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MODEL FOR A MODERN MAJOR GENERAL: KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS

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MODEL FOR A MODERN MAJOR GENERAL: KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS. Preliminary Considerations. basic business terms preliminary information. Strategic Considerations. rational timelines negotiate now vs negotiate later disclosure.

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MODEL FOR A MODERN MAJOR GENERAL:KEY CONSIDERATIONS FOR LOIs AND OPTION AGREEMENTS IN EXPLORATION DEALS

preliminary considerations
Preliminary Considerations
  • basic business terms
  • preliminary information
strategic considerations
Strategic Considerations
  • rational
  • timelines
  • negotiate now vs negotiate later
  • disclosure
lois binding vs non binding
LOIs – Binding vs. Non-Binding
  • binding preferable where:
    • commitment
    • certainty
    • disclosure
  • non-binding preferable where:
    • flexibility
    • speed
binding lois legal risks
Binding LOIs – Legal Risks
  • uncertainty
  • contract terms not fully addressed
  • reliance on common law
  • can prejudice
    • bargaining position
    • legal position/relationship
non binding lois legal risks
Non-Binding LOIs – Legal Risks
  • can be abandoned
  • some terms should be binding
  • casual, no legal review
  • court may find binding
  • “morally” binding
lois binding vs non binding how to tell
LOIs – Binding vs Non-Binding – How to Tell?
  • “test”
    • basic contract principles satisfied – did the parties agree?
    • are the “essential” terms agreed?
    • did the parties intend to be bound?
  • each case is fact specific
    • wording of LOI
    • actions of parties
non binding lois tips
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

lois drafting considerations
LOIs – Drafting Considerations

speed vs. certainty

extent of representation

approvals – corporate & regulatory

termination

notice mechanics

effective date and impact on timelines

loi best practices
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!)

moving from loi to option
Moving from LOI to Option
  • remaining/outstanding due diligence issues
  • refer back to LOI best practices
  • consider representations and warranties
    • What needs to be customized
    • What needs to be covered
    • Old standards: singing the same old song
exercise of option form of jv
Exercise of Option/Form of JV
  • exercising the option
    • Formal approach
    • Automatic approach
  • form of JV
    • All information: vegetable, animal and mineral
    • Substantially in the form attached
    • KoKo’s list
    • Worry about it later
practical issues
Practical Issues
  • treatment of shortfalls
  • currency risk
  • transition matters
    • into JV
    • on terminating option
  • partial surrenders and additions
  • accelerations
best practices
Best Practices

decision tree

as much ADR as you need, not as much as you can stand

transaction summary

databases

debrief and capture process

conclusion
Conclusion
  • business/strategic analysis drives document
  • living documents
    • need to be flexible
    • certain
    • allow relationship to evolve
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Caroline ThomasChief Counsel, Exploration, Property & Aboriginal Affairs

Vale, Base Metals

416-361-7919 (w)

[email protected]

www.vale.com

Carmen L. Diges, LL.M, CFAChair National Mining Group

Miller Thomson LLP

416-596-2117 (w)

[email protected]

www.millerthomson.com

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