Introduction
I have assisted many clients when they are selling or buying mining businesses. I also got requests from some readers to cover agreements for the sale of mining businesses in view of the growth of the mining industry in the country. In this article I therefore give some hints on the key aspects to include in such agreements of sale which a seller or purchaser should look out for.
Mining businesses
For purposes of this article I wish to classify mining businesses into three categories being:
- Mining company
- A mine
- Mining claims.
I will therefore give some advice based on the above grouping.
Mining company
It is quite common for shareholders of a mining company to sell their shares in the company to another investor. So essentially what will be happening is that a company’s existing shares are changing hands. The ownership of a company is moving from one person to another. The key provisions in such an agreement are essentially the same as one would find in an agreement for the sale of shares. The key ones for a mining company are summarised below:
- Name of the company being sold and its registration number. A company is sold by selling the majority of the shares in the company. So a company is sold through its shares.
- Board resolution authorising the sale.
- Description of the shares being sold.
- Underlying mining assets such as mining claims, mining equipment, etc.
- For mining assets at times some contracting parties prefer disclosing technical details such as the estimated or quantities resource, mining methods, etc.
- Parties may also disclose geological work done and available records such as a competent person’s report, etc.
- Purchase price and payment terms.
- When share transfer will take place.
- That the company is being sold as a going concern.
A mine
The seller and purchaser have to be careful when they are negotiating sale of a mine. A mine known by a certain name, as many are, is not necessarily a legal entity unless the mine is registered as a company, for example Yellow Metal Gold Mine (Private) Limited. The name could be derived from a number of claims making up the mine. In such a situation is important to understand that what is recognised at law are the claims that make up the mine. So the key provisions in such a transactions may include the following:
- Name of mine.
- Description of the mining claims making up the mine. Details of the mining claims should include registration number, name of claim, type of mineral resource, size, registered owner, where the claim is situated, coordinates, etc.
- Special grants, if any, included under the mine.
- Mining equipment.
- Price and payment terms.
- How to effect transfer of the mine or mining claims.
Mining Claim
The sale of mining claims is pretty straight forward. It is essentially an agreement of sale for the claims being sold. It standard for a seller and purchaser to transact on a claim that is not yet being mined. The agreement of sale in such a situation will for all practical purposes be the same as that of a mine. The key provisions include the following:
- Description of each mining claim. Details of the mining claims should include registration number, name of claim, type of mineral resources, size, registered owner, where the claim is situated, coordinates, etc.
- Price and payment terms.
- How to transfer the mining claims.
Conclusion
In order to correctly understand the nature of the agreement required or the key provisions one needs to understand whether the transaction relates to the sale of a mining company, mine or mining claims. As explained above one also needs to have a good appreciation of the key provisions required in each situation.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Profile
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, registered tax accountant and advises on deal and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He writes in his personal capacity. He can be contacted on +263 772 246 900 or gohofisi@gmail.com
