8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of report (date of earliest event reported):  April 28, 2009

WITS BASIN PRECIOUS MINERALS INC.

(Exact name of registrant as specified in its charter)

Minnesota

(State or other jurisdiction of incorporation)

1-12401	84-1236619
(Commission File Number)	(IRS Employer Identification No.)

80 South Eighth Street, Suite 900

Minneapolis, MN  55402

(Address of principal executive offices) (Zip Code)

(612) 349-5277

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01 Entry into a Material Definitive Agreement.

On April 28, 2009, Wits Basin Precious Minerals Inc. (the “Company”) entered into a convertible debenture with Cabo Drilling (America) Inc., a Washington corporation formerly known as Advanced Drilling, Inc (“Cabo”), pursuant to which the Company issued to Cabo a 12% Convertible Debenture dated April 27, 2009 (the “Debenture”), in the principal amount of $511,589.59 (the “Principal”). The Debenture has a maturity date of April 27, 2012, with scheduled payments of $150,000 due each anniversary with a final payment due of the remaining balance on the third anniversary.  The Debenture is convertible at the option of the holder at any time into shares of the Company’s common stock at a conversion price of $0.20 per share, subject to standard anti-dilutive adjustments. The Company’s obligations under the Debenture are guaranteed by Hunter Bates Mining Corporation, a Minnesota corporation and wholly owned subsidiary of the Company (“Hunter Bates”).  Hunter Bates and Cabo also entered into that certain Deed of Trust to Public Trustee, Mortgage, Security Agreement, Assignment of Production and Proceeds, Financing Statement and Fixture Filing (the “Deed of Trust”) to provide additional security for the obligations under the Debenture.

The Company issued the Debenture to Cabo in satisfaction of an outstanding payable to Cabo for services performed relating to the Company’s Hunter Bates property. Pursuant to the terms of the Debenture, Cabo is required to withdraw and dismiss with prejudice its legal action and notice of lis pendens filed on January 14, 2009 to enforce a mechanics’ lien held by Cabo with respect to the Hunter Bates property and related assets.

A copy of the Debenture and Deed of Trust are filed herewith as Exhibits 10.1 and 10.2, and are incorporated herein by reference.

Item 8.01  Other Events

On April 20, 2009, the Company’s Board of Directors authorized an extension to the expiration date of its Class C Redeemable Warrants, originally set to expire on April 28, 2009.  Each Class C Redeemable Warrant represents the right to purchase one share of the Company’s common stock, at an exercise price of $0.50 per share. The Class C Redeemable Warrants shall be exercisable until August 31, 2009.

Item 9.01  Financial Statements and Exhibits.

(d) Exhibits.

Exhibit	Description
10.1	Convertible Debenture between Cabo Drilling (America) Inc. and the Company and Hunter Bates Mining Corporation dated April 27, 2009.
10.2	Deed of Trust to Public Trustee, Mortgage, Security Agreement, Assignment of Production and Proceeds, Financing Statement and Fixture Filing from Hunter Bates Mining Corporation to The Public Trustee of Gilpin County, Colorado for the benefit of Cabo Drilling (America) Inc. dated April 27, 2009.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	WITS BASIN PRECIOUS MINERALS INC.
Date:  May 1, 2009	By:	/s/ Mark D. Dacko
		Mark D. Dacko
		Chief Financial Officer

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EX-10.1

 

EXHIBIT 10.1

CONVERTIBLE DEBENTURE

DATED:   April 27, 2009

PRINCIPAL AMOUNT: US $511,589.59

INTEREST RATE:  12.0% per annum compounded annually, not in advance

FOR VALUABLE CONSIDERATION, WITS BASIN PRECIOUS MINERALS INC., a Minnesota corporation (the “Corporation”), hereby acknowledges itself indebted and promises to pay pursuant to the terms herein to or to the order of CABO DRILLING (AMERICA) INC., a Washington corporation formerly known as Advanced Drilling, Inc.,and its respective successors and assigns (together, the “Lender”) the Principal Amount, Expenses and Extension Fee at the Lender’s address as stated in Section 9.1 or at such other place as the Lender may designate by notice in writing to the Corporation, and to pay interest thereon from the date hereof at the Interest Rate calculated in like money at the same place and should the Corporation at any time make default in payment of any Principal Amount, Expenses, Extension Fee or Interest, to pay interest on the amount in default both before and after default and judgment at the Interest Rate in like money at the same place on the same dates. The amounts owing under this Debenture will be payable by the Corporation to the Lender as follows (except as otherwise specified in this Debenture):

(a) payment of US$150,000.00 on the first anniversary of the date of issuance of this Debenture;

(b) payment of US$150,000.00 on the second anniversary of the date of issuance of this Debenture; and

(c) payment of the balance of any amounts owing to the Lender pursuant to this Debenture on the Maturity Date.

The Corporation may prepay the amounts owing to the Lender under this Debenture in whole or in part, at any time and from time to time, without premium or penalty, upon five (5) Banking Days notice in writing to the Lender, provided that the Lender will continue to be entitled to exercise its conversion rights pursuant to Article 6 hereunder during such notice period.

ARTICLE 1

INTERPRETATION

1.1          Definitions.  In this Debenture the following terms will have the following meanings:

(a) “Available Shares” means the number of shares issuable to the Lender on full conversion of all amounts owing under this Debenture;

(b) “Banking Day” means any day on which banks are open for business in Vancouver, British Columbia;

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(c) “Commission” has the meaning set out in Section 4.1(g);

(d) “Common Shares” means common stock, par value $0.01 per share, of the Corporation;

(e) “Conversion Price Per Share” means US $0.20 per Common Share as adjusted by Section 6.1(c);

(f) “Conversion Shares” has the meaning set out in Section 4.1(o);

(g) “Corporation” means Wits Basin Precious Minerals Inc., a Minnesota corporation;

(h) “Counsel” means an attorney, barrister or solicitor or firm of attorneys, barristers and solicitors acceptable to the Lender;

(i) “Debenture”, “hereto, “herewith”, “hereof”, “hereby”, “hereunder” and other similar expressions refer to this Debenture and not any Article, Section, subsection or any portion thereof;

(j) “Deed of Trust” has the meaning set out in Section 2.2;

(k) “Demand Date” has the meaning set out in Section 6.2;

(l) “Environmental Laws” means all applicable domestic and foreign federal, state, provincial, municipal or local laws, statutes or ordinances pertaining to the environment, all applicable rules, regulations or the like promulgated under or pursuant to such laws, statutes or ordinances and all applicable Governmental Authorizations or Orders or the like issued or rendered by any Governmental Authorities under or pursuant to any such laws, statutes, ordinances, rules or regulations;

(m) “Exchange Act” has the meaning set out in Section 4.2(b);

(n) “Expenses” means all expenses reimbursable to the Lender by the Corporation pursuant to the terms of this Debenture, including but not limited to the amounts specified in Sections 4.2(b), 4.4(b) and 8.3;

(o) “Extension Fee” has the meaning set out in Section 6.2;

(p) “Event of Default” means each of the events referred to in Section 7.1;

(q) “Fundamental Change” has the meaning set out in Section 6.1(c);

(r) “Governmental Authority” means the governments of Canada and the United States, or the government of any state, province, municipality or other political subdivision thereof, and any entity exercising executive, legislative, judicial, regulatory or administrative functions, and any corporation or other entity owned or controlled (through stock or capital ownership or otherwise) by any of the foregoing;

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(s) “Governmental Authorizations or Orders” mean all licences, permits, consents, orders, grants, quotas, commitments, rights, privileges, certificates, judgments, writs, injunctions, awards, determinations, directions, decrees, demands, material authorizations and approvals (including, without limitation, those relating to the environment, zoning, water and sewers) now in effect or hereafter entered into, from any and all Governmental Authorities;

(t) “Guarantor” means Hunter Bates Mining Corporation, a Minnesota corporation;

(u) “Guarantor Property” means all the property and assets of the Guarantor which at the particular time are subjected (or required by this Debenture to be subjected) to the Deed of Trust;

(v) “Hazardous Substance” means any substance, product, waste, pollutant, material, chemical, contaminant, dangerous good, constituent or other material which is or becomes listed, regulated, or addressed under any Environmental Law;

(w) “Hunter Bates Claims” means the lands listed in Schedule “A” attached hereto;

(x) “Interest” means the accrued and unpaid interest owing, from time to time, pursuant to this Debenture calculated at the Interest Rate;

(y) “Interest Rate” means 12.0% per annum compounded annually, not in advance;

(z) “Lender” means Cabo Drilling (America) Inc., a Washington corporation;

(aa) “Lien” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind, including any agreement to grant any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to file any notice of security or financing statement under the applicable legislation of any jurisdiction in connection with any of the foregoing;

(bb) “Maturity Date” means the third anniversary of the date of issuance of this Debenture;

(cc) “Permitted Liens” means:

(i) Liens for taxes, assessments or governmental charges not then due and delinquent or in respect of which the Guarantor has furnished such security as the Lender may require and which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted;

(ii) Liens in the nature of zoning restrictions, easements and rights and restrictions of record on the use of real property, which do not materially interfere with the conduct of the business of the Guarantor and do not materially affect the value of the Guarantor Property subject to such Liens;

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(iii) undetermined or inchoate Liens, including unregistered construction Liens, incidental to current operations of the Guarantor which have not at such time been filed pursuant to laws against the Guarantor and which relate to obligations neither due nor delinquent;

(iv) Liens in the form of security given to a public utility or any Governmental Authority in connection with the operations of the Guarantor in the ordinary course of its business; and

(v) matters of record as of the date hereof, itemized on Schedule “C” hereto, save and except for the Subordinated Liens;

(dd) “Person” means an individual, a partnership, a corporation, a trust, an unincorporated organization, a government or any department, political subdivision or agency thereof and the heirs, executors, administrators or other legal representatives of an individual;

(ee) “Pre-Conversion Condition” means the occurrence of either of the following:

(i) the Corporation obtaining the approval of its shareholders to the amendment of the Corporation’s articles of incorporation to increase the number of authorized shares of Common Shares available for issuance such that it is legally capable of issuance of the maximum number of shares of Common Shares issuable upon a conversion of all amounts owing under this Debenture;

(ii) the delivery to Counsel for the Lender of an opinion from Counsel for the Corporation opining that the Corporation has taken such steps as are necessary such that on conversion of all amounts owing under this Debenture the Corporation will have sufficient authorized capital to effect issuance of the Available Shares to the Lender;

(ff) “Principal Amount” means the face amount of this Debenture;

(gg) “Securities” has the meaning set out in Section 5.1(e);

(hh) “Securities Act” has the meaning set out in Section 4.2(b);

(ii) “Subordinated Liens” means the Liens listed in Schedule “B” attached hereto;

(jj) “Trigger Date” has the meaning set out in Section 6.2;and

(kk) “US Dollars” means the lawful currency of United States.

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1.2          Interpretation Not Affected by Headings.  The division of this Debenture into Articles, Sections and subsections and the insertion of headings are for convenience of reference only and will not affect the construction or interpretation of this Debenture.

1.3          Applicable Law.  This Debenture will be construed in accordance with the laws of the State of Colorado and the federal laws of the United States applicable therein, and will be treated in all respects as a Colorado contract.

1.4          Currency.  Unless otherwise specified, all statements of or references to dollar amounts (without more) in this Debenture will mean lawful money of the United States.

1.5          Banking Day.  If the date upon which any act or payment hereunder is required to be done or made falls on a day which is not a Banking Day, then such act or payment will be duly performed or made if done on the next Banking Day.

1.6          Number.   Words importing the singular number only will include the plural and vice versa, words importing the masculine gender will include the feminine and neuter genders and words importing persons will include firms and corporations and vice versa

ARTICLE 2

GUARANTEE

2.1          Guarantee.  As an inducement for entering into this Debenture, the Guarantor hereby guarantees payment to the Lender of any and all indebtedness now or hereafter owing by the Corporation to the Lender arising under this Debenture, including the Principal Amount, the Interest, the Extension Fee and the Expenses due and owing from time to time, and the performance of all of the obligations of the Corporation hereunder on the following terms:

(a) the Lender, without exonerating in whole or in part the Guarantor, may grant time, renewals, extensions, indulgences, releases and discharges to, may take securities from and give the same and any or all existing securities, may abstain from taking securities from, or from perfecting securities of, may accept compositions from, and may otherwise deal with the Corporation and all other persons (including the Guarantor and any other guarantor) and securities, as the Lender may see fit, and that all dividends, compositions, and moneys received by the Lender from the Corporation or from any other persons or estates capable of being applied by the Lender in reduction of the debts and liabilities hereby guaranteed, will be regarded for all purposes as payments in gross, and the Lender will be entitled to prove against the estate of the Corporation upon any insolvency or winding-up in respect of the whole of said debts and liabilities, and the Guarantor will have no right to be subrogated to the Lender in respect of any such proof until the Lender will have received from such estate payment in full of its claim with interest;

(b) the Lender will not be obliged to give the Guarantor notice of default by the Corporation, and upon any default by the Corporation the Guarantor will be held bound directly to the Lender as principal debtor in respect of the payment of the amounts guaranteed hereby;

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(c) the Lender will not be bound to exhaust its recourse against the Corporation or other parties or the securities it may hold before being entitled to payment from the Guarantor hereunder;

(d) any change or changes in the name of the Corporation will not affect or in any way limit or lessen the liability of the Guarantor hereunder;

(e) should the Lender receive from the Guarantor a payment or payments in full or on account of the liability hereunder, the Guarantor will not be entitled to claim repayment against the Corporation or the Corporation's estate until the Lender's claims against the Corporation have been paid in full; and in case of liquidation, winding up or bankruptcy of the Corporation (whether voluntary or compulsory), the Lender will have the right to rank for its full claim and receive all dividends or other payments in respect thereof until its claim has been paid in full and the Guarantor will continue to be liable, up to the amount guaranteed less any payments made by the Guarantor, for any balance which may be owing by the Corporation to the Lender; and

(f) the Guarantor will make payment to the Lender of the amount of the debts and liabilities guaranteed hereby forthwith after demand therefore is made in writing in accordance with Article 9 and interest at a rate of 12% per annum, compounded annually, will accrue and be payable by the Guarantor to the Lender after such demand.

2.2          Security.   To secure the due payment of all amounts from time to time owing pursuant to this Debenture and the due performance of the obligations of the Corporation and the Guarantor contained herein but subject to the Permitted Liens, the Guarantor is concurrently executing and delivering to the Lender a Deed of Trust to Public Trustee, Mortgage, Security Agreement, Assignment of Production and Proceeds, Financing Statement and Fixture Filing (the “Deed of Trust”).

ARTICLE 3

POSSESSION, USE AND RELEASE OF THE GUARANTOR PROPERTY

3.1          The Guarantor Entitled to Possession.   Unless an Event of Default shall have occurred, the Guarantor will be permitted to possess, use and enjoy all of the Guarantor Property, as applicable, to take and use the moneys in any account (subject to any other agreements it may have entered into with respect thereto) and to receive and use the income and profits thereof including, without limitation, amounts owed to it under accounts receivable now owned or hereafter acquired in the ordinary course of business and for the purpose of carrying on the same.  Notwithstanding the forgoing, the Corporation and/or the Guarantor will not sell or dispose of any of the Guarantor Property, whether in the ordinary course of business or otherwise, without the prior written consent of the Lender.

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3.2          Condemnation, Expropriation.   In the event of any taking of any part of the Guarantor Property by Governmental Authority by power of condemnation or expropriation or other similar power or of any sale or conveyance by the Guarantor with the prior written consent of the Lender in lieu of such taking and in reasonable anticipation thereof where proceedings therefor might lawfully be exercised to vest such property in the acquirer or expropriator for the same purposes, the Lender will release the property so taken or acquired upon the deposit with the Lender of a sum equal to the greater of (a) the net proceeds of any such taking or exercise of such right of acquisition or in case of sale in anticipation of such taking (which sale will require the written approval of the Lender), the net proceeds of such sale and (b) the aggregate of the Principal Amount, Interest, Extension Fee and Expenses owing to the Lender under this Debenture.

ARTICLE 4

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE CORPORATION AND THE GUARANTOR

4.1          Representations and Warranties.  The Corporation and the Guarantor jointly and severally hereby covenant, represent and warrant to the Lender as follows (and the Corporation and the Guarantor acknowledge that the Lender is relying upon these covenants, representations and warranties in connection with entering into this Debenture and the Guarantors guarantee of the Corporation’s obligations hereunder) as at the date hereof and, with respect to paragraphs (a), (b), (d), (e) and (o) also as long as any amounts remaining owing to the Lender pursuant to this Debenture:

(a) Status.  The Corporation and the Guarantor are corporations duly incorporated and organized in accordance with, and are validly subsisting and in good standing under the laws of, each of their jurisdictions of incorporation respectively.

(b) Corporate Power.  The Corporation and the Guarantor each has the corporate power to own their property and assets to carry on the business as presently carried on or proposed to be carried on by them.  The Corporation and the Guarantor are each duly qualified or licensed and in good standing as a corporation authorized to do business in each jurisdiction where they respectively carry on their business or where the nature of the business carried on or proposed to be carried on or where the location of its property and assets requires to be so licensed or qualified.

(c) Power, Capacity, Due Execution and Enforceability.  The Corporation and the Guarantor each has full power, authority and capacity to execute, deliver and perform this Debenture.  This Debenture and the consummation of the transactions contemplated hereby by each of the Corporation and the Guarantor have been duly and validly authorized, executed and delivered by each of them.  Except as set forth on Schedule 4.1, the execution, delivery and performance of this Debenture and the consummation of the transactions contemplated hereby by each of the Corporation and the Guarantor (a) will not require the consent, approval or authorization of any Person or Governmental Authority (b) will not conflict with or result in a breach of the articles of incorporation or by-laws of either the Corporation or the Guarantor or give rise to a right to accelerate or terminate any contract to which either the Corporation or the Guarantor is a party or by which either the Corporation or the Guarantor may be bound or which relates to or may affect the business of either the Corporation or the Guarantor, (c) will not violate any law, rule, regulation, by-law, ordinance or Governmental Authorization or Order, (d) will not require any notice under any contract or to any Person or Governmental  Authority and (e) will not give rise to any Lien on any of the Guarantor Property other than Permitted Liens.  This Debenture constitutes (or will constitute when executed) a legally valid and binding obligation of each of the Corporation and the Guarantor in accordance with its terms subject to applicable bankruptcy, insolvency and other laws of general application affecting the enforcement of creditors’ rights generally and to general equitable principles.

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(d) Compliance with Laws, Permits and Licenses.  Each of the Corporation and the Guarantor has conducted and is conducting its business in material compliance with all applicable laws, rules, regulations, by-laws, ordinances and Governmental Authorizations or Orders.  Each of the Corporation and the Guarantor is not in material breach of such laws, regulations, approvals and Governmental Authorizations or Orders and each of the Corporation and the Guarantor is duly licensed, registered or qualified and duly possesses all material licenses, registrations, qualifications, consents, clearances and approvals, permits and quotas required in those jurisdictions in which the Corporation or the Guarantor, as applicable, carries on its business to enable such business to be carried on as now conducted and as now proposed to be conducted by it in the future and its property and assets to be owned, leased and operated.  All such material licenses, registrations, qualifications, consents, clearances, approvals, permits and quotas necessary to the conduct of each of the Corporation’s and the Guarantor’s business or for each of the Corporation and the Guarantor to own, lease and/or operate its property and assets are valid and subsisting and in good standing and none of the same contains or is subject to any term, provision, condition or limitation which may materially adversely change or terminate such license, registration, qualification, permit or quota by virtue of the completion of the transactions contemplated hereby and there is no proceeding, action or notice pending or threatened which may result in the revocation, cancellation, suspension or any material adverse modification thereof.

(e) Title to Assets.  The Guarantor has good and marketable title, free and clear of any Liens, other than Permitted Liens or Liens ranking subordinate to the Liens created by the Deed of Trust, to the Guarantor Property or any part thereof.  The Hunter Bates Claims and all assets located on, used in connection with, or used in any mining or exploration operations related to the Hunter Bates Claims are owned legally and beneficially by the Guarantor.

(f) Subsidiaries.  The Guarantor is 100% owned by the Corporation.

(g) No Guarantees.  Except as set forth on Schedule 4.1 or as otherwise disclosed in the Corporation’s public filings with the U.S. Securities and Exchange Commission (the “Commission”), the Corporation or the Guarantor is not a party to, or bound by, any contract of guarantee, indemnification, assumption or endorsement or any other like commitment of the obligations (contingent or otherwise) or indebtedness of any Person.

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(h) Absence of Undisclosed Liabilities or Indebtedness.  There are no liabilities or indebtedness of the Corporation or the Guarantor of any kind whatsoever whether or not accrued and whether or not determined or determinable, other than:

(i) liabilities disclosed or referred to or reflected in the Corporation’s public filings with the Commission; and

(ii) liabilities incurred in the ordinary course of business, none of which has either individually or in the aggregate been or will be materially adverse to the Corporation or the Guarantor, the results of their operations, their property or assets, financial condition or manner of conducting their business.

(i) Taxes.  The Corporation and the Guarantor each has filed all tax returns which are required to be filed by it and, except for taxes which are being contested and which give rise to no Liens, has paid all taxes (if any) which have become due as shown on such returns or any assessment received by it or any proposed assessment of which notice has been given to it.  The income tax liability of each of the Corporation and the Guarantor each has been paid or provided for in the accounts of each such corporation and there is no material outstanding matter of dispute or difference between the Corporation or the Guarantor and any federal, provincial, state, territorial or municipal taxing authority, agency or department.  All amounts required to be deducted or withheld by the Corporation and the Guarantor from employees under any applicable statute have been properly deducted and withheld and have been remitted to the appropriate authorities within the prescribed times.

(j) Litigation.  There is no action, suit or proceeding (whether or not purportedly on behalf of the Corporation or the Guarantor) pending or threatened in writing against or affecting the Corporation or the Guarantor before any court or before or by any Governmental Authority, in the United States, Canada or elsewhere, or before any arbitrator or board save and except for actions commenced by the Lender and/or its affiliates; and the Corporation and the Guarantor are each not in default with respect to any judgment, order, writ, injunction, decree or award of any court, arbitrator or Governmental Authority, in the United States, Canada or elsewhere.

(k) Environmental Matters.  To the best of the knowledge of each of the Corporation and the Guarantor, each of the Corporation and the Guarantor and all of their respective properties, assets and operations are in full compliance in all material respects with all Environmental Laws.  Neither the Corporation nor the Guarantor are aware of, nor has either received notice of any past, present or future conditions, events, activities, practices or incidents which may interfere with or prevent the compliance or continued compliance of the Corporation and the Guarantor in all material respects with all Environmental Laws.  The Corporation and the Guarantor are not aware that any Hazardous Substances exist on, about or within or have been used, generated, stored, transported, disposed of on, or released from any of the properties or assets of any of the Corporation and the Guarantor other than in compliance in all material respects with all Environmental Laws.

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(l) Condition.  Except as set forth on Schedule 4.1, all tangible property and assets of the Guarantor are in good working order, reasonable wear and tear excepted, and neither require nor are reasonably expected to require any special or extraordinary expenditures to remain in such condition and are capable of being used for their intended purpose in the ordinary course of business consistent with past practice.

(m) Full Disclosure.  To the best knowledge of the Corporation and the Guarantor, neither the Corporation nor the Guarantor has any information or knowledge of any material facts not disclosed to the Lender relating to the Corporation, the Guarantor or their business or assets which could reasonably be expected to individually or in the aggregate be material to the Lender.

(n) No Act of Insolvency.  No proceedings or actions have been instituted by the Corporation or the Guarantor or any Person or threatened by any Person in connection with or relating to the solvency of the Corporation or the Guarantor.

(o) Shares Issuable Upon Conversion.  The Common Shares, when issued to the Lender upon conversion of and in accordance with this Debenture (the “Conversion Shares”), will be duly and validly issued, fully paid and nonassessable and in compliance with all applicable securities laws.  Such issuance will not give rise to preemptive rights, rights of first refusal or similar rights by any other security holders of the Corporation.

4.2          Covenants - Corporation.  The Corporation hereby covenants and agrees with the Lender as follows:

(a) Payment on Demand.   The Corporation will duly and punctually pay or cause to be paid all amounts owing hereunder when due.

(b) To Remain a Reporting Corporation.  The Corporation shall cause its Common Shares to continue to be registered under Sections 12(b) or 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to timely comply in all respects with its reporting and filing obligations under the Exchange Act, to comply with all requirements related to any registration statement filed pursuant to this Debenture, and to not take any action or file any document (whether or not permitted by the Securities Act of 1933, as amended (the “Securities Act”), or the rules promulgated thereunder) to terminate or suspend such registration or to terminate or suspend its reporting and filing obligations under the Exchange Act or Securities Act, except as permitted herein.

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(c) To Maintain Market for Securities.  The Corporation will take all action necessary to continue the listing or trading of its Common Shares on the OTC Bulletin Board or other exchange or market on which the Common Shares are trading.  With a view to making available to the Lender the benefits of Rule 144 promulgated under the Securities Act (“Rule 144”), the Corporation shall: (i) make and keep available adequate current public information, as those terms are understood and defined in Rule 144, at all times; (ii) use commercially reasonable efforts to file with the Securities and Exchange Commission (the “SEC”) in a timely manner all reports and other documents required of the Corporation under the Securities Act and the Exchange Act (at any time after the Corporation has become subject to such reporting requirements); (iii) take such further action as the Lender may reasonably request, all to the extent required from time to time to enable the Lender to sell the Conversion Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144; and (iv) furnish to Lender, so long as the Holder owns any Conversion Shares, forthwith upon request (A) to the extent accurate, a written statement by the Corporation that it has complied with the reporting requirements of Rule 144, the Securities Act and the Exchange Act (at any time after the Corporation has become subject to such reporting requirements); (B) a copy of the most recent annual or quarterly report of the Corporation and such other reports and documents so filed by the Corporation; and (C) such other information as may be reasonably requested in availing the Lender of any rule or regulation of the SEC that permits the selling of any such securities without registration.

(d) Perform Covenants and Obligations.  The Corporation will duly and punctually perform or observe, as the case may be, the covenants and obligations of the Corporation contained in this Debenture.

(e) Right of Inspection.  Without prejudice to Section 4.3(l), the Lender may, upon giving the Corporation two (2) Business Days notice in writing, examine and make copies of all books and records of the Corporation and the Lender may discuss the affairs, finances and accounts of the Corporation with the Corporation’s officers and accountants.

(f) Insurance.  The Corporation will maintain policies of insurance, including but not limited to general liability insurance, in the ordinary course of business consistent with past practice.

4.3          Negative Covenants.  Unless approved by Lender, the Corporation covenants that, during the term of this Debenture, it will not (and it will not permit Guarantor to):

(a) No Prior Liens.  Without the prior written consent of the Lender, create or permit to be created any Lien (other than a Permitted Lien) upon the Guarantor Property or any part thereof ranking or purporting to rank in priority to or pari passu with the Liens created by the Deed of Trust;

(b) No Transfer of Guarantor.  Sell, assign or otherwise dispose of any of its interest in the Guarantor;

(c) No Issuances of Shares of Guarantor.  Without the prior written consent of the Lender, issue any shares other securities in the capital of the Guarantor;

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(d) No Sale of Assets.  Except in the ordinary course of business, sell, lease, assign or otherwise dispose of any of the Guarantor Property;

(e) No Surrender of Assets.  Except in the ordinary course of business, release, surrender or abandon the Guarantor Property or any part of parts thereof, or move the Guarantor Property or any part or parts thereof from their present location or locations;

(f) No Redemptions.  Apply any of the Guarantor Property to the redemption or acquisition of any shares in the capital of the Corporation or the Guarantor;

(g) No Compromise to Rights of Lender.  Take any actions which negatively modify, amend or compromise the rights of the Lender;

(h) Amendment of Charter Documents/Significant Transactions.  Take any of the following actions if such action would negatively effect the Lender’s rights hereunder or under the Deed of Trust without first obtaining consent of the Lender, which consent will not be unreasonably withheld:

(i) Except as provided in Section 6.1, take any action which modifies or amends the articles of incorporation or bylaws of the Corporation or the Guarantor;

(ii) Except as provided in Section 6.1, alter the capital structure of the Corporation or the Guarantor or make any changes to, or authorize any additional classes or series of shares in the share capital of the Corporation or the Guarantor, other than issuing additional Common Shares;

(iii) Create or reclassify any class of shares of the Corporation into shares with a preference or priority as to liquidation, dividends or assets in preference to the Common Shares;

(iv) Amalgamate, merge or consolidate with any other Person or acquire (whether through a stock or asset purchase) any other Person or sell, lease or convey all or substantially all of its assets to another Person;

(v) Take any action which would result in the sale, takeover, merger or reorganization or a “change in control” of the Corporation or the Guarantor;

(vi) Carry out or complete a Fundamental Change;

(i) No Dividends.  At any time when the Corporation is in arrears of payment of principal or interest on this Debenture, the Corporation will not:

(i) declare or pay any dividends on any shares of the Corporation; or

(ii) call for redemption or purchase for cancellation or make any capital distribution with respect to any shares of the Corporation;

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(j) No Dissolutions.  Take any action to dissolve, liquidate or wind up the Corporation or the Guarantor;

(k) No Continuations.  Continue or convert its corporate existence to another jurisdiction without first obtaining consent of the Lender, which consent will not be unreasonably withheld; or

(l) Disclosure of Material Non-Public Information.  Provide the Lender or its agents or Counsel with any information that the Corporation believes constitutes material non-public information, unless prior thereto the Lender shall have executed a written agreement regarding the confidentiality of use of such information (the Corporation understands and confirms that the Lender shall be relying on the foregoing representations in effecting transactions in securities of the Corporation).

4.4          Covenants - Guarantor.  The Guarantor hereby covenants and agrees with the Lender as follows:

(a) Maintenance of Properties.  The Guarantor will diligently maintain in its current condition with appropriate repair the real property and the tangible personal property and assets included in the Guarantor Property, reasonable wear and tear excepted, and will cause to be made all appropriate repairs, renewals and replacements thereof so as to preserve and protect such Guarantor Property in its current condition.

(b) Lender Empowered to Perform Covenants.  If the Guarantor will fail to perform any of the covenants or fulfil any of the conditions contained in this Debenture required to be performed or fulfilled by the Guarantor, the Lender may in its discretion, and upon giving of notice to the Guarantor, perform any of the said covenants or fulfil any such condition capable of being performed by it and, if any such covenant or condition requires the payment or expenditure of money, it may make such payments or expenditures out of the Guarantor Property or with its own funds, or with money borrowed by or advanced to it for such purpose, but will be under no obligation so to do; and all sums so expended or advanced will be at once payable by the Corporation, will bear interest at the rate payable hereunder until paid, and will be secured by the Deed of Trust, provided that any such performance or payment will be without prejudice to any right that the Lender might have as a result of such default.

(c) To Pay Rents and Taxes.   The Guarantor will pay all rents, taxes, rates, levies, assessments and government fees or dues lawfully levied, assessed or imposed by any Governmental Authority in respect of the Guarantor Property or any part thereof as and when the same will become due and payable, and will provide to the Lender, when requested, evidence establishing such payment.

(d) Perform Covenants and Obligations.  The Guarantor will duly and punctually perform or observe, as the case may be, the covenants and obligations of the Guarantor contained in this Debenture.

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(e) Environmental Compliance.  The Guarantor will operate all property owned, leased or otherwise used by it such that no material obligation, including a clean-up or remedial obligation, will arise under any Environmental Law, provided however, that if any such claim is made or any such obligation arises, the Guarantor will immediately satisfy or contest such claim or obligation at its own cost and expense.

(f) Right of Inspection.  The Lender may, upon giving the Guarantor two (2) Business Days notice in writing, examine and make copies of all books and records of the Guarantor and the Lender may discuss the affairs, finances and accounts of the Guarantor with the Guarantor’s officers and accountants and/or the Corporation’s officers and accountants.

ARTICLE 5

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE LENDER

5.1           Representations and Warranties.  The Lender hereby covenants, represents and warrants to the Corporation as follows (and the Lender acknowledges that the Corporation is relying upon these covenants, representations and warranties and connection with the Corporation’s issuance of this Debenture and the performance of its obligations) as of the date hereof:

(a) Status.  The Lender is a corporation duly incorporated and organized in accordance with, and is validly subsisting and in good standing under the laws of its jurisdiction of incorporation.

(b) Corporate Power.  The Lender has the corporate power to own its property and assets to carry on the business as presently carried on or proposed to be carried on by it.  The Lender is duly qualified or licensed and in good standing as a corporation authorized to do business in each jurisdiction where it carries on its business or where the nature of the business carried on or proposed to be carried on or where the location of its property and assets requires it to be so licensed or qualified.

(c) Power, Capacity, Due Execution and Enforceability.  The Lender has the full power and capacity to execute, deliver and perform this Debenture.  This Debenture and the consummation of the transactions contemplated hereby by the Lender have been duly and validly authorized, executed and delivered by the Lender.  The execution, delivery and performance of this Debenture by the Lender and the consummation of the transactions contemplated hereby by the Lender (a) will not require the consent, approval or authorization of any Person or Governmental Authority (b) will not conflict with or result in a breach of the articles or by-laws of the Lender, (c) will not violate any law, rule, regulation, by-law, ordinance or Governmental Authorization or Order and (d) will not require any notice under any contract or to any Person or Governmental Authority.

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(d) Compliance with Laws, Permits and Licenses.  The Lender has conducted and is conducting its business in material compliance with all applicable laws, rules, regulations, by-laws, ordinances and Governmental Authorizations or Orders.  The Lender is not in material breach of such laws, regulations, approvals and Governmental Authorizations or Orders and the Lender is duly licensed, registered or qualified and duly possesses all material licenses, registrations, qualifications, consents, clearances and approvals, permits and quotas required in those jurisdictions in which the Lender carried on its business to enable such business to be carried on as now conducted.  All such material licenses, registrations, qualifications, consents, clearances, approvals, permits and quotas necessary to the conduct of Lender’s business are valid and subsisting and in good standing and none of the same contains or is subject to any term, provision, condition or limitation which may materially adversely change or terminate such license, registration, qualification, permit or quota by virtue of the completion of the transactions contemplated hereby and there is no proceeding, action or notice pending or threatened which may result in the revocation, cancellation, suspension or any material adverse modification thereof.

(e) Acquisition for Investment.  The Lender is acquiring this Debenture solely for its own account and not with a view to or for sale in connection with distribution.  The Lender does not have a present intention to sell this Debenture or any Common Shares issued upon conversion of all or any portion of this Debenture (collectively, the “Securities”), nor a present arrangement (whether or not legally binding) or intention to effect any distribution of any of the Securities to or through any person or entity; provided, however, that by making the representations herein, the Lender does not agree to hold the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with Federal and state securities laws applicable to such disposition.  The Lender acknowledges that it (i) has such knowledge and experience in financial and business matters such that Lender is capable of evaluating the merits and risks of Lender’s investment in the Corporation, (ii) is able to bear the financial risks associated with an investment in the Securities and (iii) has been given full access to such records of the Corporation and the Guarantor and to the officers of the Corporation and the Guarantor as it has deemed necessary or appropriate to conduct its due diligence investigation.

(f) Rule 144.  The Lender understands that the Securities must be held indefinitely unless such Securities are registered under the Securities Act or an exemption from registration is available.  The Lender acknowledges that it is familiar with Rule 144, and that the Lender has been advised that Rule 144 permits resales only under certain circumstances.  The Lender understands that to the extent that Rule 144 is not available, the Lender will be unable to sell any Securities without either registration under the Securities Act or the existence of another exemption from such registration requirement.

(g) General.  The Lender understands that the Securities are being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities laws and the Corporation is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Lender set forth herein in order to determine the applicability of such exemptions and the suitability of the Lender to acquire the Securities.  The Lender understands that no United States federal or state agency or any government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.

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(h) No General Solicitation.  The Lender acknowledges that the Securities were not offered to the Lender by means of any form of general or public solicitation or general advertising, or publicly disseminated advertisements or sales literature, including (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio, or (ii) any seminar or meeting to which the Lender was invited by any of the foregoing means of communications.  The Lender, in making the decision to acquire the Securities, has relied upon independent investigation made by it and has not relied on any information or representations made by third parties.

(i) Accredited Investor.  The Lender is an “accredited investor” (as defined in Rule 501 of Regulation D), and the Lender has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the Securities.  The Lender is not required to be registered as a broker-dealer under Section 15 of the Exchange Act and the Lender is not a broker-dealer.  The Lender acknowledges that an investment in the Securities is speculative and involves a high degree of risk.

(j) Certain Fees.  The Lender has not employed any broker or finder or incurred any liability for any brokerage or investment banking fees, commissions, finders’ structuring fees, financial advisory fees or other similar fees in connection with this Debenture or the transactions contemplated hereby.

(k) Legend.  The Lender acknowledges and agrees that, until such time as the Conversion Shares may be sold by the Lender pursuant to Rule 144, each certificate representing the Conversion Shares shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required by applicable state securities or “blue sky” laws):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR WITS BASIN PRECIOUS MINERALS INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

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(l) Dismissal of Claims.  The Lender (formerly known as Advanced Drilling, Inc.) and its affiliates, have, on or prior to the date hereof, dismissed with prejudice and withdrawn or cancelled any complaint and/or notice of lis pendens filed relating to or pertaining any interests in the Hunter Bates Claims or any assets related thereto to the satisfaction of the Corporation and Guarantor, in their good faith discretion.

ARTICLE 6

CONVERSION

6.1          Conversion at the Demand of Lender.  Upon and subject to the provisions and conditions herein contained, the Lender will have the right, at any time prior to the Maturity Date or such time when this Debenture is fully repaid, to convert any portion of the amounts owing under this Debenture, into Common Shares of the Corporation at the Conversion Price Per Share subject to the following:

(a) Procedure for Conversion.  If the Lender wishes to convert all or a portion of the amount owing under this Debenture into Common Shares (with the amount the Lender wishes to convert being referred to as the “Conversion Amount”), the Lender will deliver notice in writing to such effect (the “Conversion Notice”).  The Lender will indicate in the Conversion Notice the number of Common Shares to which the Lender is entitled upon conversion.  Within 10 Business Days after delivery of the Conversion Notice the Corporation will cause to be issued that number of whole Common Shares, as applicable, as equals the Conversion Amount in respect of which the conversion right is exercised (as specified in the Conversion Notice) divided by the Conversion Price Per Share.

(b) Mandatory Conversion.  If the closing market price of the Common Shares exceeds US $0.50 per Common Share for thirty (30) consecutive Business Days, then the Corporation has the option to require the conversion of any remaining amounts owing hereunder at the Conversion Price Per Share.  If the Corporation wishes to exercise its option to require the conversion of any remaining amounts outstanding then the Corporation must provide notice in writing to the Lender (the “Mandatory Conversion Notice”).  Within 10 Business Days after delivery of the Mandatory Conversion Notice the Corporation will cause to be issued that number of whole Common Shares, as applicable, as equals the balance then remaining owing under the Debenture divided by the Conversion Price Per Share.

(c) Adjustment of Conversion Price Per Share.  If and whenever at any time after the date this Debenture is issued, the Corporation will (i) subdivide or re-divide its then outstanding Common Shares into a greater number of Common Shares, (ii) reduce, combine or consolidate its then outstanding Common Shares into a lesser number of Common Shares or (iii) issue Common Shares (or securities exchangeable for or convertible into Common Shares) to the holders of all or substantially all of its then outstanding Common Shares by way of a stock dividend or other distribution (any of such events herein called a “ Fundamental Change”), then the Conversion Price Per Share will be adjusted effective immediately after the effective date of any such event in (i) or (ii) above or the record date at which the holders of Common Shares are determined for the purpose of any such dividend or distribution in (iii) above, as the case may be, by multiplying the Conversion Price Per Share by a fraction, the denominator of which will be the number of Common Shares outstanding immediately after giving effect to such Fundamental Changes including, in the case where securities exchangeable for or convertible into Common Shares are distributed, the number of Common Shares that would be outstanding if such securities were exchanged for or converted into Common Shares and the numerator of which will be the number of Common Shares outstanding on such effective date or record date, as the case may be, before giving effect to such Fundamental Changes.

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(d) No Restrictions.  Except as set forth in Section 5.1(f), the Corporation covenants that any Common Shares issued on conversion pursuant to this Section 6.1 will not be subject to any trading restrictions at the time of issuance.

6.2          Capital Alteration.  The Corporation’s issuance of Common Shares pursuant to any voluntary or forced conversion in accordance with Section 6.1 above will be subject to satisfaction by the Corporation of the Pre-Conversion Condition.  If the Corporation has not satisfied the Pre-Conversion Condition as at issuance of this Debenture, then the Corporation will use its commercially reasonable best efforts to, on or prior to the date that is ninety (90) days after the date of issuance of this Debenture (the “Trigger Date”), satisfy the Pre-Conversion Condition.  If the Corporation is not able to satisfy the Pre-Conversion Condition, then on the final day of each seven (7) day period following the Trigger Date that the Corporation is unable to satisfy the Pre-Conversion Condition, until the date that is fifty-six (56) days after the Trigger Date (the “Demand Date”), the Corporation will be required to pay the Lender as liquidated damages (and not as a penalty) an amount equal to 2% of the outstanding Principal Amount and Interest as of such day, payable in cash or shares of Common Shares (valued at a conversion price of Conversion Price Per Share) at the option of the Corporation (the “Extension Fee”) and if (i) at any time after the Trigger Date the Corporation has not paid the Extension Fee when due and (ii) there has been no prior conversion or other payment or full satisfaction of the amounts owing under this Debenture, then the Lender may demand repayment by the Corporation of all of then outstanding amounts owing under this Debenture by providing the Corporation seven (7) days written notice.  For greater certainty, the failure of the Corporation to satisfy payment to the Lender upon such demand being made will constitute an Event of Default under Section 7.1 entitling the Lender to exercise any and all remedies available to it as a consequence of such default.  If the Pre-Conversion Condition is satisfied by obtaining shareholder approval to the amendment of the Corporation’s articles of incorporation to increase the number of authorized shares, then the Corporation will implement and give effect to the increase to the number of authorized shares as soon as reasonably practicable following obtaining shareholder approval.

ARTICLE 7

DEFAULT

7.1          Events of Default.   An Event of Default shall have occurred (and continued through any applicable cure period) upon the occurrence of any of the following:

(a) the default by the Corporation or the Guarantor in the payment of any amounts payable hereunder, as and when the same falls due;

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(b) the default by the Guarantor under the Deed of Trust, and such default is not cured (if capable of cure) within five (5) Banking Days of receiving written notice from the Lender in connection therewith;

(c) the Corporation will neglect to carry out or observe any other covenant or condition herein contained and on its part to be observed, and the Corporation fails to cure, or diligently commence and continue to cure to the satisfaction of the Lender acting reasonably, such default within five (5) Banking Days of receiving written notice from the Lender in connection therewith;

(d) the failure of the Corporation to satisfy the Pre-Conversion Condition on or before the Demand Date;

(e) the commission of an act of bankruptcy by the Corporation or the Guarantor, or the making by the Corporation or the Guarantor of a proposal or general assignment for the benefit of either of their creditors or other acknowledgement of the Corporation or the Guarantor of insolvency;

(f) the enforceability of an execution, sequestration, extent or any other process of any court against the Corporation or the Guarantor, or the levy of a distress or analogous process upon its property or assets or any part thereof unless the execution, sequestration, extent or other process of the court or distress or analogous process is in good faith disputed by the Corporation or the Guarantor;

(g) the failure by the Corporation or the Guarantor to perform or observe any of the covenants, conditions or agreements to be performed or observed by them hereunder within five (5) Banking Days of receiving written notice from the Lender in connection therewith; or

(h) the making of any representation or warranty by the Corporation or the Guarantor herein which was incorrect as of the date made, and such representation or warranty is not cured (if capable of cure) within five (5) Banking Days of receiving written notice from the Lender in connection therewith.

ARTICLE 8

VARIOUS PROVISIONS

8.1          Release of Security.  Upon satisfaction by the Corporation of all amounts owing hereunder, the Lender will release its security in accordance with section 4.1 of the Deed of Trust.

8.2          No Waiver.  This Debenture may not be amended except by a writing executed by the Lender, the Corporation and the Guarantor. No consent or waiver by the Lender will be effective unless made in writing and signed by an authorized officer of the Lender.  Any indulgence or forbearance or failure by the Lender to insist on the strict and timely performance of any provision of this Debenture will not affect the future right of the Lender to insist on the strict and timely performance of the same or any other provision of this Debenture thereafter.

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8.3          Costs and Expenses.  The Corporation agrees to pay to the Lender:

(a) all professional fees incurred by the lender in negotiating the terms of and in entering into this Debenture, including but not limited to all professional fees incurred in preparing and negotiating the Term Sheet evidencing the business terms of the Debenture, negotiating and finalizing the form of this Debenture, and all documents to be prepared ancillary thereto, together with all professional fees incurred by the Lender in registering a mechanics lien against the Corporation, preparing and filing a Complaint and Lis Pendens and discharging same, all of which professional fees shall be for an amount no greater than US $60,000.00; the parties hereby acknowledge and agree that US$60,000.00 has been included in the Principal Amount for the payment of such professional fees; and

(b) forthwith upon demand, all reasonable costs, charges and expenses (including legal fees and expenses on a solicitor and his own client basis) of or incurred by the Lender in connection with the administration or enforcement of its rights hereunder, including all such costs, charges and expenses incurred in connection with the taking possession, protecting, preserving, collecting or realizing upon all or any part of the Guarantor Property, which costs, charges and expenses will not be subject to any cap.

The Corporation also agrees to pay to the Lender interest on all appropriate professional fees, costs, charges and expenses of or incurred by it from the date such costs, charges and expenses occurred. All such sums payable pursuant to this Section 8.3 will be added to the Principal Amount of the indebtedness contemplated herein and will be paid out in accordance with the terms of this Debenture and shall be secured by the Deed of Trust as if forming part of the original Principal Amount contemplated herein.

8.4          Remedies Subject to Applicable Law.  All rights, remedies and powers provided herein may be exercised or enforced only to the extent that the exercise or enforcement thereof does not violate any applicable provision of law and all the provisions of this Debenture are intended to be subject to all applicable mandatory provisions of law which may be controlling in the circumstances and to be limited to the extent necessary so that they will not render this Debenture invalid, unenforceable or not entitled to be recorded, registered or filed under the provisions of any applicable law. Any provision hereof contrary to applicable law will be deemed to be ineffective and will be severable from and not invalidate any other provision of this Debenture.

8.5          No Merger.   The acceptance and holding of this Debenture will not constitute any merger or in any way limit or affect the rights of the Lender under any other security held for the payment and performance of any indebtedness or liability of the Corporation.

8.6          Time of the Essence.  Time is of the essence of the provisions of this Debenture.

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ARTICLE 9

NOTICES

9.1          Notices.  Any notice given pursuant to the provisions of this Debenture will be in writing and will be validly and effectively given if addressed to the Corporation at:

Wits Basin Precious Minerals Inc.

900 IDS Center

80 South 8th Street

Minneapolis, MN  55402-8773

USA

Attention: President

Facsimile: (612) 395-5276

and to the Guarantor at:

Hunter Bates Mining Corporation

900 IDS Center

80 South 8th Street

Minneapolis, MN  55402-8773

USA

Attention: President

Facsimile: (612) 395-5276

and to the Lender at:

Cabo Drilling (America) Inc.

3rd Floor, 120 Lonsdale Avenue

North Vancouver, BC  V7M 2E8

Canada

Attention: President

Facsimile: (604) 983-8056

With a copy to:

Synergy Business Lawyers

Suite 2480 – 1066 West Hastings Street

Vancouver, BC  V6E 3X2

Canada

Attention: Darcy L. Wray

Facsimile: (604) 685-8187

and delivered personally or sent by telex, telegram, telecopy or similar means of recorded communication or mailed in Canada by registered mail and will be deemed to have been validly and effectively given (i) when delivered personally to such address (ii) on the first Banking Day next following the sending of such notice by telex, telegram, telecopy or similar means of recorded communication or (iii) 72 hours following the mailing of the same. Either party may from time to time notify the other in writing of a change of address for service in the manner set forth herein which thereafter, until changed by like notice, will be the address of such party for all purposes of this Debenture.

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ARTICLE 10

SUPPLEMENTAL DOCUMENTATION

10.1         Further Assurances.  At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Corporation, the Corporation will promptly and duly execute and deliver such further instruments and documents and take such further action as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Debenture and of the rights and powers herein granted including, without limitation, the filing of any copies of this Debenture or any notice with respect thereto in any jurisdiction in connection with the perfection of the Lien created hereby.

The Corporation further agrees that the Lender will have the right to require the form of this Debenture be amended or supplemented (i) to reflect any changes in the laws of any relevant jurisdiction, whether arising as a result of statutory amendments, court decisions or otherwise; (ii) to facilitate the registration of appropriate forms of this Debenture in all appropriate jurisdictions; or (iii) if the Corporation amalgamates with any other Person or enters into any corporate reorganization, permitted hereunder, in each case in order to confer upon the Lender the Lien intended to be created hereby, except that in no event will the Lender require that any such amendment be effected or that any such supplementary security be granted if the result thereof would be to grant to the Lender greater rights than is otherwise contemplated in this Debenture.

10.2         Correction of Manifest Errors.  The parties hereto may correct typographical, clerical and other manifest errors in this Debenture provided that such correction will, in the opinion of the Lender, in no way prejudice the rights of the Lender hereunder, and the parties hereto may execute all such documents as may be necessary to correct such errors.

ARTICLE 11

MISCELLANEOUS

11.1         Debenture Legislation.  In this Section 11.1, the term “applicable legislation” means the provisions, if any, of any statute of Colorado, and the regulations under any such statute, relating to debentures and to the rights, duties and obligations of trustees under trust indentures, to the extent that such provisions are at the time in force and applicable to this Debenture.

If and to the extent that any provision of this Debenture limits, qualifies or conflicts with a mandatory requirement of applicable legislation, such mandatory requirement will prevail to the extent of such limitation, qualification or conflict without invalidating the remaining provisions of this Debenture or affecting the validity or enforceability of such provision in any other jurisdiction.  The Corporation and the Lender agree that each will at all times in relation to this Debenture and any action to be taken hereunder, observe and comply with and be entitled to the benefits of applicable legislation.

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Any statutory declaration required by applicable legislation may be made by one or more of the officers of the Corporation.

11.2        Acknowledgment of Receipt.  The Corporation acknowledges receipt of an executed copy of the Debenture.

11.3        Financing Statements.  The Corporation waives all rights to receive from the Lender a copy of any financing statement, financing change statement or verification statement filed, issued or obtained at any time in respect of this Debenture.

11.4        Waiver.  To the full extent permitted by law, the Corporation:

(a) waives all of the rights, benefits and protections given by the provisions of any existing or future statute which impose limitations upon the powers, rights or remedies of a secured party or upon the methods of realization of security, including any seize or sue or anti-deficiency statute or any similar provisions of any other statute; and

(b) agrees that it will not at any time insist upon, claim, plead, or take any benefit or advantage of any appraisement, valuation, stay, extension, moratorium, redemption, or similar law now or hereafter in force in order to prevent, delay, or hinder the enforcement of this Debenture and the Corporation for itself and all who claim through it, so far as it or they now or in the future may lawfully do so.

11.5        Pledge of Debenture.  This Debenture may be transferred and assigned, deposited with and pledged by the Corporation to the Lender as a general and collateral security for the payment and performance of its future indebtedness and obligation and liabilities and, when redelivered to the Corporation or its nominees, will forthwith be cancelled; but this Debenture will not be deemed to have been redeemed by reason of the Corporation having ceased to be in debt while this Debenture was so assigned, deposited or pledged and no payment will reduce the amount secured under the Deed of Trust unless specifically appropriated to and noted on this Debenture at the time of payment.

11.6        Further Advances.   Neither the issue and delivery of this Debenture nor the advance of any funds hereunder will obligate the Lender to advance any further funds hereunder.

11.7        Security Additional.  This security is in addition to and not in substitution for any other security now or hereafter held by the Lender and no payment to the Lender will constitute payment under this Debenture unless specifically so appropriated by the Lender by notation of such payment on this Debenture.

11.8        Survival of Representations and Warranties.  All representations and warranties made by the Corporation and/or the Guarantor hereunder shall survive the delivery of this Debenture so long as any amounts owing under this Debenture remain outstanding.

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11.9        Assignment.  Neither the Corporation or the Guarantor, on one hand, or the Lender, on the other hand, will assign this Debenture or their respective rights or obligations under this Debenture to any person without the express written consent of the other party, which consent may not be withheld unreasonably.

11.10      Forum for Disputes.  The parties agree that any action brought by any party under or in relation to this Debenture, will be brought exclusively in a court located in the State of Colorado.

Each party irrevocably agrees to and submits to the jurisdiction and venue of any such court and waives any objection to venue laid therein, including any objection based on an assertion of inconvenience of such forum or forum non conveniens.

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IN WITNESS WHEREOF the Corporation has caused this Debenture to be duly executed and delivered as of the date set out below.

	Execution Date
Officer Signature ____________________________ Signature ____________________________ Print Name ____________________________ Address ____________________________ Professional Capacity	Y 09	M 04	D 28	WITS BASIN PRECIOUS MINERALS INC. by its Authorized Signatory /s/ Mark D. Dacko Print Name Mark D. Dacko

Officer Signature ____________________________ Signature ____________________________ Print Name ____________________________ Address ____________________________ Professional Capacity	Y 09	M 04	D 28	HUNTER BATES MINING CORPORATION by its Authorized Signatory /s/ Mark D. Dacko Print Name Mark D. Dacko
Officer Signature
____________________________ Signature ____________________________ Print Name ____________________________ Address ____________________________ Professional Capacity	Y 09	M 04	D 28	CABO DRILLING (AMERICA) INC. by its Authorized Signatory /s/ John Versfelt Print Name John Versfelt

 

EX-10.2

EXHIBIT 10.2

DEED OF TRUST TO PUBLIC TRUSTEE,

MORTGAGE, SECURITY AGREEMENT,

ASSIGNMENT OF PRODUCTION AND PROCEEDS,

FINANCING STATEMENT

AND FIXTURE FILING

This Deed of Trust to Public Trustee, Mortgage, Security Agreement, Assignment of Production and Proceeds, Financing Statement and Fixture Filing (this “Instrument”), dated as of April 27, 2009, is from Hunter Bates Mining Corporation, a Minnesota corporation (Organizational I.D. No. 2820102-2) (“Debtor”), with a principal office address of 900 IDS Center, 80 South 8th Street, Minneapolis, MN  55402-8773, to the Public Trustee of Gilpin County, Colorado (“Trustee”), and to and for the benefit of Cabo Drilling (America), Inc., a Washington corporation, as beneficiary (“Secured Party”), with an address of 3rd Floor, 120 Lonsdale Avenue, North Vancouver, BC  V7M 2E8, Canada.

DEFINITIONS

Capitalized terms used but not defined herein have the meanings provided in the Debenture (as defined below).  In this Instrument, the following terms shall have the following meanings:

“Approvals” means each and every approval, authorization, license, permit, consent, variance, land use entitlement, franchise, agreement, performance of surety bond, filing or registration by or with any governmental authority or other person necessary for any stage (or all stages) of developing, operating, maintaining and closing a mine on all or any part of the Lands (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the Lands), including construction of a mine and related improvements and all other activities described above in clauses (a) through (i) of the definition of “Mine Property”.

“Environmental Laws” shall mean all laws, ordinances, rules and regulations of the United States or any other political subdivision, agency, or instrumentality exercising jurisdiction over Debtor or the Collateral, which laws, ordinances, rules and regulations are applicable to Debtor or the Collateral, governing, regulating or otherwise pertaining to health, industrial hygiene or the environment, or regulating, relating to or imposing liability (including strict liability) or standards of conduct concerning any Hazardous Materials, as are now or at any time hereafter in effect and as amended from time to time.

“Hazardous Materials” shall mean any hazardous waste, hazardous substance, pollutant, contaminant, toxic substance, oil, hazardous material or chemical, or other substance regulated by any Environmental Law.

“Lands” means the lands that are described in Exhibit A hereto, the leasehold estates that are described in Exhibit A hereto, and all now-existing or hereafter-arising leasehold, overriding royalty, royalty, net profits or other interests in real property of the Debtor, together with all appurtenant rights accruing to the owner thereof, including extralateral rights, surface use rights and water rights relating to the lands and leasehold estates identified on Exhibit A hereto.

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“Leases” means all surface and mineral leases, subleases, assignments, options, licenses, concessions, occupancy agreements, profits-à-prendre, work agreements, joint venture agreements, partnerships (including mining partnerships), exploration agreements, operating agreements, surface use agreements and surface use and damage agreements, subsidence agreements, easements, licenses, net profits agreements, royalty agreements, nominee agreements, options and all other conveyances, transfers, agreements or arrangements (whether mineral or otherwise, whether previously or hereafter made, and whether existing now or hereafter) relating to all or any part of the Lands or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in Lands, together with all rentals, royalties and other rights of Debtor thereunder.

“Mine Property” means all tangible property (whether now or hereafter existing or acquired, and whether real, personal or mixed) owned by Debtor and located or found now or hereafter on, in, or under all or any part of the Lands (or any other lands any production from which, or profits or proceeds from such production, is attributed to any interest in the Lands) that now or hereafter is (together with all substitutions and replacements for, and all accessions, additions and attachments to any thereof) used or useful in connection with mining gold or Other Minerals (which as used herein shall include ores, compounds and concentrates bearing the same) or in connection with any related activities, including:

(a)           exploration for and evaluation of deposits of gold or Other Minerals,

(b)           the development, operation, shutdown and closure (temporary and permanent) of a mine (whether an underground or a surface mine),

(c)           handling, processing, refining and beneficiation of gold or Other Minerals, including crushing, screening, non-screen classifying, grinding, flotation, washing, gravity separation, magnetic separation, chemical leaching, thickening, filtration, drying, sintering, palletizing, briquetting, calcining, crystallization, sorting, sizing, roasting, ion exchange, solvent extraction, electrostatic separation, electrorefining, electrowinning and smelting,

(d)           storage of gold or Other Minerals,

(e)           transportation of gold or Other Minerals by any means, including haulage within a mine and from a mine to a mill or to any other handling, processing, beneficiation, storage or marketing location, haulage between any of the foregoing locations, haulage of mine waste (including waste rock and overburden) and tailings, slag and other wastes resulting from handling, processing, and beneficiation and loading in connection with any haulage,

(f)           marketing, and readying for market, gold or Other Minerals,

(g)           disposal (temporary and permanent) of mine waste (including waste rock and overburden) and tailings, slag and other wastes from handling, processing and beneficiation,

(h)           monitoring, maintaining, restoring and improving environmental quality, including elimination, treatment and mitigation of air and water pollution, and

(i)           reclamation of lands and other natural resources affected by any of the foregoing activities.

Without restricting the foregoing, “Mine Property” shall include the following property (together with all substitutions and replacements for, and all accessions, additions and attachments to any thereof) now or hereafter used or useful in connection with mining gold or Other Minerals or in connection with related activities:

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(i)           generally — buildings; structures; improvements; furnishings; fixtures; equipment; apparatus; facilities; machinery; tools; vehicles; goods; supplies and inventory; and

(ii)           specifically  — headframes; mine offices; maintenance and equipment repair shops; carpentry; tool and electrical shops; parts and supplies warehouses; change houses; laboratory and assay facilities; ore bins; air compressors; electrical generators and buildings for same; dynamos; staff, workers’ and families’ living and eating facilities; ventilation shafts and ducts; fans; refrigeration units; underground workings (including injection wells and recovery wells; adits; shafts; tunnels; crosscuts; laterals; drifts; raises; winzes; stopes; and other openings to ore); pump rooms; underground hoist rooms; level stations; underground equipment and machinery storage and repair areas; escape shafts; ore storage areas; storehouses; hoist houses; drums; controls; and motors; wire rope for hoists; ore skips and man cars; timber; roof supports; track (including branch; cut-off, spur; industrial; switch; connecting; storage; yard; terminal and other railroad tracks); roads and haulage ways; conveyor belts; electrical wire; apparatus; and controls (including transformers and switch boxes); pipe; water and fuel supply tanks, pumps and pipelines; rolling stock; including locomotives and cars; mine vehicles; drills and related equipment; explosives and explosives storage facilities; continuous miner machines; mucking equipment; loaders and loading equipment; tipples; dewatering facilities; including pumps; sewage facilities; waste water treatment and disposal facilities; water treatment plants (including, without limitation, the water treatment plant adjacent to the Mine headframe); wells for the extraction or injection of water, or for the monitoring of water quality or supply; ditches; water drainage courses; dams; and silt ponds; telephones and other communications equipment; pipelines (including slurry and pneumatic pipelines); tractors; scrapers; power shovels; backhoes; bucket-wheel excavators; draglines; dredges; haulage and water and maintenance trucks; inclined skips; graders; electrical power lines; ships; barges; port facilities; loading docks; tramways and aerial trams; aircraft; airstrips; recreation facilities; company townsite and buildings; mill or processing plants; sluices; wells; augers; overburden; waste rock or spoil; and other mine wastes; load-haul-dump vehicles; conveyors (including screw and bucket conveyors); crushers (including jaw crushers; gyratory crushers; wire crushers; impact crushers; roil crushers; hammer mills; shredders and roller mills); screens (including grizzlies); grinding mills (including ball mills; rod mills; autogenous mills and semi-autogenous mills); flotation circuits (including flotation cells; collection troughs and launders and flumes); washers (including hydrocyclones); gravity separation devices (including jigs; sluices; shaking tables; cones; spirals; vanners and heavy liquids); magnets; leaching circuits; thickening tanks; filters (including drum; disk; belt; and plate filters); driers; kilns; smelting furnaces (including reverberatory furnaces and flash smelters); converters; slag; tailings and tailings ponds.

“Mine-Related Agreements and Plans” means all existing and future contracts, agreements, plans, specifications, technical reports, surveys, designs, drawings and other matters executed by Debtor and (or prepared by) any contractor, architect, engineer, surveyor or other consultant, in each case in connection with the design, construction or operation of the Mine Property, including all contracts and agreements executed by Debtor and any landscape architect, civil engineer, electrical engineer, soils engineer, mining engineer or mechanical engineer, together with all plans and specifications prepared by any design architect for the construction and improvements comprising Mine Property.

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“Mines” shall mean the mine commonly referred to as the Bates Hunter Mine, located in Gilpin County, Colorado, and any and all other mines now or hereafter located in, on or under the Lands and the assets related thereto.

“Other Minerals” means all minerals other than gold, whether or not similar to gold or found or produced in association with gold, including silver, coal, all existing and future ores, minerals, mineral elements and compounds, veins, lodes and mineral deposits, whether solid, liquid or gaseous, whether organic or inorganic, metallic or nonmetallic, hydrocarbonaceous or non-hydrocarbonaceous, including rock, gravel, sand, methane, water, and geothermal steam, geothermal heat and geothermal resources, found or located on the Lands.

“Permitted Liens” means:

(i)           Liens for taxes, assessments or governmental charges not then due and delinquent or in respect of which the Debtor has furnished such security as the Secured Party may require and which are being contested in good faith by appropriate proceedings promptly initiated and diligently conducted;

(ii)           Liens in the nature of zoning restrictions, easements and rights and restrictions of record on the use of real property, which do not materially interfere with the conduct of the business of the Debtor and do not materially affect the value of the property subject to such Liens;

(iii)           undetermined or inchoate Liens, including unregistered construction Liens, incidental to current operations of the Debtor which have not at such time been filed pursuant to laws against the Debtor and which relate to obligations neither due nor delinquent;

(iv)           Liens in the form of security given to a public utility or any Governmental Authority in connection with the operations of the Debtor in the ordinary course of its business; and

(v)           matters of record as of the date hereof, itemized on Exhibit C, save and except for the Subordinated Liens.

“Rights of Way” means (including any of the following that are described in Exhibit A hereto) all now or hereafter existing or acquired easements, servitudes, permits, licenses, tenements, hereditaments, rights of way, privileges, liberties, appendages, appurtenances and similar rights appertaining or appurtenant to or beneficially used or useful in connection with the Lands and/or the Mine Property, including and together with all estates, claims, demand rights, title and interests in and to any street, road, highway or alley, vacated or otherwise, adjoining or beneficially used or useful in connection with the Lands and/or the Mine Property.

“Subordinated Liens” means the Liens listed in Exhibit B hereto.

“Water Rights” means all now or hereafter existing or acquired water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights, whether evidenced or initiated by permit, decree, well registration, appropriation not decreed, shares of stock or other interests in mutual ditch or reservoir companies or carrier ditch or reservoir companies or otherwise, appertaining or appurtenant to or beneficially used or useful in connection with the Lands and/or the Mines, together with all pumps, well casings, wellheads, electrical installations, pumphouses, meters, monitoring wells and systems, parshall flumes or other measuring devices, pipes, pipelines and other structures or personal property which are or may be used to produce, regulate, measure, distribute, store or use water from the said water and water rights, reservoirs and reservoir rights, ditches and ditch rights, wells and well rights.

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COLLATERAL

All of Debtor’s right, title and interest in and to all the hereinafter described properties, rights and interests, whether now owned or hereafter acquired, and whether now or hereafter existing or created, is herein collectively called the “Collateral”:

(a)           the Lands and the Rights of Way,

(b)           the gold and Other Minerals that originated from the Lands which are (i) on, in, or under, extending from or into, (ii) produced or to be produced from, (iii) stored, handled, processed, refined or beneficiated or to be stored, handled, processed, refined or beneficiated on, or (iv) transported or marketed or to be transported or marketed on or from, in each case, all or any part of the Lands or any other lands any production from which (or profits or proceeds from such production) is attributed to any interest in the Lands,

(c)           without duplication of any other provision of this granting clause all of Debtor’s now or hereafter arising accounts, as-extracted collateral, chattel paper, commercial tort claims, deposit accounts, documents, general intangibles, goods (including all its consumer goods, equipment, farm products, fixtures and inventory), instruments, investment property, letter-of-credit rights, securities and supporting obligations (as such terms are defined in the applicable Uniform Commercial Code), but only if, and only to the extent, any such above-listed properties, rights or interests relate to, or arise out of, Collateral that is described elsewhere other than in this subsection (c),

(d)           the Leases,

(e)           the Mines and the Mine Property,

(f)           the Approvals,

(g)           the Mine-Related Agreements and Plans,

(h)           the Water Rights,

(i)           all awards, payments or judgments, including interest thereon, and the right to receive the same, as a result of the exercise or threatened exercise of any right of eminent domain, other injury to, taking up, or decrease in the value of all or any portion of the Lands, the Mine Property, the Water Rights or any other property described herein,

(j)           all other property or rights of any kind or character related to the Lands, the Mine Property, the Water Rights or other property described herein, and

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(k)           all proceeds (as such term is defined in the applicable Uniform Commercial Code) and products of the foregoing, together with, to the extent Debtor may lawfully grant a security interest therein, any and all corrections or amendments to, or renewals, extensions or ratifications of, or replacements or substitutions for, any of the same, or any instrument relating thereto, and all contracts, title instruments, title opinions, land status reports, title abstracts, title insurance commitments or policies, title materials and information, files, records, writings, data bases, information, systems, maps, plats, surveys, geological and geophysical (including electrical, electromagnetic, gravity and seismic), geochemical, and radiometric data and information, drilling data, test data, mineral -samples (including drill cores), mineral assay reports, interpretative and analytical reports of any kind or nature (including reserve or deposit studies or evaluations), mine feasibility reports, technical reports (including, without limitation, that certain “Technical Report on the Bates Hunter Project”, dated July 15, 2008, by Orem Inc.), mine development studies and plans, information concerning exploration and development of deposits of gold and Other Minerals (including information concerning mine operation, shutdown and closure and concerning reclamation of lands and other resources affected by mining), environmental data and related information and reports and studies, computer hardware and software and all documentation therefor or relating thereto (including all licenses relating to or covering such computer hardware, software and/or documentation), trade secrets, business names and the goodwill of the business relating thereto, unpatented inventions, patent applications and patents, lease records (including rental and royalty payment records), payment of rental or maintenance fees, and filings and recordings made with governmental authorities, the Approvals and records and information concerning compliance therewith, mine development programs and budgets, financial statements and audits, reclamation plans and related data and reports, hedging agreements, interest rate protection agreement, commodity hedging agreement or any other agreement evidencing a swap or other derivative transaction, insurance policies, commingling agreements, information and data and reports regarding the products and proceeds of mine operations (including quantities produced, proceeds from sale or other disposition, and disbursement of proceeds to persons entitled to a share thereof), information and data and reports regarding all aspects of the Mine Property (including transportation and marketing of mine products), development rights, air rights, parcel maps, extralateral rights, condemnation awards, franchises, easements, servitudes, permits, licenses, tenements, hereditaments, appurtenances, rents, royalties, overriding royalties, revenues, avails, income, security deposits, reclamation bonds, bonuses, accounts, returns, issues, profits, advantages, claims against third parties, products, proceeds and all other benefits, whether now or hereafter existing or arising, used or useful in connection with, covering, relating to, or arising from or in connection with, any of the aforesaid in this granting clause referenced, and all other things of value and incident thereto which Debtor might at any time have or be entitled to (including any and all liens, lien rights and security interests, and all properties, rights and interests, whether now or hereafter existing or arising, that Debtor uses or installs for use in connection with mining gold or Other Minerals from all or any part of the Lands or any other lands any production from which, or the profits or proceeds from such production, is attributed to any interest in the Lands, or in connection with any related activities); together with all strips and gores belonging, adjacent or pertaining to the Lands; and any after-acquired title, additions to any of the foregoing, including those which may be subjected to the lien and security interest of this Instrument by means of supplements hereto, all the aforesaid properties, rights and interests, together with any after-acquired title, additions and accretions to any of the foregoing.

GRANTING CLAUSES

In consideration of ten dollars and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Debtor, and the matters hereinafter set forth, Debtor hereby:

A.           Real Property.  Grants, bargains, sells, mortgages, assigns, transfers and conveys to Trustee, with POWER OF SALE, for the benefit of Secured Party, that part of the Collateral that is real property (including any fixtures that are real property under applicable state law), subject to the assignment of severed and extracted gold and Other Minerals and the proceeds thereof made under paragraph C below; TO HAVE AND TO HOLD all of the Collateral that is real property (including any fixtures that are real property under applicable state law), together with all of the rights, privileges, benefits, hereditaments and appurtenances in any way belonging, incidental or pertaining thereto, to Trustee and its successors and assigns, forever, IN TRUST, NEVERTHELESS, for the security and benefit of Secured Party and its successors and assigns, subject to all of the terms, conditions, covenants, agreements and trusts herein set forth;

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B.           Personal Property.  Grants to Secured Party a security interest in that part of the Collateral that is personal property (including any fixtures that are personal property under applicable state law); and

C.           Assignment of Production.  Collaterally assigns to Secured Party all of the severed and extracted ore, gold and Other Minerals produced from or allocated or attributed to any of the Collateral or any other interest of Debtor (whether now owned or hereafter acquired by operation of law or otherwise) in, to and under or that covers, affects or otherwise relates to the Land or to any of the estates, property rights or other interests described or referred to above, together with all of the proceeds thereof.

ARTICLE I

Secured Obligations

Section 1.1Obligations Secured.  This Instrument is executed, acknowledged and delivered by Debtor to secure and enforce the following indebtedness, liabilities and obligations (the “Secured Obligations”):

A.           Convertible Debenture.  All indebtedness (including but not limited to the Principal, Interest, Expenses and Extension Fee) evidenced by that certain Convertible Debenture, of even date herewith, in the principal amount of U.S. $511,589.59 made by Wits Basin Precious Minerals Inc., a Minnesota corporation (“Borrower”), and payable to the order of Secured Party, and any renewals, extensions or restatements thereof, modifications, changes, amendments or supplements thereto and substitutions therefor (the “Debenture”), as well as all indebtedness payable by Debtor as a result of Debtor’s obligations in the Debenture to guaranty the Borrower’s obligations under the Debenture;

B.           This Instrument.  All indebtedness payable by Debtor pursuant to the provisions of and evidenced by this Instrument, including, without limitation, any amounts advanced to protect the liens and security interests herein granted and all reasonable attorneys fees, court costs, and expenses of whatever kind or character now existing or hereafter created or arising, incident thereto or to the collection of the indebtedness, liabilities and obligations hereby secured and enforcement of the liens and security interests herein granted and created;

C.           Other Obligations.  All other indebtedness payable by Debtor to Secured Party of whatever kind or character now existing or hereafter created or arising, whether fixed, absolute or contingent, direct or indirect, primary or secondary, joint, several or joint and several, due or to become due, and however evidenced whether by note, open account, overdraft, endorsement, security agreement, guarantee or otherwise, it being contemplated that Debtor may hereafter become indebted to Secured Party in such further sum or sums; and

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D.           Renewals, Extensions and Amendments.  All indebtedness evidenced by all renewals, extensions and restatements of, modifications, changes, amendments and supplements to and substitutions for, all or any part of the foregoing.

ARTICLE II

Warranties, Representations, Covenants

and Indemnities

Section 2.1RepresentationsandWarranties.  Debtor warrants and represents as follows:

A.             Power and Authority.  Debtor has the power and authority to grant, bargain, sell, mortgage, assign, transfer and convey the Collateral as provided herein.

B.             Title.  Exhibit A attached hereto correctly describes, as of the date hereof, all of the land, mineral estates, surface estates and real property leasehold estates (including, without limitation, easements and rights of way) in which Debtor owns an interest and all Water Rights owned by Debtor.  Subject to Permitted Liens and Subordinated Liens, Debtor is the lawful owner of and has good and marketable title to the Collateral free and clear of all Liens.  Debtor warrants and will forever defend the title to the Collateral against the claims of all persons claiming or to claim the same or any part thereof.   To the best of the Debtor’s knowledge, each Lease is a valid and subsisting Lease and is in full force and effect.  Each Lease or a certified copy or memorandum thereof has been recorded in the real property records of the county or counties in which the Lands covered thereby are located, and has been delivered to Secured Party.  Each Lease (a) either is within its primary term, or the primary term thereof has been extended by production of gold or Other Minerals from the Lands covered thereby or otherwise by its terms; (b) is prior to any deed of trust, mortgage or other lien or encumbrance upon the fee interest in such Lands; and (c) is assignable without the prior written consent of the lessor or any other third party.

C.             Approvals.  To the best of Debtor’s knowledge, without inquiry, other than recording or filing of this Instrument, financing statements and similar instruments in favor of Secured Party, Debtor is not required to submit any notice, report or other filing with any governmental authority, person or entity in connection with Debtor’s execution, delivery or performance of this Instrument, and no consent, approval or authorization of any governmental authority, person or entity is required to be obtained by Debtor in connection with Debtor’s execution, delivery and performance of this Instrument or the consummation of the transactions contemplated hereby.  To the best of the Debtor’s knowledge, Debtor is duly qualified to own, hold and operate leases, easements, rights-of-way, mineral agreements and other agreements covering, affecting or otherwise relating to state lands.

D.             Security Interest.  Except for Permitted Liens, Trustee and Secured Party, as the case may be, will obtain, as security for the Secured Obligations a legally valid and binding first perfected lien on, and security interest in, the Collateral.

E.           Structure.  Debtor’s name, identity, corporate structure, state of incorporation and organizational identification number are correctly reflected in the preamble to this Instrument.

Section 2.2Covenants.  Debtor covenants and agrees as follows:

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A.           Secured Obligations.  Debtor shall pay when due and perform the Secured Obligations in accordance with the terms thereof and hereof.

B.           Recording and Filing.  Debtor shall sign all documents reasonably requested by Secured Party to assist Secured Party to create, perfect, maintain and preserve the priority of the liens and security interests intended to be created hereby as a first lien on real property and fixtures and a first priority security interest in personal property and fixtures.

C.           Modifications and Dispositions.  Without the prior written consent of Secured Party, except in the ordinary course of business Debtor shall not (1) amend, modify or otherwise revise any lease, license or other agreement described in Exhibit A; (2) release, surrender, abandon or forfeit the Collateral or any part thereof; (3) sell, convey, assign, lease, sublease, alienate, mortgage or grant security interests in or otherwise dispose of or encumber the Collateral or any part thereof, except to the extent explicitly permitted by the Debenture and except sales of severed gold and Other Minerals in the ordinary course of Debtor’s business and for fair consideration, and except for the liens and security interests created by this Instrument and liens for taxes, assessments and governmental charges not delinquent; or (4) consent to, permit or authorize any such act by another party with respect to the Land, the Collateral or any part thereof.

D.           Defense of Title.  If the title or interest of Debtor, Trustee or Secured Party to the Collateral or any part thereof, or the lien or encumbrance created by this Instrument, or the rights or powers of Secured Party or Trustee hereunder, shall be attacked, either directly or indirectly, or if any legal proceedings are commenced against Debtor or the Collateral, Debtor shall promptly give written notice thereof to Secured Party and at Debtor’s own expense shall take all reasonable steps diligently to defend against any such attack or proceedings, employing attorneys reasonably acceptable to Secured Party.

E.           Environmental Matters.  Debtor shall comply with all Environmental Laws and shall maintain and obtain all permits, licenses and approvals required under Environmental Laws.  Debtor shall not cause or permit the Collateral or Debtor to be in violation of, or do anything or permit anything to be done that will subject the Collateral, Debtor or Secured Party to any additional remedial obligations under any applicable Environmental Laws, assuming disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Collateral or otherwise.  Debtor shall promptly notify Secured Party in writing of any material existing, pending or threatened investigation or inquiry by any governmental authority in connection with any applicable Environmental Laws.

F.           Further Assurances.  Debtor shall execute, acknowledge and deliver, or cause to be executed, acknowledged or delivered, to Secured Party such other and further instruments and do such other acts as in the reasonable opinion of Secured Party may be necessary or desirable to effect the intent of this Instrument, promptly upon request of Secured Party and at Debtor’s expense.

Section 2.3Costs, Expenses and Indemnities.  Debtor agrees to pay and indemnify Secured Party and Trustee as follows:

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A.           Costs and Expenses.  Debtor shall indemnify Secured Party and Trustee from and reimburse and pay Secured Party for all fees, costs and expenses (including without limitation, attorneys’ fees, court costs and legal expenses and consultant’s and expert’s fees and expenses), incurred or expended by Secured Party or Trustee in connection with (1) the breach by Debtor of any representation or warranty contained in this Instrument, the Debenture or any other documents and instruments evidencing, securing or otherwise relating to the Secured Obligations, (2) the failure by Debtor to perform any agreement, covenant, condition, indemnity or obligation contained in this Instrument, the Debenture or any other documents and instruments evidencing, securing or otherwise relating to the Secured Obligations, (3) Secured Party’s or Trustee’s exercise of any of its rights and remedies under this Instrument, the Debenture and the other documents and instruments evidencing, securing or otherwise relating to the Secured Obligations, or (4) the protection of the Collateral and the liens thereon and security interests therein.  All such fees, costs and expenses shall be a demand obligation owing by Debtor to Secured Party.  The liabilities of Debtor as set forth in this Section 2.3(A) shall survive the termination of this Instrument.

B.           Indemnity.  Debtor shall indemnify and hold harmless Secured Party and persons or entities owned or controlled by or affiliated with Secured Party and their respective directors, officers, shareholders, partners, employees, consultants and agents (herein individually, an “Indemnified Party,” and collectively, “Indemnified Parties”) from and against, and reimburse and pay Indemnified Parties with respect to, any and all direct claims, demands, liabilities, losses, damages (including without limitation, actual, consequential, exemplary and punitive damages), causes of action, judgments, penalties, fees, costs and expenses (including without limitation, attorneys’ fees, court costs and legal expenses and consultant’s and expert’s fees and expenses), of any and every kind or character, known or unknown, fixed or contingent, that may be imposed upon, asserted against or incurred or paid by or on behalf of any Indemnified Party on account of, in connection with, or arising out of (1) any bodily injury or death or property damage occurring in or upon or in the vicinity of the Collateral through any cause whatsoever, (2) any act performed or omitted to be performed hereunder or the breach of or failure to perform any warranty, representation, indemnity, covenant, agreement or condition contained in this Instrument, the Debenture or any other document or instrument evidencing, securing or otherwise relating to the Secured Obligations, (3) any transaction, act, omission, event or circumstance arising out of or in any way connected with the Collateral or with this Instrument, the Debenture or any other document or instrument evidencing, securing or otherwise relating to the Secured Obligations, or (4) the violation of or failure to comply with any statute, law, rule, regulation or order, including without limitation, Environmental Laws and statutes, laws, rules, regulations and orders relating to Hazardous Materials; provided however, that such indemnities shall not apply to any Indemnified Party to the extent the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of such Indemnified Party (as determined by a court of competent jurisdiction).  The foregoing indemnities shall not survive in the event that the Lender takes ownership of the Collateral, provided that the forgoing indemnities will survive the release, foreclosure or other termination of this Instrument in all other circumstances.  The rights, powers and remedies herein conferred are cumulative, and not exclusive, of any and all other rights, powers and remedies existing at law or in equity (including without limitation, rights, powers and remedies under Environmental Laws).

Section 2.4Performance by Secured Party.  Debtor agrees that, if Debtor fails to perform any act which Debtor is required to perform hereunder, Secured Party and Trustee may, but shall not be obligated to, perform or cause to be performed such act, and any expense so incurred by Secured Party or by Trustee in connection therewith shall be a demand obligation owing by Debtor to Secured Party, and Secured Party shall be subrogated to all of the rights of the party receiving such payment.

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ARTICLE III

Collection of Proceeds of Production

Section 3.1Assignment of Proceeds.  Pursuant to paragraph C of the granting clause of this Instrument, Secured Party is absolutely assigned and entitled to receive all of the severed and extracted ore, gold and Other Minerals produced from or allocated or attributed to all of the Collateral, together with all of the proceeds thereof and payments in lieu thereof.  Debtor acknowledges and agrees that said assignment is intended to be an absolute and unconditional assignment and not merely a pledge of or creation of a security interest in said gold and Other Minerals and proceeds or an assignment as additional security.  Debtor shall execute, acknowledge and deliver or cause to be executed, acknowledged and delivered, transfer orders or letters-in-lieu thereof directing all purchasers of ore, gold and Other Minerals to make payments directly to Secured Party.  All parties producing, purchasing, receiving or having in their possession any such ore, gold and Other Minerals or proceeds are hereby authorized and directed by Debtor to treat and regard Secured Party as the party entitled in Debtor’s place and stead to receive such ore, gold and Other Minerals and proceeds; and said parties shall be fully protected in so treating and regarding Secured Party and shall be under no obligation to see to the application by Secured Party of any such proceeds received by it.  Notwithstanding the foregoing or any provision contained in this Deed of Trust, Secured Party agrees that, until and unless an Event of Default occurs hereunder, Secured Party shall exercise no rights to possession of any of the Collateral and shall permit Debtor to receive such ore, gold and Other Minerals or proceeds until such time as Secured Party shall have made written demand therefore following an Event of Default.  Such election by Secured Party shall not in any way waive the right of Secured Party to demand and receive such ore, gold and Other Minerals and proceeds thereafter allocated or attributed to the Collateral and shall not in any way diminish the absolute and unconditional right of Secured Party to receive all of such ore, gold and Other Minerals and proceeds and cash proceeds not theretofore expended or distributed by Debtor.  Following an Event of Default, any such ore, gold and Other Minerals or proceeds received by Debtor shall, when received, constitute trust funds in Debtor’s hands and shall be held by Debtor for the benefit of Secured Party.  Debtor hereby agrees that upon the first to occur of either (A) written demand of Secured Party, or (B) the occurrence of any event which constitutes an Event of Default (as hereinafter defined) or which upon the giving (or receiving) of notice or lapse of time, or both, would constitute such an Event of Default, all cash, proceeds, instruments and other property, of whatever kind or character, received by Debtor on account of the Collateral, whether received by Debtor in the exercise of its collection rights hereunder or otherwise, shall, in accordance with instructions then given by Secured Party, be remitted to Secured Party or deposited to an account designated by Secured Party, in the form received (properly assigned or endorsed to the order of Secured Party or for collection and in accordance with Secured Party’s instructions) not later than the first banking business day following the day of receipt, to be applied as provided in Section 3.2 hereof and, until so applied, may be held by Secured Party in a separate account on which Debtor may not draw.  Debtor agrees not to commingle any such property, following the receipt of any such demand from Secured Party or the occurrence of an Event of Default, with any of its other funds or property and agrees to hold the same upon an express trust for Secured Party until remitted to Secured Party.

Section 3.2Application of Proceeds.  Secured Party shall apply all of the proceeds received pursuant to Section 3.1 hereof in satisfaction of the Secured Obligations as provided below, unless otherwise agreed to by Secured Party and Debtor.  All such proceeds received and to be applied by Secured Party up to the close of business on the last day of each calendar month shall be applied by Secured Party on or before the fifth business day of the next succeeding calendar month as follows (with any balance remaining after such application to be paid to Debtor):

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A.           First, to the payment to Secured Party and Trustee of all outstanding or unreimbursed fees, costs and expenses incurred by Secured Party or Trustee pursuant hereto, and any part of the Secured Obligations not evidenced by written instrument, including without limitation, all charges and penalties, including interest thereon, due Secured Party;

B.           Second, to the payment or prepayment of all interest accrued on the Secured Obligations; and

C.           Third, to the payment or prepayment of the principal of the Secured Obligations in any order the Secured Party may elect from time to time;

Section 3.3Inclusion in Sale.  Upon any sale of any of the Collateral pursuant to Article V hereof and expiration of any mandatory redemption periods, the ore, gold and Other Minerals thereafter produced from or attributed to the part of the Collateral so sold, and the proceeds thereof, shall be included in such sale and shall pass to the purchaser free and clear of the provisions of this Article III.

Section 3.4No Liability in Secured Party.  Except for negligent acts or willful misconduct, Secured Party is hereby absolved from all liability for failure to enforce collection of any such proceeds and from all other responsibility in connection therewith, except the responsibility to account to Debtor for proceeds actually received.

Section 3.5Rights of Secured Party.  Subject to the terms and conditions contained herein, Secured Party shall have the immediate and continuing right to demand, collect, receive and receipt for all production, proceeds and payments assigned hereunder.  In addition, Debtor agrees that, upon the request of Secured Party and following an Event of Default, it will promptly execute and deliver to Secured Party such transfer orders, payment orders, division orders and other instruments as Secured Party may deem necessary, convenient or appropriate in connection with the payment and delivery directly to Secured Party of all proceeds, production, and payments assigned hereunder.  Debtor hereby authorizes and directs that, upon the request of Secured Party and following an Event of Default, all purchasers, transporters and other parties now or hereafter purchasing mineral production produced from or allocated or attributed to the Collateral or any other interest of Debtor (whether now owned or hereafter acquired by operation of law or otherwise), in, to or relating to the Land or to any of the estates, property, rights or other interests included in the Collateral, or any part thereof, or now or hereafter having in their possession or control any production from or allocated to the Collateral or any other interest of Debtor (whether now owned or hereafter acquired by operation of law or otherwise), in, to or relating to the Land or to any of the estates, property, rights or other interests included in the Collateral, or any part thereof, or now or hereafter otherwise owing monies to Debtor under contracts and agreements herein assigned, shall, until Secured Party directs otherwise, pay and deliver such proceeds, production or amounts directly to Secured Party at Secured Party’s address set forth in the introduction to this Instrument, or in such other manner as Secured Party may direct such parties in writing, and this authorization shall continue until the assignment of production and proceeds contained herein is released and reassigned.  No payor making payments to Secured Party at its request under the assignment of production and proceeds contained herein shall have any responsibility to see to the application of any of such funds, and any party paying or delivering proceeds, production or amounts to Secured Party under such assignments shall be released thereby from any and all liability to Debtor to the full extent and amount of all payments, production or proceeds so delivered.

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Section 3.6Change of Purchaser.  Should any purchaser taking the production from the Collateral or any other interest of Debtor (whether now owned or hereafter acquired by operation of law or otherwise), in, to or relating to the Land or to any of the estates, property, rights or other interests included in the Collateral, or any part thereof, fail to make any payment promptly to Secured Party, in accordance with the assignment of production and proceeds herein made, then Secured Party, to the fullest extent permissible under applicable law, shall have the right to demand a change of purchaser and to designate another purchaser of the ore, gold and Other Minerals included in the Collateral, without any liability on the part of Secured Party in making such selection; and failure of Debtor to consent to and promptly effect such change of purchaser shall constitute an Event of Default under Article V below.

Section 3.7No Delegation or Assumption.  Nothing in this Instrument shall be deemed or construed to create a delegation to or assumption by Secured Party, of the duties and obligations of Debtor under any agreement or contract relating to the Collateral or any portion thereof, and all of the parties to any such contract shall continue to look to Debtor for performance of all covenants and other obligations and the satisfaction of all representations, warranties, covenants, indemnities and other agreements of Debtor thereunder, notwithstanding the assignment of production and proceeds contained herein or the exercise by Secured Party, prior to foreclosure, of any of its rights hereunder or under applicable law.

Section 3.8Cumulative.  The assignment of production and proceeds contained herein shall not be construed to limit in any way the other rights and remedies of Secured Party hereunder, including without limitation, its right to accelerate the indebtedness evidenced by the Secured Obligations upon an Event of Default and the other rights and remedies herein conferred, conferred in the other documents and instruments evidencing, securing or relating to the Secured Obligations, or conferred by operation of law.  Monies received under the assignment of production and proceeds contained herein shall not be deemed to have been applied in payment of the Secured Obligations unless and until such monies actually are applied thereto by Secured Party.

ARTICLE IV

Termination and Release

Section 4.1Release Upon Termination.  If all of the Secured Obligations shall be paid in full and otherwise satisfied pursuant to the terms and conditions of this Instrument and the other documents and instruments evidencing, securing or relating to the Secured Obligations, and if Debtor shall have well and truly performed all of the covenants and agreements herein contained, then all of the Collateral shall revert to Debtor, the liens and security interests created by this Instrument shall terminate and Secured Party shall, promptly after the request of Debtor, execute, acknowledge and deliver to Debtor a request to the Trustee to release this Instrument, and Secured Party shall execute such other instruments as may be necessary to evidence the termination of the liens and security interests created by this Instrument.

Section 4.2Partial Release.  No partial release from the liens and security interests created by this Instrument of any part of the Collateral by Trustee or Secured Party shall in any way alter, vary or diminish the force or effect of this Instrument or impair, release or subordinate the liens and security interests created by this Instrument on the remainder of the Collateral.

ARTICLE V

Default

Section 5.1Events of Default.  The occurrence of any of the following events which continues five (5) Banking Days after written notice thereof by the Debtor shall constitute an event of default (“Event of Default”) and upon the occurrence thereof the liens and security interests created hereby shall be subject to foreclosure in any manner provided for herein or provided for by applicable law:

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A.           Failure of Debtor to pay as and when provided herein any fee or other amount due Secured Party or Trustee under this Instrument when due;

B.           Failure of Debtor to perform or observe any covenant, agreement, indemnity, condition or provision in this Instrument;

C.           Any of Debtor’s representations or warranties made in this Instrument or any statement or certificate at any time given in writing pursuant hereto or in connection herewith shall be false or misleading in any material respect as of the date made or deemed made; or

D.           An “Event of Default” as defined in the Debenture shall occur.

Section 5.2Treatment of Fixtures.  Upon the occurrence of any Event of Default, or at any time thereafter, if deemed appropriate by Secured Party or if required by applicable law, Secured Party may elect to treat the fixtures included in the Collateral either as real property or as personal property, or both, and proceed to exercise such rights as apply to the type of property selected.

Section 5.3Foreclosure.  Upon the occurrence of any Event of Default, or at any time thereafter, in addition to any other rights, powers and remedies herein conferred or conferred by operation of law, Secured Party and Trustee shall have all of the rights, powers and remedies of a secured party, a mortgagee, a beneficiary under a deed of trust, and a public trustee under a deed of trust granted under applicable law.  Secured Party may, with notice, proceed by one or more actions in equity or at law for the seizure and sale of the Collateral or any portion thereof, for the foreclosure or sale of the Collateral or any portion thereof by judicial foreclosure by appropriate proceedings in any court of competent jurisdiction, by a public trustee’s sale, or in any other manner then permitted by law, for the specific performance of any covenant or agreement of Debtor herein contained or in aid of the execution of any right, power or remedy herein granted, or for the enforcement of any other appropriate equitable or legal remedy and to recover judgment against Debtor.  In furtherance, and not in limitation, thereof:

A.           Deed of Trust.  This Instrument shall constitute a trust deed under Articles 37, 38 and 39 of Title 38 of the Colorado Revised Statutes, as amended and as may be amended from time to time, or any future law containing provisions under which the sale of property securing debts is authorized or permitted; and upon an Event of Default, or any time thereafter, Trustee shall, whenever requested by Secured Party, cause the Collateral to be sold in accordance with the provisions thereof and hereof.

B.           Mortgage.  This Instrument shall also constitute a mortgage, and upon the occurrence of an Event of Default and during the continuance thereof may be foreclosed as to any of the Collateral by judicial action or in any manner then permitted by applicable law; and to the extent, if any, required to cause this Instrument to be so effective as a mortgage as well as a deed of trust, Debtor hereby mortgages the Collateral to Secured Party.

C.           Election.  Secured Party may elect to treat this Instrument, from time to time and at any time, either as a deed of trust to the public trustee or as a mortgage.  In the event a public trustee’s sale of the Collateral shall be commenced by Trustee, Secured Party may at any time before the sale of the Collateral, elect to abandon the public trustee’s sale, and Secured Party may then institute a suit for the collection of the Secured Obligations and for the foreclosure of this Instrument by judicial action.  It is agreed that if Secured Party should institute a suit for the foreclosure of this Instrument by judicial action, Secured Party may at any time before the entry of a final judgment, dismiss such suit, and then direct Trustee to cause the Collateral to be sold pursuant to a public trustee’s sale in accordance with the provisions of this Instrument.

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D.           Additional Actions.  This Instrument shall also constitute and may be enforced from time to time as an assignment, chattel mortgage, contract, deed of trust, mortgage, financing statement and security agreement, and from time to time as any one or more thereof as appropriate under applicable law.  Secured Party shall be entitled to all of the rights, remedies and benefits of a secured party, mortgagee and a beneficiary granted under applicable law; and, to the fullest extent of such law, shall be entitled to enforce such rights, remedies and benefits.  Debtor intends and hereby grants to Secured Party all rights, powers and remedies accorded a secured party, mortgagee and a beneficiary under applicable law whether or not such rights, powers and remedies are expressly granted or reserved herein.

E.           Notice, Place and Manner of Sale.  Any sale of the Collateral under this Article V shall take place at such place or places and otherwise in such manner and upon such notice as may be required by law; or, in the absence of any such requirement, as Secured Party may deem appropriate.  Debtor expressly agrees that Secured Party or Trustee may offer the Collateral as a whole or in such parcels or lots as Secured Party or Trustee elects, regardless of the manner in which the Collateral may be described.

F.           Postponement of Sale.  Any sale of the Collateral conducted under this Article V may be postponed from time to time as provided by applicable law; or, in the absence of any such provisions, Secured Party may postpone the sale of the Collateral or any part thereof by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement.  Sale of a part of the Collateral will not exhaust the power of sale, and sales may be made from time to time until all Collateral is sold or the Secured Obligations are paid in full.

G.           Secured Party’s Right to Purchase.  Secured Party shall have the right to bid or to become the purchaser at any sale made pursuant to the provisions of this Article V, and shall have the right to credit upon the amount of the bid made therefor the amount payable to it out of the net proceeds of such sale.

H.           Conveyance to Purchaser.  Any lawful sale of the Collateral or any portion thereof pursuant to the provisions of this Article V will operate to divest all right, title, interest, claim and demand of Debtor in and to the property sold and will be a perpetual bar against Debtor and shall, subject to applicable law, vest title in the purchaser free and clear of all liens, security interests and encumbrances, including without limitation, liens, security interests and encumbrances junior or subordinate to the liens, security interests and encumbrances created by this Instrument.  Upon any lawful sale of the Collateral or any portion thereof pursuant to the provisions of this Article V, the receipt by Secured Party, Trustee, the sheriff or other official or party responsible for conducting the sale, shall be sufficient discharge to the purchaser or purchasers at any sale for the purchase money, and such purchaser or purchasers and the heirs, devisees, personal representatives, successors and assigns thereof shall not, after paying such purchase money and receiving such receipt of Secured Party, Trustee, the sheriff or such other official or party, be obliged to see to the application thereof or be in anywise answerable for any loss, misapplication or nonapplication thereof.  Any purchaser at a sale will, subject to mandatory redemption periods, if any, receive immediate possession of the Collateral purchased, and Debtor agrees that if Debtor retains possession of the Collateral or any part thereof subsequent to such sale, Debtor will be considered a tenant at sufferance of the purchaser, and will, if Debtor remains in possession after demand to remove, be guilty of forcible detainer, and will be subject to eviction and removal, forcible or otherwise, with or without process of law and all damages to Debtor by reason thereof are hereby expressly waived by Debtor.

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Section 5.4Personal Property.  Upon the occurrence of any Event of Default, or at any time thereafter, in addition to all other rights, powers and remedies herein conferred or conferred by operation of law, Secured Party shall have all of the rights and remedies of an assignee and secured party granted by applicable law, including without limitation, the applicable Uniform Commercial Code as then in effect, and shall, to the extent permitted by applicable law, have the right and power, but not the obligation, to take possession of the personal property included in the Collateral and any proceeds thereof wherever located, and for that purpose Secured Party may enter upon any premises on which any or all of such personal property is located and take possession of and operate such personal property or remove the same therefrom.  Secured Party may require Debtor to assemble such personal property and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties.  The following presumptions shall exist and shall be deemed conclusive with regard to the exercise by Secured Party of any of its remedies with respect to personal property:

A.           If notice is required by applicable law, Debtor agrees that ten days’ prior written notice of the time and place of any public sale or of the time after which any private sale or any other intended disposition thereof is to be made shall be deemed reasonable notice to Debtor.  No such notice is necessary if such property is perishable, threatens to decline speedily in value or is of a type customarily sold on a recognized market.

B.           If Secured Party in good faith believes that the Securities Act of 1933 or any other state or federal law prohibits or restricts the customary manner of sale or distribution of any of such property, Secured Party may sell such property privately or in any other manner deemed advisable by Secured Party at such price or prices as Secured Party determines in its sole discretion.  Debtor recognizes that such prohibition or restriction may cause such property to have less value than it otherwise would have and that, consequently, such sale or disposition by Secured Party may result in a lower sales price than if the sale were otherwise held.

Section 5.5Possession.  Upon the occurrence of any Event of Default, or at any time thereafter, in addition to all other rights, powers and remedies herein conferred or conferred by operation of law, Secured Party shall, to the extent not prohibited by applicable law, have the right and power, but not the obligation, to enter upon and take immediate possession of the Collateral or any portion thereof, to exclude Debtor therefrom, to hold, use, operate, manage, enjoy and control such Collateral, to make all such repairs, replacements, alterations, additions and improvements to the same as Secured Party may deem proper or expedient, to sell all of the severed and extracted ore, gold and Other Minerals included in the same subject to the provisions of Article III hereof, to demand, collect and retain all other earnings, rents, issues, profits, proceeds and other sums due or to become due with respect to such Collateral accounting for and applying to the payment of the Secured Obligations only the net earnings arising therefrom after charging against the receipts therefrom all fees, costs, expenses, charges, damages and losses incurred by reason thereof plus interest thereon without any liability to Debtor in connection therewith.  Such possession shall at once be delivered to Secured Party upon request, and on refusal or failure to so deliver possession, the delivery of such possession may be enforced by Secured Party by any appropriate civil suit or proceeding.

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Section 5.6Appointment of Receiver.  Upon the occurrence of any Event of Default, or at any time thereafter, in addition to all other rights, powers and remedies herein conferred or conferred by operation of law, Secured Party shall be entitled to the appointment of a receiver of the Collateral without the necessity of the posting of a bond or notice; and shall, to the extent not prohibited by applicable law, be entitled to such receiver as a matter of right, without regard to the solvency or insolvency of Debtor, the value or adequacy of the Collateral or the Collateral being in danger of being materially injured or reduced in value as security by removal, destruction, deterioration, accumulation of prior liens or otherwise; and such receiver may be appointed by any court of competent jurisdiction upon ex parte application, and without notice, notice being expressly waived.  Debtor does hereby consent to the appointment of such receiver or receivers, waive any and all defenses to such appointment, and agree not to oppose any application therefor by Secured Party, and agree that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Secured Party under this Article V.  Nothing herein is to be construed to deprive Secured Party of any other right, remedy or privilege it may now or hereafter have under law to have a receiver appointed.  Any money advanced by Secured Party in connection with any such receivership shall be a demand obligation owing by Debtor to Secured Party.  Any such receiver shall have all powers conferred by the court appointing such receiver, which powers shall, to the extent not prohibited by applicable law include, without limitation, the right to enter upon and take immediate possession of the Collateral or any part thereof, to exclude Debtor therefrom, to hold, use, operate, manage and control such Collateral, to make all such repairs, replacements, alterations, additions and improvements to the same as such receiver or Secured Party may deem proper or expedient, to lease, sell or otherwise transfer the Collateral or any portion thereof as such receiver or Secured Party may deem proper or expedient, to lease, sell or otherwise transfer the Collateral or any portion thereof as such receiver or Secured Party may deem proper or expedient, to sell all of the severed and extracted ore, gold and Other Minerals included in the same subject to the provisions of Article III hereof, to demand and collect all of the other earnings, rents, issues, profits, proceeds and other sums due or to become due with respect to such Collateral, accounting for only the net earnings arising therefrom after charging against the receipts therefrom all fees, costs, expenses, charges, damages and losses incurred by reason thereof plus interest thereon without any liability to Debtor in connection therewith which net earnings shall be turned over by such receiver to Secured Party to be applied by Secured Party to the payment of the Secured Obligations in the order set forth in Section 5.10.

Section 5.7Waiver by Debtor.  To the extent not prohibited by applicable law, Debtor agrees that Debtor shall not at any time have, invoke, utilize or assert any right under any laws pertaining to the marshaling of assets or liens, the sale of property in the inverse order of alienation, the exemption of homesteads, the administration of estates of decedents, appraisement, moratorium, valuation, stay, extension or redemption now or hereafter in force, and Debtor hereby waives the benefit of all such laws to the fullest extent not prohibited by applicable law.

Section 5.8Remedies Cumulative.  All rights, powers and remedies herein conferred are cumulative, and not exclusive, of (A) any and all other rights and remedies herein conferred, (B) any and all rights, powers and remedies existing at law or in equity, and (C) any and all other rights, powers and remedies provided for in any other documents or instruments evidencing, securing or relating to the Secured Obligations, and Secured Party shall, in addition to the rights, powers and remedies herein conferred, be entitled to avail itself of all such other rights, powers and remedies as may now or hereafter exist at law or in equity for the collection of and enforcement of the Secured Obligations and the enforcement of the warranties, representations, covenants, indemnities and other agreements contained in this Instrument and the other documents and instruments evidencing, securing or relating to the Secured Obligations and the foreclosure of the liens and security interests created by this Instrument.  Each and every such right, power and remedy may be exercised from time to time and as often and in such order as may be deemed expedient by Secured Party and the exercise of any such right, power or remedy shall not be deemed a waiver of the right to exercise, at the same time or thereafter, any other right, power or remedy.  No delay or omission by Secured Party or by Trustee, the sheriff or other official or person in the exercise of any right, power or remedy will impair any such right, power or remedy or operate as a waiver thereof or of any other right, power or remedy then or thereafter existing.

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Section 5.9Costs and Expenses.  All fees, costs and expenses (including without limitation, attorneys’ fees and legal expenses), incurred by or on behalf of Secured Party or Trustee in protecting and enforcing their rights hereunder or incident to the enforcement of this Instrument and the liens and security interests created hereby, shall be a demand obligation owing by Debtor to Secured Party.

Section 5.10Application of Proceeds.  The proceeds of any sale of the Collateral or any part thereof made pursuant to this Article V shall be applied as may be required by applicable law, or in the absence of any such requirements, as follows:

A.           First, to the payment of all fees, costs, expenses and penalties incident to the enforcement of this Instrument and the liens and security interests created hereby, including without limitation, the fees, costs and expenses described in Section 5.9 hereof;

B.           Second, to the payment of all fees, costs, expenses and penalties remaining unpaid under the Debenture;

C.           Third, to the payment or prepayment of accrued interest remaining unpaid on the Debenture;

D.           Fourth, to the payment or prepayment of principal remaining unpaid on the Debenture in such order as Secured Party may elect;

E.           Fifth, to the payment or prepayment of the Secured Obligations other than the Secured Obligations evidenced by the Debenture in such order as Secured Party may elect; and

F.           Sixth, the remainder, if any, shall be paid to Debtor or such other person or persons as may be legally entitled thereto.

Section 5.11Limitation on Rights and Waivers.  All rights, powers and remedies herein conferred shall be exercisable by Trustee and Secured Party only to the extent not prohibited by applicable law; and all waivers and relinquishments of rights and similar matters shall only be effective to the extent such waivers or relinquishments are not prohibited by applicable law.

ARTICLE VI

Miscellaneous Provisions

Section 6.1Waiver.  Any and all covenants of Debtor in this Instrument may from time to time, be waived by Secured Party by an instrument in writing signed by Secured Party to such extent and in such manner as Secured Party may desire, but no such waiver will ever affect or impair Secured Party’s rights hereunder, except to the extent specifically stated in such written instrument.  All changes to, amendments and modifications of this Instrument must be in writing and signed by Secured Party.

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Section 6.2Severability.  If any provision of this Instrument or of any of the instruments and documents evidencing, securing or relating to the Secured Obligations is invalid or unenforceable in any jurisdiction, such provision shall be fully severable from this Instrument and the other provisions hereof and of said instruments and documents shall remain in full force and effect in such jurisdiction and the remaining provisions hereof shall be liberally construed in favor of Secured Party and Trustee in order to carry out the provisions and intent hereof.  The invalidity of any provision of this Instrument in any jurisdiction shall not affect the validity or enforceability of any such provision in any other jurisdiction.

Section 6.3Subrogation.  This Instrument is made with full substitution and subrogation of Secured Party and Trustee in and to all covenants and warranties by others heretofore given or made with respect to the Collateral or any part thereof.

Section 6.4Financing Statement.  This Instrument shall be deemed to be and may be enforced from time to time as an assignment, contract, deed of trust, mortgage, financing statement, real estate mortgage or security agreement, and from time to time as any one or more thereof is appropriate under applicable state law.  Debtor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Debtor at any time after the execution of this Instrument, and hereby ratifies any thereof filed prior to the execution of this Instrument.

Section 6.5Rate of Interest.  Notwithstanding anything to the contrary contained herein, no rate of interest required hereunder or under the Secured Obligations shall exceed the maximum legal rate under applicable law, and, in the event any such rate is found to exceed such maximum legal rate, Debtor shall be required to pay only such maximum legal rate.

Section 6.6Governing Law.  Insofar as permitted by otherwise applicable law, this Instrument shall be construed under and governed by the laws of the state of Colorado without giving effect to the conflicts of laws principles thereof.

Section 6.7Recording.  All recording references in the Exhibits hereto are to the official real property records of the county in which the affected Land is located and in which records such documents are or in the past have been customarily recorded, whether deed records, oil and gas records, oil and gas lease records or other records.  The references in this Instrument and in the Exhibits hereto to liens, encumbrances and other burdens are for the purposes of defining the nature and extent of Debtor’s warranties and shall not be deemed to ratify, recognize or create any rights in third parties.

Section 6.8Execution in Counterparts.  This Instrument may be executed in one or more original counterparts.  To facilitate filing and recording, there may be omitted from any counterpart the parts of Exhibit A containing specific descriptions of the Collateral that relate to land located in counties other than the county in which the particular counterpart is to be filed or recorded.  Each counterpart shall be deemed to be an original for all purposes, and all counterparts shall together constitute but one and the same instrument.

Section 6.9Notices.  All notices given hereunder shall be in writing, shall be given by certified mail, return receipt requested, overnight courier service, telecopy, facsimile or copy delivered by hand, and, (A) if mailed, shall be deemed received three business days after having been deposited in a receptacle for United States mail, postage prepaid, (B) if delivered by overnight air courier service, shall be deemed received one business day after having been deposited with such overnight air courier service, postage prepaid, and (C) if delivered by telex, telecopy or hand delivery, shall be deemed received on the day the notice is sent if the sender thereof exercises reasonable efforts to confirm receipt thereof, in each case addressed as follows:

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If to Debtor:

Hunter Bates Mining Corporation

900 IDS Center

80 South 8th Street

Minneapolis, MN  55402-8773

Attention: Mark D. Dacko

Fax. No.:  (612) 395-5276

If to Secured Party:

Cabo Drilling (America), Inc.

3rd Floor, 120 Lonsdale Avenue,

North Vancouver, BC  V7M 2E8, Canada

Attention: President

Fax. No.:  (604) 983-8056

Any party may, by written notice so delivered to the others, change the address or facsimile number to which delivery shall thereafter be made.

Section 6.10Binding Effect.  This Instrument shall bind and inure to the benefit of the respective permitted successors and assigns of Debtor, Secured Party and Trustee.

Section 6.11Filing.  Some of the above described goods are or are to become fixtures on the Land described in Exhibit A.  This Instrument is to be filed for record in, among other places, the real estate records of each county identified in Exhibit A.  This instrument covers fixtures, as-extracted collateral and minerals or the like or other substances of value which may be extracted from the earth and the accounts relating thereto, including accounts resulting from the sale thereof at the minehead thereof.  Debtor is the owner of an interest of record in the real estate concerned.

Executed as of the date first above written.

DEBTOR:

HUNTER BATES MINING CORPORATION

a Minnesota corporation

By:  /s/ Mark D. Dacko

  Printed Name: Mark D. Dacko

  Title: CFO

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