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Graphite One Resources Inc
Symbol GPH
Shares Issued 167,645,180
Close 2015-05-28 C$ 0.11
Market Cap C$ 18,440,970
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Graphite One enters lease for 24 Graphite Creek claims

2015-05-28 20:37 ET - News Release

Mr. Anthony Huston reports

GRAPHITE ONE RESOURCES INC. EXECUTES GRAPHITE CREEK LEASE AGREEMENT

Graphite One Resources Inc.'s wholly owned subsidiary, Graphite One (Alaska) Inc., has executed a definitive long-term lease agreement with Kougarok LLC for its 24 unpatented federal mining claims. These 24 claims, together with certain adjoining state mining claims already owned by the company, collectively make up Graphite One's Graphite Creek property.

Kougarok, a member-managed Alaska limited liability company, optioned the leased claims to the company in 2012. Key provisions of the final lease include the following:

  • Term: an initial 20-year term, commencing effective as of Jan. 1, 2014, with provisions to extend for two successive 20-year periods and, ultimately, for as long as production continues from the property;
  • Advance royalty: $30,000 (U.S.) paid upon execution of the lease and $30,000 (U.S.) payable on or before Jan. 1 and every anniversary through January, 2019, then increasing by $10,000 (U.S.) each year thereafter until production commences; all advance royalties paid may be recouped from production royalties;
  • Production royalties: a percentage of the net smelter returns on production derived from lands, as follows: from lands in the four federal claims located in 1943 (the oldest four federal claims): 5 per cent; from lands within the other 20 federal claims (the other federal claims): 2.5 per cent; from lands within state claims staked by the company within the area of interest: 5 per cent; and from lands within state claims acquired by the company within the area of interest: 2.5 per cent; the company has the option during the lease term to reduce all production royalties by up to 2 per cent by paying $2-million (U.S.) for each 1-per-cent reduction;
  • Conditional relinquishment: The company may elect to relinquish one or more of the leased claims and thereafter to rely on its state mining claims, under the terms set forth in the lease.

The company announced on March 3, 2014, that it had earned the right to enter into the lease as a result of having satisfied its obligations under the Graphite Creek option agreement with Kougarok. The company estimates that over 90 per cent of the 17.95 million tonnes of indicated resources (grading 6.3 per cent graphitic carbon using a 3-per-cent Cg cut-off grade) announced on March 17, 2015, is situated within the oldest four federal claims.

The U.S. Department of the Interior, Bureau of Land Management, has advised Graphite One that the 20 other federal claims were located when federal claims could be initiated only for metalliferous minerals, and graphite is not a metalliferous mineral. The State of Alaska has selected all of the lands within the leased claims, however, and Graphite One owns the senior state mining claims covering the same ground. As a result, if any of the leased claims are abandoned or relinquished, the State of Alaska can acquire the affected lands as part of its statehood entitlement and recognize Graphite One's state claims as the senior-state claims covering the new-state lands. Under the state's mining law and the current land status, the company's owned claims, as the senior-state claims on the ground, would automatically extend to the new-state lands formerly within any abandoned or relinquished federal claims, and the company would enjoy rights similar to those granted by the federal mining law to the holders of valid federal claims, including the exclusive right to mine and remove the graphite resources contained within such lands, subject only to certain royalties owing to the State of Alaska, Kougarok and others recognized by the company.

The company's owned claims comprise 28 state mining claims acquired by the company in January, 2012, and 77 state claims originally staked by the company in 2012. In September, 2014, a competing claimant advised Graphite One that he believed the 28 acquired state claims had been improperly located and thus junior to his 28 state mining locations made later, in October, 2012, on the same lands. This competing claimant has alleged that the locator of the 28 acquired state claims was not qualified to locate the claims and that such locations were therefore null and void from the beginning, as opposed to being merely voidable until they were acquired in January, 2012, by the company (an Alaska corporation qualified to own state claims).

Graphite One has investigated the allegations of the competing claimant and believes that the best interpretation of the state law relating to qualifications as applied to this situation is identical to that which would follow if federal mining law applied in this situation, namely that: (a) state mining locations made by an unqualified person are voidable, not void, and (b) acquisition of such locations by a qualified owner such as Graphite One (Alaska) Inc. cured any defect in the locations due to the original locator's lack of qualifications. Graphite One will vigorously assert its rights as against this or any other competing claimant, if the matter cannot be resolved by agreement.

David Hembree, CP (geology), the company's general manager, operations, is a qualified person as defined under National Instrument 43-101. He has verified the information contained in, and has reviewed and approved the contents of, this press release.

We seek Safe Harbor.

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