Can the law help smooth the way for a modern day Scottish gold rush?

In 1424, the Scottish Parliament passed an act, the purpose of which is lost in history but would appear to have been to confirm what the law already was at the time. The act in question is the oldest remaining on the statute books in Scotland, and confirmed that where gold, silver or lead containing a sufficient quantity of silver can be mined, that mine of gold, silver or lead (and the silver in it) (the “mines royal”) belongs to the Crown.

This was followed by the Mines and Metals Act of 1592 (which also remains on the statute book) that appears to have been passed because so many of the gold and silver mines had been let to foreigners who were simply not mining them, and the Crown was therefore receiving no revenue.

The Act was intended as a means to stimulate the exploitation of mines generally, by placing an obligation on the Crown, if sufficient quantities were discovered in any land to warrant exploitation, to grant to the owner of the surface either a feu right (now a disposition) enabling the surface owner to extract them in exchange for a yearly payment to the Crown based on the quantities of mines royal recovered.

The sting in the Act’s tail is that if a landowner is made aware of the presence of a worthy reserve of such minerals but refuses or delays working them, the Crown has the power to grant rights to someone else to do so.

A number of grants were made in consequence of this Act, so that although the Crown still owns the mines royal beneath most of Scotland, there are parts of Sutherland, Argyll, and Lanarkshire where title to the mines royal is held along with the surface or other minerals on the basis of grants in Crown Charters.

Scottish prospects – the potential for a gold mining industry

Although there had been little in the way of gold mining in Scotland since the early 1900s, in August last year Scotgold produced gold for the first time as part of its ore processing trial at Cononish, near Tyndrum. The price of gold reached a peak in 2011, and although it dropped in the years after it has remained at a better level since then than in the period prior to the credit crunch.

There are signs that the potential reserves in parts of Scotland may be sizeable; it is an industry that has the potential to bring significant year round employment and investment to remote rural areas, and to create a product with a certain celtic cachet. As a result, there has been a renewed interest in gold prospects in Scotland.

As the Scotgold project has demonstrated, however, the process of locating and proving a gold reserve in Scotland and developing the site is an expensive business and a process that takes many years. The mining concession regime here is less developed, less certain and more onerous than in jurisdictions in which gold mining is more common.

In addition hundreds of tonnes of rock require to be crushed and processed to obtain usable gold measured in ounces. Typically, the gold bearing ore will contain minerals other than the mines royal, and therefore agreement is required not only with the owner of the surface at the access into the mine, but also potentially with a third party mineral owner. Ultimately the returns have the potential to be good, but to open and operate a gold mine requires substantial long-term investment.

The Crown Estate and mines royal

The Crown’s interests in mines royal are currently administered by the Crown Estate Commissioners in terms of the Crown Estate Act 1961. That Act places a general duty “while maintaining the Crown Estate as an estate in land… to maintain and enhance its value and the return obtained from it, but with due regard to the requirements of good management”.

As a result of the provisions of the 1961 Act, and possibly in order to circumvent the precariousness caused by the sting in the tail of the 1592 Act, the Commissioners’ practice in relation to the grant of rights to exploit the mines royal has been to grant options to lease, rather than ownership rights. Those options give a number of years within which to prove the existence of a workable reserve, the lease terms secure the sums due to the Crown and the “good management” of the property.

Whilst in the past the terms of the leases offered by The Crown Estate Commissioners were incapable of providing sufficient security for investors or contained terms that made it unlikely that the mines could operate economically, the Crown Estate Commissioners have come a long way in recent years towards accepting the requirements of modern gold exploration business and recognising that mining companies have a global choice among more developed and attractive exploration provinces.

The Scotland Act 1998 reserved management of the Crown Estate to Westminster, such that although the Crown Estate Commissioners run the estate under powers set out in the Crown Estate Act 1961, it is the UK Government that retains power to direct operations and such fiscal surplus as the Estate creates is transferred to the UK Government. This, of course, has been the topic of many reviews and reports with the most significant being the Smith Commission and its recommendation that the Crown Estate in Scotland be devolved to the Scottish Parliament.

Section 36 the Scotland Act 2016 makes provision for the transfer of all of the existing Scottish functions of the Crown Estate Commissioners to the Scottish Ministers or a person named by them, and the Scottish Governments’ consultation on the management of the Crown Estate in Scotland drew to a close on 29 March 2017.

In it, the Scottish Ministers sought views as to how the devolved management of the estate should be shaped so that the Crown’s property can put to use to the better benefit of the people of Scotland. The consultation document narrated that the transfer scheme to give the devolved parliament legislative competence in respect of the Crown Estate functions in Scotland is due to complete its path through Westminster by April, with the result that the Scottish Parliament could perhaps have its own bill making provision for management of the Crown Estate assets under consideration during 2019.

Attracting investment

Naturally, most of the attention that this has drawn has focussed on the marine environment and in particular to the grants of rights to use the seabed for offshore wind projects.

The charm of celtic gold means that the management of the mines royal under the new regime should also be of concern. Whilst it is clear that the existing law does very little to provide mining companies with the sort of certainty that would encourage them to invest, and compares unfavourably with the regulatory regimes with which those companies and their investors will be more familiar, as matters stand, it is possible to negotiate a workable balance with the Crown Estate Commissioners.

It will be important to ensure that in taking the management of the mines royal under the wing of the Scottish Parliament the current delicate balance is not jettisoned without replacing it with something better able to attract investment.

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If you would like to discuss how we could assist you in relation to mines royal, please get in touch with a member of our team.

• Pamela Todd   |   0131 247 2509

This article was originally published in Greens Property Law Bulletin