EXISTENCE AND CLASSIFICATION OF A JOINT ARRANGEMENT The Chinese mining company Changchun Mining Ltd and the Australian mining company Gold Rush Ltd have agreed to set up a separate company, Dragon Rush Ltd, to mine for gold in Australia. The Australian government has issued permits to the Australian company to mine for gold in specified areas of Australia. The companies have set up a joint operating agreement which contains the following provisions. • The assets and liabilities of Dragon Rush Ltd are those of that company and not of the parties owning shares in Dragon Rush Ltd. • Dragon Rush Ltd has a board of directors that will consist of six persons, three provided by each of Changchun Mining Ltd and Gold Rush Ltd. Each of these companies has a 50% ownership in Dragon Rush Ltd. For any resolution to be passed by the board, there has to be unanimous consent of all directors. • Gold Rush Ltd will provide the management team for Dragon Rush Ltd for which a management fee will be paid by Dragon Rush Ltd. However, all budget matters and work programs have to be approved by the board of Dragon Rush Ltd. • The rights and obligations arising from the exploration development and production activities of Dragon Rush Ltd are to be shared by all parties to the joint arrangement. In particular, the parties will share in the production obtained from the mining activities and all costs associated with the work undertaken. • If cash is required for ongoing mining activities, the board of Dragon Rush Ltd may make calls on the parties owning shares in that company. Required Discuss whether a joint arrangement exists and whether it should be classified as a joint venture or a joint operation. CASE STUDY