Mining Interests

[Taxman59]

Does anyone have any experience with fractional interests in mining properties? I inherited some (and bought out my siblings to keep it simple to manage). I have mineral interests in Minnesota and in Canada.

 

[street]

So, you are a part owner of property in a mining operation that is operating now? If so, do you pay for your percentage of ownership for the expenses etc.?

 

[Taxman59]

Actually, it is an interest in the mineral rights. I would need to connect with a mining company and I would get royalties. Some of the properties have documented cobalt deposits which are likely quite valuable. Most of the fractional interests are in areas that "might" have iron ore. It was all in a bundle. I'm thinking that I will give the mineral interests that appear to be of little value (but may be near environmentally sensitive land) to conservation groups and try to get the other fractional share owners together and approach mining companies. But will the conservation groups take the interests? What about the property taxes and carrying costs?

 

[PaunchyPirate]

I don't have much to share that would be helpful. But my Dad's ancestry have had fractional shares of oil/gas rights to some property that goes all the way back to a 1894 lease in West Virginia. It has been subdivided down to the ancestors thru the years and Dad's share was now tiny. Mom inherited it from Dad when he died in 2017.

For us, it's a nuisance. She gets $20-40 per year sent to her once a year when oil/gas wells on the land are producing. Some years she gets nothing. Any year she earns a royalty, the 2 West Virginia counties that the properties are in send her a tiny tax bill (i.e less than $5 usually). But there is a 2-year delay in that happening.

Sure, if petroleum becomes huge again, then more well activity could mean more money. But none of us live in West Virginia any longer, so dealing with the paperwork to pass the rights on upon death are a hassle. It's actually on my 2022 to-do list to see if I can figure out how to sell or give the rights to someone, such as the company who currently owns the wells. We don't even know the specific property that the rights are linked to. The lots have all been divided and subdivided off so much you can't really figure that out from a distance.

Anyway, as I said, not helpful to you, but that's our situation.

 

[luckydude]

Actually, it is an interest in the mineral rights. I would need to connect with a mining company and I would get royalties. Some of the properties have documented cobalt deposits which are likely quite valuable. Most of the fractional interests are in areas that "might" have iron ore. It was all in a bundle. I'm thinking that I will give the mineral interests that appear to be of little value (but may be near environmentally sensitive land) to conservation groups and try to get the other fractional share owners together and approach mining companies. But will the conservation groups take the interests? What about the property taxes and carrying costs?

First, do you have a list of all the fractional share owners? If not, you will need to do some research and/or engage an attorney who specializes in tracking these down. As properties and associated mineral interests are sold/reserved/passed down thru generations, they get split up and can be very difficult track down.

Second, a mining company will need to locate the deposit and determine if it is economical feasible first before deciding whether to proceed. On one of our properties, we signed a 3-year oil & gas exploration lease with an oil company for $xxxxx for them to look for any oil & gas on the property. If anything is found and deemed to be economically feasible, we would then negotiate another lease regarding extraction, royalties, etc.

If you sign any lease, you need to be very careful and do your due diligence especially regarding access, equipment, transport, any damage and pollution and subsequently clean-up, etc. This is not DIY and you should absolutely engage a specialized attorney to handle these leases with mining companies.

My experience has been with oil & gas and not with any other types of minerals, so things may work differently with other minerals.

Unless you're donating your land to a conservation group (and don't reserve your mineral rights---meaning you transfer those rights to them as well), there's no reason why a conservation group would take your mineral rights interests alone.

Also, all property tax and carrying cost are tied to land ownership (i.e. surface rights) and not to underground mineral rights. Whoever owns the land pays the tax and any costs associated with maintaining that land. You don't pay property taxes on mineral rights (unless you extract minerals and pay taxes on the income).

Caveat---I am not an expert on this by any means, so take my comment with more than a grain of salt

 

[Taxman59]

I've been looking at the Minnesota tax dept. website. In MN, there is a property tax on severed mineral interests with a minimum of $3.20 per interest. This is in addition to the severance tax when mining actually takes place. Given the number of tiny interests, that begins to add up to over $300 per year! I can handle it, but it is a pain in the @$$ to manage that many small checks. You may be right that the conservation groups don't want/need the mineral interests, but I would rather give it to them than forfeit it to the state.

I am hoping that I can get some help from the tax authorities on the other owners, but I won't hold my breath.

 

[frayne]

Interesting thread, probably fifty years ago I inherited some fractional shares of oil and mineral rights in the Texarkana region and have no idea as to their worth. Others who inherited similar shares have tried to determine without success as to their value.

 

[REWahoo]

DW and her brother were contacted a couple of years ago about selling their fractional shares of mineral rights which they had no idea existed. They inherited them from their paternal great grandfather who owned property in Pennsylvania. The folks who wanted to purchase the rights had done some extensive research to identify and locate all the heirs, and there were several. Not a huge sum of money, but more than 3X what we paid for our first house back in 1971. Note: it wasn't a great house.

 

[Winemaker]

Canadian law my be different than US law in terms of definition. Do you own fractional share of the surface property? Is the property in fee simple? Or has the property been divided up into surface, mineral, water, oil and gas, airspace rights? Or fractional shares of the mineral rights? If the mineral rights only, are they accessible? That is, are the rights in the country/rural area or downtown Toronto? Are there nearby roads, utilities, access to markets? Are these rights shares in a partnership? Are you a limited partner, and is there a general partner? Has anyone explored the property previously? Staked a claim? Is the property in old French territory or British territory? Things in the US are little different in what was the Spanish territory, and English territory. Many, many, many questions that some guy on the internet is unable to answer.

I am a mining engineer by education; and I've seen a bunch of crazy ownership conflicts over 35 years.

 

[Taxman59]

The US property is primarily Mineral interest only. The Canadian is both surface and mineral. All of it was claimed by my great great grandfather 110+. And he had between a 100% and 6% interest, now split among 37 heirs. Its going to be a fulltime j*b following up on this.

 

[dfarr]

You never know what mineral and gas rights can yield or how long they will produce. We live in the heart of the Marcellus shale formation in NE PA. They started horizontal drilling in our area about five years ago. Our property was averaging about $800- $1000 per year on one gas well. This year they drilled two more wells on the same pad and since May we have been averaging around $1200/month per acre in royalties. They could drop to zero next month or possibly produce like that for years to come. Luckily all the activity is over a mile away on the other side of the river. Sure is a nice perk while it lasts and I'm now familiar with the process of making estimated tax payments!

 

[Sunset]

This is interesting.
How do I get the mineral rights to a property I own in Canada or any property ?

 

[Fermion]

I wonder why anyone would buy a property without mineral rights....does that mean a company could come in and disturb the ground you have built on?

 

[luckydude]

I've been looking at the Minnesota tax dept. website. In MN, there is a property tax on severed mineral interests with a minimum of $3.20 per interest. This is in addition to the severance tax when mining actually takes place. Given the number of tiny interests, that begins to add up to over $300 per year! I can handle it, but it is a pain in the @$$ to manage that many small checks. You may be right that the conservation groups don't want/need the mineral interests, but I would rather give it to them than forfeit it to the state.

I am hoping that I can get some help from the tax authorities on the other owners, but I won't hold my breath.

Interesting info on MN levying property tax on severed mineral interests... I assume this means minerals had previously been extracted already on the property. My property is in a different state and I think the property tax administration works differently from state to state.

I suppose it doesn't hurt to check with conservation groups about donating your mineral interests. The worst they can do is to say no.

RE tracking down other owners, as property records are public, you can probably do the search yourself. In my property's state, oil & gas is big business so there are attorneys who specialize in researching and tracking down mineral right ownership---for a fee, of course.

Good luck!

 

[dfarr]

When it all started here the gas companies came in and paid crazy money to property owners to sign gas lease agreements. In the beginning there were a lot of holdouts but the bonus money soon exceeded $5000/acre. Leases paid the bonus immediately with the promise of a percentage royalty once wells were drilled and started producing. Holdouts soon realized that the drilling would happen even if they didn't sign and they would not end up with any future royalty payments. Farmers with 100 acre farms had a lot to lose if they didn't sign. Little guys owning 1-10 acres didn't have any influence controlling what would happen so most ended up just signing and taking the money. For the most part it has been financially good for the area. Lots more traffic and some noise in the beginning while the infrastructure (pipelines/roads/well pads) were being built but from what I've seen the gas companies have been very responsible and not created "too" many issues.

"does that mean a company could come in and disturb the ground you have built on?"

Yes but they end up paying good money to do it!

 

[Fermion]

Yes but they end up paying good money to do it!

To the mineral rights holder or to the surface rights holder who has built on the property and will be the one getting disturbed?

 

[luckydude]

I wonder why anyone would buy a property without mineral rights....does that mean a company could come in and disturb the ground you have built on?

For average folks buying a home in suburbia, it's usually not an issue. But for people buying land/farms/ranches, it is absolutely a consideration. If you own a piece of land but don't own mineral rights, a company who has signed a lease with the mineral rights owner CAN come in and explore/extract minerals.

The company can't just come barging in unannounced, of course. They would have to negotiate a contract with a landowner to compensate owner for access and to agree to restore the ground to previous condition after extraction, and to pay for any damages, etc. Generally, they want to be good neighbors and make it worthwhile for a landowner to cooperate with them, so a landowner would get some $ compensation out of it. But of course, the real money in the form of royalties are split between the company and the mineral rights owner.

DW and I have probably bought and sold 30+ tracts over the last decade and a half, and in every buy, we always ask for whatever mineral rights are still attached to a tract to be included in the sale. The % of interests still attached to a tract usually vary; sometimes they've been split off from the land long ago; usually only a certain % is left still attached to the land, but we have never yet come across a tract where 100% of the original mineral rights are still attached. By the same token, we try to reserve mineral rights when we sell.

 

[luckydude]

This is interesting.
How do I get the mineral rights to a property I own in Canada or any property ?

I don't know about Canada, but in the US, mineral rights are usually conveyed as part of the sale of land if the seller is willing to include it in a sale for extra $. I am sure you can also buy mineral rights separately and there's probably a marketplace for that.

 

[djsander]

I wonder why anyone would buy a property without mineral rights....does that mean a company could come in and disturb the ground you have built on?

It varies. In Texas mineral rights are separate property than the real estate. So, the owner of the mineral right maybe multiple landowners previous to the current owner or may never have owned the property. Once you own those rights you and your heirs can hold them forever whether or not it is ever produced. In other states if your rights are producing and you sell the property you retain the rights or the purchaser of the property buys you out. Which if you saw a previous post the poster was receiving 1200/month. How much in excess of the land cost do you believe that would cost? In other cases people retain the rights even if it is not in production on the hopes they will receive a future check. In those cases you may loose those rights to the landowner if not produced in so many years based on the particular states law. As for the surface disturbance is yes, the people that lease the rights from the mineral owner have a right to produce them. Typically, you would be paid for damages for the surface use. It happened to a coworker in east Texas where they didn’t own the mineral rights and a company drilled a well and put a storage tank on their property including a road to access the tanks. Then there are pooled units. You have multiple adjacent land tracts and all the minerals are pooled into one unit. One well is drilled but each mineral owner has a proportionate amount. However, you don’t have to lease you minerals. In that case you get $0 until costs are paid off for drilling then you get 100% pay on your proportionate share instead of the royalty percentage. It gets pretty complicated, but you get the picture.

 

[Winemaker]

I wonder why anyone would buy a property without mineral rights....does that mean a company could come in and disturb the ground you have built on?

Back in the early 1900's, Henry Clay Frick went around buying up coal rights for a nice penny to land owners. For 50 cents/acre it was a pretty good deal, instant cash now, with a long time before a mine would ever be built in the area to access it. Also, back then, there wasn't good technology to develop a slope or shaft coal mine 1000' underground, most were drift mines, where you could walk in. Although it doesn't happen intentionally nefarious, a mineral rights owner, not without just compensation, must be able to exercise his ownership of mineral rights to the chagrin of the surface owner.

 

[dfarr]

I don't know about Canada, but in the US, mineral rights are usually conveyed as part of the sale of land if the seller is willing to include it in a sale for extra $. I am sure you can also buy mineral rights separately and there's probably a marketplace for that.

Now that royalties are being paid many sellers retain their oil and gas rights when selling property. If not the price of the property will reflect the future value of the royalties.

I get monthly offers in the mail from companies wanting to buy my mineral rights.

 

[Fermion]

Sounds a lot like you are buying a future problem when you buy property and don't get the mineral rights. What if down the road there is some contamination or settling of the ground and the company who was supposed to remediate the extraction is out of business?

 

[luckydude]

Sounds a lot like you are buying a future problem when you buy property and don't get the mineral rights. What if down the road there is some contamination or settling of the ground and the company who was supposed to remediate the extraction is out of business?

Then the owner is pretty much sh*t up the creek. Nobody else will want that tract unless remediation has been done.

For landowners, that nightmare scenario ranks right up there with having an endangered species found on their property ("What? You mean I gotta keep the land as it is to preserve it as a habitat for that little blue frog, keep paying property tax and maintenance cost, and can't never ever use it, develop it, farm it!")

 

[street]

Sounds a lot like you are buying a future problem when you buy property and don't get the mineral rights. What if down the road there is some contamination or settling of the ground and the company who was supposed to remediate the extraction is out of business?

No, problems unless you make it a problem or make it an issue. Minerals are very hard to get in many areas of the country. Most all minerals are reserved when land is sold here. It is rarely you can get minerals when you buy land and if you can the cost of the land is outrageous.

I know ranchers with 20 to 30 sections of land and don't own one mineral acre. If you are the landowner and own the surface right but not the minerals that company has to deal with you also. You also can negotiate with mineral owners that don't own the surface or land if a company wants to do some drilling etc. The mineral owner is kind of at the mercy of the person that owns the land surface rights. Landowner can do very well and compensated greatly from mineral owners and company that wants on.

Many years ago, an oil company wanted to drill a well on land I owned. I didn't have the minerals. They came want wanted to build a road and drill and have their whole rosy picture to me. Lol I told them I would think about it. They were persistent and I finally said you buy me out and then you can do what you want. I also aid you don't have enough money to buy me out.

They said they have bought out many through the years. I said that would be the only way I would give them a right way or easement through my land. They said they would think about it. I heard from shortly after that and said they would drill a mile away from mine.

My wife has some minerals and gets a small check every month. Some of the mineral acres are so divided up over time the checks are small. Those minerals were from a farm her grandparents sold over 70 years ago.

We both have some minerals together on a small piece of land that we have rights too. The amount each year is small because of the minerals are so divided up.

 

[Fermion]

So you can just set up a crazy high fee for them to access the minerals on your land?

The problem that would concern me would be if there were underground work done on land that I own (fracking or shafts or whatever) and then Flybynight Co. files for bankruptcy when the price of mineral goes to poop and I have these future potential problems with settling or ground water contamination (or well water). I think this kind of thing has happened.