JurisdictionUnited States
Due Diligence in Oil & Gas and Mining Transactions
(Sept 2018)


Richard R. Hall
Stoel Rives LLP
Boise, ID
Salt Lake City, UT

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RICHARD R. HALL is a Partner in Stoel Rives LLP's Salt Lake City and Boise offices. His practice focuses on mining, natural resources, and real estate law, with an emphasis on the sale, acquisition, development, and operation of mining and energy projects. Richard has extensive experience in transactions for the purchase and sale of mining and energy projects. He advises clients in operational and regulatory matters relating to the acquisition, due diligence, title review, permitting and maintenance of mineral, surface and access rights required to support mining, energy, and industrial projects. His past experience as a civil engineer for a large electrical utility allows him to combine his legal experience with a technical understanding of resource and energy development projects. Richard represents clients in the hardrock, coal and industrial mineral industries. In the course of his practice, Richard has assisted mining and energy clients in structuring and negotiating complex mining and energy project transactions, land acquisition and lease agreements, as well as permitting projects on public, private, and tribal lands. He has vast experience with public land law issues relating to use of and access over public lands, and location, maintenance, and title review of mining and millsite claims under the Federal Mining Law of 1872. He also regularly handles water rights matters in Utah, Idaho, Wyoming, and Montana. Richard represents clients before various federal, state, and local regulatory, land use, and resource management agencies, including the U.S. Bureau of Land Management, U.S. Forest Service, U.S. Environmental Protection Agency, and various state environmental quality, state trust lands, and water rights agencies. He also has extensive experience in land and mineral title matters. In addition to general title reviews conducted in conjunction with land acquisitions, Richard's experience includes the preparation of numerous mineral title opinions for mining and oil/gas operators in several states.

RICHARD R. HALL is a partner at Stoel Rives LLP. He received his Bachelor of Science in Civil and Environmental Engineering from Brigham Young University in 1999, and is a 2003 graduate of the University of Chicago Law School. He practices primarily in the areas of mining, natural resources, environmental, public lands and energy law, with extensive experience in mining and energy project transactional and permitting matters.

I. Overview

Do the facts support and confirm the assumptions? That is the question the buyer of any mining project, business or asset has, and that is the central purpose of due diligence. Due diligence is fundamental to the valuation of the business and assets that form the basis of a transaction. The information that is confirmed, or at times first comes to light, during the due diligence process also establishes the foundation for the allocation of risk inherent in any transaction between a buyer and a seller or parties contemplating a joint venture. This is true of any transaction and is especially true in the mining industry.

Generally, due diligence is thought of as the buyer's task, with little, if any, focus placed on the seller's role in the due diligence process, apart from making information available to the buyer. However, the seller's role is more than that and cannot be overlooked. For a seller, the basic functions (and obligations) of due diligence are analysis and disclosure. Due diligence conducted by the seller puts the seller in a position to disclose information to a buyer on the benefits and risks related to the purchase of the business and assets. But when properly conducted, the seller's due diligence puts it in position to avoid inaccurate or incomplete representations or disclosures regarding the business or assets, to have confidence in those representations and disclosures, and to defend against claims by a buyer that it was misled.

For a buyer, the basic purpose of due diligence is (1) the validation of the assumptions it has made in negotiating the tentative terms of the agreement and (2) the confirmation of the seller's representations and disclosures regarding the mining business or assets. Due diligence properly performed by the buyer allows it to test its assumptions on the value and condition of the business and assets, assumptions that are foundational to the buyer's purpose in entering into the transaction. Properly performed due diligence also allows the buyer to better define its expectations regarding the business and assets going forward after the closing. The outcome of the due diligence process is either (1) an agreement between the seller and buyer on the terms of the transaction, and the mutually acceptable allocation of risk related to the business and assets, or (2) no deal at all.

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Given the land-intensive nature of mining projects, mining due diligence review typically focuses heavily on the mining title, land and environmental due diligence. This review largely entails the analysis of documents available within the public record, including documents relating to title to mineral and surface interests, environmental liabilities, rights-of-way, water rights, permits and liens, and other encumbrances.

However, in mining transactions involving the acquisition of the business or substantially all of the assets, it is critical that the due diligence team look beyond the public record. The due diligence process must identify and quantify the nature and extent of assets, liabilities and commitments related to the mining business being acquired or sold contained in non-public documents and resources. These documents and resources go beyond the land and title, and relate to the mining company itself and its operations. This aspect of the due diligence review process requires an understanding of the various non-public agreements and information relating to the mining business and its assets, and the impact such information can have on the transaction and the buyer's expectations.

This paper will provide a general checklist and discussion on key non-public documents and information that are often encountered as part of the mining transaction due diligence. The author reminds the reader, however, that this paper only focuses on one aspect of the due diligence review, and that no review is complete without considering the mineral title, land and environmental matters that appear in publicly available documents.

II. Structuring the Due Diligence Review

The basic structure of a mining transaction due diligence review will be determined largely by two factors: the nature of the transaction and the property interests involved. These factors should be clearly set out in the transaction purchase agreement. There is wide variability in the nature and form of mining project and business transactions, including straight asset purchases, stock deals, joint ventures and mineral exploration agreements.1 Likewise, the nature

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of the properties and other assets involved in a mining project or business transaction can vary widely. An effective due diligence review must account for these variations and adapt to issues that arise as the review process moves forward. Such review cannot be accomplished by simply pulling out copies of a form due diligence checklist and distributing it to the due diligence team. Although a form checklist may be a good place to start, an effective due diligence review will require a custom made, continually changing checklist designed specifically for the subject transaction.

With that caveat in mind, the checklist that follows is designed to provide a general, high-level framework, and to identify major focal points of investigation pertinent to mining properties, omitting those aspects of the due diligence review that typically involve the review of recorded or otherwise publicly available documents and information, such as the review of land title, financing and environmental matters.2 The author would direct the reader to the Rocky Mountain Mineral Law Foundation's "Sample Form Due Diligence Checklists and Forms" for a comprehensive checklist of both asset acquisitions and corporate transactions in the mining and oil and gas sector.3 The creation of an appropriate checklist is the initial step. With a good checklist in hand, the practitioner can carefully tailor the scope and approach of the due diligence investigation to the nature of the transaction, the nature of the properties and operations, and the relative sophistication of the seller and buyer parties.

III. Mining Transaction Due Diligence Checklist4

1. Corporate/Shareholder Documents
a. Articles of incorporation, certificates of incorporation or other charter documents with all amendments and bylaws or other governing documents, with all amendments, of seller.
b. List of any subsidiaries or branches of seller and all other related corporations or other entities. This should include copies of articles of incorporation (or other charter documents) and bylaws (or other governing documents) for each related

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entity. To the extent that any subsidiary is not wholly owned, the list should indicate the percentage ownership by the company and provide the names and percentage of ownership interests by each other shareholder of such subsidiary.
c. Minutes of meetings and written consents of board of directors, committees of board of directors and shareholders of the company for the past five years.
d. Accountants' letters to management and to the board of directors.
e. Copies of any powers of attorney granted with regard to the operation of seller or the

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