Mining and petroleum tenure reform in Queensland

Material changes are proposed to the tenures under which minerals and petroleum are explored for in Queensland. The Department of Natural Resources and Mines recently released a policy position paper titled ‘Innovative resources tenures framework’ (Reform Policy). Consultation with the industry and interested parties is proposed for September and October 2015. Importantly, submissions on the policy position paper are due 16 October 2015.

Separately, we note the recently altered status of the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld). As a consequence of the Mineral and Energy Resources (Common Provisions) (Postponement) Regulation 2015 (Qld) (Regulation), the balance of the Common Provisions Act will automatically commence on 27 September 2016 (if not commenced, amended or repealed beforehand). However, the release of the Reform Policy suggests that the Common Provisions Act will be amended or repealed before 27 September 2016.

The Reform Policy proposes to set maximum terms for exploration licences for minerals and petroleum with no renewals and a default relinquishment of 50% of the area at the prescribed time. Under transitional arrangements (to be developed further after consultation) renewals will be limited in duration, there is capacity to opt-in to the new framework and a change to ‘higher tenure’ may alter timelines and processes for projects to be developed in the short term.

We recommend that these reforms be closely monitored against a company’s matrix of tenure, having particular regard to: relinquishment; any long term retention proposals; and development horizons for projects.

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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Filed under Mineral Resources, Mining, Queensland

Amendments to the Aboriginal Land Rights Act 1983 (NSW) – Project and transactional implications

The Aboriginal Land Rights Act 1983 (NSW) (Land Rights Act) has been recently amended to include a framework for reaching agreements with Aboriginal Land Councils. The new framework and capacity to reach Aboriginal Land Agreements (ALAs) is important for project development and transactional due diligence.

ALAs are formal agreements between an Aboriginal Land Council, the Crown Lands Minister and potentially any other third party (after invitation and approval by the parties). The agreement may provide for the exchange, transfer or lease of land to an Aboriginal Land Council, or an undertaking by an Aboriginal Land Council not to lodge a claim, or to withdraw a claim, in relation to specified land (see section 36AA). The parties may also choose to include any other matter in the agreement. Negotiations may commence at any time with notice in writing.

Land subject to an unresolved claim under the Land Rights Act can cause delay and uncertainty in relation to access to Crown land. Until now there has been no formal agreement process in the Land Rights Act to manage this. The new framework provides greater certainty and should therefore assist project proponents in securing access to claimed land (or land potentially subject to a claim in the future). It is possible ALAs will become more commonplace, especially considering there are some 20,000 plus undetermined claims.

Finally, and from a transactional perspective, the due diligence process can now, if warranted, include a search of the newly established register of ALAs to determine whether there is an agreement registered for any Crown land covered by a project.

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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Filed under Aboriginal Land Councils, Aboriginal Land Rights Act 1983, Mining

Update on transparency reporting – compliance with EU reporting requirements by extractive companies on government payments is determined to be an acceptable substitute for Canada

In an earlier post we noted that the Canadian federal government had brought new legislation into force on 1 June 2015, the Extractive Sector Transparency Measures Act, which establishes reporting requirements of payments made to governments by mining (and other extractive) companies. This followed the earlier implementation by Norway and the UK of similar reporting obligations of payments to governments.  We have previously posted updates on the UK regime for extractive companies with debt or equity securities listed in the UK and large, unlisted companies incorporated in the UK (including subsidiaries of non-UK parent companies) to produce annual reports on payments to governments for financial periods starting on or after 1 January 2015. If you would like a copy of our detailed briefings on the EU Directives and on early UK implementation, please contact Jennifer Bell or Sarah Hawes.

Draft guidance now issued for comment

The Canadian federal government has now released its draft Guidance and Technical Reporting Specifications for review and comment (comments may be provided until 22 September).  These tools have been developed in consultation with industry, civil society organisations, Aboriginal experts and provinces, and provide general information on (a) who is subject to the Act (b) which entities must report (c) what payments should be reported.

EU reporting requirements determined acceptable substitute

Section 10(1) of the Canadian Act allows the Minister of Natural Resources Canada to determine that the reporting requirements of another jurisdiction are an acceptable substitute for the reporting obligations in the Act.  As of July 31, 2015, the EU’s Accounting and Transparency Directives were determined to be an acceptable substitute, so that reports submitted to European Union and European Economic Area member-states that have implemented those 2 directives at a national level (eg the UK) may be submitted to the Canadian Minister as a substitute.  Companies seeking to use this substitution determination must comply with the reporting requirements in the EU/EEA member country, submit a substitution report to the Canadian government and follow the Canadian Act’s publication requirements.

For further information, please contact Jennifer Bell, Partner, London or Sarah Hawes, Professional Support Consultant, London.

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Filed under EU, Mining, North America, UK

Australian Income Tax bill introduced – tenement realignments and farm-ins/farm-outs

On 25 June 2015, the Australian Government introduced a tax bill (Tax and Superannuation Laws Amendment (2015 Measures No 2) Bill 2015) to Parliament dealing with tenement realignment and farm-in-farm-outs.

Broadly, upon enactment of the bill the following rules will apply (retrospectively from 14 May 2013):

  1. There will be an income tax roll-over for tenement swaps undertaken to align ownership of tenements to facilitate a joint project – this reduces the need for complicated contractual (synthetic) arrangements in many circumstances although stamp duty will still be an impediment for onshore deals; and
  2. The income tax farm-in tax rulings will be codified in the Australian tax legislation so in essence where there is a farm-in the farmor will only be subject to Australian tax on cash consideration/reimbursement of expenses and the farmee will be allowed a deduction for all expenditure it incurs/funds on exploration to earn its interest – this greatly simplifies the tax treatment of these arrangements.”  

For further information, please contact Narelle McBride, Director, Greenwoods & Herbert Smith Freehills or your usual Herbert Smith Freehills contact.

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Filed under Mining, Projects, Tax

Transparency reporting – Canadian Act now in force (following UK and Norwegian legislation last year), further EU implementation and US still to come

Last week, the Canadian federal government brought new legislation into force, which establishes reporting requirements of payments made to governments by mining (and other extractive) companies.  The Extractive Sector Transparency Measures Act applies to Canadian listed companies, as well as those companies above certain monetary / employee thresholds with assets or business located in Canada, which are involved in oil, gas or minerals. Reporting will commence in respect of financial years ending after 1 July 2016.

What are the requirements?

Like the UK and Norwegian legislation that came into force in 2014 (see here for our e-bulletin on the UK position), the key focus of the legislation is reporting of any payments to government entities that exceed $100,000, whether monetary or in kind (including taxes, royalties, fees, production entitlements, bonuses, dividends).  Those payments may be at any level of government, including from June 2017 to Aboriginal entities.

And similar to the approach by the UK government and as reflected in the EU Directives approach, the Canadian legislation contains an equivalency clause which allows for substitution of another jurisdiction’s reporting regime, to address the concern of multiple overlapping reporting obligations.  Since the Norwegian reporting requirements were the first to come into force, reporting has already commenced under those requirements (see here for Statoil’s report).

Other jurisdictions to follow?

There is expected to be further implementation of the EU Directives by European countries this year, given the deadlines later this year for transposing the EU Directives into national laws.

The relevant US SEC rules promulgated under the Dodd-Frank Act have been subject to controversy, and were overturned by the US District Court for the District of Columbia in 2013.  It appears now that revised rules may not be produced until spring of 2016.

For further information, please contact Jennifer Bell, Partner, London or your usual Herbert Smith Freehills contact.

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EU Parliament amends proposal on regulating importation and use of conflict minerals

On 20 May 2015, the EU Parliament adopted (by 402 votes to 118, with 171 abstentions) important amendments to a proposal for a Regulation of the European Parliament and of the Council setting up a Union system for supply chain due diligence self-certification of responsible importers of tin, tantalum and tungsten, their ores, and gold originating in conflict-affected and high-risk areas (COM/2014/0111; the Regulation). The new proposed Regulation, if accepted in its current form, aims to curtail opportunities for armed groups and security forces to finance conflicts and human rights abuses through the use of minerals in conflict-affected and high-risk regions1 by “breaking the nexus between conflict and illegal exploitation of minerals” in such regions.  The metals subject to the proposed Regulation are commonly used in many consumer products in the EU, in particular, in the electronics, aerospace, jewellery, industrial machinery and tooling industries. The proposed Regulation refers to the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance) a number of times and is inspired to some extent by section 1502 of the United States Dodd-Frank Wall Street Reform and Consumer Protection Act  ,2 which regulates the extraction of “conflict minerals” in the Democratic Republic of Congo and nine adjoining countries.

The proposed Regulation attempts to set up a system for supply chain due diligence certification that is tailored to the nature and the activities of the undertaking in question, and imposes supply chain due diligence obligations on all Union importers who source the listed minerals (recycled metals being treated as a special case) in accordance with the OECD Guidance. It also aims to distinguish between the roles of upstream and downstream undertakings;3 in the supply chain.4 Key amendments to the proposed Regulation include:

  • obligations upon smelters and refiners established in the Union to apply the Union system of due diligence (or other systems recognised by the Union as equivalent) or risk penalties as imposed by Member States,5 and
  • obligations on downstream companies to identify and address risks of minerals being sourced from conflict regions in their supply chains in accordance with the OECD Guidance, and to provide information on their due diligence practices,6

The Commission is to make publicly available an updated list, in a timely manner, of the names and addresses of responsible importers of minerals and metals, of responsible smelters and refiners and shall identify those smelters and refiners that at least partially source minerals from the said areas.7 Member States are to designate competent authorities within their respective territories to apply the provisions of the proposed Regulation.8 These competent authorities shall also be empowered to carry out ex-post checks on those Union importers certified as responsible importers to ensure that they comply with their obligations under the Regulation.9 Member States are also empowered to lay down rules as to the consequences of infringing the provisions of the Regulation, and inadequate remedial action taken by the responsible importer after being notified that it infringes the Regulation may result in the loss of its responsible importer certification.10

Various accompanying measures will need to be set out by the Commission in a legislative proposal within the transition period (currently proposed to be two years) to enhance the effectiveness of the Regulation.11The EU Parliament has asked the Commission to support small and medium-sized enterprises which responsibly source for minerals by granting financial support towards their certification procedures from the COSME programme (the EU programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises).12 This is because, the new regulations, if implemented, will potentially affect about 880,000 EU companies, most of which are expected to be small or medium-sized companies.

Industry impact

The EU Parliament’s adoption of the amendments resulted in a departure from the EU Commission’s earlier “self-certification” approach for EU importers that was meant to be voluntary. There are inconsistencies between the recitals and the main body of the proposed Regulation, suggesting a major overhaul of the proposed Regulation through the legislative process.13 One will need to wait to see what shape the final Regulation takes before determining which obligations will be mandatory or voluntary. This will help in conclusively assessing the repercussions the proposed Regulation is likely to have on the sourcing of “conflict minerals”.

Furthermore, in order to assess the full impact of the proposed Regulation, one would need to look closely into the obligations upon a “responsible importer” under the proposed Regulation. For instance, these require the adoption of “risk management measures” that are consistent with Annex II of the OECD Guidance to address any adverse impacts that may be caused in its mineral supply chain. Depending on the responsible importer’s ability to influence, it is required, where necessary, “to take steps to put pressure on suppliers” in order to mitigate the risk of adverse impact and may be required to “disengage with a supplier after failed attempts at mitigation”.14 Annex II of the OECD Guidance exhorts concerned parties to “immediately suspend or discontinue engagement with upstream suppliers” where “a reasonable risk” that their sourcing is from, or linked to, “parties committing serious abuses” of human rights exists. The OECD Guidance advocates a similar suspension or discontinuation of engagement with upstream suppliers where “a reasonable risk” is identified that their upstream suppliers are sourcing from, or linked to, any party providing direct or indirect support to non-state armed groups. Therefore, the practical effect of the OECD Guidance, when implemented through the provisions of the proposed Regulation may, in fact, require the disengagement of Union importers from certain upstream suppliers when identifiable risks of certain adverse impacts persist.

Although the proposed Regulation does not provide for penalties for the breach of obligations by downstream companies, there are concerns that such obligations, if and when imposed, might cause businesses to pull out of conflict regions due to either burdensome due diligence obligations15 or lack of sufficient risk assessment / risk mitigation mechanisms that may apply to some conflict-affected and high-risk areas. In practice, one would also have to consider how these obligations will be enforced, as Member States shall have the authority to make rules in order to address infringement of the proposed Regulation. At the moment, it is unknown how harmonised these rules will be across the Union.

The EU Parliament has decided not to close the first reading position for the Regulation and is expected to enter into informal talks with the EU Member States to seek agreement on the final version of the law and to ensure smooth passage of the Regulation through the EU parliamentary process.

For further details:

Please refer to the EU Parliament’s press release on the vote here.
Please refer to the original proposed Regulation here.
Please refer to the amendments adopted by the Parliament in the text of the proposed Regulation here.
Please refer to the procedure file of the proposed Regulation in the EU Parliament here.
Please refer to the OECD Guidance here.

For further information, please contact Stéphane Brabant, Partner, Paris and Yann Alix, Senior Associate, London should you have any specific queries as to how the proposed Regulation might affect your activities.

Endnotes

    1. Conflict-affected and high-risk areas” are defined in the proposed Regulation as “areas in a state of armed conflict, with presence of widespread violence, collapse of civil infrastructure, fragile post-conflict areas as well as areas of weak or non-existent governance and security, such as failed states characterised by widespread and systematic violations of human rights, as established under international law”. Whilst the Democratic Republic of Congo and the Great Lakes area are perhaps the most obvious examples, the proposed Regulation aims to tackle the abuse of metals and minerals in such areas anywhere in the world.
    2. Portions of the US Securities and Exchange Commission (SEC) rules issued under section 1502 of the Dodd-Frank Act are currently under review before an en banc bench of the US Court of Appeal for the District of Columbia (D.C.) Circuit after a smaller bench of the D.C. Circuit ruled in April 2014 that certain provisions of the SEC rules were constitutionally invalid as they required ‘compelled speech’ in derogation to the First Amendment of the US Constitution. Other portions that were upheld in April 2014 continue to be in force and require companies to make filings to the SEC on ‘conflict minerals’.
    3. “Upstream” under the proposed Regulation means “the mineral supply chain from the extraction sites to the smelters and refiners, included” and “downstream” means the “metal supply chain from the smelters or refiners to the end use.”
    4. Article 1(2)(b).
    5. Article 7(b).
    6. Article 1(2)(d).
    7. Articles 7(a) and 8.
    8. Article 9.
    9. Article 10(1).
    10. Article 14(3).
    11. Article 15(a).
    12. Recital 12.
    13. For instance, the amended recitals to the proposed Regulation refer to (i) an independent, third-party audit process for upstream undertakings such as smelters and refiners in accordance with the OECD Guidance (Recital 13), and (ii) a certification system for companies in the Union operating downstream of the supply chain which issues the “European certification of responsibility” when the company complies with the  OECD Guidance (Recital 12(a)). However, there are no provisions in the main body that crystallise these recitals in the form of obligations for the relevant entities. 
    14. Article 5(1)(b).
    15. Conversely, it is argued by supporters of the proposed Regulation that by seeking a Union supply chain due diligence system for minerals regardless of where they are sourced from, the proposed Regulation does not target minerals from any particular area(s) of the world (in contrast to section 1502 of the Dodd-Frank Act) and thereby reduces the risk of market distortion.

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    Filed under European Union, Mining

    Update on mineral royalty rates in Western Australia

    No increase in mineral royalty rates in the 2015-16 State Budget

    The Western Australian Government (Government) has confirmed in the 2015-16 State Budget that mineral royalty rates will not be increased as a result of the Mineral Royalty Rate Analysis Final Report 2015 (Review).

    In the Review, which was published on 25 March 2015, the Department of State Development and the Department of Mines and Petroleum recommended 18 changes to the current system of mineral royalties, including:

    • increasing the ad valorem rate for gold from 2.5% to 3.75%,
    • introducing an additional royalty tier of 3.75% for minerals that are subject to more intensive processing than is typically used to produce concentrates, and
    • keeping the 10% benchmark rate as a gauge of fair return to the community.

    When the Review was published, the WA Mines and Petroleum Minister Bill Marmion ruled out any immediate royalty increases for commodities in the 2015-16 State Budget. On 14 May 2015, the 2015-16 State Budget confirmed that no increases will be introduced.

    The decision not to increase royalty rates seems to have been met with widespread relief from miners, mining services contractors and industry groups, in particular the gold sector. In a media release, the Chamber of Minerals and Energy of Western Australia Chief Executive Reg Howard-Smith welcomed the move and said that it provided royalty rate certainty for the WA resources sector.

    Iron ore royalty forecasts cut

    The Government has also cut its iron ore royalty forecasts from a peak of almost $5.5 billion in 2013-14 to $3 billion in 2015-16. This represents a decline from 19.5% to 11.5% of total government revenue, and is largely due to a sustained fall in the iron ore price.

    The Government expects the 2015-16 iron ore price to be US$47.50 per tonne, which is just slightly lower than the Commonwealth Government’s forecast of US$48 per tonne. Last year, the Government forecasted a 2014-15 price of around US$123 per tonne.

    Iron ore volumes are expected to rise from 632 million tonnes in 2013-14 to 716 million tonnes in 2014-15 and 799 million tonnes by 2018-19. The three biggest iron ore miners, BHP Billiton, Rio Tinto and Fortescue Metals Group are expected to account for 92.8% of all production volume in 2014-15, and 94.2% of royalty income.

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

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    Filed under Mineral Royalty Rate Analysis, Mining, Western Australia

    Indonesia announces renegotiation of BITs

    Since the Dutch government’s announcement last year that Indonesia had terminated the 1995 Bilateral Investment Treaty (BIT) between those countries, speculation has been rife regarding the status of Indonesia’s remaining BITs, signed with more than 60 countries.

    On 12 May 2015, The Jakarta Post reported that the Indonesian Government intends to renegotiate its BITs, to bring greater certainty both to foreign companies doing business in Indonesia and to the Indonesian government. In particular, The Jakarta Post quotes Azhar Lubis, deputy director for investment monitoring and implementation at the Indonesian Investment Coordinating Board (BKPM), as suggesting that Indonesia may seek to restrict access to Investor State Dispute Settlement under its treaties to cases where the government has expressly consented that disputes with a particular investor may be referred to arbitration. Lubis stated that such a revision would be consistent with Indonesia’s 2007 Direct Investment Law, which stipulates that international arbitration claims should be filed based on an agreement between both parties.

    Hikmahanto Juwana, international law expert at the University of Indonesia, told The Jakarta Post that provisions in existing BITs that permit one party to commence arbitration without the other party’s consent disadvantage Indonesia, which has often experienced losses in international arbitration.

    Indonesia’s position is not entirely surprising, in light of Churchill Mining Plc v Indonesia (ICSID Cases ARB/12/14 and 12/40), in which it sought to challenge the tribunal’s jurisdiction on the basis that the Investor State Dispute Settlement clause in the Indonesia-Australia BIT had not been triggered. The government submitted that a further positive act was required before Indonesia could be said to have consented to arbitration. On 24 February 2014, the Tribunal rejected Indonesia’s jurisdictional challenges, leaving it susceptible to a claim for damages of not less than US$1.05bn, excluding interest.

    As noted in a previous post, UNCTAD recognised in a 2013 report a possible trend away from bilateral arrangements and towards wider, regional, multilateral agreements involving greater economic integration and free trade obligations. This may ultimately impact on whether Indonesia is willing to expend resources on negotiating or renegotiating bilateral agreements, when the trend worldwide seems to be towards negotiation of “mega-regional” agreements, such as the Transatlantic Trade and Investment Partnership, the Trans-Pacific Partnership and the ASEAN Regional Comprehensive Economic Partnership. If Indonesia, and other states, shift their focus from BITs to such multilateral agreements, we may see a dramatically different investment protection landscape in future.

    For further information, please contact Antony Crockett, Senior Associate, Catherine Eglezos, Solicitor, or your usual Herbert Smith Freehills contact.

    This post was first published at Herbert Smith Freehills – Arbitration Notes Blog on 13 May 2015.

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    Filed under Bilateral Investment Treaty, Indonesia, Mining

    Qld: Extension of termination date for the Queensland Rail 2008 undertaking

    On 9 April 2015, Queensland Rail (QR) requested an extension to the termination date of the QR Network Access Undertaking (2008) June 2010 (2008 Access Undertaking) from the Queensland Competition Authority (QCA).

    QR has requested that the 2008 Access Undertaking be extended until the earlier of:

    • 30 June 2016, or
    • the date on which the QCA approves a replacement access undertaking.

    The QCA has already approved a number of extensions to the termination date of the 2008 Access Undertaking pending the approval of a replacement undertaking.

    On 12 December 2014, QR withdrew its Draft Access Undertaking 1 (AU1) which was proposed to replace the 2008 Access Undertaking. QR are expected to submit a revised draft access undertaking this month.

    QCA has commenced its investigation into QR’s most recent extension request and invites stakeholders of the 2008 Access Undertaking to make submissions by 5pm 4 May 2015.

    To upload a submission, please click here.

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

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    Filed under Queensland, Queensland Rail, Rail

    Update on – Reporting by extractive companies on government payments – UK regime is now in force

    In September 2014 we posted an update commenting on Reporting by Extracted Companies. Stating that Companies with debt or equity securities listed in the UK and large, unlisted companies incorporated in the UK (including subsidiaries of non-UK parent companies) operating in extractives or logging are required to produce annual reports on payments to governments for financial periods starting on or after 1 January 2015. The UK regime is now in force.

    We have produced detailed briefings on the EU Directives and on early UK implementation. If you would like a copy of either or both, please contact Sarah Hawes, Professional Support Consultant, London.

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    Filed under Mining, UK