Joint ventures and strategic partnerships are becoming increasingly popular as a means of facing market difficulties, streamlining innovation and funding exploration in a challenging time for junior mining companies.
Collaborations between mining companies known as joint ventures or strategic partnerships are becoming increasingly popular as a means of facing market difficulties, streamlining innovation and funding exploration in a challenging time for junior mining companies.
As the old adage goes, two heads are better than one. By that same token, companies and their shareholders stand to gain from strategic partnerships.
According to PwC Canada, “forward-thinking miners aren’t just looking to boost revenue or resources. They’re searching for truly strategic partnerships that can help them get not just bigger — but offer a better return on investment for all stakeholders.”
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Joint venture agreements were especially popular from 2002 to 2007 during what was known as a resource boom. They posed an especially enticing opportunity for junior miners to raise the necessary capital to develop green and brownfield mining projects.
By partnering with another company, expertise could be shared, funds for exploration could be gathered and, in some cases, the senior company could provide a guaranteed market for the product. Today, joint venture projects are a way of pooling resources, funding exploration and achieving new levels of success in an increasingly competitive market, either at home or abroad.
How it works
Strategic alliances in the resource industry are often formed between “an exploration company and a more senior mining company,” writes Khaled Abdel-Barr, a mining lawyer dedicated to advising companies on earn-in and joint venture agreements. The exploration company can apply its geological and technical expertise, contacts and datasets to the operation, and it is often the senior mining company’s role to provide the operation’s funding. In addition, oversight, technical direction and more also often fall under the jurisdiction of the more experienced and tenured company.
The potential partnership members will first identify a project, according to Abdel-Barr. The parties will then decide on whether or not they wish to enter this project as a strategic alliance. The senior company will often have the option to “earn a majority interest” in the project and either form a joint venture with the junior partner or simply acquire the property entirely. Further, Abdel-Barr says oversight for the alliance is typically provided by a joint technical committee with members from each party.
Breaking down the benefits
According to a 2017 report compiled at the Energy and Mines Ministers’ Conference in New Brunswick, strategic partnerships can help circumvent many of the barriers inhibiting the growth of a robust resource sector. Collaboration between companies can eliminate redundancies in instances where multiple companies are conducting simultaneous research and development, thereby freeing up intellectual capital for other pursuits. Allowing for cross pollination beyond in-house input, sharing intellectual property can also lead to further innovation and market growth.
Furthermore, this type of collaboration can help make the allocation of private and public sector funding more efficient. Earn-in or funding agreements provide junior explorers with capital in a time when raising money in the public markets is a challenge. When competitors are viewed as harmful actors instead of potential resources, concurrent research on the same topic may cause one party to miss out on crucial funding, public or private, thereby inhibiting their growth. Therefore, financial incentives are just one reason to foster collaboration within the private sector.
Strategic partnerships can be beneficial at securing funding locally, but they can also be crucial in accessing closed-off foreign markets like China. As a global leader in gold, graphite, zinc, tungsten and tin production, exploration in the Middle Kingdom is a tantalizing proposition. Before work on behalf of a foreign interest can begin, however, foreign companies need to seek out a Chinese company with an exploration license to form a joint venture with.
Through such partnerships, foreign companies can gain access to their partner’s government contacts, specialized market expertise and established distribution channels.
Joint ventures in practice
Recent strategic partnerships include NorthIsle Copper and Gold‘s (TSXV:NCX) agreement with Freeport-McMoRan (NYSE:FCX) in which C$24 million of funding has been secured for exploration of NorthIsle Copper and Gold’s Pemberton Hills property. In a press release, John McClintock, president and CEO of Northisle Copper and Gold, says he expects his company to benefit from “Freeport’s extensive experience in porphyry copper terrains.”
In early 2018, NorthIsle Copper and Gold announced a partnership with Freeport-McMoRan in developing the Pemberton Hills zone of its Northern Vancouver Island project on Vancouver Island in BC. Freeport-McMoRan can earn up to 65 percent for the Pemberton Hills property under the terms of the joint venture.
Angkor Gold (TSXV:ANK,OTCMKTS:ANKOF), with projects in Cambodia, also boasts a strategic relationship with industry giant Japan Oil, Gas and Metals National Corporation (JOGMEC), with $3 million in exploration funding coming from JOGMEC, on top of the enormous benefits of shared technical support and market access the veteran company brings to the table.
“When you are working under a joint exploration agreement with a group like JOGMEC, a $12-billion explorer that works on copper porphyries all over the world, you couldn’t ask for a stronger, more successful and experienced partner,” said Stephen Burega, CEO of Angkor Gold.
Angkor’s new drill program will include regional exploration in Oyadao South, targeting stream sediment and termite anomalies, along with further geophysics testing in the area. According to Burega, Angkor’s move in partnering with a company of JOGMEC’s standing lends credibility to Angkor’s operations in Cambodia and encourages further investment: “having a funding and exploration partner of that scope and size helps to build confidence in the marketplace for a jurisdiction that is relatively unknown.”
Angkor also entered into a joint exploration and earn-in agreement with Emerald Resources in 2017 to explore and develop the 189-square-kilometer Koan Nheak tenement in Eastern Cambodia. Emerald Resources’ Cambodian subsidiary will contribute $2 million to the project in order to acquire a 51-percent participating interest in Angkor’s Koan Nheak license.
Risk vs. reward
It is worth saying that these collaborations aren’t without risk. Project deadlines, divvied up responsibility and a partner’s potential debt are all factors worth considering before consolidating a joint venture, although debt can also be a motivator in creating a joint venture. However, if the asset brought to the table is worthwhile, the company and its investors stand to benefit.
In late 2017, Financial Post reporter Sunny Freeman reported that a number of major mining executives are more focused on partnerships over outright acquisitions, citing fewer and fewer resources left untapped and an ever-increasing amount of competition. Cutting overhead costs and streamlining were both reasons given for industry consolidation, according to Freeman.
Strategic partnerships are an effective way to both pool resources and counteract market challenges. Collaboration can provide companies more efficient access to private and public funding and even grant access to previously unreachable markets. In an increasingly competitive resource sector, strategic partnerships present a fantastic opportunity to maximize profits and innovation.