Lot 93 Cluster L, Bagong Nayon I, Cogeo Village, 1870 Antipolo, Rizal

Republic of the Philippines

November 19, 1997

The concession area is located in Barangay Valencia, Cagdianao, Dinagat Island, Surigao del Norte.

East Coast Mineral Resources Co., Inc.

chromite, nickel and other minerals existing or may be discovered in the contract area

Mineral Production Sharing Agreement MPSA No. 078-97-XIII (SMR)

After 25 years, this contract may be renewed for a term not more than 25 years.

Victor O. Ramos, Secretary, Department of Environment and Natural Resources

Hilario G. Pagauitan, Chairman of the Board, East Coast Mineral Resources Co., Inc.

The concession area is 697.0481 hectares.

Department of Environment and Natural Resources

This contract has a term of 25 years from November 19, 1997

This contract is a Mineral Production Sharing Agreement.

The contractor must first secure an Environmental Compliance Certificate (ECC), the prerequisite of which is the submission of an environmental impact assessment.

The contractor shall set up an Environmental and Safety Office at the mine site to monitor the implementation of its EPEP. The contractor shall monitor the environmental, safety and health conditions in the contract area and shall follow the “Revised Mine Safety Rules and Regulations.”

The contractor shall manage its mining operations in a technically, financially, socially, culturally, and environmentally responsible manner to attain the sustainable development objective of R.A. 7942 (Sec. 10.1). The contractor shall prepare a plan of mining to minimize the damage to the environment. As much as possible, it shall control pollution and transform mined-out areas or materials into economically and socially productive forms during the mining operations (Sec. 10.2). During the exploration phase, the contractor shall submit an Environmental Work Program, following the rules and regulations (Sec. 10.3). Prior to the development and construction phase, the contractor shall first secure an environmental compliance certificate (ECC) (Sec. 10.4). Within 30 days from receipt of the ECC, the contractor shall submit an Environmental Protection and Enhancement Program covering all areas to be affected. It must allocate about 10% of the total project cost for its initial environment-related capital expenditures, or in such amounts depending on the environment and geological condition, nature, and scale of operations and technology used (Sec. 10.5). Thereafter, the contractor must submit an annual EPEP (AEPEP), within the month of December before the applicable year starts. The contractor shall allocate 3-5% of its direct mining and milling costs for environment protection, depending on the environment or geologic condition, nature and scale of operations, and technology used (Sec. 10.6). The contractor shall also establish a trust fund called Mine Rehabilitation Fund (MRF), for its EPEP and AEPEP compliance, for the physical and social rehabilitation of areas affected by mining activities, as well as for research on the social, technical, and preventive aspects of rehabilitation (Sec. 10.7). The contractor shall also set up mitigating measures such as mine waste and mill tailings disposal system, mine rehabilitation or plan, water quality monitoring, etc., to minimize land degradation, air and water pollution, acid rock drainage, and changes in hydrogeology (Sec. 10.8) Thereafter, the contractor shall submit a final mine rehabilitation plan and/or decommissioning plan, with financial and other requirements as stated in the implementing rules of RA 7942 (Sec. 10.11).

The contractor may use the water resources in the contract area, subject to applicable laws, rules and regulations, as well as right of third parties to use the same.

The contractor shall keep accurate technical records about its mining operations and shall furnish the MGB Director of all data and information gathered from the contract area. The contractor shall also maintain financial books of accounts and marketing accounts. These records, books, and accounts shall be open for inspection by authorized government representatives.

The contractor shall allot annually at least 1% of the direct mining and milling costs for the development of the host and neighboring communities, such as social infrastructure, livelihood programs, education, water, electricity, medical services, traditional income sources and community activities. These expenses may be charged against its required royalty payments, if the host happens to be an indigenous cultural community.

The contractor shall pay all the required national and local taxes and fees.

The government share shall be the excise tax on the mineral products extracted. The contractor shall pay excise taxes at the rates prescribed in RA 7729, to the nearest BIR office in the province where the mine is located. This government share shall be divided as prescribed by the Local Government Code. In computing the excise tax due, the contractor must strictly follow auditing and accounting requirements as prescribed by laws and regulations.

The contractor is not restricted from selling to its affiliates, but must do so at arm's length standard.

The surface fee is akin to occupation fees for MPSAs. The contractor shall pay occupation fees at the rate of P100.00 per hectare to the Municipal/City Treasurer concerned. Late payments get a surcharge of 25%.

The contractor shall coordinate with the proper authorities in the development of the mining community as well as the host and neighboring communities, through social infrastructure, livelihood programs, education, water, electricity, and medical services. The contractor shall also assist in the preservation and/or enhancement of traditional self-sustaining livelihood activities, if any.

The contractor shall give preference to Filipino citizens who are residing near the mine site for its mining operations. It shall aim to “Filipinize” its personnel, such that by Year 7 to 15, 100% of unskilled, skilled, clerical, professional and management employees shall be Filipino (Sec. 13.1) The contractor shall not discriminate on the basis of gender, respecting the right of women workers to participate in policy and decision-making processes affecting their rights and benefits (Sec. 13.3). Be that as it may, the contractor is allowed to bring into the Philippines foreign technical and specialized personnel to work on foreign mining technologies requiring highly specialized training and experience. While they are employed in the Philippines, the contractor shall conduct a training program for Filipinos to replace them in the future. The foreigners may also bring the immediate members of their families during their employment, subject to immigration laws, rules and regulations. (Sec. 11.2.e)

The contractor shall pay royalties to the indigenous cultural communities for the mining of their ancestral lands, at the rate of 1% of the value of the gross output of minerals sold.

If the Filipino residents of the area lack skills and expertise, the contractor shall undertake a training and recruitment program at its own expense. For commercial production, the contractor shall conduct an extensive training program to Filipino nationals to equip them for all levels of employment. Cost and expenses shall be included in the Operating Expenses (Secs. 13.1, 13.2)

The contractor may install infrastructure it needs for the operation of the mine. All movable units shall remain its property which may be removed and re-exported. If the contractor voluntarily abandons or withdraws from the mining operations on public lands, it has 1 year to remove its improvements; otherwise, all social infrastructures and facilities shall be donated tax free to the government, for the use and maintenance by the host and neighboring communities. The contractor may make expansions, modifications, improvements, and replacements of the mining facilities, and may add new facilities necessary for mining operations, as long as these are stated in its work program as approved by the DENR Secretary. (Sec. 7.3)

The contractor shall begin its exploration activities within 3 months after signing of contract, following its approved Exploration and Environmental Work Program and spending not less than the following amounts: PhP 815,000.00 for the 1st year; and PhP 921,000.00 for the 2nd year; and PhP 200,000.00 for the Environmental Work Program. If the contractor spends less or more than these amounts, then the deficit or excess shall be computed into the following year for adjustment. If the contract is ended mid-year, then the contractor shall only spend a pro-rated amount for the year. The contractor has 2 years for the exploration phase, which is renewable, but total number of years must not exceed 6 years, subject to the annual review and evaluation of the MGB Director. The amount to be spent every year during the extension years shall be agreed upon by the parties. The contractor may apply for a Temporary Exploration Permit pending approval of this contract, good for 1 year, and non-renewable. If this contract is approved, this 1-year period shall be counted into the 2-year exploration period herein. If this contract is not approved, then the temporary permit is cancelled. (Secs. 5.1, 5.2) During the exploration phase, the contractor shall submit to the Regional Office its Declaration of Mining Project Feasibility, together with a mining project feasibility study, a 3-year development and construction or commercial operation work program, a complete geologic report, an application for survey of the mining area, and its environmental compliance certificate. If the application for survey is complete, the Regional Office shall issue an Order of Survey. The contractor shall have 1 year from receipt of the order to submit the result of the survey and other requirements (Secs. 5.4, 5.5) The contractor has 3 years to complete the development of the mine, including the construction of production facilities, upon submission of its Declaration of Mining Project Feasibility. Any extension shall only be for justifiable reasons and subject to the approval of the MGB Director, upon the recommendation of the Regional Director (Sec. 6.1). Within 30 days before such completion, the contractor shall submit to the DENR Secretary, through the Regional Director or MGB Director, a 3-year Commercial Operation Work Program. Upon approval thereof, the contractor shall immediately start its commercial production (Sec. 7.1). During the operating phase, the contractor shall submit to the DENR Secretary, through the Regional Director or MGB Director, a 3-year Commercial Operation Work Program and Budget, and every 3 years thereafter. It must be submitted within 30 days from the end of the previous work program. The contractor shall follow this work program and budget for its mining operations and other activities (Sec. 7.2). The contractor may make slight changes to its work program as long as it is within its general objectives. Changing items by more than 20% shall require the approval of the DENR Secretary. If the government wants to change an item in the work program, it shall notify the contractor within 30 days from receipt, with reasons for such change. The parties shall then agree on the changes. After 60 days from receipt, with no notices given, the work program is deemed approved (Secs. 9.1, 9.2, 9.3).

The contractor may assign its rights, interests and obligations in this contract to another entity, subject to the approval of the government.

The contract may be suspended for the following reasons: (a) the contractor failed to comply with any provision or requirement of R.A. 7942 and/or its implementing rules and regulations; (b) the contractor failed to completely pay on time its taxes, fees, and/or other charges to the government. (Sec. 15.1) The contract may end for the following reasons: (a) the term of 25 years expired, or if renewed, the renewal term expired; (b) the contractor withdraws from the contract; (c) the contractor violates the terms and conditions of the contract; (d) the contractor fails to pay taxes, fees, charges, or other financial obligations for 2 consecutive years; (e) contractors makes a false statement or omits facts; (f) contractor commits other causes provided in R.A. 7942 and its implementing rules and regulations, or violates other relevant laws and regulations. (Sec. 15.2) Any falsehood or omission of fact by the contractor in this contract that substantially affects the essence of the provisions shall be a ground for the revocation and termination of the contract (Sec. 15.3) The contractor may apply for the cancellation of the contract for the reason that continued mining operation is no longer feasible or viable. It has to submit a notice of cancellation, and the DENR Secretary shall decide on it within 30 days, provided that the contractor has met all its financial, fiscal and legal obligations (Sec. 15.4). The withdrawal of the contractor shall not release it from any financial, environmental, legal and fiscal obligations under the contract (Sec. 15.7) The contractor shall pay all the fees and other liabilities up to the end of the year that the termination becomes effective. The contractor shall immediately restore the contract area in accordance with good mining industry practice (Sec. 15.6) The government may terminate the contract for breach of contract by the contractor, as follows: (a) the contractor fails to begin commercial production within the period prescribed, without valid reason; (b) the contractor fails to conduct quarrying operations and other activities per its approved Work Program. (Sec. 15.8) The government may suspend or cancel the contractor’s tax incentives and credits if the contractor fails to abide by their terms and conditions. (Sec. 15.9) The government has the right to seek recourse and relief under the contract. If it delays or omits a course of action, it does not mean it foregoes its right, unless it issues a written waiver saying so. If it chooses one course of action, it does not mean it abandons other courses of action, unless it issues a written waiver saying so. The waiver must be signed by an authorized person. (Sec. 15.5)

The governing law is Philippine law. Art. XII, Sec. 2 of the 1987 Constitution allows the exploration, development, and utilization of mining areas under the full control and supervision of the government. This contract is executed under Republic Act No. 7942, or the Philippine Mining Act of 1995, with its implementing rules and regulations, as well as relevant laws and regulations.

The contractor may suspend mining operations for reason of force majeure as defined in R.A. 7942. Any failure or delay by the contractor shall be excused to the extent attibutable to the force majeure. The contractor shall give a written notice of suspension of operations to the MGB Director, subject to the latter’s approval. The notice shall state the delay or failure of performance, its expected duration and anticipated effect, and efforts to remedy the situation. If the force majeure happens to be a labor dispute, both parties are not obligated to settle it. The term of the contract shall be extended for the same amount of time that the mining operations were suspended or delayed due to the force majeure.

The contractor shall also help in the development of mining technology and geosciences, by producing geological, geophysical, geochemical and other types of maps and reports that are appropriate in scale and in format, following internationally accepted standards and practices. These maps shall be produced and released not later than 3 years, and made available to the scientific community at the most convenient and cost-effective forms. The contractor shall also submit copies to the MGB for archiving and systematic safekeeping. The technical, economic, financial, and related data generated from the mining area shall be made accessible by students, researchers, and other persons responsible for the development of mining, geoscience, and processing technology. The contractor has 3 years within which to release these generated data. The contractor shall also allocate research and development budget for the advancement of mining technology and geosciences, in coordination with the MGB, research institutions, academe, etc. These amounts shall be incorporated in the Mining Project Feasibility Study. The contractor shall also transfer the technology it adapted to the government or local mining company.

The contractor must submit reports for the 3 phases of the mining operations. For the exploration phase, the contractor shall submit to the Regional Director, copy furnished the MGB Director, quarterly accomplishment reports within 15 days from the end of each calendar quarter. It shall contain all activities conducted in the contract area, such as detailed financial expenditures, raw and processed geological, geochemical, geophysical and radiometric data plotted on a map at a minimum of 1:50,000 scale, assay results, duplicated samples, field data, drilling reports, maps, environmental work program implementations and expenditures vis-à-vis its approved plans and budgets, and other data collected. The contractor shall also submit an annual accomplishment report containing the above data, within 30 days at the end of the calendar year (Sec. 5.6.a) At the end of the exploration phase, the contractor shall submit to the Regional Director, copy furnished the MGB Director, a Final Report, professional in form, incorporating all the findings in the contract area, such as location of samples, assays, chemical analysis, and assessment of mineral potentials, a geologic map of at least 1:50,000 scale showing the results of the exploration, and detailed expenditures during the exploration phase. If the contractor finds diamonds, it shall submit one-fourth of the core samples to the Regional Office concerned, which shall be deposited in the core library for safekeeping and reference (Sec. 5.6.b). The contractor shall also submit a Relinquishment Report, containing the detailed geologic report of the relinquished area, with maps at a scale of 1:50,000, results of analyses, detailed expenditures, and other related data (Sec. 5.6.c) For the development and construction phase, the contractor shall submit an annual report to the Regional Director, copy furnished the MGB Director, within 60 days from December 31 of each year. It shall contain the major activities, achievements and detailed expenditures, with maps, assays, rock and mineral analyses, geological and environmental progress reports (Sec. 6.2.a). Within 6 months from the completion of the development and construction activities, the contractor shall submit a Final Report to the Regional Director, copy furnished the MGB Director. It shall integrate all information in maps and in monographs or reports, following international standards (Sec. 6.2.b) During the operation phase, the contractor must submit Quarterly Reports to the DENR Secretary, through the Regional Director, copy furnished the MGB Director, within 30 days from the end of each calendar quarter. It shall contain the tonnage of production stating what ore, concentrate, grade, or type of product; value, destination of sales or exports, names of buyers; and terms of sale and expenses. (Sec. 7.4.a) The contractor must also submit Annual Reports to the DENR Secretary, through the Regional Director, within 60 days from the end of each calendar year. It shall contain the total tonnage of ores and ore reserves; details and type of ore; what stage in production; location; whether sold or committed for export; shipping details and terms of sale; and whether refined, processed or manufactured in the Philippines, with full specifications of the intermediate products, by-products or final products, and their terms of disposal. It shall also contain the work accomplished as well as work in progress in relation to the work program, including the investment actually made or committed. The annual report must also contain the profile of the workforce, management, and staff, stating their nationalities, and for Filipinos, their place of origin (barangay, town, province, region). It shall also declare the stockholders of the contractor company, stating their nationalities (Sec. 7.4.b)