MODEL FOR A MODERN MAJOR GENERAL:

KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS

1. Preliminary Considerations

• basic business terms• preliminary information

2. Strategic Considerations

• rational• timelines• negotiate now vs negotiate later• disclosure

Poor Ol' Nugget - Act I, Scene 1

3. LOIs – Binding vs. Non-Binding

• binding preferable where:ocommitmentocertaintyodisclosure

• non-binding preferable where:o flexibilityospeed

4. Binding LOIs – Legal Risks

• uncertainty• contract terms not fully addressed• reliance on common law• can prejudiceobargaining positiono legal position/relationship

5. Non-Binding LOIs – Legal Risks

can be abandoned some terms should be bindingcasual, no legal reviewcourt may find binding“morally” binding

6. LOIs – Binding vs Non-Binding – How to Tell?

• “test”obasic contract principles satisfied – did the

parties agree?oare the “essential” terms agreed?odid the parties intend to be bound?

• each case is fact specificowording of LOIoactions of parties

7. Non-Binding LOIs – Tips

• use conditional language• don’t use imperative language• leave key terms for later agreement• include conditions• state “non-binding”• conduct of parties

Poor Ol' Nugget - Act I, Scene 2

8. LOIs – Drafting Considerations

• speed vs. certainty• extent of representation• approvals – corporate & regulatory• termination • notice mechanics• effective date and impact on timelines

9. LOI – Best Practices

• is priority timing or detail?• be wary of obligation to negotiate in “good faith”• standalone – exclusivity and confidentiality• diarize dates• check AOI for overlaps• note issues that were problematic• assess relationship/troubleshoot potential

challenges• no work on property (sorry!)

Poor Ol' Nugget - Act II, Scene 1

10. Moving from LOI to Option

• remaining/outstanding due diligence issues• refer back to LOI best practices• consider representations and warrantiesoWhat needs to be customizedoWhat needs to be coveredoOld standards: singing the same old song

11. Exercise of Option/Form of JV

• exercising the optiono Formal approacho Automatic approach

• form of JVo All information: vegetable, animal and mineralo Substantially in the form attachedo KoKo’s listoWorry about it later

Poor Ol' Nugget - Act II, Scene 2

12. Practical Issues

• treatment of shortfalls• currency risk• transition matterso into JVoon terminating option

• partial surrenders and additions• accelerations

13. Best Practices

• decision tree• as much ADR as you need, not as much as you

can stand• transaction summary• databases• debrief and capture process

14. Conclusion

• business/strategic analysis drives document• living documents

o need to be flexibleo certaino allow relationship to evolve

FINALE

Caroline ThomasChief Counsel, Exploration,

Property & Aboriginal Affairs

Vale, Base Metals

416-361-7919 (w)caroline.thomas@vale.com

www.vale.com

Carmen L. Diges, LL.M, CFAChair National Mining

Group

Miller Thomson LLP

416-596-2117 (w)cdiges@millerthomson.com

www.millerthomson.com