Leases and Bonds

This is probably the most common type of deal that comes about between the buyers and sellers of mining properties. In this arrangement a set price is established, normally when an exploration lease has started. The smallest amount of payment is predetermined to lengthen frequently over a certain amount of time until he whole purchase price has been carried out. These payments are usually royalty free on production, either at determined charges or on a downward scale that is agreed on depending on the grade of the ore that is mined. Royalty payments can go over the previously agreed on minimum payment. However, there is not any provision that the payments need to keep on being made if the company sees that the mine is not worth anything. If this were the case, the lease and bond are both canceled, and the property with all improvement reverts the rights to the owner. One way in which a company can negotiate for the prospect in where the size and value is not known of, an agreement to lease is agreed on which might or might not have a purchase option. Depending on the property the work commitments and minimum royalties vary, but production royalties are normally on of the following:

• Ten percent of the net smelter goes back until the owner has obtained $35,000 and this does not allow the company to high grade a deposit the prospector has developed.
• Seven and one half percent of the net smelter goes back until the owner of the property has obtained $75,000.
• Five percent of the net smelter goes back until the owner has obtained $200,000.
• Two and one half percent of the net smelter goes back until the owner of the property has obtained one million dollars or 1 ¼ percent during the entire time the property produces.

The second and third item have to do with the ore that has been developed by the company that is most likely a continuation of ore that has already been discovered by the prospector. The last item applies to a big low grade deposit and helps to give back the high capital the company has invested in which is normally required in these types of cases. The company would rather set up a final buying price to where all royalties or additional payments can be applied to. In cases in which the seller insists on what is considered excessively high royalties, the company will possibly high grade the deposit so they are able to make a future profit off of it. Besides this, they might also agree that the funds cannot be exhausted on the exploration to extend the life of the mine. There are certain companies that might want to make the preliminary payments through a transfer stock in lieu of cash. The agreement on taking on this type of method of reimbursement will depend on the individual preferences as well as the circumstances of the owner of the property.