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<br />marketing coal, oil and gas and other minerals therefrom, and such rights as Arness <br />may have vrith respect to use water for mining, milling, washing, treatment and <br />processing operations and to use so much of the surface of said Property as may be <br />necessary, useful or convenient for the full enjoyment of all rights herein granted, <br />including the right to construct such works, buildings, plants and structures as may be <br />necessary for the exercise of the rights and privileges granted to Durango herein, and <br />Arness does hereby agree to forever warrant and defend the rights and interests granted, <br />demised, leased, subleased and sublet herein against any and all claims or demands by <br />any and all parties claiming by, through or under Arness, except claims or demands <br />disclosed herein or on attachments hereto, or contained in the leases, subleases or grants. <br />ARTICLE R <br />• PRODUCTION ROYALTIES <br />2.1 In consideration of the Property granted by Arness to Durango herein, <br />Arness expressly reserves and retains and Durango agrees to pay to Arness a Production <br />Royalty which shall be equal to: <br />a. 51.25 per ton or S% of the "Gross Proceeds of Mining" (as defined in <br />Section 2.4 below whichever is the greater, from all coal mined, produced and sold <br />from or through the Property, except State Lease 465/13-5, (there shall be paid under <br />the Deluzio Lease to Arness for coal produced from the State Lease 465/13-5 an amount <br />equal to such 5% because of access). <br />b. 50% of all "Net Proceeds" received from oil, gas and other minerals. <br />"Net Proceeds" shall include all bonus, rental, delay rental, advance royalty and royalty <br />• 2 <br />