Striking a Deal: How Earnouts Can Bridge the Gap in Mining M&A

To listen to an audio recording of this article, click here.

In recent years, earnout provisions have become an increasingly important tool for managing uncertainty in M&A transactions. This article examines how they are being used to bridge valuation gaps in the mining sector and continues our series on earnouts, following previous commentaries on general earnout structures, life sciences transactions and an Ontario Superior Court decision on triggering provisions.

While many industries are currently experiencing heightened uncertainty in the face of supply chain constraints and tariff pressures, mining activity largely remains resilient. Driven in part by the global energy transition and growing demand for secure and responsibly sourced critical minerals, the sector does not appear to have been as affected by these macro trends and has retained its investment appeal across Canada and the globe. Between January 2024 and July 2025, mining companies announced or closed at least 18 major sale transactions valued at more than $1 billion each, representing $47 billion in deal activity, according to the Canadian Mining Journal.^[1] If this pace holds, it will set a two-decade record.^[2]

More broadly, global metals and mining M&A has seen sustained growth in recent years, with total deal value rising from US$201 billion in 2021 to US$228 billion in 2023, according to the Institute for Mergers, Acquisitions and Alliances.^[3] Against this backdrop, earnout provisions are expected to remain a core feature of mining transactions going forward, particularly in deals involving early-stage projects with material valuation uncertainty.

Earnout Provisions and M&A in the Mining Industry

Earnout provisions have become increasingly popular in Canadian mining M&A transactions, particularly in deals involving exploration-stage and early-development assets. Between 2021 and 2023, 47% of private mining and metals transactions surveyed by Thomson Reuters Canada in 2024 included earnout provisions. These mining M&A earnout provisions were often tied to development milestones, commodity price thresholds and royalty-based structures.^[4]

The sector’s inherent challenges, such as uncertain resource estimates, long development timelines, commodity price volatility and difficulty of securing requisite governmental approvals, can make it difficult for parties to agree on the value of the target and its assets prior to closing. Earnout provisions offer a valuable solution for addressing differing views of valuation by tying a portion of the purchase price to future performance or achievement of key milestones.

Sellers are often motivated to attain a higher purchase price or retain exposure to the upside of assets they have helped developed. Buyers, on the other hand, are looking to mitigate the risk of overpayment for mining businesses and limit their downside exposure to known and unknown external risks.

Several recent transactions underscore the growing use of earnouts in the sector:

• Highlander Silver & SSR Mining Inc. (May 2024): In November 2023, Highlander Silver entered into a definitive agreement to acquire SSR Mining’s San Luis Project located in central Peru. The transaction closed in May 2024 and included total consideration of up to US$42.5 million in cash, comprised of an initial payment of US$5 million at closing and up to US$37.5 million in earnout payments, as well as a 4% net smelter return (“NSR”) from the project. The earnout payments were contingent on the San Luis Project achieving five different milestones over varying periods, including initiating a drilling program and commencing commercial production.^[5] This allowed Highlander Silver, the buyer, to defer the payment of a significant amount of the cash purchase price until key value-driving events were met, while enabling SSR Mining, the seller, to benefit from the project’s future successes, including by way of participating in the upside of the San Luis Project through the NSR.
  
• Orla Mining Ltd. & Newmont Corporation (March 2025): Earlier this year, Orla Mining acquired the Musselwhite Gold Mine from Newmont for up to US$850 million. The deal consisted of an initial payment of US$810 million at closing, funded through a combination of debt, convertible notes, gold repayments and cash reserves.^[6] The definitive agreement also provided for up to US$40 million in earnout payments tied to average realized gold prices over the two-year period following closing.^[7] The earnout was structured with tiered thresholds, allowing Newmont to benefit from upside exposure to future commodity prices without retaining operational responsibility. The transaction reflects the use of price-based earnouts in producing asset deals as a way to balance market risk and align expectations in a volatile commodity environment.
  
• Lundin Mining & Boliden AB (April 2025): Also in 2025, Lundin Mining sold its Neves-Corvo mine in Portugal and its Zinkgruvan mine in Sweden for US$1.4 billion in cash proceeds, with up to US$150 million in future payments tied to metal prices and operational thresholds.^[8] Specifically, up to US$100 million is payable for Neves-Corvo if copper and/or zinc benchmarks (e.g., average LME prices above US$4.50/lb for copper or US$1.30/lb for zinc) are exceeded in semi-annual periods from 2025 to 2027, while up to US$50 million is payable for Zinkgruvan if zinc prices exceed US$1.40/lb in 2025-2026 and a minimum annual production of 135 million pounds of payable zinc is achieved.^[9] This structure allowed Boliden to defer part of the purchase price while linking a portion of the consideration to commodity price performance and gave Lundin direct participation in upside prices without operating the assets.
  

Typical Earnouts Structures in Mining M&A Transactions

Earnout provisions in other industries are usually based on the achievement of financial targets or operational milestones. Most commonly, they are tied to revenue or EBITDA targets.

However, in mining M&A transactions, earnouts are often structured around project-specific outcomes.^[10] Four of the most common earnout provisions in mining transactions include:^[11]

1. Operational Milestone-Based Payments: These earnout milestones are widely used in transactions involving early-stage targets or assets. Payments are triggered by the achievement of defined operation milestones, such as completion of a feasibility study, obtaining key regulatory permits or commencement of commercial production, for example.
   
2. Production-Linked Payments: Earnouts can be tied to actual mineral production volumes. These are common in transactions involving near-production or producing target assets. These provisions often set thresholds (e.g., tonnes per annum) or cumulative production targets.
   
3. NSR/Royalties: Royalties, particularly NSRs, are widely used in Canadian mining transactions to provide sellers with a revenue stream linked to a project’s future output. NSRs are often calculated as a percentage of revenue from the sale of the mineral product, after deducting certain processing and transportation costs.
   
4. Commodity Price-Based Payments: In transactions involving commodities with volatile price changes (e.g., nickel, lithium), earnout structures may include mineral price-based triggers. These earnouts tie additional payments to the achievement of certain average mineral benchmark prices over a defined period.

Considerations for Structuring Earnouts in the Mining Industry

While buyers and sellers in the mining sector may initially align around value creation, diverging post-closing priorities are a common driver of the ultimate inclusion of earnout payments in definitive agreements. For example, buyers may not actively pursue earnout milestones due to shifting budgets, evolving corporate priorities or unforeseen technical delays. These risks are heightened in the mining sector, where long project timelines, constrained access to capital and external factors regularly delay progress and complicate deal execution.

To address this potential misalignment, sellers in mining M&A transactions frequently negotiate post-closing covenants requiring buyers to use “reasonable efforts” or “best efforts” to increase the likelihood of achieving earnout milestones. The distinction between the two terms is that a higher threshold of effort from the buyer is required to meet the “best” threshold. Courts interpret such clauses contextually, assessing them based on the language of the agreement, prevailing industry norms and the broader factual matrix.^[12] To mitigate disputes, these obligations should be supported by objective performance benchmarks, defined timelines and robust reporting mechanisms.

The need for well-drafted earnout provisions was underscored in Project Freeway Inc. v. ABC Technologies Inc.,^[13] where the Ontario Superior Court declined to enforce an earnout acceleration clause triggered by the sale of a “material portion” of the target’s assets. For more information, see our previous article: Not So Fast: Ontario Court Weighs In on Earnout Acceleration Clauses. Since buyers control operational decisions post-closing, their actions can substantially impact whether earnout conditions are met. In the wake of ABC Technologies, the Superior Court has reminded businesses and stakeholders alike that precision in drafting during the M&A process is essential, as any ambiguity in key terms or obligations can create significant post-closing confusion and lead to potential litigation.

Beyond drafting, buyers and sellers should proactively address operational governance and post-closing risk management. This includes establishing protocols for information sharing, defining key decision-making thresholds and accounting for the impact of leadership changes, legal/regulatory shifts or project reprioritization. A transparent and well-structured framework helps preserve alignment, minimizes the likelihood of disputes and protects value for both parties. While earnouts remain a valuable tool for managing valuation uncertainty in mining M&A, their successful implementation depends on a combination of contract drafting, practical governance tools and commercially aligned incentives. In long-cycle, capital-intensive sectors such as mining, these considerations are particularly relevant.

Achieving Earnout Milestones in Mining Transactions

Despite their flexibility, earnout provisions can often be difficult to meet. According to SRS Acquiom, a leading M&A escrow and shareholder representative services firm, earnouts in M&A transactions achieve only 21 cents on the dollar of the maximum potential earnout value and are contested in at least 28% of cases (based on more than 2,100 private-target M&A transactions reviewed by SRS Acquiom between 2018 and 2023).^[14] In mining transactions, these challenges are amplified by numerous factors, including volatile commodity pricing, prolonged development schedules and uncertainty surrounding financing and reserve economics.

Given the complexities of mining operations, sellers must be realistic about the timing and probability of milestone realization. As a result, thoughtful drafting and well-considered earnout provisions are essential tools for increasing transparency and reducing disputes.

Conclusion

Earnouts offer a clear pathway for managing risk in mining M&A transactions. However, challenges in defining, tracking and achieving agreed-upon milestones make them inherently complex. It is critical that parties account for long and uncertain timelines, crafting agreements that balance flexibility with clear, outcome-based terms. With deal activity in the mining sector expected to remain strong and disputes over value persist, earnouts will continue to play a fundamental role in bridging the valuation gap between buyers and sellers.

The Capital Markets Group at Aird & Berlis LLP will continue to monitor matters related to earnout provisions in mining M&A transactions. If you are a business owner, seller or potential buyer considering an earnout in the context of an M&A transaction, or have any questions on how to best navigate the use of an earnout provision in the sale or purchase of a mining business, please contact the authors or a member of the group.