Participation Agreements

When there is a participation agreement for a mine the company interested in buying it specifies to spend a certain amount of capital in a specific time in order to obtain a result they are after. In other words, the company might want to get into a prolonged drilling campaign of a certain amount of meters, or they might want to sink a shaft down to a certain depth, or put up a mill of a specified capacity, do underground work etc, etc. The work that would be required to any of the previously listed interests would most likely be more applicable to half way developed mine rather than to a prospect. In most cases the company will push on having full management control. The equity that is held back by the seller is variable, but this often varies anywhere from ten percent to fifty percent. Participation contracts normally have a provision for the company to get back its capital investment off the top, in other words, before there is a division of the profits. On the contrary to the lease and bond set up, the participation agreement that has been shown is not as advantageous to the seller in where it is possible he might have to wait a long time before being able to share in any profits. Nonetheless, if the mine has a long life span, the total gain the seller will gain will be more. There are additional types of participation agreements that have to do with stock option plans, free shares, escrowed shares, as well as senior financing measures. These types of plans can be worked out in order to allow the seller to obtain securities that are negotiable that can be sold prior to the profit being made, therefore skipping over the hassle of not sharing in the profits for a long amount of time in case the company needs to first recover a big capital investment.