CHAPTER 10 WHO MAKES THE DECISION TO OPEN A MINE (IN A JOINT VENTURE)

• Jurisdiction: United States

Mining Agreements Institute
(May 1979)
CHAPTER 10
WHO MAKES THE DECISION TO OPEN A MINE (IN A JOINT VENTURE)
Robert F. X. Fusaro
Metals Division Counsel Union Carbide Corporation
New York, New York

INTRODUCTION

The decision to open a mine is basically the decision to bring an exploration project to development. Because of the high costs associated with development, no one will want to start development work unless it is reasonably assured that the resulting mining operation will be profitable. Thus the decision is not an easy one as it entails a certain amount of predicting about the future.

The decision to go from exploration to development becomes more complicated when it is to be made by more than one party as in a joint venture. Each of the parties to a joint venture may have different philosophies concerning the appropriate time to go from exploration to development and different objectives and needs for the mine production. For a general discussion on alternate methods of decision making in a joint venture, primarily during exploration, see Royal E. Peterson's article on "Decision-Making in Joint Ventures" in 24 Rocky Mountain Law Institute, at page 453 (1978). This paper is limited to a discussion of decision making in a joint venture on bringing an exploration project to development.

In the past it was quite common for mineral joint ventures to cover only exploration with a provision that the parties would come to an agreement on development and mining only after an ore body was discovered. The problem with this approach is that it left open one of the most important matters to be decided by the joint venture parties and one

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which has a great potential for conflict. While it may be impossible to anticipate and provide in the joint venture agreement for all the problems associated with development and mining, certain aspects with respect thereto should be addressed and one of them is the decision process on going from exploration to development. No matter what method is used by the parties for decision making during exploration, it is suggested here that with respect to going from exploration to development the agreement should provide flexibility so that no party should be forced to go to development if it does not wish and, on the other hand, no party should be restrained from going to development if it so desires and if it has a significant participating interest in the joint venture.

POTENTIAL DIFFERENCES BETWEEN PARTIES

Each of the parties to a joint venture may have different criteria on whether to develop a mine. A few examples are as follows:

1. A partner which is an entity of a foreign government may have the philosophy of not making a decision on whether to develop a mine until a thorough mineral survey has been completed on the exploration project. Money and time may pose very little problems for this partner. This partner may not be willing to do a feasibility study and/or go to development as soon as non-governmental partner which wishes to know as soon as possible if the project is viable so that it can determine whether to spend more time and money on the project or put it on hold for the future or abandon it.

2. A partner which is a marketer of minerals may have a different...