creek property. The Company is required to make a $1 million, non-refundable payment to the owner in cash or common stock of the Company. The Company has elected to make the payment in stock, which the Company and the owner have agreed will amount to 449,754 shares. The Company will issue these shares upon effectiveness of a registration statement covering the resale of these shares. The Company expects to file this registration statement in April 1996. In addition, if the Company obtains the necessary permits and there has been no material adverse change in project economics, the Company will be required to make an additional payment to the owner of $3 million in cash or common stock in exchange for title to the underlying leases. If the Company elects to pay all or part of this amount in stock, it will also be required to provide for the registration of the resale of the shares issued to the owner. The number of shares of common stock to be issued to the owner will be based on a 30-day average of the price of the Company's stock on The Nasdaq Stock Market. In addition to these payments, the owner will receive a 5% net returns royalty. Also, if the Company delineates the existence of additional ore reserves on the lease known as the Illinois Creek Upland Mining Lease, which increases the total proven ore reserves to at least one million ounces of equivalent gold ore reserves beyond the mineralization stated in the Company's February 1996 feasibility report, then the owner will have the right to elect to participate in subsequent mining operations with respect to those additional reserves for a 25% working interest by reimbursing the Company 120% of the owner's 25% share of exploration, development and capital costs incurred by the Company subsequent to February 1996 which are directly related to the delineation and/or production of the additional reserves. Pursuant to the Agreement, the Company has until December 16, 1997, to achieve Commercial Production (as defined) from the property. This period may be extended at the option of the Company for two additional one year periods upon payment by the Company of substantial advance royalties for each one year extension. The Agreement terminates on December 16, 1999, if the Company has not achieved Commercial Production from the property by that date. See Note 17. Note 5. - Mineral Properties Under Development (Concluded) Thunder Mountain, Idaho The Company proposes to conduct gold and silver mining activities at the Dewey Mine in the Thunder Mountain Mining District in eastern Valley County, Idaho, approximately 100 miles northeast of Boise, Idaho. The proposed Dewey mining operations are part of the Thunder Mountain Project and consist of the development of a gold and silver ore deposit located on patented mining claims administered by the Idaho Department of Lands. Effective July 9, 1993, the Company entered into an Exploration and Option to Purchase Agreement ("Agreement") with Dewey Mining Company, Thunder Mountain Gold, Inc. and two individuals (the foregoing companies and individuals described below collectively as "Owners"). The Owners control approximately 5,500 acres in the Thunder Mountain Mining District consisting of both patented and unpatented mining claims. Pursuant to the terms of the Agreement, the Company was granted the sole and exclusive right to explore for and develop minerals on the property in exchange for advance royalty payments totaling $100,000. In addition, the Company committed to spend, and did spend, a minimum of $500,000 evaluating the property prior to April 1, 1995. The Agreement requires that, before the Company can put the property into commercial production, it must prepare and deliver to the Owners a feasibility study regarding the project. In 1995, the Company extended the term of the agreement through April 30, 1996, by making an additional advance royalty payment in the amount of $150,000. The Company has the option to further extend the Agreement through April 30, 1997, by paying an additional advance royalty payment of $200,000. The Company intends to so extend the Agreement. The Agreement further provides the Company with the option for a final extension until April 30, 1998, in exchange for an additional advance royalty payment of $250,000. The advance royalty payments made may be recovered by the Company for seven years after payment should the Owners elect to receive royalties under options (a) or (c) below. The Agreement terminates if the Company fails to deliver a feasibility study to the Owners by the end of the last year's extension under the Agreement or if the Company exercises its right to terminate the Agreement at any time. Within 90 days after the Company provides the Owners with a feasibility study, the Owners may elect to (a) participate in subsequent efforts to the extent of a 30% working interest, plus receive a 1.5% royalty, or (b) receive a 30% net profits interest, or (c) receive a 5% net returns royalty from production. If the Owners elect to receive a 5% net returns royalty, the Company will be obligated to make advance royalty payments of: (I) $200,000 within thirty days after commencement of Commercial Production (as defined in the Agreement), and $250,000 each year thereafter. If the Owners fail to notify the Company of their election prior to the end of the 90 day election period they will be deemed to have made an election to receive a 5% net returns royalty. The Agreement Provides that, once the Owners have made their election, the Company shall have one year within which to achieve Commercial Production. If the Company fails to achieve Commercial Production within one year, the Company must either re-convey the property to the Owners or extend by one year the time period within which Commercial Production must commence by paying an advance royalty of $200,000 to the Owners. If Commercial Production has not begun by the end of the extension period, the Company may obtain one final extension of one year within which to achieve Commercial Production by paying the Owners an additional advance royalty of $250,000. In addition to the advance royalty payments and the work commitments outlined above, the Company is obligated to pay all fees necessary to maintain the unpatented mining claims through August 31 of the calendar year in which the extension year expires. Note 6. - Developed Mineral Properties The Company's investment in developed mining properties at December 31, 1995 and 1994 is as follows: Developed Mineral Properties ------------------------------ 1995 1994 ------------------------------ Goldstrike Mine $ 365,000 $ 365,000 Montana Tunnels 556,000 556,000 ------------------------------ Total $ 921,000 $ 921,000 ============================== Goldstrike Mine Effective November 1, 1992, the Company acquired from Tenneco Corporation (Tenneco), the stock of Tenneco Minerals Company-Utah (TMC-Utah), owner and operator of the Goldstrike Mine located approximately 35 miles northwest of St. George, Utah. Soon after the acquisition, the name of this wholly owned subsidiary was changed to USMX of Utah, Inc. Gold production from the Goldstrike Mine since November 1, 1992, has been 77,182 ounces, including 6,266 ounces of gold produced in 1995. Mining operations at the Goldstrike Mine were completed in October 1994. Leaching was completed in December 1995. All disturbed areas at the Goldstrike Mine were reclaimed during 1995 except for the heaps and the plant site. Reclamation of one of the two heaps was begun near the end of 1995. Rinsing of the second heap commenced in January 1996 and is expected to continue into 1997. Once rinsing of the second heap is complete, the heap will be re-contoured, covered with topsoil and seeded with various native plant species. In addition, the process plant will be dismantled and the plant site reclaimed. Montana Tunnels The Company owns a net profits interest in this property (see Note 13.) and, accordingly, the carrying value has been classified as a producing mineral property in the Company's consolidated statements of financial position. The Company's investment is amortized using the units of production method, based on the ratio of tons of ore mined to the estimated total proven and probable ore reserves as reported to the Company by the operator, Pegasus Gold Inc. ("Pegasus"). Sale of Alligator Ridge Area Assets In 1993, the Company sold all of its unpatented mining claims, mill sites, fee lands, mineral leases, easements and other interests in real property owned by it in the area known as Alligator Ridge in White Pine County, Nevada, along with all related equipment, machinery, goods, supplies and other personal property used by the Company. The assets were sold to the same buyer in two separate transactions for a total of $20 million in cash plus assumption by the buyer of all obligations and liabilities associated with or arising out of the operation of the assets, including all reclamation liabilities. The Company recorded gains from these sales of approximately $5.0 which is included in other net in the accompanying consolidated statements of operations. Note 7. - Asset abandonments, write downs and impairments Goldstrike Mine Gold production at the Company's Goldstrike Mine in Utah declined sharply in August and September of 1995. This decline in gold recovery triggered a reevaluation of the estimated remaining recoverable gold ounces in the heaps. It was determined that it was no longer economically feasible to add cyanide to the system and the rinsing of the heaps commenced in October. As a result, the carrying value of Deferred mining and processing costs was reduced to the fair market value of the remaining gold bullion and dore at the refinery and the Company recorded an impairment loss of $1,620,000. Note 7. - Asset abandonments, write downs and impairments (Concluded) Cala Abajo In October 1992, the government of Puerto Rico granted an Exclusive Exploration Permit covering the Cala Abajo copper-gold deposit to the Company's majority owned subsidiary, Southern Gold Resources (USA), Inc. (Southern Gold). In June 1995, the Commonwealth of Puerto Rico adopted legislation which amended the island's mining law to prohibit future mining of metallic deposits by open pit methods. Although the Company is considering various strategies and responses, the effect of the mining law, as currently amended, is to render the Company's plan for development of the Cala Abajo deposit uneconomic. As a result, the Company reduced the carrying value of the property to zero and recorded an impairment loss of $1,039,000 during 1995. Amargosa During 1995 the Company wrote down the carrying value of the Amargosa property by $1,000,000 to $315,000. Although the property remains geologically promising, to date, no significant economic mineralization has been encountered. The Company anticipates further exploration of the Amargosa property, possibly in joint venture with another mining company. Note 8. - Revolving Bank Credit Agreement In order to provide a source of short-term financing, the Company entered into a revolving credit agreement ("Agreement") with The Colorado National Bank of Denver ("Bank") effective as of June 24, 1992. Under the terms of the Agreement, the Company may borrow up to $3 million at the Bank's prime rate plus three quarters of a percent. The amount which the Company may borrow under the Agreement is limited to the lesser of $3 million or the borrowing base amount, as defined in the Agreement. The borrowing base amount is the sum of a calculated present value of the Company's interest in the Montana Tunnels royalty, gold bullion and dore in the hands of outside refiners and U. S. Treasury Bills and U. S. Treasury Notes which the Company may elect to include in the borrowing base less any amounts outstanding under the Agreement. At December 31, 1995, the borrowing base was $1,379,000. Interest on any borrowings is payable monthly with principal due upon expiration of the annual agreement. The Agreement contains certain financial covenants including the maintenance of minimum levels of tangible net worth and cash flow, and limitations on the incurrence of additional indebtedness. In addition, the Company must first obtain the prior written consent of the Bank before paying dividends or refunding any capital or making any distributions of assets to the Company's stockholders. At December 31, 1995, $1,051,000 of this facility was being used to secure letters of credit provided by the Company as reclamation surety in connection with the Goldstrike Mine in Washington County, Utah. The balance of the facility was unused at that date. The Agreement has been extended to December 1997. Note 9. - Sales of Property and Equipment In April 1994, the Company sold its interest in the Kinsley Mountain Project in Elko County Nevada to Alta Gold Co. ("Alta"). In April 1995, the Company received a final cash payment of $400,000 and Alta restricted common stock with a market value of $200,000 based on the average closing price of the stock over the 30 trading days prior to issuance. The payment was in addition to cash of $400,000 and Alta restricted common stock with a market value of $200,000 previously received. The cash proceeds and discounted value of the stock received were recorded as a reduction to the carrying value of the property on the Company's books. During 1995, the carrying value of the property was reduced to zero and a $1,000 loss was recorded. Note 10. - Stock Options The Company has two stock option plans, the ("1987 Plan") and the Non-discretionary Plan for Non-Employee Directors ("Directors' Plan"), which cover a total of 1,700,000 shares of common stock available for grant to employees and directors of the Company. Under the 1987 Plan, the Company may grant incentive stock options as well as non-incentive stock options. Incentive stock options granted under the 1987 Plan are exercisable at prices equal to the market value of the common stock at the date of grant. The option prices of non- incentive stock options granted under the 1987 Plan may be less than the market value of the common shares as of the grant date. Options expire at such time as the Option Committee of the Board of Directors determines, but no later than ten years from the grant date. The Directors' Plan was established in 1992 to afford non-employee directors an opportunity for investment in the Company and the incentive advantages inherent in stock ownership of the Company. Options granted under the Directors' Plan are exercisable at prices equal to the market value of the common stock at the date of grant and are exercisable in full on the date of grant. Shares acquired pursuant to the Directors' Plan may not be sold, transferred or otherwise disposed of for a period of at least six months following the date of grant. Under the terms of the Directors' Plan, the directors who elected to participate were each issued options to purchase 10,000 shares of the Company's common stock upon adoption of the plan. Thereafter, each non-employee director who elects to participate is automatically granted an option to purchase 10,000 shares of the Company's common stock upon joining the Board. In addition, on October 1 of each year each participant is automatically granted an option to purchase an additional 5,000 shares. Options granted under the Directors' Plan expire ten years from the date of grant except that an option will expire, if not exercised, ninety days after the optionee ceases to be a director of the Company. Note 10. - Stock Options (Concluded) Changes in stock options for the years ended December 31, 1993, 1994 and 1995, are as follows: Option Shares Price Per Share ----------------------------- Outstanding at December 31, 1992 1,073,200 $1.13-4.75 Exercised (630,150) 1.44-4.75 Granted 314,500 3.06-5.50 ----------------------------- Outstanding at December 31, 1993 757,550 $1.13-5.50 Exercised (198,300) 1.13-3.06 Expired or canceled (39,000) 3.06-5.50 Granted 275,000 2.69-4.13 ----------------------------- Outstanding at December 31, 1994 795,250 $1.16-5.50 Exercised (3,000) 2.06 Expired or canceled (791,750)(1) 1.16-5.50 Granted 1,137,250(1) 1.16-5.50 ----------------------------- Outstanding at December 31, 1995 1,137,750(2) $1.16-5.50 ============================= (1) During 1995, option terms to acquire 724,750 shares were extended to ten years from the original date of grant. For accounting purposes the extension was treated as the cancellation of the existing options and the granting of new options. (2) Of the options outstanding at December 31, 1995, options to acquire 826,250 shares were exercisable on that date at an average option price of $2.90 per share. The remaining options are exercisable on various dates between March 1996 and October 1998. Note 11. - Employees' Benefit Plans and Incentive Bonus Arrangements Effective July 1, 1987, the Company adopted an Employee Savings and Investment Plan under section 401(k) of the Internal Revenue Code, which covers all full-time employees. The plan is a defined contribution plan and allows employee contributions of up to ten percent of pre-tax compensation, limited to the maximum deferral allowed by the Internal Revenue Service. The Company may contribute at least ten percent and not more than one hundred percent of the amount contributed by the employees, up to a maximum of six percent of pre-tax compensation. For 1995, 1994 and 1993, the Board of Directors has set the Company's contribution at fifty percent of the first six percent of employee contributions. For 1995, 1994 and 1993, the Company's contributions were approximately $57,000, $59,000, and $111,000, respectively. Participants vest in the Company's contributions based upon years of service, and are fully vested after four years of service. Note 11. - Employees' Benefit Plans and Incentive Bonus Arrangements(Concluded) Effective January 1, 1992, the Company adopted an incentive stock bonus plan for substantially all employees involved in its Nevada operations. Under the terms of the plan, a stock bonus was payable on the earlier of December 31, 1994, or the last day of the calendar quarter in which a covered employee's employment with the Company was terminated. For each calendar quarter worked by a covered employee, the employee accrued a bonus of the number of shares of the Company's stock determined by dividing five percent of the employees' gross base salary for the quarter by the average closing price per share for the last ten trading days of the quarter. The cost associated with each quarterly-determined bonus was treated as a non-cash cost of production. For the years ended December 31, 1994 and 1993, approximately $11,000 and $61,000, respectively, was accrued under the plan. As a result of the sale of the Company's Alligator Ridge area assets in August 1993, all but three of the covered employees were terminated. The Company issued a total of 27,810 shares of its common stock to the terminated employees and 5,434 shares of its common stock to the three remaining employees as final payments due under the incentive stock bonus plan. The Company has an Exploration Discovery Bonus Plan under which bonuses are paid in cash or in shares of the Company's stock to certain employees for discoveries of ore deposits that the Company's Board of Directors determines can be operated at a profit. The bonus is based on the net present value of the deposit and is calculated using a sliding scale ranging from 2% for deposits with a net present value of up to $10 million, to 0.85% of the first $100 million of net present value plus 0.25% of that portion of the net present value of the deposit that exceeds $100 million. Under the terms of the plan, 70% of each discovery bonus is divided equally among the Company's explorationists and the remainder is to be shared among those individuals designated by the Company's President as playing an especially important role in the discovery. No bonuses were paid in 1995 or 1994 under the plan. The Company paid Exploration Discovery Bonuses totaling approximately $71,000 in 1993. Note 12. - Commitments and Contingencies Reclamation Surety Pursuant to the mining reclamation and bonding regulations of the State of Utah, Department of Natural Resources and the Bureau of Land Management, in 1993 the Company provided reclamation surety for the Goldstrike Mine in the amount of $2,251,000. In October 1995, the Company was advised that, as a result of the reclamation work accomplished by the Company at the Goldstrike Mine, the required surety had been reduced by approximately $400,000 to $1,851,000. The required surety is in the form of a certificate of deposit in the amount of $800,000 and letters of credit in the amount of $1,051,000. The certificate of deposit is reflected in Other assets in the accompanying Consolidated Statements of Financial Position. Operating Leases The Company leases office space and vehicles under operating leases which expire through 1998. Effective as of June 15, 1992, the Company entered into a new lease for its corporate offices in Lakewood, Colorado. The initial term of the lease expires September 30, 1998, with an option to renew for an additional five year period at the market rate in effect at the time of renewal. The lease provides for base rent of $7,690 per month with an annual $780 per month increase effective July 1 of each year beginning in 1997. In addition, the Company is obligated to reimburse the landlord for the Company's proportionate share of increases in real estate taxes and operating expenses. Note 12. - Commitments and Contingencies (Concluded) The following table sets forth the future minimum lease payment obligations as of December 31, 1995: Minimum Year Lease Payments ------------------------- 1996 $100,000 1997 $98,000 1998 $79,000 1999 $0 2000 $0 Rent expense was $113,000, $139,000 and $303,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Note 13. - Transactions With Affiliates As of December 31, 1995, Pegasus owned 4,826,000 shares (33.0%) of the Company's outstanding common stock. In January 1986, the Company entered into a revised agreement with Centennial Minerals Ltd., a subsidiary of Pegasus for the development of the Montana Tunnels property. Pursuant to the agreement, Pegasus developed the property, acquired a 100 percent working interest in the project, and commenced mine and mill operations in March 1987. The operations at Montana Tunnels achieved defined operating status on October 1, 1987. Under the agreement, the Company will receive the greater of a minimum advance royalty of $60,000 per month or a five percent net profits interest until Pegasus recovers payout of capital and other defined costs estimated by the Company, based on information provided by Pegasus, to approximate $26.5 million as of December 31, 1995. After certain construction, land acquisition, associated financing and other costs are recovered by Pegasus ('Payback'), the Company is entitled to fifty percent of the profits. Depending upon metal prices and production rates, the mine could achieve payback which would result in increased income to the Company at some future date. However, even if payback is not achieved, the Company seems reasonably assured of continued income of $720,000 per year during the life of the mine, now estimated by Pegasus to continue into the year 2000. For each of the years ended December 31, 1995, 1994 and 1993, the Company received $720,000 in royalty income from the Montana Tunnels property. In March 1995, the Company acquired all of the outstanding capital stock of Mega Minerals S.A., an Ecuadorian company. The Company assumed obligations of approximately $120,000, and agreed to pay the seller a 10% net proceeds royalty on any production from the concessions after recovery of all capital expenditures. A director and principal shareholder of the seller is also a director of the Company. The assets of Mega Minerals S.A. consist of eight exploration concessions and the rights to acquire four additional exploration concessions, all located in the Nambija-Zamora gold belt of southern Ecuador. Note 14. - Income Taxes Total income tax expense (benefit) for the years ended December 31, 1995, 1994 and 1993, was $(118,000), $(497,000), and $1,472,000 respectively. The entire income tax benefit of $118,000 for the year ended December 31, 1995, is the result of an adjustment to federal income taxes receivable related to 1993 net operating losses carried back to prior years. Income tax expense (benefit) consists of the following: Current Deferred Total ------------------------------------------ Federal tax provision $(118,000) $- $(118,000) State tax provision - - - ------------------------------------------ Year ended December 31, 1995 $(118,000) $- $(118,000) ========================================== Federal tax provision $(416,000) $- $(416,000) State tax provision (81,000) - (81,000) ------------------------------------------ Year ended December 31, 1994 $(497,000) $- $(497,000) ========================================== Federal tax provision $715,000 $640,000 $1,355,000 State tax provision 117,000 - 117,000 ------------------------------------------ Year ended December 31, 1993 $832,000 $640,000 $1,472,000 ========================================== For the year ended December 31, 1993, deferred income tax expense of $640,000 results from the utilization of net operating loss carryforwards previously recorded as a deferred tax asset. The Company's effective tax rate for the years ended December 31, 1995, 1994 and 1993, differs from the federal statutory tax rate for the following reasons:
1995 1994 1993 ------------------------------------ Federal statutory rate 34.0% 34.0% 34.0% Provision for Supreme Court reversal of the Hill Case - - 2.9% Revision of prior year's estimated tax 1.7% 211.9% 9.0% Cost of sales for tax purposes less than financial statements (9.0%) (184.5%) 22.8% Exploration and development deducted for tax purposes not for financial statements (40.4%) 77.4% (10.5%) Royalty payments deducted for tax purposes not for financial statements - 22.3% - Mineral property disposal, tax gain greater than financial statement gain 8.6% (44.4%) - Statutory depletion over cost basis - 16.2% (15.4%) Use of alternative minimum tax rate (.4%) 29.4% - State provision and other 7.2% 7.6% 1.2% ------------------------------------- 1.7% 169.9% 44.0% =====================================
Note 14. - Income Taxes (Concluded) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1995 and 1994 are presented below:
Deferred tax assets: 1995 1994 ---------------------------- Reclamation liabilities, accrued for financial reporting purposes $439,000 $316,000 Deferred mining and processing costs, due to additional costs deferred for tax purposes. 90,000 197,000 Alternative minimum tax credit carryforwards 157,000 157,000 Net operating loss carryforwards 3,343,000 1,417,000 Other 8,000 4,000 ---------------------------- Total gross deferred tax assets 4,037,000 2,091,000 Less valuation allowance (3,612,000) (365,000) ---------------------------- Total deferred tax assets 425,000 1,726,000 ---------------------------- Deferred tax liabilities: Mineral properties, principally due to the capitalization of exploration and development costs for financial reporting purposes. (296,000) (1,635,000) Plant and equipment, principally due to accelerated tax depreciation of certain assets. (129,000) (91,000) ---------------------------- Total gross deferred tax liabilities (425,000) (1,726,000) ---------------------------- Net deferred tax asset (liability) $ - $ - ============================
As of December 31, 1995, the Company has net operating loss carryforwards for federal income tax purposes of approximately $9,036,000 which are available to offset future federal taxable income, if any, through 2010. In addition, the Company has net operating loss carryforwards for alternative minimum tax purposes of approximately $5,081,000 which are available to offset future alternative minimum taxable income, if any, through 2010. Note 15. - Quarterly Data (Unaudited) Quarterly earnings data for the years ended December 31, 1995 and 1994, follow:
(Amounts in thousands, except per share data) - ------------------------------------------------------------------------------------ 1995 Quarters First Second Third Fourth - ------------------------------------------------------------------------------------ Sales $386 $392 $ - $1,900 Costs applicable to sales 453 460 128 2,242 - ------------------------------------------------------------------------------------ Gross (loss) (67) (68) (128) (342) Operating expenses 834(1) 2,363(1) 2,412(1)(2) 2,054(1) - ------------------------------------------------------------------------------------ Loss from operations (901) (2,431) (2,540) (2,396) - ------------------------------------------------------------------------------------ Loss before income taxes (534) (2,109) (2,240) (2,141) - ------------------------------------------------------------------------------------ Net Loss (473) (1,951) (2,195) (2,287) ==================================================================================== Loss per common share: $(0.03) $(0.13) $(0.15) $(0.16) ==================================================================================== (1) Operating expenses include the cost of mineral property abandonments and write downs of $28,000, $1,443,000, $21,000 and $1,319,000, for the first through fourth quarters respectively. (2) As discussed in Note 3. to the financial statements, operating expenses for the third quarter include an impairment loss of $1,620,000 related to the Goldstrike Mine.
Note 15. - Quarterly Data (Unaudited) (Concluded)
(Amounts in thousands, except per share data) - ----------------------------------------------------------------------------- 1994 Quarters First Second Third Fourth - ----------------------------------------------------------------------------- Sales $1,872 4,627 $3,697 $3,419 Costs applicable to sales 1,749 3,920 3,164 3,141 - ----------------------------------------------------------------------------- Gross profit 123 707 533 278 Operating expenses 675 797 790(1) 923(1) - ----------------------------------------------------------------------------- Loss from operations (552) (90) (257) (645) - ----------------------------------------------------------------------------- Income (loss) before income taxes (269) 206 68 (298) - ----------------------------------------------------------------------------- Net income (loss) (279) 216 389(2) (122)(2) ============================================================================= Income (loss) per common share: $(0.02) $0.02 $0.02 $(0.01) ============================================================================= (1) Operating expenses for the second and third quarters include the cost of property abandonments of $40,000 and $221,000, respectively. (2) As discussed in Note 10. to the financial statements, the income tax provision for the third and fourth quarters include a benefit of $321,000 and $176,000, respectively. The benefit arises from the difference between the tax calculated on the 1993 tax return and the estimated tax liability recorded in the financial statements in 1993. There were certain elections and estimates used to prepare the tax return that were not anticipated when the 1993 tax provision was originally prepared.
Note 16. - New Accounting Standards Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets to be Disposed of" (SFAS 121) was issued in March, 1995, by the Financial Accounting Standards Board. It requires that long- lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. SFAS 121 is required to be adopted for fiscal years beginning after December 15, 1995. Adopting this statement by the Company is not expected to have a significant effect on the financial statements. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), was issued by the Financial Accounting Standards Board in October 1995. SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans as well as transactions in which an entity issues its equity instruments to acquire goods or services from non- employees. This statement defines a fair value based method of accounting for employee stock options or similar equity instruments, and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25). Entities electing to continue to follow APB 25 must make pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting defined by SFAS 123 had been applied. SFAS 123 is applicable to fiscal years beginning after December 15, 1995. The Company currently accounts for its equity instruments using the accounting prescribed by APB 25. The Company does not currently expect to adopt the accounting prescribed by SFAS 123; however, the Company will include the disclosures required by SFAS 123 in future financial statements. Note 17. - Subsequent Event In February 1996, the Company received a commitment from N. M. Rothschild & Sons Limited, London ("Rothschild"), to underwrite a $22 million facility to finance development and construction costs of the Company's Illinois Creek Project (the "Project", See Note 6.) and to provide the related initial working capital requirements. The commitment is subject to several conditions, including a satisfactory due diligence report from an independent engineering firm, receipt of necessary permit approvals and completion of documentation. The facility includes a $19.5 million project loan facility, a $2.5 million convertible debenture and a 100,000 ounce margined gold hedging facility to provide for project hedging requirements. The Company currently estimates initial total capital costs of the Project to be approximately $26.6 million, including costs of property acquisition, construction, initial working capital, financing and initial reclamation bonding, but excluding costs incurred through December 31, 1995, of approximately $4.0 million. The project loan facility will be an amortizing term loan facility available in gold ounces and/or US Dollars and is to be repaid in thirteen equal quarterly installments commencing June 30, 1997. The project loan may, at the Company's option, be converted from a gold loan to a dollar loan and vice versa, with the prior approval of Rothschild. The project loan facility bears interest at the base rate plus a margin. The base rate is LIBOR, in the case of drawings in US Dollars, and LIBOR less the London Gold Lending Rate, in the case of drawings in gold ounces. The margin is 2.25% per annum until the Project has reached Completion and 1.875% thereafter. Until the Project has achieved Completion through the passing of a Completion Test (and satisfaction of other conditions), the Company will unconditionally guarantee all obligations under the project loan. After Completion, the project facility will become non-recourse to the Company, except for ongoing environmental warranties. The convertible debenture bears interest at the rate of LIBOR plus 2% and, if not converted, matures June 30, 2000. The debenture is convertible at the discretion of Rothschild any time prior to the maturity date into shares of the Company's common stock at the rate of $3.40 per share. The Company will have the right to require conversion of the debenture if the share price of the Company's common stock trades above $4.75 for more than 30 consecutive days. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There were no disagreements with the Company's principal independent accountants on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedure. PART III Items 10, 11, 12 and 13 constituting Part III of this Form 10-K have been omitted from this Annual Report pursuant to the provisions of Instruction G(3) to Form 10-K, as the Company intends to file a definitive proxy statement pursuant to Regulation 14A under the Securities Exchange Act of 1934 within 120 days after the close of its last fiscal year. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a)(1) Consolidated Financial Statements. See Item 8. (2) Consolidated Financial Statement Schedules. See Item 8. (3) Exhibits. The exhibits listed on the accompanying Index to Exhibits are filed as part of this Annual Report. (b) Reports on Form 8-K. The Company filed no report on Form 8-K during the fourth quarter of the fiscal year covered by this Report INDEX TO EXHIBITS NUMBER DESCRIPTION Exhibit 3.1 Certificate of Incorporation of the Company, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1987, is incorporated herein by this reference. Exhibit 3.2 Bylaws of the Company, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1987, is incorporated herein by this reference. Exhibit 4 Specimen Certificate of the $.001 par value common stock, previously filed as an Exhibit to the Company's registration statement on Form S- 3 (No. 33-19699), is incorporated herein by this reference. Exhibit 10.2 The Company's 1987 Stock Option Plan, as amended, previously filed as an Exhibit to the Company's registration statement on Form S-8 (No. 33-49392), is incorporated herein by this reference. Exhibit 10.3 The Company's Savings and Investment Plan, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1987, is incorporated herein by this reference. Exhibit 10.7 Agreement, dated January 1, 1986, between the Company and Centennial Minerals Ltd., previously filed as Exhibit 10.17 to the Company's Report on Form 10-K for the year ended May 31, 1986, is incorporated herein by this reference. Exhibit 10.7A Amendment of Agreement and Deed dated July 15, 1991, by and between Montana Tunnels Mining, Inc., USMX, INC. and USMX of Montana, Inc., previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by this reference. Exhibit 10.33 Non-Discretionary Stock Option Plan, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1991, is incorporated herein by this reference. Exhibit 10.40 Asset Purchase Agreement, dated June 11, 1993, between the Company and Placer Dome U.S. Inc., as amended, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by this reference. Exhibit 10.42 Employment Agreement, dated July 16, 1993, between the Company and James A. Knox, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1993, is incorporated herein by this reference. Exhibit 10.44 Exploration and Option to Purchase Agreement, dated effective July 9, 1993, between the Company and Dewey Mining Company and Thunder Mountain Gold, Inc., Ronald C. Yanke and Donald J. Nelson, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by this reference. Exhibit 10.45 Purchase and Sale Agreement, dated April 14, 1994, among the Company, Cominco American Resources Incorporated and Alta Gold Co., previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by this reference. Exhibit 10.46 Agreement, dated effective December 16, 1994, between the Company and North Pacific Mining Corporation, previously filed as an Exhibit to the Company's Report on Form 10-K for the year ended December 31, 1994, is incorporated herein by this reference. Exhibit 10.47 Post-Termination Agreement, dated February 16, 1996, between the Company and Bull Valley L.L.C. Exhibit 10.48 Exploration Discovery Bonus Plan, dated effective September 1, 1989. Exhibit 10.49 Mine Services and Earthworks Contract, dated January 19, 1996, between the Company and D.H. Blattner & Sons, Inc. Exhibit 10.50 Purchase and Sale Agreement, dated March 20, 1995, among the Company, Mega Metals, Inc.; Mega Minerals S.A.; Greg Pusey; John Dreier and Gary McAdam. Exhibit 22 Subsidiaries of the Company Exhibit 24.1 Consent of KPMG Peat Marwick LLP SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. USMX, INC. (Registrant) Date: March 22,1996 By: /s/ James A. Knox James A. Knox, President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: March 22, 1996 /s/ James A. Knox James A. Knox, President, Chief Executive Officer, and Chairman of the Board of Directors Date: March 22, 1996 /s/ Paul L. Blair Paul L. Blair, Vice President - Operations for Latin America Date: March 22, 1996 /s/ Dennis L. Lance Dennis L. Lance, Vice President - Exploration Date: March 22, 1996 /s/ Donald E. Nilson Donald E. Nilson, Vice President - Finance, Secretary, Chief Financial Officer Date: March 22, 1996 /s/ Paul B. Valenti Paul B. Valenti, Vice President - Operations Date: March 22, 1996 /s/ Daniel J. Stewart Daniel J. Stewart, Controller Date: March 25, 1996 /s/ George J. Allen George J. Allen, Director Date: March 30, 1996 /s/ Phillips S. Baker Phillips S. Baker, Director Date: March 25, 1996 /s/James P. Geyer James P. Geyer, Director Date: Donald P. Bellum, Director Date: March 25, 1996 /s/ Terry P. McNulty Terry P. McNulty, Director Date: March 25, 1996 /s/ Werner G. Nennecker Werner G. Nennecker, Director Date: March 28, 1996 /s/ Gregory Pusey Gregory Pusey, Director Date: March 26, 1996 /s/ Robert Scullion Robert Scullion, Director UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year December 31, 1995 or __ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from ________ to __________ Commission File Number 0-9370 ___________________ USMX, INC. (Exact name of registrant as specified in its charter) ___________________ Delaware 84-1076625 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 141 Union Boulevard, Suite 100 Lakewood, Colorado 80228 (Address of principal executive offices) (Zip Code) (303) 985-4665 Registrant's telephone number, including area code EXHIBITS EXHIBIT INDEX Exhibit 10.47 Post-Termination Agreement, dated February 16, 1996, between the Company and Bull Valley L.L.C. Exhibit 10.48 Exploration discovery Bonus Plan,dated effective September 1, 1989. Exhibit 10.49 Mine Services and Earthworks contract, dated January 19, 1996, between the Company and D.H. Blattner & Sons, Inc. Exhibit 10.50 Purchase and Sale Agreement, dated March 20, 1995, among the Company, Mega Metals, Inc.; Mega Minerals S.A.; Greg Pusey; John Dreier and Gary McAdam. Exhibit 22 Subsidiaries of the Company Exhibit 24.1 Consent of KPMG Peat Marwick LLP EX-10.47 2 POST- TERMINATION AGREEMENT WITH BULL VALLEY USMX OF UTAH INC 141 Union Blvd. Suite 100 Lakewood, CO. 80228 Bull Valley L.L.C. c/o John Lee Carroll 515 Madison Avenue 32nd Floor New York, NY 10022 Re: Post-Termination Agreement Gentlemen: The purpose of this letter is to set forth our agreement with respect to the respective rights and obligations of Bull Valley L.L.C. ("BVLLC") and USMX of Utah Inc. ("USMX/Utah") subsequent to the January 31, 1996 termination of the Mineral Lease, Sublease and Option to :Purchase, dated August 1, 1985 ("Agreement"), pursuant to which a Quitclaim Deed and Assignment of Agreements previously has been delivered by USMX/Utah to Permian Exploration Account ("PEA"). Our understanding is that BVLLC has succeeded to all right, title and interest of PEA in the Agreement, and BVLLC hereby confirms, represents and warrants that such is the case. USMX/Utah and BVLLC hereby agree as follows: 1. USMX/Utah agrees to reimburse BVLLC for one-half of the monthly rental payments (i.e., one-half of $2,000.00 per month) paid by BVLLC pursuant to the Mining Lease with Option to Purchase, between Paul Lamoreaux and Padre Mining Company, Inc., as "Lessor", and John Lee Carroll, as "Lessee", dated February 10, 1982 ("Lease"), which is attached as Exhibit A to the Agreement. USMX/Utah shall make such reimbursement payments to BVLLC upon receipt from BVLLC of satisfactory documentation that such rental payment has been made under the Lease. 2. USMX/Utah shall perform reclamation of the properties subject to the Agreement ("Properties") as was required by the Agreement immediately prior to its termination. 3. BVLLC shall provide and allow access to USMX/Utah to the Properties for the purpose of performing the reclamation described in paragraph 2 above and for purposes of ;processing and removing gold as described in paragraph 4 below. 4. USMX/Utah shall have the right, but not the obligation to remove any gold remaining in the heaps situated on the Properties, as may be recovered as a result of USMX/Utah's reclamation activities, provided and on the condition that it pays BVLLC 50% of the proceeds received from the sale of any such gold removed from the Properties after January 31, 1996, after deducting from such proceeds the following costs: rentals and royalties that may be payable (directly by USMX/Utah or indirectly by USMX/Utah pursuant to paragraph 1 above) to underlying landowners by USMX/Utah, regardless of whether paid directly by USMX/Utah or through PEA; transportation costs from the Properties to the place or places of refining and sale processing and transportation costs incurred as a result of shipping loaded carbon after recovery of the gold and carbon on the Properties; and other costs related to the transportation, disposition or sale of that gold, including but not limited to umpiring fees, taxes (other than income taxes) and sales commissions. 5. USMX/Utah and BVLLC acknowledge that USMX/Utah has no rights or obligations of any nature whatsoever with respect to the Properties other than as described in paragraphs 1, 2, 3 and 4 above, and that BVLLC has full freedom and discretion to negotiate with third parties with respect to the Properties in any manner it deems appropriate. If the above correctly represents your understanding of our agreement, please so indicate by signing on the space provided below. USMX OF UTAH INC. By: James A. Knox, President ACCEPTED AND AGREED this day of February, 1996. BULL VALLEY L.L.C. By: John Lee Carroll, President EX-10.48 3 EXPLORATION DISCOVERY BONUS PLAN EXPLORATION DISCOVERY BONUS PLAN OF USMX, INC. Article 1: Purpose. This Exploration Discovery Bonus Plan ("Plan") of USMX, Inc. ("USMX") is adopted by the Board of Directors ("Board") of USMX. The purpose of this Plan is to provide a financial incentive for Explorationists to discover commercially exploitable mineral deposits by rewarding those Explorationists who contributed to the discovery of an Economic Mineral Deposit by paying them a discovery bonus ("Bonus") as hereinafter provided. Article 2: Definitions. 2.1 "Common Stock" shall mean common stock in USMX. 2.2 "Continuous Commercial Production" shall mean the systematic and uninterrupted process of mining, processing, milling and marketing mineral products from an Economic Mineral Deposit. Continuous Commercial Production shall not include mine and mill construction, pilot plant testing, bulk sampling or similar activities, but shall include operation of a seasonal heap leach mine. 2.3 "Date of Commencement of Continuous Commercial Production" shall mean the date when mineral treatment facilities have operated for ninety (90) consecutive days at a rate of at least eighty-five percent (85%) of the daily rate projected in the feasibility study which was used to design the mine. 2.4 "Date of Initiation of Formal Feasibility Studies" shall mean the date of a written memorandum from USMX's Vice President of Exploration to its Vice President of Operations which transfers a property possibly containing an Economic Mineral Deposit from the corporation's Exploration Division to its Mining Division. 2.5 "Discretionary Recipient" shall mean any individual(s) designated by the President of USMX as a person who played an especially important role in the discovery of an Economic Mineral Deposit. In his sole discretion, the President may designate any person whomsoever to receive a Bonus as a Discretionary Recipient, regardless of whether or not the same individual is an Eligible Participant and will also receive a Bonus as an Eligible Participant. 2.6 "Economic Mineral Deposit" shall mean an ore deposit which formal feasibility studies prepared or commissioned by USMX determine can be placed into Continuous Commercial Production and that Continuous Commercial Production will result in a profit acceptable to USMX. 2.7 "Eligible Participant" shall mean an Explorationist who is an Eligible Participant within the meaning of Section 4.2 of this Plan. 2.8 "Explorationist" shall mean a person with exploration expertise who is employed by USMX for the purpose of using such expertise in the search for and development of Economic Mineral Deposits and who is identified as an Explorationist as required by Section 4.1 hereof. 2.9 "Net Present Value" (NPV) shall mean the net present value to USMX of an Economic Mineral Deposit on the date when NPV is calculated or recalculated by the Board (adjusted to reflect economic ore reserves existing at the Date of Commencement of Continuous Commercial Production as may be modified by subsequent events, and utilizing economic factors current at the time of such NPV calculation) using, in the Board's sole discretion, any method which is generally accepted in the mining industry. Revenues shall be based on spot or estimated spot metal prices. The calculation or recalculation shall allow for the recapture of all exploration and other costs, such as feasibility study, pilot -2- plant work, etc. expended by USMX on or in connection with the Economic Mineral Deposit prior to the Date of Commencement of Continuous Commercial Production (and, for purposes of the calculation or recalculation, shall be deemed to have been spent on the Date of Commencement of Continuous Commercial Production) and the application of a provision for income taxes and financing costs, and the Board shall have complete discretion in selecting a reasonable discount factor to be used in connection with its calculation or recalculation of Net Present Value. Any Eligible Participant or Discretionary Recipient shall be entitled to review relevant documents concerning the Board's calculations or recalculation of NPV. Any Net Present Value calculated or recalculated by the Board pursuant to this Plan shall be for the sole purpose of establishing a Total Bonus Amount as provided in Article 5 of this Plan. 2.10 "Period of Discovery" with respect to an Economic Mineral Deposit included within a particular property shall mean the period of time commencing with the date of acquisition by USMX of the legal right to explore and develop the property and ending with the Date of Initiation of Formal Feasibility Studies. 2.11 "Total Bonus Amount" with respect to a particular Economic Mineral Deposit shall mean an amount established as specified in Section 5.3 hereof. Article 3: Administration. 3.1 General: The Plan shall be administered by the Board, or a committee designated by the Board, which shall be empowered to establish rules and regulations consistent herewith and to make such other determinations as are necessary or advisable for its administration. Acts of a majority of the Board (or a committee designated by the Board) at a meeting, or acts approved in writing by a majority of the Board (or a committee designated by the Board), shall be valid acts of the Board. -3- 3.2 Arbitration: Any controversy or claim arising out of or relating to this Plan shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator(s) may be entered in any court having jurisdiction thereof. With regard to each arbitrated claim or dispute, each party shall be responsible for his, her or its own costs and expenses paid or incurred for or in connection therewith, including expert witness fees and travel and lodging expenses to, from and at the place of the arbitration hearing, and attorneys' fees. Any hearing shall be held in a location designated by the Board. 3.3 Indemnification: In addition to such other rights of indemnification as they may have as directors of USMX, the members of the Board shall be indemnified by USMX against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit, or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with this Plan or any payment hereunder, and against all amounts paid in settlement thereof (provided such settlement is approved by legal counsel selected by USMX), or paid in satisfaction of a judgment in any such action, suit, or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit, or proceeding that such member of the Board is liable for gross negligence or misconduct in the performance of his duties; provided that within ten (10) days after institution of any such action, suit, or proceeding, a member of the Board shall offer USMX in writing the opportunity, at its own expense, to handle and defend the same. Article 4: Eligible Participants/Subject Deposits. -4- 4.1 Explorationists: Each and every individual employed by USMX as its Vice President for Exploration shall constitute an Explorationist for purposes of this Plan. USMX shall maintain a roster containing the names of other employees that USMX identifies, in its sole discretion, as Explorationists. Such roster shall be maintained and periodically revised by the Vice President - Exploration of USMX, subject to review by the Board. 4.2 Eligible Participants: To qualify as an Eligible Participant with respect to an Economic Mineral Deposit included within a particular property, an Explorationist must be employed by USMX on a full-time basis for a minimum period of six (6) consecutive months prior to the Date of Initiation of Formal Feasibility Studies. In the event that the Period of Discovery is less than six months, the Explorationist must be employed by USMX on a full-time basis at the time when USMX acquires the legal right to explore and develop the property and must remain so employed for the entire Period of Discovery. Termination of an Explorationist's employment for any reason other than cause shall not preclude him or her from receiving a Bonus if he or she is otherwise an Eligible Participant within the meaning of this Section 4.2. 4.3 Application to Deposit: Unless otherwise determined by the Board as specified in this Section 4.3, this Plan shall apply only to the discovery by Explorationists of an Economic Mineral Deposit included within a property which, at the time of acquisi- tion by USMX of the legal right to explore and develop, did not contain known economic mineralization as determined by USMX. In the event that a particular property contained known economic mineralization at the time of such acquisition as determined by USMX, the Board shall have complete discretion to designate all or any part of an Economic Mineral Deposit thereon or thereunder as an Economic Mineral Deposit which is subject to this Plan. Anything to the contrary herein notwithstanding, the operation or -5- disposition by USMX of any property or of any interest therein shall be entirely at the discretion of USMX. Article 5: Payment of Bonus. 5.1 General: Subject to the provisions of Section 6.4 hereof, at the sole discretion of the Board, a Bonus may be paid in cash or in Common Stock or in any combination thereof. Except as otherwise provided in Sections 5.4 or 5.5 below, payment of a Bonus shall be made in installments as provided in Section 5.2 hereof. In connection with payment of all or any part of a Bonus, USMX shall withhold amounts equal to the withholding tax which an Eligible Participant is obligated to pay to state and federal governments. 5.2 Installment Payments: Except as otherwise provided in Sections 5.4 or 5.5 below, a Bonus shall be paid in three (3) installments and the amount of each installment shall be estab- lished on an anniversary of the Date of Commencement of Continuous Commercial Production as hereinafter provided. Eligible Participants shall collectively receive seventy percent (70%) of the Total Bonus Amount for a particular anniversary of the Date of Commencement of Continuous Commercial Production, and the remaining thirty percent (30%) shall be received by the Discretionary Recipients. Each installment payment required by this Section 5.2 shall be made by USNX within thirty (30) days after the amount thereof is established. In the event that interruption occurs with respect to Continuous Commercial Production, the anniversary dates shall be delayed for an equivalent period of time. 5.2.1 First Bonus Installment: On the first anniversary of the Date of Commencement of Continuous Commercial Production, the Board shall calculate the NPV of an Economic Mineral Deposit, and the Total Bonus Amount for the first anniversary shall then be established by the table contained in -6- Section 5.3 hereof. As his or her first installment of Bonus, each of the Eligible participants shall receive twenty-five percent (25%) of the value obtained by dividing seventy percent (70%) of the Total Bonus Amount for the first anniversary by the total number of Eligible Participants. As his or her first installment of Bonus, each Discretionary Recipient shall receive twenty-five percent (25%) of the value obtained by dividing thirty percent (30%) of the Total Bonus Amount for the first anniversary by the total number of Discretionary Recipients. 5.2.2 Second Bonus Installment: On the second anniversary of the Date of Commencement of Continuous Commercial Production, the Board shall recalculate the NPV of the Economic Mineral Deposit and the Total Bonus Amount for the second anniversary shall then be established by the table contained in Section 5.3 hereof. As his or her second installment of Bonus, each of the Eligible Participants shall receive thirty-five percent (35%) of the value obtained by dividing seventy percent (70%) of the Total Bonus Amount for the second anniversary by the total number of Eligible Participants. As his or her second installment of Bonus, each Discretionary Recipient shall receive thirty five percent (35%) of the value obtained by dividing thirty percent (30%) of the Total Bonus Amount for the second anniversary by the total number of Discretionary Recipients. 5.2.3 Third and Final Bonus Installment: On the third anniversary of the Date of Commencement of Continuous Commercial Production, the Board shall again recalculate the NPV of the Economic Mineral Deposit and the Total Bonus Amount for the third anniversary shall then be established by the table contained in Section 5.3 hereof. As his or her third and final installment of Bonus, each of the Eligible Participants shall receive an amount calculated by first dividing seventy percent (70%) of the Total Bonus Amount for the third anniversary by the total number of Eligible Participants, and then subtracting from the result any and all payments previously made to such Eligible Participant -7- pursuant to Subsections 5.2.1 and 5.2.2 hereof. As his or her third and final installment of Bonus, each Discretionary Recipient shall receive an amount calculated by first dividing thirty percent (30%) of the Total Bonus Amount for the third anniversary by the total number of Discretionary Recipients, and then subtracting from the result any and all payments previously made to such Discretionary Recipient pursuant to Subsections 5.2.l and 5.2.2 hereof. 5.3 Total Bonus Amount: The Total Bonus Amount on any anniversary of the Date of Commencement of Continuous Commercial Production or on a date referred to in Section 5.4 or 5.5 hereof shall be established by the following table: NPV OF ECONOMIC MINERAL DEPOSIT TOTAL BONUS AMOUNT Up to $10million (mm) .02 (NPV) Greater than $10 mm -$50 mm $200,000 +.01 (NPV - $lOmm) Greater than $50 mm -$100 mm $600,000 +.005 (NPV - $50mm) Greater than $100 mm $850,000 +0.0025 (NPV - $100mm) 5.4 Payment Upon Sale or Exhaustion After Commencement of Continuous Commercial Production: After the Date Of Commencement of Continuous Commercial Production but before completion of any or all of the installments of Bonus provided for in Section 5.2 hereof, in the event that USMX sells all or any part of its ownership interest in a property which includes an Economic Mineral Deposit or in the event that an Economic Mineral Deposit is mined out, then the remaining Bonus payable to an Eligible Participant or a Discretionary Recipient shall be calculated pursuant to this Section 5.4. Upon sale of the interest in real property or upon depletion of the Economic Mineral Deposit, as -8- the case may be, the Board shall determine the NPV of the Economic Mineral Deposit (taking into consideration any interest retained and/or value received or to be received from such disposition) and the Total Bonus Amount shall then be established by the table contained in Section 5.3 hereof. As his or her final installment of Bonus, each Eligible Participant shall receive an amount calculated by first dividing seventy percent (70%) of such Total Bonus Amount by the total number of Eligible Participants, and then subtracting from the result any and all payments previously made to such Eligible Participant pursuant to Subsections 5.2.1 and 5.2.2 hereof. As his or her final install- ment of Bonus, each Discretionary Recipient shall receive an amount calculated by first dividing thirty percent (30%) of such Total Bonus Amount by the total number of Discretionary Recipients, and then subtracting from the result any and all payments previously made to such Discretionary Recipient pursuant to Subsections 5.2.1 and 5.2.2 hereof. All such final install- ments shall be paid within twelve (12) months after sale of the interest in real property by USMX or depletion of the Economic Ore Deposit as the case may be. 5.5 Payment Upon Sale Before Commencement of Continuous Commercial Production: In the event that USMX sells all or any part of its ownership in a property which includes an Economic Mineral Deposit that is subject to this Plan after the Period of Discovery but before the Date of Commencement of Continuous Commercial Production, the entire Bonus payable to an Eligible Participant or a Discretionary Recipient shall be calculated pursuant to this Section 5.5. Upon sale of the interest in real property, the Board shall determine the NPV of the Economic Mineral Deposit (taking into consideration any interest retained and/or value received or to be received from such disposition) and the Total Bonus Amount shall then be established by the table contained in Section 5.3 hereof. As his or her single payment of Bonus, each Eligible Participant shall receive the value obtained by dividing seventy percent (70%) of such Total Bonus Amount by -9- the total number of Eligible Participants. As his or her single payment of Bonus, each Discretionary Recipient shall receive the value obtained by dividing thirty percent (30%) of such Total Bonus Amount by the total number of Discretionary Recipients. The single payment of Bonus required by this Section 5.5 shall be made within 12 months after sale of the interest in real property by USMX. Article 6: Stock Payments 6.1 Stock Subject to Plan: No Common Stock shall be issued in payment of Bonuses pursuant to this Plan without approval of the Board. Any shares so paid shall be shares of authorized but unissued or reacquired Common Stock. 6.2 Price: The Board shall have the discretion to deter- mine the price at which the Common Stock issued to Eligible Participants under this Plan shall be valued, but in no event shall the price be greater than the market price of freely tradeable Common Stock on the date when the Common Stock is so issued. 6.3 Stock Held for Investment: If shares of Common Stock issued hereunder are not, at the time of such issuance, covered by an effective registration statement under the Securities Act of 1933, as amended, such shares shall be acquired by an individual for his or her own account for investment and with no view, at the time of such issuance, toward the distribution thereof, and each such individual shall at the time of issuance give a letter to such effect to USMX. In that event, each stock certificate representing such unregistered shares issued pursuant to this Plan shall have a legend imprinted thereon indicating any restrictions on the transfer of such stock, which legend shall be in such form as deemed desirable by counsel for USMX, and such individual shall also agree that he or she will make no sale or other disposition of such shares unless and until USMX shall have -10- received a satisfactory opinion of counsel that such sale or other disposition may be made under the applicable provisions of the Securities Act of 1933 and the applicable state securities laws. USMX shall use its best efforts to register Common Stock issued pursuant to this Plan within twelve (12) months after its issuance. 6.4 Stock Issued to Officers or Directors: USMX shall not issue Common Stock as payment of a Bonus to an individual if that person is an officer or director of USMX and such payment in Common Stock would subject him or her to liability under federal or state securities law. Article 7: Amendment; Termination The Board may review, amend or discontinue this Plan at any time, provided that such action shall not affect any Bonus previously earned or paid hereunder. Article 8: Governing Law This Plan shall be construed and shall take effect in accordance with the laws of the State of Colorado. IN WITNESS WHEREOF, USMX has adopted this Plan this day of August, 1990, effective as of September 1, 1989. USMX, INC. By: Keith R. Hulley, President ATTEST: Dennis R. Lance, Secretary -11- EX-10.49 4 MINE SERVICES AND EARTHWORKS CONTRACT ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION I INSTRUCTION AND INFORMATION FOR BIDDERS ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION I INSTRUCTION AND INFORMATION FOR BIDDERS Table of Contents SECTION TITLE PAGE NO. 1.0 BIDDERS RESPONSIBILITY ON RECEIPT OF DOCUMENTS 3 2.0 ADDENDA 3 3.0 BIDS 3 4.0 SITE INSPECTION 3 5.0 PLANT SITE DATA 4 6.0 BIDDERS QUALIFICATION 4 7.0 SELECTION OF THE CONTRACTOR 5 8.0 PERFORMANCE GUARANTEE 5 9.0 ATTACHMENTS 5 1.0 BIDDER'S RESPONSIBILITY ON RECEIPT OF DOCUMENTS 1.1 The letter of Invitation to Bid will list the Contract documents enclosed therewith. It is the responsibility of the Bidder to verify immediately upon receipt of the Invitation to Bid that the documents listed therein are in fact furnished as represented and carry the revision number or letter shown in the referring document. 1.2 If it is discovered by the Bidder that a document or an attachment thereto is not enclosed or is not furnished in the same revision form as represented by the Invitation to Bid or the referring contract document, Bidder shall immediately notify USMX, Inc. ("Owner") in writing. 1.3 Promptly upon determination of receipt of all enclosures, Bidder shall acknowledge receipt of all bid documents. 2.0 ADDENDA Owner may amend the documents issued with the Invitation to Bid at any time prior to the closing time set therein for receipt of bids. Such revisions, if any, will be made by an addendum issued in identical form to each Bidder. 3.0 BIDS 3.1 Bids must be submitted in accordance with the Form of Proposal furnished with this Invitation. Bids shall bear the official company name and business address to be used in execution of the Contract Agreement and shall be signed by a person duly authorized to bind the corporation, partnership or other entity as named therein under "Company Legal Status". The original and all copies of the Bid must be identically signed. 3.2 Owner reserves the right to reject any or all Bids, including, but without limitation, those which are incomplete, obscure, irregular, have errors or omissions, or, for technical or commercial reasons are considered nonresponsive to the intent of the Contract Documents. 3.3 Bids shall be submitted in the number of copies requested in the Invitation to Bid and be addressed as directed therein. Bids received will be privately opened. Bids received after the date specified in the Invitation to Bid may be returned to the Bidder unopened. 4.0 SITE INSPECTION 4.1 Each Bidder may and is encouraged to visit the jobsite and fully inform itself of all existing and potential conditions which may affect the costs of mobilization of manpower, materials and supplies, and of performance of the Work. 4.2 The site inspection should be preceded and/or by a complete review of the General Terms and Conditions and other contract documentation with particular attention to shipping, storage, safety regulations, insurance requirements and scheduled performance of the Work. 4.3 Arrangements for site visits must be made through the Owner. 5.0 PLANT SITE DATA The plant site data for this project are summarized below: Site Location: The Illinois Creek project is located in the western interior of Alaska at a latitude of 64 degrees03 north and longitude 157.50 west. The project lies 57 miles southwest of Galena and 320 miles to the west and northwest of Fairbanks and Anchorage, respectively. The work will be limited to those areas contained within the preliminary millsite boundary as shown on Figure 1 which is titled Millsite Permit Boundary , Revision B , dated November 21, 1995. Item From To Elevation: 200 FT(msl) <1000 FT (msl) Temperature -Average Summer 31 1 F 54 9 F -Average Winter 4.7 F 18 9 F -Report Extremes -75 F 92 F Annual Precipitation 25 IN AVG 30 IN MAX Annual Snow Pack 24 IN AVG 69 IN MAX Annual Evaporation 20 IN AVG N/A For more information please see the following documents: USMX, INC., 1994 Year End Report, Illinois Creek Project, Alaska . It is dated, December 15, 1994. Section 2.0 SRK, Inc., Illinois Creek Draft Heap Leach Design Report . It is dated November 1995. Section 3.0. 6.0 BIDDERS QUALIFICATION 6.1 Owner reserves the right to request from Bidder at any time prior to award of the Contract, any information considered necessary to further ensure that the Bidder is adequately prepared and able to fulfill the Contract. Such information may include past performance records, lists of available key personnel, inventory of construction equipment, descriptions of completed contracts, contracts to be performed simultaneously with the contract, financial statements or any other data pertinent to the selection and approval of a contractor to perform the Work. 6.2 The successful Bidder must, prior to award of the Contract, be duly qualified as required by government authorities to do business in the State of locality of the Project. 7.0 SELECTION OF THE CONTRACTOR 7.1 As soon as possible after the closing date set to receive bids, Owner will select a contractor on the basis of price, organization, availability of construction equipment, financial resources, qualifications, construction capabilities, completion dependability, experience, and such other factors as the Owner in its judgment considers are to the best interest of the Project. 7.2 Commercial terms will always be a major consideration in the evaluation of bids received. However, the lowest bid price will not necessarily be the deciding factor in selection of a contractor to perform the Work. 8.0 PERFORMANCE GUARANTEE Owner may at any time prior to award of the Contract request a performance and material payment bond, in which case award of the Contract will be contingent upon the Bidder's ability to obtain same. Cost of bond, if required, will be borne by the Owner as an added contract expense. 9.0 ATTACHMENTS The following documents contained in the Illinois Creek General Attachments are made part of this Section of the Contract namely, Section I - Instruction and Information for Bidders: 9.1 USMX, INC., 1994 Year End Report, Illinois Creek Project, Alaska . It is dated December 15, 1994. 9.2 SRK, Inc., Illinois Creek Heap Leach Design Report . It is dated November 1995. 9.3 USMX, INC., Figure 1, Revision B titled, Millsite Permit Boundary , November 21, 1995. ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION II GENERAL TERMS AND CONDITIONS ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION II GENERAL TERMS AND CONDITIONS Table of Contents SECTION TITLE PAGE NO. 1.0 DEFINITIONS 3 2.0 CONTRACT DOCUMENTS 5 3.0 CONTRACT TYPES 6 4.0 CONTRACTUAL RELATIONSHIP 6 5.0 DESIGNATION OF REPRESENTATIVES 6 6.0 OWNER'S RESPONSIBILITY 6 7.0 NONWAIVER OF DEFAULTS 7 8.0 NOTICE TO PROCEED 7 9.0 CONTRACTOR'S RESPONSIBILITY 7 10.0 INSPECTION, FITTING, CHANGES BY CONTRACTOR 8 11.0 SITE AND WORKING CONDITIONS 8 12.0 COMPLIANCE WITH LAW, PERMITS AND REGULATIONS 8 13.0 INSPECTION AND REJECTION OF MATERIALS AND WORKMANSHIP 9 14.0 CLAIMS, ASSIGNMENTS, GARNISHMENT AND ATTACHMENTS 9 15.0 SUBCONTRACTS 10 16.0 DRAWINGS PREPARED BY THE OWNER 10 17.0 CHANGED AND EXTRA WORK 11 18.0 CONTRACT TIME AND COMPLETION OF THE WORK 11 19.0 CORRECTION OF DEFECTIVE WORK 12 20.0 DELAYS 12 21.0 FORCE MAJEURE 13 22.0 SUSPENSION OR TERMINATION OF CONVENIENCE 13 23.0 TERMINATION FOR CAUSE 14 24.0 PATENTS AND SIMILAR RIGHTS 15 25.0 WARRANTY 16 26.0 CONTRACT PAYMENTS 16 27.0 WORK AUTHORIZATION 17 28.0 CONTRACT AMENDMENTS 17 29.0 BACKCHARGES BY OWNER 18 30.0 FINAL ACCEPTANCE OF THE WORK 19 31.0 RELEASE AND WAIVER OF CLAIMS 19 32.0 COST-REIMBURSABLE WORK-ACCOUNTING AND AUDITING 19 33.0 LOSS OR DAMAGE BY ACTIONS OF OTHERS 20 34.0 DISPUTES 20 35.0 NONDISCRIMINATION IN EMPLOYMENT 21 36.0 SECURITY, IDENTIFICATION AND SECRECY 22 37.0 HYGIENE, FIRST AID AND SAFETY 23 38.0 TOXIC AND HAZARDOUS MATERIAL CONTROL ACT 24 39.0 TAXES 25 40.0 TITLE, ADVANCE PAYMENTS 25 41.0 OWNER'S REMEDIES FOR DEFAULT OR DEFECTIVE WORK 25 42.0 INSURANCE 26 43.0 INDEMNIFICATION 28 44.0 GOVERNING LAW 28 45.0 GENERAL 29 46.0 ATTACHMENTS 29 1.0 DEFINITIONS 1.1 Wherever these words occur in the contract documents, they shall have the following meaning: a. "Owner" USMX, INC. b. "Engineer" USMX, INC. c. "Project" The Illinois Creek project consists of an open pit gold/silver mine, valley fill heap leach facilities and related infrastructure. It is located in the western interior of Alaska at latitude 64.03= north and longitude 157.50= west about 57 miles southwest of Galena, Alaska. The Project is described more or less in the report by USMX, INC., A1994 Year End Report, Illinois Creek, Alaska@, December 15, 1994. d. "Site" The lands provided by Owner under, in or through which the Work is to be executed or carried out. e. "Work" The Work specified in the Contract Agreement and referred to in the Contract Documents all inclusively as the "Work". f. "Bidder" The party (or parties) submitting a Proposal for executing the Work. g. "Proposal" or ("Bid") The written offer setting forth the price(s) to perform the Work submitted by Bidder to Owner. h. "Contract" The agreement entered into between Owner and Contractor including all of the documents listed under Section 2.0 hereof, and others, if any, listed in the Contract Agreement or in a subsequent Contract Amendment signed by Owner and Contractor. i. "Contract Agreement" The principal document of the Contract, signed by Owner and Contractor, that specifies the scope of the Work, schedule for the Work and the total Contract Price. j. "Contractor" The party (or parties) with whom Owner has executed a Contract Agreement for the Work. k. "Subcontractor" The party which with the prior written approval of the Owner has executed a subcontract with Contractor for any part of the Work. l. "Contract Price" The total amount ("estimated" or "fixed lump sum") stipulated in the Contract Agreement subject to such additions or deductions as may be made under the terms and conditions of the Contract. m. "Contract Unit Price(s)" The fixed unit price(s) or rate(s) established by the Proposal which, initially, is applied to estimated measurements of volume, time or other units of performance to establish an estimated total Contract Price, and ultimately, to actual measurements to establish a final total Contract Price. n. "Contract Amendment" The document signed by Contractor and Owner to amend the original Contract to provide for changed or extra work and, accordingly, increase or decrease the Contract Price. o. "Specifications" and "Drawings" Those specifications or drawings of a technical and/or a contractual nature referred to in the Contract. p. "Mechanical Acceptance" Any operable unit of equipment or separable portion of the Work will be considered to have attained mechanical acceptance when it has been declared by Owner to be mechanically operative to the extent that all deficiencies which can be determined prior to the introduction of raw materials have been corrected by the Contractor. q. "Final Acceptance" Written final acceptance of the Work will be issued by the Owner following final inspection, mechanical acceptance and 100% completion of the Work. r. "Contract Documents" The documents identified in Section 2.1 of the General Terms and Conditions. s. "Notice to Proceed" The written notice of Owner to Contractor to commence the Work. 2.0 CONTRACT DOCUMENTS 2.1 The Contract Documents which comprise the entire agreement between Owner and Contractor concerning the Work consist of the following: 2.1.1 Invitation to Bid more fully described in Section 46; 2.1.2 Section I - Instructions and Information for Bidders included with Invitation to Bid; 2.1.3 Section II - General Terms and Conditions,Rev. 2/29/96; 2.1.4 Section III - Contract Specification, Rev.2/29/96; 2.1.5 Section IV - Form of Proposal included with Invitation to Bid; 2.1.6 Section V - Contract Agreement, Rev. 2/29/96; 2.1.7 Contractor's Proposal dated December 27, 1995, as modified by Attachments described in Section 46; 2.1.8 Contract Amendments (as required), 2.1.9 Drawings, specifications and other documents referred to as "Attachments" in any of the above, provided that in the event of any conflict among the Attachments (the "Attachments), the Attachment bearing the latest date shall prevail; and 2.1.10 Notice of Award dated January 19, 1996. 2.2 The Contract Documents are intended to describe all obligations of Contractor and Owner, and the responsibilities and authority of the Owner, and are intended to be correlative and complementary. Any work required by one document and not mentioned in another shall be executed as though required by all documents. Should there be any conflict among any of the above documents and the Contract Agreement, the Sections I through V of the Contract Agreement will prevail over the other document; provided, however, that with respect to matters in Section III - Contract Specifications, the provisions of the Attachments shall prevail , and with respect to matters in Attachment A and Addendum A to Schedule II - General Terms and Conditions, Attachment A and Addendum A shall prevail. 2.3 Questions by Contractor regarding any of the documents shall be referred to the Owner. 2.4 Contractor shall, immediately on discovery, notify Owner in writing of any apparent errors or discrepancies in the Contract Documents. Owner will not accept later excuses or claims based on alleged errors not clarified in due time. 3.0 CONTRACT TYPES 3.1 Depending upon the nature of the services to be contracted for and/or the status of design and engineering at the time of award, a contract will fall into one of the following categories (for purposes of Contract Price and payment method): a. Fixed Lump Sum(s)... (with a fixed total Contract Price) b. Fixed Unit Price(s)... (with an estimated total Contract Price) with provision to convert to Fixed Lump Sum when quantities are defined. c. A combination of Fixed Lump Sum(s) and Fixed Unit Price(s)... (with an estimated total Contract Price) 3.2 The Contract Documents will identify the contract type and furnish payment terms and conditions for the specific type of contract to be employed in the Work. 4.0 CONTRACTUAL RELATIONSHIP 4.1 In performance of the Contract, Contractor is and shall operate as an independent contractor. 4.2 Nothing contained herein shall be construed as constituting any other relationship with Owner, nor shall it be construed as creating any relationship whatsoever between Owner and Contractor's employees. Contractor has sole authority and responsibility to employ, discharge and otherwise control its employees, and neither Contractor nor any of its employees are or shall be deemed to be employees of Owner. Contractor shall accept complete responsibility as a principal for its agents and subcontractors. 5.0 DESIGNATION OF REPRESENTATIVES 5.1 Contractor shall designate in writing a competent representative(s) who, on behalf of the Contractor, will have complete charge and responsibility for the Work. 5.2 The representatives of a party may be changed at any time by notice given by that party to the other in accordance with the NOTICES Section of the Contract Agreement. The representatives designated from time to time shall be available at all reasonable times. 6.0 OWNER'S RESPONSIBILITY 6.1 Owner shall be solely responsible for matters pertaining to the evaluation, inspection, coordination and scheduling of the Work, approval of progress payment and general project management services. Owner shall have the responsibility for pit design, and shall provide to Contractor designated work areas, pit slopes and dimensions, bench heights, and haul road specifications. Owner shall perform all mine layout and surveying. Without diminishing Contractor's performance obligations, quality control, inspection and reporting for items requiring adherence to technical specifications, such as, but not limited to, compaction tests and standards, shall be provided by Owner. 7.0 NONWAIVER OF DEFAULTS 7.1 Failure by the Owner to, at any time, enforce or require strict compliance with any terms or conditions of the Contract will not constitute a waiver of, or affect, or impair such terms or conditions in any way; nor shall such failure affect the right of Owner to avail itself at any time of such remedies as it may have for any subsequent breach of such terms of conditions by the Contractor. 8.0 NOTICE TO PROCEED 8.1 Contractor shall not commence the Work until written Notice to Proceed has been received from the Owner. No financial obligations to Contractor will be incurred by Owner under this Contract until Owner issues to Contractor a Notice to Proceed. 9.0 CONTRACTOR=S RESPONSIBILITY 9.1 Contractor shall furnish all equipment, work, labor and material necessary to carry out the Work and to provide a complete and workmanlike job. Anything mentioned in the specifications and not shown on the drawings or shown on the drawings and not mentioned in the specifications shall be of like effect as if shown and mentioned in both. In case of conflict, the specifications shall govern. In case additional information or other clarifications are necessary, the matter shall be submitted to Owner whose interpretation unless clearly unreasonable shall govern. 9.2 Contractor agrees to assume responsibility for incorporating in the Work anything which, though not mentioned in the drawings or specifications, could be reasonably inferred by skilled and experienced persons as necessary to accomplish the Work. 9.3 With the exception of those items and services, if any, which this Contract expressly states will be furnished by others, the supply of any item or service necessary for Contractor's performance is the sole obligation of Contractor including without limitation the following: a) transportation of all personnel, material, and equipment to and within the Work Site; b) prompt unloading, handling, and storage of all material and equipment to be furnished or used by Contractor; c) clean-up and minimization of debris and surplus material; d) provision of utilities and heat; e) weather and other protection for, and make good of damage to Contractor's materials and equipment and the Work until issue by Owner of letter of Final Acceptance. 9.4 Contractor assumes and is responsible for minimizing or, if possible, avoiding risks incident to the Work including, without limitation, those for which no extension of time is allowed. 10.0 INSPECTION, FITTING, CHANGES BY CONTRACTOR 10.1 Contractor is responsible for timely inspection of any work at the Site done by others which may affect Work or to which the Work must be joined to ascertain its suitability for use in relation to Contractor's Work and shall immediately advise Owner of any deficiencies therein and Owner shall have a reasonable time to have such deficiencies corrected, if such correction is not the Contractor's responsibility. Contractor is responsible for making such measurements and adjustments to the Work as is required to insure proper fit between the Work and any adjacent or contiguous work. 11.0 SITE AND WORKING CONDITIONS 11.1 Except as may be otherwise specifically stated in this Contract, Contractor shall be deemed to have inspected, and to have assumed the risk of loss and expense which may arise as a result of conditions at Site including subsurface conditions, which, are or could have been reasonably expected to occur during the course of the Work, and including without limitation, labor conditions at Site and the need to coordinate the Work with that of others. OWNER MAKES NO REPRESENTATIONS OR WARRANTIES WHATSOEVER EXPRESSED OR IMPLIED WITH RESPECT TO THE SITE OR THE CONDITION THEREOF OR OF ANY EQUIPMENT OR FACILITY THEREON, INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE. 12.0 COMPLIANCE WITH LAW, PERMITS AND REGULATIONS 12.1 In performance of the Work, Contractor shall at all times comply with, and shall defend, indemnify and hold Owner, and any affiliates, lessors, partners, joint venturers of Owner and their respective employees, officers, directors, shareholders, agents, representatives, successors and assigns harmless from and against all demands, claims, cost, damage, attorneys fees, settlements and expenses resulting from any actual or claimed violation of any and all laws and any and all rules, regulations and orders of public authority applicable or pursuant hereto whether Federal, State or Local including, but not limited to, safety, building and wiring codes, wages, unemployment compensation, workmen's compensation and social security laws; and Contractor shall file all reports, pay all taxes, fees and charges required by such laws, rules, regulations or orders and shall without reimbursement indemnify Owner and any affiliates, lessors, partners, joint venturers of Owner and their respective employees, officers, directors, shareholders, agents, representatives, successors and assigns against all liabilities and penalties by reason of any failure on the part of Contractor to comply with any such laws, orders, rules and regulations, to the maximum extent permitted by law. Contractor certifies compliance with the "Fair Labor Standards Act of 1938" as amended and all invoices shall so certify. 12.2 Except as otherwise specified herein, Owner will secure and pay for all permits, licenses and easements for permanent structures and all necessary authorities, permits, licenses, priorities and clearances required to be produced by or in the name of the Owner for prosecution of the Work, provided, however, Contractor shall obtain all necessary contractor's licenses and other permits normally obtained by a contractor in the ordinary course of its business. 13.0 INSPECTION AND REJECTION OF MATERIALS AND WORKMANSHIP 13.1 The Work, including materials and workmanship, performed is subject to inspection and tests by Owner at any reasonable times, at any and all places where such manufacture or performance is carried out. Advance notice of readiness for inspection shall be given as specified in the Contract within the time specified or otherwise not less than two (2) nor more than four (4) working days. Failure to make any inspection or test or to discover any defects or to object thereto shall not prejudice or operate as a release or waiver of the rights of Owner including the right to inspect or reject such Work at a later time, nor shall it release Contractor. Unless otherwise specified herein, Contractor shall furnish, at its expense such facilities as may be necessary for the making of such inspection and tests. Contractor shall bear the expense of uncovering and recovering Work specifically or customarily subject to prior inspection hereunder if such Work is covered without Owner's consent before an inspection is made. 13.2 If Owner orders the uncovering of Work not specifically subject to prior inspection hereunder or not customarily subject to inspection, Owner shall bear the reasonable direct cost of uncovering and redoing the affected Work unless any defects or non-compliance with the Contract is found, in which case all costs shall be borne by Contractor. 13.3 Owner reserves the right to expedite at Contractor's expense, Contractor-furnished materials as required to assist Contractor in meeting the specified Contract completion date. Contractor's obligation includes the furnishing of such information and such access to Contractor's or its suppliers facilities as Owner or its designees may require. 14.0 CLAIMS, ASSIGNMENTS, GARNISHMENT AND ATTACHMENTS 14.1 Contractor shall not assign this Contract or any of its rights or obligations hereunder without the prior written consent of Owner, which consent may be withheld in Owner's sole discretion, and any assignment attempted without such consent shall be void to the extent it can be made so by contract. No assignment shall be attempted without seven (7) days prior actual notice to Owner (and any assignment without such notice is void to the extent it can be made so by contract), as a condition to the effectiveness of any assignment, except as otherwise permitted by law notwithstanding this provision, and in any case, as a condition to the satisfaction of any claim including without limitation any claim with respect to an assignment permitted by law notwithstanding the foregoing prohibition. Owner may require a hold harmless agreement, a full release and indemnity and a bond satisfactory to Owner from Contractor. 14.2 In any case, including an assignment effective notwithstanding the foregoing prohibition, or in the event of any claim, attachment or garnishment, Owner shall have, in addition to any other rights under this Contract, the right to take one or more of the following actions: a) with such notice, if any, as Owner deems reasonable to make payment to Contractor as exclusive agent of any garnishor, assignee or claimant notwithstanding any such assignment, garnishment or claim; b) to set off a counterclaim against Contractor or its assignee or any garnishor, claimant or entity with respect to the amount involved, notwithstanding the fact that such set off or counterclaim may arise out of the transaction or occurrence unrelated to this Contract, whether it occurs or arises before or after the date of such assignment or notice thereof; c) to recover in whole or part as Owner may elect from Contractor or out of any amount claimed, assigned, attached or garnished or out of any amount theretofore or thereafter owed to Contractor all damages, costs, and expenses incurred in relation to such claim, assignment, garnishment or attachment, including court costs and attorneys' fees; d) to withhold any and all amounts until it is certain in its sole judgment to whom such funds should be paid without liability on the part of Owner, in any event, to pay such sum more than once; e) to exercise each and every right stipulated in this Contract including the right to withhold; f) to require as a condition to payment a full and complete release in favor of Owner, in form and substance satisfactory to Owner from each and every person or entity which in its sole judgment may be a claimant to such payment or any other payment paid or due or thereafter paid or due to Contractor. 15.0 SUBCONTRACTS 15.1 Contractor shall not subcontract any part of the Work (including the provisions of principal items of materials or equipment) without the prior written approval of the Owner, and in each individual instance, the scope of the Work to be subcontracted will be subject to the prior written approval of Owner. Approval by Owner of a subcontract shall not relieve Contractor of any of its obligations under the Contract. Contractor shall furnish information regarding its subcontractors as Owner may reasonably request. No subcontract shall bind or purport to bind Owner, but each subcontract shall contain a provision permitting assignment to Owner upon Owner's written request. 16.0 DRAWINGS PREPARED BY THE OWNER 16.1 Drawings issued by the Owner may be furnished in various stages of development. For example: Rev. A, B, C, etc. for preliminary drawings...or, Rev. 0, 1, 2, etc. for drawings "Approved for Construction". All drawings are subject to revision at any time. In all instances the drawing which is assigned the highest revision designation will be considered the Contract drawing and the Work shall be performed by Contractor in accordance with that drawing. Preliminary drawings shall not be used to perform fabrication or construction. 16.2 Contractor, on receipt of a revised drawing, is responsible to immediately note what revisions have occurred and to decide if those revisions will have any impact on the cost or time required to perform the Work. If Owner has not been notified as hereinafter provided for changed and extra Work, it will be understood by the parties that no adjustment is required either to the Contract Price or to the schedule established for performance of the Work. 17.0 CHANGED AND EXTRA WORK 17.1 Owner may order changes in the Work from time to time. If Contractor anticipates such changes will involve extra cost to Contractor or will adversely affect the Work, Contractor shall so advise Owner in writing not later than two (2) working days after the change is ordered. Promptly thereafter, but in any event within two weeks after the change is ordered, Contractor shall notify Owner in such detail as is reasonable of the effect of the change on time, performance and/or cost of the Work. If such notices are not so given it shall be deemed that no additional compensation or other adjustment in favor of Contractor is due Contractor. If such notices are given or if, in the opinion of Owner, such change involves a reduction in the amount of expense of Contractor, Owner and Contractor shall endeavor to agree upon an adjustment to the affected terms of the Contract, including the Contract Price. Increases in the Contract Price or reductions in Contractor's obligations agreed to by Owner will only be effective if made by a Contract Amendment signed by Owner and Contractor. The adjustment to the Contract Price will be made on the following basis: (a) To the extent applicable, such adjustment shall be made upon the basis of cost provisions and unit prices set out in this Contract. (b) Other adjustments to the extent of any not covered by the preceding subparagraph (a) shall be limited to adjustments to take into account only Contractor's direct costs plus a reasonable amount to cover overhead and profit. 17.2 If so directed by Owner in writing, Contractor shall proceed with the change prior to the time the amount of any price or other required adjustment is determined and the parties shall thereafter use diligent, good faith efforts to reach mutual agreement of the points on which they have not agreed. If the point involves compensation, Owner may pay Contractor, without prejudice to any claim by either party, the amount of adjustment which, in Owner's judgment is appropriate, based on the facts then known to it. This provision shall not be construed to reduce or limit Owner's rights or remedies under this or any other provision including the right to recover overpayments. 17.3 Increases in the Contract Price to the extent they are on cost reimbursable or unit price basis shall be reimbursed as specifically provided in this Contract, and in the absence of such a provision, promptly after submission of an invoice satisfactory to Owner with support satisfactory to Owner in the month following that in which the costs are paid or units furnished, as the case may be. Increases in the Contract Price to the extent done on a fixed amount basis, including fee, shall be paid in monthly installments which, in the judgment of Owner are proportionate to the progress of the changed part of the Work during the calendar month preceding that in which each payment is made, and shall be subject to a retention proportionate to the retention otherwise specified in this contract. 18.0 CONTRACT TIME AND COMPLETION OF WORK 18.1 The Contract is effective (the AContract Time@) from the Effective Date as set forth in the Contract Agreement for the period set forth in the Contract Agreement or until the completion of the Work specified in the Contract Agreement, whichever is sooner, subject to the Owner=s and Contractor=s rights to terminate this Contract in accordance with Section 21, Section 22, and/or Section 23 or to their respective rights to extend the Contract Time in accordance with Section 28. The Work shall be completed by the time or times, and in the sequence, specified in the Contract Agreement or in Contractor's schedule approved in writing by the Owner. To the extent there are no such schedules, the times and sequences may be fixed by the Owner whose judgment, if reasonable in relation to the performance of the Contract Price, shall prevail. The Contract Price shall be deemed to include all sums required to meet such completion date. If so directed by Owner, Contractor shall without additional charge, work such overtime and shall take such other action as is practically possible to avoid, or, otherwise, to minimize the effects of delays. 18.2 No promise, representation or warranty shall be deemed to be made to Contractor by reason of Owner's specification of the time or times for completion. 19.0 CORRECTION OF DEFECTIVE WORK 19.1 Any Work not performed in accordance with the drawings and specifications or with the intent thereof, or of this Contract, and not approved in writing by a representative of Owner, shall be corrected immediately without delay in the progress of the Work at no additional cost to Owner. Corrections to defective Work must be done within the terms and conditions of the Contract. 20.0 DELAYS 20.1 Contractor shall, in writing, promptly and in no event later than three (3) working days after Contractor should have foreseen the delay, advise, and thereafter keep advised, Owner of the nature of, reasons for, expected duration and other material information concerning any delay or additional delay in the Work. Without limitation, Contractor shall not be excused from delay from any causes (a) foreseen or foreseeable at the time the Contract Agreement is signed or, (b) normal incident to the Work or (c) due to any act or omission of the Contractor. Contractor shall make diligent efforts to remove any preventing or delaying cause and to fulfill all other obligations, including any obligations which are hindered but not prevented thereby, and shall resume performance as soon as reasonably practical. 20.2 Except for delays falling within the categories above mentioned, if the delay results from Force Majeure as hereinafter defined or, from other reasons including acts of Owner which as a matter of law excuses Contractor from performance within the time specified and if the Contractor complies with the notice provisions of this Section, Contractor's time for completion shall be extended to the extent of such delay, but this shall be its sole remedy for such delay except for delay caused by the direct default of Owner in which event Contractor shall be entitled, to the extent the costs are so caused, and provided that the Contractor thereafter handles the matter as a change under the provision of Section 17.0, Changed and Extra Work, to recover its provable additional direct field costs, but this shall be the limit of the Contractor's remedy in such case. 21.0 FORCE MAJEURE 21.1 Neither party shall be considered in default in the performance of its obligations hereunder to the extent that performance of such obligations are delayed, hindered, or prevented by Force Majeure. Force Majeure shall be any cause beyond the control of the parties hereto which they could not reasonably have foreseen and guarded against. Force Majeure includes, but not limited to, acts of God, strikes, lockouts, fires, riots, civil commotion or civil unrest, incendiarism, interference by civil or military authorities, compliance with the regulations or orders of any governmental authorities, and acts of war (declared or undeclared). 22.0 SUSPENSION OR TERMINATION FOR CONVENIENCE 22.1 Owner reserves the right to suspend or terminate the Contract at any time for its convenience. Such suspension or termination will be made in writing and may include the whole or any specified part of the Contract. 22.2 If the Contract, or a specified part thereof, is suspended for convenience of the Owner and such suspension unreasonably delays the progress of the Work and causes additional expense or loss to Contractor in performance of the Work, not due to the fault or negligence of the Contractor, the Contract Price will be subject to adjustment in an amount equal to the actual cost incurred plus field overhead (excluding profit) by Contractor resulting from the suspension. Such costs must be substantiated by written records or otherwise proven to the satisfaction of the Owner. Further, the time of performance of the Contract will be subject to extension by the actual duration of the suspension (if applicable) plus a reasonable additional period for remobilization. The Contract will, accordingly, be amended by Contract Amendment, provided, however, that any claim by Contractor for any adjustment hereunder must be asserted within thirty (30) calendar days after receipt of written notice to resume the Work. 22.3 If the Contract, or any specified part hereof, is terminated for the convenience of the Owner, payment to Contractor will be made promptly for that part of the Work actually completed including: (a) engineering; plus (b) material or equipment under fabrication in Contractor's own plant; plus (c) materials or equipment under fabrication in subcontractors' plants; plus (d) materials or equipment which have already been shipped; plus, (e) construction, if any, completed to date on Site; less any payments previously made to the Contractor. The reasonable value of each of the foregoing categories against which the Contractor has incurred costs prior to the effective termination date will be established by: (i) the Contract Price(s); (ii) any Contract Unit Prices or breakdown of the Contract Price previously submitted by the Contractor; (iii) written cost records submitted by Contractor and accepted by Owner; or, a combination of the foregoing data. Contractor shall include in each subcontract the right of unilateral written cancellation with or without cause, by Contractor of all or any portion of such subcontract. A reasonable cancellation charge to Contractor by any subcontractor or vendor, and properly due as a contractual obligation of Contractor to the subcontractor or vendor for items fabricated but not shipped, will be reimbursed to Contractor at actual cost as part of the costs of termination, or, in lieu thereof, Owner may elect to pay the fair market value and take delivery on such completed or incompleted fabricated items. In addition thereto, the Contractor will be paid a reasonable cancellation charge to cover costs, if any, to terminate engineering and fabrication commenced by its own forces prior to the effective termination date. Material and equipment completely or partially fabricated but not shipped may, at the option of the Owner, be accepted by the Owner at fair market value and deducted from the cancellation charges established with Contractor. 23.0 TERMINATION FOR CAUSE 23.1 Should Contractor, in the opinion of Owner, at any time refuse or neglect to supply or maintain a sufficiency of properly skilled labor, or fail in any respect to prosecute the Work or any separable portion thereof with promptness and diligence, or fail in the performance of any of the agreements on its part contained herein, or should the Contractor become insolvent or be placed in liquidation or under judicial management or have a judgment or order entered against it affecting a substantial part of its assets, Owner may, after forty-eight (48) hours written notice to the Contractor employ another Contractor and deduct the cost thereof from any money due or thereafter to become due Contractor under this Contract, and/or Owner may terminate Contractor's right to proceed with the Work or such part of the Work as to which such defaults have occurred. In the event of termination for cause, the Contractor shall not be entitled to receive any further payment until the Work is finished. If the expense of finishing the Work plus compensation for additional managerial and administrative services and such other costs and damages with regard to completion of the Work as the Owner may suffer exceeds the unpaid balance, Contractor and its sureties, if any, shall promptly pay the difference to Owner. Failure of Owner to exercise any of the rights given under this clause shall not excuse Contractor from compliance with the provisions of the Contract nor prejudice in any way the right to exercise any such rights in respect of any subsequent failure by Contractor. 23.2 Upon termination of the Contract for cause it is agreed: 23.2.1 That the obligations of Contractor shall continue as to work already performed and to materials furnished, and as to bona fide obligations assumed by Contractor prior to the date of termination. 23.2.2 That the Contractor shall be entitled only to a pro rata compensation for the Work already performed, including material for which it has made firm contracts, it being understood that the Owner shall be entitled to that material. It is understood, however, that Contractor's aforesaid pro-rata compensation shall in no event exceed the reasonable costs of Work done and materials supplied by Contractor to the time of termination plus an equitable profit on Work done prior to the date of termination, less any amounts deducted in accordance with this Section. The following items will not be considered in arriving at said equitable allowance: a. Anticipated profits applicable to incomplete portions of the Work b. Consequential damages. c. Expenses of Contractor due to failure of the Contractor or its vendors and subcontractors to discontinue the Work with reasonable promptness after written notice of termination has been given to the Contractor. d. Losses on other contracts or from sales or exchange of capital assets. 23.3 No settlement payment will be made to Contractor hereunder, until Contractor has submitted: a final statement supported by vouchers; and a signed form of release or other evidence satisfactory to Owner that Contractor has paid in full for all labor, materials, equipment, services, subcontracts, applicable taxes, and other costs and assessments due under this Contract. 23.4 Owner shall be entitled to deduct from any and all monies owing to Contractor hereunder, any and all damages or additional expenses caused by or arising out of breach by the Contractor of any of its agreements, covenants, warranties, and guarantees hereunder, or, of any default by the Contractor. 23.5 In the event of termination for cause, written notice will be given to Contractor in accordance with the provisions set forth in the Contract Agreement under NOTICES. Subject to the directions set forth in the termination notice, Contractor shall immediately discontinue the Work and the placing of orders for further services, material and equipment and shall, as directed, effect cancellation of all existing orders and subcontracts and thereafter perform only such Work as may be necessary to preserve and protect the Work already in progress. 23.6 The termination provision set forth in this Article shall be concurrent with and in addition to, without prejudice to, and not in lieu of, or in substitution for, any other rights or remedies at law or in equity which the Owner may have for the enforcement of its rights under the Contract and its remedies for any default of the Contractor under the conditions hereof. 23.7 If Owner should incorrectly and in good faith terminate this Contract for default as herein provided or for breach, this shall be deemed to be a termination by Owner for reasons other than cause, and payment shall be made as in the case of termination for convenience. In no event shall the Owner's liability or Contractor's recovery under this Article exceed the total amount determined by application of Section 22.3 hereof. 24.0 PATENTS AND SIMILAR RIGHTS 24.1 Contractor shall indemnify and save harmless Owner and any applicable lessors, partners or joint venturers of Owner, and their respective employees, officers, directors, shareholders, agents, representatives, attorneys, successors and assigns from all cost, damage, loss and expense as a result of any infringement or claim of infringement of any patent or proprietary right (including costs of litigation) and for changes or replacement and related costs for changes or replacement and related costs to avoid infringements arising from performance of the Work. At Owner's request, Contractor shall defend any suit or action arising out of any such infringement or claim but the Owner shall be entitled to be fully advised and to participate in any such suit or action. No such suit or action shall be settled, discontinued, nor shall judgment be permitted to be entered if, in Owner's sole opinion, its interest would be adversely affected. Contractor's indemnification does not extend to items manufactured to the Owner's design unless originally submitted or suggested by the Contractor. 25.0 WARRANTY 25.1 In addition to any other Contractor warranties, expressed or implied by law, Contractor warrants that all items and services will be in accordance with this Contract and conform to the Specifications, Drawings and data which are part of it or with which it obligates Contractor to comply; that, except with respect only to any items, services or other Work performed in accordance with specifications provided by Owner, they will be fit for the use specified or intended; and that all materials and workmanship shall be of first quality and the best of their kinds. Without limitation of Owner's other rights and remedies, in cases where this warranty is breached, or where defects or deficiencies appear prior to twelve (12) months after date of letter of Final Acceptance and Contractor does not within the time limits set by Owner promptly begin and diligently complete the repair of the defect in accordance with Owner's required schedule, Owner at its option may either reject the items in whole or in part in which case to the extent of rejection the risk of loss, cost of repair, cost of return and storage and other damages including costs of replacement from such sources as Owner may elect will be for the Contractor's account; or the Owner at its option may repair all or part of the items not rejected and charge to the Contractor damages including the costs incurred for or in relation to repairs plus an amount equal to the diminished value of the items as repaired. 25.2 Contractor shall include in all subcontracts entered into under this Contract an identical warranty extending to Contractor and Owner, and as part of its responsibilities hereunder shall enforce such warranties to their fullest extent, however, Contractor shall remain responsible for and not be excused from its obligations pursuant to this Contract, including its warranty obligations, in the event any subcontractor fails to perform its obligations. 26.0 CONTRACT PAYMENTS 26.1 Contractor agrees to accept the Contract Price as full compensation for all Work embraced in the Contract and for all loss or damage arising out of the nature of the Work, the action of the elements, or from any unforeseen or unknown difficulties or obstructions which may arise or be encountered in the prosecution of the Work until its acceptance, and for all risks of every description connected with the Work. 26.2 Owner will make partial payments as the Work progresses. Payments will only be made on receipt of invoices accurately prepared and properly supported in accordance with procedures established by the Owner and exhibits attached hereto. 26.3 Ten percent (10%) retention will be withheld from each progress payment. The retention will be released by Owner upon full completion of the Work by Contractor and issue of Final Acceptance by Owner. Contractor, shall, prior to release of retention by Owner, furnish a release of claims form certifying that Contractor has paid in full for all wages, materials, services, taxes, social benefit laws and other like costs. 26.4 Payments may be withheld on account of suspected or defective work not remedied, claims filed (or reasonable evidence indicating the probability of filing of claims) or, failure of Contractor to make payments properly to his suppliers or for material or labor. If the foregoing causes are removed, the withheld payments will promptly be made. If the said causes are not removed on written notice, Owner may cause the same to be rectified at Contractor's expense. Should any valid indebtedness arise after final payment is made, the Contractor shall reimburse Owner for any amount the Owner has paid or may pay to discharge any such indebtedness or any claim affecting the title to the Work or the Owner's property plus Owner's attorneys' fees, costs and expenses. 26.5 Failure or lack of cooperation by the Contractor to prepare or submit reports, progress schedules, or plans for changes contemplated in his operations, or to assist in preparation of same, promptly as required, shall be cause for the Owner to withhold all or part of the progress payment then pending until such time as Contractor has met the requirement to the satisfaction of the Owner. 26.6 Monies due Owner under the terms of the Contract to compensate Owner for backcharges as provided in Section 29.0 or other expenses incurred on behalf of the Contractor will be recorded in writing, and whenever possible, deducted as they occur from each periodic progress payment to Contractor. 26.7 No payment except the final payment, shall be evidence of performance of the Contract either wholly or in part and no payment, including the final payment, shall be construed to be an acceptance of defective Work or improper material. The final payment shall not relieve the Contractor from responsibility for the discharge of claims or from making available to Owner for examination and audit all records pertaining to work performed on a cost-reimbursable or chargeable basis. 27.0 WORK AUTHORIZATION 27.1 Owner will utilize a written Work Authorization to direct Contractor to proceed in instances where the processing of a formal Contract Amendment may delay progress of the Work. A Work Authorization will be used on occasions where: Work, minor in scope, must be immediately authorized at the Site; or, Construction must proceed concurrent with the preparation of an estimate of cost to perform the Work. In some instances, the Work Authorization may be utilized to direct Contractor to proceed pending resolution of a dispute over whether or not the work actually comprises a contract change or involves extra work. 28.0 CONTRACT AMENDMENTS 28.1 The Contract Price established in the Contract Agreement is not subject to change except as expressly provided in the Contract or by amendment to the Contract in the form of a Contract Amendment signed by Contractor and Owner. Unit price and cost-plus type contracts containing an estimated Contract Price will in all cases prior to presentation of a final invoice by Contractor, be summarized by Contract Amendment to confirm the final Contract Price. 28.2 Amendments to the Contract shall bind Owner only if made by a written document which both states that it amends the Contract and is signed by a designated representative of Owner. 28.3 The Contract Time can be extended or shortened by mutual agreement, in writing by Owner and Contractor. 29.0 BACKCHARGES BY OWNER 29.1 Owner reserves the right in event of inability or refusal on the part of a Contractor or subcontractor to correct defective or incomplete work, or to perform any part of the work in a timely manner, to perform such work with its own forces or those of another contractor and charge the resultant costs as a backcharge against the Contract Price pursuant to the following procedures: a. Notification: Contractor will be promptly notified by telephone, cable or other form of direct communication, and, whenever possible, through its appointed representative. b. Opportunity: Whenever time will permit, Contractor will be afforded a reasonable opportunity to perform the work with its own forces. However, Owner reserves for itself the decision of how and when to proceed. c. Written Notice: Contractor will be notified in writing by a Notice of Backcharge. d. Labor and Equipment: Labor and construction equipment will be backcharged at actual cost to Owner plus 25% administrative and handling costs. e. Owner Equipment: Equipment owned by Owner and used for the backcharged work will be charged at the full AED (Associated Equipment Distributors) equipment rental rate for same or equal equipment. Operators and other Owner- employed labor will be charged at prevailing project hourly rates plus 25% administrative and handling costs. f. Material and Subcontracts: Material and subcontracts will be backcharged on the basis of actual invoiced cost plus 20% administrative and handling costs. g. Other Costs: Except in the case of an emergency or other unanticipated event which causes a change in costs, Owner shall use reasonable efforts to notify Contractor in advance of other costs, if any, to be incurred by Owner. If no agreement is concluded from such notification, Owner will backcharge the Contract Price as specified above for material and subcontracts. h. Records: All work performed as a backcharge against the Contract will be recorded by Owner on a daily basis. In instances where the Contractor's representative is at the site, the representative's signature will be requested. In no event shall the absence of Contractor's representative or his refusal to sign the Backcharge Notice or any daily records delay performance of work which Owner considers necessary to continuation and completion of the Project. i. Payment: The sum total of the amounts backcharged will be the total of all of the above charges. Owner may deduct the backcharged amounts periodically as they are incurred or in one final sum when the work is complete and all costs have been accounted for. 30.0 FINAL ACCEPTANCE OF THE WORK 30.1 Final Acceptance of the Work will be confirmed by a formal letter of Final Acceptance issued by the Owner and affirmed by signature of the Owner promptly after Owner is satisfied that all requirements of the Contract have been met with regard to performance of the Work which shall include issuance of all government approvals, permits or certifications; mechanical acceptance, performance of equipment in accordance with warranties; delivery of material, equipment and spare parts; submittal of special guarantees and operating procedures; submittal of final records for cost-plus work (if any); and, presentation of a final release of claims forms and any other items reasonably required by Owner. 30.2 Contractor agrees that the Owner may retain the final payment and/or the retained percentage provided for in the Contract Agreement, to the full total or a partial amount thereof as considered by Owner to be reasonable to assure full compliance by the Contractor with the Contract. 30.3 The Work performed hereunder may be accepted as a whole or in separately defined parts, in which case any funds retained will be reduced in accordance with the pro rata value of those accepted parts. In the event the letter of Final Acceptance covers all of the Work the letter will state... "All work under the Contract is accepted," and the letter will be marked "FINAL ACCEPTANCE". 30.4 Contractor's warranties after Final Acceptance will extend for twelve (12) months from date of Final Acceptance. 31.0 RELEASE AND WAIVER OF CLAIMS 31.1 Owner will require as a prior condition to final payment a full release and waiver of claims form and reserves the right, at its discretion prior to any interim progress payment(s) to Contractor, to require a release and waiver of claims forms for (partial) payment for monies earned under the Contract through a specified date. 31.2 If at any time there is evidence of the existence of any claim arising out of or in connection with the performance, or default in performance, of this Contract for which Owner might be or become liable, the Owner shall have the right to discharge such claims and assess all costs thereof against the balance due Contractor. 32.0 COST-REIMBURSABLE WORK - ACCOUNTING AND AUDITING 32.1 If any part of the Work is performed on a cost- reimbursable or chargeable basis, the Contractor shall keep and require each of its subcontractors or vendors to keep full and detailed accounts of all such costs in a form acceptable to the Owner. 32.2 In the event that work is to be performed on a reimbursable or chargeable basis, Owner will include as part of the Contract, special terms and conditions setting forth all chargeable and nonchargeable cost items and procedures for the payment of costs and Contractor's fees related thereto. 32.3 Contractor shall at all times cooperate with the Owner to amend or change any accounting procedure for cost-plus work found to be unsatisfactory, and Contractor, after agreement on accounting procedures with the Owner, shall not institute any new accounting procedure without prior written approval of the Owner. 32.4 Contractor shall retain all reimbursable or chargeable accounting records for a period of two (2) years after Final Acceptance of the Work and during execution of the Work shall, at any time, afford such persons as Owner authorizes full access to audit and books of account and supporting documents. On completion of the Work, Contractor agrees that copies of books or records for cost-reimbursable work will, on request, be turned over to the Owner. 33.0 LOSS OR DAMAGE BY ACTIONS OF OTHERS 33.1 If the Contractor sustains damage or loss through any delay, default, act or omission of any other contractors, subcontractors, or their agents or employees, Owner shall not be liable therefor; but nothing herein contained shall be construed to limit the Contractor from pursuing its legal remedies against such other contractor or subcontractors, or their agents or employees. 33.2 Contractor shall have no claim against the Owner for damage or loss by reasons of delay, default, act or omission of other contractors, subcontractors or their agents or employees, but nothing herein contained shall limit any rights of Contractor to recover therefor against such other contractors, subcontractors or their agents or employees. If the Contractor by any default, negligence or misconduct on its part, damages any other subcontractor or contractor, it hereby agrees to be directly responsible to such other subcontractor or contractor for any such damage and to save, defend, indemnify and hold harmless Owner and any affiliates, lessors, partners or joint venturers of Owner and their respective employees, officers, directors, shareholders, agents, representatives, attorneys, successors and assigns for all such claims and damages. 34.0 DISPUTES 34.1 It is the general intention of the parties that any dispute relating to this Contract shall be settled, to the extent feasible, before a single forum selected by Owner, and a decision by such forum with respect to any such question or matter shall be binding on Contractor, provided that it has been granted a reasonable opportunity to be represented and heard. To this end: a. At Owner's written election, all disputes and controversies of whatever nature arising under this Contract that cannot be resolved by mutual agreement, may be submitted to arbitration in accordance with rules of the American Arbitration Association to a panel of three (3) arbitrators. The place of arbitration shall be the municipality which, in the opinion of Owner, is most reasonably convenient to the Site. b. If Owner does not elect arbitration, or if any dispute involves third parties, the dispute shall at the option of the Owner be submitted to the forum which in Owner's opinion can best determine and settle most aspects of such dispute and the decision of that forum shall be binding on the parties, provided that they have been given notice and the opportunity for adequate representation. c. In the event of any proceeding pursuant to this Section, the parties shall take action to see that proceedings before any other forum shall be stayed pending completion of these proceedings. The decision with respect to proceedings pursuant to this Section shall be binding upon the parties. The parties shall thereafter dismiss from the other forum any claims to the extent such claims are resolved by such decision. d. Contractor hereby consents to such service and to submit itself to such jurisdiction as is necessary to effect the purposes of this Section, and further hereby agrees to and consents to such stays and other actions necessary to effect the purposes hereof. e. For the purposes of this Section, a "forum" includes arbitration or administrative proceeding. f. In the event of any dispute or claim by Contractor, Contractor shall continue the Work in accordance with the Contract and its sole remedy shall be to pursue the remedies hereinabove set forth. 34.2 EACH OF CONTRACTOR AND OWNER ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER ANY OF THE CONTRACT DOCUMENTS OR WITH RESPECT TO THE WORK WILL BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND THAT IF AND TO THE EXTENT THAT ANY PROCEEDING ARISING OUT OF SUCH CONTROVERSY IS NOT SUBMITTED TO ARBITRATION AS PROVIDED HEREIN, SUCH MATTER SHALL BE TRIED BY A JUDGE AND WITHOUT A JURY. 35.0 NONDISCRIMINATION IN EMPLOYMENT 35.1 Contractor shall not discriminate against any employee or applicant for employment because of race, religion, color, sex, or national origin. Contractor shall take affirmative action to insure that all applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex, disability or national origin. Such action shall include, but not be limited to the following: employment, upgrading, demotion or transfer; recruitment advertising; layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship. Contractor agrees to post in conspicuous places, available to employees and applicants for employment, notices setting forth the provisions of this nondiscrimination clause. Contractor shall, in all solicitations or advertisements for employees placed by Contractor or on Contractor's behalf, state that all employment is without regard to race, religion, color, sex, disability or national origin. 35.2 Contractor shall comply with all provisions of Executive Order No. 11246 of September 24, 1965 (including amendments thereto), and of the rules, regulations, and relevant orders of the Secretary of Labor. Contractor shall furnish all information and reports required by Executive Order No. 11246 of September 24, 1965 (including any amendments thereto), and by the rules, regulations, and orders of the Secretary of Labor for purposes of investigation to ascertain compliance with such rules, regulations, and orders. In the event of Contractor's noncompliance with the nondiscrimination clauses of this Contract, this Contract may be cancelled, terminated, or suspended, in whole or in part and Contractor may be declared ineligible for further contracts in accordance with procedures authorized in Executive Order No. 11246 of September 24, 1965 (including any amendments thereto), and such other sanctions may be imposed and remedies invoked as provided in Executive Order No. 11246 of September 24, 1965, or by rule, regulations, or order of the Secretary of Labor, or as otherwise provided by law. Contractor shall include the provision of this Article in every subcontract or purchase order unless exempted by rules, regulations, orders of the Secretary of Labor issued pursuant to Section 204 of Executive Order No. 11246 of September 24, 1965 (including any amendments thereto), so that such provisions will be binding upon each subcontract or purchase order as the Owner may direct as a means of enforcing such provisions, including sanctions for noncompliance; provided, however, that in the event Contractor becomes involved in, or threatened with, litigation with a subcontractor or vendor as a result of such direction by the Owner, Contractor may request the United States to enter into such litigation to protect the interests of the United States. The foregoing obligations of Contractor shall include its obligation to comply with all amendments or additional rules, regulations and orders relating to Executive Order No. 11246 of September 24, 1965, adopted or effective during the Contract Time. 36.0 SECURITY, IDENTIFICATION AND SECRECY 36.1 Entrance into the Site by Contractor's employees and all other persons will be subject to strict security rules and Contractor hereby agrees to comply and to cause strict compliance therewith by its subcontractors. 36.2 Contractor shall obtain written authorization from the Owner to enter the Site with trucks and other vehicles and shall use only the entrances designated by Owner for the use of contractors employed on this Project. 36.3 Contractor shall require its employees and the employees of its subcontractors to, at all times while on the Site, wear the identification furnished by Owner. 36.4 Contractor agrees that it shall treat all designs, data and other information acquired under this Contract as confidential and shall not use the name of Owner or of any officer, director, employee or affiliated entity of Owner or of the Site in any press release, announcement, advertisement or publication, either verbal or in writing, or disclose any information whatsoever that it may obtain under or pursuant to this Contract to third parties or to the public without having first obtained the written approval of Owner as to the form and content of any such disclosure, release or publication. Contractor further agrees not to use, sell, give, disclose or otherwise make available to third parties or to the public at any time any knowledge or information relating to internal proprietary techniques and methods used by Owner for purposes of geological interpretation, extraction, mining, processing of minerals or any other proprietary information of Owner that Contractor may acquire and/or develop during the course of the Work. The obligations of confidentiality of Contractor under this Section shall apply to each of the officers, employees, agents and subcontractors of the Contractor and shall survive the termination or expiration of this Contract and shall be fully effective and binding for a period of five years thereafter. Contractor on request of Owner shall execute any agreements relating to confidentiality or proprietary rights which Owner requires. 37.0 HYGIENE, FIRST AID AND SAFETY 37.1 Contractor agrees to comply with all federal, state and local laws, regulations, rules and orders as amended from time to time and Contractor shall comply with all applicable laws, ordinances, rules, regulations, and orders of any public body having jurisdiction over the safety of persons or property and shall establish, erect and maintain all necessary safeguards for such safety. Contractor shall train, furnish, require, and assure that all employees follow safe work procedures and wear appropriate and required safety equipment. Contractor shall notify all persons, whether on or off the Site, when prosecution of the Work may affect them. 37.2 The Contractor has been provided a copy of the Owner's safety manual. The Owner's safety manual describes safety practices and procedures which Owner believes assist in the creation of a safe working environment. Owner and Contractor recognize that other policies and procedures can also provide a safe working environment and further recognize the possibility of a need for additional policies and procedures specific to this operation. For this reason, Contractor's principal safety office shall familiarize him/herself with, and shall thereafter be solely responsible for determining which , if any, provisions thereof are relevant, applicable or pertinent to the Work. The Contractor's safety officer shall be responsible for the development and implementation of all safety procedures. 37.3 Contractor shall designate a responsible member of its organization at the Site whose duty shall be the prevention of accidents and compliance with all safety requirements. This person shall be competent and experienced in such matters and shall be the principal safety officer unless otherwise designated in writing by Contractor to Owner. 37.4 In the event of occurrence of a situation wherein life or valuable property are in apparent imminent danger, Contractor is hereby authorized without further special instructions from the Owner, to act at its own discretion to prevent injury to persons or damage to property. 37.5 Contractor shall be responsible to provide its own first aid facilities and safety equipment. 37.6 Contractor shall furnish to the Owner a detailed written report of all injuries other than those requiring only first aid treatment. 37.7 Contractor bears sole responsibility under the law for the safety of its own personnel employed in the Work and for persons entering the Site as agents or visitors of the Contractor. 37.8 Contractor shall comply with the Federal Mine Safety and Health Act of 1977 as now or hereafter amended and with all regulations and health and safety standards promulgated pursuant thereto (all of which are described hereinafter as "the Act"). Any citation, fine withdrawal order, abatement notice or other action by the Mine Safety and Health Administration (MSHA) arising in connection with the Contractor's performance under this Contract, which may affect the Owner's operations, shall constitute a breach of this Contract and shall be sufficient cause for termination of this Contract by the Owner at its sole option and without limiting any other rights or remedies the Owner may have. Contractor agrees that its operations are subject to the terms of the Act and that it will abide by all provisions of said Act. It is recognized that substantial penalties can be levied for violations of the health and safety standards contained, or to be promulgated in the future, in the Act. Contractor agrees that it is fully and completely responsible for payment of any and all fines which may be levied by MSHA as a result of such violations and will provide Owner proof of payment thereof. The Contractor shall carry out the Work under the Contractor's individual MSHA identification number. Neither Contractor's compliance with the Act nor any supervision by the Owner which may be required as provided above shall derogate Contractor's status as an independent contractor otherwise created in this Contract. 37.9 Contractor shall defend, indemnify and hold harmless Owner, and any of its affiliates, lessors, partners or joint venturers of Owner and their respective employees, officers, directors, shareholders, agents, representatives, attorneys, successors and assigns from all claims, damages, costs and expenses, including attorneys' fees in any proceeding brought against any of them, and from any liability imposed or attempted to be imposed on any of them by reason of any violation or alleged violation of any law, rule or regulation in connection with or arising out of any operation or activity over which Contractor has management, supervision or control. Owner shall cooperate with Contractor in the event that Contractor chooses to contest any citation under the Act or any other law, rules, orders, regulations, order, penalty or other enforcement action or liability in connection therewith in which Contractor is obligated to Owner under the terms of this Section 37.0, it being further understood and agreed that any expenses incurred by Owner in so cooperating will be the obligation of Contractor. 37.10 Contractor shall advise Owner as promptly as possible after receipt of any citation or order of withdrawal, or amendment, modification, determination or vacation thereof, issued as a result of any activity conducted by Contractor pursuant to this Contract, but in all cases, such notification to Owner shall be within twenty-four (24) hours of issuance. Contractor shall furnish Owner a copy of each such citation or order of withdrawal or amendment, modification, termination or vacation thereof at the time Contractor notified Owner as required by this paragraph or as soon as reasonably possible thereafter. Contractor shall promptly furnish Owner with copies of all documents filed with the Federal Mine Safety and Health Review Commission ("Commission"), relating to the Work, as well as with any Commission order or decisions which may be issued, in connection with any such citation or order. 37.11 Nothing in the terms of this Contract shall be interpreted to impose civil or criminal liability of any kind or nature whatsoever vicariously from Contractor to Owner. Without limiting the aforementioned provision, Contractor shall assist and cooperate fully with Owner in defending or preparing to defend any federal or state civil or criminal enforcement action brought or which Owner believes may be brought, against Owner, Owner's officers, directors or agents, under the covenants of any federal or state or local law, regulation or ordinance, resulting from or connected with Contractor's performance or non- performance under this Contract. 38.0 TOXIC AND HAZARDOUS MATERIAL CONTROL ACT 38.1 Contractor shall comply with all requirements of applicable federal, state and local Health, Safety, Environmental Protection Regulations and the Toxic and Hazardous Material Control Acts and Regulations of federal, state and local government agencies (such as EPA, OSHA, MSHA, NRC and DOT). 38.2 Labels and Safety Data Sheets for all toxic or hazardous material must be attached to or provided with this Contract. Contractor's failure to conform to any of the above requirements in any respect shall be corrected promptly by the Contractor upon notice thereof, and the cost of such correction(s) as well as any related costs arising out of any action brought by a governmental agency in connection with such failure shall be for the account of Contractor. 39.0 TAXES 39.1 Unless otherwise specified in the Contract Documents, all taxes which Contractor may be required to pay or collect are for the account of Contractor and shall be deemed to be included in the fixed Contract Price(s) or Contract Unit Price(s) set out in the Contract, whether or not they are required to be separately stated. 40.0 TITLE, ADVANCE PAYMENTS 40.1 Title to all labor, material and plant equipment furnished by Contractor shall pass to the Owner upon delivery to the Site, the risk of loss shall not shift to the Owner until Final Acceptance. 40.2 If payments are made by Owner prior to delivery or installation, or if Owner supplies items to be included in the Work, Owner may require that the goods in process be marked or otherwise identified, and Contractor shall execute such documents and take such action as in Owner's opinion are necessary to give Owner the exclusive right to take possession and title thereto at any time, as well as a security interest therein. 40.3 No advance payment shall operate to relieve Contractor of risk of loss or any other obligations under this Contract. 41.0 OWNER'S REMEDIES FOR DEFAULT OR DEFECTIVE WORK 41.1 In the event of any default or defective Work which Contractor does not, in the sole judgment of Owner, immediately begin, and thereafter proceed with diligence to remedy upon notice from Owner, or in the event of any defaults or defect which Owner in its sole judgment determines to be a material default or defect, or if Contractor for any reason (other than one for which it is entitled to an extension of time provided under "Delays") fails to proceed with the Work as scheduled in accordance with this Contract, Owner may take such action as in its sole judgment is advisable to remedy or to avoid such default to defect including proceeding with its own forces or those of others and taking possession and use of all equipment and material at the Site (all of which Contractor hereby agrees to leave for such purpose), and Contractor shall reimburse Owner for all additional costs which it may incur in connection with or as a result of such action. 41.2 Alternatively, or in addition as Owner may from time to time elect, upon such defaults or defects or delay, or if the Contractor shall become bankrupt or insolvent or have an order or judgment entered against it which affects a substantial part of its assets, or if Owner shall have reasonable grounds to believe that Contractor is bankrupt or insolvent or unable to pay its debts as they become due, Owner may also terminate all or part of Contractor's further performance and/or further rights hereunder, as Owner may elect, and, at Owner's discretion proceed as provided in the preceding paragraph. 41.3 In the event of any such default, defect, delay, order or judgment, bankruptcy or insolvency, Contractor shall not be entitled to any further payment until the matter is remedied to the satisfaction of Owner and shall then be paid only such amount as is reasonably due for work properly done by Contractor less all damages, loss and additional expense suffered by Owner as a result of such default. If such damage, loss and expense shall exceed the amount due the Contractor, such amount shall be paid immediately to Owner by Contractor. No remedy afforded to Owner either under this Contract or as a matter of law shall be deemed to be exclusive. 42.0 INSURANCE 42.1 Contractor shall comply with all state and federal social security and unemployment insurance laws. Before commencing the Work, Contractor and its subcontractors shall be qualified under the Workmen's Compensation Law of the state where the Project will be constructed and shall at all times comply therewith. 42.2 Contractor shall procure and maintain, during the period that this Contract remains in force, insurance coverage with limits of not less than those set forth in this clause. Owner shall have the right to review the adequacy of such coverage on annual basis and require Contractor to obtain such additional types and amounts of coverage as it determines to be necessary or advisable. Any increase in the cost of insurance due to such determination of Owner shall be a reimbursable expense of Contractor hereunder. Contractor will require all insurance companies, issuing policies of insurance of Contractor, to certify to Owner, prior to commencement of any Work, that such policies have been issued and are currently in effect. In the event any Work to be performed under this Contract is further sublet, the Contractor will require the same insurance coverage, from subcontractors. Contractors will submit the Insurance Certificate of their subcontractors for approval of the Owner. Policies issued for Contractor shall be endorsed to include, for the benefit of the Owner, the following: (a) A ten (10) day advance written notice in the event of cancellation, non-renewal or material change of any policy. (b) Except as to Worker's Compensation insurance, the Owner shall be named as an additional insured. (c) Contractor's insurance shall be primary and any insurance maintained by Owner shall be considered excess and noncontributory. The minimum coverages and policy limits shall be: Insurance Coverage Policy Limits Worker's Compensation Statutory 1.Employer's Liability $1,000,000 each accident Comprehensive General $1,000,000 Bodily Injury Liability including coverage (per occurrence) for independent Contractors, Products and Completed $500,000 Property Damage Operations (extending for at (per occurrence); or least twenty-four (24) months $1,000,000 Combined after completion of Single Limit operations), Blanket or Broad Form Contractual, insuring the indemnification provision under Article 43 hereof. Personal Injury Liability, Broad Form Property Damage, and where an exposure exists the explosion, collapse and underground (XCU) hazard exclusions deleted 1.Comprehensive Automobile $500,000 per person; Liability including coverage $1,000,000 per occurrence for owned, non-owned and Bodily Injury. hired vehicles. $500,000 per occurrence Property Damage; or $1,000,000 Combined Single Limit Owner, by requiring the foregoing minimum insurance coverages, will not be deemed to limit any of the other obligations or liabilities of Contractor. Deductibles, if any, will be for the account of Contractor. 42.3 The Comprehensive General Liability Policy shall include Contractor coverage for Completed Operations, Blanket Contractual and Independent Contractors with respect to the Work. Contractor shall also furnish a standard endorsement to its Comprehensive General Liability Policy naming Owner and any affiliates, lessors, partners or joint venturers of Owner and their respective employers, officers, directors, shareholders, agents, representatives, attorneys, successors and assigns, as additional insureds. 42.4 Contractor will procure and maintain until acceptance of the Work, all risk and Installation Floater Insurance to include Owner as parties insured thereunder. Such insurance will cover physical loss or damage to Contractor's Work, materials and equipment, including consumable supplies that are part of, result from, or are used in the Work. Such insurance will not cover construction equipment, tools and facilities owned, leased or rented by Contractor which do not become a permanent part of the Work. 42.5 Neither Contractor nor Owner, shall be liable one to another nor to the insurance carriers of such parties for any loss or damage to property resulting from or occurring in the course of the Work to the extent that reimbursement shall be made for any such loss or damage through or by reason of insurance provided for the purpose and, for this purpose, hereby waive any claim by or right of subrogation by insurers, one to another. 42.6 A copy of any insurance company report made by Contractor to its insurance company relative to bodily injury or illness of its employees or property damage incurred in the field, must be furnished without delay to the Owner. 43.0 INDEMNIFICATION; SURVIVAL 43.1 State laws regarding indemnification vary considerably, particularly with regard to indemnification against the indemnitee's negligence. This Section 43 shall be so read and applied as to conform in all respects to applicable local law. 43.2 Contractor hereby agrees to defend, indemnify and save harmless Owner, and any affiliates, lessors, partners or joint venturers of Owner and their respective employees, officers, directors, shareholders, agents, representatives, attorneys, successors and assigns, and anyone to whom any of them may be liable and at their behalf, against all costs, liability and expenses for personal injuries, including death resulting therefrom, and against all costs, liability and expenses for property damage, and including attorneys' fees and other costs of defense caused or alleged to have been caused by any act or omission, negligent or otherwise, on the part of Contractor, or its subcontractors, or persons directly or indirectly employed by them and arising out of, or in any way connected with the performance of this Contract. 43.3 In those jurisdictions where permitted by local law, Contractor also agrees to defend, indemnify and save harmless Owner and any affiliates, lessors, partners or joint venturers, and their respective employees, officers, directors, shareholders, agents, representatives, attorneys, successors and assigns, anyone to whom Owner may be liable and at Owner's and Owner's request to defend on and on their behalf, against all costs, liability and expenses for personal injuries, including death resulting therefrom, and against all costs, liability and expenses for property damage, and including attorney's fees and other costs of defense, caused or alleged to have been caused by the concurrent negligence of Contractor or its subcontractors or persons directly or indirectly employed by them and arising out of, or in any way connected with the performance of this Contract. 43.4 In those jurisdictions where paragraph three above is unenforceable under local law, the parties agree that paragraph three is separable and severable from paragraphs one and two and from all other provisions of this Contract, and the paragraph three does not constitute the main or essential feature of this Contract and that the obligations of indemnification assumed by the Contractor under paragraph two thereof shall remain in full force and effect. If any claims are made or any suit or other proceeding is brought against Owner or any of its officers, directors or employees, or any other indemnified person based on a claim for which Contractor's indemnity is applicable, Contractor at the election of Owner, or any other indemnified person as the case may be, shall either defend the persons against whom such claims, suit or proceedings have been brought or assume the expense, but not the direction, of the defense thereof and pay or otherwise satisfy and discharge any and all judgments which may be entered against Owner or any other indemnified person. 43.5 The representations, warranties and indemnification obligations of Contractor shall survive the expiration or other termination of this Contract, subject to any applicable laws regarding statutes of limitation. 44.0 GOVERNING LAW 44.1 This Contract shall be construed and enforced, and all rights and liabilities hereunder shall be determined in accordance with the laws of the State of Colorado. Whenever possible, each provision of this Contract shall be interpreted in such a manner as to be effective and valid under applicable law, and if any provision of this Contract shall be or becomes prohibited or invalid in whole or in part for any reason whatsoever, that provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remaining portion of that provision or the remaining provisions of this Contract. The parties specifically charge the trier of fact to give effect to the intent of the parties, even if in doing so, reformation of a specific provision of the Contract is required consistent with the foregoing stated intent. 45.0 GENERAL 45.1 The headings used in this Contract are for convenience and shall not be used in any manner to construe, limit, define or interpret any term or provision of this Contract. This Contract has been fully reviewed and negotiated between the parties and no uncertainty or ambiguity in any term or provision shall be construed strictly against Owner or Contractor under any rule of construction or otherwise. 45.2 All rights and remedies of a party pursuant to this Contract shall be cumulative and non-exclusive and may be exercised singularly or concurrently. 46.0 ATTACHMENTS Attachments 46.1 and 46.2 are hereby attached to and made part of this Section II - General Terms and Conditions. The remaining documents listed below as items 46.3 et seq. are hereby incorporated in and made a part of this Section II General Terms and Conditions by this reference. Contractor acknowledges receipt of each of the items listed in this Section 46. 46.1 Attachment A - AIllinois Creek Project Schedule of Required Insurance@, February 22, 1996. 46.2 Addendum A 46.3 Illinois Creek Project, Invitation to Bid, Mine Services and Earthworks Contract, No. C-300 dated December 12, 1995. 46.4 Addenda No. 1 and 2, "Engineer's Estimate of Quantities", dated December 12, 1995. 46.5 Addendum No. 3, "Miscellaneous Questions," dated December 22, 1995. 46.6 Addendum No. 4, "Correction to Addendum No. 3" dated December 27, 1995. 46.7 Contractor's Proposal dated December 27, 1995, but excluding therefrom Exhibit Z. 46.8 Letter from Brad Luhman of D.H. Blattner & Sons, Inc. dated January 9, 1996 and titled, "Mine Services & Earthwork Revised Bid." 46.9 Addendum No. 5., "Bid Review and Request for Additional Information:, dated January 12, 1996. 46.10 Letter from Brad Luhman of D.H. Blattner & Sons dated January 16, 1996, and titled "Additional Information Requested on January 12, 1996." 46.11 Letter from James Sittner of USMX to Mr. Scott Blattner of D.H. Blattner & Sons, Inc. dated January 19, 1996 titled "Illinois Creek Project, Notice of Award for Mine Services and Earthworks Contract, No. C-300." 46.12 Addendum No. 6, "Engineer's Estimate of Quantities", dated February 6, 1996. 46.13 Letter from Brad Luhman of D.H. Blattner to Jim Sittner of USMX dated February 21, 1996, titled "...Revised Pricing." 46.14 Fax from Brad Luhman of D.H. Blattner & Sons, Inc. to Don Hilleary of USMX dated February 23, 1996, "Year 6 Bid Sheet". 46.15 Letter from Brad Luhman of D.H. Blattner & Sons, Inc. dated February 27, 1996 to James Sittner of USMX, Inc., titled Illinois Creek Project, Mine Services and Earthwork Adjusted Pricing Schedule. 46.16 Letter from James Sittner of USMX, Inc. dated February 27, 1996 to Scott C. Blattner, titled Notice to Proceed, Illinois Creek Project, Mine Service and Earthworks Contract C-300. Addendum A to Illinois Creek Project Mine Services and Earthworks Contract C-300 Section II - General Terms and Conditions The following provisions are added to the General Terms and Conditions as if inserted therein in the Sections and with the paragraph numbers indicated, unless otherwise provided: 5.35.3 Owner hereby designates Mr. James A. Sittner, Owner's Manager of Development, as an Owner=s representative. Owner hereby designates Mr. Stephen Dieker as a General Manager for the Project as an additional Owner=s representative. From time to time, Owner may also designate as additional representatives from Steffen, Robertson and Kirsten (U.S.), Inc., Lyntek, Inc. and other engineering consulting firms various individuals to act on Owner's behalf with respect to determinations regarding compliance by Contractor with certain specifications, terms and provisions of this Contract. The names of such representatives and their specific responsibilities and authority will be provided in writing by notice given to Contractor in accordance with the NOTICES provisions of this Contract. 5.4 Owner hereby designates Mr. Robert R. Monok, Owner's Construction Manager, and Mr. James A. Smith, Owner's Operations Manager, as additional representatives. Mr. Monok shall act as a representative of Owner in regards to the earthworks portion of the Contract during construction/development. Mr. Smith shall act as a representative of Owner under this Contract in regards to the mine services portion of this Contract during operations. 11.2 Contractor shall conduct operations on the Site so as to avoid disturbance or destruction of archeological sites, including any artifacts found at the Site. If Contractor discovers such an archeological site or artifact, Contractor shall immediately discontinue work at the Site, except for noninvasive surface exploration, and shall notify Owner of its discovery. Work at the Site shall not be resumed without compliance with applicable law. 11.3 Contractor shall not permit its employees, agents, contractors or subcontractors to fish or hunt on the Site. 11.4 Contractor shall take all precautions consistent with good industry practice to prevent and suppress forest, brush and grass fire. 11.5 Contractor shall protect all lease and claim boundary and survey monuments, witness corners, reference monuments and bearing trees against damage, destruction or obliteration. Any boundary markers, witness corners or monuments damaged or obliterated by Contractor shall be reestablished by the Owner in accordance with applicable law and/or accepted survey practices of the Federal Bureau of Land Management at the expense of Contractor. 12.3 Contractor shall to the extent practicable, not allow controlled drugs or substances (other than medically prescribed drugs) to be brought to or consumed on the Site. 15.2 Contractor shall invite, and consider in good faith, proposals or bids from NPMC, CIRI, and their affiliates for any subcontract. NPMC and CIRI shall be given as much advance notice as is reasonably practicable (but in no event less than fifteen (15) days unless an emergency situation is present) prior to notice being given to other potential bidders for all proposed subcontract work to be performed pursuant to this Contract. The following additional sentence is added at the end of paragraph 26.3 The retention portion of this paragraph does not apply to the mine services portion of this Contract for Work done during the operations phase. 26.8 The Contract Unit Prices payable in respect of the Work in any calendar year or portion thereof commencing on or after January 1, 1997 shall be adjusted effective as of the first day of such calendar based on the following method: The base price for all price adjustments shall be the Contract Unit Prices contained in the Contract for each Area of Activity. Adjustment to those Contract Unit Prices shall be made using the December Producer Price Indices, U.S. Department of Labor, Bureau of Labor Statistics. Indices for December, 1995 will be the base component for computing future adjustments. Labor adjustments will be determined by use of Alaska Department of Labor, "Alaska Economic Trends" Table 2, Average Hourly Earnings for the Mining Industry. Adjustments will be made effective as of January 1 of any year as soon as is reasonably practical following the receipt by Owner of the Indices. The following components will be subject to price adjustments. The average percent of each Contract Unit Price dollar components is established below. The sum of the averages during the base period is 100%.
COMPONENT INDEX INITIAL COMPONENT AVERAGE PERCENTAGE 1. Equipment Replacement Mining Machinery and Equipment 17% Cost Industry Code 3532 2. Equipment Operating Tires and Inner Tubes 22% Expense Truck/Bus, Including Off Highway (Tires 10% and Parts 90%) Product Code 3011-2 Mining Machinery and Equipment Parts and Attachments Product Code 3532-9 3. Fuel, Oil, Grease Actual Cost as Verified by Each Party 7% 4. Explosives Actual Cost as Verified by Each Party 5% 5. Direct Labor Alaska Department of Labor 25% Average Hourly Wage for Mining Industry 6. Indirect Labor Alaska Department of Labor 9% Average Hourly Wage for the Mining Industry 7. G&A Profit Not to be Adjusted 15% TOTAL 100% Adjustments to Unit Prices will be made by the following formulas: A=(B/C) XD Where: A = Total adjusted component average percentage B = Component index for latest December period. C = Component index for December, 1995, the base period D = Contract initial Component average percentage. This formula will be applied to each component and the results for each component will be computed. The new adjusted percentage total will be the multiplier used to adjust Contract Unit Price items. An example follows:
COMPONENT PERCENTAGE PERCENTAGE ADJUSTED (D) (B/C) MINING PERCENTAGE 1 17% 151.4/145.7=103.9% 17.7% 2 22% Tires - 10% 22.5% 95.2/95.1=100.1% Parts - 90% 137.4/134.3=102.3 3 7% 83.5/82.5=101.2 7.1% 4 5% No Adjustment = 100% 5% 5 25% 26.63/25.85=103.0% 25.8% 6 9% 26.63/25.85=103.0% 9.3% 7 15% No Adjustment = 100% 15% ADJUSTED TOTAL 102.4%
This adjusted total would then be multiplied against the mining unit prices for the following 12 month period. For example, 1996 loading unit price for ore is $0.17/ton. Using the above adjustment, 1997 loading price would be $0.17 X 1.024=$0.174/ton. 27.2 Payments to Contractor will not be made against a Work Authorization during the construction/development phase of this Project. Such costs will be accrued until the added work and the cost of same is incorporated into the Contract by Contract Amendment which Owner and Contractor shall finalize and execute whenever the aggregate of the costs accrued equal or exceed $50,000 or, whenever the aggregate costs are less than $50,000, not less frequently than once per month. 27.3 Payments to Contractor will be made against a duly processed Work Authorization signed by Owner or Other Work@ done during operations phase of this Project as defined in Section III - Contract Specifications, Section 2.9 - Other Work of this Contract. 30.5 Anything in this Contract to the contrary notwithstanding, in the event any lenders providing financing for the Project require a certification by an independent technical consultant for the funding of amounts due on Mechanical Acceptance or Final Acceptance, it shall be a condition to such Mechanical Acceptance and/or Final Acceptance that such certification shall have been obtained by Owner. 34.2 Without limiting the foregoing provisions of paragraph 34.1, Contractor agrees that in the event of any litigation to resolve a dispute involving NPMC, Owner and Contractor, such litigation shall, at the election of Owner, be brought and carried out in the Superior Court for the State of Alaska, Third Judicial District, sitting at Anchorage; or the United States District Court for Alaska at Anchorage. Contractor hereby expressly submits and consents in advance to such jurisdiction and hereby waives any claim that either of such courts is an inconvenient or improper forum based on venue. Contractor shall require that any of its subcontractors also consent to the jurisdiction and appropriateness of any proceedings in any of the foregoing courts. 35.3 Contractor shall comply with Owner=s agreement with NPMC which is a wholly owned subsidiary of CIRI regarding its hiring practices. Contractor shall adhere to the following standards: Contractor shall give sixty (60) days advance notice to Owner and NPMC or any other entity designated by Owner, of all anticipated job openings; and in hiring employees for work on the Project, Contractor shall give first preference to equally qualified and available local residents and shall then give a preference to equally qualified and available CIRI Shareholders and members of their immediate families. 38.3 Owner agrees that the Contractor has no discretion or control under the Contract regarding the release, transportation or disposal of chemicals or chemically treated residue used in Owner's leaching operations, and has not authority to make decisions or implement actions or mechanisms to prevent and abate damage caused by disposal, transportation and release of those chemicals. In the event that Contractor is found to be a responsible party with regard to the site under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601, et. seq., or become liable under any other law applicable to the handling, disposal, or treatment of chemicals used only by Owner's leaching operations, Owner agrees to indemnify, defend at Owner's cost and expense and hold harmless Contractor from said liability except insofar as such liability is determined to have been caused by the sole negligence, gross negligence or intentional misconduct of Contractor. 38.4 Hazardous substances transported in lots in excess of 100 pounds or 100 gallons (and the estimated quantities thereof) shall be disclosed by Contractor by written notice to Owner prior to their being brought on the Site. At the end of each calendar year, Contractor shall notify Owner of all hazardous substances and hazardous wastes, and the quantities thereof brought to, stored on, used on, or transported from the Site by it. 40.4 In the event either Contractor or Owner proposes to use equipment of the other, the parties shall enter into a written equipment lease agreement, which shall include among other things usual and customary provisions relating to maintenance, indemnities similar to those contained herein and provisions regarding the identification of the legal owner of the equipment. 42.7 Contractor and each of its subcontractors shall procure and maintain at its expense and in a form reasonably acceptable to Owner the types, and the greater of the minimum insurance coverages as are required by Sections 42.1 through 42.6 of Section II, General Terms and Conditions, of this Contract or as are required by the Illinois Creek Schedule of Required Insurance (Attachment AA@). 42.8 Contractor shall require such insurers as Owner may require to designate lenders providing financing for the Project to name such lenders as "loss payee" on Contractors' Builders' Risk Policies. The following 43.5 replaces in its entirety 43.5 in the preceding portion of Section II - General Terms and Conditions. 43.5 The indemnification obligations of Contractor shall survive the expiration or other termination of this Contract, subject to applicable laws regarding statutes of limitation. The representations and warranties of Contractor shall survive the expiration or other termination of this Contract, in the case of representations for twenty four (24) months and in the case of warranties for 12 months following Final Acceptance. 43.6 Anything in this Contract to the contrary notwithstanding, the indemnification obligations of Contractor set forth in this Contract shall not apply with respect to any person or entity to be indemnified to the extent such person or entity is determined by a decision binding on such person or entity to have been guilty of (a) gross negligence or intentional misconduct or (b) if and to the extent that this Contract is deemed to be a construction contract within the meaning of Section 45.45.900 of Alaska Statutes or any replacement therefor, sole negligence. The foregoing shall not affect the validity of any insurance or agreement issued by an insurer obtained by Contractor for the benefit of Owner or others as provided hereunder. 47.0 ASSIGNMENT OF CONTRACT BY OWNER. 47.1 Owner may transfer or assign the Contract to any joint ventures or partnerships between it and NPMC, any of its subsidiaries, affiliates or any successors by merger and also to any lenders providing financing for the Project. ILLINOIS CREEK PROJECT MINING AND EARTHWORKS CONTRACT C-300 SECTION III CONTRACT SPECIFICATION ILLINOIS CREEK PROJECT MINING AND EARTHWORKS CONTRACT C-300 SECTION III CONTRACT SPECIFICATION Table of Contents SECTION TITLE PAGE NO. 1.0 INTRODUCTION 3 2.0 SCOPE OF WORK 3 3.0 WORK INCLUDED IN SPECIFICATION 9 4.0 WORK EXCLUDED IN SPECIFICATION 10 5.0 MATERIAL FURNISHED BY OWNER 10 6.0 MATERIALS FURNISHED BY CONTRACTOR 11 7.0 SCHEDULING THE WORK 11 8.0 MATERIAL CONTROL 12 9.0 MEASUREMENT FOR PAYMENT 12 10.0 SITE FACILITY AND CLEAN UP 13 11.0 EXECUTION 13 12.0 ATTACHMENTS 30 1.0 INTRODUCTION 1.1 This Section of the Illinois Creek Mine Services and Earthworks Contract -- namely, Section III, Contract Specification -- establishes the Scope of Work for the Contract. The Contract Specification is coordinated with the Form of Proposal and is supplemented by the specific drawings, specifications and other documents which are made part of this Contract and which are listed in Section 12.0 "Attachments". 1.2 Work for which the Contractor shall be responsible is summarized below by Areas of Activity (AOA). A complete listing of the project by AOA showing areas of responsibility is listed in Section 12.0 "Attachments". 2.0 SCOPE OF WORK 2.1 General. This specification covers the furnishing of all supervision, labor, equipment, temporary facilities, tools, materials and supplies required to perform the contract mine services and other earthwork at the Illinois Creek Project site. Years noted shall be based on the one year periods commencing with the date of the Contract unless otherwise noted. 2.2 Mobilization/Demobilization (AOA-8810) Contractor shall be responsible for all the Work required to mobilize and demobilize its equipment, manpower, tools, material, and supplies from their respective points of origin to the point of departure stated in the Contractor's Form of Proposal. 2.3 Earthwork Construction/Development (AOA-0000) Contractor shall be responsible for all Work necessary to (1) clear, grub and/or chip all trees and brush; (2) remove and stockpile all chipped organic material including the peaty and mossy organic mat; (3) remove and stockpile topsoil; (4) rip, drill, blast, cut rock and/or common material; (5) prepare foundations; (6) fill embankments; (7) compact fill, (8) install culverts, geotextile and rip rap; and (9) grade, finish and trim earthwork so that the completed earthwork construction/development conforms to the grades, elevations, lines, and pertinent cross sections as shown on the attached construction drawings, specifications and other documents. 2.3.1 On-Site Infrastructure (AOA-2000). Plant Site Access/Transportation (AOA- 2100). Work shall include completing the construction of the main access road from the existing airstrip to the mine plant area. This Work includes the installation of any drainage ditches, culverts, geotextile and base course material required to develop an all weather road capable of handling Contractor's and Owner's equipment required to move personnel, equipment and supplies from the existing air strip to the mine plant site on a sustained basis. Work shall include maintaining the existing gravel airstrip during the construction period in 1996 in its current good condition and so that it is capable of handling C-133, C-130, DC-6 and light cargo airplanes. Contractor shall maintain the airstrip in its current condition from and after 1996 based on a reasonable price to be negotiated in good faith by Owner and Contractor. General Plant Site Work (AOA-2200). Work includes site preparation at the plant site which contains the process plant, assay laboratory, maintenance shop, warehouse, administration office, ready line, fresh water pond and laydown yard. Site preparation includes work necessary to clear, grub, remove and stockpile the existing organic mat and topsoil, cut underlying silt layer down to the competent gravel zone which lies about one foot below the silt layer and rough grade the area. 2.3.2 Crusher Site (AOA-4000). ROM Stockpile and Retaining Wall (AOA- 4100). Work includes all earthwork necessary by Contractor to construct a suitable run-of-mine (ROM) stockpile area capable of storing up to 15,000 tons of dolomitic limestone and 25,000 tons of ore. Work will also include the construction of an appropriate retaining wall if necessary to feed material to contractor's portable crushing and screening plant. Portable Crushing, Screening and Wash Plant (AOA-4700). Work includes providing a portable plant capable of handling 15,000 tons of dolomitic limestone per year (90% passing 3" x 1.5") and 83,800 tons and 71,100 tons of ore grade overliner material for the leach pad (80% passing 1") in Years 1 and 3, respectively. It is expected that overliner material will require very little crushing as it can be obtained from the very friable, high grade gossan zone. The overliner will need to be processed during a three month period. Work will include all earthwork necessary to prepare an appropriate crusher site near the Owner's lime kiln complete with appropriate product stockpile area. 2.3.3 Process Site (AOA-5000). Modified Valley Fill Leach Pad (AOA- 5410). Work shall include all earthwork construction required to construct the modified valley fill leach pad as summarized below and further defined in the SRK Report titled, AIllinois Creek Heap Leach Design Report", November 1995. The leach pad will be construction on a hillside. Downstream containment of the ore and process solution will be accomplished through the construction of an earthen embankment. A trough will be excavated behind the upstream toe of the embankment to serve as a barrow source for initial construction and to increase the storage capacity behind the embankment. The leach pad will be built in three stages. The first stage will be constructed in Year 1. It will consist of excavating a trough approximately 80 feet wide by 1500 feet long to a nominal base elevation of 500 feed (msl), constructing a berm to the 530 foot elevation and constructing a leach pad up slope of the trough to the 570 foot elevation contour. Stage two will be built in Year 3. It will consist of increasing the crest of the berm to 550 foot elevation and extending the leach pad up slope to the 635 foot elevation contour. Stage three is optional and will be constructed only if needed around Year 4. It will consist of increasing the crest of the berm to the 570 foot elevation. Lime Kiln Site (AOA-5630). Contractor shall construct the lime kiln site earthworks so that the completed site work shall conform to the grades, elevations, lines and pertinent cross- sections on the attached drawings or as specified by the Owner. Earthworks shall be completed up through rough grading and up to the point that the site is ready for structural excavation. Such work is to be done by others. 2.3.4 Stormwater Diversion System (AOA-6200). Work shall include all earthwork required to construct and maintain the stormwater diversion system as summarized below and as further defined in the SRK Report titled, AStormwater Pollution Prevention Plan" dated October 1995. The stormwater diversion system will consist of a system of (1) a permanent stormwater infiltration node; (2) temporary stormwater collection ponds and pits; (3) diversion ditches, channels and culverts; and (4) other stormwater treatment/best management practice (BMP) systems. 2.4 Contract Mining (AOA-3000). During the operations phase of this Project, Contractor shall be responsible for all Work required to perform preproduction development and other contract mining required in accordance with the terms set forth in the Contract, as summarized below and as described in more detail in the attached construction drawings, specifications, documents and yearly production schedule. If the Contract price to be charged for the following work varies by pit, bench level, drill pattern or powder factor, the prices must be clearly stated in the Contractor's Form of Proposal. 2.4.1 Mine Preproduction Development (AOA- 3100). Work shall include the following elements as required to prepare mine site for production: Clear and grub and/or chip all trees and brush, Burn and/or otherwise dispose of trees and brush, and Remove and stockpile the equivalent of one foot of peaty surface mat, topsoil and/or plant growth medium. 2.4.2 Drill (AOA-3300). Work shall include drilling and sampling of the ore and/or waste zones as required. 2.4.3 Blast (AOA-3400). Work shall include blasting and/or ripping ore and/or waste zones as required. 2.4.4 Load (AOA-3500). Work shall include loading ore and/or waste from 10-foot benches and/or 20-foot benches as required. 2.4.5 Haul (AOA-3600). Work shall include hauling ore to the crusher or to the leach pad and end dumping it on 10-foot to 20-foot lifts as dictated by the Owner. Work shall include hauling waste to the appropriate waste dump as shown on the construction drawings and/or dictated by the Owner. 2.4.6 Pits, Roads & Dumps (AOA-3700). Work shall include the construction, development and maintenance of all mine access roads, mine haul roads, waste dumps and topsoil stockpiles. This Work includes watering all mine roads, dumps and stockpiles as necessary to maintain strict compliance with the terms and conditions of the State Air Quality Permit held by Owner. Owner will supply water to the Contractor at a mutually agreed upon site near the crusher to be used by the Contractor to fill its water truck(s). This Scope of Work covers all Work required by Contractor to maintain the various mine areas including the highwalls, safety benches, ramps, roads, pit working areas, waste dumps, and topsoil stockpiles in a safe and workman like manner. 2.4.7 Mine Support (AOA-3800). The Work shall cover all other field costs incurred by the Contractor during the course of mining including but not limited to labor, maintenance and operating supplies, fuel, lubrication, tires and ground engaging components. 2.4.8 Mine General (AOA-3900). This Scope shall cover all other Work required of the Contractor by the Owner and necessary to the completion of Work covered by Section 2.4, AContract Mining". It includes but is not limited to such items as any of the Contractor's direct costs of production (such as, supervision, equipment ownership and overhaul expenses) and indirect costs (such as, field facilities, other expenses, insurance, taxes, general and administrative items and profit) which have not been allocated to any other cost center. 2.5 Contract Crushing (AOA-4000). During the operations phase of this Project, the Contractor shall be responsible for all Work required to perform contract crushing, screening, washing, and/or the rehandling of any crushed product utilizing the facilities and equipment provided by the Contractor. 2.5.1 Crushed Overliner Material (AOA-4201). Contractor shall be responsible for crushing ore grade overliner material for Owner as previously specified in Section 2.3.2. 2.5.2 Dolomitic Limestone (AOA-4202). Contractor shall be responsible for crushing dolimitic limestone for Owner to be used by Owner to feed Owner's lime kiln. Product produced is to be as previously specified in Section 2.3.2. Product is to be placed in a stockpile for Owner. 2.5.3 Crushed Ore/Overliner Material Rehandle (AOA-4730). Contractor shall be responsible for rehandling crushed overliner material and placing it on the leach pad as specified by the Owner. Overliner material shall be placed over the leach pad liner in a two-foot lift. Contractor will use extreme care in placing the overliner on and spreading it over the synthetic liner. Contractor will be held strictly responsible for any and all costs incurred by Owner during the course of repairing any liner damaged by Contractor. 2.5.4 Air Quality. Contractor shall be responsible for maintaining strict compliance with the terms and conditions of the State Air Quality Permit held by the Owner. Contractor shall provide water sprays as necessary. Owner will provide a water supply to Contractor at a point near the Contractor's crusher site. 2.6 Contract Loading of Leach Pad (AOA-5420). Contractor shall be responsible for all Work required to load run-of-mine (ROM) and/or crushed ore on the leach pad as shown on the construction drawings and/or as directed by the Owner. The proposed plan is to place the ore on the leach pad in horizontal lifts ranging in height from 10 feet to 20 feet. Owner may specify either one of two methods to load the leach pad as follows: 2.6.1 End Dumping (AOA-5421). Contractor will work off the top of the new lift by dumping ore off the end of the new lift and down on top of the previously leached lift. Contractor will be responsible for ripping the previously leached lift to a minimum depth of three feet. Contractor will be responsible for pushing ore off the top of the new lift, ripping it and leveling it to ensure that the lift elevations are maintained to within 3 inches of the approved design in preparation for the Owner to lay the leaching distribution and collection piping system. Contractor shall clearly state whether this Work item is to be considered a separate charge or whether it is included in the Contractor's ore haulage charge (see Section 2.4.5 AHaul"). 2.6.2 Push Up Dumping (AOA-5422). Contractor shall work off the top of the previously leached lift end dumping ore from its trucks and pushing it up to the desired lift height with a dozer and/or backhoe. Contractor will be responsible for ripping the previously leached lift parallel to the advancing face of the new lift before dumping the ore on it. Trucks or other wheeled vehicles will not be allowed to back over the area after it has been ripped. Contractor will be responsible for ripping and leveling the new lift to ensure that the lift elevations are maintained to within 3 inches of the approved design in preparation for the Owner to lay the leaching distribution and collection piping system. 2.7 Contract Maintenance and Warehouse Services (AOA-7000). Contractor shall be responsible for all mine maintenance required to complete its Work and to maintain in good working order any of the Owner's facilities and/or equipment utilized by the Contractor. A heated shop and warehouse will be required at the mine plant site as well as the existing one located at the airstrip. Owner and Contractor will share maintenance and warehouse facilities as well as purchasing maintenance and warehousing responsibilities (see USMX Report titled, A1994 Year End Report, Illinois Creek Project, Alaska", December 15, 1994, Sections 11 and 18). Owner will provide general maintenance service for the process plant, assay laboratory, man camp, old man camp, administrative building and infrastructure. Contractor will be responsible for maintaining the maintenance shop/warehouse and for providing labor necessary to maintain Owner's and its own mobile equipment. Contractor shall be responsible for unloading from incoming aircraft, receiving, providing temporary storage and protection for, and transporting to appropriate installation site, as required, all equipment, materials, and supplies furnished by Owner as well as all equipment materials and supplies furnished by Contractor. 2.8 Contractor's Indirect Costs (AOA-8800). Contractor shall be responsible for bidding its Work so that all of its indirect costs with the exception of mobilization are allocated to one of the direct areas of activity (AOA) defined in this Section (Section 2.0 AScope of Work"). Such indirect costs include but are not limited to the following: (1) field construction facilities, (2) field construction expenses, (3) Contractor's insurance, Contractor's taxes, (4) Contractor's G & A, and (5) Contractor's profit. This specification will not be used unless Owner and Contractor mutually agree to an arrangement which allows for Work to be allocated in this manner. 2.9 Other Work. From time to time during the life of the Contract , Owner may have other miscellaneous work requirements for which it will request the services of the Contractor. Contractor shall exercise its best efforts to comply with all such requests. Such requests shall be issued in writing by the Owner. Such other work shall be conducted at the direction of the Owner and, except as agreed to the contrary in writing by the Owner and Contractor, shall be paid for in accordance with the Contractor's unit prices and/or hourly rates established in Section IV, AForm of Proposal" of this Contract. 3.0 WORK INCLUDED IN SPECIFICATION The Work included in this specification shall include but is not limited to the following: 3.1 Plan and organize the Work 3.2 Mobilize all materials as specified, construction equipment, facilities and manpower necessary to accomplish the Work in accordance with the drawings and specifications (see Section 12.0 "Attachments") and within the proposed schedule (see Section 7.0 "Scheduling Work"). 3.3 Provide sufficient quantities of equipment for each part of the Work bid to complete all items of Work within the schedule. Contractor shall not remove equipment from the Site without Owner's approval. 3.4 Unload, receive, provide temporary storage and protection for, and transport to the installation site, as required, all equipment and materials furnished by Owner. 3.5 Coordinate survey control through the on-site designated representatives of Owner. Owner will provide for all survey work. 3.6 Notify Owner immediately of any discrepancies encountered with drawings, specifications or major survey control points. 3.7 Provide scheduling and cost control of the Work to a standard that is acceptable to Owner. 3.8 Maintain all construction equipment in proper working condition, including Owner's equipment utilized by Contractor. 3.9 Maintain traffic flows in a controlled and safe manner. 3.10 Repair damages to the Work caused by weather or construction. 3.11 Provide onsite transportation for contract personnel in a manner that is acceptable to the Owner. 3.12 Provide quantity takeoffs from survey information to establish payment quantities. Quantity information shall be in such format and detail as is acceptable to the Owner. 3.13 Clean up the working areas to the satisfaction of the Owner and demobilize all materials, construction, equipment, and facilities from the Site once the Work is completed. 3.14 In case of accident furnish first aid to injured and provide extrication of injured to the nearest medical center or obtain medical assistance. Owner and Contractor will work together to staff their respective work forces with adequately trained Emergency Medical Technicians (EMT) and to establish air medivac services. 3.15 Provide a bi-monthly report to Owner detailing material purchases, work in progress, completed items, equipment received, job status and work planned for next month. Provide in depth discussion of problems or delays which may arise in meeting contractual completion dates. 3.16 Contractor shall work closely with Owner to coordinate the installation of the pregnant solution pump. Pipe connections, pump installation as well as all trenching leading to and from the sump will be done by Owner or by Contractor as AOther Works". Installation shall be directed by the Owner. 4.0 WORK EXCLUDED IN SPECIFICATIONS The following items are specifically excluded from Contractor's Scope of Work. 4.1 Primary control and construction surveys. 4.2 Concrete foundations. 4.3 Liner installation and trenching. 4.4 Man Camp, mine plant site, lime kiln and valley fill leach pad piping and trenching, including the installation of the pregnant solution pumps. 4.5 Structural excavation, including trenching for concrete foundations and fine grading of mine plant, man camp and lime kiln areas. 5.0 MATERIAL EQUIPMENT AND OTHER ITEMS FURNISHED BY OWNER 5.1 Camp facilities for Contractor's employees including room and board while they are on site. The existing camp can handle approximately 30 people. The new camp will be able to service 90 people. 5.2 Maintenance/Warehouse facilities. Contractor will be able to share the use of the existing maintenance/warehouse facilities at the airstrip until the new facilities are constructed. 5.3 Office facilities both in the administration building and in the maintenance/warehouse. 5.4 Outside communication capabilities. 5.5 Lot - Leach Pad and Pond Leak Detection Piping and Sumps. 5.6 Contractor should state which if any of the Owner's mobile equipment and/or facilities it will need. 6.0 MATERIAL FURNISHED BY CONTRACTOR 6.1 Contractor shall furnish all dozers, scrapers, excavators, cranes, trucks, mixers, generators, compressors, welders, fuel, lubricants, and all other construction supplies, small tools, materials, and equipment not provided by Owner. 6.2 Contractor shall furnish crushed screened material for leak detection trench drain rock as specified by the Owner. 7.0 SCHEDULING THE WORK 7.1 Completion of the following items of work on the dates indicated is a contractual requirement. Contractor shall furnish sufficient personnel, equipment and supervision and shall work such hours, including overtime, as necessary and as approved by Owner, to complete the Work not later than the following dates:
AOA Scope of Work Description Early Start Date Late Finish Date - Invitation to Bid 11-27-95 N/A - Bids due from Contractors N/A 12-27-95 - Contract Award Date 1-15-96 2-15-96 - Notice to Proceed 3-15-96 4-15-96 8810 Mobilize at Point of Departure 4-15-96 5-15-96 - Earthwork Construction 2000 On-Site Infrastructure 4-15-96 6-30-96 3100 Mine Site Development 6-01-96 8-31-96 4000 Crusher Site Development 6-15-96 7-01-96 5000 Process Site Development 4-15-96 8-31-96 5410 Modified Valley Fill Leach Pad 4-15-96 7-15-96 5630 Lime Kiln Site Development 6-15-95 7-01-96 6200 Stormwater Diversion System 6-15-95 7-31-96
Field completion dates are based on a contract award date of February 15, 1996. 7.2 Bidder, during bid preparations, shall satisfy itself that it has planned and scheduled the Work to the degree necessary to fairly price the Work. Planning and scheduling shall include the possible effects of weather, other contractors, confined spaces and the remote site. Request for changes due to the failure of Contractor to adequately plan and schedule the work will not be considered. 7.3 The Contractor shall prepare a detailed bar chart scheduled within one (1) week after receipt of Notice to Proceed. 7.4 Contractor shall utilize accepted, effective scheduling techniques throughout the course of the Work. Owner will request periodic meetings with the Contractor to review Contractor's progress, personnel, deliveries, and future planning. 8.0 MATERIAL CONTROL 8.1 Contractor shall be responsible for purchasing, expediting, receiving, handling, transporting, warehousing, and protecting all materials required to complete the Work furnished by Contractor. 8.2 Contractor shall be responsible for unloading, receiving, handling, transporting, warehousing, and protecting all materials furnished by Owner. 8.3 No material, including material furnished by Contractor, shall be removed from the jobsite without written authorization from the Owner. 9.0 MEASUREMENT FOR PAYMENT 9.1 Measurement of Work Performed: Progress payments to be made to the Contractor shall be for Work actually performed based upon actual measurements. 9.2 Quantity Measurement: The measurement to be used to calculate the quantity of Work completed will correspond to the unit of measurement stated in Section 2.0 of the Contractor's Form of Proposal. For example, measurement of the volume of ore and waste for purposes of establishing Work performed by Contractor shall be by Abank cubic yard" determined by field surveys of pit excavations. "Bank cubic yards", as used herein, means earth, rock and/or overburden in place before drilling, blasting or ripping. To compute tonnage, a factor of 12.9 cubic feet per dry ton, in place, will be used for the ore zone. A factor of 12.2 cubic feet per dry ton, in place, will be used for the waste zone. A tonnage factor of 18 cubic feet per dry ton, in place, will be used for topsoil. The Owner shall survey the excavation and backfill progress on a weekly basis or more often if necessary for the purpose of calculating volumes. The planned elevations will be used as a basis for determining the volume removed in bank cubic yards. Copies of survey notes, plots and calculations will be furnished upon request for verification purposes. If the parties fail to agree on the volume removed as shown by the surveys and calculations, an independent party shall be paid for by the party whose contention regarding the aggregate volume removed was furthest from the amount determined by the independent party. No additional allowance will be made for rock removal, dewatering, site clearing and grading, filling, compaction, disposal or removal of any unclassified materials. 10.0 SITE FACILITIES AND CLEANUP 10.1 Contractor shall furnish suitable security, first aid, and safety facilities as approved by Owner. Contractor is responsible for the safety of its employees, including jobsite first aid, transportation to and from doctor and arrangements for offsite medical services. 10.2 Contractor shall furnish all necessary temporary facilities such as toilets, drinking water, electric power, air compressors, lighting, heaters gang boxes, office trailers, telephones, radios, crew shacks, and reprographic equipment. 10.3 Owner will be awarding other contracts for construction on this Project. Contractor shall fully cooperate with other contractors and carefully fit its work to other work as may be directed by the Owner. Contractor shall not commit or permit any act which will interfere with the performance of work by any other contractor, and shall store construction materials and equipment in areas assigned by Owner. 10.4 Contractor shall arrange its work and shall store and dispose of materials being used so as not to interfere with the operations of other contractors. It shall coordinate its work with others in an acceptable manner and perform it in a proper sequence to that of others. 10.5 Contractor shall keep the area in which it is working clean of all debris. Upon leaving any area after completion of work, Contractor shall remove from premises all rubbish and unused materials. 11.0 GENERAL WORK SPECIFICATIONS AND METHODS OF EXECUTION 11.1 The following general specifications and methods of execution shall apply to all the Work covered by this Contract which is not covered by a specific specification and/or method of execution. 11.2 Clearing and Grubbing 11.2.1 This work consists of clearing, grubbing, removing and disposing of vegetation and debris within the limits of the construction site. 11.2.2 Surface objects, tress, stumps, roots and other protruding obstructions, designated for removal shall be cleared and/or grubbed, including mowing, as required. 11.2.3 Grass, grass roots and incidental top soils shall not be left beneath a fill area, nor shall this material be used as fill material. 11.2.4 Except in areas to be excavated, holes resulting from the removal of obstructions shall be backfilled with suitable material and compacted. 11.2.5 Burning, if permitted, shall be done in accordance with applicable laws, ordinances, and regulations. If perishable material is burned, it shall be burned under the constant care of the Contractor at such time and in such manner that the surrounding vegetation, other adjacent property, or anything designated to remain will not be jeopardized. 11.2.6 Materials, debris and unburned perishable materials may be disposed of by methods and at locations approved by the Owner. If disposal is by burying, the cover material shall provide a cover at least 12 inches and shall be graded and shaped to present a pleasing appearance. 11.2.7 Trees, shrubbery, grass and other vegetative ground cover outside the construction area shall be preserved and protected from damage, and the Contractor will be responsible for any damage thereto resulting from construction operations. Contractor shall take reasonable care to avoid damage by its construction operations to lands adjacent to the site. All vegetation and ground cover not within the construction site shall be preserved and protected as directed. 11.3 Chipping Small trees, shrubbery and brush will be chipped to form an organic mulch when directed by the Owner and/or the Contract. Trees typically range from 3- inches to 9-inches in diameter with minor larger trees present. Larger trees may be chipped and/or individually disposed of as approved by the Owner. 11.4 Remove and Stockpile Organic Material In those areas where chipping is specified, Contractor shall remove and stockpile all chipped and organic material including the 3-inch to 9-inch peaty surface mat. This material shall be stockpiled separately from the topsoil as it will be used during reclamation to construct a biomass channel to remove heavy metals from the leach pad solutions. 11.5 Remove and Stockpile Topsoil Enough topsoil will be removed and stockpiled to cover the area to be reclaimed with one foot of topsoil and/or plant growth medium such as the silt layer just below the "A" horizon. 11.6 Excavation and Structural Fill The work of this Section includes all earthwork required for construction of the Project. Such earthwork shall include, but not be limited to, the loosening, removing, loading, transporting, depositing, and compacting in its final location of all materials wet and dry, as required for the purposes of completing the Work specified in the Contract Documents, which shall include, but not be limited to, the furnishing, placing, and removing of sheeting and bracing necessary to safely support the sides of all excavation; all pumping, ditching, draining, and other required measures for the removal or exclusion of water from excavation; the supporting of structures above and below the ground; all backfilling around structures and all backfilling of trenches and pits; the disposal of excess excavated materials; borrow of materials to make up deficiencies for fills; and all other incidental earthwork, all in accordance with the requirements of the Contract Documents. The Contractor's attention is directed to the provisions of Subpart P, Section 1926.652 of the OSHA Safety and Health Standards for Construction, which require that all banks and trenches over 5 feet high shall be shored or sloped to the angle of repose. 11.6.1 Cut/Earth Excavation Earth excavation shall consist of the excavation and removal of suitable soils for use as structural fill as well as the satisfactory disposal of all vegetation, debris and deleterious material encountered within the area to be graded and/or in a borrow area. Excavated areas shall be continuously maintained such that the surface shall be smooth and have sufficient slope to allow water to drain from the surface. 11.6.2 Structural Fill Structural fill shall consist of a controlled fill constructed in areas indicated on the grading plans. Structural fill material shall consist of soils that conform to the following physical characteristics: Sieve Size Percentage Passing (Square Openings) by weight 3 inch 100 No. 4 50-100 No. 200 0-30 The plasticity index of materials to be used as structural fill shall not exceed 10 as determined in accordance with ASTM D4318. The fill materials shall be free from roots, grass, other vegetable matter, clay lumps, rocks larger than 6 inches, or other deleterious materials. Site soils may be used for structural fill, provided they meet the requirements of Section 11.6.2. The results of the soil investigation indicate that adequate site soils exist which will meet these requirements, selective excavation or blending may be required. 11.6.3 When the quantity of suitable material required for fill is not available within the limits of the jobsite, the Contractor shall import sufficient suitable materials for fill to the lines, elevations and cross sections as shown on the drawings form borrow areas. The Contractor shall obtain from owners of said borrow areas the right to excavate material, shall pay all expenses in developing the sources including the cost of right-of-way required for hauling the material. 11.7 Construction 11.7.1 Building Area Preparation Areas to receive fill and cut surfaces at final grade shall be scarified to a depth of 12 inches. The scarified surface shall then be compacted as specified in Section 11.7.2. Scarification and moisture conditioning can be deleted in areas in which bedrock is exposed at the surface or as approved by Owner. Compaction of the bedrock shall be by proof rolling. 11.7.2 Compaction Fill shall be spread in layers not exceeding 8 inches, watered as necessary, and compacted to a density of not less than 95 percent of maximum dry density. Moisture content at time of compaction shall be maintained within the limits of 2 percent below to 3 percent above optimum moisture content. Optimum moisture content and maximum dry density for each soil type used shall be determined in accordance with ASTM D1557. 11.7.3 Solution Ponds Areas to receive fill and cut surfaces at final grade shall be scarified to a depth of 8 inches, moisture conditioned and compacted to a minimum 90% of maximum density per ASTM D1557. Moisture content should be maintained within the limits of 2 percent below to 3 percent above optimum moisture content. Areas of compacted subgrade to receive the geomembrane liner material shall be free of angular gravel, gravel over 2 inches in diameter and hard objects within 4 inches of the surface. These areas shall be graded to a continuous smooth surface. Areas that require a thin lift of soil to fill irregularities shall be compacted with at least 4 passes of a 5 ton minimum weight smooth drum or pneumatic roller. The top surface of the completed pond shall be inspected to ensure that it shall be free from depressions, cracks, sharp or oversized rocks, and other foreign material which might puncture the synthetic liner. This surface treatment includes side slopes as well as the bottom of the pond. 11.7.4 Heap Leach Pad This general specification 11.74 does not apply at Illinois Creek. Please see appropriate specification in the Attachments. Areas to receive fill and cut surfaces at final grade shall be scarified to a depth of 8 inches, moisture conditioned and compacted to a minimum 95% of maximum dry density per ASTM D1557. Moisture content should be maintained within the limits of 2 percent below to 3 percent above optimum moisture content. Areas of compacted subgrade to receive the geomembrane liner material shall be free of angular gravel, gravel over 2 inches in diameter and hard objects within 4 inches of the surface. The prepared subgrade shall be covered with a minimum thickness of 12 inches of a compacted clay liner. The maximum particle size shall be 3/4 inches. The clay liner material shall have a minimum of 30 percent passing the No. 200 sieve by weight. The minus 200 mesh material may be composed of either clay or silt. The clay liner material shall be of a type that can be compacted to have a maximum permeability of 1 x 10-6 cm/sec. After compaction and removal of any oversize material, the final surface preparation will be provided by a heavy, smooth steel drum vibratory roller. The clay liner shall be constructed of material from a borrow area approved by the Owner. These areas shall be graded to a continuous smooth surface. The top surface of the completed leach pad shall be inspected to ensure that it shall be free from depressions, cracks, sharp or oversized rocks, and other foreign material which might puncture the synthetic liner. Areas that require fill shall be placed in lifts no thicker than 10 inches when compacted, moisture conditioned and compacted as previously described. 11.7.5 Controlled Fill Contractor shall not do this type of Work when the atmospheric temperature is below 35 degrees. It shall be the responsibility of the Contractor to protect all areas of completed work by methods approved by the Owner. Any areas that are damaged by freezing shall be reconditioned, reshaped and compacted by the Contractor in conformance with the requirements of this specification without additional cost to the Owner. 11.8 Standards Without limiting the generality of other requirements of the Specifications, all work specified herein shall conform to or exceed the applicable requirements of the following ASTM documents to the extent that the provisions of such documents are not in conflict with the requirements of this Section: . ASTM D 1557 Test Method for Determining Compaction by Standard Proctor . ASTM 698 Test Methods for Moisture-Density Relations of Soils and Soil Aggregate Mixtures, Using 5.5-lb. (2.49-KG) Rammer and 12 in. (304.8 mm) Drop. 11.9 Quality Assurance All soils testing will be done by a testing laboratory of the Owner's choice at the Owner's expense. Compaction and soil testing will be carried out by an independent soils contractor who shall be under the direction of the Owner, and, whenever applicable any engineers retained by Owner to assure compliance with any standards or requirements of this Contract or law. Final acceptance of any earthworks must be approved by both the soils contractor and Owner. 11.10 Pipeline Trench Excavation Unless otherwise shown or ordered by the Owner, excavation for pipelines and utilities shall be open- cut trenches. Trench widths shall be kept as narrow as is practical for the method of pipe zone densification selected by the Contractor, but shall have a minimum width at the bottom of the trench equal to the outside diameter of the pipe plus 36 inches. The minimum width at the bottom of a trench to be used to install HDPE pipe will be equal to the outside diameter of the pipe plus 12 inches unless otherwise shown or ordered by the Owner. Except when pipe bedding is required, the bottom of the trench shall be excavated uniformly to the grade of the bottom of the pipe. The trench bottom shall be given a final trim, using a string line for establishing grade, such that each pipe section when first laid will be continually in contact with the ground along the extreme bottom of the pipe. Rounding out the trench to form a cradle for the pipe will not be required. The maximum amount of open trench permitted in any one location shall be 500 feet, or the length necessary to accommodate the amount of pipe installed in the single day, whichever is greater. All trenches shall be fully backfilled at the end of each day or, in lieu thereof, shall be covered by heavy steel plated adequately braced and capable of supporting vehicular traffic in those locations where it is impractical to backfill at the end of each day. The above requirements for backfilling or use of steel plate will be waived in cases where the trench is located further than 100 feet from any travelled roadway or occupied structure. In such cases, however, barricades and warning lights meeting OSHA requirements shall be provided and maintained. Where the Drawings indicate that trenches shall be over-excavated, they shall be excavated to the depth shown, and then backfilled to the grade of the bottom of the pipe. Work specified in this Section, shall be performed by the Contractor at its own expense. When ordered by the Owner, whether indicated on the Drawings or not, trenches shall be over- excavated beyond the depth shown. Such over-excavation shall be to the depth ordered. The trench shall then be backfilled to the grade of the bottom of the pipe. All work specified in this Section shall be performed by the Contractor at its own expense when the over- excavation ordered by the Owner is less than 6 inches below the limits shown. When the over-excavation ordered by the Owner is 6 inches or greater below the limits shown, additional payment will be made to the Contractor for that portion of the work which is located below said 6-inch distance. Said additional payment will be made under separate unit price bid items for over-excavation and bedding if such bid items have been established; otherwise payment will be made in accordance with a negotiated price. Where pipelines are to be installed in embankment or structure fills, the fill shall be constructed to a level at least one foot above the top of the pipe before the trench is excavated except as noted below. 11.11 Over-Excavation Not Ordered, Specified, or Shown Any over-excavation carried below the grade ordered, specified, or shown, shall be backfilled to the required grade with the specified material and compaction. Such work shall be performed by the Contractor at its own expense. 11.12 Disposal of Excess Excavated Material The Contractor shall remove and dispose of all excess excavated material at its own expense. All excess material, including rock and boulders that cannot be used in embankments shall be disposed of as directed by the Owner. APPROXIMATE LOCATION TO BE DETERMINED AT THE JOBSITE MEETING. It is the Contractor's responsibility to determine if sufficient material is available for the completion of the embankments before disposing of any materials. Any shortage of suitable materials for completion of the work caused by premature disposal of materials by the Contractor shall be replaced by the Contractor at no cost to the Owner. 11.13 Backfill - General Backfill shall not be dropped directly upon any structure or pipe. Backfill shall not be placed around or upon any structure until the concrete has attained sufficient strength to withstand the loads imposed. Except for drainrock materials being placed in over-excavation areas or trenches, backfill shall be placed after all water is removed from the excavation. 11.14 Placing and Spreading of Backfill Materials Backfill materials shall be placed and spread evenly in layers. When compaction is achieved using mechanical equipment the layers shall be evenly spread so that when compacted each layer shall not exceed 10 inches in thickness. During spreading each layer shall be thoroughly mixed as necessary to promote uniformity of material in each layer. Pipe zone backfill materials shall be manually spread around the pipe so that when compacted the pipe zone backfill will provide uniform bearing and side support. 11.15 Compaction of Fill, Backfill, and Embankment Materials Backfill materials shall be mechanically compacted to the specified percentage of maximum density. Equipment that is consistently capable of achieving the required degree of compaction shall be used and each layer shall be compacted over its entire area while the material is at the required moisture content. The Contractor shall submit a list of its proposed compaction equipment and methods for approval by the Owner 15 days prior to commencing its compaction operations. If the Contractor's compaction equipment and/or the methods are found by the Owner to be insufficient to produce the specified compaction results, the Contractor shall make adjustments of its equipment at no cost to the Owner. Materials shall be compacted by means of at least 2 passes from a flat plate vibratory compactor, except when such materials are used for pipe zone. Backfill vibratory compaction shall be used at the top of the pipe zone or at vertical intervals of 24 inches, whichever is least. Flooding, ponding, or jetting shall not be used for compaction. 11.16 Pipe and Utility Trench Backfill The pipe zone is defined as the trench cross sectional area between a line 6 inches below the bottom of the pipe, i.e., the subgrade, to a level line 6 inches above the top of the pipe. The bedding for flexible pipe is defined as that portion of pipe zone backfill material between the subgrade and the bottom of the pipe. The bedding for rigid pipe is defined as that portion of the pipe zone backfill material between the subgrade and a level line which varies from the bottom of the pipe to the spring line as shown on the Drawings. Bedding shall be provided for all sewers, drainage pipelines, and other gravity flow pipelines. For other pipelines the bedding may be omitted if all the following conditions exist: .The pipe bears on firm, undisturbed native soil which contains only particles that will pass a one- inch sieve. .The trench excavation is not through rock or stones. .The trench conditions match those specified by the pipe manufacturer for installation of pipe directly on the subgrade. .The subgrade soils have, as a maximum, a moisture content that allows compaction. Where bedding is required after compacting the bedding the Contractor shall perform a final trim using a string line for establishing grade, such that each pipe section when first laid will be continually in contact with the bedding along the extreme bottom of pipe. The pipe zone shall be backfilled with the specified backfill material. the Contractor shall exercise care to prevent damage to the pipeline coating, cathodic bonds, or the pipe itself during the installation and backfill operations. 11.17 Riprap Materials The Contractor shall provide riprap material to comply with the specifications as outlined herein. Riprap shall consist of dense, natural rock fragments, varying uniformly between 8 inches and 14 inches maximum dimension unless otherwise specified. Stone used for riprap shall be hard, durable, angular in shape; resistant to weathering and to water action; free from overburden, spoil, shale and organic material; and shall meet the gradation requirements specified. Neither breadth nor thickness of a single stone should be less than one-third its length. Shale and stone with shale seams are not acceptable. The acceptability of the stone will be determined by Owner prior to construction. 11.17.1 Surface Preparation Where riprap is to be placed as embankment protection, all receiving slopes shall be graded to a uniform surface. At banks and embankment, riprap shall be placed within the limits shown on the Construction Drawings. After surface preparations are completed for the placement of either embankment or channel protection riprap, the Owner's inspections and approval of the lines and grades shall be secured prior to placement of any riprap. 11.17.2 Placement Riprap shall be placed progressively from the bottom upward and in a manner approved by the Owner. The finished rock mass shall be homogeneous, well-graded and dense without voids. Care shall be taken to prevent damage to the geotextile fabric underlayment. Local surface irregularities of the finished slopes shall not vary from the planned slopes by more than 8 inches measured at right angles to the slope. Care shall be taken during excavation and riprap placement to minimize sediment production in all stream channels. 11.18 Corrugated Metal Pipe All CMP pipe located all or partially above the existing ground profile shall be anchored as shown on the Drawings and directed by the Owner in the field. 11.18.1 Pipe Corrugated metal pipe shall conform to the requirements of the "Standard Specifications for Corrugated Metal Culvert Pipe" (AASHTO M- 36) and shall have a minimum plate thickness of 14 gage pipe shall be galvanized steel. 11.18.2 Fittings All CMP shall be joined using standard or two-piece corrugated bands which mesh with the corrugations of the pipe ends. Bands shall be tightened to manufacturer's recommendations. Bolts shall be galvanized steel. 11.18.3 Laving Pipe The pipe shall be installed as specified herein and shown and the sections shall be closely jointed to form a smooth flow line. Immediately before placing each section of pipe in final position for jointing, the bedding for the pipe shall be checked for firmness and uniformity of surface. Proper implements, tools, and facilities as recommended by the pipe manufacturer's standard printed installation instructions shall be provided and used by the contractor for safe and efficient execution of the work. All pipe, fittings, and accessories shall be carefully lowered into the trench by means of derrick, ropes, or other suitable equipment in such a manner as to prevent damage to pipe and fittings. Under no circumstances shall pipe or accessories be dropped or dumped into the trench. Cutting of the pipe shall be accomplished in accordance with the pipe manufacturer's standard procedures for this operation. Pipe shall not be cut by any method that may damage the pipe or will produce ragged, uneven edges. The pipe and accessories shall be inspected for defects prior to lowering into the trench. Any defective, damaged or unsound pipe shall be repaired or replaced. All foreign matter or dirt shall be removed from the interior of the pipe before lowering into position in the trench. Pipe shall be kept clean during and after laying. 11.19 Contract Mining Specifications All mining operations are to be carried out in accordance with good mining practice and in a workmanlike manner. The mine is to be developed in accordance with the Owner's mine design as indicated in the Contract, as summarized below and as described in more detail in the attached mine plans, drawings, specifications, documents and yearly production schedule. 11.19.1 Efficiency Objective. Contractor acknowledges that the primary objective of mining is to minimize dilution of ore with waste and to deliver material to the proper location, in an orderly fashion, as directed by Owner. Contractor will work with Owner to accomplish this objective. Should any employee(s) not cooperate to obtain Owner's objective, Owner retain the right to remove such employee(s) from any positions affecting Owner's objectives or for safety related reasons. 11.19.2 Commencement Condition. Owner's commitment to commence or continue Work under this Contract is expressly conditioned upon Owner obtaining all necessary Federal and State permits required to commence and/or continue Work on terms and conditions satisfactory to Owner as determined in Owner's sole discretion. Owner agrees to use all reasonable efforts to obtain such approvals and in the event of any significant delays, to keep Contractor reasonably apprised of material developments during, and upon termination of, such efforts. 11.19.3 Schedule Determination and Flexibility. Owner will provide to Contractor its proposed mining schedule for the Contract Time. Contractor shall, as requested by Owner, follow and maintain such schedule and any modifications to schedule that may be specified by Owner within ten (10) percent greater or lesser than the agreed upon production rates on a monthly basis and within five (5) percent on a yearly basis. Owner shall give Contractor reasonable notice of the mining rates to be followed, and/or any change to aforementioned rate, to afford Contractor a reasonable time period to make any adjustments in its ability to perform the Work. 11.19.4 Mine Plan. Owner and Contractor acknowledge that the contract unit price(s) quoted in the Contractor's Proposal apply specifically to the Work proposed in the mine plan presented by Owner at the time of the Contractor's Proposal. Changes to the mine plan will not result in rate escalations or reductions unless it is demonstrated to both parties that such changes have increased or decreased the haul lengths or required Work per unit of production by at least 10% from the original mine plan. Such additional or decreased haulage increments or unit work requirements will be computed by a method acceptable to both parties -- e.g., an acceptable equipment vehicle simulation analysis. Contractor acknowledges that the Owner plans to update the mine plan at least once a year or more often as necessary. 11.19.5 Changes in Scope. The schedule and production rate parameters referred to in Section 11.19.3 above are not intended by the parties to define a minimum or maximum Scope of Work under this Contract. 11.19.6 Clear and Grub This Work shall consist of clearing, grubbing, chipping, and/or burning as necessary to remove and/or dispose of vegetation and debris within the limits of the mine site. 11.19.7 Remove and Stockpile Topsoil This Work shall consist of removing and stockpiling the equivalent of one foot of peaty surface mat, topsoil and/or plant growth medium. 11.19.8 Drill Drill patterns shall be designed in a manner to minimize dilution of ore grade material and achieve sufficient fragmentation to facilitate subsequent leaching. Owner reserves the authority to approve all drill patterns to be used. Contractor's drillers shall take samples of drill cuttings, fill out sample tags, fill out daily drill reports, and prepare the samples for shipment to the assay lab. Samples retrieved by the drillers or drill helpers will not include the subdrill. Subdrill depths will be sufficient to ensure that bench elevations are mined to + 1 foot. All ramps will be drilled to ramp grade. Contractor's drills shall be of suitable design and capability to perform the drilling work at the operation. Drill hole diameter will be compatible to pattern spacing and bench height. Contractor acknowledges that minimizing material movement as a result of drilling and blasting achieves the primary efficiency objective. Unless stated otherwise in the Contractor's Form of Proposal the specified drill pattern for the base case against which the Contractor's required Work per unit of production will be calculated is a 15-foot by 15- foot pattern, a 6 :-inch diameter hole and a 20- foot bench. No subdrilling will be allowed to penetrate the limits of safety bench crests on the bench below. All drill patterns will be approved by Owner. Should any area drilled not meet the specified hole spacing, Owner will require the Contractor, at its expense, to fill in gaps to obtain samples and to assure bench grades will be obtainable without the use of dozers. All pit benches which daylight will be drilled such that sampling and blasting meet Owner's requirements for pattern spacing and bench grade control. The Contractor should be prepared to add additional blastholes necessary to mine off benches. All of the foregoing shall be subject to Owner's request for control alternatives. Due to the varied rock fabric, it may be necessary to implement controlled blasting or other techniques along the pit walls to prevent excessive breakage beyond the final pit slope limit, but enable cleaning to the final design toe to ensure that catch bench widths are the maximum size possible within the limits of pit slope and bench face angles. When pre-splitting is required the hole spacing is not to exceed in number of feet the holes diameter in inches B e.g., the pre-split hole spacing shall not exceed 7 feet given a 6 :- inch diameter hole. Contractor shall provide each drill with a sample collecting device that is approved by Owner. Owner shall have the right to require a substitute sampling method if it can be shown that the Contractor's sampling method does not give a true indication of the metal values for the total drill cuttings removed from the hole. Samples will be taken for all holes drilled at drill intervals requested by Owner. Contractor will cooperate with Owner so as to promote Owner's objective of having assay results within forty- eight (48) hours after the samples are delivered to the lab. 11.19.9 Blast Blasting will be conducted in a safe and workmanlike manner. The blast round shall be designed in such a manner as to minimize dilution of ore grade material and to maintain the integrity of the pit walls and safety benches. It will be Contractor's sole responsibility to clear the area of all personnel and equipment. Blasting times will be clearly posted at the entrance to the pit and Owner's personnel will be notified the morning of the blast as to the location and time. Blasts will be scheduled whenever possible to coincide with the end of the day shift. Contractor will be required to sound an audible 5 minute and 1 minute warning prior to all shots. Blasting will be controlled; excessive material displacement will not be tolerated. FLY ROCK WILL NOT BE TOLERATED. Contractor will use whatever means necessary to confine shot displacement and achieve desired breakage. Explosive purchase, storage, handling and permitting will be the Contractor's sole responsibility. An area will be provided by Owner for the placement of explosive storage facilities. Contractor shall clearly state the average powder factor to be used in calculating its base price in the Contractor's Form of Proposal. 11.19.10 Load Ore and/or Waste Contractor shall load ore and waste with front end loaders unless otherwise specified. Contractor will adhere strictly to Owner's specification for Ore and Waste Control (see Section 11.19.13) to ensure that ore dilution is minimized. Work shall include loading ore and/or waste from 10-foot and/or 20-foot benches as directed by the Owner. 11.19.11 Haul Ore and waste from the mine shall be hauled to areas specified in the mine plan drawings or as reasonably dictated by the Owner after consultation with Contractor. Work shall include hauling ore to the crusher or the leach pad and end dumping it on 10-foot to 20-foot lifts as dictated by the Owner. Work shall include hauling waste to the appropriate waste dumps as shown on the drawings. 11.19.12 Pits, Roads and Dumps Mining will be done in such a manner as to operate and maintain the various mine works/areas of activity including highwalls, safety benches, ramps, roads, pit working areas, waste dumps and topsoil stockpiles in a safe and workman like manner. The pit design is summarized below and described in more detail in the "Illinois Creek Project, Preliminary 1995 Mine Plan" by USMX which is dated November 1995, and in the letter to the Contractor from the Owner's representative, James A. Sittner, which is titled, "Illinois Creek Project, September 20, 1995 Site Visit," which is dated September 15, 1995. There are four main pits at Illinois Creek B namely, West Pit, Central Pit, Central Pit Extension, and East Pit. Each pit will be developed on 20-foot benches unless directed otherwise by Owner. Owner may elect to require Contractor to load ore from 10-foot benches in order to minimize dilution. Contractor shall be responsible for maintaining the pit floors free of rock and other debris. Contractor shall clear all bench toes and ensure that the bench is excavated to the design limits. Over digging benches is prohibited unless ordered by Owner. Safety benches will be developed on 40-foot to 60-foot intervals as determined by Owner. Bench face angles will be kept as steep as practicable in order to increase the width of the safety benches. Safety benches will vary in width from 20-feet to 30-feet when double benching and from 30-feet to 50-feet when triple benching. The overall pit slopes will vary from 45 degrees to 55 degrees depending on ground conditions. Contractor is responsible for inspecting all working areas at the mine site at the start of each shift and more often if necessary. Pit walls shall be scaled to MSHA standards. Rocks, earth and any other loose debris shall be pulled back from the pit edges to prevent loose material from falling into the pit. Contractor shall be responsible for all surface water dewatering necessary to keep pit working areas dry and free from snow and ice. The Owner shall be responsible for any ground water dewatering necessary to keep the ground water table below the pit limits. Contractor shall be responsible for developing and maintaining all haul roads and mine access/service roads in the mine area which are necessary to develop the mine and maintain the proper production schedule. Roads will be constructed using normal cut and fill techniques. In the event that fill material is required to surface a road, the Contractor shall use clean, inert quartzite or dolomitic limestone borrowed specifically for this purpose from areas approved by Owner. All roads shall be developed as shown in the attached "Illinois Creek Project, Preliminary 1995 Mine Plan," or in conjunction with Owner. Normal access/service road width will be 18 feet. Two lane haul road width will be 65 feet, and one lane haul road width will be 42 feet. All mine roads shall be constructed with appropriate safety berms and turn outs as approved by Owner. Pit ramps grades shall not exceed 10 percent unless approved by Owner. Haulage road grades shall not exceed 8 percent unless approved by Owner. Contractor shall water roads as necessary to minimize dust hazards and to adhere to strict compliance with Owner's Air Quality Permit Application a copy of which is attached. Contractor acknowledges that adequate dust control during hot, dry days may require watering roads at rates over 90 gallons per minute. Waste dump and topsoil stockpiles will be located near the mine pits and other areas of construction to minimize haulage and other Work. The locations of topsoil stockpiles will be spread over the top of the waste dumps in order to minimize reclamation costs. Waste dumps will be built in benches so that they blend into the natural topography and so that their overall slope does not exceed 3:1. Waste dumps will be graded so that rain and snow melt run off will be directed into the surface drainage system. Waste dumps will be reclaimed as soon as practicable. 11.19.13 Ore and Waste Control Ore control is critical to minimize dilution. Mining of ore and material adjacent to ore zones shall be performed during the day shift. The following ore control procedures will be observed in all pit mining: 1. Each blasthole on a level will be numbered consecutively by blast round and staked by the Contractor. 2. The drill operator will collect, bag and identify a continuous sample of drill cuttings from each blasthole with no subdrilling material. Stakes, bags and tags will be supplied by Contractor. Stakes shall be 3/8" x 12" lathe; bags shall be 10" x 17" olefin type; tags shall be of waterproof material. 3. Owner will collect and assay all samples. 4. The blasthole pattern will be surveyed by Owner to record each blasthole identification number, location and mining level. 5. Owner will merge the blasthole assay information with the survey data and prepare a detailed blasthole map. 6. Owner will determine the outline of the ore and waste areas for each blast round. Owner will prepare bench level plans showing all ore and waste areas to be excavated. Owner in consultation with the Contractor shall determine whether an area is to be ripped, blasted or smooth-wall blasted. 7. Owner will resurvey the area after blasting and flag the material. Flagging will consist of 4' wood lathe with colored ribbon marking the boundary corners and wire pin flags (with colored flags) as delineating markers. The following colors will denote material types: a. Red & White - Ore, b. Yellow - Open to Ripping, c. Blue - Waste, and d. Orange - No-Dig Area. Other colors may be used to designate special handling of material to be mined. 8. Audible signals shall be employed by the Contractor to ensure the proper material destination is identified to Contractors operators and Owner's Representatives. 9. Weekly planning meetings will be conducted with Owner's personnel and Contractor's superintendent and pit operating supervisors to discuss mining rates, schedules, and plans of operations. 10. Ore zone mining will be under the direct control of Owner at all times. 11. Some ore-waste fringe areas will have a 4 hour delay for fringe sample turn around. Other working areas will be provided during these delays. 12. Owner's representative and Owner's ore control personnel will be allowed direct communications with Contractor's loader operators and pit supervisors to achieve Owner's ore control objectives. 13. Contractor will record the number of truckloads of each material category by origination and destination and submit copies of the report daily to Owner. 11.19.14 Surveying Pit surveying is the sole responsibility of the Owner, with the exception of bench elevation control. Owner will perform the following as control to pit operations: 1. A bench marker at each working area will be established once per week. 2. The corners and design toes of each bench will be located as mining clears the previous bench. 3. Weekly crests of active mining benches will be located for Owner records. Month-end crests of active mining benches will be located for volumes calculations and payments. 4. Drill holes will be surveyed prior to shooting the blasthole pattern. 5. Dig plans will be established after blasting and prior to mining the blasted material. Contractor will provide and maintain the following bench elevation control in the pit: 1. Elevation checks as needed and no less than three (3) times daily of each active mining face. On-going elevation control will be the responsibility of the Contractor. 2. Elevation control in the active mining areas will be + 1 foot. (See penalty clauses.) 3. Strict adherence to Owner's ore control plan and markings. No dig areas are to be observed at all times. (See penalty clauses.) 4. Survey monuments will be preserved in all working areas. (See penalty clauses.) 12.0 ATTACHMENTS The following drawings, specifications, and other documents identified below are incorporated herein and made part of this Section III, Contract Specifications by this reference. Contractor acknowledges receipt of each of the items listed in this Section 12.0. 1. Drawings a. USMX, INC., Figure 1-3, Rev. "A" titled, AMillsite Permit Boundary," December 28, 1995 (Scale 1" to 2000'). b. USMX, INC., Drawing 1, Rev. "B" titled, "Mine Site General Arrangement," November 21, 1995 (Scale 1" to 300'). c. USMX, INC., Drawing 2, Rev. "D" titled, "Regional Site Layout," November 21, 1995 (Scale 1" - 2000'). d. USMX, INC., Drawing 3, Rev. "A" titled, "Mine Site Reclamation and Areas of Disturbance, Year 1," November 21, 1995 (Scale 1" to 300'). e. USMX, INC., Drawing 4, Rev. "A" titled, "Mine Site Reclamation and Areas of Disturbance, Year 2," November 21, 1995 (Scale 1" to 300'). f. USMX, INC., Drawing 5, Rev. "A" titled, "Mine Site Reclamation and Areas of Disturbance, Year 3," November 21, 1995 (Scale 1" to 300'). g. USMX, INC., Drawing 6, Rev. "A" titled, "Mine Site Reclamation and Areas of Disturbance, Year 4," November 21, 1995 (Scale 1" to 300"). h. USMX, INC., Drawing 7, Rev. "A" titled, "Mine Site Reclamation and Areas of Disturbance, Year 5," November 21, 1995 (Scale 1" to 300"). i. USMX, INC., Drawing 8, Rev. "A" titled, "Mine Site Reclamation and Areas of Disturbance, Year 6," November 21, 1995 (Scale 1" to 300"). j. USMX, INC., Drawing 1, Rev. "C" titled, "Phase 1 Leach Pad Grading Plan and Stage 1 Berm Construction," January 11, 1996 (Scale 1" - 100'). k. USMX, INC., Drawing 2, Rev. "C" titled, "Phase 1 Finished Leach Pad Configuration," December 15, 1995 (Scale 1" to 100'). l. USMX, INC., Drawing 3, Rev. "B" titled, "Stage 2 Berm Construction," November 21, 1995 (Scale 1" to 100'). m. USMX, INC., Drawing 4, Rev. "C" titled, "Phase 2 Finished Leach Pad and Optional Stage 3 Berm Construction," January 11, 1996 (Scale 1" to 100'). n. USMX, INC., Drawing 5, Rev. "C" titled, "Heap Leach Facility Cross Sections," January 10, 1996 (Scale is variable). o. USMX, INC., Drawing 6, Rev. "C" titled, "Heap Leach Liner and Leak Detection Details," January 11, 1996 (Scale is variable). p. USMX, INC., Drawing 7, Rev. "B" titled, "Ultimate Heap Configuration Phase 2 Pad and Optional Stage 3 Berm," November 21, 1995 (Scale 1" to 100'). q. USMX, INC., Drawing 8, Rev. "B" titled, "Reclaimed Heap Configuration," November 21, 1995 (Scale 1" to 100'). r. SRK, Inc., Figure 1, Rev. "A" titled, "Year 1 Illinois Creek Project," May 1995 (Scale 1" to 200'). Delivered to Bidders under separate cover on October 3, 1995. s. SRK, Inc., Figure 2, Rev. "A" titled, Year 2 Illinois Creek Project," May 1995 (Scale 1" to 200'). Delivered to Bidders under separate cover on October 3, 1995. t. SRK, Inc., Figure 3, Rev. "A" titled, "Year 3 Illinois Creek Project," May 1995 (Scale 1" to 200"). Delivered to Bidders under separate cover on October 3, 1995. u. SRK, Inc., Figure 4, Rev. "A" titled, "Year 4 Illinois Creek Project," May 1995 (Scale 1" to 200'). Delivered to Bidders under separate cover on October 3, 1995. v. SRK, Inc., Figure 5, Rev. "A" titled, "Year 5 Illinois Creek Project," May 1995 (Scale 1" to 200'). Delivered to Bidders under separate cover on October 3, 1995. w. SRK, Inc., Figure 6, Rev. "A" titled, "Year 6 Illinois Creek Project," May 1995 (Scale 1" to 200'). Delivered to Bidders under separate cover on October 3, 1995. x. SRK, Inc., Figure 5, Rev. "A" titled, "Typical Open Pit Mine Slope Geometry Configurations," January 1995. y. SRK, Inc., Figure 6, Rev. "A" titled, "In-Pit Mine Haul Road Design Typical Section (50 Ton Truck)," January 1995. z. SRK, Inc., Figure 7, Rev. "A", titled "Typical Access Road Sections," January 1995. aa. SRK, Inc., Figure 8, Rev. "A" titled, "Channel Sections," November 22, 1995. 1. Specifications a. SRK, Inc., for USMX, INC. titled "Illinois Creek Project Technical Specifications For Earthwork Construction Heap Leach Facility," January 1996. b. SRK Inc. for USMX, INC. titled "Illinois Creek Project Technical Specifications for Synthetic Liner Installation Heap Leach Facility," January 1996. c. USMX, INC., titled, "Illinois Creek Project, Mine Services and Earthworks Contract C-300, Section III - Contract Specification, Section 11.0 General Work Specifications and Methods of Execution," November 1995. 1. Documents a. USMX, INC., "Illinois Creek Project Schedule of Required Insurance," February 22, 1995. b. USMX, INC., A1994 Year End Report, Illinois Creek Project, Alaska," December 15, 1995. This document was delivered to each Bidder on September 20, 1995. c. Letter from Ms. Debra A. Barbee (Tanana Chiefs Conference, Inc.) to Mr. Robin Tolbert (NPMC), March 6, 1995. Attached is a copy of the "Tanana Chiefs Conference, Inc. - Human Resource Data Bank". d. Letter from James A. Sittner (USMX) to Bidders (D.H. Blattner & Sons, Brown & Root Civil, Cook Inlet Region, Inc. and Alaska Interstate Construction, Inc.), September 15, 1995. It is titled, "Illinois Creek Project, September 20, 1995 Site Visit". e. Steffen Robertson and Kirsten (U.S.), Inc., "Illinois Creek, Heap Leach Design Report", November 1995. f. Steffen Robertson and Kirsten (U.S.), Inc., "Illinois Creek, Stormwater Pollution Prevention Plan", November 1995. g. USMX, INC., "Illinois Creek Project, Preliminary 1995 Mine Plan", November 1995. It contains preliminary data pertaining to Work quantities, production schedule, equipment requirements, and design parameters. The final A1995 Mine Plan" will not be completed by the time the Bids are due. The preliminary plan consists of the following: (1) Preliminary Design Parameters; (2) Equipment Requirements; (3) Contractor Parameter, Assumptions, and Requirements; and (4) Figures 1-6, Showing Illinois Creek Mine Plan by Year. h. TRC Environmental Corporation, "Air Quality Permit Application, USMX, INC., Illinois Creek Project, Alaska," October 19, 1995. i. USMX, INC., "Illinois Creek Project, Project Description by Area of Activity," November 1995. j. Letter from Robert Falletta (USMX) to Bidders (D.H. Blattner & Sons, Brown & Root Civil, and Alaska Interstate Construction, Inc.) titled "Illinois Creek Project, Alaska Haulage Profile Data," October 3, 1995. k. Letter from Robert Falletta (USMX) to Bidders (Alaska Interstate Construction, Inc., Brown & Root Civil, and D.H. Blattner & Sons) titled, "Illinois Creek Project, Alaska 200 Scale Preliminary Mine Plan Maps," October 4, 1995. ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION IV FORM OF PROPOSAL TO: USMX, INC. ("Owner") 141 UNION BLVD., SUITE 100 LAKEWOOD, CO 80228 Attn: Mr. James A. Sittner SUBJECT: Proposal for Illinois Creek Project - Mine Services and Earthworks Contract C-300 The undersigned Bidder certifies that it has examined the Invitation to Bid and all attachments listed therein for the above subject Contract; that it has checked all prices shown in this Bid and understands that neither Owner will not be responsible for any errors or omissions made by the Bidder in the preparation of this Bid. It is understood that this Bid constitutes a firm offer which cannot be withdrawn for ninety (90) calendar days after the date set for closing of Bids. It is further understood that the prices quoted herein will not be subject to any adjustment for escalation for the calendar years 1995 through 1996. Bidder agrees that the documents included with the Bid, a copy each of which have been furnished to Bidder by Owner, are the basis of this Bid, and further agrees that if this Bid is accepted, said documents shall form part of the Contract Agreement between the Contractor and Owner. Bidder acknowledges receipt, understanding and full consideration of the following addenda: ("None") The undersigned Bidder agrees that if awarded the Contract, it will commence the Work promptly upon receipt of notice to proceed; it will perform the Work diligently and in accordance with the Contract Documents, and will fully complete the Work within the agreed time limits. Company: Date Signed: By (sign): Business Address: Name (print): Title: Phone No.: Contra. License & Classification: Company LegalStatus: (corporation,partnership, etc.) ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION IV FORM OF PROPOSAL Table of Contents SECTIO TITLE PAGE N NO. 1.0 PREAMBLE 4 2.0 BID SCHEDULE 6 3.0 EQUIPMENT - CHANGED OR EXTRA WORK 7 4.0 MATERIAL PURCHASES - CHANGED OR EXTRA WORK 8 5.0 HOURLY RATES - CHANGED OR EXTRA WORK 9 6.0 EQUIPMENT TO BE USED 10 7.0 SUBCONTRACTORS, SUPPLIERS AND LABOR 11 8.0 SCHEDULE 12 9.0 ATTACHMENTS TO PROPOSAL 13 10.0 DESIGNATION OF REPRESENTATIVES 14 11.0 PERFORMANCE AND PAYMENT BOND 15 12.0 EXCEPTIONS AND QUALIFICATIONS 16 1.0 PREAMBLE 1.1 The Bid Schedules in Section 2.0 of this Form of Proposal are made up of eight parts as follows: 1.1.1 Mobilization/Demobilization. 1.1.2 Earthworks Construction/Development of the following: Onsite infrastructure including site access, transportation, and general plant site preparation; Mine area including site preparation; Crusher area including site preparation, construction of an adequate run-of- mine stockpile area, retaining wall and work area for Contractor=s portable crushing, screening and wash plant; Process modified valley fill leach pad area including site preparation, all cut, structural fill, silt liner fill, drain rock, leak detection system, and synthetic liner foundation preparation; Process lime kiln area including site preparation; Stormwater diversion system including site preparation, permanent infiltration node, temporary stormwater collection ponds, diversion ditches and culverts, and other stormwater BMP=s. 1.1.3 Contract Mining Drill and sample all ore and waste; Blast and/or rip ore and waste; Load ore and waste from 10-foot or 20- foot benches; Haul ore to leach pad or crusher and waste to dump; Pits, roads and dumps construction and maintenance; Mine support; Mine general and administration. 1.1.4 Contract Crushing Crush overliner material for the leach pad; Crush and screen dolomitic limestone to produce feed for the lime kiln; Crushed ore rehandle. 1.1.5 Contract Loading of Leach Pad: End dumping; Pushup dumping. 1.1.6 Contract Maintenance and Warehouse Services. 1.1.7 Indirect Contract Work. 1.1.8 Other Contract Work. The Bidder must bid on all eight of these parts as the Owner has elected to award only one contract for this Work. The Bid Schedule in Section 2.0 of this Form of Proposal shall apply if Owner elects to award this Contract. 1.2 Bidders who are qualified by experience, who have demonstrated contract mine services and earthworks construction capability, who have the appropriate supervisory staff, and who have the financial capacity are encouraged to bid on all parts of the Work as partial bids will not be considered. 1.3 The Proposal shall include a price for each item included in the part(s) bid. 1.4 The prices indicated by Bidder under Section 2.0, Bid Schedule, shall include, but shall not be limited to, all costs appropriate to the bid item including the following: ! Labor, ! Supervision, ! Payroll Benefits, ! Taxes, ! Insurance, ! Travel and Subsistence (if required), ! Construction Equipment, ! Small Tools and Consumables, ! Vehicles, ! Materials (as specified), ! Power, Water and Fuel, ! Overhead, and ! Profit. 1.5 Bidder shall allow in its prices for the requirements of the Contract Documents, Site location, project schedule, working conditions, and effects of the weather. Price shall include the transportation of all equipment and material to the job Site unless otherwise stated. 1.6 Bidder shall allow in its prices for the provision of sufficient quantities of equipment and labor for each part of the Work bid to complete all work within the Schedule. Equipment shall not be transferred from one work location to another without Owner's prior approval. 1.7 The rates quoted under Sections 4.0, 5.0, and 6.0 of the Proposal will be used only for work outside the scope of the Contract and for which a unit or lump sum price does not exist or cannot be established. On an urgent basis these rates may be used to perform changed or extra work on a time and materials basis under the field Work Authorization procedures. 1.8 Mobilization shall include the transportation and establishment of construction equipment, personnel, temporary facilities and all supplies to the site of the Work unless otherwise stated. Contractor shall work with Owner to minimize all mobilization costs. Owner will pay the cost of transporting Contractor=s equipment, supplies and fuel from the agreed point of departure to the mine site. 1.9 Demobilization shall include removal of all mobilized item listed under 1.8 and final clean up of all work areas. 2.0 BID SCHEDULE QUANTITIES BY AREA OF ACTIVITY
QUANTITY UNIT UNIT TOTAL PRICE PRICE () () ($) ($) 1 1 2 2 3 3 4 4 5 5 6 6 7 7 8 8 9 9 1 10 0 1 11 1 1 12 2 1 13 3 1 14 4 1 15 5 1 16 6 1 17 7 1 18 8 1 19 9 2 20 0 2 21 1 2 22 2 2 23 3 2 24 4 2 25 5 2 26 6 2 27 7 2 28 8 2 29 9 3 30 0 3 31 1 3 32 2 3 33 3 3 34 4 3 35 5 3 36 6 3 37 YR = Year LS = Lump Sum LF = Linear Feet BCY = Bank Cubic Yards MN = Month SF = Square AC = Acres BNR = Bid not Requested Feet DY = Day CY = Cubic TN = Tons NBI = No Bid Item Yards
(Company or Signature) 3.0 EQUIPMENT - CHANGED OR EXTRA WORK The Bidder shall list, on separate attachments, in the format below, equipment rates for the equipment that it proposes to use in performing the Work. Rental rates quoted shall be used for changed or extra work (if any) performed on a reimbursable basis. Equipment rental rates shall include full compensation for rental including, but not limited to, maintenance, fuel, lubricants, overhead, taxes, and profits. Operator's time shall be shown in Section 5.0 of Form of Proposal. Rental rates shall be based on one (10) hour shift per day, 6 days per week, unless other wise specified in Section 8.2. Description Rental Rates Capacity, Horsepower, Hourly Daily Weekly Monthly etc. (Company or Signature) 4.0 MATERIAL PURCHASES Contractor shall be reimbursed for material purchased by written authority of the Owner for work performed outside the scope of the base contract or as directed by the Owner on the following basis. Cost of Material plus % profit and overhead plus appropriate taxes and freight. (Company or Signature) 5.0 HOURLY RATES - CHANGED OR EXTRA WORK Contractor shall be reimbursed for labor hours expended on the basis of the following hourly rates. Rates shown shall include wages, benefits, taxes and insurance, small tools and comsumables, overhead, subsistence, and profit. Shift average rates shall include overtime and shift differentials costs. Classification Straight Time Over Time Sunday/Saturday Holiday (Company or Signature) 6.0 EQUIPMENT TO BE USED The Bidder shall list, on separate attachments, in the format below, for each part of the work being bid, the major equipment that it proposes to use to perform the Work. Equipment that will be used on multiple work areas shall be listed only once under the section having primary usage. Equipment No. HP Unit Wt. Model/Year Capacity Description Condition (Company or Signature) 7.0 SUBCONTRACTORS, SUPPLIERS AND LABOR 7.1 Bidder shall indicate below all work intended to be subcontracted to others. Include any design work to subcontracted and enclose a resume for each key supervisor. 7.2 Bidder shall indicate below all major suppliers of equipment and materials including shop fabricators. (Company or Signature) 8.0 SCHEDULE 8.1 The Bidder shall prepare and submit a bar chart schedule. 8.2 The Bidder plans to perform the Work on the following basis: (Company or Signature) 9.0 ATTACHMENTS TO PROPOSAL 9.1 The Bidder shall submit the following attachments with this Proposal: 9.1.1 Construction staff organization chart for each part of the Work bid, including a brief resume for each key employee. Owner reserves the right to request replacement of any candidate offered. 9.1.2 Personnel deployment graph (coordinated with the above schedule) showing the number of persons required to complete the various categories of Work on schedule. 9.1.3 Resumes for representatives named under Section "10.0 DESIGNATION OF REPRESENTATIVES". (Company or Signature) 10.0 DESIGNATION OF REPRESENTATIVES 10.1 Bidder designates the following as its principal representative who, on behalf of the Contractor, will have complete charge of the Contract: Name: Capacity: 10.2 Bidder designates the following as its principal representative who, on behalf of Contractor, will have complete charge of the Work performed in the field: Name: Capacity: Bidder shall submit with the Proposal a brief resume of experience for each of the above named. (Company or Signature) 11.0 PERFORMANCE AND PAYMENT BOND In the event of request for a bond: Cost of Performance and Payment Bond (to be paid as an additive amount to the total Contract Price) Name of Surety (not agent): Address: Contract: Phone No. (Company or Signature) 12.0 EXCEPTION AND QUALIFICATIONS Recommended alternates, exceptions and qualifications taken by Bidder to any of the documents furnished with this Invitation, or clarifications to this Proposal shall be stated below and, if none, Bidder shall state "NONE". (If extensive, submit detailed letter.) (Company or Signature) ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION V CONTRACT AGREEMENT ILLINOIS CREEK PROJECT MINE SERVICES AND EARTHWORKS CONTRACT C-300 SECTION V CONTRACT AGREEMENT THIS AGREEMENT, by and between USMX, INC. of Lakewood, Colorado (hereinafter referred to as "Owner"); and D.H. Blattner & Sons, Inc. 16733 County Road #9 Avon, MN 56310 Phone: (612) 356-7351 Fax: (612) 356-7392 (hereinafter referred to as "Contractor"). WITNESSETH: WHEREAS, Owner is constructing an open pit gold and silver mine and related heap leach processing facilities located near Illinois Creek, Alaska (hereinafter referred to as the "Project") and work required by this contract is a part of the Project; and WHEREAS, Contractor has submitted its proposal to Owner for performance of certain services in connection with the Project; and WHEREAS, Owner has accepted the Proposal of Contractor and the parties now desire to evidence their agreement for performance of such services for the compensation specified herein. NOW, THEREFORE, the parties hereto agree as follows: 1.0 CONTRACT DOCUMENTS The Work shall be performed in accordance with the following documents, all of which together with attachments, if any, referenced therein or in this Contract Agreement are hereby incorporated as a part of the Contract, by reference, to the same extent as if they were fully set forth herein, and, all of which together with the Contract Agreement are referred to all inclusively as the "Contract". 1.1 Invitation to Bid more fully described in Section 46 of Section II - General Terms and Conditions; 1.2 Section I - Instructions and Information for Bidders included with Invitation to Bid; 1.3 Section II - General Terms and Conditions, Rev. 2/29/96; 1.4 Section III - Contract Specification, Rev. 2/29/96; 1.5 Section IV - Form of Proposal included with Invitation to Bid; 1.6 Section V - Contract Agreement. Rev. 2/29/96; 1.7 Contractor's Proposal, Dated December 27, 1995, as modified by Attachments described in Section 46 of Section II - General Terms and Conditions; 1.8 Contract Amendments (as required); 1.9 Drawings, specifications, and other documents referred to as "Attachments" in any of the above, provided that in the event of any conflict among the Attachments (the "Attachments"), the Attachment bearing the latest date shall prevail; and 1.10 Notice of Award, Dated January 19, 1996. The Contract Documents are intended to describe all obligations of Contractor and Owner, and the responsibilities and authority of the Owner, and are intended to be correlative and complementary. Any work required by one document and not mentioned in another shall be executed as though required by all documents. Should there be any conflict among any of the above documents and the Contract Agreement, the Sections I through V of the Contract Agreements will prevail over the other document; provided, however, that with respect to matters in Section III - Contract Specifications, the provisions of the Attachments shall prevail, and with respect to matters in Attachment A and Addendum A to Schedule II - General Terms and Conditions, Attachment A and Addendum A shall prevail. 2.0 WORK TO BE PERFORMED The Work covered by this Contract covers the furnishing of all supervision, labor, equipment, temporary facilities, tools, materials and supplies required to perform contact mine services and earthworks at the Illinois Creek Project site. The Contract Specification and Form of Proposal provide a detailed definition of the areas of activity included in the Scope of Work. The Work will be performed as described in Contractor's Proposal. 3.0 SCHEDULE OF WORK The parties hereby confirm that Contractor is prepared to begin to mobilize all manpower, material, equipment and supplies necessary to complete all the Work covered by this Contract no later than 10 working days after receiving the Notice of Award from Owner. Contractor shall not commence the Work until it has received a written notice to proceed from the Owner. 4.0 DESIGNATION OF REPRESENTATIVES Pursuant to Section 5.0 of Section II - General Terms and Conditions of the Contract the parties designate the following representatives: For Owner: James A. Sittner Robert R. Monok James A. Smith Stephen Dieker For Contractor: Brad Luhman Ed Colter Robert Cameron Owner reserves the right to request from Contractor the removal of any representative, supervisor, or general employee at any time for unacceptable behavior, non- cooperation or any other reasonable cause. All Contract notices and principal correspondence shall be directed to the above representative or his duly appointed alternate or replacement. 5.0 COMPENSATION TO BE PAID Owner in consideration of satisfactory, timely and complete performance by Contractor agrees to make payment to Contractor at the fixed prices and rates established for the Contract in the Form of Proposal. 6.0 INVOICING INSTRUCTIONS Invoices, together with supporting documentation developed in the field and approved by the Owner, shall be transmitted in triplicate as requested to the Owner=s representative/Owner at the Illinois Creek Mine Site. Until a field office is established invoices may be sent to the following address: USMX, INC. 141 Union Boulevard, Suite 100 Lakewood, CO 80228 ATTN: James A. Sittner A ten percent (10%) retention will be withheld by Owner from each progress payment until the work is 100% complete and accepted. 7.0 BONDING AND INSURANCE Contractor's attention is directed to Section 42, of the General Terms and Conditions of the Contract. Contractor shall submit all required certificates of insurance for itself and for each of its subcontractors naming Owner, USMX, INC., and any affiliates, joint ventures or partners, Northern Pacific Mining Corporation ("NPMC") and Cook Inlet Region, Inc. ("CIRI") and their respective employees, shareholders, officers, directors, agents, representatives, attorneys, successors and assigns as additional insured on each such policy. 8.0 SPECIAL TERMS OF AGREEMENT NONE 9.0 EFFECTIVE DATE AND CONTRACT TIME Effective date of this Agreement: The date on which signed by Owner. The Contract is effective (the Contract Time) from the aforementioned effective date for a period of six years, or until the completion of the Work specified in the Contract Agreement, whichever is sooner. 10.0 CONTRACT EXCLUSIVE This Contract embodies the entire agreement between Owner and Contractor. Contractor represents that, in entering into this Contract, it does not rely on any previous oral, written, or implied representation, inducement or understanding of any kind or nature. 11.0 NOTICES All notices and other required communications to the parties shall be in writing and shall be addressed respectively as follows: (a) To Owner: USMX, Inc. 141 Union Blvd. Suite 100 Lakewood, CO 80228 Fax :(303) 980-1363 Attn: James A. Sittner (b) To Contractor: D.H. Blattner & Sons, Inc. 16733 County Rd. #9 Avon, MN 56310 Fax: (612) 356-7392 Attn: David H. Blattner All notices shall be given (i) by personal delivery to the addressee or (ii) by electronic communication, with a confirmation of transmission and sent by personal delivery or registered or certified mail, return receipt requested, or (iii) registered or certified mail, return receipt requested. All notices shall be effective and shall be deemed delivered (i) if by personal delivery on the date of delivery if delivered during normal business hours, and, if not delivered during normal business hours, on the next business day following delivery, (ii) if by electronic communication on the next business day following receipt of the electronic communication, and (iii) if solely by mail on the next business day after actual receipt. A party may change its address by notice to the other party. 12.0 TIME OF THE ESSENCE Time is of the essence for the performance by Contractor of all obligations to be performed by it pursuant to the Contract. IN WITNESS WHEREOF, the parties execute this Contract as follows: CONTRACTOR Thus done and signed at By: (print name of signer) for and on behalf of Contractor, on this day of , 1996. D. H. Blattner & Sons, Inc. (Company Name) Witness By: Capacity: OWNER Thus done and signed at Lakewood, Colorado By: (print name of signer) for and on behalf of Owner, on this day of , 1996. USMX, Inc. (Company Name) Witness By: Capacity: EX-10.50 5 PURCHASE AND SALES AGREEMENT March 20, 1995 Mega Metals, Inc. Mega Minerals S.A. Mr. Gregory Pusey Mr. John Drejer Mr. Gary McAdam 1111 Washington Street Golden, CO 80401 Gentlemen: This letter is to set forth the terms of our binding agreement ("Letter Agreement") concerning certain mining concessions in Ecuador. 1. Representations and warranties. You jointly and severally (collectively, as "Sellers") represent and warrant to USMX, Inc. ("USMX") as follows: A. Gregory Pusey, John Dreier and Gary McAdam ("Individuals") collectively own the majority of all of the issued and outstanding shares of stock of Mega Metals, Inc., a Colorado corporation ("Mega Metals (U.S.)") B. To the best of their knowledge, the Individuals own, for the benefit of Mega Metals (U.S.), all of the issued and outstanding shares of stock of Mega Minerals S.A., an Ecuadorian company ("Mega Minerals (Ecuador)") C. To the best of Sellers' knowledge, Mega Minerals (Ecuador) has been validly formed and organized and is in good standing, and none of its shares of stock are subject to any liens or encumbrances or restrictions on transfer. Mega Minerals (Ecuador) has no current or contingent liabilities, and its only assets are a bank account, the balance of which is less than $5,000, and the right to acquire certain mineral concessions pursuant to the Jeffcock Agreement described in paragraph l.D below. D. Mega Metals (U.S.) is a party to a certain letter agreement dated october 3, 1994 and subsequently amended (collectively, the "Jeffcock Agreement"), copies of which letter agreement and amendments are attached hereto as Exhibit A, with an individual named Pippa Jeffcock, plus additional parties, and Minera Revenge S.A., an Ecuadorian company partially owned by Ms. Jeffoock. Ms. Jeffcock, Minera Revenge S.A. and associates shall be described collectively herein as "Jeffcock". To the best of Sellers' knowledge, Jeffcock owns three concessions and may be able to acquire up to an additional nine concessions from the Government of Ecuador if those concessions are made available by the Government. The twelve concessions described in this paragraph l.D are described more specifically on Exhibit a hereto. E. To the best of Sellers' knowledge, other than as described in paragraph 1.11 below, each of the three concessions now owned by Jeffcock is valid, in good standing, current in payments, and free of all liens, encumbrances or claims thereto by third parties, other than a possible claim by Black Swan Gold Mines Ltd. Each of these concessions and the Jeffcock Agreement are fully assignable to Mega Minerals (Ecuador) or to an Ecuadorian subsidiary of USMX. The Jeffcock Agreement is in full force and effect, and none of Sellers are subject to a declaration of default thereunder. F. To the best of Sellers' knowledge, none of the properties or lands within the boundaries of the concessions described in Exhibit B are subject to any environmental liabilities or obligations. To the best of Sellers' knowledge, none of those properties or lands are subject to any restrictions or impediments to the exploration, development and mining thereof, other than as specified in the documents granting the concessions. G. To the best of Sellers' knowledge, Mega Minerals (Ecuador) is at present not subject to Ecuadorian or United States tax liabilities, contingent or otherwise, and to the best of Sellers' knowledge, consummation of the terms contained by this Letter Agreement will not give rise to any present tax liabilities on the part of Mega Minerals (Ecuador) or USMX. H. To the best of Sellers' knowledge, costs that are currently pending and that are related to the concessions now owned by Jeffcock or that have been made available to Jeffcock for acquisition are as follows and collectively do not exceed $120,000: (I) Approximately $45,000 for governmental fees and taxes on the concessions; (ii) approximately $30,000 to be paid to Jeffcook to effectuate the transfer of the Jeffcock concessions described in this paragraph 1.1+ to Mega Minerals (Ecuador); and (iii) approximately $20,000 owing to Sellers' Ecuadorian counsel. 2. USMX Right to Assignment of Stock or Assets. Sellers hereby agree to assign to USMX or to its designee either: A. All of the shares of stock of Mega Minerals (Ecuador) (the "Stock"); or B. all of Mega Minerals (Ecuador)`s right, title and interest in and to the concessions owned by it and in and to the Jeffoock Agreement (collectively, the "Assets") At any time within 30 days after the date of this better Agreement, USMX shall instruct Sellers in writing of whether it elects to have the Stock or the Assets assigned. That notice also shall specify whether the assignment, if of the Stock, is to be made to USMX or to a separate United States USMY subsidiary, or, if of the Assets, an Ecuadorian subsidiary of USMX. Sellers promptly shall execute whatever instruments of transfer are reasonably requested by USMX and its counsel in order to effectuate and document the transfer of the Stock or the Assets, as the case may be. Sellers also shall be solely responsible for satisfying all requirements under the Jeffcock Agreement for delivery of shares of stock of Mega Metals (U.S.) to Jeffoock. Sellers also shall be solely responsible for satisfaction of the existing Suber bill for consulting services. 3. Payments and Work Commitments by USMX. In consideration of the assignment described in paragraph 2 above, and in reliance upon Sellers' representations and warranties in paragraph 1 above, usxx or its assigns agree to do the following: A. On or before April 5, 1995, USMX will use its reasonable best efforts to pay the costs described in paragraph l.H above, subject to the following conditions: (i) USMX reasonably satisfying itself that the representations and warranties in paragraph I above are true, complete and accurate; (ii) The total of those costs shall not exceed $120,000; and (iii) the payment or partial payment to Jeffcock described in paragraph l.H(ii) shall not be made unless and until all rights, titles and interests in and to the concessions currently owned by Jeffcock or currently available for acquisition by Jeffcock have been transferred to Mega Minerals (Ecuador) and Sellers' Ecuadorian counsel has confirmed and represented to USMX that such transfer has been completed. B. If USMX has not terminated this better Agreement pursuant to paragraph 5 below before October 1, 1995, it shall be obligated to expend before September 30, 1996 at least $100,000 in exploring, prospecting and evaluating some or all of the lands subject to the concessions. USMX shall be entitled to include in such expenditures all out-of-pocket costs paid to third parties as well as expenses and reasonable allocations of salaries and benefits of USMX employees who devote time directly to those concessions. USMX also shall be entitled to include in such expenditures its costs of legal and environmental services related directly to those concessions. c. If USMX has not terminated this Letter Agreement pursuant to paragraph 5 below before October 1, 1996, it shall be obligated to expend by September 30, 1997 at least an additional $100,000 in the manner described in paragraph 3.8 above. Any amounts in excess of $100,000 expended by USMX during the period described in paragraph 3.5 above shall be credited against the $100,000 requirement under this paragraph 3.C. D. on a calendar quarter basis, USMX shall provide Mega Metals (U.S.) with copies of all data produced by its operations on the concessions during the previous quarter. Such data shall be provided subject to the conditions and limitations set forth below in paragraph 4. E. If USMX has not terminated this better Agreement by more than 30 days prior to the respective due dates of the $50,000 payments (or as such payments may be renegotiated) to be made as provided in the Jeffcock Agreement, USMX shall pay same when due. While this better Agreement is in effect, if other concessions are made available to Jeffoock by the Government of Ecuador, USMX shall pay for and acquire those concessions (but not including the Raloga concession, unless USMX elects in writing to receive that concession) at the price and on the terms provided for in the Jeffoock Agreement. F. If USMX places any of the properties subject to the concessions into production, it shall pay Mega Metals (U.S.) ten percent (10%) of Net Proceeds, as calculated in zxhibit C hereto ("NPI Royalty"), after USMX has recouped all monies it has expended in performing this better Agreement, as well as all other monies it has expended in exploring, developing those properties and in conducting activities reasonably related to exploring, developing and mining those properties. It is understood and agreed by Sellers that at any time within three years after the date of this Letter Agreement, USMX shall have the right to purchase the Ilpi Royalty for $2,000,000. That purchase may be made in the form of cash or in stock of USMX and/or its assigns, or a combination thereof, with a total fair market value of $2,000,000 at the time of USMX's notice of election to the owner of the NPI Royalty. If USMX so elects and pays the purchase price, the NPI Royalty shall be conveyed to USMYC free and clear of all liens and encumbrances. USMX shall be entitled to release any of the concessions at any time it so elects, subject to the reconveyance rights of Mega Metals (U.S.), as provided in paragraph 4 below. 0. USMX may utilize the bank accounts of Mega Minerals (Ecuador) for the transfer of funds required under paragraphs 3.A and 3.E above, provided that Sellers guarantee to USMX's satisfaction that funds so provided by USMX shall remain secure and shall be used solely for USMX's purposes under this Letter Agreement. 4. USMX's Right of Termination. USMX shall have the right at any time to terminate this Letter Agreement by delivering written notice of same to Mega Metals (U.S.), in the manner provided in paragraph 6.B below. Upon such notice being effective, USMX shall have no further obligations or liabilities under this Letter Agreement, other than those accrued as of the effective date of that notice. Mega Metals (U.S.) shall have 20 business days after USMX's notice in which to notify USMX in writing of whether Mega Metals (U.S.) wishes to receive from USMX a reconveyance of the Stock or the Assets, as the case may be. Within 10 business days after receipt of notice of such election, USMX shall reconvey to Mega Metals (U.S.) or its designee all of USMX's right, title and interest in and to either the Stock or the Assets, as appropriate, received by USMX pursuant to paragraph 2 above. USMX shall warrant title to the same against all parties claiming by, through or under USMX but not otherwise. Within 30 days after termination, USMX also shall provide Mega Metals (U.S.) with copies of all information regarding the concessions obtained by USMX during the term of this better Agreement to the extent, if any, that such information had not previously been provided pursuant to paragraph 3.D above; provided, however, that USMX shall make no express or implied representations or warranties of any nature regarding that information, and any use of or reliance upon that information by Mega Metals (U.S.), its successors or assigns, shall be at their sole risk and expense. 5. Assignment. The parties shall have the right to assign their respective interests in and under this better Agreement without the approval or consent of the other parties. The assigning party shall provide the other parties with a written notice of the assignment and the name and address of the assignee within five days after the assignment. If any of Sellers assign their individual interests under this Letter Agreement, USMX shall only be required to send notices and payments to one address, as provided in paragraph 6.B below. 6. Miscellaneous Provisions. A. Dollars: All references in this better Agreement to "dollars" or "$" shall refer to United States dollars. B. Notices: All notices, payments and other required communications ("Notices") to the parties shall be in writing, and shall be addressed respectively as follows: Sellers: Mega Metals, Inc. Mega Minerals S.A. Gregory Pusey John Dreier Gary McAdam 1111 washing on Street Golden, CO 80401 USMX, Inc.: USMX, Inc. 141 Union Blvd., Suite 100 Lakewood, CO 80228 All Notices shall be given (i) by personal delivery to the party, or (ii) by electronic communication, with a confirmation sent by registered or certified mail return receipt requested, or (iii) by registered or certified mail return receipt requested. All Notices shall be effective and shall be deemed delivered (i) if by personal delivery on the date of delivery if delivered during normal business hours, and, if not delivered during normal business hours, on the next business day following delivery, (ii) if by electronic communication on the next business day following receipt of the electronic communication, and (iii) if solely by mail on the next business day after actual receipt. A party may change its address by Notice to the other party. c. Waiver: The failure of a party to insist on the strict performance of any provision of this better Agreement or to exercise any right, power or remedy upon a breach hereof shall not constitute a waiver of any provision of this better Agreement or limit the party's right thereafter to enforce any provision or exercise any right. D. Modification: No modification of this Letter Agreement shall be valid unless made in writing and duly executed by all of the parties hereto. E. Force Majeure: Except tor tne onligatlon to make payments when due hereunder and work required by Ecuadorian law or terms of the concessions to maintain the concessions in good standing, the obligations of USMX under this Letter Agreement, including but not limited to its work commitment obligations under paragraphs 3.B and 3.C above, shall be suspended and extended for the period that performance is prevented by any cause, whether foreseeable or unforeseeable, beyond its reasonable control, including, without limitation, labor disputes (however arising and whether or not employee demands are reasonable or within the power of the participant to grant); acts of God; laws, regulations, orders, proclamations, instructions or requests of any government or governmental entity; judgments or orders of any court; inability to obtain on reasonably acceptable terms any public or private license, permit or other authorization; curtailment or suspension of activities to remedy or avoid an actual or alleged, present or prospective violation of federal, state or local environmental standards; acts of war or conditions arising out of or attributable to war, whether declared or undeclared; riot, civil strife, insurrection or rebellion; fire, explosion, earthquake, storm, flood, sink holes, drought or other adverse weather condition; delay or failure by suppliers or transporters of materials, parts, supplies, services or equipment or by contractors' or subcontractors' shortage of, or inability to obtain, labor, transportation, materials, machinery, equipment, supplies, utilities or services; accidents; breakdown of equipment, machinery or facilities; or any other cause whether similar or dissimilar to the foregoing. USMX shall promptly give notice to Mega Metals (U.S.) of the suspension of performance, stating therein the nature of the suspension, the reasons therefor, and the expected duration thereof. USMX shall resume performance as soon as reasonably possible. F. Governing Law: This Letter Agreement shall be governed by and interpreted in accordance with the laws of the State of colorado, except for its rules pertaining to conflicts of laws. G. Further Assurances: Each of the parties shall take from time to time such actions and execute such additional instruments as may be reasonably necessary or convenient to implement and carry out the intent and purpose of this Letter Agreement. H. Entire Agreement; Successors and Assigns: This Letter Agreement contains the entire understanding of the parties and supersedes all prior agreements and understandings between the parties relating to the subject matter hereof. I. Memorandum: At the request of either party, a Memorandum or short form of this better Agreement, as appropriate, which shall not disclose financial information contained herein, shall be prepared and recorded by USMX. This Letter Agreement shall not be recorded. If the above correctly represents your understanding of our agreement, please so indicate by signing in the appropriate space below. Very truly yours, USMX, INC. By: James A. Knox,President EXHIBIT A MEGA METALS, INC. 1111 WASNINGTON STREET, SUITE 117 GOLDEN, COLORAQO 80401 (303) 278-0828 October 3, 1994 Pippa Jeffcock CIA. MINERA REVENGE S.A. Reina Victoria 1539 y Colon Edificto Banco do Guayaquil P.O. Box 17 - 07 - 9354 Quito, Ecuador Dear Pippa: This letter sets forth the terms and conditions pursuant to which Mega Metals, Inc., a corporation organized under the laws of the State of Colorado, U.S.A. ("Mega") shall purchase the properties of CIA. MINERA REVENGE S.A., a corporation organized under the laws of Ecuador ("Revenge"). The properties are Listed on the attached Exhibit "A". It is intended that the terms included herein will be included in a fornal agreement between the two corporate entities. It is our mutual desire and objective that the format agreement be executed and consummated as promptly as feasible to permit a closing cf the purchase on or about December 31, 1994 (the -Closing"). Both Mega and Revenge will use their best efforts to finalize the formal agreement and effect the closing on or before December 31, 1394. Our understandings are as follows: 1. Upon your execution cf this letter, Mega will pay to Revenge U.S. $15,000, to be utilized by Revenge for its corporate operations prior to Closing. This sum will be nonrefundable to Mega in the event Mega determines not to proceed with the property purchase at Closing due solely to Mega's inability or unwillingness (based on reasons unrelated to Revenge's performance) to effect the Closing. 2. At Closing, Mega will pay to Revenge (or to the persons designated by Revenge listed in Exhibit "8", as directed by Revenqe), U.S. $60,000. Additional installment payments of U.S. $50,000 each shall be :Iad? six months from the date of closing and twelve nonthe from the date of closing. 3. At Closing, Mega shall issue to Revenge shares of a new series of Mega Pref erred Stock to be created specifically for this transaction, which shares of Preferred Stock shall rovide for a reference to common shareholders upon liquidation of $400,000. The Preferred Stock will also provide for a mandatory conversion into Mega's common stock if and when Mega conducts an initial public offerizig or other public financing of its common stock. The conversion rate shall be calculated utilizing the saute price per share paid by the public for the Mega common stock. 4. Mega shall also have the option to purchase the stock of Revenge and/or the use ot Revenge's name by paying to Rovenge (or to the persons designated by Revenge listed on Exhibit "C, as directed by Revenge), U.S. $5,625 at Closing, U.S. $4,667.50 six months from the date of Closing and U.S. $4,687.50 twelve months from the date of Closing. Mega shall also issue shares of Mega Preferred Stock with a liquidation preference of $35,000. 5 For each of the three months prior to Closing, commencing October 3, 1994, Mega shall pay to Revenge the amount of U.S. $2,000 for geological consulting work concerning Rcvenge `s properties. 6. At the Closing, Mega and Revenge will cooperate in making the necessary arrangements in order to enable Mega to utilize the office space in Quito presently used by Revenge, and to enter into arrangements to use the services of the current secretary, administrative assistant and Revenge's consultant, Wilson Larrea. 7. It is understood that Mega's desire to consummate the purchase of the properties at Closing is, based upon your representation (which will be confirmed in the final agreement) that Revenge has clear title to the properties to be conveyed to Mega (or that Mega is satisfied that title can be issued to it), that the properties are in good standing and that Revenge is in material compliance with all applicable laws, rules and regulations including, but not limited to, the Mining Law of Ecuador. None of the properties to be conveyed by Revenge to Mega shall be subject to any lien, claim or encumbrance. Revenge shall provide such assurances and indemnification regarding these properties as may be requested by Mega. 8. Pending the Closing, Mega and its representatives shall have, at all reasonable times, access to the premises and to the books, records and properties of Revenge, and Revenge shall furnish to Mega and its representatives such information with respect to the properties and business of Revenge, as Mega shall, from time to time, reasonably request. In connection therewith, Mega and its representatives shall be privileged to contact and communicate with persons having business dealings with Revenge or involvement with its properties. In addition, Meqa may (but is under no obligation) conduct work on Revenge 5 properties to assist in maintaining such properties in good standing, and may assist Revenge in filing reports required under applicabie laws. Revenge shall cooperate with Mega in filing any reports which may be due in order to preserve the title to, and good standing of, the properties. 9. In the event Mega determines not to proceed with the purchase of all of the properties listed on Exhibit "A", any funds spent to maintain the properties (as set forth in the preceding paragraph) or for consulting fees to Revenge (as set forth in paraguaph 5), :nay be repaid to Mega, at Revenge's option, during the 30 day period after Mega notifies Revenge of its; decision. If Revenge does not choose to repay Mega, then the funds shall be applied to the purchase of one or more of the properties listed on Exhibit "A", the purchase price to be apportioned equally among such properties. The properties will be selected at random. 10. Upon execution of this letter by Revenge, Mega will commence its due diligence investigation and retain counsel to prepare a formal agreement. In consideration for the substantial expenditures of time, effort and expense to be undertaken by Mega in connection with the preparation and execution 0 the agreement, and the various investigations and reviews referred to above, you and Revenge will undertake and agree that (a) Neither Revenge or you shall, between the date of execution by you of this letter of intent and the Closing, enter into or conduct any discussions with any prospective purchaser of the stock, properties or other assets of other assets of Revenge; and (b) You and Revenge shall use your best efforts to preserve intact the properties, including title and good standing thereof, as well as the good will of persons having business relations with Revenge. In the event the formal agreement is not executed by December 31, 1994 due to no fault of Revenge, then these obligations will terminate. If this letter meets with your approval, kindly so signify by signing the enclosed duplicate copy of this letter, whereupon this letter shall constitute an agreement between us. Very truly yours, MEGA METALS, INC. By: John Dreier, President AGREEN AND CONFIRMED: CIA. MINERA REVENGE S.A. 3/20/95 EXHIBIT C NET PROCEEDS CALCULATION 1. Income and Expenses. Net proceeds shall be calculated by deducting from the gross revenues realized (or deemed to be realized) from the sale (or deemed sale) of products, such costs and expenses attributable to exploration, development, mining, processing and the marketing of products as would be deductible under generally accepted accounting principles and practices consistently applied as employed by the manager of the properties, including without limitation: (a) All costs and expenses of replacing, expanding, modifyinq, altering or changing from time to time the mining facilities. Costs and expenses of improvements (such as haulage ways or mill facilities) that are also used in connection with workings other than the properties shall be charged to the properties only in the proportion that their use in connection with the properties bears to their total use. (b) Ad valorem real property and unsecured personal property taxes, and all taxes other than income taxes, applicable to mining of the properties, including without limitation all state mining taxes, sales taxes, severance taxes, royalties, license fees and governmental levies of a similar nature. (c) A reasonable allowance for overhead. C-l (d) All expenses incurred relative to the sale of products, including an allowance for commissions at rates which are normal and customary in the industry. (e) Interest on monies borrowed or advanced for costs and expenses, at an annual rate equal to two percentage points above the Prime Rate, as published in the Money Rates column of The Wall Street Journal from time to time, but in no event in excess of the maximum permitted by law. (f) An allowance for reasonable working capital and inventory. (g) Reasonably anticipated reclamation costs. No deduction shall be made for income taxes depreciation, amortization or depletion. If in any year after the beginning of mining of the properties an operating loss relative thereto is incurred, the amount thereof shall be considered as and be included with outstanding costs and expenses and carried forward determining Net Proceeds for subseguent periods. If products are processed by USMX, or are sold to an affiliate of USMX, then, for purposes of calculating Net Proceeds, such products shall be deemed conclusively to have been sold at a price equal to fair market value to arm's length purchaser FOB the concentrator for the properties, and Net Proceeds relative thereto shall be calculated without reference to any profits or losses attributable to smelting or refining. 2. Payment of Net Proceeds. Payments of Net Proceeds shall commence in the calendar quarter next following the calendar quarter in which Net Proceeds are first realized, and shall be made 45 days following the end of each calendar quarter during which Net Proceeds are realized, and shall be subject to adjustment, if required, at the end of each calendar year. EX-22 6 SUBSIDIARIES OF THE COMPANY SUBSIDIARIES OF USMX, INC. FORM 10-K - December 31, 1995 EXHIBIT 22 Percent Subsidiary Place of Owned Incorporation __________ _____________ _______ USMX of Alaska, Inc. Alaska 100% USMX of Montana, Inc. Montana 100% USMX of Nevada, Inc. Nevada 100% USMX of Utah, Inc. Delaware 100% USMX Mining, Inc. British Columbia 100% MXUS S.A. de C.V. Mexico 100% USMX de Costa Rica C. V. Costa Rica 100% Compania Minera USMX de Chile Limitada Chile 100% Southern Gold Resources (USA), Inc. Colorado 80% Mega Minerals S.A. Ecuador 100% EX-24.1 7 CONSENT OF INDIPENDANT AUDITORS Consent of Independent Auditors To the Stockholders and Board of Directors USMX, INC.: We consent to incorporation by reference in the registration statements (File Nos. 33-16194, 33-16195, 33-38855, 33-49392 and 33-63559) on Form S-8 of USMX, INC. of our report dated March 1, 1996, relating to the consolidated statements of financial position of USMX, INC. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, stockholder' equity, and cash flows for each of the years in the three-year period ended December 31, 1995, which report appears in the December 31, 1995 annual report on Form 10-K of USMX, INC. Our report refers to a change in the method of accounting for income taxes in 1993. KPMG Peat Marwick LLP Denver, Colorado March 28, 1996 EX-27 8 ARTICAL 5 FIN. DATA SCHEDULE FOR 1995 10-K
5 1,000 YEAR DEC-31-1995 DEC-31-1995 10,365 0 459 0 0 13,475 11,915 3,431 23,576 728 0 15 0 0 22,472 23,576 386 753 327 453 834 0 0 (534) (61) (473) 0 0 0 (473) (0.03) (0.03)
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