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Carried Interests in Mining Agreements: Tax and Economic Considerations

James M. Arkoosh, Proceedings of 36th Annual Rocky Mountain Mineral Law Institute (1990)

This article will examine the tax and economic characteristics of sharing arrangements used in mining agreements and joint ventures. While the terminology among the mining and oil and gas industries may vary (i.e., farmout, earn-in, carried interest, etc.), the use of sharing arrangements of some type has become the fundamental means to allocate risk, and finance the exploration and development of mineral deposits. The focus of this discussion will be primarily on the use of carried interests in the hard mineral mining industry. Unlike the oil and gas industry, mining ventures tend to be dominated more by corporate than individual players. The dominance of corporate players has led to the industry practice that services are more often compensated with stock or stock options, rather than with operating interests or overriding royalties. For this reason, a discussion of the treatment of contributions of individual services to the pool of capital will not be a primary focus of this article.