Publications / Resources
Current issues to be aware of - 12 month update
WHO SHOULD READ THIS
- All resource companies and contractors operating or developing project in Australia
THINGS YOU NEED TO KNOW
- This article highlights the legislative and policy developments of the past 12 months which will significantly affect the Australian resources industry going forward, with a specific focus on the resource rich states in Australia
WHAT YOU NEED TO DO
- Start looking now at the impacts that these recent or upcoming changes in legislation could have on current or proposed projects
A range of policy reforms were introduced or proposed over the past 12 months which will significantly impact on Australia’s resources sector. Broadly speaking, the key changes will result in a streamlined approval process, greater protection being afforded to strategic agricultural land and some tax and duty exemptions.
Resource companies need to start looking now at the impacts that these recent or upcoming changes in legislation could have on current or proposed projects.
In this article we highlight the legislative and policy developments of the past 12 months which will significantly affect the Australian resources industry going forward, with a specific focus on the resource rich states in Australia.
Foreign Investment Review Board (FIRB)
The rules regulating foreign investment into Australia are generally set out in the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) and Australia’s Foreign Investment Policy (Policy). The Federal Government has made some recent changes (implemented with effect from 1 March 2015) to the Policy and has proposed further changes to take effect later this year.
Changes from 1 March 2015
These changes related to decreasing the threshold for acquisitions of Rural Land (land used wholly and exclusively for carrying on a business of primary production) by foreign investors. Prior to the changes, foreign investors could purchase Rural Land valued up to AUD$252 million without the prior approval of FIRB. From 1 March this year, any acquisition of Rural Land by a foreign investor with a total portfolio of Rural Land valued at more than AUD$15 million (including the proposed purchase) will require prior FIRB approval.
Further proposed changes
On 26 February 2015, the Australian Treasury Department released a consultation paper titled ‘Strengthening Australia’s Foreign Investment Framework’ (Discussion Paper) which provided some details of the proposed changes to the foreign investment rules. Key changes will include the introduction of a fee system (ranging from a set fee of $10,000 up to 1% of the total purchase price) and new categories of land and increased penalties.
In particular to the resources space, the Discussion Paper proposes the creation of a new category of land, ‘other land’ which would probably include mining leases. Currently, mining leases fall into the category of Australian urban land, which as a category has increased reporting requirements. The proposed creation of a new category of ‘other land’ will hopefully make applications for the acquisition of mining leases and companies that own mining leases simpler.
There are a range of other changes to the foreign investment rules which have been proposed, all of which have the effect of providing FIRB with greater regulatory and enforcement capabilities. Foreign investors will thus need to consider FIRB approval at an early stage of any proposed transaction.
Exploration incentive update - operational details released
The Federal Government has released a paper on the exploration development incentive to provide assistance and certainty to small mineral exploration companies and their investors.
The paper confirms the Federal Government’s intention to limit the overall eligibility to access the incentive to:
- only companies with no taxable income in an income year
- only explorers for minerals that have not commenced production
- corporate groups where no other member has a taxable income in that year and are not conducting mining activities, and
- companies that are listed or have on issue widely held managed investment securities.
These requirements are likely to be problematic for the very companies which the incentive should have been designed to target and are likely to give rise to the adoption of some unusual compliance strategies and corporate structures
Other practical considerations
‘Eligible exploration expenditure’ must be incurred on activities strictly for the purposes of the existence, location, extent or quality of a new mineral resource in Australia but not anything that has been classified as inferred mineral resource or higher under the JORC Code.
Those exploration activities can include geological mapping, geophysical surveys, systematic searching for areas containing minerals except petroleum or quarry materials and searching for minerals by drilling or other means for such minerals within those areas but cannot include any exploration for quarry materials, shale oil, petroleum including coal seam gas and any naturally occurring hydrocarbon or naturally occurring mixture of hydrocarbons whether in a gaseous liquid or solid state, or geothermal energy resources. In addition, expenditure incurred to evaluate the economic feasibility of mining minerals once they have been discovered is not eligible.
The paper confirms that the incentive is voluntary but the choice to participate is irrevocable. Companies must choose whether to provide the credits to all of their shareholders or restrict availability only to new shareholdings issued after 30 June 2014, noting that, if the second alternative is selected, then those shares issued after 30 June 2014 would need to be traded as a separate class for corporations law purposes.
Timing and capping issues
An overall cap of $100 million for the incentive scheme will apply and exploration credits for 2014 will be capped at $25 million, with caps of $35 million and $40 million to apply for 2015 and 2016. The paper confirms that companies wishing to provide exploration credits to their shareholders will reduce the tax loss that they can carry forward by the amount provided to shareholders. The resulting exploration credits must be distributed by the end of the financial year in which those exploration credits have been calculated and determined. Finally, exploration credits will still flow through trust and partnership shareholders in a manner consistent with the rules applying to franking credits.
Senate report into the streamlining of environmental assessment and approval process
In early 2015, a Federal Government committee released a report in relation to its inquiry into streamlining environmental regulation (Report).
The Report investigated the current regulatory environment and the potential for deregulation with regards to environmental legislation. A number of recommendations are made in the Report on methods to enhance the efficiency of administering environmental laws in Australia, including:
- finalisation of the bilateral assessment agreements and bilateral approval agreements as quickly as possible to enable the State and Territory Governments to assess and approve a project under the respective state regimes, whilst also satisfying the Commonwealth environmental approval requirements
- the implementation of risk-based terms of reference for environmental impact statements
- consultation with industry stakeholders to discuss and investigate the possibility of developing standardised and centralised environmental databases and/or standardised measurement and formatting requirements, and
- making environmental data gathered through environmental assessment processes publicly available and reducing requirements causing duplication of existing unnecessary environmental data.
If one or more of these recommendations are adopted, it should see a much needed improvement in the efficiency in which environmental laws are administered in Australia.
First Emissions Reduction Fund auction scheduled for 15 April 2015
The Federal Government has introduced its Emissions Reduction Fund (ERF) as the new measure to combat climate change following the repeal last year of the carbon tax that applied in Australia for several years. The ERF will provide incentives for emissions reduction activities across the Australian economy. The overall objective of the ERF is to help Australia to meet its emissions reduction target of five per cent below 2000 levels by 2020.
Through the ERF, the Government will purchase lowest cost abatement (in the form of Australian Carbon Credit Units - ACCUs) from a wide range of sources, providing an incentive to businesses, households and landowners to proactively reduce their emissions. A proponent of an emissions reduction project must first register under the ERF before it can generate ACCUs. Any projects that were declared and registered by the Clean Energy Regulator under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) before 13 December 2014 qualified for the first auction held in April 2015. New projects must have the minimum total quantity offered for sale by the participant through that registration of more than 2,000 ACCUs per year on average over the term of the contract. Once the project is registered, the ACCUs can be sold to the Government through the ERF auctions or on the secondary market.
On 13 February 2015, the Commonwealth Minister for the Environment determined a new methodology for the CFI; the Carbon Credits (Carbon Farming Initiative—Coal Mine Waste Gas) Methodology Determination (Cth) (Determination). The Determination sets out the requirements for implementing and monitoring ‘coal mine waste gas projects’. The Determination will apply to projects that:
- combust coal mine waste gas drawn from an operating underground coal mine by installing and operating either a flaring device or an electricity production device (or both)
- do not involve the capture or use of coal seam methane, and
- do not involve the capture or use of coal mine waste gas drawn from a decommissioned underground coal mine.
The first ERF auction was held on 15 April 2015 and participants were able to make bids relating to one or more carbon abatement projects which are registered with the Clean Energy Regulator. As a result of the auction, the Clean Energy Regulator, on behalf of the Commonwealth of Australia, awarded 107 Carbon Abatement Contracts, that in total committed to deliver 47 333 140 tonnes of abatement. The total value of contracts awarded $660,471,500 with the average price per tonne of abatement at $13.95.
To bid, you must also be qualified by the Clean Energy Regulator to participate, have an account with the Australian National Registry of Emissions Units (ANREU), enter into a standardised Carbon Abatement Contract with the Clean Energy Regulator, be registered to make a bid in relation to the project, and nominate the total volume of abatement to be delivered, the delivery schedule, and the expiry date.
Safety, Rehabilitation and Compensation Legislation Amendment Bill 2014 (Cth)
The Safety, Rehabilitation and Compensation Legislation Amendment Bill 2014 (Cth) was introduced into the Federal Parliament in 2014. If the Bill is passed, ‘national employers’ will be eligible to self-insure under the Federal Comcare scheme and will be covered by the Work Health and Safety Act 2011 (Cth). If granted a licence to self-insure, the employer would not be required to comply with the workers’ compensation schemes of each and every state and territory. A ‘national employer’ has employer obligations if the corporation is, or would be required to meet the obligations of an employer under a workers’ compensation law of the Australian jurisdiction to pay premiums, contributions or similar payments in two or more Australian States or Territories.
These changes would be important for many employers in the resources industry. Many companies involved in mining and infrastructure development have projects across multiple States. These companies may therefore meet the requirements of the new legislation, if introduced, and be eligible for self insurance. Self insurance may be a particularly attractive option for larger corporations as a way to increase operating profits through the reduction in compliance costs and overheads associated with the maintenance of insurance in each separate State.
The Bill is currently before the Senate after a Senate Committee recommended in November 2014 that it be passed.
A 2014 decision of the High Court confirmed that mining leases do not necessarily extinguish native title (Western Australia v Brown  HCA 8). This decision arose after the Ngarla people made a native title claim over the area of the abandoned Mount Goldsworthy iron ore mine in Western Australia. Native title is administered at a national level under the Native Title Act 1993 (Cth).
The Mount Goldsworthy mine had been operated by joint venturers who had entered into mineral leases with the State of Western Australia which gave them rights to develop the iron ore deposits but did not give them rights to exclusive possession of the land.
During the life of the mine, a small township and significant mining infrastructure were built on the Mount Goldsworthy site.
The High Court focused on the fact that the joint venturers never had rights to exclusive possession of the land. Their rights to use the land were not inconsistent with native title rights. The extensive construction and mining work at the Mount Goldsworthy site did not extinguish native title.
Where a mining or pastoral lease does not grant exclusive possession, the leaseholder cannot rely on exercising their rights under the lease as a means of extinguishing native title. The leaseholders must consider the legal nature and content of the two sets of rights to determine whether they are inconsistent at the time of grant. If the two sets of rights are not inconsistent, native title will continue.
Proposed amendments to the Queensland Duties Act 2001 (Qld) legislating the stamp duty exemption for exploration farm-ins
Since June 2013 the Queensland State Government has applied a stamp duty exemption for exploration farm-in arrangements under an administrative arrangement designed to encourage exploration activity in Queensland. New draft legislation which proposes amendments to the Queensland Duties Act 2001 (Qld) was introduced on 26 November 2014 and seeks to enact this administrative arrangement which had previously been introduced by Public Ruling DA000.12.1.
In summary, transfers of exploration tenements under farm-in agreements will remain exempt from duty to the extent that the consideration for the transfer is ‘exploration expenditure’, which includes amounts spent on both exploration and development of the tenement. However, duty will be payable to the extent any other consideration is paid under the farm-in agreement, such as an up-front premium to enter into the farm-in agreement or a reimbursement of exploration costs previously incurred by the tenement holder. The proposed amendments also include detailed technical compliance requirements.
While the proposed legislative amendments are welcome, they also further highlight the importance for farm-in agreements to be negotiated, structured and drafted in a way which ensures access to the various revenue concessions and exemptions available to them.
Mineral and Energy Resources (Common Provisions) Act 2014 (Qld)
The Mineral and Energy Resources (Common Provisions) Act 2014 (Qld) (MER Act) commenced in late 2014 and is the first step in the Modernising Queensland Resources Acts Program (MQRAP), which is likely to take three to four years to complete. The goal behind the MQRAP is to bring together the five existing mineral and energy related Acts and the relevant regulations in Queensland under one unified system.
Although the MER Act has the goal of streamlining the various resources related Acts, the Government has taken this opportunity to also propose amendments to some key areas, including land access, opt-out agreements, access agreements, restricted land, public notification and overlapping tenure.
These changes will have significant implications for companies involved in or connected with the resources sector in Queensland.
Coal and coal seam gas resources: harmonization of safety and health requirements for overlapping tenure
The interplay between overlapping coal and coal seam gas tenements has been the subject of ongoing debate in Queensland for a number of years. Aimed at maximising the utilisation of Queensland’s resources, the Queensland Resources Council facilitated the preparation of a joint industry ‘White Paper’ in 2012. Many aspects of the White Paper proposals now form part of the MER Act that were introduced in 2014 and the ongoing amendments towards a Common Resources Act in Queensland.
However, with two industries working the same acreage, it is imperative that matters affecting safety are identified and dealt with appropriately. Some of the concepts and principles developed by the working group have been translated into amendments to the Coal Mining Safety and Health Act 1999 (Qld) (CMSH Act) and the Petroleum and Gas (Production and Safety) Act 2004 (Qld).
The new health and safety overlapping tenure provisions require joint interaction management plans and provide an alternative dispute resolution process for independent arbitration. These amendments are aimed at achieving cooperation on safety issues between Queensland’s coal and coal seam gas industries whilst they work together to achieve the best commercial outcomes for both industries and for Queensland.
Proposal to increase the number of projects requiring a Regional Interests Development Approval
The Queensland Government has announced a 2.94 million hectare increase in the amount of land to be mapped as strategic cropping land (SCL). The proposal would see a 40% increase in land shown on trigger mapping as SCL. This land is then taken to be within the Strategic Cropping Area (SCA) under the Regional Planning Interests Act 2014 (Qld) (RPI Act). Accordingly, the proposal means resource companies are more likely to be required to go through an assessment and approval process under the RPI Act, particularly in the Darling Downs and Central Queensland areas if the resources project falls within a SCA.
Once land is mapped as SCL, the onus is on a resource proponent to disprove the mapping. Resource proponents are required to obtain a Regional Interests Development Approval under the RPI Act if a proposal will impact on the SCA.
The Government has indicated that the mapping changes will not impact on existing projects. However, the transitional provisions associated with previous SCL legislation have been complex in their implementation. Accordingly, any legislation associated with the mapping will need be carefully scrutinised to determine the implication for a resources project.
NEW SOUTH WALES
Sovereign Risk – the High Court agrees that the cancellation of two exploration licences was lawful
A recent decision of the High Court of Australia serves as a useful reminder that miners, explorers and investors should be aware of the issue of ‘sovereign risk’. In this context, ‘sovereign risk’ is the potential for a tenement to be invalidated due to deficiencies in government processes followed at the time that the tenement was granted or other changes in regulation.
In 2013, the Independent Commission against Corruption (ICAC) found that a number of people involved in the decisions to grant exploration licences to two companies, including Cascade Coal had engaged in corrupt conduct. ICAC recommended that the exploration licences should be cancelled.
Instead of following the usual procedure for cancelling exploration licences as set out in the NSW Mining Act, the NSW Government passed legislation in January 2014 that immediately cancelled the exploration licences.
The two mining companies challenged the validity of this legislation in the High Court of Australia. The court dismissed the appeals and held that the NSW Government had the power to cancel the exploration licences. The mining companies did not receive any compensation for the loss of their licences.
Cancellation of exploration licences in this manner is unusual in NSW and the High Court’s decision was based on the unique factual situation in the case. Nevertheless, explorers, miners and investors should be aware of the issue of sovereign risk and ensure that proper arrangements are in place to manage that risk.
Draft Industry Action Plan – NSW Minerals
The Minerals Industry Taskforce (Taskforce) was formed in 2014 with the goal of addressing challenges faced by the NSW minerals industry, and to drive growth, innovation and productivity in the industry. The Draft Industry Action Plan (Draft IAP) has been developed by the Taskforce and proposes a number of strategies that are aimed at reversing the fall in mining capital expenditure in NSW and increasing the value of mineral production by 30% by 2020.
The Draft IAP is a long-term strategy, and is seeking the NSW Government’s commitment to the following priority areas:
- a transparent process and integration policy that provides certainty for mining companies investing in NSW
- providing fiscal certainty – ensuring no increase to royalties over the next 25 years and a consolidation of fees and charges to reduce these in real terms over time, and
- developing skills and providing supporting infrastructure to foster a vibrant mining sector.
The Draft IAP indicates that improvements to the NSW planning and regulatory decision making regime is the single most important initiative that the NSW Government can implement to address the current concerns in the process. As a result of this Draft IAP the Minister for Planning has already announced proposed change to improve processing times for State Significance Development which includes mining projects. These changes should see the processing times for an application halved.
The DRAFT IAP also seeks fundamental changes to the decision making process by the Planning Assessment Commission which has delegated authority from the Minister to determine most applications in NSW for development consent with respect to mining projects.
A number of industry-specific taxes are levied on the minerals industry by the NSW Government such as mining royalties, fees and levies. Stability in taxes and levies will lead to investor confidence and in turn, the growth of the sectors.
The Taskforce is seeking a commitment from the NSW Government for:
- no increases in royalties for the next 25 years, and
- consolidation of mining related fees and levies, and a reduction in the real cost to explorers and miners over the long-term.
The above changes will reduce investment risk by increasing certainty, resulting in increased capital investment in NSW mineral projects.
Developing skills and providing supporting infrastructure
Finally, the Taskforce proposes a number of changes to ensure that the NSW Government works together with industry and the skills and training sector to ensure direct investment in developing and maintaining a skilled workforce for a competitive and growing minerals industry.
New land acquisition and mitigation policy for NSW mining, petroleum and extractive industries
The NSW Government has released a new State Environmental Planning Policy Amendment (Gas Exploration and Mining) 2014 (SEPP Amendment) which came into force on 19 December 2014.
The SEPP Amendment introduces a new land acquisition and mitigation policy to formalise landholder protection from noise and dust impacts for State Significant Developments (SSD) in the mining, petroleum and extractive industries.
This means that decision-making bodies are now obliged to take into account the new 'Voluntary Land Acquisition and Mitigation Policy' in determining a development application for a mining or related project. This policy provides guidance on measures to reduce the impact of noise and dust on adjoining properties from proposed new activities. It applies to all undetermined SSD applications and any future applications to modify existing operations.
The policy provides that the acquisition price to be paid by a proponent be an amount no less favourable that a 'market value' rate calculated as if the land was unaffected by the development.
The policy also introduces voluntary land acquisition criteria for dust impacts on certain types of workplaces on privately owned land (in addition to residences which has previously been the case). Importantly, the consent authority maintains discretion as to whether or not to apply the dust criteria to workplaces, with a range of factors for the consent authority to consider including the nature of the workplace.
Commencement of Work Health and Safety (Mines) Act 2013 (NSW) and Work Health and Safety Mines Regulation 2014 (NSW)
On 1 February 2015, the Work Health and Safety (Mines) Act 2013 (NSW) (WHS Mines Act) and Work Health and Safety (Mines) Regulation 2014 (NSW) (WHS Mines Regulation) commenced in New South Wales (NSW Mine Safety Laws).
The NSW Mine Safety Laws operate in conjunction with the Work Health and Safety Act 2011 (NSW) (WHS Act) and replaces the previous health and safety legislation relevant to the mining industry.
The purpose of the NSW Mine Safety Laws is to improve the consistency of WHS requirements for mines and to implement reforms developed as part of the workplace health and safety harmonisation process.
The WHS Mines Act has a broader scope than the previous WHS legislation for mines, now applying to all workplaces where mining operations are undertaken or a tourist mine.
The term ‘mining operations’ is defined to include activities associated with extraction of, or exploration for, minerals and includes activities performed in connection with mining. This means that the NSW Mine Safety Laws may extend to activities which are not within a colliery holding or mining title.
Importantly, ‘exploration activities’ will also fall under the definition of a mining operation and will require compliance with the NSW Mine Safety Laws.
The key changes as a result of the introduction of the NSW Mine Safety Laws include incident notification requirements, functions of mine operators, specific risk controls and health monitoring.
Although many of the new requirements and approaches will be familiar to current mine operators, the legislative schemes are different. All mine operators will need to carefully review the NSW Mine Safety Laws to understand their obligations and implement necessary changes. Transitional provisions will allow mine operators some time to adjust to changes.
Exploration Incentive Scheme
The Western Australian Exploration Incentive Scheme (EIS) was first introduced in April 2009 as a Royalties for Regions initiative that has, as its main objective, the promotion of exploration activity in Western Australia. To date the Western Australian Department of Mines and Petroleum (DMP) has invested $80 million in greenfield exploration activities in that State. Specific objectives of the program are to encourage exploration in underexplored areas, reduce the risk for explorers, and provide support to maintain a strong mining sector in Western Australia.
In February 2015 the Western Australian Government indicated that it will extend the available funding to June 2017, with a further $50 million in expenditure available.
The EIS currently supports five high-level programs:
- exploration facilitation
- innovative drilling promotion
- geophysical and geochemical surveys
- 3D prospectivity mapping, and
- promoting strategic research with industry.
Guidelines were released in February 2015 which outline the process for obtaining funding from the EIS for new exploration concepts and new exploration technologies.
Guideline for Exploration Permit Management
In March 2015, the DMP has released its new Petroleum and Geothermal Guideline for Exploration Permit Management which aim to simplify and better explain the DMP’s procedures and requirements on petroleum and geothermal title holders.
The Western Australia Petroleum and Geothermal Guideline for Exploration Permit Management provides guidance on the management of conditions relating to work program commitments of petroleum and geothermal exploration permits.
Specifically, the guideline provides advice on fulfilment, variation, suspension and exemption of work program commitments. The requirements for the renewal, surrender and cancellation of exploration permits under the Petroleum and Geothermal Energy Resources Act are also explained in the guideline.
Reforms to WA’s resources safety legislation
The DMP is working towards modernising and harmonising the safety legislation that regulates the mining sector in Western Australia. In July 2014, the DMP received approval from the Western Australian Government to develop the Resources Safety Bill. The DMP also released a consultation paper for public comment on 3 November 2014 proposing substantial reforms to safety legislation regulating mining, petroleum and major hazard facilities.
The changes proposed to be brought about by the new legislation include:
- a greater focus on risk management
- incorporation of the best aspects of the National Mine Safety Framework and the model Work Health and Safety legislation, and
- adoption of a risk based approach that is less prescriptive and places the onus on the industry to demonstrate that they have taken steps to eliminate or manage the relevant risks.
The new legislation is expected to be in place by mid 2016.
Personal rights in exploration licences not dutiable property in WA
In the recent decision of Commissioner of State Revenue v Abbotts Exploration Pty Ltd  WASCA 211, the Supreme Court of Western Australia has confirmed that an interest in a Western Australian exploration licence is not dutiable if it confers merely personal rights, as opposed to a legal or equitable interest in the licence.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.