Mineral resources are defined by geologist as those rocks, minerals, and oil and gas deposits found on or beneath the surface of the Earth. The claim of ownership of such resources depends upon where they are. As with many things, ownership rights vary by jurisdiction.
In some places, rights are linked to the real estate where the minerals are located. Others allow ownership rights of mineral deposits to be treated as a separate asset. In these places, you can sell off or lease your mineral rights to another party. Whatever the status, if the property you own sits atop a vein of natural deposits, you may have some deep thinking to do.
Know Your Rights
When you buy property, don’t always assume you are also buying the minerals beneath it. Another party may already own the rights to them and the owner of these rights can set up operations on your land to drill for oil or gas without your consent. Needless to say, this will have an impact on your property value for many years while someone else collects the royalties. Such as situation occurs when property rights and mineral rights are separated.
Protect Your Rights
Before closing on any property deal, make sure a title search of the property is conducted to confirm ownership of its mineral rights. To be safe, the search should extend back 100 years so that all older leases and contracts are included. If there is an existing lease on the subject property, you may have difficulty getting a lender to offer you a mortgage on that property.
Adverse Effects of Extracting Mineral Resources
The process of extracting mineral resources from your land will by itself automatically change its legal use. Any change in land use will influence its market value for better or for worse. Other contributing factors include the rate of production and depletion of extracted minerals. A positive cash-flow derived from the sale of minerals is a positive thing, but keep in mind, resources are finite and every shovelful of material you pull out of the land means the land has that much less to give going forward. The market value of the property will reflect this depletion of minerals. Environmental impact is another factor that will have an influence on the market value of your land, as well as safety and logistical issues concerning the actual extraction operations.
Financing the Purchase of Mineral Enriched Land
Sometimes a buyer will find a true bargain, like a parcel of land with intact mineral rights that is also suitable for subdivision. The lucky finder of this type of arrangement can build a home on one part of the land in which to live, while prospecting for minerals on another part. If desired, you can even choose to sell off or lease mineral rights to someone else and earn a one-time cash windfall, or create a steady income. The downside to this dream scenario is that conventional mortgage financing can be difficult to find.
Most banks don’t want to deal with the complexities of such situations, and one solution is to approach a private, non-institutional or hard money lender. Hard money loans can be expensive in terms of interest rates and closing costs and inconvenient in terms of their short duration, but do represent a viable alternative to banks and traditional mortgage companies when a deal is attractive, and mortgage money scarce. An institution like Ellis Equity can help you navigate which types of financing would work in your situation.
Most of the minerals lying beneath the surface of the Earth can be mined for some useful purpose. Metals are used to manufacture our tools and machines. Sand and limestone make up the concrete used to build our roads and buildings. Silicon provides the stuff from which computer chips are made. Mineral rights have the potential to produce value, and create great wealth for landowners who possess these rights. For this reason, you should exercise care and perhaps speak with a professional advocate before agreeing to buy or sell mineral enriched property or convey their associated rights.