Commentary: Four traps in US mining law for the unwary Canadian miner

Ewan Downie — president and CEO of Thunder Bay, Ontario-based Premier Gold Mines — beside trucks at Premier’s 40%-owned South Arturo gold mine in Elko County, Nevada, where majority partner Barrick Gold is operator. Credit: Premier Gold Mines.Ewan Downie — president and CEO of Thunder Bay, Ontario-based Premier Gold Mines — beside trucks at Premier’s 40%-owned South Arturo gold mine in Elko County, Nevada, where majority partner Barrick Gold is operator. Credit: Premier Gold Mines.

Acquiring unpatented mining claims on federal “public lands” in the United States is considerably different than acquiring tenures under the mining law in Canada or elsewhere in the world where a “registration” system is used to validate claim ownership.

The U.S. law is based on the General Mining Law of 1872. Under that law, the right to locate is “self-initiated” (meaning no act of the federal government is necessary to stake a mining claim).

Once properly located, the locator has a valid interest in such land, provided the land was open to location; the location is properly made; a discovery of a valuable mineral deposit is made; and the claim is properly maintained through annual filings and/or payments and the exercise of pedis possessio rights.

The owner of a valid mining claim generally has the exclusive right to use and possess the claim within the claim boundaries for mining purposes and to develop and sell the mining products from the same free of any royalty to the federal government.

A mining claim can be sold, mortgaged, inherited and otherwise treated like other real property interests, subject to the paramount title of the United States. Unlike a registration system, the act of registering a claim in the U.S. may not afford protection against a rival claimant.

A locator in the U.S. must be a “citizen.” That term includes natural persons who are citizens, as well as corporations and limited liability entities that are organized under the laws of any state of the United States. It is customary for a Canadian mining company to incorporate a company or limited liability entity under the laws of a state such as Nevada, Delaware, or Utah, in order to acquire and hold mining claims. Apart from that requirement, there are some other unique concepts that may surprise the Canadian miner.

Discovery

First is the concept of a “discovery.” To have a valid claim, there must be a valid discovery of a valuable mineral. A discovery occurs when the locator finds a mineral in sufficient quantity and quality so 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.”

This standard is the “prudent man test,” and incorporates two requirements. First, the locator must find the valuable mineral. This requires a physical exposure on each claim. If the mineral is not already exposed on the surface, it must be exposed by drilling or excavation. Second, the exposed deposit must be of such value that it is reasonably probable that it can be mined, removed and disposed of at a profit in terms of “present marketability,” which means that the claimant must establish the likelihood of developing a successful mine, based on historic and current markets, price and cost factors.

Rick Van Nieuwenhuyse, president and CEO of Vancouver-based Trilogy Metals, at the company’s Arctic polymetallic project in Alaska’s Ambler district. Credit: Trilogy Metals.

Rick Van Nieuwenhuyse, president and CEO of Vancouver-based Trilogy Metals, at the company’s Arctic polymetallic project in Alaska’s Ambler district. Credit: Trilogy Metals.

The discovery concept poses unique challenges for a widely disseminated orebody, such as a large copper porphyry, which may not have a discovery that would support a mine on any single claim.

As against the government, the discovery standard is stringent. Property rights do not attach until there is a valid discovery and the government may negate the claim without compensation. Many mining claims do not meet the discovery test and may fail as against a challenge by the United States or a U.S. withdrawal of the land encompassed by the claim from location.

To be valid, each lode claim must have a discovery which cannot be in another lode claim.

Placer claims must not only have a discovery, but each 10 acres of the claim must be “mineral in character.” The mineral in character requirement requires evidence of mineralization but is a much lesser standard than the discovery standard. Only one discovery is required per association placer claim, whether the claim is 20 or 160 acres. However, as with other placer claims, each 10 acres of the claim must be mineral in character.

Pedis possessio

A second concept is the doctrine of pedis possessio. In a large claim staking exercise, rarely are there sufficient valid discoveries for each claim. As noted above, while no rights are obtained against the federal government until a true discovery is made on a claim, as against rival claim locaters the claim owner has some limited protection under the doctrine of pedis possessio so long as the claim owner is diligently working to make a discovery.

What that means is that there needs to be actual efforts underway to make a discovery and if so, a rival claimant who seeks to overstake a previously staked claim may not have a valid claim. But if the original claim owner simply pays the claim rental fees to the Bureau of Land Management (BLM) and only passively holds the claim without actively conducting work on it, or if the claim holder does not diligently oversee the claim against rival claimants, then the claim holder may lose the claim to the rival claimant.

In short, based on the pedis possessio doctrine, a claim holder can’t simply stake and file a claim and expect to maintain rights in the claim, even if it is registered in the BLM records.

In the case of rival claimants where the original clam holder has not diligently exercised its pedis possessio rights, a court may simply decide that the first claimant to make a valid discovery will win.

Extralateral rights

A third concept is the doctrine of extralateral rights. This doctrine may allow a miner to exploit the valuable mineral through the side lines (but not the end lines) of a lode claim, even through another lode claim owned by someone else, or even on lands that have been withdrawn from location after the claim location, so long as the vein “apexes” within the claim holder’s lode claim.

This can be an astonishing surprise to find out that the holder of a lode claim can mine through the lode claim of a completely separate claim holder under the extralateral rights doctrine if the necessary tests are present!

Split estates

Finally, a fourth concept is the doctrine of split estates. Beginning with the Stock Raising Homestead Act of 1916, the federal government began granting deeds (called “patents”) to the surface while retaining title to the minerals underlying the surface.

Often, the mineral interests underlying the surface of these homestead grants remains open to location.  Also, because the mineral estate is the “dominant estate,” the surface owner is unable to stop the mineral exploration and exploitation, so long as the correct BLM procedures are met by the mineral owner, which requires it to show due regard for the interests of the surface estate owner and occupy only those portions of the surface that are reasonably necessary to develop the mineral estate.

This amendment requires notification to the surface owner before its land is entered, but the surface landowner still has no right to prevent entry or stop mining from taking place on the property.

Also, the mineral owner must file a Notice of Intent to Locate a mining claim on such lands with the appropriate BLM office, and a copy of the Notice must be served on each surface owner by registered or certified mail, return receipt requested.

The surface owner must wait 30 days before entering the lands to locate any mining claim. Once a Notice is filed, no one except the mineral owner may conduct mineral activities on the land subject to the Notice. While the surface owner is allowed to request that its lands be entered at a convenient time, the surface owner may not prevent entry. The mineral owner has a further 60 days to explore and stake mining claims.

Recently, several U.S. states have enacted surface-owner protection acts to provide reasonable protections to the rights of surface owners. Current law and BLM regulations require that the operator engage the surface owner in negotiations for the purpose of obtaining a surface use agreement. This can take the form of an agreement for access, agreement for compensation, and other provisions.

There are, of course, numerous other critical legal issues in acquiring and maintaining unpatented mining claims on federal public lands, as well as the numerous requirements that apply to the development of such claims, including environmental permitting, financial assurances, and the like.

For a greater in-depth review of these and related topics, including the various environmental and permitting requirements, water law issues and financing issues under the U.S. Mining Law, please refer to the Mining Law Handbook available free of charge through Parsons Behle & Latimer, c/o Jason Castor, jcastor@parsonsbehle.com, tel:  801 536 6816.

R. Craig Johnson

R. Craig Johnson

Based in Salt Lake City, R. Craig Johnson and Kevin W. Johnson are attorneys and shareholders at the law firm Parsons Behle & Latimer.

R. Craig Johnson is a member in the firm’s Corporate and Environmental, Energy & Natural Resources departments and concentrates his practice on mergers and acquisitions, mineral exploration, mine development (including EPCM) in the mining industry and related transactions.

Kevin W. Johnson is a member in the firm’s Corporate Transactions & Securities, and Environmental, Energy & Natural Resources departments.

Kevin W. Johnson

Founded in 1882, Parsons Behle & Latimer is one of the largest Utah-based law firms and has grown to more than 140 attorneys with offices in Boise, Idaho Falls, Lehi, Reno and Salt Lake City.

In addition to the firm’s unique expertise in providing services to the natural resources industry, it has forged relationships with multi-billion dollar companies, start-ups and individuals and offers expertise in a range of areas. Visit www.parsonsbehle.com for more information.

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