SECURING TITLE OVER MINING RIGHTS IN CHILE DURING "EARN-IN" PHASE

• Jurisdiction: United States

International Resources Law and Projects
(Apr 1999)
CHAPTER 2D
SECURING TITLE OVER MINING RIGHTS IN CHILE DURING "EARN-IN" PHASE
Carlos Larrain P.
Larrain y Asociados
Santiago, Chile

In our practice we are sometimes faced with a business proposition which implies putting in place a formal association whereby one party gradually intends to acquire within a time period certain ownership rights over a mining property and such passing of rights is linked to a combination of exploration expenditures in a defined property and cash payments made to the owner.

The two interests which need to be conciliated are known: the investor/operator who wants to be as sure as possible that it is not dumping his capital and efforts and, on the other hand, the owner of the mining rights who wishes to preclude a premature intrusion upon his rights as well as the possibility that the investor/operator reach beyond a given area.

We can think of several manners of approaching the problem.

First alternative:

An arrangement which intends to follow Form 5 be used without variations except of course those dictated by the business aspects of the transaction itself.

This approach implies, at a minimum, foreign law for the contract and the choice of a foreign arbitration mechanism, all set forth in English or another foreign language.

From a Chilean legal standpoint and in other civil law countries this framework would create valid contractual rights and obligations, but none would arise over the mining property itself which would continue to belong to the local party. Any limitation on property rights (sale, mortgage, or the creation of other security interest, assignment of property rights) under the agreement, however elaborately conceived and written out would not be very effective. A breach of such contractual provisions will give rise to a right of indemnity but would not permit to reach into the property itself. Worse still, a contract drafted along the lines of Form 5 would doubtfully be enforceable as a local court may find the agreement to be void inasmuch as it is not governed by Chilean law. Chilean internal laws must of necessity apply to property rights over physical assets located in Chile. This is a matter of public policy.

Second alternative:

To use Form 5 as a basis but this time in Spanish and with the contract to be governed by local law.

The advantage of using a Spanish version would be that in the event that a discrepancy over the contract...