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, 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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August 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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Additions |
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- |
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- |
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- |
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- |
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November 30, 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, 2020, 2021 and November 30, 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, 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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August 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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November 30, 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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During October 2021, the Company, acting through its indirect wholly
owned subsidiaries TMC and POR, and Valkor, have entered into the Exchange Agreement governing reciprocal assignment of mineral leases
dated as of October 15, 2021 under which TMC and POR agreed to assign all of their respective interests in the TMC mineral leases and
the short term mining lease dated August 10, 2020 as amended on July 1, 2021, sub-leased from Valkor and two mineral leases entered into
between the State of Utah’s School and Institutional Trust Land Administration (“SITLA”), as lessor, and POR, as lessee,
covering lands in Asphalt Ridge that largely adjoin the lands held under the TMC Mineral Lease and Valkor agreed to assign to TMC Capital
LLC, the record lease title and all of its rights and interest under three SITLA Utah state oil sands leases located in an area referred
to as “Asphalt Ridge Northwest” in Uintah County Utah.
In addition, the Corporation, acting
through TMC, and Valkor entered into an Agreement and Assignment of Participation Rights in Mineral Leases and Properties, dated as of
October 15, 2021, in which Valkor agreed to grant to TMC a right to participate in any oil sands development operations conducted
by Valkor in the future on or within the privately owned Temple Mountain Lease; and the Company, acting through TMC and Valkor entered
into an Agreement Governing Assignment of Operating Rights Under Utah State Mineral Leases, dated as of October 15, 2021, in
under which TMC agreed to assign to Valkor all of the operating rights under the Asphalt Ridge North West Leases at depths and intervals
located 500 feet or more below the surface, with TMC reserving the right to participate in (a) any exploratory or production operation
conducted by Valkor at the deeper depths or intervals (below 500 feet from the surface) at and with up to a 50% working interest,
and (b) in any oil sands processing plant proposed by either party at up to a 50% ownership interest in any such plant.
The assignment of the SITLA leases
are subject to approval by SITLA before the agreement comes into effect.
Effective August 10, 2020, the TMC
mineral lease was terminated and a new Short-Term Mining Lease agreement between Valkor and Asphalt Ridge, Inc was entered into with
a back to back Short-Term Mining and Mineral sub-lease entered into between Valkor and TMC, whereby all of the rights and obligations
of the lease were sub-let to TMC.
The salient terms of the lease were
as follows:
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1. |
The
exclusive right and privilege during the term of this 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 Sublessor; and |
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2. |
The right to use any or all of the Water Rights at any time during
the term of this Sublease in conducting its activities as provided for herein; 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 sub-lease is for the period ending June 30, 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 the Lessor Reserved Rights, 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 this 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 lease the sub-lessee has the right
to use any or all of the Water Rights at any time during the term of this Sublease in conducting its activities as provided for herein;
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 |
| 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 the provisions of Paragraph 1, 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. As used herein, “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 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 and shall give Sublessor Notice of any such conveyance. This Sublease shall be subject to the right reserved by the
Lessor as described herein. Upon Sublessor’s receipt of any sale or conveyance of the Property by Lessor, Sublessor shall promptly
notify 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 SITLA, as lessor, and POR, 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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