Nevada High Court Nixes Miner’s Royalties Defense

CARSON CITY (CN) - Nevada's rule against perpetuities does not apply to commercial mining royalties, the Nevada Supreme Court ruled.

The dispute stems from Bullion Monarch Mining's claim that Barrick Goldstrike Mines owes it royalty payments from a 99-year agreement covering mining of the Carlin Trend, Nevada's largest gold deposit.

Bullion and Barrick's respective predecessors struck the 1979 Carlin Trend deal, which contained an area-of-interest provision that requires the mine operator to pay "a royalty on production resulting from the operator's mining claims that the operator might subsequently acquire within the area of interest," according to the ruling.

Bullion brought the case to the 9th Circuit after a federal judge credited Goldstrike's claim that Nevada's rule against perpetuities nixes the royalties agreement.

It has been three years since the 9th Circuit, unable to find precedent on the matter, asked the Nevada Supreme Court to decide whether the state's perpetuities rule applies to commercial mining.

The state's high court was unanimous last month in finding "that public policy weighs against applying the rule against perpetuities to area-of-interest royalty agreements."

"Because the agreement is a commercial one, there is no human decedent exercising dead-hand control over the still-living descendants," Justice Michael Cherry wrote for the court.

The March 26 decision describes an area-of-interest royalty agreement as a deal "whereby one party agrees to pay a portion of not-yet-acquired mineral interest's output to another party because that mineral interest lies within an area of interest."

In such agreements, "the mineral interest's current owner is often 'of the opinion that it is as a result of his efforts that the [interest buyer] is in the "area" and that he should participate in any proceeds derived'" from that location, Cherry wrote.

"It is often unclear how far a mineral vein will run," Cherry added. "The owner of the interest wishes to receive, in a sense, a finder's fee in the form of a royalty in case the mine operator discovers that the vein runs farther than the location of the conveyed mineral interest."

Nevada's rule against perpetuities applies to the life of the people making the agreements plus 21 years after their deaths, Cherry said.

"Bullion and Barrick are both successors in interest, not in birth," Cherry wrote. "This is not the kind of 'entailed state' that the rule against perpetuities was intended to prevent."

With this guidance, Bullion and Barrick's dispute now returns to 9th Circuit.

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