The mining industry has long been dependent on joint ventures (JVs) and, as 20% to 40% of many companies’ assets and income derives from such ventures, US-based advisory firm Water Street Partners warns that new dynamics in the mining landscape have made JVs more important and challenging.

“JVs are typically used to improve the feasibility of many mining projects by enabling the partners involved to share risks, pool capital and access resources and capabilities; therefore, JVs present many opportunities.

“Unfortunately for project managers, JVs also add significantly to the complexity of managing projects,” says Water Street Partners head of metals and mining practice Gerard Baynham.

He notes that, in a wholly owned mine, the owner will have total discretion over the scope, timing and funding of the project as well as which engineering firms and construction companies to engage.

“At many JV-owned mines, this is not the case. Project managers are stuck in the middle, having to decipher directions from multiple sources to fulfil duplicative and highly burdensome reporting requests, while also managing shareholder reach- ins throughout the JV organisation and motivating JV team members, whose primary loyalty is to their parent company and not to the JV CEO or project director,” he says.

Baynham adds that managing a JV mining project is one of the toughest jobs and it is becoming more difficult as com- panies are moving away from the tradi- tional approach of designating a single partner to manage the project to either dividing the responsibilities among the partners or forming an independent management team to deliver the project.

Despite the challenges for project managers, Baynham notes the importance of JVs for the mining companies involved.

“JVs enable companies to develop mines that they might not have been able to develop on their own. They help companies overcome several obstacles, including local legislation; tight credit markets for noninvestment-grade miners; and increasingly difficult and expensive mining projects, owing to their size, remoteness, political risk, environmental regulations, inflation and demand uncertainty,” he states.

Dimensions of JVs

To identify partners of choice and understand how major companies are viewed by their peers and stakeholders, Water Street Partners surveyed and interviewed more than 70 industry insiders, including mining company executives, JV board directors, asset managers, shareholder support teams, JV CEOs and other personnel in management, as well as dealmakers.

“Initial research showed that three key dimensions correlated to overall JV success and failure, as well as a company’s reputation as a partner. The first was business contributions, such as knowledge, systems, processes, data, people, capital and brands.

“The second dimension was deal-phase partnering attributes, such as an understanding of the counterparty’s goals and targets, a focus on joint gains and the creativity of deal terms. The third was postdeal part- nering attributes, such as speed and responsiveness, reasonableness of information requests and dependability,” says Baynham.

He says that there are several approaches to improving one’s partnering attributes and notes the importance of agreeing on the venture’s strategic intent and operating model, the board’s role and composi- tion, a clear delegation of authority with defined authori- sation limits, a set of information-sharing protocols, as well as forming well-organised and disciplined shareholder support teams.

“How these elements are negotiated in the deal phase and evolve throughout the life of the venture are critical to success. Partners should dis- cuss, agree and document how they will interact with each other and the JV management team. This provides a blueprint that can be dis- tributed and referenced among those involved with the JV to improve their understanding of and compliance with the chosen governance and management system,” he says.

Changing Nature of JVs

Over the last ten years, JVs have become more expensive and difficult to manage as a result of several market forces, outlines Baynham.

“Many of the best greenfield projects worldwide have been claimed, which has led to the redevelopment of stalled brownfield projects and the development of greenfield projects in remote parts of the world that either lack infrastructure or present significant political risk.

“Governments and national mining companies are increas- ingly insisting that miners provide them with equity, substantial control and help build their capabilities through skills transfer. These, in addi- tion to other forces, such as tight credit markets for non- investment-grade miners, increased project size, inflation, tightening environmental regulation and demand uncertainty, have changed the way JVs are executed,” he states.

Baynham adds that many JVs are currently structured in more creative ways, set up as highly independent, autono- mous businesses or highly dependent, controlled assets relying on multiple shareholders for decisions and support, as opposed to the traditional JV structure in which the operations are managed by a single, designated parent.

Additionally, many JVs have delinked ownership from control and economic flows or have made these contingent on future outcomes, adding to the complexity for those managing JVs and the asso- ciated projects, he concludes.