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


Dawn Meidinger
Chris Evanoff
Fennemore Craig, P.C. 1
Phoenix, AZ

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DAWN G. MEIDINGER is a director with Fennemore Craig, P.C. in Phoenix, Arizona. She practices in the areas of natural resources, real estate, and environmental law, with a focus on mining, public land utilization (state and federal), and permitting. In the natural resources sector, she has extensive experience permitting mining, renewable energy, and linear projects addressing all aspects of NEPA, NHPA, and ESA compliance. With respect to public lands, she has represented clients seeking a variety of use authorizations (exploration and mine plans of operation, special use permits, rights-of-way, grazing leases, etc.) from federal and state agencies including the Bureau of Land Management, United States Forest Service, and Arizona State Land Department. In addition, Dawn has strong transactional experience in both the real estate and mining sectors and has assisted numerous clients with due-diligence exercises, earn-in, farm-out, and joint venture agreements in conjunction with the development of mineral exploration targets and ground leases or purchases for residential, commercial, and industrial development. Prior to joining the firm, Dawn worked as in-house counsel for Phelps Dodge Corporation (today Freeport-McMoRan Inc.) providing service to all business units relative to land, water, and exploration matters and had substantial involvement in two successful federal land exchanges. Dawn also has private sector experience serving as the operational lead on the entitlement and development of large residential and industrial real estate projects in western Maricopa County.

I. Introduction

This is a practical guide to approaching acquisition due diligence of certain major environmental authorizations and permits required for the exploration and exploitation of locatable minerals (subject to the General Mining Act of May 10, 1872, as amended 30 U.S.C. §§ 611 -615, hereafter the "GML"). Specifically excluded from consideration in this paper are environmental programs administered or delegated by the Environmental Protection Agency ("EPA"), water claims, rights and quality and internal environmental audit or environmental compliance review documentation.2

The scope of due diligence is necessarily dependent on client objectives and budget. In circumstances where a client intends to immediately continue or expand operations following acquisition, and extensive diligence is authorized, this paper takes a deeper dive into environmental compliance obligations contained within land use authorizations which may not be readily apparent to a reviewer in due diligence. The starting point for review is determining the land status relative to the location of the assets. The land status dictates agency jurisdiction and corresponding environmental permitting requirements. It is not uncommon for individual mining operations to have roads, facilities and/or reserves located on intermittent parcels of federal, state, private or split-estate lands resulting in a variety of compliance considerations.3

II. Operations on Public and National Forest System Lands

Pursuant to the GML, the Bureau of Land Management ("BLM") and the United States Forest Service ("USFS") have developed regulatory programs to authorize locatable mineral mining activities on public lands and national forest system lands respectively.4 The regulatory programs of both agencies are similar but there are some

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unique considerations.5 Aspects unique to the conduct of operations on public lands administered by BLM are: (i) the requirement for the Secretary of Interior to prevent "unnecessary or undue degradation" from operations authorized under the mining law,6 and (ii) substantially more developed reclamation and financial assurance requirements.7 In contrast, on National Forest System lands, the USFS regulation of locatable mineral operations is grounded in the standard of "significant disturbance of surface resources."8

A. Notices and Plans of Operations

Mining activities on federal land include three general categories: (i) casual use activities, (ii) operations requiring filing of a notice of intent ("NOI"); and (iii) operations requiring approved mine plans of operation ("MPOs").9 Verification of issued NOIs and/or MPOs based on agency records is a recommended step. For operations on BLM land, verification of agency authorization of NOIs and MPOs can be obtained through a review of BLM's Land and Mineral System Reports ("LR2000") database.10 The LR2000 database contains a Case Recordation system that provides public information on land and mineral use authorizations and is an indispensable tool. Once a specific report is obtained from the system, a reviewer will have an overview of dates and types of actions taken by the agency relative to the MPO authorization as well as insight into past and present compliance issues and verification of posted and released financial assurance. Unfortunately, no such public database exists for operations on National Forest System lands and records of the seller/transferor may have to suffice.

1. NOI Evaluation

Activities requiring NOIs vary relative to BLM and USFS regulations.11 When required, operators submit written notice to the federal land manager containing all requisite information regarding the proposed operations (no particular form is required). Land managers are supposed to respond to submittals within 15 days under both sets of

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regulations. BLM usually responds with an "Acknowledgement of Notice" specifying that the notice level operations may begin upon satisfaction of certain terms and conditions. BLM will then issue a "Decision" specifying the amount of financial guarantee based on reclamation measures described in the notice, which is appealable. Once the financial assurance is posted, BLM will then issue a subsequent "Decision" specifying that the financial assurance has been accepted. In contrast, responses from the USFS will include notification of whether a plan of operations is required before commencement of activity.

Accordingly, care should be taken during due diligence to confirm for each NOI:

(1) whether receipt was acknowledged by the relevant federal land manager (BLM or USFS);
(2) what conditions for environmental protection were imposed prior to the commencement of operations and are their deadlines for reclamation completion;
(3) whether any extensions for the time in which to complete operations have been obtained; and
(4) whether the authorizing agency has approved serial NOIs (which could indicate avoidance of requirements of filing and processing a single MPO).
2. MPO Evaluation

The requirements for MPO filing vary depending on the federal land management agency.12 MPO content requirements also vary depending on applicable regulatory requirements and the date the MPO was approved.13 Notably, the regulations governing BLM MPOs changed substantially in 2001.14 MPOs approved prior to January 20, 2001 have different plan content and performance standards and the distinctions must be well-

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understood to verify compliance.15 In addition, amendments to pre-2001 plans are undertaken pursuant to very specific regulatory requirements and may allow the continued use of performance standards inconsistent with the current regulatory requirements if modernization is not technically or economical feasible for the operator (e.g., allowing continued expansion of unlined tailings facilities).16 Pre-2001 plans also tend to be less robust than modern MPOs which can be problematic for gauging whether the MPO remains valid or a modification is required. This issue is exacerbated when there have been periods of operational cessation.17 In contrast, modern MPOs often have voluminous supplements which comprise the complete universe of operator commitments to the federal land management agency.

During due diligence, the following information is most critical for examination:

(1) copies of all approved MPOs and any modifications thereof;
(2) copies of all baseline data in support of the approved MPO (e.g., biological, cultural, groundwater, pit lake, and air models, etc.);
(3) copies of all monitoring and mitigation plans related to an MPO which may include numerous separate resource specific plans (e.g., wildlife management plans, reclamation plans, native plant salvage plans, etc.) and any operator reports to the agency demonstrating plan compliance;
(4) agency correspondence relating to any issued notice to proceed (may not exist for older MPOs);
(5) agency correspondence relating to administration of the MPO including inspections, noncompliance orders, suspension orders, enforcement orders or revocation notices; and
(6) coverage of the MPO relative to facility footprints and unpatented claim boundaries and/or specific requirements for methods of processing, waste rock or pit lake management.
3. MPO Modifications

Triggers requiring MPO modification must be well understood because modifications can result in lengthy and costly federal agency review processes (NEPA/NHPA/etc.) as well as reclamation bond sufficiency review. Requirements for modification may be present in express language contained within an MPO (e.g., agency

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review required if mining activity extends beyond a certain exterior claim boundary or identified facility footprint shown in MPO figures) or be driven by applicable regulation, which requirements vary substantially depending on the federal land management agency.18 Care should be taken by a reviewer to closely examine the MPO content and the applicable regulations.

BLM's regulations relative to MPOs are more well developed than those for the USFS and distinguish between minor...

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