Joint venture ("JV") agreements are commonly used in connection with the exploration and development of mining sites by two or more joint venture partners.
Amongst other things, JV agreements typically include general provisions on the formation of the JV, its objects and scope and development, the respective rights, obligations and liabilities of the JV parties, covenants, warranties, the ownership of the JV property and assets, and the use of the JV property (for example whether or not a JV partner can use its interest to secure future finance, and whether or not there is to be a general prohibition against partition or encumbering of the JV property).
Charltons has experience of advising on JV agreements, including termination or amendment of joint venture arrangements in connection with pre-IPO restructurings. In Charltons' experience, some of the key issues for mineral companies when negotiating joint venture agreements are as follows:
Typically the JV partners appoint a manager ("Manager") to manager the JV and act as agent of the JV parties.
The JV agreement should therefore include provisions relating to the function, powers and duties of the management, the Manager's appointment, the term of service, remuneration, the subsequent appointment of a new manager, liability, indemnity by JV parties, any indemnity by the Manager in favour of the JV partners, limitations of liability of the Manager, delegation by the Manager, agreements between the Manager and third parties and the Manager's role in any litigation.
It is common practice for a management committee to be established to supervise the Manager in the management of the JV and to make strategic decisions relating to the JV.
The JV partners normally appoint representatives to the management committee in proportion to their respective interests. The JV partner with the greatest interest in the JV normally appoints the chair of the management committee. The representatives may be granted full powers and authority to represent and bind the JV party which appointed them, so that a JV party is bound by all votes cast by its representative.
The JV agreement should include provisions relating to the establishment of the management committee, the conduct and required quorum for meetings, particulars in regards to voting and decision making, the creation of sub-committees and loss of JV rights. There should be clear agreement as to the functions and powers with which the committee is to be empowered.
It is normal practice for the Manager to annually provide the JV parties with a proposed programme ("Programme") and budget prepared in accordance with the JV's accounting procedures. The budget should detail proposed capital works (and related contracts) and should also include an itemised budget specifying estimated monthly expenses.
When contemplating the annual Programme expenditure mineral companies should be mindful of their expenditure obligations under relevant national legislations and / or in connection with covenants or conditions attached to the tenement and/or conditions of mining licences.
The JV agreement should include provisions relating to the approval of the Programme and budget by the JV's management committee along with the formalities relating to the payment and billing of sums called from the JV partners ("Called Sums"). If appropriate, a statement to the effect that Called Sums (or other expenditure monies) falling due by the JV partners should be paid by the JV partners severally in proportion to their respective shares in the JV should be included.
The JV partners should provide for the possible default withdrawal, dilution or assignment of interest of a JV partner and for the ultimate dissolution, winding-up and / or termination of the JV.