What is a mining joint venture?
Define a mining joint venture. What is the legal definition of a joint venture. What forms can a joint venture take. What are the legal aspects of a joint ventute in Australia.
Mining Joint Venture can be defined as the joint venture agreements used for the purpose of exploring and developing the mining sites by the joint venture partners. It is one of the most popular forms for small minors for raising funds for developing green and brownfield mining projects[1]. Mining joint ventures requires the incoming party to farm- in along with making the payment of pre- agreed exploration expenditure for its ownership interest. It provides the owner of the mining tenements with expertise, valuable capital along with guaranteed market for products in few cases[2].
Nowadays, the falling prices of the commodities, lack of competitive finance along with the sufferings of mining companies from high levels of debt has resulted in the financial struggle for the mining companies. However, in order to fight with non- availability of credit and high costs, joint ventures are considered by the miners for the purpose of developing the projects[3].
In case of incorporated joint venture, the project is undertaken by an association of participants for a separate legal entity. Therefore, all the characteristics of an incorporated entity are born by incorporated joint venture. The participants of the joint venture i.e. the shareholders, receive dividends as a result of sale of the mining products and not from the sale of the product itself. In the same way, unincorporated joint venture is based on the contractual relationship among the participants of the joint venture. No separate legal identity is possessed by an unincorporated joint venture. Only some of the mining expenditures are offered tax deductibility along with the potential for the offsetting of tax losses against assessable income in the starting stages of mining.
A joint venture can be defined as a legal organization in which transactions are undertaken by persons jointly for mutual profit where such an organization is in the form of short term partnership[4]. In case of a joint venture, each person is responsible for the purpose of contributing towards the assets along with the sharing of risks. The “persons” involved in a joint venture can be companies, corporations, individuals and even group of individuals. All the types of business transactions are involved in a joint venture just like in the case of partnerships. Entrance into the foreign markets are gained by the companies by entering into joint ventures with the domestic companies already present in those markets where the foreign companies are planning to enter. New technologies and business practices are generally brought about by the foreign companies into the joint venture[5]. At the same time, the domestic companies make the use of its already established relationships and the required governmental documents.
Types of joint ventures
The existence of a joint venture is for a limited period typically for 5- 7 years. It enables the organizations to share all the costs and risks thereby making it an attractive option. The companies are provided with opportunities for the purpose of obtaining new capacity and expertise thereby resulting in the development of new products. Specific projects are kept in mind before creating joint ventures and are dissolved once the purpose for which it is created is completed. Exposure to complete legal liability is faced by the members of the joint venture. Joint ventures are treated in the same way partnerships are treated for the purpose of federal income tax[6].
Legal procedures are required to be completed for the formation of joint ventures by creating a joint venture agreement, memorandum of understanding, obtaining regulatory approval and other ancillary agreements.
A joint venture can take any of the three forms. The form of joint venture is dependent upon the objectives to be achieved by the business through the joint venture. Following are the common forms of joint venture:
Limited Co- operation- when one business co- operate with other business in a specific and limited way then it is known as limited co- operation. For example, the new products of a small business can be sold by utilizing the larger distribution network of a company. The terms and conditions of a contract can be agreed upon by the two partners regarding the working of the joint venture.
Separate Joint Venture Business- In case of a separate joint venture business, new company is established for the purpose of handling a particular contract. Such a joint venture company works as a very flexible option. The shares are held by all the partners in the company and its management is agreed upon by all of them.
Business Partnerships- in some cases, limited company may not proof to be a suitable option while the other options appear to be favorable. Limited liability partnerships or business partnerships can be formed. Even decision regarding the merging of two businesses can proof to be a good option.
Therefore, selection regarding the right form of business is essential for the purpose of managing the business along with the associated risks. The selection is based on the desire for getting involved in the management of the business.
The identification of the suitable option should be made by obtaining appropriate legal advice[7]. Such legal advice assists in identifying the ways of running business along with the sharing of profits and taxation.
Formation of joint ventures
In Australia, there is no specific law that governs the Joint Ventures. Therefore, the joint ventures are subject to a mixture of general rules and legislation of law with regard to the contract and agency law, corporate law, commercial and trade law, competition, taxation and other regulatory aspects[8].
There is no settled meaning of the term “joint venture” in the Australian law, however, the term has been defined in some Commonwealth statutes. Joint venture can be briefly defined as a commercial arrangement among economically independent entities which executes the business undertaking by taking a number of legal forms.
All the corporate laws of Australia are applicable to the incorporated joint ventures including Corporations Act 2001, Competition and Consumer Act 2010, Foreign Acquisitions and Takeovers Act 1975, Australian Securities and Investments Commissions Act 2001 and Listing rules of the Australian Securities Exchange (ASX Listing Rules).
Corporate and contractual joint ventures can be used depending upon the legal, commercial and taxation requirements of the participants. Australian Joint Venture projects can obtain foreign participation by making the participants notify FIRB in case of certain transactions thereby obtaining clearance before proceeding further.
The legality and enforceability of some anti- competitive provisions creates some issues, for example, primary and secondary boycotting requirements/ provisions and joint marketing. Unless the clauses regarding joint decisions on acquisition, price or output are permitted under the Competition and Consumer Act 2010 (CCA) or otherwise authorized by the Australian Competition and Consumer Commission (ACCC), they are strictly illegal. The defenses for the conduct of joint venture are provided by CCA but the joint venture clause is required to comply with the requirements of defense[9].
The directors are appointed in the joint venture company for the purpose of representing the interests of the participants. This leads to the legal requirement for the nominee directors to act in the interests of the company as a whole and not in the interests of their nominator.
Moreover, the termination of a corporate joint venture includes the circumstances and manner covered in detail in the joint venture shareholders’ agreement. Cessation of the business and the winding up of the joint venture company is not included in the termination of joint venture[10].
Australasian Legal Information Institute, Joint Ventures, https://www5.austlii.edu.au/au/journals/AURELawJl/2003/52.pdf
Charltons, Mining Joint Venture Agreements, <https://charltonsnaturalresources.com/en/joint-venture-agreements>
Jaenickle, A Joint Venture Agreement for Seabed Mining (Springer Science & Business Media, 2013)
Giamatteo Nunziante, Joint Ventures (Sweet & Maxwell, 2012)
Legal Vision, What Are The Legal Considerations For A Joint Venture?, (15 September 2015) https://legalvision.com.au/legal-considerations-for-a-joint-venture/
Luis Morals, Joint Ventures and EU Competition Law (Bloomsbury Publishing, 2013)
Not-for-profit Law, Joint Ventures and Partnerships, https://www.nfplaw.org.au/partnerships>
Practical Law, Joint ventures in Australia: overview , <https://uk.practicallaw.thomsonreuters.com/0-616-8149?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1>
Richard W. Roeder, Foreign Mining Investment Law: The Cases of Australia, South Africa and Colombia (Springer, 2016)
WD Duncan, Joint Ventures Law in Australia: 3rd Edition (Federation Press, 2012)
Charltons, Mining Joint Venture Agreements, <https://charltonsnaturalresources.com/en/joint-venture-agreements>.
Richard W. Roeder, Foreign Mining Investment Law: The Cases of Australia, South Africa and Colombia (Springer, 2016) 37.
G. Jaenickle, A Joint Venture Agreement for Seabed Mining (Springer Science & Business Media, 2013) 36.
WD Duncan, Joint Ventures Law in Australia: 3rd Edition (Federation Press, 2012) 2.
Australasian Legal Information Institute, Joint Ventures, <https://www5.austlii.edu.au/au/journals/AURELawJl/2003/52.pdf>.
Not-for-profit Law, Joint Ventures and Partnerships, https://www.nfplaw.org.au/partnerships>.
Legal Vision, What Are The Legal Considerations For A Joint Venture?, (15 September 2015) https://legalvision.com.au/legal-considerations-for-a-joint-venture/.
Giamatteo Nunziante, Joint Ventures (Sweet & Maxwell, 2012) 15.
Practical Law, Joint ventures in Australia: overview , https://uk.practicallaw.thomsonreuters.com/0-616-8149?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1
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