Critical Issues in Mining Ventures: How to Form a Mineral Marriage
InsolventCo, a junior mining company, wants to develop a significant copper deposit in the state of Arizona on fee land and unpatented mining claims it owns. These lands have been subject to historical exploration and high grading activities. Unfortunately, however, InsolventCo is almost out of cash and, [7-3] given its spotty track record, is having difficulty raising the capital necessary to develop this property. Further, InsolventCo does not have the ability to operate a project of this size. InsolventCo determines that it will need to bring in one or more partners to facilitate development and operation of the project. It approaches BigCo, a major natural resources company, which is in the market for additional ore reserves to feed its smelter. BigCo has plenty of cash and good relationships with a number of United States lenders. BigCo has heard that JapanCo, a Japanese conglomerate with a mining and metals division, as well as banking affiliates, is interested in making a small investment in the United States mining industry.
The three parties meet to try to work out a mutually acceptable venture to develop and mine this property. BigCo insists that it operate the property and own a majority share of the venture, and that all copper concentrate be smelted at its facility. This is acceptable to the other partners, although they want certain veto rights and a fai
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