In Australia, the federal and state governments and their agencies rarely participate directly in mining ventures. Private companies conduct exploration and production operations. Entities gain the right to undertake exploration and production activities through licences granted by the relevant authority under statutory licensing regimes.
Foreign entities most commonly hold interests in mining licences in Australia by way of a company structure or investment in a (JV).
Different arrangements may be required for ventures formed for various mining related activities (e.g. exploration, production and the operation of a facility). The form of arrangement selected will depend on the respective expertise of the parties, the parties’ appetite for risk and consideration of the matters discussed below.
A JV agreement signed between the parties will state the scope, purpose and duration of the JV and identify the assets committed to it. It will describe and quantify the interests of the parties and provide for the operation, management and control of the JV. It will also cover the subscription, holding and expenditure of funds, the apportionment of liability, the consequences of default, the use and disposal of the output of the JV, the assignment of interests, and withdrawal from the JV.
There are two types of JV commonly used in Australia – incorporated and unincorporated. Each has different legal and taxation implications which need to be carefully assessed having regard to the commercial objectives of the parties.
Incorporated joint ventures
An incorporated JV is a special purpose company in which the parties to the JV are shareholders. The JV is a separate legal entity from the parties that have agreed to invest in it. A shareholders’ agreement between the parties is entered into and, at the same time, the special purpose company is formed to own and control the venture, with an agreed number of directors appointed by each party.
Unincorporated joint ventures
In unincorporated JVs, each of the parties agrees to cooperate in relation to a commercial undertaking, but the parties hold their interests and entitlements in the venture separately rather than jointly. As there is no company structure, the JV agreement between the parties will govern their relationship, the operation of the venture and their obligations to each other.
Competition law considerations
If a JV is formed between competitors, care needs to be taken to avoid contravening the cartel conduct prohibitions in the Competition and Consumer Act 2010. Under this act, making or giving effect to a “cartel provision” may attract both civil and criminal penalties.
The prohibition on cartel agreements and arrangements is subject to an exception which aims to avoid punishing legitimate collaborative business activity. This is known as the joint venture exception. However, the joint venture exception only applies to certain types of JV.
Alternatively, businesses may apply to the Australian Competition and Consumer Commission for an official authorization of a proposed cartel agreement or arrangement. Such an authorization provides immunity from prosecution. However, as the authorization process is time consuming and public, businesses may wish to consider whether they may fall within the joint venture exception before applying for authorization.
Michael Sheng is a partner in the Shanghai office and Peter Hwang is a senior associate in the Brisbane office of Blake Dawson
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