Spreading the risk
Exploration is high-risk: most drill targets do not become deposits. The project generator model responds to this reality by acquiring and advancing a portfolio of properties, then bringing in partners to fund the most expensive work rather than relying solely on raising money from shareholders.
Instead of betting the company on a single asset, a generator maintains several shots on goal. Success on any one property can reward shareholders, while the cost of drilling is largely carried by partners.
Option and earn-in agreements
The core tool is the option or earn-in agreement. A partner can earn a percentage interest in a property by spending an agreed amount on exploration and making cash and/or share payments over a defined period. Once earn-in thresholds are met, the parties typically form a joint venture to share further costs and benefits.
Eastfield's portfolio illustrates the model: Indata was optioned to a partner under an earn-in toward a 60% interest, funded by partner exploration expenditures and payments. Specific terms are governed by the agreements as disclosed in the Company's news releases.
How partner funding works
Under an option or earn-in agreement, a partner may fund defined exploration expenditures and make agreed cash or share payments to earn an interest in a property. This can reduce the amount of exploration expenditure paid directly by the project owner during the agreement term, but it does not eliminate the owner's other financing requirements or prevent future dilution.
The project owner gives up part of any future value from a project. The allocation of costs, interests, payments, and retained rights depends on the specific agreement.
Evaluating the model
Key questions include the quality of the property portfolio, the terms of each agreement, the strength of partners, payment and expenditure commitments, ownership interests, retained rights, and the company's other financing requirements. The model does not remove exploration risk; each agreement allocates costs and potential benefits differently.
This article provides general educational information about mineral exploration. For information concerning Eastfield's mineral projects, readers should refer to the Company's project disclosures, news releases and continuous-disclosure filings on SEDAR+.