CHAPTER 14 LAND AND TITLE DUE DILIGENCE FOR MINING TRANSACTIONS
| Jurisdiction | United States |
(Sept 2018)
LAND AND TITLE DUE DILIGENCE FOR MINING TRANSACTIONS
Parsons, Behle & Latimer, P.C.
Salt Lake City, UT
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NORA R. PINCUS is a shareholder at Parsons, Behle & Latimer in Salt Lake City. Her practice focuses on all aspects of natural resource development, land use, and real estate, with emphasis on oil and gas exploration and production, mining, real estate development, and renewable energy projects. Nora advises clients on asset purchases, mineral leasing, royalty agreements, and public land laws, prepares title opinions for oil and gas and mining properties, and assists clients with permitting and environmental compliance related to energy, mining, and real estate projects on public and private lands. Nora has particular expertise representing clients in high value asset transactions involving oil and gas and mining properties, renewable energy projects, real estate, and ranching. Nora prepares purchase and sale agreements, joint venture and joint operating agreements, and conveyance documents, and performs due diligence on behalf of purchasers and lenders. Nora helps clients permit major infrastructure projects on public lands, and regularly prepares comments on federal land management policies, land and resource management plans, and environmental regulations. Nora also assists clients doing business on American Indian tribal lands, particularly in the energy sector, including issues related to tribal jurisdiction, federal Indian law, tribal employment rights, and environmental compliance. Nora began her legal career as a judicial law clerk to the Honorable Alex J. Martinez of the Colorado Supreme Court.
I. Introduction
The objective of due diligence is two-fold. First, it is intended to provide in-depth knowledge about the asset or entity involved in a proposed transaction, which is not often publicly available at the time of the negotiation. Secondly, it is to confirm the representations and warranties made by the target in the relevant transaction agreement, as well as to identify any major or significant "gaps" in such representations and warranties. Both of these aspects go directly to the price of the transaction and the risk that the acquiring or investing party is willing to assume. As to the land or title portion of due diligence, the purpose of the inquiry is to confirm that the "target" of the transaction in fact owns the interest in the real property it is claiming to own, identify any third party interests in the property, and identify any other issues that could affect the target's interest in the property.
Determining the appropriate scope of any land due diligence project is in many ways the most important, and most challenging, aspect of the due diligence process. On one hand, the party performing due diligence needs to be thorough enough in the inquiry to ensure that he or she has correctly answered the fundamental questions identified above, while on the other hand must keep in mind the sometimes competing interests of budget and the timeline of the proposed transaction. Complex title examinations can take weeks or months to complete, and the party performing the due diligence may not have the luxury of time (or budget) to examine all facets of title to all of the property involved in the transaction.
Therefore, at the outset of the project, the party performing the due diligence should spend some time with the available documents to determine what title work has been done in the past and whether there are any ways to limit or tailor the scope of the inquiry. For example, if title opinions or title reports have previously been prepared for some or all of the property in question, then it is likely appropriate to limit the title due diligence to updating or "brining down" those existing title reports. If there are no prior title reports for the property and there is a large land package involved, it may be appropriate to limit the inquiry to a subset of the most valuable or prospectively valuable lands. However, any limitations on the scope of the title due diligence to be undertaken will create the risk that a potential issue may be missed. Thus, significant care should be taken up-front to define the scope of the due diligence inquiry in a way that will minimize this risk. Then, the party for whom the project is being conducted must be fully informed of, and agree to assume, the risk that may come from limiting the scope of the diligence inquiry.
While the nature of the property in question, and the scope of the inquiry to be performed, will change based on the project and the objective of the due diligence, this paper provides a general overview of the matters that should be addressed in the land section of a due diligence report for a mining project, with a specific focus on unpatented mining claims.
II. Background
A. Land Tenure Systems in the United States
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There are four main divisions of real property ownership in the United States: federal public lands, state public lands, private or fee lands, and tribal lands. Mining projects can be situated on lands comprised of any of these categories, or multiple categories, and the first action that any party conducting land or title due diligence should perform is to identify and categorize the types of land included in the project area. For obvious reasons, the type of land or lands in the project will determine what materials must be reviewed during due diligence.
Federal Public Lands--Federal public lands are what is left in the federal public domain of the land mass that the federal government acquired to assemble what is now the United States. The federal government assembled these lands through a number of treaties, purchases, cessations, and annexations. These include, among many others, the grant of the original thirteen colonies from Great Britain following the Revolutionary War, the Louisiana Purchase from France, the Spanish cession of portions of Florida and Colorado in 1819, the 1845 annexation of the Republic of Texas, the 1946 treaty with Great Britain to the Oregon Territory, and the 1848 Treaty of Guadalupe Hidalgo with Mexico that ended the Mexican War and that drew the boundary between the United States and Mexico at the Rio Grande and the Gila River.
Over time, through different mechanisms and laws, the federal government divested a percentage of these lands to private parties through the issuance of patents and other grants. Patents were used as an incentive to draw citizens to explore and develop new areas in America, including primarily the lands west of the 100th meridian. The way in which a given parcel of property made its way into private ownership continues to be important today, and can have significant impacts on the extent of the property right granted. For example, under some laws, the federal government conveyed the surface estate to a private party, but retained the minerals, or only retained certain minerals. Thus, depending upon the scope of the due diligence project and other title work that has been performed on the property, it may be necessary to review all documents in the chain of title to the particular parcel back to the document where the federal government transferred its right, title, and interest ("patent") to fully determine the scope of the rights associated with such property.
Particularly in the American West, however, the federal government continues to own significant lands and minerals, and much of the mineral exploration and development activity in the West occurs on federal public lands. For example, in Nevada, one of the most active states for hard rock exploration and development, the federal government owns approximately 84.9% of all land in the state.1 As relevant here, the acquisition of minerals and right to mine minerals located on federal public lands is governed by the General Mining Law of 1872,2 as to "locatable" minerals and the Mineral Leasing Act,3 as to coal.
State Public Lands--The original concept under which new states were to be admitted to the United States was on an "equal footing" with the original thirteen colonies, including land ownership and title. For many of the western states, however, the enabling act that created a state
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from the Federal territory contained a waiver of the equal footing principle. In most of the western states, in lieu of assuming ownership of lands pursuant to the equal footing principle, the states were granted specific land grants including sections of land for schools, hospitals and other uses.4 Of these various grants, the most important for mining law purposes is the grant of state school land sections. Generally, if the same were available at statehood and had not previously been granted to other private interests (including settlers and miners), one or two sections of land in each Township was granted to the state being admitted, to support the common schools and other state institutions.
Many western states continue to own significant holdings, many of which contain valuable mineral resources. Acquisition of minerals and the right to mine minerals located on state public lands is typically through leasing, the components of which vary from state to state.
Fee Lands--As noted above, and with some historic exceptions, most fee property in the United States was initially owned by the federal government, or, less commonly, a state government, and was granted by patent to private parties. The most common type of fee property encountered in mining due diligence is the patented mining claim. As discussed in more detail, under the General Mining Law of 1872, a claimant could convert federal public lands to private ownership by complying with the requirements of the law and proving that the land in question contained a valuable mineral deposit. Upon the claimant's...
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