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Alternate Ways of Paying the Piper; Dilution and Nonconsent Mechanisms in Mining Venture Agreements

John C. Lacy, Proceedings of 31st Annual Rocky Mountain Mineral Law Institute (1985)

Mining is probably the basic peace-time industry fraught with the greatest risk. Historically the risks of the unexplored wilderness, hostile natives, harsh climatic conditions, and unstable ground, along with dangers associated with an absence of governmental authority or a hostile political climate, have contributed to the extraordinary financial risk associated with mineral exploration and development efforts. These risks are by no means new, and mining endeavors from earliest history have been a high-stakes game with many an over-confident prospector losing his shirt.


This risk has both traditionally and in modern times been spread by the use of some form of cooperative or multi-party agreement. Because these ventures are often born out of a financial need, the question of what to do when one participant is unwilling or unable to provide the funds required to maintain an interest is critical. The common provision used in modern mining venture agreements to accommodate this possibility is by reducing the participating rights of such a party by what are known as dilution or nonconsent clauses. To understand modern practice, however, it is necessary to place it in historical context.