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DON’T LOOK FOR THE GOLD, LOOK FOR THE GRAVEL

Posted on: March 9th, 2016
by David Ganje

In the natural resources, mining and geological fields, the ‘experts’ are reluctant to call gravel a mineral.  It matters not whether they are a lawyer, judge or geologist.  But I set aside this ridiculous game of semantics.  I deal with reality.  My clients deal with reality.  So we start with the wisdom of my grandfather who was a farmer.  He said, “Don’t look for the gold, look for the gravel.”  What mineral has an immediate, practical and economic benefit regardless of where used, how used, or where located?  Gravel.

Gravel is everywhere – in South Dakota alone, there are more than 1,800 permits for gravel mining on file with the Department of Mining and Natural Resources. States have inconsistent histories with regard to whether or not gravel should be considered a ‘mineral’ requiring mining permits. As a result, the term ‘mineral’ will sometimes be construed so as to include gravel, and other times to exclude gravel. For this reason, those interested in gravel in South Dakota should be aware of the inconsistent legal nature of the commodity.

On private land, gravel rights are managed by the state. The SD legislature has passed statutes defining the term ‘mineral’ broadly when dealing with situations such as damages from mining, oil, and gas development, mineral exploration (but not mining), and abandoned mineral interests. In these statutes, gravel is included within the term ‘mineral’ – in fact, often ‘mineral’ is defined as expansively as “any substance with economic value, whether organic or inorganic, that can be extracted from the earth, including oil and gas, but excluding water” and in some cases, uranium. In these situations, then, there is no question that gravel is included. For example, like oil and gas, mineral interests in gravel are only abandoned if left unused for a period of twenty-three years, unless a statement of claim is made according to SD law.

Unfortunately, the South Dakota Supreme Court has implied that these definitions only fit the situations that their respective statutes dictate and, cannot always help define ‘mineral’ at other times. It would be easy if rights holders could look at these statutory definitions of the term ‘mineral’ universally. In South Dakota no statute provides a definition for ‘mineral’ or ‘mineral interest’ with the purpose of explaining existing mineral interests or leases. For example, North Dakota law states that “conveyances of mineral rights…in real property in this state…shall not be construed to grant or convey to the grantee any interest in any gravel…unless specifically included by name in the deed, grant, or conveyance.” South Dakota has nothing so specific, so the matter must fall to the courts.

As a result, the SD Supreme Court has instead chosen to handle the matter on a case-by-case basis. Those wishing to claim that gravel is included under their mineral interest or mineral right must show the court that gravel’s inclusion in a warranty deed was intended by all parties at the time the interest or right was created; if not, taking gravel from land on which you have mineral rights may well be prohibited, as the interest in the gravel remains with the surface estate. The SD Supreme Court has expressed concern about possible damage to the surface estate by removing subsurface or surface objects that the grantor did not intend to be removed – like gravel. When surface damage is likely to occur from deeding to the grantee an interest in gravel, courts will demand even a stringent showing of the grantor’s “intent.”

On federal land, where the federal government has reserved mineral interests, the analysis is similarly convoluted. The Supreme Court of the United States has held gravel to be included in a federal reservation of “all the coal and other minerals in the lands so entered” under the Stock-Raising Homestead Act of 1916, but more recently held gravel to not be included with the federal reservation of “all the coal and other valuable minerals” under the Pittman Act of 1918. Lest we feel comfortable that all federal reservations of regular minerals will include gravel, and all federal reservations of valuable minerals will exclude gravel, a two-justice concurrence in the Pittman Act case disparaged the “faulty reasoning” of the SRHA case, and implied that they might consider overturning that holding at some point in the future. This may indicate that whether or not a specific federal mineral reservation includes gravel can depend heavily on the composition of the court at the time of the case.

For those who are interested not in interpretation of current mineral interests, but rather the creation of future mineral interests, the key is clear and careful writing. When mineral reservations and interests are written so as to explicitly include gravel as a mineral, or there is some compelling evidence that the grantor intended to include gravel within the grant, then courts will uphold the granting deed as including gravel. Sadly, the issue can become a grantee interpretation versus grantor interpretation, with the grantor likely to win. This is largely because SD law states that “a reservation in any grant. . . is to be interpreted in favor of the grantor.” This road is a little rocky.

David Ganje. David Ganje of Ganje Law Offices practices in the area of natural resources, environmental and commercial law in New York. The website is Lexenergy.net