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Minerals & Mining Law

To many people, the laws governing exploration for minerals on public domain lands and leasing of federal minerals may seem arcane. The principal means of acquiring mining rights on federal lands is location of mining claims under the Mining Law of 1872. That statute, enacted when the West was being settled and federal policy encouraged disposal of public domain lands, still governs the location of metallic minerals such as gold, silver, tin and copper, as well as other minerals including uranium, building stone other than common varieties, and even diamonds.

Mining rights relating to fossil fuels such as coal, fertilizer minerals such as phosphate and potash, and chemical minerals such as sodium and sulphur on federal lands are acquired under the Mineral Leasing Act of 1920.

This article summarizes some of the significant provisions of those laws, touches upon leasing of minerals on state lands, and discusses private ownership of minerals and obtaining mining rights on private lands. Other topics covered include surface control, mine development, mining agreements and title examination of mining property.

Mining Law of 1872

Location of mining claims under the Mining Law of 1872, 30 U.S.C. §§ 22-42, is a self-initiation system under which a person physically stakes an unpatented mining claim on public land that is open to location, posts a location notice and monuments the boundaries of the claim in compliance with federal laws and regulations and with state location laws, and files notice of that location in the county records and with the Bureau of Land Management (BLM). Mining claims can be located on land as to which the surface was patented into private ownership under the Stockraising Homestead Act of 1916, 43 U.S.C. §299, but the mining claimant cannot injure, damage or destroy the surface owner's permanent improvements and must pay for damage to crops caused by prospecting.

Discovery of a valuable mineral deposit, as defined under federal law, is essential to the validity of an unpatented mining claim and is required on each mining claim individually. The location is made as a lode claim for mineral deposits found as veins or rock in place, or as a placer claim for other deposits.

While the maximum size and shape of lode claims and placer claims are established by statute, there are no limits on the number of claims one person may locate or own. The Mining Law also contains provision for acquiring five-acre claims of non-mineral land for millsite purposes. A mining operation typically is comprised of many mining claims.

The holder of a valid unpatented mining claim has possessory title to the land covered thereby, which gives the claimant exclusive possession of the surface for mining purposes and the right to mine and remove minerals from the claim. Legal title to land encompassed by an unpatented mining claim remains in the United States, and the government can contest the validity of a mining claim.

The Mining Law requires the performance of annual assessment work for each claim, and subsequent to enactment of the Federal Land Policy and Management Act of 1976, 43 U.S.C. §1201 et seq. , mining claims are invalidated if evidence of assessment work is not timely filed with BLM.

However, in 1993 Congress enacted a provision requiring payment of $100 per year claim maintenance fee in lieu of performing assessment work, subject to an exception for small miners having less than ten claims. No royalty is paid to the United States with respect to minerals mined and sold from a mining claim.

The Mining Law of 1872 provides a procedure for a qualified claimant to obtain a mineral patent ( i.e., fee simple title to the mining claim) under certain conditions. It has become much more difficult in recent years to obtain a patent. Beginning in 1994, Congress imposed a funding moratorium on the processing of mineral patent applications which had not reached a designated stage in the patent process at the time the moratorium went into effect.

Additionally, Congress has considered several bills in recent years to repeal the Mining Law or to amend it to provide for the payment of royalties to the United States and to eliminate or substantially limit the patent provisions of the law.

Mining claims are conveyed by deed, or leased by the claimant to the company seeking to develop the property. Such a deed or lease (or memorandum of it) needs to be recorded in the real property records of the county where the property is located, and evidence of such transfer needs to be filed with BLM. It is not unusual for the grantor or lessor to reserve a royalty, which as to precious metals often is expressed as a percentage of net smelter returns.

Mineral Leasing Act of 1920

Under the Mineral Leasing Act of 1920, as amended, 30 U.S.C. § 181 et seq., the Bureau of Land Management grants leases for development of deposits of coal, phosphate, potash, sodium, sulphur and other leasable minerals on public domain lands and on lands having federal reserved minerals.

The Mineral Leasing Act establishes qualifications for mineral lessees, sets out maximum limits on the number of acres of a particular mineral that can be held by a lessee, and prohibits alien ownership of leases except though stock ownership in a corporation. While all federal mineral leases require the payment of annual rentals and production royalties to the United States, the terms and conditions of the leases vary.

For instance, phosphate and potassium leases have indeterminate terms subject to readjustment of the lease terms and conditions at the end of each 20 years, while sodium and sulphur leases have an initial term of 20 years subject to the lessee's preference right to renew the lease at the end of the initial term and every 10 years thereafter.

BLM regulations for most types of leases set out minimum rentals and royalties, thus allowing BLM to increase the rentals and royalties periodically for new leases and when existing leases are readjusted or renewed.

Keep in mind, assignments and subleases of federal mineral leases must be approved by BLM.

Regulations Different for Coal vs. Other Minerals

The statutory and regulatory requirements relating to federal coal leases differ somewhat from those relating to other solid minerals. The coal leasing provisions under the Mineral Leasing Act were substantially amended when Congress adopted the Federal Coal Leasing Amendments Act of 1976. The amendments were enacted in response to the small percentage of federal coal leases that were in production at that time and to the widespread speculation in federal coal leases that was occurring as investors waited for their undeveloped leases to increase in value. Federal coal is leased competitively, in infrequent lease sales held by BLM.

Prior to a sale, BLM determines the fair market value and maximum economic recovery of the tracts offered for lease. No bids lower than the fair market value are accepted. Coal leases provide for the payment of annual rentals, and of a royalty of not less than 12% of the value of coal removed from a surface mine of 8% of the value of coal removed from an underground mine.

The terms of a federal coal lease are subject to readjustment at the end of the first 20-year period of the lease and, if the lease is extended, at the end of each 10-year period thereafter. The 1976 coal lease amendments require lessees to have deposits in production in ten years or forfeit the leases and lose eligibility for additional leases.

Coal leases can be combined into "logical mining units" for more efficient development. Coal mining operations (on both federal and private lands) are regulated by the Office of Surface Mining or federally approved state OSM offices under the Surface Mining Control and Reclamation Act of 1977, 30 U.S.C. §1201 et seq.

Leasing of Minerals on State Lands

States follow differing procedures for granting mining leases covering state school lands and other state-owned lands, and for approval of transfer of such leases. Information relating to royalties payable under state mineral leases, assignment forms and fees relating to transfers of interest in state mineral leases can be obtained by review of state regulations and consulting the applicable state agency.

Private Ownership of Minerals and Severance of Surface and Mineral Estates

Except in the West, most mineral rights are owned by fee (private) landowners. Even in the West, there is significant private ownership of minerals. Public land disposal statutes prior to the Stockraising Homestead Act of 1916, 43 U.S.C. §299, provided for a reservation to the United States only of certain minerals or did not provide for a reservation of minerals at all.

While one might expect that rights granted under statutes enacted in the early 1900s would have been resolved long ago, it was not until June 1999 that the United States Supreme Court determined that the reservation by the United States of coal in patents issued pursuant to statutes enacted in 1909 and 1910 did not include coalbed methane.

Additionally, other minerals passed into private ownership under railroad land grant statutes. Although acquisition of mineral land except coal and iron land was prohibited, lands encompassed by railroad land grants sometimes were found later to contain minerals.

When selling railroad grant lands, railroads frequently made a practice of reserving the minerals. Severance of mineral ownership from the surface estate by other landowners through reservation in deeds is common as well.

Ambiguities concerning mineral reservations has been the source of much litigation. The mineral estate is sometimes then further divided by conveyance into undivided fractional interests. Severed minerals are real property and usually are conveyed by mineral deed.

Obtaining Mining Rights on Private Land

Privately-owned minerals typically are leased by companies seeking to develop them, sometimes with an option to purchase. Mining leases tend to have quite a long term -- 20 years generally is the minimum. Some leases have a stated primary term and are extended by mining operations or production, while others have a fixed term and are renewable.

There is no standard form of mining lease for fee property, and the terms and conditions of mining leases vary greatly. Provisions of particular importance in negotiation or review of a mining lease include:

  • Mineral(s) covered by the lease, those reserved by the lessor, and provisions relating to conflicting development;
  • Term of the lease;
  • Production royalties payable to lessor;
  • Minimum royalties, if any, payable to lessor, and crediting of minimum royalties against production royalties;
  • Restrictions on mining methods allowed; and
  • Provision that requires the lessor's consent in connection with assignment or sublease.

Surface Control

Historically, disputes between surface owners and mineral developers have been governed by the common law doctrine of "reasonable surface use." The doctrine allows a mineral owner or lessee or use a reasonable amount of the surface to develop underlying minerals, because without such access severed minerals have no value.

The mineral owner's use of the surface is limited by a reasonableness standard, and does not allow damage of surface improvements through negligence or surface-intensive uses such as strip mining without compensation of the surface owner. Express provisions in the patent or deed under which the surface and mineral estates were severed may alter the mineral owner's surface use rights.

Several state courts have modified the reasonable use doctrine to require that mineral developers accommodate existing surface uses, and some states have limited the common law doctrine by statute. States also have varying statutes protecting the surface owner from certain damages relating to mineral development, such as subsidence.

If a mine or related facilities are to be located on land with private surface ownership, the mineral developer typically acquires surface control by purchase or lease. Open pit operations, in particular, require use of large areas for roads, mining, stripping, disposal of waste rock, and low-grade stockpiles or heap leach operations. However, even an underground mine can require significant surface use for an ore treatment plant and other facilities needed for mine operations.

Mine Development

Mine development is a long-term, expensive undertaking, and often the company that undertakes the initial exploration is not the one that ultimately develops a mineral deposit. Following prospecting and activities such as regional reconnaissance, a spot check of promising geological situations in published literature, submittal of a proposal by a prospector or geologist, or a decision to restudy an old mine or mining district, a small area is selected for detailed exploration.

A company typically seeks to secure control of mineral rights as soon as possible after an area has been selected for exploration. Various geological and geophysical exploration methods and exploration drilling then are used to determine if the ore target is present and to obtain an idea as to its size and grade.

After it becomes apparent that an ore body is present, a feasibility study (a review of costs and potential earnings of the proposed mining project) is prepared. Assuming that the feasibility study shows that an acceptable rate of return can be expected from the mine and a decision to develop the property is made, capital for the mine is generated internally by the company, obtained through outside financing, and/or obtained from another company that desires to participate in the project.

The development stage of the project typically includes further drilling to more clearly define the grade, volume and geology of the ore body. Site preparation is dependent upon the mining method to be used. Construction of a mine plant, ore treatment facilities, roads, rail spurs and other facilities needed for the particular operation also must occur before production can begin.

Mining Agreements

Many western states have statutory provisions governing the joint ownership and working of mining properties. The mining partnership, a special type of partnership, has developed in connection with mineral development. Several states establish by statute the elements of a mining partnership and the consequences of creating one.

While mining partnerships often are created by written agreement, there has been substantial litigation over the creation of a mining partnership by implication.

The most common form of agreement between companies planning to jointly explore for and develop minerals is a mining joint venture -- a form of mining partnership. Such agreements provide for joint ownership by the participants of the mineral property that is the subject of the joint venture, joint operation, and an agreement to share profits and losses.

Mining joint venture agreements typically are based on a model form agreement known as Form 5 (or more recently, Form 5A and Form 5A LLC) developed by the Rocky Mountain Mineral Law Foundation with substantial industry participation.

Title Examination of Mineral Properties

Most title insurance policies except minerals, and it therefore generally is not possible for a lessor or purchaser of mining property or its lender to obtain title insurance. Instead, evidence of ownership is established through an attorney's title opinion. If mining claims or federal mineral leases are involved, the title opinion is based not only on an abstract or examination of the county records where the property is located, but also the records of state office of the Bureau of Land Management.

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