What is a farm-in agreement?
An agreement under which an incoming party earns a percentage interest in a project by funding exploration or development expenditure, rather than paying the vendor cash. Usually staged, so the investor can stop at each decision point.
Key points
- Capital goes into the ground, not to the vendor.
- Staged, so the incoming party can stop at each decision point.
- Tenement obligations run underneath and must be allocated.
At a glance
| Also called | Earn-in |
|---|---|
| How the interest is earned | By funding exploration or development expenditure |
| Typical first stage | 51% for a defined spend over about three years |
| Key terms | Qualifying expenditure, withdrawal rights, operatorship |
| Common in | Australian exploration, and wherever juniors hold undrilled ground |
How the structure works
Under a farm-in, sometimes called an earn-in, an incoming party acquires a percentage interest in a project by spending money on it rather than paying the existing holder. The capital goes into the ground — drilling, studies, development — not to the vendor.
It is the most common way into an Australian exploration project and widespread wherever juniors hold ground they cannot afford to test.
Why it is staged
Earn-ins are almost always structured in stages. A first tranche might give 51% for a defined spend over three years, a second another increment for funding a feasibility study, and so on.
Staging is what makes the structure attractive to both sides. The incoming party can stop at each decision point rather than committing the full amount up front, and the holder gets exploration funded without valuing an asset nobody has drilled yet.
What decides whether it works
The terms that matter are what counts as qualifying expenditure, what happens if the earning party stops short of a milestone, whether it can withdraw and keep nothing or keep a proportionate interest, and who operates during the earn-in period.
Tenement obligations run underneath all of it. Minimum expenditure and reporting commitments attach to the title itself, so a farm-in agreement that does not allocate responsibility for them leaves both parties exposed to forfeiture.
Frequently asked questions
- What is the difference between a farm-in and an earn-in?
- In practice they describe the same structure. Farm-in comes from oil and gas usage and earn-in from mining, but both mean earning an interest by funding expenditure rather than paying cash to the vendor.
- Why are earn-ins staged?
- So the incoming party can stop at each decision point instead of committing everything up front, and so the holder gets exploration funded without having to agree a valuation for undrilled ground.
- Who operates a project during an earn-in?
- Whoever the agreement names. It is commonly the incoming party once it is funding the programme, but this is negotiated and matters, because the operator controls the work that determines the outcome.
Related terms
The traditional Australian mining structure, in which each participant holds a direct legal interest in the tenements and takes its share of production in kind rather than owning shares in a company.
The mechanism applied when one participant declines to fund a programme: the funding party proceeds alone and the non-contributing party’s interest is reduced by an agreed formula, often converting to a royalty below a threshold. In practice this clause decides who controls a project.
The Australian term for a granted mining title — an exploration licence, mining lease or similar. Minimum expenditure and reporting obligations attach to the tenement itself, and failing them risks forfeiture regardless of any joint venture agreement.
The Australasian standard for publicly reporting exploration results, mineral resources and ore reserves, governing disclosure for ASX-listed companies. A resource signed off by a competent person under JORC 2012 is the baseline serious mining investors expect.
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