MINEAFRICA: 5TH FOCUS ON WEST AFRICA

Transcription

1 MINEAFRICA: 5TH FOCUS ON WEST AFRICA KEY FEATURES OF JOINT VENTURES IN THE AFRICAN MINING INDUSTRY Yann Alix 13 October 2015

2 KEY FEATURES OF JOINT VENTURES IN THE AFRICAN MINING INDUSTRY Introduction I JV with State / local partner II JV with international partner(s) Conclusion 2

3 LARGEST MINING PROJECTS IN WEST AFRICA Joint ventures are common in the African mining industry Some of the largest mining projects in West Africa involve joint ventures: Country Project name Ore Ore reserves Stakeholders Burkina Faso Essakane Gold Project Gold 4.6 million ounces Iamgold and Burkina Faso Ghana Obuasi Gold Project Gold 5.29 million ounces AngloGold Ashanti and Rangold Resources Congo Brazzaville Zanaga Iron Ore Project Iron 2.1 billion tonnes grading 33.9% Fe Glencore and ZIOC Republic of Guinea Nimba Iron Ore Project Iron 600 million tonnes grading 63.1% Fe BHP Billiton, Newmont, Areva and Mifergui-Nimba Republic of Guinea Simandou Iron Ore Project Iron 1.8 billion tonnes grading 65.5% Fe Rio Tinto, Chinalco, Guinea and IFC 3

4 MINING JOINT VENTURES IN AFRICA Joint venture is not a legal term of art Commonly used to describe various types of relationships that take various legal forms Generally involve a certain degree of integration without requiring a full merger or acquisition 4

5 MINING JOINT VENTURES IN AFRICA Two main types of joint venture: o contractual or unincorporated joint venture o equity or incorporated joint venture Two main forms of mining joint ventures in Africa are: o joint ventures with State / local partner o joint ventures with international partner(s) 5

6 I JV WITH STATE / LOCAL PARTNER

7 JV WITH STATE / LOCAL PARTNER Investor(s) State Local Partner JVA (and constitutional documents) ProjectCo 7

8 JV WITH STATE / LOCAL PARTNER - RATIONALE JV with State Local mining law likely to provide for: o concession-based system o requirement to set up a locally incorporated company, which will hold the mining title, at least at the exploitation phase or for certain types of mining titles o state s right to acquire a free-carry interest in the mining title holder, at least during the exploitation phase o state's right to acquire additional interest Local mining law likely to provide for a model form JV agreement JV with local partner Local expertise; original holder of mining title; may also be required by the State Separate joint venture agreement likely 8

9 JV WITH STATE / LOCAL PARTNER KEY POINTS TO CONSIDER JV with State Local mining law likely to provide for: o State's free carry interest (10-20%) o State's right to acquire additional interest o specific rights (non-dilution of free-carry interest, information rights, right to appoint a board member etc.) o restrictions on transfer on the free carry interest JV with State/local partner Local/regional company law likely to provide for rules on: o thin capitalisation o composition of the board of directors o majority required at shareholder and board levels o minority shareholder protection rights o approval of accounts o status of the articles of association/jv agreement in the event of conflict 9

10 II JV WITH INTERNATIONAL PARTNER(S)

11 JV WITH INTERNATIONAL PARTNER(S) Rationale Expertise: commodity, technology, region etc. Funding and risk/cost sharing: large-scale, capital-intensive, long-term, operationally-complex projects; greenfield projects; infrastructure issues; political risks etc. Sharing of production: contractual production JVs Risks Divergence of objectives / difficulties with shared control Cultural differences / complexity of reporting lines Competition law IP rights Compliance Structure Equity joint venture: incorporation of a company with a separate legal entity from the participants (i.e. shareholders) Contractual joint venture: creature of contract 11

12 TYPE 1: EQUITY JOINT VENTURE Shareholder 1 Shareholder 2 Shareholder 3 JVA (and constitutional documents) HoldCo Government Local Partner ProjectCo 12

13 TYPE 2: CONTRACTUAL JOINT VENTURE JVA Shareholder 1 Shareholder 2 Shareholder 3 Government Local Partner ProjectCo 13

14 KEY FEATURES OF EQUITY AND CONTRACTUAL JVS Contractual JV Equity JV Form of the JV No corporate vehicle, purely contractual arrangement Special Purpose Vehicle (SPV), separate legal entity Applicable law Governing law of the JVA Law of jurisdiction of incorporation Participation of the co-venturers Each co-venturer (i.e. party of the JV Agreement) holds a share of the assets of the JV Each co-venturer (i.e. shareholders) holds shares in the SPV to which all assets belong Legal relations Defined by the JV Agreement Between shareholders, between shareholders and the SPV, and between shareholders and directors of the SPV Liability Liability flows back to co-venturers individually Liability is limited to the JV Company Tax Legal documentation Each co-venturer is taxed separately Complex and exhaustive legal documentation The SPV s income is taxed (corporate tax) before dividend distribution Regulated by local laws and regulations: incorporation of the SPV, articles of association, shareholders agreement Administration and management Profits Financing Defined by the JV Agreement Co-venturers are directly entitled to a share of production and can market their share to make a profit Financing and security provided individually by each coventurer Regulated by local laws and regulations Co-venturers receive per-share dividends but are not entitled to production: cash is trapped in the SPV Collective financing on behalf of the SPV and contributions made by each shareholder 14

15 BENEFITS AND DISADVANTAGES OF COMMERCIAL JV Benefits Flexible structure: management and administration freely negotiated between the co-venturers, quick to establish and dissolve, no local requirements, few statutory duties Greater control, independence and freedom for co-venturers over financing, profits, liability, tax, etc. Cash not trapped in the JV vehicle: direct entitlement to a share of production Direct interest in the JV assets: interest and liabilities are contractually defined Independent tax liability: accounting flexibility, tax planning Privacy: the JVA is entered into between co-venturers without being subject to public scrutiny Disadvantages Joint ownership more complicated: co-venturers shall be allowed to hold a share of the assets of the JV Potential financing issues: presentationally less attractive for lenders and other third parties Complex legal documentation: every aspect of the deal is covered by the JV Agreement More difficult to manage and administrate: not structured by laws and regulations 15

16 BENEFITS AND DISADVANTAGES OF EQUITY JV Benefits Limitation of liability to the SPV: however it is more and more common to pierce the corporate veil Easier to finance: collective financing through the SPV and its directors, and presentationally attractive Easier transfer of shares: interests clearly defined and shares easily transferable Single ownership: ultimately easier, facilitates transfers of assets Regulated JV vehicle: easier to manage and administrate as it is structured by its articles of association and applicable laws and regulations Disadvantages Local law requirements and restrictions to be taken into account: i.e. State s participation in the SPV, national shareholders or directors, restriction on dividend rights Cash trapped in the SPV: no right to production or to the cash flow of the SPV, local restrictions Less flexible vehicle: additional documentation and planning, statutory duties, local requirements Various tax issues: no tax planning possible, tax losses trapped (impossibility to offset against profits), SPV s own tax position and tax return, risk of capital gains tax liability when assets are transferred 16

17 JV WITH INTERNATIONAL PARTNER(S) KEY POINTS TO CONSIDER (1) Number of participants Two parties: o 50:50 split o uneven split Multiparty Impact on governance and controls: o 50:50 split: deadlock provisions (reference to each shareholder s senior management, mediation and independent expert, chairman s casting vote for deadlock at the board level, arbitration, sole risk provisions, forced exit provisions etc. o uneven split: minority interest protections (reserved matters, separate class of shares, tag-along rights etc.) Identity of participants Depends on rationale of JV: ability to fund, expertise etc. Due diligence on co-venturers Applicable law Contractual JV: governing law; principle of free choice of governing law Equity JV: law of place of incorporation of HoldCo 17

18 JV WITH INTERNATIONAL PARTNER(S) KEY POINTS TO CONSIDER (2) Documentation Contractual JV: use of model forms e.g. AMPLA (Australian Mining and Petroleum Lawyers Association) Equity JV: articles of association and JV agreement o status of articles of association and JV agreement under local law o content of articles of association and JV agreement: enforceability vs. confidentiality Management committee papers Issues/provisions to consider Fiduciary aspects (director duties, duty to act fairly, good faith etc.) Governance: decision-making process and deadlock Funding and dilution Dividend policy Transfers: o pre-emption rights, transfer consents, change of control o buy-sell rights, put option, call option, drag-along right, tag-along right Confidentiality Dispute resolution 18

19 CONCLUSION Joint venture, a tool for success but Common joint venture disputes Failure to follow pre-emption process (e.g. indirect transfers, change of control) Deadlocks due to divergent objectives, especially in a challenging market Alternatives Outright acquisition/divestment/merger Services agreement 19

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