Mining joint venture (JV) agreements are formed when two or more parties pool resources and expertise for a mining project. Licata Law offers mining law services to clients looking to form a mining JV.
What Is A Mining Joint Venture Agreement?
A mining joint venture agreement is an agreement between two or more parties to pool resources and expertise on a mining project. Both junior and major mining companies may enter into joint venture agreements.
Types Of Mining Joint Venture Structures
Incorporated Joint Ventures
In an incorporated joint venture, two or more mining companies agree to create a separate corporate entity that will serve as the main vehicle for the JV agreement and the mining project. Each JV partner becomes a shareholder in the JV corporation.
The main benefit of an incorporated JV is the legal protections offered by incorporation. Incorporated JVs may also find it easier to fundraise.
One drawback to an incorporated JV is tax inefficiency; both the incorporated JV and its shareholders will be taxed separately. This is in contrast to unincorporated JVs, where partners are taxed directly based on the income and losses incurred from the project.
Earn-In Arrangements
Earn-in arrangements are common in mining projects; they typically occur at the exploration stage.
In an earn-in agreement, a mining company (usually a major) provides financing, assets, and expertise to another mining company (usually a junior) with mineral rights. As funding thresholds are reached, the funder gains a growing stake in the mineral rights. Once a certain threshold is met, the earn-in arrangement may mature into a joint venture (either incorporated or unincorporated).
Unincorporated Joint Ventures
Unincorporated joint ventures are contractual agreements between mining companies; no new corporation is formed as a result of this type of JV. There are several advantages to choosing an unincorporated JV:
The principal disadvantage of an unincorporated JV is that, as no corporation is formed, parties may have greater exposure to liability.
Unincorporated JVs are typically preferred when:
For these reasons, unincorporated JVs are more common at the exploration stage of a mining project’s lifecycle.
Key Provisions In Mining JV Agreements
Incorporated and unincorporated JV agreements should include:
Decision-Making And Governance
Decision-making and governance are typically handled based on each party’s stake in the project, with the most influence going to the party with the highest stake. All parties should meet regularly to make decisions; if voting is split, one party may be given a tie-breaking vote, or arbitration mechanisms may be employed.
Risks And Dispute Resolution
Common JV Disputes
JV disputes are not uncommon; every JV agreement should clarify governance, decision-making, and dispute resolution. Common disputes include:
Arbitration & Mediation Clauses
Mining JVs often include arbitration and mediation clauses; this can help all parties avoid the delays and costs that are often inherent in common law or civil courts. Courts may also represent greater uncertainty or delays, depending on the jurisdiction.
How Licata Law Office Can Help
Our mining law services include support for the formation of JVs. Our team can help draft and review the terms of JV agreements and earn-in arrangements. We offer our legal services for JVs based on mining law in Ontario and to international JVs.