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Application of the Federal Securities Laws to Mineral Financing

Robert H. Davenport, David M. Abbott, Jr., Martha S. Fulford, Mineral Financing (1982)

The nexus between the minerals industry and the securities laws is money. The Commission's Regional Geologist in Denver, whose job it is to know such things, notes that J. P. McKee's First Law of Mineral Exploration states, “Use somebody else's money.” This sage advice recognizes both the fact that few individuals and companies have the individual resources to finance an exploration or development venture and the fact that most mining prospects and wildcat wells do not produce sufficient revenue to return the sums expended on them. Therefore, in order to raise sufficient money to examine enough prospects to find those which are profitable and to do the required exploration and development work to convert a prospect to a producer, the minerals industry turns to somebody else for money. The general public is the ultimate somebody else to whom an issuer turns, be it through direct appeal in a public offering, indirectly by enticing a “big” public company to take part in the project, a private or nonpublic offering, or through other arrangements.1

In turning to someone else to obtain financing, a security is usually created, offered, sold, and issued. What is a security under federal law? The Securities Act of 1933 defines a “security” as follows:

The term “security” means any note, stock, treasury stock, bond, debenture, evidence of indebtedness, cert