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~. <br />1. TERM OF LEASE: Lessee shall hold the above described rights and <br />interests for a primary term of three (3) years from and after the date hereof <br />and so long thereafter as leased substances are being mined, removed and shipped <br />from these lands by Lessee in good faith and during all of which period of such <br />continuation hereof beyond the primary term hereof, the Lessee shall pay <br />Lessor the minimum annual royalty specified in paragraph 3, below. <br />If Lessee has not commenced mining operations on said land on or <br />before the 6th day of March, 1979., Lessee shall have the right to surrender <br />this lease as provided in paragraph 8; provided Lessee may pay the sum of <br />One Thousand and no/100 Dollars ($1,000.00) by depositing to the Lessor's <br />credit in the Moffat County State Bank at Craig, Colorado, or its successor, <br />which bank and its successor are the Lessor's agent and shall continue as the <br />depository of any and all sums payable under the lease, regardless of change of <br />ownership in said lands or in the coal or is the payments to accrue hereunder, <br />and by such payment avoid termination for a further period of one year. The <br />commencement of actual mining operations on the leased premises may be <br />deferred from year to year until commencement of actual mining operations upon <br />the payment or tender of One Thousand and no/100 Dollars ($1,000.00) on or <br />before the commencement of each succeeding year. Any amount so paid shall be <br />considered a bonus, but in no event shall such bonus payments be used or allowed <br />to continue this lease beyond the end of the primary term. <br />2. PRODUCTION ROYALTY: Lessee agrees to pay for the rights and <br />privileges herein granted, including the tight to mine coal and to use and <br />potentially damage or destroy the surface or parts or portions thereof, a <br />production royalty of twenty-two cents (22C) per ton for each ton of 2,000 <br />pounds of all coal mined, recovered and sold from the property.described in <br />Exhibit "A" provided however Lessee shall not stockpile druing the term of this <br />lease any coal tonnage in excess of 7500 tons at any one time. <br />Such royalty shall be due and payable annually commencing on the <br />25th day of the 13th month after the inception of coal production for all coal <br />mined, removed and sold during the preceding annual period and said payment <br />shall continue annually thereafter. <br />3. MINIMUM ROYALTY: A minimum annual royalty based upon a minimum <br />tonnage of 85,500 tons per year for each and every fiscal year during the term <br />of this lease beginning upon the dale of commencement of actual mining operations <br />shall be payable upon the day of commencement of actual mining operations and <br />continue annually thereafter during the term of this lease. If in any fiscal <br />year during the term of this lease the Lessee shall not mine, remove, ship, <br />and sell 85,500 tons of coal and has paid for such quantity at the required <br />royalty rate, the Lessee shall have the right at any time thereafter, during the <br />term of this lease, without further payment therefor, to mine such deficiency <br />tonnage of coal from the leased premises. The minimum annual royalty for each <br />succeeding year in which production occurs shall be $18,810.00. <br />4. RECORDS AND INSPECTION: Lessee shall keep a true and correct <br />record of all coal mined, removed and sold from the leased premises and shall <br />permit Lessor or Lessor's agent at all reasonable times to examine such records. <br />On or before the 25th day of each calendar month following the date on which <br />Lessee shall commence actual mining operations and has sold coal from the leased <br />premises, Lessee shall furnish Lessor a true and correct statement showing the <br />tons of coal mined, removed and sold from the leased premises by Lessee during <br />the preceding calendar month. <br />5. PROSPECTING AND PIINING METHODS: Lessee is to be the sole judge <br />as to the method or methods of prospecting and mining to be employed. Augers, <br />strip mining, open pit and deep mining will be permitted. Nothing herein <br />contained shall place any duty upon Lessee to mine or prospect said premises <br />during the primary term hereof. <br />-2- <br />