MODEL FOR A MODERN MAJOR GENERAL:
KEY CONSIDERATIONS FOR LOIs AND OPTION
AGREEMENTS IN EXPLORATION DEALS
1. Preliminary Considerations
• basic business terms
• preliminary information
2. Strategic Considerations
• rational
• timelines
• negotiate now vs negotiate later
• disclosure
Poor Ol' Nugget - Act I, Scene 1
3. LOIs – Binding vs. Non-Binding
• binding preferable where:
o commitment
o certainty
o disclosure
• non-binding preferable where:
o flexibility
o speed
4. Binding LOIs – Legal Risks
•
•
•
•
uncertainty
contract terms not fully addressed
reliance on common law
can prejudice
o bargaining position
o legal position/relationship
5. Non-Binding LOIs – Legal Risks





can be abandoned
some terms should be binding
casual, no legal review
court may find binding
“morally” binding
6. LOIs – Binding vs Non-Binding –
How to Tell?
• “test”
o basic contract principles satisfied – did the
parties agree?
o are the “essential” terms agreed?
o did the parties intend to be bound?
• each case is fact specific
o wording of LOI
o actions of parties
7. Non-Binding LOIs – Tips
•
•
•
•
•
•
use conditional language
don’t use imperative language
leave key terms for later agreement
include conditions
state “non-binding”
conduct of parties
Poor Ol' Nugget - Act I, Scene 2
8. LOIs – Drafting Considerations
•
•
•
•
•
•
speed vs. certainty
extent of representation
approvals – corporate & regulatory
termination
notice mechanics
effective date and impact on timelines
9. LOI – Best Practices
•
•
•
•
•
•
•
is priority timing or detail?
be wary of obligation to negotiate in “good faith”
standalone – exclusivity and confidentiality
diarize dates
check AOI for overlaps
note issues that were problematic
assess relationship/troubleshoot potential
challenges
• no work on property (sorry!)
Poor Ol' Nugget - Act II, Scene 1
10. Moving from LOI to Option
• remaining/outstanding due diligence issues
• refer back to LOI best practices
• consider representations and warranties
o What needs to be customized
o What needs to be covered
o Old standards: singing the same old song
11. Exercise of Option/Form of JV
• exercising the option
o Formal approach
o Automatic approach
• form of JV
o All information: vegetable, animal and mineral
o Substantially in the form attached
o KoKo’s list
o Worry about it later
Poor Ol' Nugget - Act II, Scene 2
12. Practical Issues
• treatment of shortfalls
• currency risk
• transition matters
o into JV
o on terminating option
• partial surrenders and additions
• accelerations
13. Best Practices
• decision tree
• as much ADR as you need, not as much as you
can stand
• transaction summary
• databases
• debrief and capture process
14. Conclusion
• business/strategic analysis drives document
• living documents
o need to be flexible
o certain
o allow relationship to evolve
FINALE
Caroline Thomas
Chief Counsel, Exploration,
Property & Aboriginal
Affairs
Vale, Base Metals
416-361-7919 (w)
[email protected]
www.vale.com
Carmen L. Diges, LL.M, CFA
Chair National Mining
Group
Miller Thomson LLP
416-596-2117 (w)
[email protected]
www.millerthomson.com