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Fremont Energy Corporation, by staking or conveyance, holds title to approximately 350,000 acres consisting of 18,604 unpatented lode mining claims situated in geologic configurations very favorable for uranium discovery. Fremont proposes an exploration venture in which they contribute selected unpatented lode mining claims and your company contributes $750,000 per year for a two year exploration program, thereby earning an undivided 50% interest in the selected claims. If this initial phase is successful and the parties desire, this annual expenditure can be continued for several more years.

The principals of this company have been several years in assembling this position and have about a million dollars cash in the venture to date. There has been some drilling done for the purpose of establishing sub-surface geology, and much of the property has been flown for spectrometry and color photogeologic surveys. All of this information has been assimilated into a final report prepared by a well known consultant that has selected the ten most promising targets for our exploration program.

Fremont Energy Corporation proposes that they be the operator of the exploration venture during its two year term and earn a nominal management fee of $50,000/yr. for operating the exploration venture. The balance of funds advanced by your company will be used: in direct exploration expenses on the contributed acreage in programs to be mutually agreed upon. Progress reports to be submitted to you monthly and detailed geologic updates submitted quarterly. The staff of Fremont will be supplemented by the use of outside consultants as needed.

The venture will be controlled by a technical committee composed of representatives of all parties operating under a detailed joint venture agreement that will be arrived at between our companies. This agreement will include provisions for the partners to buy out, or continue to operate, in the event an ore body is discovered.

Management fee and exploration funds to be advanced quarterly as budgeted by the technical committee.

The principals of this company have an excellent track record for successfully and consistently finding commercial uranium ore bodies. We believe that it would be to our mutual advantage to pursue the details of this program, or other mutually beneficial avenues that might present themselves to us. Due to the large physical volume of material that exists on this project, it would be most effective if you and your technical representatives could come to our office. If this is not feasible for one reason or another, other arrangements can be made.

My assistant, Ursel Doran, is handling this project for us. Feel free to contact either of us at any time.

Proposed Program:

Footage cost estimates as noted include:
Sampling, logging, geology and documen-
tation.

Red Desert Area
18,604 claims
Completed aerial surveys (color photogeologic survey

(radiometric survey

$100,000

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THE S. M. STOLLER CORPORATION A Subsidiary of Arthur D. Little, Inc.

Boulder, Colorado 30302 (303) 449-7220

Suite 815, Colorado Building

CONFIDENTIAL

December 3, 1976

Members and Staff Use Only
Subcommittee on Oversight

and Investigations

Mr. Gordon T. Austin
Senior Fuel Resource Engineer
WASHINGTON PUBLIC POWER SUPPLY SYSTEM
P.O. Box 968
Richland, Washington 99352

Dear Mr. Austin:

On November 23, you instructed SMSC by phone to initiate an evaluation of a uranium exploration project with Fremont Energy Corporation. In that phone discussion, you provided us with a brief outline of the proposed arrangement and asked that we review the project as best we could with a goal of supplying you with a report on December 3, 1976. This letter and its attachments represent that report.

Immediately after your request, SMSC contacted Fremont Energy and a first discussion was held the evening of November 23. On November 30, a meeting was held between SMSC's technical people (including Mr. Don Hill, consultant to SMSC) and Fremont Energy in their offices in Denver at which you were present. I believe this record clearly indicates SMSC's attempt to fulfill your schedule requirements, which was difficult to say the least.

In addition to reviewing the material provided to us by Fremont Energy, we have also reviewed three draft Commercial Documents which form the basis of the exploration venture. We have several comments on these Commercial Documents which are contained in Attachment 1. Our comments concerning the technical portion of the program itself are contained in Attachment 2.

I believe our comments relative to the Commercial Documents to be quite significant and, accordingly, SMSC would not recommend their execution by WPPSS in their present form,

It is not possible to evaluate an exploration program at this early stage except by comparison with alternatives. It is my understanding that WPPSS has reviewed some 27 exploration proposals, of which several are deemed interesting, and this offer from Fremont Energy evaluated as the best within your current criteria of avoiding "grass roots" exploration at this time. S!SC is in no position to comment on this selection since we are neither aware of the alternative offers nor are we familiar with your detailed evaluation of their relative merits.

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SMSC would suggest to a client with a nuclear commitment such as that WPPSS obtains that having a significant fraction of their uzs requirements produced by ventures under their control is highly de sirable. Accordingly, we believe that WPPSS. should be in some exploration arrangement such as the Fremont Energy offer, as well as higher and lower risk ventures. Within a category encompassing offerrings such as Fremont Energy, we would rate the offer as better than average as far as resources are concerned. As to the economics, this may not be the case due to the relatively low grade which is expected from this project and due to some of our uncertainties as to the commercial arrangements.

I must stress that all of our opinions as stated above as well as those in Attachment 2, are necessarily cursory. The magnitude of the work far outstripped the time available for our review and, accordingly, we do not feel that this review is sufficient to either strongly advocate or condemn this offerring. I regret that we could not have done a more thorough review, but believe that we have accomplished all that was possible within the time available. Certainly, we would be pleased to evaluate this project more thoroughly in the future so as to come up with a more definitive response. In particular, we would like to assess this offerring relative to the others which are available to WPPSS, as well as perhaps to some which might evolve from a formal solicitation, which I understand has not been undertaken.

I hope you find this material useful. If you have any questions, please don't hesitate to call.

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ATTACHMENT 1

We have not attempted to review these documents in a detailed manner,
but primarily to assess their fairness and overall completeness. In the
following paragraphs, we will provide such comments on a paragraph basis
as appropriate.

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Paragraph 7.2 WPPSS is obligated to pay Fremont Energy a bonus
of $17 pound on one-half of all "U308_recoverable from commercial
ores" in excess of 500,000 pounds. °There is no adequate definition
of what is considered recoverable; ie, are we talking about measured

reserves, inferred reserves, potential, etc.? Further, does
recoverable include mill losses? Is there any recourse by either
party should the actually recovered UzOg either be greater or less
than "U20s recoverable from commerciai 8res". Considering that a
sizable amount of monies could be paid in this bonus, I believe
this whole definition must be strengthened considerably.

Paragraph 11 -- The payment for acquisition of new lands within the
"area of interest" is WPPSS' responsibility. It seems to me Fremont

primarily brings to this arrangement a land position and will
obtain half the output from any ore bodies. Âccordingly, I cannot
see why they should not pay at least their proper share of acquiring
new lands.

Paragraph 14.1 The Consultant is given the duty of directing and
controlling all exploration operations. However, in the lining
Deed, paragraph 9 indicates that the Operator shall have full,
complete and exclusive control of all exploration. Clearly, there
is a conflict amongst these documents on duties.

Paragraph 14.5 -- WPPSS is apparently responsible for providing
money in advance on a quarterly basis to cover all budgeted items.
Since most of these expenditures will be with outside contractors,
I would suggest that such expenditures be paid for by WPPSS :hen
the invoice is submitted. In addition, there should be some pur-
chasing procedures established which would require that any services
provided by Fremont Energy would clearly be at a competitive rate
and that all contracts be competitive as appropriate.

Paragraph 15.1.3 -- We cannot understand the meaning of this item.
Paragraph 17 The Consultant is required to follow good practice
but "shall not be responsible for failure". I believe the Consult-
ant should share some responsibility for his actions, which leads
me to wonder why there is no provision in this docuinent for termin-
ation. Certainly if the Consultant does not fully and faithfully
perform, he should be subject to termination, etc.

Paragraph 23 I question whether the parties should be allowed to assign their participation in this agreement without the corisent of the other. !IPPSS is primarily purchasing á land position and

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