COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2012

COMMITMENTS AND CONTINGENCIES [Text Block]

18. COMMITMENTS AND CONTINGENCIES

Effective June 1, 2006, the Company entered into a lease agreement for office space in Tucson, Arizona. The amount of the lease was $4,000 per month, subject to 3% escalation per annum and rental tax, and has a term of 5 years. Effective December 2012, the Company entered into a 6 month extension on the lease agreement at a rate of $4,000 per month plus rental tax. The following is a schedule of future minimum lease payments at December 31, 2012 under the Company’s operating leases that have non–cancelable lease terms in excess of one year:

Years Ending December 31,
2013	$	20,000
Total	$	20,000

Rental expense charged to operations was $71,842 and $74,237 for the years ended December 31, 2012 and 2011, respectively.

401(k) Retirement Plan

Effective March 7, 2008, the Company adopted a 401(k) Plan for all of its employees. Under the 401(k) Plan, when an employee meets certain eligibility requirements, the Company will make non-elective contributions in an amount equal to up to 4% of such employee’s eligible compensation, pursuant to the tax deferral “safe harbor” provided for in section 401(k) of the Internal Revenue Code. The Company recognized $60,709 and $69,491 of contribution expense related to the 401(k) plan during the years ended December 31, 2012 and 2011, respectively.

Consent/Compliance Orders

In November 2010, Nord and ADEQ reached an agreement to settle all unresolved issues resulting from previously issued Notice of Violations for a penalty of $65,000 and Nord’s completion of several monitoring wells and the installation of a drinking water system under a definitive schedule. These improvements were completed in June 2011 at a cost of approximately $400,000. In conjunction with this settlement, ADEQ also agreed to the termination of the outstanding Compliance Order. A Consent Judgment in Superior Court reflecting these key provisions and resolving these matters was formally entered into in February 2011.

Officer Indemnification

Under the Company’s organizational documents, the Company’s officers, employees, and directors are indemnified against certain liabilities arising out of the performance of their duties. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not yet occurred. However, based on experience, the Company expects any risk of loss to be remote. The Company also has an insurance policy for its directors and officers to insure them against liabilities arising from their performance in their positions with the Company or its subsidiaries.

Employment Agreement

Effective August 30, 2011 (the “Addendum Effective Date”), the Company and Mr. Morrison have entered into an Addendum (the "Addendum") to Mr. Morrison's Amended and Restated Executive Employment Agreement, pursuant to which the following changes have been made to Mr. Morrison's Executive Employment Agreement:

• Additional Bonus. The Company shall pay Mr. Morrison an additional bonus in the amount of $300,000 at the same time and under the same terms and conditions as provided in that Section 4(e) of the Executive Employment Agreement. Section 4(e) of the Executive Employment Agreement provides that, among other things, Mr. Morrison is entitled to a bonus under the Company's 2010/2011 Bonus Program equal to 50% of his base salary upon the receipt by the Company of sufficient funds to (i) restructure the Company's existing debt under the secured term-loan credit facility provided by Nedbank, and under the Copper Hedge Agreement with Nedbank Capital, and (ii) construct Leach Pad 5.

• Health Insurance and Benefits . If Mr. Morrison elects not to participate in the Company's health insurance plan, the Company shall pay to Mr. Morrison, on a monthly basis, an amount equal to the monthly premium payment the Company would pay to provide health insurance for Mr. Morrison and his family under the Company's health insurance plan. Such amount shall be paid in accordance with the Company's usual payroll.

• Life Insurance . The Company shall pay for and provide to Mr. Morrison a ten-year term life insurance policy with a death benefit in the amount of $3,000,000, insuring the life of Mr. Morrison as the insured thereunder.

• Disability Insurance . The Company shall pay for and provide to Mr. Morrison a disability insurance policy in the highest amount for which Mr. Morrison is able to qualify in accordance with the underwriting requirements of the insurer issuing the disability insurance policy.

In addition, the Addendum provides that the Company shall grant to Mr. Morrison that number of additional non-qualified common stock share purchase options (the "Additional Options"), having a value of $100,000 as of the Addendum Effective Date, as determined in accordance with the Black-Scholes method of valuation, with a duration of five (5) years, pursuant to the Company's 2006 Stock Incentive Plan. The Company has issued a total of 1,194,743 Additional Options, each exercisable at an exercise price of $0.12 per share. One-third of the Additional Options shall vest as of the Addendum Effective Date, one-third of the Additional Options shall vest on the first anniversary of the Addendum Effective Date, and the final one-third of the Additional Options shall vest on the second anniversary of the Addendum Effective Date.

2012 Bonus Plan

In August 2012, the Company replaced the 2010-2011 Bonus Plan with the 2012 Bonus Plan, for the purpose of retaining and providing an incentive to certain key employees involved in the recapitalization of the Company, the construction of the new leach pads, and the restart of mining operations at the Johnson Camp Mine. The 2012 Bonus Plan does not include potential bonus payments to our Chief Executive Officer which are outlined in his employment agreement. Should all of these milestones be achieved in accordance with the 2012 Bonus Plan, a total of $461,000 would be paid out to the participants. As of December 31, 2012, no amounts were payable under this Plan.

Royalty Obligations

Arimetco

Copper metal produced from the Johnson Camp Mine is subject to a $0.02 per pound royalty payable to Arimetco when copper prices are in excess of $1.00 per pound. The royalty is capped at an aggregate of $1,000,000. During 2012 and 2011, the Company accrued royalty expense of $45,140 and $71,643, respectively, and made payments thereon of $36,250 and 105,000, respectively. As of December 31, 2012, the Company has incurred and paid a total of $521,294 and $393,231, respectively, under this commitment. Accordingly, the total amount accrued under this obligation as of December 31, 2012 is $128,063 and is included within accounts payable on the consolidated balance sheet.

Royal Gold

During March 2009, the Company sold a 2.5% royalty on the mineral production sold from the existing mineral rights at Johnson Camp to International Royalty Corporation, acting through its subsidiary, IRC Nevada Inc. (currently Royal Gold), for net proceeds of approximately $4,950,000. This amount was recorded on the consolidated balance sheet as deferred revenue and is being amortized to revenue over the life of the mine based on a “units of production method” basis. During 2012 and 2011, the Company recognized $29,749 and $45,948 in related royalty income, accrued $203,427 and $361,069 in royalty expense, and made payments thereon of $15,000 and $195,000, respectively. Accordingly, the total amount accrued under this obligation as of December 31, 2012 and 2011 is $1,350,182 and $1,161,755, respectively, and is included within accounts payable on the consolidated balance sheets.

nder the terms of the related agreement, amounts that are not paid to Royal Gold in accordance thereof, accrue interest at an annual rate of 12%. Accordingly, as of December 31, 2012 and 2011, included in accrued interest on the consolidated balance sheet is $247,042 and $110,269, respectively.

Letters of Credit

As part of its ongoing business and operations, the Company is required to provide bank letters of credit as financial support for various purposes, including environmental reclamation and other general corporate purposes. As of December 31, 2012 and 2011, there was $686,476 of outstanding letters of credit. The letters of credit reflect fair value as a condition of their underlying purpose and are subject to fees competitively determined in the market place. The obligations associated with these instruments are generally related to performance requirements that the Company addresses through its ongoing operations. As the specific requirements are met, the beneficiary of the associated instrument cancels and/or returns the instrument to the Company. Certain of these instruments are associated with operating sites with long–lived assets and will remain outstanding until closure. The letters of credit are collateralized by $686,476 of held to maturity CDs included in restricted cash and marketable securities on the consolidated balance sheets as of December 31, 2012 and 2011.