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Bankable Feasibility Study—Oasis or Mirage For Mining Transactions

R. Craig Johnson, Richard J. Angell, Amy S. Thomas, Proceedings of 42nd Annual Rocky Mountain Mineral Law Institute (1996)

As large, international mining firms search for new properties to increase their ore reserves, earn-in arrangements continue to be increasingly popular. Earn-in arrangements match the innovative and flexible talents of the smaller, junior firms to locate raw mineral exploration targets, with the well-funded exploration budgets, technical expertise, and ability to raise development capital of the major mining firms. In a well-constructed agreement, the major is able to maximize its exploration efforts on identified exploration targets rather than on canvassing for the more elusive greenfield sites. The junior, which locates the site, typically grants the principal operating interest to the major, contingent upon its meeting certain exploration, payment, and development conditions. The junior also retains substantial direct and indirect economic benefits, both in terms of the ability to promote the property and its stock and in the potential bonanza returns derived from stock price increases and project cash flows obtained through the major's proceeding with development.

Largely due to the unfavorable mining regulatory environment in the United States, both the juniors and the majors have moved offshore. The form of deals, including earn-in arrangements, have accompanied the export of the actual exploration efforts. Earn-in arrangements are thus becoming common in most a