reposted from 2/7/2018 LinkedIn Article by Deborah L. S. Goetz, Ph.D., CPL
A representative from a junior "international" mining company* contacted me to ask if I could help them with a "land issue" on an exploration project they had acquired. They had spent hundreds of thousands to purchase this "mining property". They then spent equally as much to review the historical data, do additional sampling and prepare to drill, only to hear,
"there might be a problem with the land; there's a guy in town who says we don't own the mineral rights".
With a brief bit of research on my part, I found that "the guy in town" was right. A previous owner had severed the mineral rights from the surface rights to a generous portion of the property (the most interesting portion), selling off the mineral rights separately. The mineral rights were now owned by other owners and their heirs. In some parts of the western U.S., this is a relatively common practice.
The company had done an excellent job of looking at the geology and financial feasibility in their due diligence, but, because of their inexperience with U.S. land laws, had completely failed to look at the title and status of the land, not to mention the water or environmental situation. Their excuse - "It's all private land. Why would we need to look at that?" (No joke!)
In addition, in their final agreement with the seller, the conveyance document was essentially a quitclaim deed conveying "seller's right, title and interest". There was no review period, lesser interest clause or any form of title guarantee. The only provision was that the seller would pay for a title insurance policy, which only covered surface interest (with tons of exclusions and exceptions).
They asked me if there was a quick solution, as though I was a genie who could make it all "right" again. I gently and painstakingly explained to them,
"If you do not have the land, you do not have a project!"
You may ask, "How could this costly mistake have been prevented?"
Perhaps the company could have included in their acquisition strategy a thorough title due diligence by a qualified land professional. A quick "takeoff" may not have revealed this fatal flaw, but a thorough title review would have. They could then have re-negotiated the deal or chosen not to go forward with the acquisition. The additional cost of the review would have been easily recovered and prevented them from a very costly error.
In these heady days of "table napkin deals", "doing deals on a shoestring" and "flying by the seat of our pants", let's not forget those pesky details . . . like land and title. . . like water . . . like permitting issues. Plan your acquisition strategy to include thorough due diligence of all aspects and plan your acquisition team to include top professionals in their field - including land, water, permitting and environmental specialists, as well as that the all important, highly experienced mining attorney.
*Names are withheld to protect the guilty. The company discussed above has given their permission to this article and agreed to its contents.
** These are the thoughts of only a humble landman. I do not claim to be an attorney, nor to I claim to give any legal advice in this, and I take no responsibility for anything said in this article. :)
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