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Hi all,
I have some questions about silica mining that I was hoping someone could get me some help on.

My family owns some pretty good producing silica claims in Nevada, very high quality sand. For several decades we've been leasing the claims to a large mining company and I'm getting the feeling we're being shafted (no pun intended). I'm not sure some of the older members of the family made the best decisions on lease agreements. The claims are currently about 30-40% of a large put mine that is made up of several claims owned by the company leasing ours.

Which brings me to my questions.

I've been told (and I don't know how accurate it is) that the large company owns all the water right in the area. If true I assume that makes it impossible for us to mine it ourselves or lease to someone else? Are there options there? How hard is any of that? I assume setting up a mine is expensive and complicated and probably requires water?

Second question. What is a typical market rate for royalties on something like this. Right now we're getting 2.5% of each ton of sand sold that they mine from our claims.... assuming they get to that part of the mine during the year. They mine millions of dollars worth of sand out of there and we see very little of it. Is that a decent rate or am I correct that we're getting screwed?

Thanks

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Sam,

I've done dozens of mining deals over the last 35+ years.  Many are in Nevada where I personally control several hundred claims.  Mining leases are extremely complicated and much longer term than oil and gas leases.  Mining projects often require more than twenty times the capital expenditures of the most expensive horizontal oil wells before the mining company sees the first unit of production that is salable.  Consequently the risk analyses are totally different between mining and oil.  

That said, 2.5% royalty on gross sales of refined product for an open pit sand operation is on the low side for leases negotiated today but not by much.  Greedy lessors demanding 5% usually give up their land for 20 years and get 5% of nothing while lessors who understand mining risk and lease structure and who use experienced mining law firms to negotiate leases will generate consistent  cash over the term of a lease.  

To make sure you are getting a fair deal under the existing lease, you should set aside $5,000 from he next royalty check and have an experienced mining lawyer, audit your leasehold rights.  Most mining lawyers are associated with mining engineers and together they can give you a report tha will help you understand your options  and fair market value of the existing lease.  

In Nevada, mining permits are very highly regulated and under modification; sometimes as often as annually.  As a lessor, your family should know in advance when your claims are to be included in future mining operations.  That knowledge, with monitoring, will allow the family to have confidence that it isn't getting screwed.  Most Nevada experienced engineers and lawyers work closely with regulators especially when the "claims" are on federal lands.  (You didn't mention if your claims were patented or unpatented and it makes a huge difference in a mining lease.)

Contact me via PM on MRF if you need names.  I've had the privilege of working with the best.

Gary L Hutchinson 

Gary, what Agency in Texas has overview of Sand Leases...Railroad Commission?

Louis Gohmert

Louis, 

I do not know the answer.  I do know that in Texas, minerals that are mined by disturbing the surface, belong to the surface owner.  I was involved in lignite (low grade coal) mining from railroad lands in the 1980-1990's.  The RRC administered the open pit operations along with a great deal of input from the counties and the Authority involved.  i.e. the LCRA who was the ultimate consumer of the lignite.  

Call a sand and gravel provider and find out who issues their mining permits.  I'll bet that the county  is involved at some level.  

Gary Hutchinson 

How would a person go about finding out if their sand is the type of sand that the sand companies are wanting to lease, purchase land for mining? This is a new area for me. And would they have to have electricity to do their mining? Very interesting information you have posted.

Thank you for any information about mining sand.

Louise

You'd have to have it tested to see if there's anything of value in it. For silica they need water and electric....LOTS of water

Thank you so much for your speedy reply. I appreciate your help. So who would you contact to evaluate the sand? How many acres would it take to be able to mine for the silica? This is something new to me. Have acreage, but, have been waiting for about 30 years for an oil or gas well. Would consider a silica mine if able to. Thank you,

Louise

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