MINERAL LEASES |
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TMC |
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SITLA |
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BLM |
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Mineral |
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Mineral |
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Mineral |
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Lease |
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Lease |
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Lease |
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Total |
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Cost |
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August 31, 2019 |
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$ |
11,091,388 |
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$ |
19,755 |
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$ |
23,800,000 |
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$ |
34,911,143 |
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Additions |
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- |
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- |
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- |
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- |
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August 31, 2020 |
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11,091,388 |
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19,755 |
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23,800,000 |
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34,911,143 |
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Additions |
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- |
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- |
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- |
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- |
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May 31,2021 |
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$ |
11,091,388 |
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$ |
19,755 |
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$ |
23,800,000 |
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$ |
34,911,143 |
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Accumulated Amortization |
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August 31, 2019, August 31, 2020 and May 31, 2021 |
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$ |
- |
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$ |
- |
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$ |
- |
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$ |
- |
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Carrying Amounts |
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August 31, 2019 |
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$ |
11,091,388 |
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$ |
19,755 |
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$ |
23,800,000 |
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$ |
34,911,143 |
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August 31, 2020 |
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$ |
11,091,388 |
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$ |
19,755 |
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$ |
23,800,000 |
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$ |
34,911,143 |
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May 31, 2021 |
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$ |
11,091,388 |
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$ |
19,755 |
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$ |
23,800,000 |
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$ |
34,911,143 |
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On
June 1, 2015, the Company acquired TMC Capital, LLC (“TMC”), which then held a mining and mineral lease, subleased from Asphalt
Ridge, Inc., on the Asphalt Ridge property located in Uintah County, Utah.
Effective
August 10, 2020, the TMC mineral lease was terminated and a new Short-Term Mining Lease agreement between Valkor LLC (“Valkor”)
and Asphalt Ridge, Inc. (the “Lease”) was entered into with a back to back Short-Term Mining and Mineral Sublease entered
into between Valkor and TMC, whereby all of the rights and obligations of the lease were sublet to TMC (the “TMC Mineral Lease”
or the “Sublease”).
The
salient terms of the TMC Mineral Lease are as follows:
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1. |
The
exclusive right and privilege during the term of the Sublease to explore for and mine by
any methods now known or hereafter developed, extract and sell or otherwise dispose of, any
and all asphalt, bitumen, maltha, tar sands, oil sands (“Tar Sands”) and any
and all other minerals of whatever kind or nature which are associated with or contained
in any Tar Sands deposit, whether hydrocarbon, metalliferous, non-metalliferous or otherwise,
including, but not limited to, gold, silver, platinum, sand and clays on and in the Property,
and whether heretofore known or hereafter discovered (collectively, “Minerals”),
from the ground surface to a depth of 3,000 feet above Mean Sea level (MSL), together with
the products and byproducts of the processing of the Minerals, and together with the right
to use so much of the surface of the Property as may be necessary in the exercise of said
rights and in furtherance of the purposes expressed herein, including ingress and egress,
and together with the right to construct on the Property such improvements as may be reasonably
necessary to the exploration for and the mining, extraction, removal, processing, beneficiating,
sale or other disposition of the Minerals, but not including the construction of any new
roads without the prior written consent of Valkor as the Sublessor; and |
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2. |
The
right to use any or all of the Water Rights (as defined in the Sublease) at any time during the term of the Sublease in conducting
its activities as provided for therein; provided that approval of change applications may need to be obtained in order to allow use
of the Water Rights on the Property for mining purposes. |
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3. |
The
term of the Sublease (the “Term”) was originally for a period ended June 30, 2021, which was recently extended to December 31, 2021, unless the Short Term Mining Lease between Valkor
and Asphalt Ridge is terminated earlier. |
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4. |
During
the Term and subject to certain rights reserved to Asphalt Ridge, Inc. as Lessor under the Lease (the “Lessor Reserved Rights”),
TMC as the Sublessee shall have the right to explore, develop, mine, drill, pump, process, produce and market the Minerals in, on,
or under the Property, including any existing stockpiles or dumps, whether by drilling, surface, strip, contour, quarry, bench, underground,
solution, in situ or other mining methods, and in connection therewith, Sublessee shall have the right to conduct the following activities
and operations (“Operations”) on the Property in accordance with the terms of the Sublease and applicable laws and regulations: |
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a. |
To
mine, process, mill, beneficiate, treat, concentrate, extract, refine, leach, convert, upgrade,
prepare for market, any and all Minerals mined or otherwise extracted from the Property; |
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b. |
To
temporarily store or permanently dispose on the Property Minerals, water, waste or other materials resulting from Operations on the
Property; |
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c. |
to
use and develop any and all ditches, flumes, water and Water Rights and appurtenant to the Property; and |
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d. |
to
use so much of the surface and surface resources of the Property as may be reasonably necessary in the exercise of said rights, or
which Sublessee may deem desirable or convenient, including rights of ingress and egress in connection with its operations on the
Property. During the term of the Sublease the Sublessee has the right to use any or all of the Water Rights at any time during the
Term in conducting its activities as provided for therein; provided that approval of change applications may need to be obtained
in order to allow use of the Water Rights on the Property for mining purposes. |
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5. |
TMC
will pay Valkor the sum of $25,000 on lease commencement, and thereafter $15,000 per month
until expiration of the lease |
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6. |
TMC
will pay a production royalty as follows: |
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a. |
For
“Bitumen Product” produced from Tar Sands mined or otherwise extracted from the
Property shall be eight percent (8%) of the gross sales revenue received by Sublessee from
the sale of such Bitumen Product at the Property. As used herein, the term “Bitumen
Product” means naturally occurring oil in the Tar Sands that is sold in whatever form,
including run-of-mine, screened, processed, or after the addition of any additives and/or
upgrading of the Bitumen Product |
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b. |
The
Production Royalty on all other Minerals produced from Bitumen Product mined or otherwise extracted from the Property and sold shall
be eight percent (8%) of the gross sales revenue received by Sublessee. Subject to certain provisions, wherein sales of products
and byproducts are wholly accounted for, should sales occur to a third party purchaser that is engaged in marketing a variety of
products or by-products made from such materials, payments to Sublessor may vary. If Sublessee’s receipts are measurably greater
than comparable sales by others of similar products or byproducts which may be due to the nature of high end by-products such as
frac sands produced and sold by the third party, the Production Royalty to Sublessor shall be the greater of a 5% royalty on the
gross value of the product and by-products sold by the third party or 50% of the gross revenue received by Sublessee from the sale
of such products or byproducts, as the case may be. |
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c. |
The
Production Royalty on oil and gas, and associated hydrocarbons produced by Sublessee using standard oil and gas drilling recovery
techniques above 3000 feet MSL and sold shall be 1/6 of the gross market value. |
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d. |
Any
sales of Minerals to third parties shall be of such a nature that the sales price adequately represents the market value of all potential
products or by-products. |
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e. |
Minerals
shall be deemed sold at the time they leave the Property or at the time the Minerals are transferred by Sublessee to an Affiliate.
“Affiliate” means any business entity which, directly or indirectly, is owned or controlled by Sublessee or owns or controls
Sublessee, or any entity or firm acquiring Minerals from Sublessee otherwise than at arm’s-length. |
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7. |
Prior
to commencing any Operations, Sublessee shall have obtained final approval of all necessary mining and reclamation plans from the
Utah Division of Oil, Gas and Mining, or its successor agency (the “Division”) authorizing Sublessee’s Operations
and shall have posted with and obtained approval from the Division of a surety bond or other financial guarantee (“Reclamation
Surety”) in the amount and form acceptable to the Division and sufficient to guarantee Sublessee’s performance of reclamation
in accordance with Utah laws and regulations. The amount of the surety bond or financial guarantee shall be periodically reviewed
in accordance with Division’s regulations and, if the Division directs, increased or otherwise modified as directed by the
Division. Sublessee shall keep Sublessor fully informed as to reclamation costs and bonding requirements and Sublessor’s approval
of the bond amount shall be required. Sublessor will not unreasonably withhold such approval. |
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8. |
Under
the terms of the Lease, Asphalt Ridge, Inc. has reserved to itself the Lessor Reserved Rights, including the right at any time during
the term of the Lease to convey all or part of the Property or the Water Rights, or rights therein, subject to the Lease. Lessor
is required to give Valkor, as Sublessor, notice of any such conveyance. Upon Sublessor’s receipt of notice of any sale or
conveyance of the Property by Lessor, Sublessor must promptly notify TMC, as Sublessee, in writing of any such conveyance. |
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(b) |
SITLA
Mineral Lease (Petroteq Oil Recovery, LLC mineral lease) |
On
June 1, 2018, the Company acquired mineral rights under two mineral leases entered into between the State of Utah’s School and
Institutional Trust Land Administration (“SITLA”), as lessor, and POSR, as lessee, covering lands in Asphalt Ridge that largely
adjoin the lands held under the TMC Mineral Lease (collectively, the “SITLA Mineral Leases”). The SITLA Mineral Leases are
valid until May 30, 2028 and have rights for extensions based on reasonable production. The leases remain in effect beyond the original
lease term so long as mining and sale of the tar sands are continued and sufficient to cover operating costs of the Company.
Advanced
royalty of $10 per acre are due annually each year the lease remains in effect and can be applied against actual production royalties.
The advanced royalty is subject to price adjustment by the lessor after the tenth year of the lease and then at the end of each period
of five years thereafter.
Production
royalties payable are 8% of the market price of marketable product or products produced from the tar sands and sold under arm’s
length contract of sale. Production royalties have a minimum of $3 per barrel of produced substance and may be increased by the lessor
after the first ten years of production at a maximum rate of 1% per year and up to 12.5%.
On
January 18, 2019, the Company paid $10,800,000 for the acquisition of 50% of the operating rights under U.S. federal oil and gas leases,
administered by the U.S. Department of Interior’s Bureau of Land Management (“BLM”) covering approximately 5,960 gross
acres (2,980 net acres) within the State of Utah. The total consideration of $10,800,000 was settled by a cash payment of $1,800,000
and by the issuance of 15,000,000 shares at an issue price of $0.60 per share, amounting to $9,000,000.
On
July 22, 2019, the Company acquired the remaining 50% of the operating rights under U.S. federal oil and gas leases, administered by
the BLM covering approximately 5,960 gross acres (2,980 net acres) within the State of Utah, for a total consideration of $13,000,000
settled by the issuance of 30,000,000 shares at an issue price of $0.40 per share, amounting to $12,000,000 and cash of $1,000,000, of
which $100,000 has not been paid to date.
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