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The Ontario government has settled a long-running land-claims saga that pitted a remote, First Nation reserve against a tiny exploration company and the province's mining laws.

The government announced on Monday that it will pay Platinex Inc. $5-million. In return, the Toronto-based exploration company will drop its lawsuit against the province and the Kitchenuhmaykoosib Inninuwug First Nation and surrender all of its mining claims near Big Trout Lake.

The fly-in community 600 kilometres north of Thunder Bay, also known as KI, has waged an 11-year fight to stop Platinex from drilling for platinum on its traditional lands. The dispute was between rights granted exploration companies under the province's 136-year-old Mining Act and treaty rights for natives.

KI chief Donny Morris and five other residents were sentenced to six months in jail last year for civil contempt of court after disobeying a court order to allow Platinex to explore on their territory.

After serving almost 10 weeks in jail, the Ontario Court of Appeal ruled in May, 2008 that the six-month sentences were too harsh and reduced them to time served.

Michael Gravelle, Minister of Northern Development, Mines and Forestry, said in a statement on Monday that the government has responded to the community's concerns by withdrawing lands at Big Trout Lake from mineral exploration.

"This is a unique situation, and I am pleased that we were able to reach a fair and reasonable negotiated settlement that will provide greater certainty to Platinex while allowing our government to continue working with KI to strengthen our relationship and to pursue future opportunities," Mr. Gravelle said.

In addition to the financial payment, Platinex would also receive royalties totalling 2.5 per cent of mining revenues if the province issues new exploration claims and a mine is developed on the property in the next 25 years.

Mr. Morris has said he went to jail because his community wanted the government to adhere to numerous Supreme Court of Canada decisions that said governments have a duty to consult over development on native lands.

The Ontario government has since reformed the province's mining laws, which it says introduce a new vehicle for addressing disputes.