T.S.E. SYMBOL: SAO
S.E.C. Registration: 0-22216
 
PRAIRIE CREEK DEVELOPMENT COOPERATION AGREEMENT SIGNED

Vancouver, British Columbia, December 10, 1996: San Andreas Resources Corporation ("the Company") is pleased to announce the successful completion of negotiations with Nahanni Butte Dene Band ("Nahanni") with the signing of the Prairie Creek Development Cooperation Agreement ("the Cooperation Agreement"). The Company has achieved a solid foundation of support within the region and it believes that this support will be a significant factor in advancing the Prairie Creek mine ("the Project") towards production.

PROJECT BACKGROUND

The Project is located in a remote site 17 kilometres north of the Nahanni National Park Reserve in the Mackenzie Mountains in the Northwest Territories of Canada. The Company purchased the Project for C$3.25 million in 1991; since then it has spent C$7.0 million in four exploration seasons expanding the geological resources from 1.8 million tonnes to 10.6 million tonnes grading 13.1% zinc, 11.4% lead and 188 grams of silver per tonne.

The minesite infrastructure at Prairie Creek consists of a mill with a design rated capacity of 900 tonnes/day, a tailings pond, accommodation for 200 people, office and shop buildings, heavy machinery, other equipment and related facilities which collectively cost circa C$65 million in 1981/82. None of this infrastructure has yet been used for production. In addition, there are 4 kilometres of developed underground workings.

The location of the Project requires the construction of a 170 kilometre all-season road connecting the minesite with the Liard Highway to the east of Nahanni Butte ("the Access") in order to commence mining, milling and the transportation of concentrates. Small scale production and the transportation of these concentrates would be possible using the winter road; however, the establishment of the Access will be necessary for the transportation of larger quantities of concentrates.

BACKGROUND TO NEGOTIATIONS WITH NAHANNI

Nahanni Butte is a Deh Cho First Nations community situated approximately 90 air kilometres southeast of the Project. Nahanni and San Andreas have maintained a cordial working relationship since the Company acquired the Property in 1991. Nahanni's objective is to achieve economic self-sufficiency by developing its natural resources within its Traditional Territory in an environmentally responsible manner. The Company's objective is to bring the Project into production on the most cost effective basis in an environmentally responsible manner.

Following a May 1996 resolution by the Deh Cho Tribal Council which unanimously supported Nahanni's economic development initiative regarding the Project, the Company confirmed in its press release issued on July 9, 1996 the commencement of formal discussions with Nahanni. On July 18 the Company and Nahanni signed a Framework Agreement as the first step in the negotiation of the Cooperation Agreement, undertaking to complete the negotiation of this agreement in a timely manner.

THE PRAIRIE CREEK DEVELOPMENT COOPERATION AGREEMENT

The negotiations have resulted in the successful completion of the Cooperation Agreement. In this agreement Nahanni has given undertakings to the Company regarding the Project and the Access, and in particular that it will grant and procure:

  • Quiet enjoyment of the Project and the Access during any time of exploration and/or production.
  • An easement for the Access connecting the Project and the Liard Highway.
  • Maximum grants, guarantees and other financial assistance in order to reduce the capital and operating costs of the Access.
  • Cost saving benefits to the Company as a consequence of its involvement and participation in the Project.
  • Support for the Project and an undertaking that it will do nothing to adversely affect the Project or the establishment of the Access.
  • Assembly and provision of its traditional knowledge in support of the Project and the Access.

In return for these undertakings and obligations, Nahanni has been granted the following financial, training, employment and management participation arrangements in relation to the Project:

  • A 5% net profits interest in the Project payable following the generation of profits after taxation equivalent to the aggregate costs of bringing the Project into production and establishing the Access.
  • An option to purchase either a 10% or a 15% interest in the Project, at any time prior to the expiry of three months following permitting for the Project, for the cash payment of either C$6 million or C$9 million respectively.
  • Precedence on contracts provided that the contract terms are competitive as to price, delivery, capability, performance and quality.
  • Following the commencement of commercial production of the Project, Nahanni and the Project will fund equally between them:
    1. The establishment of The Prairie Creek Education Centre in Nahanni Butte at a cost of up to a maximum of C$150,000 and the annual operating costs up to a maximum of C$50,000. This centre will focus on adult literacy programs and special needs education for children; and
    2. A Scholarship Trust Fund of C$20,000 per annum initially, increasing to C$30,000 per annum following the payback of all capital costs for the Project.
  • Upon commencement of construction of the Access, the Project will contribute C$25,000 per annum to a Nahanni Butte Resource Trust Fund in order to provide compensation to traditional harvesters who are negatively affected by the Project and the Access.
  • A policy of maximizing Aboriginal and northern employment will be implemented with a minimum target for Deh Cho First Nations employment of 20% of the total workforce. A Liaison Officer will be appointed to coordinate this policy amongst the various Deh Cho First Nations communities.
  • A Nahanni member will be appointed to the Project Management Committee, effective immediately.
  • A cooperative environmental consultation and agreement process has been established between the Company and Nahanni.

    FUTURE PLANS

    The Company and Nahanni plan to negotiate jointly with the Governments in order to secure financial assistance to establish the Access. The ultimate net cost of the Access is material to the viability of mining operations at Prairie Creek and it is relevant that the Access will facilitate other economic development in this region of the Northwest Territories, including the renewable resource of tourism.

    The Company also has plans to implement an exploration program in 1997 with the objective of significantly expanding the present one million tonnes of stratiform resources which represents about 10% of the Project's total geological resources. The Company is confident that further exploration will demonstrate the property's excellent potential. The outcome of this exploration program will determine the design and timescale of mining plans at Prairie Creek.

    The Company believes that the Cooperation Agreement with Nahanni represents an important landmark in advancing the Project towards the future production of significant volumes of zinc, lead and silver in concentrates at Prairie Creek.

  • FOR FURTHER INFORMATION PLEASE CONTACT:

    SAN ANDREAS RESOURCES CORPORATION

    Tony Millar, Chairman & C.E.O. (UK):011 44 1252 794740
    Alan Taylor, President (CANADA):(604) 688-2001
     
    Nahanni Butte Dene Band:
    Leon Konisenta, Chief (NWT, CANADA):(403) 602-2900
     
    Nahanni Butte Development Corporation
    Jim Betsaka, CEO (NWT, CANADA):(403) 602-2626
    Andrew Gaule, General Manager (NWT, CANADA):(403) 602-2626