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each ton of 2,000 pounds of coal mined and sold from the Leased Lands until <br />• December 31, 2002. Beginning on Januazy 1, 2003, Lorencito shall pay Hills a <br />production royalty equal to 46.54 percent (46.54%) of ~ percent A%) of the <br />net mine realization ~% of net mine realization) for each ton of 2,000 pounds <br />of coal mined and sold from the Leased Lands, provided, that if Lorencito's <br />average weighted price of coal sold in any month is less than ~~ per ton, the <br />~ percent production royalty in the previous sentence shall apply to all coal sold <br />in that month. The "net mine realization" shall be calculated FOB loading point <br />on the Leased Lands plus or minus quality and escalation adjustments contained <br />in arms-length coal sales contracts for coal from the Leased Lands, with no <br />deductions for black lung payments, abandoned mine land fund fees, severance <br />taxes, ad valorem or property taxes, or other taxes based upon or measured by <br />coal production or revenues or arty other deduetian whether similar or dissimilar <br />to the foregoing deductions and without deduction for any costs whatsoever <br />beyond the mouth of the mine or the rim of the pit, except for transportation from <br />the loading point on the Leased Lands to the destination of Use first purchaser. <br />Should any coal be sold to an affiliate of Lorencito or its successors and assigns, <br />the net mine realization for Lorencito's coal sold hereunder shall be the average <br />price received by Lorencito for coal of similaz quality sold in arms' length <br />transactions by Lorencito during the month Lorencito mined the subject coal. If <br />no such arms' length sales occurred, the price shall be determined by the market <br />price for coal of a similaz quality from a similar location. Payments of production <br />royalties shall be due Hills on the 25th day of the month following the month in <br />• which coal has been sold or payment is received for such coal, whichever first <br />occurs. <br />e. No minimum amounts of production royalties are guazanteed or due Hills. With <br />each monthly production royalty payment Lorencito will provide an accurate <br />statement detailing the overburden removed, tons of coal uncovered, tons of coal <br />mined, tons of coal in storage and tons of coal sold from the Leased Lands. <br />Certified weigh bills and sales invoices will accompany all production royalty <br />payments. All other information pertaining to production and sale of coal from <br />the Leased Lands will be provided in written or electronic form. <br />f. All production and advance royalty production payments made by Lorencito <br />hereunder shall be made to the Lorencito Ranch, a Texas partnerslvp, and mailed <br />to F.E. Hiil Co., P.O. Box 226, Fairfield, TX 75840. - <br />g. Lorencito shall pay to Hill Ranch a wheelage fee equal to the greater ofd <br />($~) per ton or ~ percent (~ of the net mine realization per <br />ton (as defined in pazagraph 3.c about) for each ton (2,000 pounds) of coal <br />transported over, under or through the Leased Lands but extracted from other <br />lands (other than coal transported by railroad which is not uriloaded on the Leased <br />Lands). Lorencito shall keep verifiable and accurate records of such coal <br />transported over the Leased Lands and shall provide all such records to Hills. The <br />route of such tratrsport shall be subject to mutual agreement. <br /> <br />COAL LEASE F1NAL O-ZO-0I dx <br />