Most of the deals made on mining claims in Canada are based on a standard format. This changes somewhat in the states, but claims are sold on an option basis with reserved royalties and work commitments. This is done for obvious reasons which I will belabour herein. 1.) if you pass control to an optionee or company, where is the guarantee that they will develop the claims according to any sort of schedule? 2.) if minerals may be found that are not immediately evident, where is the formula for payment of this to-be-found resource? In any given mining situation there is always unfound resources. That is why mining companies have exploration programs that are ongoing. The standard is, that a feasibility study is usually based on 30% of the ore that my be mined in total. Rarely is it all drilled off. 3.) royalties are based on total revenue because there is no way to determine profit with myriad different accounting systems. But they royalty must reflect the general costs of the industry. In Canada the median is a 3% royalty gross revenue, and this is called a "net smelter return". It should properly be called a "gross revenue royalty". The buyout is really impossible to determine beforehand as how much mineral will there be found? Is the prospector expected to drill it all off and do his own feasibility? Why is the mining company so eager to get the property in the first place if they are not betting on the value being as great as the prospector thinks it may be? Neither of them can say it isn't A or B in value, so they had better make a deal considering that it might be either.
I beware of deals that are too simple. My deals usually run to 10 to 20 pages, depending on how much needs to be defined in terms of force majeure, occupation of land, environmental responsibilities and other terms and schedules, Some people like the simple, or handshake deals but they leave a lot of questions unanswered don't they? "Trust me", is a phrase that in the end inspires no relaxation. If they don't want a lot of terms, that define the understanding completely. what are they scared of? If they intend to do such and such act or undertaking, why don't they sign that they will? I used to hear from mining companies all the time "we would do that". Well, put it in writing.. "well it's not the kind of thing you would put in a deal". I say, if you will do it, and intend to do it, you can write it down and sign it. Other excuses you hear, is "the deal does not give me flexibility or ties me down if the confidentiality period goes beyond 2 years." That is rich. They cannot steal the claims for 5 years, so that is and impediment!
In the end you have to trust, competence, honour, ambition and integrity of the company that develops your claims. It is hard to find the whole package. And they can run into bad luck too. You like to find people you can see eye to eye with and have the capital and will to go ahead with the kind of project that will maximize revenue. It is all too often a pipe dream. I have given up on large mining comapanies almost entirely. And the small ones have no balls. They cannot find money and they are scared of mining or they don't know how. The honest are incompetent and the "competent" are thieves.
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