Mining Joint Venture Agreements Guidelines

Joint venture ("JV") agreements are commonly used in connection with the
exploration and development of mining sites by two or more joint venture
partners.

Amongst other things, JV agreements typically include general provisions on

the formation of the JV, its objects and scope and development, the respective
rights, obligations and liabilities of the JV parties, covenants, warranties, the
ownership of the JV property and assets, and the use of the JV property (for
example whether or not a JV partner can use its interest to secure future
finance, and whether or not there is to be a general prohibition against partition
or encumbering of the JV property).

PwC has experience of advising on JV agreements, including termination or

amendment of joint venture arrangements in connection with pre-IPO
restructurings. In PwC' experience, some of the key issues for mineral
companies when negotiating joint venture agreements are as follows:

The Manager

Typically the JV partners appoint a manager ("Manager") to manager the JV

and act as agent of the JV parties.

The JV agreement should therefore include provisions relating to the function,

powers and duties of the management, the Manager's appointment, the term
of service, remuneration, the subsequent appointment of a new manager,
liability, indemnity by JV parties, any indemnity by the Manager in favour of the
JV partners, limitations of liability of the Manager, delegation by the Manager,
agreements between the Manager and third parties and the Manager's role in
any litigation.

Management Committee

It is common practice for a management committee to be established to

supervise the Manager in the management of the JV and to make strategic
decisions relating to the JV.

The JV partners normally appoint representatives to the management

committee in proportion to their respective interests. The JV partner with the
greatest interest in the JV normally appoints the chair of the management
committee. The representatives may be granted full powers and authority to
represent and bind the JV party which appointed them, so that a JV party is
bound by all votes cast by its representative.
The JV agreement should include provisions relating to the establishment of the
management committee, the conduct and required quorum for meetings,
particulars in regards to voting and decision making, the creation of
sub-committees and loss of JV rights. There should be clear agreement as to
the functions and powers with which the committee is to be empowered.

Programmes, Budgets and Called Sums

It is normal practice for the Manager to annually provide the JV parties with a
proposed programme ("Programme") and budget prepared in accordance with
the JV's accounting procedures. The budget should detail proposed capital
works (and related contracts) and should also include an itemised budget
specifying estimated monthly expenses.

When contemplating the annual Programme expenditure mineral companies

should be mindful of their expenditure obligations under relevant national
legislations and / or in connection with covenants or conditions attached to the
tenement and/or conditions of mining licences.

The JV agreement should include provisions relating to the approval of the

Programme and budget by the JV's management committee along with the
formalities relating to the payment and billing of sums called from the JV
partners ("Called Sums"). If appropriate, a statement to the effect that Called
Sums (or other expenditure monies) falling due by the JV partners should be
paid by the JV partners severally in proportion to their respective shares in the
JV should be included.

Dilution, withdrawal, assignment, default and termination

The JV partners should provide for the possible default withdrawal, dilution or
assignment of interest of a JV partner and for the ultimate dissolution,
winding-up and / or termination of the JV.

Dilution

The JV parties should agree in advance the circumstances where the dilution of
a JV partner will be permitted. Due consideration should be given to the impact
of the dilution on approved programmes and in particular the effect it will have
on the respective on-going contributions of the JV partners. The interests and
the contributions of the remaining non-diluted JV partners should be
recalculated on a pro-rata basis to reflect their revised respective shares in the
JV. The recalculation formulae should be agreed in advance and should be
included as a schedule to the JV agreement. Provisions relating to the issuing of
a dilution notice should also be included.
Withdrwal/Exit

The JV agreement should include provisions relating to how and when a JV

partner may transfer its interest and if there are to be pre-emptive rights that
allow a remaining partner to purchase the interest of the exiting partner.

The JV partners should pre-establish a minimum permitted JV interest. Where a

JV partner is diluted below this interest the partner can be deemed to have
withdrawn from the JV. Provisions should also be included to account for the
withdrawal of a JV partner who is in default of their JV obligations.

Careful consideration should be given to the effect of the withdrawal of a JV

partner and to the conditions precedent, especially third party approvals (if
required), that should be satisfied before the withdrawal can be affected.

Assignment

The JV agreement should include provisions relating to the assignment of JV

interests. Specifically, the agreement should contemplate in what
circumstances an assignment shall be permitted, what consents will be
required (including third-party consents), whether or not partial assignments
shall be permitted, pre-emption rights and the rights and obligations of the
assignee.

Deeds of Cross Charge/Deeds of Cross Covenant

JV parties may consider executing a deed of cross charge ("DCC") or a deed of

cross covenant ("DCCV") to secure the performance of their obligations to each
other under a JV agreement.

Under a DCC, each JV partner charges to the other partners in the JV its
interests in a particular charged property.

The definition of charged property can include the JV interest, the minerals
produced by the JV, all rights and interest in all contracts for the sale of its
minerals produced by the JV and any proceeds of sales of those minerals, all
present and future proceeds of insurance taken out under the JV agreement
together with monies held by the Manager for and on behalf of the JV and all
claims and entitlements for money or other property to be paid or transferred
to the JV.

The partners should also contemplate and set out the specific conditions they
wish to attach to the charge. They should also include provision surrounding
the registration of or and recording of the charge. In certain jurisdictions the
registration of charges over mining assets is mandatory.
Unless otherwise agreed, it should be stated that the charge takes priority over
all other encumbrances.

The deed should include provisions relating to how the JV partners deal with
charged property (including the sale of the property) together with provisions
relating to subsequent encumbrances, continuing security, crystallization and
de-crystallization and the enforcement of the charge.

Used in conjunction with a DCC, a DCCV is used to determine priorities in the

enforcement of securities granted over JV property. The covenants can be
cross-parties (between the JV partners) or in favour of a non-partner such as a
lender or financial institution.

Infrastructure Agreements

Common to all mining projects is a need to secure access to both mine and
transport infrastructure. The high capital cost of such infrastructure has led to
the development of innovative financing techniques, unique forms of public
private partnerships and a sub-category of complex infrastructure agreements
highly specific to the mining industry.

Access to and from the mine site may include roads, an airstrip, a rail loop or
dedicated train line, slurry pipelines and port facilities. These modes of
transport are used to provide a work force and material for the construction
and then continued operation of the mine. Additionally, finished mine product
will be transported to the market.

PwC has experience of advising on infrastructure access agreements, including

rail transport and port access agreements. We also have experience of advising
on the impact of Stock Exchange rules on proposed infrastructure access
arrangements for IPO applicants as well as listed mineral companies. For
example, in cases where the mineral company is relying on parent
infrastructure, access arrangements may constitute continuing connected
transactions under Stock Exchange rules. These connected transactions may
require shareholder approval on a periodic basis, and long-term access
agreements may be problematic.

Key Issues

Capacity

Mineral companies should carefully consider the project's development and

future capacity requirements when negotiating and providing for infrastructure
access. The terms of access should clarify the amount of capacity on the
network to be allocated to the mineral company (e.g. in terms of tonnes per
annum in the case of iron ore) and whether this is on a "wet" or "dry" basis.

Charges

Charges may be subject to escalation based on, for example, a price index.
Charges may also include a capital recovery component for the amortisation of
capital costs associated with land acquisition and the cost of establishing and
replacing infrastructure capacity over time. In some jurisdictions, access
charges may be subject to approval by competition or other regulatory
authorities.

Government/Regulatory Approvals

The contracting parties should bear in mind that the terms on which access is
granted by an incumbent network operator may require approval from
government or regulatory authorities (such as competition or port authorities)

The mineral company should take into account the normal timeframe for the
granting of such approval(s) together with the costs involved.

Term

Listed companies should bear in mind that the rules of the exchange upon
which they are listed may include provisions limiting the term or operation of
certain agreements. Connected transactions in particular may be subject to
shareholder approval and be subject to limited to a certain time period. For
example, under the Stock Exchange rules, continuing connected transactions
are generally only permitted for three year periods (after which shareholder
approval must be refreshed). The applicable exchange rules may apply
different tests to connected transactions than it does to transactions entered
into at arm's length and including normal commercial terms with
non-connected third parties.

New and Auxiliary Infrastructure

In some cases, the parties will need to construct new infrastructure or expand
existing infrastructure (for example, product loading infrastructure or a new
berth at port). The access agreement will need to set out detailed
arrangements dealing with the timetable for construction of such infrastructure,
financing and ownership.

Where the mineral company has constructed its own infrastructure (such as
product loading infrastructure or rail sidings), the agreement will need to
include specific provisions where such infrastructure has a direct operational
interface with the network owner / operator's transport infrastructure. The
agreement should address how the relevant infrastructure should be
constructed and maintained to a standard that best ensures the project's safe
and efficient operation. A network operator may also stipulate certain minimum
handling specifications for product to be transported on the network.

If mine product is to be stockpiled, the parties should consider whether

minimum stockpile levels should be maintained to effect efficient transport
operations.

Management Committee

Where the access arrangement include the construction of new infrastructure,

the parties should consider the establishment of a management committee to
oversee and manage the planning, construction and budgeting of capital works
and procurement together with the operation of the infrastructure and
scheduling of services. A management committee may also be a useful
mechanism to facilitate the general monitoring, identification and
implementation of reasonable and practical solutions to problems that may
arise during the lifetime of the access agreement.

The access agreement should include basic provisions on the appointment of

members to the management committee and the conduct and regularity of
meetings.

EPCM and EPC Agreements

Engineering, procurement and construction management ("EPCM")

agreements and engineering procurement ("EPC" or "turn-key") agreements
are contractual structures commonly employed in the mining industry for the
design and construction of plant and facilities. EPC and EPCM agreements vary
widely depending on the exact nature of the infrastructure to be constructed,
the expected project scope and duration, the level of risk the principal of a
project is willing to accept, budget constraints, and the extent of the principal's
core competencies

Under an EPC agreement, the EPC contractor is contracted to provide

engineering, procurement and construction services by a principal (which is
typically a mineral company). In the case of an EPCM agreement, the ECPM
contractor is contracted to provide engineering, procurement and construction
management services. Other companies are contracted by the principal directly
to provide construction services. These companies are managed by the EPCM
contractor on the principal's behalf.
Charltons can assist both mineral companies and contractors in preparing and
negotiating the different forms of EPC, turn-key and EPCM agreements utilized
in the mining sector. We appreciate that in respect of both EPC and EPCM
agreements there is no model precedent agreement and that each project is
different. Our goal is to assist our clients develop a strong, coherent agreement,
in which the respective rights and obligations of the parties are clearly
delineated so as to minimize the need for variation or the possibility of dispute.

EPC Agreements

Under an EPC agreement, the EPC contractor, usually following a tender

process, is contracted by the principal to provide engineering, procurement and
construction services. An EPC contract is commonly negotiated to include the
standard terms contained in the FIDIC "Silver Book" . The EPC contractor
assumes responsibility for integrating all the elements of design, construction
and procurement and assuming the solvency risk down the supply chain.

An EPC agreement will clearly set out the principal / employer's rights and
obligations relating to amongst other things, right of access to the site, permits,
licences and approvals, delegated personnel, financial arrangements and
claims. Similarly it should set out the contractor's general obligations together
with specific details relating to performance, its representatives, nominated
sub-contractors, data, price, access, transport of goods, equipment,
environmental protection, progress reports and milestones. Provision relating
to plant design should include general design obligations, the contractor's
undertakings, technical standards and regulations. The agreement should also
include provisions on, among other things, delays and suspensions, tests on
and after completion, defects and liability, risks and responsibility, contract
price and payment, and the ultimate take over by the principal.

The main advantages of EPC agreements compared to EPCM agreements are

as follows:

 One point of contact

 "Hands off" approach to project

 Less staff required

 Reduced legal risk

EPC agreements are best employed on well-defined projects where detailed

engineering has already been completed prior to the engagement of the EPC
contractor.
Advising Contractors

Mineral contractors are increasingly becoming involved in mining projects at an

equity level. PwC is experienced in advising on equity investment by
contractors from the perspective of both the contractor and the mineral
company.

Contractors should conduct thorough independent legal and financial due

diligence to identify risks associated with a particular project as well as to
gauge the rates and the expected timeframe for potential returns. Contractors
should also be cognisant of the rights and obligations arising out of shareholder
participation including how their equity investment will rank in the event of
insolvency.

Form of Investment

Contractors should give due consideration to the different forms contributions

can take including normal shares, preferential shares, redeemable preference
shares and convertible debt (or indeed a mix of equity and debt).

If debt instruments are issued then the contractor should consider debt
subordination and what debt priority arrangements exist among the various
parties providing debt finance to the project

Risk

All equity positions involve certain risk exposure. The position of contractors
who become shareholders in the mining projects with which they are connected
is somewhat unique in that their focus is not only on the successful delivery of
project infrastructure but also in the longer term life of mine profitability of the
project.

If the contractor holds a mixed equity and debt position it becomes interested
in ensuring that the project generates sufficient cash flow from which the
project's debt can be serviced.

Ongoing risk exposure can be managed in a number of ways including, but not
limited to the inclusion of protective provisions at the subscription stage and in
agreements between shareholders. Ultimately contractors can opt to pursue a
policy of strategic divestment to achieve an orderly risk managed exit from the
project.

Contractors who take equity positions in mining projects which are

contemplated to be part of a listing in RSA should be aware that their contracts
may be considered a continuing connected transaction pursuant to the Listing
Rules. If this is the case then the infrastructure agreement may be subject to
re-approval by the listed companies' shareholders at least every three years.

Pwc is experienced in advising contractors on managing their risk through

subscription and inter-party agreements. We frequently submit waiver
applications to the Exchange seeking waivers from the connected transaction
requirements set out in the Listing Rules.

Mining Service Agreements

A clear, well drafted, mining service agreement should not only aim to regulate
the relationship between the principal and contractor but should also help to
ensure the efficiency of contributions and maximize the returns for the
respective parties.

The mining service agreement should include a full and accurate description of
the principal's site and facilities, including mining areas and geology (maps
should be included in the schedule to the agreement) and a description of the
mining services. Mining services to be rendered under the agreement may
include the following:

 Mining operations

 Mineral handling

 Haulage and loading

 General service obligations

 Safety management

 Environmental management

 Tailings management

 Rehabilitation management

 Mine water management

The mining services agreement should also set out the contractor's primary
obligations, warranties and undertakings as to capacity and performance as
well as in relation to safety requirements, safety of contractor's plant and
equipment, environment obligations, access to site, sub-contractors, and
archaeological, heritage and native title agreements.
Payment clauses should be inserted to address the principal's payment
obligations, particulars of payment, interest, set-off, payment adjustments and
taxes.

The agreement should consider the authorisations to be obtained by the

principal and the contractor respectively, and include clauses on compliance
with law and directions of the principal.

Where it is envisaged that the contractor will provide plant and equipment the
agreement should call for the maintenance of a register of plant and equipment.
The removal and status of the contractor's plant and equipment after
termination should also be addressed.

Due consideration should be given to the risk of loss or damage of the

contractor's plant and equipment or to the principal's facilities and to the level
of insurance to be maintained by both parties.

Provisions dealing with suspension and termination of mining services should

be included, including consequences arising out of termination, the
preservation of rights on termination and the retrospective obligations of the
contractor and principal on termination. The principal may also want to
consider the inclusion of performance related incentives.

Minerals Royalty Agreements

A minerals royalty agreement should include provisions relating to royalty

obligations, royalty calculation and payment, royalty deductions (such as tax or
other payments), interests and costs, royalty statements, continuing
obligations, cessation of royalty, survival of royalty obligations, and where
applicable perpetuity periods.

Minerals Royalty agreements should also address the respective on-going

obligations of both the payer and payee, in relation to tenement maintenance,
tenement operations, commingling, tailings, and samples, maintenance of
royalty records, access, inspection and technical audits.

Furthermore a minerals royalty agreement should explicitly state that the payee
has no legal or equitable interest in the tenements or in the mining area. A
royalty agreement should also include provisions relating to the relinquishment
of the mining area and the respective obligations of the payer and payee.