CHAPTER 9 DISCOVERY IN THE 21ST CENTURY
| Jurisdiction | United States |
(Jan 2014)
DISCOVERY IN THE 21ST CENTURY
Davis Graham & Stubbs LLP
Denver, Colorado
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JOEL O. BENSON is a partner with the firm of Davis Graham & Stubbs LLP in Denver. His practice focuses on domestic and international debt financings, acquisitions and divestitures, commercial transactions, and project development, with specialized expertise working with mining and natural resources companies. He advises private equity funds and mining company clients on their acquisitions, investments, joint ventures, project development, and other business activities. He has extensive experience with structuring and documenting complex credit arrangements and associated multi-jurisdictional collateral security arrangements involving a variety of industries, in the United States and around the world. Mr. Benson's debt financing practice involves representing both borrowers and lenders (including banks, private equity funds, merchant banks, and other financial institutions) in international project finance, mezzanine debt, corporate credit facilities, senior secured facilities, royalty financings, gold loans, senior and subordinated note offerings, and other financing arrangements. His international transactional practice has involved projects and companies in over 25 countries, including the U.S., Australia, Bolivia, Brazil, Cameroon, Canada, Chile, China, Colombia, Ghana, Honduras, Kenya, Mexico, Peru, Portugal, Romania, Slovak Republic, Spain, Thailand, and Turkey, and has covered numerous minerals, including gold, silver, rare earths, platinum/palladium, uranium, cobalt, nickel, iron ore, zinc, copper, and other metals, industrial minerals, thermal and metallurgical coal, and oil and gas. His work with international projects has led to counseling clients with respect to the Committee on Foreign Investment in the United States (CFIUS) and the Foreign Corrupt Practices Act (FCPA). Prior to attending law school, Mr. Benson served for three years as a legislative assistant for Congressman Tim Johnson (SD) in the U.S. House of Representatives. While there, he focused on public land, water, environmental, and energy issues as the staff person responsible for the Congressman's duties on the House Natural Resources Committee, in addition to covering a variety of other issues ranging from foreign affairs to education.
(Discovery and the Role of the Legal Professional)
Detailed Outline
The validity of title to an unpatented mining claim depends on the discovery of a valuable mineral within the confines of the claim. The presence of the discovery of a valuable, locatable mineral combines with the proper acts of location of the claim, in accordance with applicable state and federal law, to create a good and valid unpatented mining claim, with defensible title, that appropriates the ground within the confines of the claim, subject to the paramount title of the United States and certain rights of third parties to access the surface in accordance with applicable law. The acts of location are beyond the purview of this outline and will be covered by other speakers at this Special Institute.
Since "discovery" determines title, it is a critical factor for the legal professional investigating the status of legal ownership of a particular mining claim. Unfortunately, for the legal professional, the determination of whether or not a "discovery" exists requires the application of one or more legal rules to a complex web of facts implicating the informed, expert analysis and judgment of a geologist, a mining engineer and a mineral economist, among others. Furthermore, the factors implicating the presence of a discovery exist outside the public record and are not quickly or readily ascertainable. Ultimately, the question of discovery will be decided by a trier of fact, such as in an administrative proceeding before the Department of the Interior or before a relevant state or federal court, based on the specific facts and evidence introduced in this determinative process.
The question of discovery and the evolution of the law of discovery have been ably examined and described over the years, and this outline depends heavily on the work of others.1
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This outline provides a reference to several of the old, seminal mining law cases related to discovery, but it also supplements these older cases with references to recent cases decided by the Interior Board of Land Appeals (IBLA) in order to add context for the current decisional framework. The papers cited in footnote 1 contain a wealth of citations to other cases that support the points made with respect to discovery covered in this outline. Since the issue of discovery has been adequately covered in the past, this detailed outline is intended to provide an executive summary of certain key concepts and to cite to a few newer cases not covered in prior papers. This summary outline is less than a fully developed paper, but more than a bare outline.
Prior to the establishment of a discovery, a mineral prospector operating on federal public lands open to location has certain limited rights pursuant to the legal doctrine of pedis possessio. While pedis possessio offers bare legal protections to the locator, such as the right to exclude third parties and the right of possession and use to explore, stake a claim and establish a discovery, the protections afforded by this legal right requires the establishment of (1) actual physical occupation, (2) diligent, good faith, bona fide work directed toward making a discovery, and (3) the peaceable exclusion of rival claimants. Pedis possessio rights provide some protections against third parties, but pedis possessio does not appropriate the relevant property or provide any protection against the government.2
Discovery
I. Statutory Requirements
A. The 1872 Mining Law
The General Mining Act of 1872 (the "1872 Mining Law") instituted a self-executing system for the development of minerals and the establishment of sufficient legal title to encourage the development of minerals. The 1872 Mining Law also serves as the starting point for ascertaining the meaning of discovery. The entirety of Section 1 of the 1872 Mining Law states as follows:
"Except as otherwise provided, all valuable mineral deposits in lands belonging to the United States, both surveyed and unsurveyed, shall be free and open to exploration and purchase, and the lands in which they are found to occupation and purchase, by citizens of the United States and those who have declared their intention to become such, under regulations prescribed by law, and according to the local customs or rules of miners in the several mining districts, so far as the same are applicable and not inconsistent with the laws of the United States."3
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The following section of the statute goes on to state: "no location of a mining claim shall be made until the discovery of the vein or lode within the limits of the claim located."4 Unfortunately for the mining lawyer, the 1872 Mining Law provides no additional details with respect to the meaning of discovery.
B. Timing of Location and Discovery Not Dispositive
While the statutory language of the 1872 Mining Law specifically states that discovery should precede location, the Supreme Court has ruled that the timing of location and discovery is not dispositive.5 In Union Oil Co. of California v. Smith, the Supreme Court specifically noted "it has come to be generally recognized that while discovery is the indispensable fact and the marking and recording of the claim dependent upon it, yet the order of time in which these acts occur is not essential to the acquisition from the United States of the exclusive right of possession of the discovered minerals or the obtaining of a patent therefor, but that discovery may follow after location and give validity to the claim as of the time of discovery, provided no rights of third parties have intervened." In arriving at this conclusion, the Supreme Court explained that "as a practical matter, exploration must precede the discovery of minerals, and some occupation of the land ordinarily is necessary for adequate and systematic exploration, legal recognition of the pedis possessio of a bona fide and qualified prospector is universally regarded as a necessity. It is held that upon the public domain a miner may hold the place in which he may be working against all others having no better right, and while he remains in possession, diligently working towards discovery, is entitled - at least for a reasonable time - to be protected against forcible, fraudulent, and clandestine intrusions upon his possession."
II. Two Tests for Discovery
A. Prudent Person
In the absence of specific statutory provisions defining the meaning of discovery, the courts and the Department of the Interior (and the early General Land Office) have developed and formulated the parameters of discovery. The cornerstone articulation of the test for the presence of discovery was contained in the venerable 1894 Land Department Decision in Castle v. Womble.6 This case established and relied on the so-called "prudent person" test. In Castle v. Womble, the Secretary found that
"where minerals have been found and the evidence is of such a character that a person of ordinary prudence would be justified in the further expenditure of his labor and means, with a reasonable prospect of success, in developing a valuable mine, the requirements of the statute have been met. To hold otherwise would tend to make of little avail, if not entirely nugatory, that provision of the law whereby 'all valuable mineral deposits in lands belonging to the United States .... are ... declared to be free and open to exploration and purchase.' For, if as soon as minerals are shown to exist, and at any time
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during exploration, before the returns become...
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