Queensland explores mining rehabilitation and financial assurance reforms

At a glance

The Queensland Government has proposed broad policy and legislative reform in relation to financial assurance and mine rehabilitation with a view to improving rehabilitation performance, reducing reliance on the financial assurance system and clarifying mine rehabilitation requirements.

The first two of a series of discussion papers have recently been released, and are open for public comment until 15 June 2017.

What’s to come

Key aspects of the reform package include:

  • a new financial assurance framework that eschews a ‘one size fits all’ approach, and is tailored to the operator’s risk profile and potential rehabilitation liability;
  • a rehabilitation fund to pool contributions;
  • diversified methods for providing financial assurances;
  • a framework that requires, monitors and assesses progressive mine rehabilitation, rather than taking an ‘end of life’ approach;
  • mandatory reporting and clear signing off on progressive rehabilitation; and
  • more realistic estimates of rehabilitation costs.

If adopted, the reforms are likely to have significant impacts on operational costs, decisions to place mines on care and maintenance and the timing of divestment.

Key dates

Proponents in the resources sector should be aware of the following proposed timetable for stakeholder engagement:

 

Topic

Key dates

1

A redesigned financial assurance framework—the tailored solution

Discussion paper released

Open for comment until 15 June 2017

2

Better mine rehabilitation for Queensland

Discussion paper released

Open for comment until 15 June 2017

3

Expanding the range of surety providers

Mid to late 2017

4

Expanding the Abandoned Mine Lands Program

Late 2017

5

Improving management of sites in care
and maintenance

Late 2017

6

Other

Mid 2018

 

Watch this space – asset transfers and share sales

As part of the ‘other reforms’ aimed at improving rehabilitation outcomes in Queensland, the Government has identified the need to investigate how the financial capacity (i.e. ability to meet rehabilitation costs) of incoming owners of resources assets is assessed.

It is possible that the risk of unfunded rehabilitation costs could be addressed by introducing a power to regulate resources transactions effected by way of share sale.  In addition, the Government may also look at developing guidelines to assist both industry and decision-makers when considering ‘acceptable counterparties’ for both share and asset sale transactions involving resources interests.

For further information, please contact William Oxby, Partner, or Madeline Simpson, Special Counsel.

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Filed under Australia, Energy, Mining, Queensland, Regulation

Argentina seeks to double investment in mining sector

The Argentina government is working on a bill to establish a federal mining agreement to harmonise all existing legislation across the different provinces and with the federal government.

After a year of intensive negotiations with the different provinces, the Argentine government is finalising details of a plan to relaunch mining nationwide. The government expects to begin the debate in congress on the 1st March, following the summer recess. However, it expects strong opposition to the agreement from environmental groups.

The goal of Macri’s government is to double investment in the mining sector to US$25bn in eight years, compared to the US$10bn invested in the 2007-15 period.

The move is aimed at providing tax stability to investors, avoiding conflicts with local governments and winning over the support of local communities for the mining industry, in the same fashion as the previous government did with the oil industry.

This post was written by Ignacio Paz, Partner, Madrid.

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Shareholder activism: Update on the status of ‘advisory’ environmental resolutions in Australia

In its recent decision in Australasian Centre for Corporate Responsibility v Commonwealth Bank of Australia [2016] FCAFC 80, the Full Court of the Federal Court (Full Court) dismissed an appeal by the Australasian Centre for Corporate Responsibility (ACCR). This decision has effectively ended the prospect of shareholder activists proposing ‘advisory’ resolutions relating to the management of a company.

Background

The ACCR is a not-for-profit association promoting shareholder engagement and advocacy.

In this case, the ACCR sought for the directors of the Commonwealth Bank of Australia (CBA) to propose one of 3 alternative shareholder resolutions at CBA’s annual general meeting (AGM). CBA refused to allow two of the resolutions. These resolutions required the CBA board of directors to report annually to shareholders on the quantum of greenhouse gas emissions CBA ‘is responsible for financing’, the risks posed to CBA from climate change, and the strategies adopted by the bank to mitigate those risks.

CBA agreed to include the third alternative resolution for consideration at the AGM. This resolution sought the amendment of CBA’s constitution to require the directors to report to shareholders on the directors’ ‘assessment of the quantum of greenhouse gas emissions [CBA is] responsible for financing’.

The ACCR brought the case to the Federal Court. After the Federal Court ruled against it, the ACCR appealed to the Full Court.

Implications of the decision

The case was run as a test case by the ACCR to bring Australian law more in line with the law in the US. In the US, shareholders routinely pass non-binding resolutions to express opinions as to the management of companies. The Full Court rejected this approach and emphatically denied the existence of a general power under Australian law to allow shareholders to pass such ‘advisory’ resolutions regarding issues of management.

The decision comes soon after the repeal of the provisions under the Corporations Act 2001 (Cth) that entitled 100 or more shareholders to demand that a company call a general meeting. The combination of the repeal of these legislative provisions and the Full Court’s decision leaves boards of directors in a better position to refuse a requisition by shareholder activists of ‘advisory’ resolutions.

Despite these developments, the level of shareholder activism is unlikely to decline. For example, the ACCR has had some success in raising awareness of its campaigns by requisitioning special resolutions to amend the constitutions of large Australian banks, energy and mining companies. None of these resolutions have so far been successful in Australia, considering they require 75% of shareholders to vote in favour in order to pass. They do, however, bring attention to, and force boards to comment on, the issues raised.

In this context, another point reinforced by the Full Court was a board’s ability to comment on proposed resolutions by shareholders. The ACCR argued that the CBA board had acted beyond its power by recommending against the proposed amendment to the CBA constitution because the board did not consider the resolution to be in the best interests of the company. The Full Court rejected the ACCR’s argument in this regard.

Costs

The ACCR argued that it should not be liable for CBA’s costs on the basis that the case was in the public interest and may have far reaching implications on shareholder participation or corporate governance. The Full Court did not accept the ACCR’s argument, noting that an applicant which is established to pursue a particular public interest should not be exempted from the usual costs order where litigation brought in pursuit of that purpose fails.

For further information, please contact Mary Boittier, Executive Counsel or your usual Herbert Smith Freehills contact.

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English High Court allows group claim to proceed against UK-domiciled mining company in relation to acts of subsidiary company abroad

The English High Court has rejected jurisdiction challenges by UK-domiciled mining company Vedanta Resources PLC and its Zambian-domiciled subsidiary Konkola Copper Mines PLC, allowing a group claim brought by 1,826 Zambian villagers in respect of alleged environmental pollution from the copper mine in Zambia to proceed against both companies: Lungowe & others v Vedanta Resources PLC and Konkola Copper Mines PLC [2016] EWHC 975 (TCC)

This case will be of interest to companies which are headquartered in London but with operations run by subsidiary companies around the world. If a similar approach is adopted in other cases, it may be difficult for such companies to challenge English jurisdiction for claims against both parent and subsidiary based on acts of the subsidiary company abroad – though of course each case will depend on its precise circumstances including (importantly) the nature, scope and extent of the parent company's control.

Click here to read more.  For further information please contact John Ogilvie, Joanne Keillor or your usual Herbert Smith Freehills contact. 

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Extension of WA co-funding drilling exploration program

The Western Australian State Government (State) recently announced the thirteenth round of applications for the Co-Funded Exploration Drill Program (Program), with an additional $5 million in grants available for explorative drilling programs in the 2016 / 2017 year. To date, prior Program rounds have provided funding of approximately $23 million to explorers, miners and prospectors.

The Program is the flagship program of the State-funded Exploration Investment Scheme (EIS), which promotes and supports innovative exploration drilling projects throughout Western Australia. The Program offers up to a 50% refund for innovative explorative drilling programs, subject to caps determined by whether the project is for general multi-hole drilling, single deep-hole drilling or prospecting. The EIS has resulted in multiple significant discoveries since its inception in 2009, including the Nova nickel deposit.

The State’s move to extend funding is an important response to the current economic climate and the associated impact on mining activity in Western Australia, particularly exploration. Concerning trends such as a decline in exploration spending and a narrowed focus on brownfield funding are reflective of a lack of confidence in the resources sector during a period of volatility in commodity and currency markets. Limited private investment and capital raising opportunities for junior proponents compound the issue, making it particularly difficult for junior proponents to commit to and fund meaningful exploration programs. In announcing the Program funding extension, Mines and Petroleum Minister Bill Marmion stated “There has never been a more important time to support exploration. This innovative program favours under-explored and greenfield[s] areas, helping more than 590 projects and 450,000 metres of drilling since it began in 2009.” 

Sustained exploration is key to adopting a long-view of the commodities cycle. There is currently a strong focus on capital returns for projects in a low-growth environment, however given the finite nature of mining projects, a lack of exploration at this point in the commodities cycle may lead to a constrained future project pipeline.    

Applications for Program funding are open until 5 April 2016, and should be made via the Western Australia Department of Mines and Petroleum website.

For further information, please contact Jay Leary, Partner, or your usual Herbert Smith Freehills contact.

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Filed under Mining, WA, Western Australia

Mining & Petroleum Law – NSW legislative changes update #2

Maximum term of exploration licences extended from 5 to 6 years

On 1 March 2016 the Mining and Petroleum Legislation Amendment (Harmonisation) Act 2015 (NSW) (Harmonisation Act) commenced by proclamation (except Schedule 2(23) which commenced on 18 December 2015). The object of the Harmonisation Act is to bring the Mining Act 1992 (NSW) (Mining Act) and the Petroleum (Onshore) Act 1991 (NSW) (Petroleum Act) into closer alignment in respect of the administration of titles, conditions, compliance and enforcement. It is the first stage in delivering a single resources act in NSW.

What has changed?  

The provisions relating to the maximum term of assessment leases and exploration licences have changed under the Mining Act. The possible term of certain mining tenements has been extended from a period not exceeding 5 years to a period not exceeding 6 years. Specifically, these changes include:

  • the term of an assessment lease may be for a period of up to 6 years (instead of 5 years previously) (section 45 Mining Act);
  • the term of an exploration licence may be for a period up to 6 years (instead of 5 years previously) (section 27 Mining Act); and
  • the renewal of an exploration licence or assessment lease may be for a period which may not on any one occasion exceed 6 years (instead of 5 years previously) (section 114 Mining Act).

Why is this important?

The changes have been made to bring the maximum term of assessment leases and exploration licences granted under the Mining Act into alignment with the provisions relating to the term of assessment leases and exploration licences granted under the Petroleum Act.

Transitional provisions

Mining proponents should note the following transitional provisions:

  • the term of existing tenements does not automatically change (for example, from 5 to 6 years); and
  • pending applications for the grant or renewal of an assessment lease or exploration licence made, but not decided, before 1 March 2016 may now be for a period of up to 6 years.

Native title implications

Holders of exploration licences and assessment leases should be careful applying for a renewal for a term longer than the original grant term. Under the Native Title Act 1993 (Cth) (Native Title Act), the renewal of an exploration licence or assessment lease for a term longer than the grant term can trigger the ‘right to negotiate’. Whilst there are exceptions to this rule (potentially where the ‘native title condition’ is imposed), proponents should seek advice before automatically applying for a renewal for a term longer than the original grant term. Non-compliance with the Native Title Act can result in the renewal (potentially) being invalid.

Please contact William Oxby, Partner, Brisbane, +61 7 3258 6469, if you require additional information or your usual Herbert Smith Freehills contact.

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Mining & Petroleum Law – NSW legislative changes update #1

Renewal application for exploration licences: onus to justify larger than default area shifts to applicant

On 1 March 2016 the Mining and Petroleum Legislation Amendment (Harmonisation) Act 2015 (NSW) (Harmonisation Act) commenced by proclamation (except Schedule 2(23) which commenced on 18 December 2015). The Harmonisation Act forms part of a suite of 5 Acts, the object of which is to reform the regulation of resource exploration and production in NSW.

Mining – 50% reduction of area on renewal of exploration licence

New section 114A of the Mining Act 1992 (NSW) (Mining Act) alters the power of the decision-maker in relation to renewal applications for exploration licences. Previously, the area sought to be renewed could not exceed half of the original licence area unless the decision-maker was satisfied that special circumstances existed that justified the renewal of a larger area.

Under the changes, the renewal area is set at a default size of not exceeding half the original area. The onus is put on the applicant to claim that special circumstances exist that justify granting a renewal over more than half of the original area. What amounts to special circumstances is not exhaustively described but can include consideration of any partial cancellation of the exploration licence requested by the licence holder.

Petroleum – 25% reduction of area on renewal of exploration licence

The Harmonisation Act aims to streamline administrative arrangements and bring the Mining Act and Petroleum (Onshore) Act 1991 (NSW) (Petroleum Act) into closer alignment. New section 19B of the Petroleum Act sets the default area for renewal applications not exceeding 75% of the original area granted or the previous renewal area granted. Similar to the Mining Act changes, the onus is on the applicant to claim that special circumstances exist that justify granting a renewal over an area exceeding 75%.

Why is this important?

The applicant now plays a more pivotal role in justifying the renewal of exploration licences for greater than the default area. If the applicant makes no claims of special circumstances, it is likely that the renewal will be no greater than 50% of the area for mining exploration licences and 75% for petroleum exploration licences. Particular care will need to be taken when settling renewal applications to ensure that a satisfactory and compelling description of the special circumstances is included.

Please contact William Oxby, Partner, Brisbane, +61 7 3258 6469, if you require additional information or your usual Herbert Smith Freehills contact.

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Increased capacity at port of Port Hedland

The Pilbara Port Authority announced earlier this month that it will be increasing its capacity at the port of Port Hedland by 16% over the next 3 years. This will see the port’s capacity increase from 495,000,000 tonnes to 577,000,000 tonnes per year. This has come following the port’s record throughput in 2014-15 of 446,921,901 tonnes. This increase will be allocated to the D class capacity, meaning it will be available to all applicants. The PPA has paired with OMC International, an independent maritime engineering company, to develop and implement what the PPA is calling the ‘Tidal Model.’ This model is based on OMC’s Dynamic Under Keel Clearance model which it first implemented at the port in 1996.

This model increases operational efficiencies by measuring real time swell and tide data as well as vessel’s own stability requirements to determine accurate allowances for squat and wave response. This allows increased loading of ships as well as increased throughput each day at the port. OMC’s estimations indicate that this will amount to around $1.1 billion extra revenue being generated by the port. The system is also said to facilitate improved safety and risk management procedures by allowing for increased manoeuvrability of ships in a carefully monitored way. This increase in capacity has been welcomed by companies such as Fortescue Metals Group Ltd and BHP Billiton Ltd who are both seeking to increase their capacity at the port over the next few years.
For further information, please contact Jay Leary, Partner, or your usual Herbert Smith Freehills contact.

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UNCITRAL Transparency Rules applied for the first time in investor-State arbitration

In September 2014, BSG Resources Limited initiated an international arbitration proceeding against the Republic of Guinea arising out of an alleged expropriation of its investment in the mining sector in the country.  

The multinational mining company started its operations in Guinea in 2006 and in 2013 it was granted mining licenses to explore and exploit mines at the ‎Simandou and Zogota sites. The dispute involves the alleged rescission of the company’s mining licenses due to accusations of corruption by the new Government in Guinea.

The arbitration is being administered by the International Centre for Settlement of Investment Disputes (ICSID) in Washington D.C. The case stands out for being the first publicly available ICSID case where the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration were voluntarily opted-in by the parties to the arbitration.

Click here to read more.

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Parliamentary Inquiry Report into FIFO and other long distance commuting work practices in regional Queensland released

On 9 October 2015 the Infrastructure, Planning and Natural Resources Committee released its “Parliamentary Inquiry report into FIFO and other long distance commuting work practices in regional Queensland” (Parliamentary Inquiry Report). Earlier this month, on 1 October 2015, the Government appointed FIFO Panel made its “FIFO Review Report” (Review Report) publicly available, after being provided to the Minister of State Development at the end of July 2015. Both reports form part of the Queensland Government’s FIFO Review, which aims to introduce choice for employees working at mines located near a resource town or regional community to live near their workplace.

Key recommendations

Both Reports recommend legislative reform to prescribe that a social impact assessment process be undertaken for major projects. If this recommendation is implemented it would likely involve the amendment of the State Development and Public Works Organisation Act 1971 (Qld) or the Environmental Protection Act 1994 (Qld). These pieces of legislation set out and facilitate approval processes for resource projects in Queensland.
The Review Report recommends that the Environmental Protection Act 1994 (Qld) be amended to require resource proponents to prepare appropriate workforce, procurement and accommodation plans for proposed resource activities as part of their environmental approval process. It further recommends monitoring and enforcement measures be put in place to ensure compliance with approved workforce, procurement and accommodation plans for new resource activities.
The Parliamentary Inquiry Report recommends that the government consider making changes to anti-discrimination legislation to prevent local workers in regional or mining towns being discriminated against on the basis of where they live for work. The Parliamentary Inquiry Report emphasises that workers should have a genuine choice of where they live for work. It also makes recommendations in relation to the minimum standards for the provision of substantial temporary and permanent accommodation for FIFO workers, such as room design and access to health services and recreational areas and that the standards advise against the practice of ‘motelling’ or ‘hot-bedding’..
Implications

Neither Report recommends any form of retrospective action to place limits on existing FIFO workforces. As such, current resource projects with FIFO workforces should not be impacted by changes flowing from the recommendations in the Reports.
The Parliamentary Inquiry Report recognises that some resource operations require total FIFO workforces due to their remoteness or during construction; indicating that future resource projects in remote areas with 100% FIFO workforces may still be acceptable.
Government response to these Reports is expected in early 2016. This may be followed by the introduction of new laws and regulations in regards to FIFO and non-resident workforces.

For further information, please contact Jay Leary, Partner, or your usual Herbert Smith Freehills contact.

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Filed under Mining, Queensland, State Government