Western Australia’s new lithium royalty regime

On 11 October 2019 the Western Australian government announced that it will introduce a new royalty regime for lithium producers in the form of a 5% feedstock royalty rate for lithium hydroxide and lithium carbonate where those are the first products sold and the feedstock is spodumene concentrate.

The announcement comes after a recent review into lithium royalties as part of the government’s Future Battery Industry Strategy and aims to encourage downstream processing of lithium concentrate in WA.

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Briefing note – NROLA Act introduces amendments to the MRA and PAGA

Overview

On 15 May 2019, the Queensland Parliament passed the Natural Resources and Other Legislation Amendment Act 2019 (NROLA Act). The Act implements a large number of changes across 34 pieces of land, water and mining legislation.1 Relevantly, the NROLA Act includes reforms to the administration of coal and petroleum exploration tenements in Queensland.

This note provides a summary of the key amendments to the Mineral Resources Act 1989 (MRA) and the Petroleum and Gas (Production and Safety) Act 2004 (PAGA) and the effects on holders of exploration permits (EP) and authorities to prospect (ATP). The relevant amendments discussed below are set to commence next year, upon proclamation.

Tenure reforms

Minister’s power to unilaterally vary conditions

EPs and ATPs

The NROLA Act inserts new provisions in the MRA and PAGA that allow the Minister to unilaterally vary the conditions of an existing EP or ATP, without notifying or consulting the tenement holder.2

The new power may only be exercised if the Minister considers it necessary because of an ‘exceptional event’, and will apply retrospectively to EPs and ATPs granted before and after the commencement of the NROLA Act.

‘Exceptional event’ is defined as an event that:

  • affects the carrying out of authorized activities under the authority/permit; and
  • is beyond the control of the holder of the authority/permit; and
  • could not reasonably have been prevented by the holder of the authority/permit.3

The explanatory notes clarify that ‘exceptional event’ is expected to capture industry-wide events such as natural disasters or economic crises.

The QRC and QLS have both raised concerns to the State Development, Natural Resources and Agricultural Industry Development Committee,4 submitting that the power is too wide because:

  • the Minister’s decision to vary conditions would not be subject to internal review, meaning that tenement holders will only be able to challenge the decision by way of judicial review; and
  • ‘exceptional event’ is defined relatively broadly under the NROLA Act.

Despite these objections, the provisions passed without further amendment. The explanatory notes state that the Minister’s power is intended to assist tenement holders by reducing or delaying work program requirements or relinquishment requirements, in light of ‘exceptional events’.5 Nevertheless, how the Minister will apply and exercise the power is uncertain and not fettered by any requirement to consult with permit holders or subject to any internal review or objection process.

ATPs granted via tender

Where there is a call for tenders for an ATP, the NROLA Act allows the Minister to impose additional conditions they consider appropriate, when deciding whether or not to grant tenure.6

The discretion is significantly wide, but has received relatively little public (and parliamentary) scrutiny. Prospective ATP holders should be particularly wary when applying for an ATP through tender processes, as additional conditions may be imposed without prior notice to the applicant.

Limit on applications to vary conditions

The NROLA Act introduces limitations to the grounds under which the holder of an EP or ATP can apply to have the conditions of a tenement varied. The Act limits variations to:

  • the occurrence of an ‘exceptional event’; or
  • circumstances arising from the permit forming part of an exploration project.7

The amendment is a significant shift in the legislative position with respect to varying conditions of a tenement. Prior to the NROLA Act, there was no limit to the grounds on which a tenement holder could apply to have the conditions of their tenements varied.

The explanatory notes state that this change is intended to improve turnover of exploration land. For EP and ATP holders who struggle to meet work program or relinquishment requirements, the amendment would incentivise holders to apply for higher tenure or surrender the tenement, instead of applying for a variation.

Capped term for mineral and coal EPs

To accelerate land turnover, the NROLA Act imposes a 15-year cap on the total life of a mineral or coal EP, which applies to the entirety of:

  • the initial term of an EP;
  • all renewed term/s of an EP;8 and
  • if the holder has surrendered an EP on the condition that a new EP be granted over the same area – the life of the surrendered EP.9

Permit holders may apply for a one-off extension of up to 3 years on top of the 15-year limit if an ‘exceptional event’:

  • prevented the holder from complying with the approved work program; and
  • occurred in the last renewed term of the EP.10

Introduction of ‘outcomes-based’ work programs

In an Australian first, the NROLA Act allows EP and ATP holders to submit ‘outcomes-based’ work programs alongside tenement applications.

Currently in all other Australian jurisdictions, EP and ATP holders are required to submit ‘activities-based’ work programs that outline specific exploration activities to be undertaken during the term of the tenement.

Under the NROLA Act, the ‘outcomes-based’ work program will serve as an alternative for Queensland tenement holders and ‘over the counter’ applications, and must outline:

  • the outcomes proposed to be pursued during the term of the tenement;
  • the strategy for pursuing the outcomes;
  • the information and data to be collected; and
  • the estimated human, technical and financial resources proposed to be committed.11

The benefit of an outcomes-based work program, as envisioned by the explanatory notes, is that explorers can adjust their activities in response to exploration results without the need to seek approval from the Minister to vary the work program.

Prospective explorers should note that activities-based work programs will still be the default requirement for EPs and ATPs awarded through competitive processes (subject to the Minister’s directions otherwise). The Minister may also request an activities-based work program from applicants when considering the priority of EP applications.12 Outcomes-based work programs will generally be accepted in non-competitive, non-tender applications.

Less onerous relinquishment requirements

EPs

Under the NROLA Act, permit holders will be required to relinquish 50% of the permit area at the end of year 5, and 50% of the remaining area at the end of year 10.13

Further, the Minister has the discretion to change the relinquishment requirements of EPs due to:

  • an ‘exceptional event’ (as discussed above); or
  • circumstances arising from the permit forming part of an exploration project.14

In this instance, an exploration project is a ‘project involving 2 or more exploration permits that have a unifying exploration purpose’.15 According to the explanatory notes, the exploration project exception is intended to allow permit holders to adjust the relinquishment percentages of individual permits within the same project, so long as 50% of the area for the project (as a whole) is relinquished by the due date.16

Compared to current relinquishment obligations, the NROLA Act reduces the total area to be relinquished before the expiry of the permit, and extends the time between relinquishment intervals. Early explorers will be given an extra two years before the first relinquishment due date.

If the area to be relinquished is covered by an application for higher tenure (ie a mining development licence or mining lease), permit holders can defer its relinquishment until:

  • if the application is successful – the day the tenure is granted; or
  • if the application is withdrawn or refused – 20 business days after the day of the withdrawal/refusal.17

ATPs

Under the NROLA Act, authority holders will be required to relinquish 50% of the area at the end of year 6.18 Compared to current relinquishment obligations, the NROLA Act reduces the total area to be relinquished before the expiry of the authority and will give early explorers an extra two years before the relinquishment due date.

Implications on existing EPs, ATPs and related applications

EPs

Existing EPs will be limited to further renewals of up to 10 years from the first renewal after commencement of the NROLA Act. For example, an EP granted in 2006 and due for renewal in 2021 may be renewed multiple times for up to 10 years, and will expire in 2031.

The NROLA Act will also affect existing applications to renew. Applications will be restricted by the 15-year life cap and applicants can update their proposed work programs within 3 months after the commencement of the NROLA Act (if they so choose).

With respect to relinquishment requirements, existing EP holders will only be required to relinquish 50% of the area if the EP is renewed after commencement, 5 years after the date of renewal.19 If no exploration activities was undertaken because the EP is locked-out/overlapping with a petroleum lease, the permit holder will be exempt from any relinquishment requirements.20

On the other hand, existing tenders, approved programs of work and applications to vary the conditions of an EP will not be affected by the NROLA Act and will be dealt with under the MRA as if the provisions have not been amended.

ATPs

Existing ATPs will not be affected by the new relinquishment requirements under the NROLA Act.

However, the NROLA Act will affect existing applications to renew. Applicants can update their proposed work program within 3 months after the commencement of the NROLA Act (if they so choose).21

Other amendments

Area of  petroleum leases (PL) and potential commercial areas (PCL)

The NROLA Act removes the 75 sub-block area limit for PLs and PCLs, and will allow existing PLs and PCLs to be amalgamated. Tenement holders will no longer be required to apply for multiple PLs and PCLs over the same area at the same time.22

Access to public and private land for rehabilitation purposes

The NROLA Act amends the Mineral and Energy Resources (Common Provisions) Act 2014 to allow tenement holders to access land for the purposes of rehabilitation and environmental management. This right applies to both private and public land.23

Next steps

As at the date of this summary, the amending provisions discussed have not come into effect as they will commence on proclamation. The Minister for Natural Resources, Mines and Energy has released a statement advising that proclamation is expected to occur sometime next year.24

In the meantime, exploration tenement holders and prospective explorers should be mindful of the changes to the tenure management system, and plan to make adjustments to their activities as necessary.

Annexure 1

Legislation amended

  • Aboriginal and Torres Strait Islander Land Holding Act 2013
  • Aboriginal Land Act 1991
  • Aboriginal Land Regulation 2011
  • Electricity Act 1994
  • Foreign Ownership of Land Register Act 1988
  • Geothermal Energy Act 2010
  • Greenhouse Gas Storage Act 2009
  • Land Access Ombudsman Act 2017
  • Land Act 1994
  • Land and Other Legislation Amendment Act 2017
  • Land Holding Act 2013
  • Land Regulation 2009
  • Land Title Act 1994
  • Land Title Regulation 2015
  • Land Valuation Act 2010
  • Mineral and Energy Resources (Financial Provisioning) Act 2018
  • Mineral and Energy Resources(Common Provisions) Act 2014
  • Mineral Resources Act 1989
  • Nature Conservation Act 1992
  • Petroleum Act 1923
  • Petroleum and Gas (Production and Safety) Act 2004
  • Planning Act 2016
  • Planning Regulation 2017
  • Right to Information Act 2009
  • South-East Queensland Water (Distribution and Retail Restructuring) Act 2009
  • South-East Queensland Water (Restructuring) Act 2007
  • Surveyors Act 2003
  • Surveyors Regulation 2014
  • Torres Strait Islander Land Act 1991
  • Torres Strait Islander Land Regulation 2011
  • Valuers Registration Act 1992
  • Water Act 2000
  • Water Supply (Safety and Reliability) Act 2008
  • Vegetation Management Act 1999

Endnotes

  1. For a full list of legislation amended by the NROLA Act, see Annexure 1.
  2. NROLA Act, ss 260 and 279.
  3. NROLA Act, ss 274 and 313.
  4. Submission of the QRC (https://www.parliament.qld.gov.au/documents/committees/SDNRAIDC/2019/NROLAB2019/submissions/003.pdf); Submission of the QLS (https://www.parliament.qld.gov.au/documents/committees/SDNRAIDC/2019/NROLAB2019/submissions/011.pdf)
  5. See the Department’s operational policies for further guidance. https://www.dnrme.qld.gov.au/?a=109113:policy_registry/operational-policy-exceptional-circumstance.pdf&ver=1.01
  6. NROLA Act, s 277.
  7. NROLA Act, ss 261 and 304.
  8. NROLA Act, s 265.
  9. NROLA Act, ss 254 and 271.
  10. NROLA Act, s 267.
  11. NROLA Act, ss 247 and 280.
  12. NROLA Act, s 249.
  13. NROLA Act, s 258.
  14. NROLA Act, s 258.
  15. NROLA Act, ss 274 and 313.
  16. See Annexure 2 for an example provided by the NROLA Bill’s explanatory notes.
  17. NROLA Act, s 258A.
  18. NROLA Act, ss 294 and 295.
  19. NROLA Act, s 273.
  20. NROLA Act, s 857. See also section 232 of the Mineral and Energy Resources (Common Provisions) Act 2014.
  21. NROLA Act, s 311.
  22. NROLA Act, ss 303 and 307.
  23. NROLA Act, s 209.
  24. http://statements.qld.gov.au/Statement/2019/5/15/parliament-cuts-resources-red-tape

Annexure 2: Example – adjustment of relinquishment percentages for multiple EPs within an exploration project

EP1 EP2 EP3 EP4 Total
Sub-blocks held 100 100 100 100 400
Number of sub-blocks relinquished for mandatory relinquishment of 50% for individual EP 50 50 50 50 200
Minister’s discretion to apply more or less than mandatory relinquishment of 50% for EPs within a project Less by 50%

Total percentage required = 0%

More by 25%

Total percentage required = 75%

More by 15%

Total percentage required = 65%

More by 10%

Total percentage required = 60%

N/A
Number of sub-blocks relinquished for after relinquishment for project EP 0 75 65 60 200

 

Whilst the example provided in the explanatory notes is not as clear as it could be, the intention is that if EP1 is the most prospective EP within the ‘exploration project’ a permit holder will not be required to relinquish any sub-blocks within that EP but will instead be required to relinquish additional sub-blocks of other EPs within the ‘exploration project’.

A methodology for the calculation of native title compensation

 On 13 March 2019, the High Court handed down its first decision on native title compensation in ‘Timber Creek’ [2019] HCA 7 (Timber Creek).

The High Court’s decision is a measured reflection of the need for Australian law to evolve in a manner that acknowledges, recognises and accommodates the diversity and individuality of native title in Australia. The majority judgment sensibly navigates the difficult task of applying common law legal concepts, such as compensation, freehold value, economic loss and solatium, in the context of traditional rights and interests, and connection to country.

Resisting the temptation to apply a blanket approach, a 5:2 majority of the High Court instead affirmed a methodology to determine the appropriate, just and fair compensation to be awarded to native title holders for the impact of compensable acts on their distinct native title rights and interests.

Applying the methodology, the High Court determined that compensation should be paid for the extinguishment of the claim group’s non-exclusive native title rights and interests as follows:

https://www.herbertsmithfreehills.com/latest-thinking/a-methodology-for-the-calculation-of-native-title-compensation

 

 

Climate change impacts used to reject new NSW coal mine

Proponents seeking consent for new projects, or modifications of existing projects, with ‘material’ greenhouse gas emissions across all industries in NSW should carefully assess climate change impacts, particularly if the proposal is not ‘carbon neutral’.

What has happened?

On 8 February 2019, the NSW Land and Environment Court (Court) refused development consent for a new open cut mine near Gloucester, New South Wales.

The Rocky Hill Coal Project (Project) was expected to produce 21 million tonnes of coal over a period of 19 years (including rehabilitation) and support up to 110 jobs during operation and 60 jobs during construction.

https://www.herbertsmithfreehills.com/latest-thinking/climate-change-impacts-used-to-reject-new-nsw-coal-mine

PIL Notes Re-Post – Bear Creek Mining Corp. v. Peru: the potential impact on damages of an investor’s contributory action and failure to obtain a social license

In an award dated 30 November 2017, an ICSID Tribunal ordered Peru to pay around US$30.4million to Canadian company Bear Creek Mining following its finding that a 2011 decree constituted an unlawful indirect expropriation of the Claimant’s right to operate the Santa Ana mine.

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Forrest & Forrest v Wilson – consequences for mining lease applicants

As we previously reported1, a consequence of the High Court of Australia’s decision in Forrest & Forrest Pty Ltd  v Wilson2 is unexpected and unhelpful uncertainty regarding the validity of the grant of certain mining leases in Western Australia.

The State Government and the Department of Mines and Petroleum (DMP) are continuing to assess an appropriate legislative fix for the issues arising out of the High Court’s decision. Although this assessment is ongoing, the DMP has publicly indicated that the legislative fix will not cover mining lease applications which (in DMP’s opinion) are affected by the High Court’s decision. Affected applicants will be required to re-submit new mining lease applications that comply with the relevant requirements of the Mining Act. The DMP has not indicated (at this stage) whether the same approach will be taken for other applications for mining tenure which have similar document lodgement requirements.

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Federal Government Announces Junior Mineral Exploration Tax Credit

On 2 September 2017, the Government announced a welcome new four-year $100 million Junior Mineral Exploration Tax Credit (JMETC) following the expiry of the existing Exploration Development Incentive (EDI) exploration credit regime.

The JMETC will commence this 2017-18 financial year. Companies still have until 30 September to report their estimated expenditure to access credits under the existing EDI for the 2016-17 income year.

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High Court applies strict compliance test under the Mining Act 1978 (WA) and raises doubts regarding tenement validity –remedial legislative response required

In its recent decision in Forrest & Forrest v Wilson [2017] HCA 30, the High Court held that a failure to strictly comply with the technical lodgements requirements of the Mining Act 1978 (WA) (Mining Act) invalidated a decision of the Mining Warden to recommend that a number of mining leases be granted. This overturned two decisions of the Western Australia Supreme Court (at hearing and on appeal) which reached an opposite conclusion.

It also departed from the generally understood position that a mining lease, once granted, conferred on the holder an ‘indefeasible’ mining title that cannot be the subject of subsequent legal challenge on the basis that the tenement was invalidly granted.

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Queensland’s mining sector set to experience significant changes to financial assurance and rehabilitation requirements with proposed reforms

Mining projects in Queensland typically require financial assurance (FA), a form of financial security/bonding provided to the Government to cover costs associated with environmental harm and rehabilitation, should the project not comply with environmental obligations.

In 2016, an independent review of Queensland’s FA framework was undertaken, which revealed that an increasingly small amount of land disturbed by mining is rehabilitated, causing over-reliance on the FA to remediate the environmental impacts of mining. Consequently, the Government committed to a number of reforms and on 4 May 2017, released the first 2 of 6 proposed discussion papers outlining proposed changes to Queensland’s FA and rehabilitation frameworks for the resources sector.

The reforms, if adopted, will have significant impacts for mining operational costs, decisions to place mines on care and maintenance and the structuring and timing of divestment of mines.

The proposed reforms

The Financial Assurance Framework Reform Discussion Paper (FA Paper)1 is based around a ‘tailored approach’ to FA. The reforms contemplate the majority of operators contributing to a pooled fund with annual contribution rates of between 0.5 and 2.75%, rather than providing bank guarantees. For a number of companies, this will result in a significant increase in surety costs.

The reforms also involve:

  • assigning FA arrangements to resource companies based on their size and level of credit/insolvency risk;
  • undertaking more realistic calculations of rehabilitation costs and phasing out discounts on FA and use of company approved calculators;
  • pooling FA into an interest-earning Rehabilitation Fund for certain resource companies;
  • introducing new options for the delivery of FA, such as insurance bonds;
  • clarifying the obligations of operators for sites in care and maintenance; and
  • strengthening the assessment of financial capability of incoming mine owners/investors, including the potential introduction of a change of control trigger.

The State intends to remove the ability of a resource company to be sold, distinct from the assets, without the State having the power to reassess the conditions of the tenure and approvals. This will involve guidelines for what are acceptable counterparties.

The Better Mine Rehabilitation for Queensland Discussion Paper (Rehabilitation Paper)2 currently applies only to site-specific mining operations and proposes a number of measures which complement those outlined in the FA Paper, to proactively mitigate rehabilitation risk. These measures include:

  • using life-of-mine plans to outline operational and rehabilitation matters at all stages of mine life;
  • improving assessment and reporting of rehabilitation performance with self-assessments, independent audits and checks by the regulator;
  • enforcing progressive rehabilitation requirements in life-of-mine plans;
  • setting clearer completion criteria for rehabilitation outcomes;
  • introducing performance-based incentives for the management of rehabilitation; and
  • enhancing data collection practices to improve analysis and reporting on rehabilitation performance.

Once legislative provisions are introduced to facilitate the Rehabilitation Paper, the framework is to be implemented in a staged approach. For existing site-specific mines, provision of a life of mine plan will be required on the first anniversary day following:

  • one year after commencement of the legislative provisions for ‘higher risk’ existing mines; and
  • two years after commencement of the legislative provisions for the remaining existing mines.

Next steps

The FA Paper and the Rehabilitation Paper were open for public consultation until 15 June 2017, with responses now being considered.

Additional discussion papers are expected to be released by late 2017, including papers on the:

  • expanded range of surety providers;
  • expansion of the Abandoned Mines Land Program; and
  • improved management of sites in care and maintenance.

The various reforms are expected to begin taking effect by mid-2018.

Endnotes

  1. Financial assurance framework reform.
  2. Better Mine Rehabilitation for Queensland.

This article was written by Madeline Simpson, Special Counsel, Brisbane.

Madeline Simpson
Madeline Simpson
Special Counsel, Brisbane
+61 7 3258 6662

High Court reconfirms object commercial purpose test for construction of contracts

This is a summary of a High Court decision made in the case of Ecosse Property Holdings Pty Ltd v Dee Gee Nominees Pty Ltd [2017] HCA 12 in dispute of a contract that restricted the sale and purchase due to planning restrictions.

Facts

The parties had entered into a long-term lease (99 years) for land, in circumstances where they were unable to effect a sale and purchase due to planning restrictions. The following amendments were made to a clause governing the payment of rates, taxes and other outgoings in the relevant lease agreement (clause 4):

“AND [the Lessee] will pay all rates taxes assessments and outgoings whatsoever which during the said term shall be payable by the tenant in respect of the said premises.”

The appellant argued that the above clause required the lessee to pay all rates, taxes and outgoings in respect of the land, whilst the respondent argued that the modifications to the clause only obliged the lessee to pay for imposts that were levied on it in its capacity as a tenant.

Neither party disputed during proceedings before the Court of Appeal (Vic) that the amendments left clause 4 ambiguous, and neither party objected to reference being made to the deleted words for the sake of interpreting clause 4.

Decision

A majority (4-1) of the High Court conceded that, prima facie, the clause was ambiguous and either the appellant’s or the respondent’s interpretations were plausible.1 As such, their Honours favoured interpreting the clause by reference to what a reasonable person in the position of the parties would have interpreted clause 4 (including its deleted words) to mean in light of the circumstances known at the time that the agreement was executed (objective test).2

The majority ultimately accepted the appellant’s construction of clause 4, and overturned the decision of the Court of Appeal. As part of their interpretation of clause 4 through the objective test, their Honours placed great emphasis on understanding the apparent commercial purpose of the lease. Reference was made to clause 13, which set out the intention of the parties to the lease:

‘in circumstances in which the parties were unable to convey a freehold estate in the land, they had chosen instead to convey a leasehold estate for almost a century for a fixed sum.’3

As such, the commercial purpose of the lease was to ‘recreate’ conditions (including a fixed value consideration of $70000 for the 99-year lease with no future adjustment) that would have otherwise existed if the land had been sold. Their Honours concluded that, as the lease purported to place the lessor as close in position to that of a vendor of land, the liabilities in clause 4 would have otherwise been transferred to a (quasi-) purchaser upon transfer of title. Therefore, the lessee was required to pay all rates, charges and obligations for the period of the lease.4

Nettle J dissented, preferring a construction of clause 4 that only considered the language used by the parties in light of the circumstances in which the contract was made.5 With reference to the strikeout of “excepting land tax”, “Landlord or” and “but a proportionate part…”, his Honour agreed that the proper interpretation of clause 4 was to oblige the lessee to only pay for imposts that were levied on it in its capacity as a tenant. His Honour did not view the ‘commercial approach to construction’ as ‘a licence to alter the meaning of a term that is ‘clear and fairly susceptible of one meaning only.’6

Implication

A possible implication of this case is establishing a High Court precedent in interpreting ambiguous clauses; greater weight will be placed on the presumed commercial purpose of an agreement than the language used and adopted by parties to the agreement. Nettle J was particularly critical of the majority’s approach, citing that the court ‘is not authorised under the guise of construction to make a new contract for the parties at odds with contract to which they have agreed.’7

This post was written by Julien Rosendahl, Graduate, Brisbane.

Endnotes

  1. Ecosse Property Holdings Pty Ltd v Dee Gee Nominees Pty Ltd [2017] HCA 12, at [15].
  2. Ibid, at [16].
  3. per Kiefel, Bell, Gordon JJ at [18].
  4. Ibid, at [25-26].
  5. per Nettle J, at [98].
  6. Id.
  7. Ibid, at [98].