New Zealand: Move to two-tier regime in Crown Minerals Act Review

Brief Counsel

The discussion paper for the Crown Minerals Act Review envisages a move to a two-tier system in which higher risk activities – petroleum, hard rock gold and silver, coal and ironsand, phosphate and sulphide minerals – are subject to a more hands-on regime.

Submissions are due by 20 April 2012.

Comprehensive scope

An earlier discussion paper, issued in August 2010, focused solely on the Act but many submissions said the review should take in the whole CMA regime, including the Minerals Programmes and the regulations. Accordingly all three will be dealt with in a single package. The Government expects to have the new legislation introduced before the end of this year with new Minerals Programmes and regulations to be developed alongside the passage of the bill through the House.

This discussion paper proposes a new up-front health, safety and environment (HSE) assessment process, together with a range of changes to permit allocation, timeframe and size, compliance issues, royalties and reporting obligations.

Tier 1 proposals

HSE regulation

Most jurisdictions require HSE issues to be considered before a prospecting, exploration or mining permit is granted. In New Zealand, these are currently regulated outside the Crown Minerals regime. The review suggests two models: prequalification or assessment during each exploration permit application. Under both, an assessment of HSE policies, capability and record would be incorporated into the early stages of the permit allocation process.

The HSE assessment would be required of the permit operator only ("the permit holder who, on behalf of all permit holders, is responsible for the day-to-day management of activities under permit").

The discussion paper asks whether the HSE assessment should apply to all tier 1 activities or be targeted on those with a relatively high HSE risk, e.g. offshore petroleum and ironsand activities and underground coal and gold mining.

Flexible but strict compliance management

It is proposed that compliance with work programme obligations be monitored and managed on a more flexible, pro-active yet strict basis:

  • activity phases will be introduced within the term of a permit with work programmes required for the different phases and firm deadlines at the end of each phase but no deadlines within the phase.
  • strict compliance would be expected with work programme commitments at the end of each phase – "reasonable efforts" will no longer be enough.
  • the ability to seek changes to work programme conditions will be tightened (it is expected that changes in conditions would only occur at the transition from one phase to the next)
  • the penalty provisions in the Act are to be reviewed with proposals including increases to the maximum fines and unspecified alternative compliance incentives and sanctions, and
  • annual work programme review meetings are to be held between the permit holder and relevant regulatory agencies (MED, the Department of Labour, the regional council, Maritime New Zealand, the Environmental Protection Authority) in exchange for some reductions in paper based reporting.

Royalties regime

Royalty rates for Tier 1 minerals will be reviewed this year, beginning with ironsand, coal, gold, silver and (possibly) phosphates. The purpose of the review will be to introduce more transparency, to reflect the rise in commodity prices for these products since 2008 when the rate was last set, and to ensure that the New Zealand rate is internationally competitive – particularly against Australia.

Any potential revision to rates will apply to new permits only.

Petroleum

Proposals in relation to petroleum include:

Proposal Explanation
Increase the confidentiality period for Petroleum Prospecting Permits (PPPs), from five years to 10 or 15 years as in other jurisdictions. MED considers five years may be too short to provide companies with confidence that costs will be recouped in the case of speculative seismic surveys.
Allow PPPs to be granted over lands under permits held by other parties. The need to stay outside of existing permit sites prevents non-exclusive geophysical surveyors from leveraging economies of scale that come from conducting continuous surveys over large tracts of land, especially in heavily-permitted areas like the Taranaki basin.
Allow more flexible permit timeframes for Petroleum Exploration Permits (PEPs). Currently all PEPs are awarded for five years, regardless of the size of the permit or whether it is onshore or deep water. MED is proposing a nine-year term for onshore; 12 for shallow water offshore; and 15 for deep water operations, each split into three permit activity phases.
Extend expenditure reporting timeframes to 12 months. It is now six months.
Appraisal is to be undertaken under a separate permit with a separate work programme. Currently part of the exploration permit with a right to seek a four-year extension for appraisal activities.
Develop a new Minerals Programme for Petroleum with separate parts for each mineral (e.g. methane hydrates and coal seam gas). The aim is to make the regime more accommodating of future resources and technology developments.

Tier 1 minerals

The review proposes that Tier 1 mineral operations be more proactively managed than Tier 2, reflecting their higher technical and geological complexity. Most of the proposed changes are driven by the same issues that drive the petroleum section: unnecessary formal processes engrossing too much regulatory attention and lack of significant competition in awarding key permits.

Proposal Explanation
Allow two one-year extensions at the conclusion of the first two-year term of a prospecting permit, provided that at least 25% of the original permit area is relinquished at each application. Relinquishment is not currently required for minerals prospecting permits but is for exploration permits (and PPP). MED considers the proposal will encourage prompt prospecting work and increase the availability of new permits – an important issue given the large size of some permits and the subsequent rights of MPP (unlike PPP) to exploration and mining permits.
Provide guidance on the range of prospecting permit sizes that would usually be considered appropriate for particular mineral groups in particular locations OR set minimum and maximum permit sizes. MED is concerned that current policy on appropriate permit size is too ambiguous. The paper notes that the guidance approach is preferred.
Amend the 50% relinquishment requirement for exploration permits to enable EPP of a fixed minimum size (e.g. 150 ha) to be retained for a second term. The relinquishment requirement does not take into account the underlying geology of the permit area so the underlying mineable resource might be larger than the permit area remaining after relinquishment.
Changes to reporting include a reduction in the information required in annual prospecting and exploration summary reports; an increase in the minerals reserves and resources information required at the exploration stage; and an extension of the data and reporting requirements of the CMA regime to licence holders under the Coal Mines Act 1979 and Mining Act 1971. This reflects the review objective of streamlining and simplifying the regime where appropriate.
The provisions of the Crown Minerals Act will apply to mining in the EEZ and continental shelf. This matches the existing position for petroleum exploration and mining and addresses the lack of guidance on the allocation and management of continental shelf licences.
Raise the assessment threshold for applicants wanting an extension of the land covered by their permit from an "inferred" resource to an "indicated" resource. MED considers the current threshold is too low and has arguably resulted in extensions being granted with little real evidence of underlying commercial minerals.

Tier 2 minerals

These include hobby and small enterprise alluvial gold and industrial mineral operations. They are typically low-risk and are recognised as unlikely to ever deliver material royalty revenue. The main objective of the proposals relating to this Tier is to streamline the permit administration regime so that compliance costs for permit holders and for the Government are minimised.

Transfers and dealings

Section 41 of the Act prohibits permits from being transferred or new arrangements affecting the ownership of permits or production under permits from being entered into without Ministerial consent. The scope of the provision is uncertain, with the result that the Minister received 378 such applications in the three years to October 2011.

The review proposes to remove the reference to "special circumstances" as a basis for refusal of consent and to focus consent for transfers on the permit operator rather than non-operators. Transfers or dealings affecting non-operators would need to demonstrate that they are financially capable of meeting their share of anticipated expenses. Unless advised to the contrary within 40 working days of a proposed transfer or dealing being notified to the Ministry, parties will be able to assume that consent is not required.

This new notification process has the potential to cause further delay and it would have been preferable if the Ministry had taken the opportunity to clarify the types of transfers, dealings and arrangements requiring consent.

Still to come – iwi engagement

The Government proposes working directly with iwi to develop specific options to ensure that:

  • iwi are confident that they have the opportunity to input their local knowledge to Crown decisions on petroleum and minerals policy and permits, and
  • there are clear opportunities for iwi to participate through investment in the minerals sector from an economic development perspective.

As discussions with iwi are at an early stage, the discussion document does not include any specific options. The outcomes from those discussions will be incorporated into subsequent stages of the CMA review process and further consultation is promised.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

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