Structuring mining joint ventures and earn-in arrangements in Australia

A practical guide to joint ventures, staged earn-ins, and choosing the right structure for your project

Exploration and mining projects can demand significant capital long before they generate a return. They also rely on a mix of geological knowledge, technical capability, operational resources, and effective management. For junior explorers working with tighter budgets and lean teams, bringing another party into a project can provide access to resources and capabilities that would otherwise need to be developed or funded internally.

Joint ventures are commonly used across the Australian resources sector to establish how 2 or more parties will participate in a project. They can allow project costs and risks to be shared, while staged earn-in arrangements provide a way for an incoming participant to progressively earn an interest in the project through agreed expenditure or by achieving project milestones.

The structure chosen at the beginning matters. It determines how the parties contribute funds, make decisions, hold their interests, and respond when circumstances change.

For junior explorers considering a joint venture or earn-in arrangement, understanding these mechanics is an important starting point.

What is a joint venture in exploration and mining?

A joint venture is a commercial arrangement between 2 or more parties established to pursue a particular project. Each participant contributes according to the agreed terms and shares in the project according to its interest.

In the resources sector, joint ventures can be established during exploration or later in a project's development.

An exploration joint venture is generally focused on exploring and advancing a tenement. Funding exploration programmes, conducting drilling and technical work, maintaining tenure, and assessing the project's potential may all form part of the arrangement.

A mining joint venture becomes relevant as a project progresses towards development and production. The commercial arrangements can become considerably more complex at this stage as the participants deal with larger funding commitments, operations, infrastructure, product marketing, and off-take arrangements, as well as rehabilitation and mine closure obligations.

The agreement needs to account for the current stage of the project while providing a clear framework for what happens if exploration produces encouraging results and the parties decide to move towards commercial mining operations.

What are the benefits of a joint venture?

The reasons for establishing a joint venture will depend on the project and the participants. For junior resources companies, 3 areas are particularly relevant – cost contributions, allocation of risk, and access to complementary capabilities.

Sharing project costs

Exploration expenditure can accumulate well before the commercial potential of a project is known. Drilling, geological work, sampling, surveys, and other exploration activities all require funding, alongside the costs associated with maintaining the underlying tenements.

A joint venture allows those costs to be allocated between participants according to the terms of their agreement.

Once participants are contributing jointly, funding is commonly addressed through approved budgets and cash calls. The agreement should establish how much each participant is required to contribute, when payments are due, and what happens when a participant chooses not to meet a future funding commitment.

Dilution provisions are often used to address this situation. A participant that does not contribute its agreed share of expenditure may have its percentage interest in the project reduced according to the formula set out in the JV agreement.

For a junior explorer, these provisions deserve careful attention. Funding requirements can increase significantly as a project develops, so the consequences of future non-participation need to be understood from the outset.

Allocating project risk

Mining and exploration projects carry financial, technical, regulatory, environmental, and operational risks. A JV agreement can establish how responsibility for those risks is allocated between the participants.

The allocation will depend on the commercial arrangement. Liability and expenditure may be divided according to each participant's percentage interest, while specific obligations may sit with the participant appointed to operate or manage the project.

Some agreements also contain sole risk provisions. These can allow one participant to proceed with a particular activity at its own cost when another participant does not wish to take part, subject to the agreed consequences for the parties' respective interests or returns.

Clear allocation is especially important where participants have different levels of involvement in day-to-day operations.

Bringing different capabilities together

Capital is only one contribution a participant can make.

Joint venture parties may bring different technical, geological, operational, or managerial capabilities to a project. A participant may also have valuable knowledge of a particular geographical area, access to infrastructure, or resources needed to progress exploration and development.

The JV agreement should make the responsibilities of each participant clear. Where one party will contribute significant operational capability, for example, the agreement should address the scope of its role, how its performance is overseen, and how associated costs are treated.

How do staged earn-in arrangements work?

A staged earn-in, also commonly referred to as a farm-in, allows a party to earn an interest in a project by satisfying agreed expenditure commitments or milestones.

This structure is particularly relevant to exploration projects. An existing tenement holder may retain an interest in the project while another participant funds agreed exploration activities in return for progressively earning its own interest.

The interest does not necessarily transfer in full at the beginning. Instead, the arrangement can be divided into stages.

For example, the agreement may establish an initial expenditure commitment that must be completed before the incoming participant earns its first interest. The participant can then elect to move into a further stage, committing additional expenditure to earn a greater percentage.

The drafting in the JV agreement needs to make the pathway clear, including:

• what expenditure qualifies towards the earn-in;
• the minimum expenditure required at each stage;
• the timeframe for satisfying each commitment;
• any technical or project milestones;
• when an interest is treated as having been earned;
• who controls and operates the exploration programme;
• the participant's right to continue or withdraw at each stage; and
• what happens after the maximum interest has been earned.

The definition of qualifying expenditure can be particularly important. Exploration involves numerous costs, and the parties should know which expenses count towards an earn-in commitment and how those expenses will be verified.

Some arrangements may also include a free carry or sole funding period, under which one participant funds agreed project expenditure while another retains an interest without contributing during that period. Once the free carry period ends, the parties may begin contributing according to their respective interests or become subject to agreed dilution provisions.

After the earn-in has been completed, the relationship will generally continue under the joint venture arrangements agreed between the parties.

Unincorporated or incorporated joint venture?

One of the main structural decisions is whether the JV will be incorporated or unincorporated. The distinction between these 2 structures affects ownership, governance, liability, administration, and taxation.

Unincorporated joint ventures

An unincorporated JV does not create a separate company to conduct the venture. The participants hold their respective interests directly and continue to operate as separate entities, with their relationship governed primarily through the joint venture agreement.

Typically, one participant is appointed as the operator or manager responsible for day-to-day project activities. A management committee representing the participants provides oversight and makes decisions in accordance with the voting arrangements established in the agreement.

This structure is commonly used for Australian exploration projects and can accommodate staged earn-ins, changing participating interests, and withdrawal arrangements.

The agreement itself therefore carries considerable weight. It needs to establish how the project will function and how the parties' respective rights and responsibilities will be managed throughout the relationship.

Incorporated joint ventures

An incorporated JV uses a separate company as the vehicle for the project. The participants become shareholders in that company, and the company can hold project assets and enter contracts in its own name.

Governance generally occurs through a board of directors, with the participants' relationship further documented through a shareholders' agreement and the company's constitution.

An incorporated structure may be considered for later-stage or complex projects where financing, employees, operations, or other aspects of project development make a separate corporate vehicle more appropriate.

There is no universal structure for a resources JV. The appropriate approach depends on the stage and nature of the project, the parties' commercial objectives, funding requirements, intended operations, and tax position.

What should a joint venture agreement cover?

The JV agreement translates the parties' commercial deal into a framework that can operate throughout the life of the project. For an exploration JV, the agreement needs to deal with today's work programme whilst anticipating what could happen if the project advances.

Key provisions generally fall into several areas.

Funding and ownership provisions can cover initial interests, earn-in commitments, project expenditure, cash calls, free carries, dilution, and the consequences of failing to contribute.

Management and decision-making provisions should establish who acts as operator, the role and powers of the management committee, voting thresholds, and how programmes and budgets are approved. Matters requiring unanimous approval may also need to be identified.

Project obligations can address responsibility for maintaining tenements in good standing, conducting exploration activities, regulatory and environmental compliance, technical information, reporting, and project data.

The agreement should also deal with changes in the relationship. This can include transfers of interests, withdrawal, default, change of control, deadlock procedures, and termination.

For an exploration JV, another important question is what happens following a decision to mine. The parties may need to move into a mining joint venture arrangement dealing with the greater financial, operational, and regulatory commitments associated with project development and production.

Tax and regulatory considerations

Tax consequences can differ considerably between incorporated and unincorporated structures.

Depending on the arrangement, considerations may include the treatment of income and expenditure, project losses, GST, capital gains tax, duties, and distributions. Changes to participating interests through earn-ins or dilution can also have tax consequences.

Appropriate tax advice should therefore form part of the structuring process before the parties settle the commercial terms.

Listed entities also need to consider their obligations under the ASX Listing Rules. A material JV, farm-in, or earn-in transaction may trigger disclosure obligations, while public reporting of exploration results (including Mineral Resources and Ore Reserves) must be considered against the applicable ASX and JORC reporting requirements.

These obligations should form part of transaction planning, particularly for junior explorers operating with small management teams and without extensive in-house legal resources.

Building an agreement that can develop with the project

An exploration JV may begin with a relatively defined programme of work, but the relationship can change significantly if drilling results support further investment.

Participating interests may change through an earn-in. Funding commitments can increase, new approvals and technical work may be required, and a decision to mine can introduce an entirely different level of expenditure and operational responsibility.

The legal structure should provide a clear framework for each of these stages. This includes what happens during the earn-in, how the parties operate once it has been completed, and how the relationship will work if the project ultimately progresses towards commercial mining operations.

Set your joint venture up for what comes next

A joint venture can begin with an exploration programme and develop into a long-term commercial relationship involving significant capital, changing ownership interests and, ultimately, a producing mine. The terms agreed at the outset need to keep working as the project moves forward.

Hardies Lawyers works with junior explorers and mining companies across the Western Australian resources sector, providing practical legal advice and real-world solutions across the entire project life-cycle. From structuring a staged earn-in to negotiating the JV agreement, Hardies Lawyers can help establish clear terms around funding, decision-making, management, dilution, tenement interests, and exit rights.

Planning an exploration or mining joint venture? Book a consultation with Hardies Lawyers to put the right legal structure in place from the start.

Disclaimer: This article is for educational purposes only and does not constitute legal advice. You should seek legal or other professional advice before acting or relying on any of the content.