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Designing Effective Provisions for Royalties, Revenue Sharing and Equity Provisions

Merle Alexander Kitasoo Xai’xais, TsimshianPartner, First Nations Practice Group

April 20, 2011

1. How can FNs ensure equity?

2. TOP 5 Equity-Based Tips

3. Questions

4. Closing Remarks

HOW FNS ENSURE EQUITY?

> Cooperate among ourselves > Share information> Exercise due diligence on Proponent> Foster a resolution-innovative table> Determine Crown’s role > Leverage and deliver legal certainty

CAN $ ACHIEVE EQUITY?

> Yes and no

> Avoid single solution – lump sum payment> Do not accept – revenue sharing fulfills all

accommodation> Consider all options.> Tie benefits to successful milestones> Exercise due diligence to maximize options> Be innovative and creative

Skywalker First Nation vs. Empire Metals

> SFN approached by EM during early exploration for a precious metals project.

> SFN has exclusive traditional territory – Aboriginal and Treaty rights.

> Crown – no clear consultation policy, including no specific resource revenue sharing position.

> Minister has publicly taken position that royalty sharing will amount to full economic accommodation.

Skywalker First Nation vs. Empire Metals

> Shares & Warrants: 50,000 Common, 50,000 Warrants – upon execution of MOU

> 100,000 Common, 100,000 Warrants upon regulatory milestone – Permit;

> Lump Sum Payment – Upon regulatory milestone;

> Net Income Share – annual and escalating based on price of precious metal (i.e., 7 % at $20, 8% at $25, 9% at $30, 10% at $35 or above).

Skywalker First Nation vs. Empire Metals

> Percentage of Exploration/Construction costs (i.e., $1M spent @ 5% = $50,000);

> Signing Bonus;

> Land use disruption fee;

> Construction access fee;

> Annual payments.

QUESTIONS?