MINING LEASE

                                       AND

                          OPTION TO PURCHASE AGREEMENT





         THIS MINING LEASE AND OPTION TO PURCHASE AGREEMENT

("Agreement") effective as of January 15, 1998 ("Effective Date"), is by and

between Mark Milner, Daniel Milner, and Stephen R. Crossland ("Owners"), as

lessors and optionors, and GOLDEN PHOENIX MINERALS, INC.. ("GPM"). a Minnesota

corporation authorized to transact business in the State of California, as

lessee and optionee, with an office at 3595 Airway Drive Suite 405, Reno, Nevada

89511.



                                    RECITALS:



         WHEREAS, Owners represent that they own certain real property interests

 situated in Modoc County, State of California, which real property interests

 are more particularly described in Exhibit "A" attached hereto and made a part

 hereof ("Property"); and,



         WHEREAS, the Owners and GPM desire to enter into a Mining Lease And

Option To Purchase Agreement whereby the Owners grant to GPM the exclusive right

to explore, and develop and mine, if warranted, the Property, and further

granting GPM an exclusive and irrevocable option to purchase all of the Owners'

right, title and interest in and to the Property, upon the terms and conditions

and for the consideration set forth herein.



         NOW THEREFORE, in consideration of the various payments, covenants and

agreements contained herein, the sufficiency of which the Owners acknowledge,

the Owners and GPM agree as follows:



                                   AGREEMENT:



1.       Grant of Lease



         Owners lease, let and demise to GPM the Property and all fixtures and

improvements thereon.



2.       Grant of Rights.



         The Owners grant to GPM the following exclusive rights on and with

respect to the Property:



         (a)      To enter the Property to survey, explore, prospect, drill,

                  develop, mine and cross-mine (in any manner whether by

                  surface, open-pit, underground, solution or other mining

                  methods), stockpile, remove, leach, concentrate,



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                  mill, smelt, beneficiate, process, ship, and market, without

                  limitation, all ores, metals, tailings and concentrates, and

                  mineral products ("Minerals") in, on and under the Property,

                  employing currently recognized or subsequently developed

                  technology and any exploration methods that GPM may deem

                  necessary, convenient or desirable to conduct its operations

                  on the Property;



         (b)      To construct, use. maintain, repair, replace, and relocate

                  buildings, ore bins, shafts, declines, inclines, tunnels,

                  drifts, open pits, reservoirs, tailing ponds, waste dumps, or

                  stock piles, roads, pipelines, power and communication lines,

                  and any other structures and facilities;



         (c)      To use the Property for the storage or permanent disposal of

                  Minerals, water. waste, tailings, or other materials produced

                  from the Property or other real property owned or controlled

                  by GPM ("Other Properties");



         (d)      To use all easements, means of access, and rights-of-way for

                  ingress and egress to and from the Property;



         (e)      To drill for, appropriate, develop, use, consume, drain, and

                  dispose of all water on or appurtenant to the Property;



         (f)      To commingle Minerals from the Property with Minerals from

                  Other Properties in accordance with the procedures set forth

                  in Section 3 of Exhibit "B."



         (g)      To use the Property for all of the purposes stated in this

                  Section 2 in conjunction with GPM's activities on Other

                  Properties; and



         (h)      To exercise all other Agreement and Property rights and

                  privileges which are necessary, convenient or incidental, for

                  GPM. to effectuate the purposes of this Agreement.



3. Term; No Implied Covenants; Operations Generally.



3.1 Unless sooner terminated as herein provided, this Agreement shall commence

on the Effective Date and continue for six (6) years therefrom ("Primary Term"),

and so long thereafter as any development, mining or processing operations or

any right set forth in Section 2 is being conducted or exercised on the Property

or in conjunction with Other Properties on a continuous basis ("Extended Term").

Development, mining and processing operations shall be deemed continuous so long

as such operations do not cease for a period of more than one hundred eighty

(180) consecutive days, excluding, however, periods of force majeure and

unsatisfactory markets as provided herein. In the event GPM is unable to obtain

a satisfactory market for any Minerals discovered or produced on the Property,

and as a result. GPM delays commencement of development, mining or processing

operations on the Property beyond the end of the Primary Term, this lease

Agreement shall not expire



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or terminate as a result of such period of lack of satisfactory markets but may

be extended by GPM's continuing payment of minimum advance royalty payments

pursuant to Section 4.1. GPM shall use diligence in searching for a satisfactory

market for the Minerals during such lack of satisfactory market periods, and

when a satisfactory market becomes available, GPM shall have a reasonable time

thereafter within which to begin or resume development, mining or processing

operations. During the term, GPM's right to cease production shall be governed

by Section 4.2.



3.2 In lieu of any obligation on the part of GPM, express or implied, to explore

the Property or to perform any other work or activities thereon, GPM agrees to

make the minimum advance royalty payments set forth in Section 4.1.



3.3 All decisions pertaining to operations on the Property and the diligence

with which such operations shall be conducted shall be made in the sole

discretion of GPM. GPM's operations on the Property and its operations on Other

Properties may be conducted on the Property as a single operation, as if all

such properties constituted a single tract.



4. Minimum Advance Royalty Payments



4.1 GPM shall pay Owners the minimum advance royalty payments ("Minimum Advance

Royalty Payments") as follows:





             Due Date(s)                           Payable Amounts

             -----------                           ---------------

         Upon execution of Agreement                   $5,000.00

         January 15, 1998                              $10,000.00

         January 15, 1999                              $15,000.00

         January 15, 2000                              $20,000.00

         January 15, 2001                              $25,000.00

         January 15, 2002                              $25,000.00





All Minimum Advance Royalty Payments paid to Owners shall be credited against

any net returns royalty that accrue pursuant to Section 5. In the event no

Minerals are produced from the Property, owners shall have no obligation to

refund the Minimum Advance Royalty Payments. GPM shall have the right to prepay

any Minimum Advance Royalty Payments. GPM shall pay the Minimum Advance Royalty

Payments directly to Owners.



4.2 If at any time during the Extended Term, GPM desires to shut down or cease

production for any reason, it shall have the right to do so without terminating

this Agreement by continuing to make the Minimum Advance Royalty Payments in

accordance with Section 4.1 as long as the suspension continues. The Extended

Term of this Agreement shall remain in effect provided Minimum Advance Royalty

Payments are made.



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5.       Net Returns Production Royalty



GPM shall pay Owners a net returns production royalty of two and a half percent

(2 1/2%) of the net returns for Minerals mined from the Property ("Net Returns

Royalty"). The Net Returns Royalty is defined in Exhibit "B" attached hereto and

made a part hereof. No production royalty shall be paid on any minerals removed

for the purposes of determining the amenability to beneficiation or mining,

including bulk sampling, unless such sampling involves removal of one thousand

(1,000) or more tons of material.



6.       Grant of Option to Purchase; Exercise; Purchase Price; Obligations

         Terminated; Property Removal



6.1 In consideration of the payment of the initial Five Thousand Dollars

(S5.000.00). the receipt and sufficiency of which the Owners hereby acknowledge,

the Owners hereby grant to GPM the exclusive and irrevocable right and option to

purchase ("Option to Purchase") all their right, title and interest in and to

the Property, all minerals and mineral deposits, ores, concentrates, metals,

materials, tailings, dumps and mine wastes, in. on and under the Property, and

mining rights appertaining thereto, all surface and water rights, and all

compensable improvements thereon. "Compensable Improvements" means all

buildings, structures, fences, fixtures and other improvements affixed to the

Property by the Owners or any predecessor owner(s).



6.2 GPM may exercise its Option to Purchase at anytime during the Primary Term

or Extended Term by giving at least thirty (30) days' advance written notice to

the Owners of its intent to exercise at a specific date, time and place

("Closing"), and by delivering to the escrow agent, defined in Section 7. the

purchase price set forth in section 6.3.



6.3 The total purchase price ("Purchase Price") for the Property, Minerals and

all Compensable Improvements thereon shall be Five Hundred Thousand Dollars

($500,000.00). The Minimum Advance Royalty Payments and any Net Returns Royalty

Payments made to the owners shall be credited against Purchase Price.



6.4 Except for the reservation by the Owners of the Net Returns Royalty and the

obligation of GPM to pay the same, if GPM purchases the Property, all rights,

duties, obligations and reservations set forth in this Agreement, including the

payment of Minimum Advance Royalty Payments, shall terminate as of the date

Owners' warranty deed, as defined in section 7.3, is delivered to GPM.



6.5 All of the Owner's personal property must be removed from the Property prior

to the expiration of ninety (90) days after closing. Any personal property not

timely removed shall be deemed to have been conveyed and transferred to GPM and

shall become the property of GPM without additional compensation due the Owners.



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7.       Escrow Agent; Method of Payment; Warranty Deed; Quitclaim Deed and

         Release



7.1 Pursuant to the terms of the escrow instructions ("Escrow Instructions") set

forth in Exhibit "C," attached hereto and made a part hereof, (Name of

firm/company) shall serve as escrow agent ("Escrow Agent") for purposes of the

Option to Purchase granted pursuant to Section 6.1.



7.2 Escrow Agent shall receive and distribute Purchase Price payments or tenders

to be made to the Owners. The Minimum Advance Royalty Payments and Net Returns

Royalty payments shall be paid directly to the Owners by GPM. All payments or

tenders made to the Owners may be made by cash, check or draft, mailed or

delivered to the address specified in Exhibit "C," on or before the appropriate

due date.



7.3 Concurrently, with the execution of this Agreement, the Owners (i) shall

execute, acknowledge and deposit with the Escrow Agent a warranty deed

("Warranty Deed"), in the form set forth in Exhibit "D," attached hereto and

made a part hereof, conveying to GPM all of the Owners' right, title and

interest in and to the Property, the Minerals and Compensable Improvements

except for the two percent (2%) Net Returns Production Royalty reserved to

Owners; (ii) if necessary to complete GPM's purchase of the Property, or if

requested by GPM, Owners shall execute, acknowledge and deliver to the Escrow

Agent a bill of sale in proper form for any personal property on the Property

which shall be conveyed and transferred to GPM; and (iii) GPM shall execute,

acknowledge and deposit with the Escrow Agent a quitclaim deed and release

("Quitclaim Deed and Release") in the form set forth in Exhibit "E," attached

hereto and made a part hereof, quit claiming and releasing to the Owners all of

GPM's interest in the Property and the Agreement. The aforementioned documents

will be held and delivered by the Escrow Agent pursuant to the terms of the

Escrow Instructions.



8.       Representations, Warranties and Covenants; Title



8.1 The Owners represent, warrant and covenant to GPM. and its successors and

assigns, that:



         (a)      The Owners are the sole legal and equitable owners of the

                  Property (subject to paramount title in the United States for

                  am unpatented "Mining Claims" compromising the Property).



         (b)      Any Mining Claims comprising part or all of the Property were

                  properly located in accordance with Federal and State law on

                  land which was then available for mineral location and all

                  such Mining Claims have been properly maintained in accordance

                  with the Federal Land Policy and Management Act of 1976 and

                  all other applicable federal, state, regional and county laws

                  and regulations.



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<PAGE>



         (c)      The Property is free and clear of all leases, liens,

                  encumbrances and outstanding adverse claims and interests,

                  except taxes not yet payable.



         (d)      The execution and delivery of this Agreement and the

                  performance of this Agreement by the Owners will not result in

                  any breach or constitute a default (or an event which, with

                  notice or lapse of time, or both, would become a default)

                  under, or give to others any rights of termination, amendment,

                  acceleration, cancellation, or consent, or result in the

                  creation of a lien or encumbrance on the Property, pursuant to

                  any instrument or obligation to which the Owners are a party

                  or by which they are bound.



         (e)      The Owners shall not create, permit or suffer any lien or

                  encumbrance, reservation, restriction or easement on the

                  Property, which is not subordinated to GPM's rights hereunder,

                  and GPM may, in its sole discretion, discharge any claims or

                  demand and thereby be subrogated to all rights of the holder

                  thereof, and may recover any amounts so paid from any amount

                  otherwise due to the Owners under Agreement.



         (f)      There is no environmental or other condition on the Property

                  which is. or may become, a violation of any applicable

                  federal, state, county or municipal law, regulation or

                  ordinance relating to zoning, land use, environmental

                  protection, or otherwise with respect to the Property or any

                  activities relating thereto, and the Owners have not received

                  any notice of any investigation of any such condition or

                  violation.



         (g)      GPM shall have the quiet and peaceful possession and enjoyment

                  of the Property and the Owners will do everything lawfully

                  within their power to defend title to the Property and GPM's

                  quiet and peaceful possession thereof against all persons or

                  entities who may claim any interest in the Property or

                  Minerals, or proceeds therefrom.



         (h)      Promptly following execution of this Agreement, and at any

                  time during the Term hereof, the Owners shall make available

                  to GPM copies of all technical, title, and recording

                  information and data relating to the Property in the

                  possession of the Owners.



GPM may investigate and in the Owners' name take any action GPM deems necessary

to remedy any defects in the title to the Property including but not limited to,

the right, at GPM's sole discretion, to relocate, amend, or abandon the location

of any one or more of the Mining Claims whenever GPM deems such relocation,

amendment, or abandonment desirable to perfect any of the Mining Claims, to

avoid or create overlaps, or to include ground within the boundaries of any

individual mining claim found not to be included because of improper location

procedures, or to obtain mill sites. Any such relocations, amendments, or

abandonments made by GPM shall be done as agent for Owners.



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<PAGE>



Owners shall deliver to GPM a full and irrevocable power of attorney authorizing

GPM to apply for a United States mineral patent for any or all of the Mining

claims and agree not to object to or adverse such application. If GPM takes any

such action or applies for a patent to any or all of the Mining Claims,

application may be made in Owners' names and Owners shall, at the request of

GPM, execute any and all documents in connection with the patent application.

GPM shall pay all costs of such application.



If any of the above action is unsuccessfully taken by GPM or any patent

application is rejected in whole or in part, GPM shall not be liable to Owners

for any loss whatsoever provided GPM has proceeded in good faith. If patent to

the Property or any of the Mining Claims is issued in Owners' names and if GPM

has acquired the Property or Mining Claims, Owners shall promptly transfer the

patented Property or Mining Claims to GPM.



The Owners agree to cooperate with GPM in investigating and remedying any title

defects. GPM shall have the right to offset and credit against any amounts due.

or which become payable to the Owners hereunder, all costs incurred by and

payments made by GPM to remedy such defects.



Neither GPM's approval of title nor its omission to examine title shall

constitute a release or waiver of Owners' warranties, representations or

covenants and all the terms, conditions and covenants, expressed or implied

herein, shall continue in full force and effect.



9.       Conduct of Operations; Indemnification; Insurance; Data



9.1 GPM shall conduct its operations on the Property according to the following

standards, methods and requirements and shall pay damages as follows:



         (a)      All work performed by GPM on the Property pursuant to this

                  Agreement shall be done in a good and miner-like manner and in

                  compliance with all federal, state, county and municipal laws,

                  regulations and ordinances governing such operations. GPM

                  shall reclaim the Property in accordance with and to the

                  extent required by relevant applicable law, regulation or

                  ordinance when any condition requiring reclamation is a direct

                  result of GPM's operations on the Property.



         (b)      GPM shall avoid conducting drilling and trenching activities

                  within one hundred fifty (150) feet of a dwelling house or

                  outbuildings, if any. now located on the Property. Completed

                  drill holes shall be plugged pursuant to federal, state,

                  county and municipal laws and regulations unless transferred

                  to the Owners pursuant to Paragraph 9.1 (j).



         (c)      Ingress and egress routes, drill pads, and trench sites

                  constructed by GPM shall be reclaimed to approximate the

                  conditions and contours existing prior to the commencement of

                  GPM's operations on the Property. All areas of



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                  surface disturbance shall be reseeded, if necessary, after the

                  completion of activities.



         (d)      GPM may use existing roads on the Property and may construct

                  additional roads on the Property. GPM shall maintain and shall

                  repair all damage caused by GPM's activities to existing and

                  new roads.

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