The JV will bring borrowing power. Not that CUU needs it, they have a billionaire patron. Instead, going forward, the JV will make the deal marketable.
Teck and CUU will have to haggle out who does what and is responsible for what. They will also need to agree on the launch. A number of structure considerations will have been ironed out as shareholders need to be rolled in. The new face will be Teck, CUU and a billionaire.
"Despite the simplicity of the general concept explained above, the negotiation of joint venture agreements in the international mining industry can sometimes be surprisingly difficult due to the differing perspectives and motivations of juniors and majors. This article seeks to briefly describe and explain some of the main tension points between juniors and majors which appear repeatedly in joint venture negotiations."
"A junior’s concern is often even more pronounced in relation to the joint funding phase."
In the case of CUU we see that they are on equal footing because of their patron. However, there can be a perception that the insider(s) is holding too much of the float. In some cases this is not received well. I should say in the past this over concentration worried retail share holders. In today's financial environment this is becoming a requirement. In past articles and other stuff you've probably read online there is the wide expectation that a massive weeding out will occur amongst the Jrs.
"Generally, a major will also worry that its junior partner may use any veto power as leverage to force a buy-out of the junior by the major or to achieve some other objective not originally bargained for, such as additional financial support from the major."
The Liard royalty is a hot button issue as of late. However, in discussions with CUU I've brought this up several times and my general conclusion is that they will cooperate with Teck until it hurts. The appointment to the Board of Directors was a good sign of what the two companies were planning. This is a chief negotiation position. It is leverage.
"Discussions around this general theme often focus on specific minority protections, which juniors would like to have and which majors oftentimes would sooner not grant. In particular, juniors seek minority protections (usually in the form of supermajority voting requirements, which effectively confer vetoes) in respect of such matters as:
- disposals of project assets;
- dividend or distribution policies;
- project financing;
- the granting of security interests over project assets;
- affiliate transactions (i.e., between the project management company and other companies in the major’s corporate group);
- mine development decisions (i.e. decisions to proceed with mine development, which are discussed under the next heading) and
- decisions to cease or curtail commercial production once a mine is up and running."
"However, in other cases, juniors are instead more concerned that majors may fail to opt for mine development even when a favourable feasibility study exists, perhaps because the majors might prefer to dedicate capital to projects they deem more worthy."
This has been a subject of some public debate for the last six months. In this particular case the BFS just passed the bar due to a requirement that the inferred that is sitting on top of the deposit be classified as waste because it has not been adequately drilled. Some speculate this was a gamble on the part of CUU but in a past article I explained in some detail why they chose the route that led us to this point. Simply put, there are enough holes but they are historical in nature. They know it has value and even have a pretty good idea of what it's worth but they will have to do some drilling to bring it in as a resource.
"The junior may argue for a veto. However, if it is unable to negotiate a veto, the junior may instead propose that the board of directors may only make a development decision the basis of a "bankable feasibility study" and propose further that any dispute about whether a particular study is in fact a bankable feasibility study be resolved through a time-consuming referral to an expert."
This is one of the more complicated parts of the discussion. As we have seen, a number of experts have already been engaged. This is a unique case because this was done by agreement with Teck. Teck also wants the best plan because they do want to mine it. We all know about the impending copper supply shortages in part due to the decimation of the Jrs.
"Juniors often prefer to keep their options open as much as they can. They will seek contractual powers that give them leverage or exit options or that they may use to induce majors to purchase their interests."
This last item is where I think the discussions are at now. Our reluctant partner scenario has finally seemed to be shifting. Yes, the company wants out but to get the best for the share holders it's obvious that the JV route is going to be the most profitable. Once all the rights are determined and before the major capital commitments start is when CUU should sell.
It should be noted that there is a 4 year clause to production. There must be no delay in selling and I do expect this clause will be modified. The BFS gave a longer period to build so a more reasonable time line will be struck. I would not be surprised to see a "favourable conditions" clause inserted due to the impending change of government in BC. This would not deter another major from entering because both would understand the value to that.
Click this link if you want to see a template that covers a basic set up for a JV. http://www.ampla.org/modeldocuments/documents/model-documents65