mining laws

Mining Laws

(See Summary for main points.)

The literature of mining law -- mineral land law -- contains much more than a dry enumeration of rights and responsibilities. It is an account of history in the framework of geology, some of which makes fascinating reading, and there are case records that read like adventure stories.

Maley (1986) gives a short summary of North American mining laws. For more detail, there are 'legal guides to prospectors' published by nearly every state bureau of mines in the western United States, and there is the five-volume American Law of Mining, edited and periodically updated by the Rocky Mountain Mineral Law Foundation (1966). Foreign mining laws are summarized in a series of U.S. Bureau of Mines information circulars, edited by Ely (1970 - 1974).

Because mining laws are based as much on precedence as on current mineral policy, they provide insight to national attitudes that have been shaped through the years. Insight is one of the first capabilities needed by geologists working in any country -- including their own.

Mexico's centrally administered mining law reflects the nation's trend from small, locally owned operations and large, foreign-owned enterprises serving the export market to the current picture of large-scale 'Mexicanized' industries devoted to the production of minerals needed in the country's own economy as well as for export. Even in its most modern form, however, Mexico's mining law contains elements of Spanish colonial mining statutes and of Mexico's geologic-historic association with epithermal silver deposits.

Canadian mining law emphasizes the history of the nation as a federation of relatively independent provinces, each with its own special geologic terrain, and most with an extensive northern frontier. It is only in the territories, Indian reservations, and national parks that the federal government of Canada holds title to minerals.

United States mining law reflects a federal system with more central government control than in Canada and less than in Mexico. It can also be read as a record of egalitarian frontier philosophy, accelerating industrial demand for minerals, and a growing awareness of the need for conservation.

United States Mining Law


Federal, state, and private lands are involved, with the following elements.

Federal lands amount to about one-third of the nation's land. They are located throughout the country, principally in the western states. The right to mine on federal lands is obtained by staking claims (?) under the provisions of the Mining Law of 1872 or by entering into an agreement according to the Leasing Act of 1920. Rights to the surface use of these lands are limited, and they may be held by other people.

Under the 1872 law, a discoverer stakes (?) or monuments (?) one or more claims on the ground, posts a location notice, and records the fact with the country authorities and the federal Bureau of Land Management. The methods of monumenting claim boundaries vary somewhat

from state to state, but the underlying pattern of claim layout and ownership is federal.

It is possible to patent (?) claims so that they become real property, or unpatented claims may be maintained by the expenditure of $100 on assessment work, or annual labor, per claim each year. Geologic work is a permitted expenditure in some states. If assessment work is not performed, claims are invalid and become open to relocation. An attempt to relocate someone's valid claims falls into the category of 'claim jumping' (?), sometimes -- as in the days of the Wild West -- a risky practice.

'Discovery' is a tenuous word in mining law; it may refer to the finding of marketable ore mineralization or it may mean finding evidence ' . . . 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 . . .' (Castle vs. Womble, cited by Parr and Ely, 1973, pp. 2 - 8).

The full impact of 'marketability' and 'the prudent man' is felt when an attempt is made to patent a group of claims. Claims may not only be refused patent but may be declared invalid if, on federal investigation, the mineralization is found not to be immediately marketable. For this reason, unpatented claims being developed to meet future mineral needs are often left unpatented.

A provision in the Law of 1872 for staking either lode (?) or placer (?) claims gives us some appreciation for the history of the entire American concept of mineral rights. The law was not designed by the government; it came after the fact from district codes put together a few decades earlier by miners occupying federal land in the West

without permission. District mining laws, like the miners themselves, brought something from England (the idea of assessment work), from Spain (transfer of claim ownership), and from Saxony (the apex rule (?)). The apex rule (Figure 1) assures the discoverer of rights to the deeper part of the lode or vein even if the dip carries it beyond the claim sidelines: placer claims, of course, do not have this characteristic of extralateral rights.

The idea of extralateral rights was as sound in early-day American vein mining as it had been in Saxony. Most of the minable veins were relatively clear-cut tabular bodies exposed in a linear outcrop (the apex). It was only fair that the prospector who recognized the vein and staked the outcrop be given preference over someone who had no valid reason for staking the adjacent land. The apex rule soon came into difficulty, however, with the complexities of newer districts and other kinds of orebodies. Figure 2, taken from a typical mining district map, illustrates the point. Veins crossed in outcrop; lode claims overlapped. Veins crossed, branched, and were faulted at depth; some orebodies could not even be defined as veins; lawsuits resulted.

Fractional claims were sometimes staked on slivers of open ground between other claims in the hope that some legal complication might be used to advantage. Courtroom battles sometimes led to actual underground warfare and, as mentioned in Course 1, Part 1, Professional Identity, to the formation of the first resident geologic department in the United States. Apex suits are no longer the turbulent affairs they were in the last century, but they are still part of the American mining scene.

The Leasing Act of 1920 related to 'coal, phosphate, sodium, oil, oil shale, gas, and certain sulfur deposits'. As a conservation law, it provides for the workings of these substances in large blocks of ground, such as shown in Figure 3, rather than in the piecemeal pattern of standard mining claims. As a mineral management law, it specifies performance requirements, rentals, and royalties. Leases are obtained by competitive 'bonus' bidding or by selecting ground from larger areas held under prospecting permit. Areas classified as 'reserve' by the U.S. Geological Survey are offered to bidders from time to time in specific blocks. For areas without known economic reserves, prospecting permits can be obtained and held for periods of from 2 to 6 years.

'Common varieties', sand, gravel, stone, cinders and other materials without a distinct and special value are excluded from mineral claim location and from leasing. The right to mine these 'salable minerals' on federal lands is obtained by purchase. Offshore minerals beyond the seaward jurisdiction of the individual states (generally 3 miles), certain uranium reserves, and minerals on 'acquired lands' that have come under federal ownership are handled by leasing laws similar to those in the Act of 1920.

Minerals on Indian tribal lands held in trust by the federal government are the property of the tribes and are managed by them. In these areas, which comprise large parts of several western states, access to minerals is generally obtained by the purchase of prospecting permits and by competitive bidding.

Another, and growing, category of federal land consists of areas withdrawn from mineral entry for scenic, recreational, military, or other

overriding purpose. The most controversial of these are 'wilderness areas', which have been designated as containing little mineral potential. Mining geologists have sometimes marveled at the certainty with which the resources in these areas are 'written off' in the face of impending mineral shortages.

State lands normally include state ownership of the minerals. Although there is no standard formula, most state-owned minerals are subject to lease according to priority of application or through competitive bidding. Many states issue prospecting permits as well, and a few states also provide for staking claims. As with federal lands, some areas have been withdrawn from mineral use. Some state and county governments have excluded mining from specific suburban areas.

Private lands, called 'fee' lands, commonly include rights to the minerals, but there are exceptions, especially in the western states, where the federal government has often granted or sold surface ownership without the mineral rights. Where minerals, as part of the public domain, are still 'locatable' and 'leasable', the surface owners may not be aware of the fact until they find a geologist prowling around their pastures.

Privately owned minerals and valid mining claims are sold or leased in any way the owner feels appropriate. Where there are extensive private holdings, as in some railroad land grants, private forests, Spanish land grants, and long-established ranches, mining is likely to be done under a leasing arrangement and prospecting done by exclusive permit.

The U.S. system of mineral ownership is complex, but so is the history that provided the

pattern. Of course, nothing in history has ever continued for long without change. The American system of mining law will undergo continuing change, especially now that the Mining Law of 1872 is under critical review. What an exploration geologist is mostly likely to find during the next few years is a mineral tenure system in limbo -- a good reason for learning where the system came from and where it may be going.

Trends in Mineral Law


As mineral proprietors and landlords, nations permit exploration and mining under two general types of arrangement.

Statutory, by which discoverers are required to post notices and perform certain work. This is the mining claim arrangement in the United States, Canada, Mexico, and in many countries with a well-established 'prospector' tradition.

Contract, with rights and obligations. This arrangement is represented in the United States by leasing under the Leasing Act of 1920 and offshore leases. In many countries, this is the only way of obtaining mineral rights.

Obtaining a 'land position', a right to explore and mine, is an important step in every exploration program.

During the 1960s mineral law in most of the world underwent fundamental changes for various reasons, all connected in some way with national history. In the industrialized countries,

the long-term needs of economy and society began to replace a former emphasis on simply putting minerals to work. Mineral laws became conservation laws. In the underdeveloped countries, the changes were directed toward independence and toward ways of sparking their own industrialization.

Certain ideas were, and still are, dominant in the underdeveloped countries. Minerals are the quickest source of export credits, and foreign capital is needed to develop them; yet, a foreign-dominated economy is really no improvement over a colonial economy. Because the laws of the former colonial powers could no longer be accepted, some of the changes were experimental and, understandably, confusing to anyone thinking of developing a mine.

Mineral laws in nearly all countries have some element of experimentation. Nations are trying to find a balance between a goal and a capability. An exploration geologist must take the time to understand. The laws came from history.

Taxation of Mines


Taxes on mines have experimental aspects and, like mineral laws, reflect an intended balance between a goal and a capability. The goal is to obtain maximum and steady revenue; the capability is always somewhat lower, its limits are technologic and geologic. With a favorable level of technology and the right geology, tax incentives (reduced rates or initial exemption periods) can bring exploration and industry into a country. But how much incentive is enough? If the balance point is too closely set, an increase

in costs or a fall in mineral prices will swallow the incentive and shut down the mines.

The type as well as the amount of taxation levied on mines has a direct bearing on the kind of exploration target to be sought. The three principal types of taxes are the ad valorem tax, the severance tax (?) or royalty (?), and the income tax. In the United States, the first two types of taxes are levied by the individual states; and third is paid to both state and federal governments. A detailed treatment of state mineral taxation, a major consideration in evaluating any prospect, is provided by Church (1981) and also by Whitney and Whitney (1982).

The ad valorem tax is based on the assessed value of the plant and the ore reserves. The tax payment is a fixed cost of operation, applied to the entire mine without regard for the level of production. As a cost of operation, the anticipated payment of a high ad valorem tax affects an exploration target by raising the acceptable cutoff grade (?) -- the grade of the weakest mineralization that can be mined at a profit.

This encourages 'high-grading' and reduces the effective tonnage in an orebody, and if the entire deposit is marginal in grade, it may be completely invalidated as an economic target. Because an ad valorem tax is levied whether the mine is operating or not, it has an advantage to the state in providing a steady, predictable source of revenue. But the advantage has limits. If the tax becomes unrealistically high, the source of revenue goes elsewhere. Minnesota's experience has been mentioned.

Severance tax or royalty is levied against each unit of mineral that has been mined and shipped. It is a variable cost rather than a fixed

cost of operation. Like the ad valorem tax, it raises the cutoff grade of a potential orebody, but unlike the ad valorem tax, it does not penalize the miner for outlining future ore reserves and it does not apply unless the mine is operating. This kind of tax is sometimes used to encourage local smelting and refining rather than the shipping of ore and concentrates out of the state; the tax is simply reduced for material that has undergone additional local processing.

Royalties are easier for a state to assess and collect than most other kinds of tax, so much so that they are almost too easy to increment past the threshold of what mines can pay. A steep rise in the royalties assessed on minerals by the province of British Columbia in 1975 is a good case in point; it encouraged exploration and new mine financing by Vancouver-based companies almost immediately -- in Alaska, the Yukon Territory, and almost everywhere else.

The income tax is generally levied on a graduated scale, and because it applies only to profits, it is neither a fixed nor a variable mining cost. It has less effect on cutoff grade than the other two types of tax. It does, however, affect the annual cash flow from a mineral body. If the tax rate is too high, it may reduce the present value of a potential orebody to an unacceptable level. Additional information on present value, cash flow, and the depletion allowance -- one of the tax credits involved in income taxation -- can be found in Part 2 (see Ore Value and the Concept of an Orebody ).

The income tax is by far the most appropriate for conservation of mineral resources. The other forms of taxation may cause lower-grade ore to be left in the ground and they may delay capital improvements for mining and processing.

Mineral and Environmental Conservation


There is nothing really new in the ideas that mineral supplies are limited, that population is growing at a dangerous rate, and that the quality of the environment is threatened by the waste products of human beings and industries. What is new is our capacity to measure some of these things. The measurements and the projections, like the 'doubling times' mentioned earlier, are frightening.

Even though reactions and remedies range from technophobic 'back to nature' prescriptions to science-fiction 'futurist' formulas, one thing is certain: exploration for minerals will come under increasing control by governments doing what they feel is best (or most attractive politically) for their people.

A key word is 'trade-off' -- sacrificing one thing, such as electric power, to gain another, such as a cleaner atmosphere. Another key expression is 'benefit-cost' -- assigning numbers to tangible and intangible benefits to be derived from environmental and conservation controls so that they can be related to the necessary costs.

First, the trade-offs and mineral conservation. Future access to minerals can be enhanced by spending money now or at least by foregoing some of the more immediate benefits. One of the most frequently mentioned ways of implementing this trade-off is to invest in improving mining and mineral processing practices. Others are to reduce the throwaway waste of minerals, to substitute abundant minerals for scarce, and to implement a conservation-wise national mining policy.

Criteria for exploration targets enter into most of this, but the more immediate connection is with the concept that known mineral deposits are to be extracted as thoroughly as possible without waste and without impairment of the minability of nearby deposits. If phosphate rock of marginal milling grade is stripped from higher-grade beds in the western United States, there is a requirement that it be stockpiled until recovery is feasible. Permits to mine coal are issued for well planned extraction of an entire series of seams, not for the mining of the thickest seam in a way that would disturb the stress pattern around the others.

A provision for barrier pillars between solution mines and conventional mines is commonly written into saline mining permits; in the deep Yorkshire potash field of England, for example, the stipulation is to leave a pillar width of not less than half the depth from the surface. Britain's long experience with mineral-based industry has prompted some of the world's most stringent conservation and environmental measures. A detailed account of the British experience, edited by Jones (1975) is well worth reading.

Costs and Benefits


In benefit-cost determinations, two kinds of benefits are measured; direct benefits from the recovery of by-products or from further use of mine workings or the restored land and indirect benefits related to damages avoided. An example involving both kinds of benefits can be cited. The removal of sulfur from coal would be credited with the value of the recovered sulfur (if marketable) and also with some figure

representing the savings by averting pollution damage. Whether or not the benefit balances the cost in the miner's own accounting, compliance demanded by the government will be stated in these terms. Governmental subsidies or taxation allowances for environmental costs are sometimes used to help even the accounts.

The costs of environmental conservation measures are widely varied, and they are difficult to generalize in terms of dollars per unit of product or unit of land surface. Illustrations can, however, be taken from a review by Dorenfeld (1982). The cost of recontouring and revegetation at some Montana coal strip mines, with the land returned to its past grazing value, has been on the order of $2000 to $10,000 per acre ($5000 to $25,000 per hectare). The cost of restoring strip-mined land in Illinois to row crop use amounts to $6000 to $15,000 per acre ($15,000 to $37,000 per hectare).

Benefits are even harder to pin down: they may be as modest as the income from a dairy farm on restored land or they may be as great as the saving of the Rhine port at Duisburg, Germany, where a serious silting condition was counteracted by deepening the river through harmonic mining of the underlying coal seams. Whatever the figure, it applies to the cost of mining each ton of mineral, and this, in turn, applies to the evaluation of mineral bodies.

Some costs of environmental conservation are even more directly associated with exploration. In areas of high scenic value, a geologist may be required to bring equipment in by helicopter rather than by road. An access road may be allowed, but only along a specified -- and sometimes indirect -- route. A proposal for

bulldozer trenching may be rejected by the agency evaluating an environmental statement. And, the environmental paperwork itself can 'cost' an exploration team by delaying a project.

Confirm your knowledge of "Part 1 - Mines and Mineral Economics" with Review #1

OR

Continue the course with Part 2 - Ore Value and the Concept of an Orebody

Demand ... | Life Cycle ... | Governments ... | Ownership ... | Review #1 ...

Exploration and Mining Geology 2 - The Economic Framework - December 20, 2005

mining laws

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