DUE DILIGENCE IN MINERAL TRANSACTIONS - U.S.
| Jurisdiction | Derecho Internacional |
DUE DILIGENCE IN MINERAL TRANSACTIONS - U.S.
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SARAH A. STRUNK is the Chair of the Board of Directors of Fennemore Craig, where she has practiced since 2000. She practices in the area of business and finance law, with an emphasis on mergers and acquisitions, corporate governance, and finance. In addition, she has substantial experience with international sales contracts and Foreign Corrupt Practices Act compliance. Prior to joining Fennemore Craig, Sarah was the chief legal counsel for the copper/molybdenum division of Cyprus Amax. She represents numerous clients in the mining and natural resource industry. In addition to her legal practice, she current Chairs the Greater Phoenix Chamber of Commerce Board of Directors and was Chair of the Board of Brio Gold, Inc. (now, Leogold Mining Corporation LMC-T) and a member of the Audit and the Corporate Governance and Compensation Committees. Ms. Strunk received a LL.M. (Corporations), from New York University School of Law and her J.D. from the University of Kansas School of Law. She has been recognized by the International Who's Who of Mining Lawyers, AzBusiness Magazine, Best Lawyers in America, Southwest Super Lawyers, and Chambers USA, among others.
I. Introduction
There are a number of considerations in due diligence when looking at a mining project in the United States. This paper is a summary guide to 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. §§ 22 -54 and §§ 611-615, hereafter the "GML") and contrasts some issues associated with state specific issues.
II. General Background of the Legal System
The United States is a constitutional republic with geographical division by states. Powers not otherwise reserved to the federal government are administered by states, counties and municipalities. Within the state, government is divided into counties and municipalities (cities and towns). The legal system in the United States is s based on common law; however, title and mining operations are governed by various statutes, regulations and common law applicable depending upon the ownership of the property (i.e., federal, state or private land). Applicable statutes and regulations are interpreted by federal and state courts and various administrative quasi-judicial bodies.
III. Operations on Public and National Forest System Lands
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.2
Federal Land
Much of the mining in the western United States occurs on lands owned by the federal government, administered either by the Bureau of Land Management ("BLM") or United States Forest Service ("USFS"). Both federal agencies have a codified body of regulations governing mining activity and there are generally applicable federal statutes and regulations governing environmental protection.
Pursuant to the GML, the BLM and the USFS have developed regulatory programs to authorize locatable mineral mining activities on public lands and national
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forest system lands respectively.3 The regulatory programs of both agencies are similar but there are some unique considerations.4 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,5 and (ii) substantially more developed reclamation and financial assurance requirements.6 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."7
State or Private Lands
Mining on state and private land is generally governed by state law, as well as certain federal environmental laws in the event of overarching federal jurisdiction for the granting of certain environmental permits (e.g., Clean Water Act, Endangered Species Act and the National Historic Preservation Act. Care should be given in any title examination to a split estate circumstance, where both federal or private mineral reservations could exist that would prevent the extraction of a particular type of mineral from the mineral estate, or where the mineral interests are in hand but not the surface rights.
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").8 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
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review of BLM's land database.9 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.
NOI Evaluation
Activities requiring NOIs vary relative to BLM and USFS regulations.10 When required, operators submit written notice to the federal land manager containing all requisite information regarding the proposed operations (no particular form is required). BLM will 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).
MPO Evaluation
The requirements for MPO filing vary depending on the federal land management agency.11 MPO content requirements also vary depending on applicable regulatory requirements and the date the MPO was approved. The regulations governing BLM MPOs changed substantially in 200112 and 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.13 During due diligence, the following information is should be examined:
(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.
MPO Modifications
The facts or circumstances that can trigger a 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 or be driven by applicable regulation, which requirements vary substantially depending on the federal land management agency.14 There is a critical distinction between minor plan modifications authorized without formal approval or NEPA compliance and formal plan modifications requiring NEPA compliance.15 In circumstances where BLM has approved a minor plan modification, a decision letter may be utilized and will likely contain specific terms and conditions (which could later trigger the requirement for formal modification). BLM correspondence should be reviewed during due diligence.
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Financial Assurance
There are two primary concerns during due diligence relative to financial assurance. The first is sufficiency of an operator's existing financial assurance, and the second is the process for release and/or substitution of that financial assurance. Purchase transactions and/and notification of change in control commonly result in sufficiency review so consideration should be given to the likelihood of an increase...
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