New Zealand: New Crown Minerals Bill – a better regime but still some issues

Brief Counsel
Last Updated: 1 October 2012
Article by Chris Dann

The Crown Minerals (Permitting and Crown Land) Bill is a big step towards a more flexible and pragmatic mining regime. The Bill improves substantially on the existing Act and significantly on the March 2012 discussion paper.

But with flexibility comes stricter compliance management and broader Ministerial discretion. Security of tenure could be affected. The select committee process will be important to getting the best legislation possible and we urge you to get involved.

This Brief Counsel outlines the main provisions in the Bill and looks at how the policy has evolved in the course of the Crown Minerals Act (CMA) review. We also identify possible issues for submission.

Minerals Programmes

Much of the detail for the new framework will be contained in revised Minerals Programmes. These are expected to be released within the next few weeks for consultation, consistent with the Government's earlier announcement that they would be progressed alongside passage of the Bill through the House.

The Commerce Committee is due to report back by the end of January and the Government's aim is to have the Bill passed early next year.

The Bill's objectives

The Bill's stated aims are to:

  • encourage the development of Crown owned minerals
  • streamline and simplify the permitting regime
  • ensure that better co-ordination of regulatory agencies contributes to stringent health, safety and environmental (HSE) standards in exploration and production activities.

Broad structure of the new regime

As expected, the Bill introduces a 2-tiered system for permit management.

  • Tier 1 comprises complex, higher return petroleum and mineral activities, and
  • Tier 2 the more numerous but lower-return industrial, small business, and hobby mineral operations.

Tier 1 activities will be subject to more hands-on and co-ordinated regulatory management and Tier 2 to a simpler and more streamlined management regime

The Tier 1/Tier 2 categorisation will not just be based on mineral type but also on expenditure, production and royalty thresholds. This is an innovation in the Bill which was not canvassed in the discussion paper and will mean that operations may move from one tier to the other. However, all petroleum and underground or offshore activities will be Tier 1.

HSE assessment

This will be required during each exploration permit application for all Tier 1 minerals. The assessment will be applied to the permit operator (the permit holder who, on behalf of all of the permit holders, is responsible for the day-to-day management of the operation).

The permit operator will need to demonstrate that it has the capability and systems to meet the HSE requirements in all relevant legislation - the Health and Safety in Employment Act, Marine Transport Act, Resource Management Act and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act.

More flexibility

The Bill has substantially increased maximum permit durations.

Permit type Current duration Bill duration
Prospecting 2 years (capable of extension to 4 years) 4 years (no further extensions)
Exploration (petroleum) 5 years (capable of extension to 10 years or for appraisal activity) 15 years (capable of extension for appraisal activity)
Exploration (other minerals) 5 years (capable of extension to 10 years or for appraisal activity) 10 years (capable of extension for appraisal activity)
Mining 40 years (capable of extension) 40 years (capable of extension)

The Minerals Programme may now provide for the circumstances in which permits may be granted over land already subject to a permit (currently not possible without the consent of the permit holder) and may apply different policies, procedures and provisions to particular minerals in different states, places, phases or strata or being explored through different methods.

Stricter management

These more flexible arrangements are off-set by stricter compliance management. The Bill proposes tighter controls and greater Ministerial discretion than indicated in the discussion paper. These provisions as now drafted may compromise a permit holder's security of tenure (in effect, property rights) and thus investment certainty. We recommend that you consider how they will affect your business and make submissions accordingly.

Relinquishment requirements

The relinquishment requirements have been extended:

  • non-petroleum prospecting permits – the Bill gives the Minister the power to require up to 50% of the permit area to be relinquished at a specified time or on a specified event (currently there is no relinquishment requirement)
  • exploration permits – the Minister can require up to 75% (from 50% currently) of petroleum exploration permits to be relinquished and up to 50% of exploration permits for other minerals (as now)
  • the Bill does not specify a minimum permit size post-relinquishment although this was mooted in the discussion paper.

Permit changes

Tighter controls are introduced on permit changes. Unless there is a compelling reason for a shorter timeframe, any application for an extension to the term of a mining permit or for appraisal activity under an exploration permit must be made within six months of the expiry date. All other change applications must be made no later than 90 days' prior to the expiry or other relevant date.

Permit revocation

Permit revocation is made easier. No longer are "reasonable efforts" to comply enough. The Minister can require a permit to be revoked or transferred to the Crown if:

  • the Minister is satisfied that there has been a contravention of the permit, Act or regulations
  • monies owed to the Crown are overdue, or
  • the Minister does not consider that the permit holder can meet its financial obligations under the permit following a change in control of any permit participant.

A permit holder may appeal the revocation only on a point of law. These latter aspects are new and may have implications for those that hold permits as tenants in common with others. A change in control of one permit participant can result in the loss of the permit for all.

Transfers and dealings

Changes to this regime (section 41 of the Act) include a welcome narrowing of the dealings requiring Ministerial consent. This will now be required only for agreements that impose an obligation relating to the proceeds of production longer than 12 months or not arms-length and on a "fair market basis".

Changes in control of a permit participant must be notified to the Minister, with a copy of any supporting agreement or document. The Minister may, however, revoke the permit if not satisfied that the permit holder, following the change in control, is capable of meeting its financial obligations under the permit. No time limit is specified for the exercise of this revocation right.

While this change is a useful clarification and will reduce compliance costs, the broad revocation right is of concern and could have implications for many transactions. We hope that the Minerals Programme will place some restrictions on the Minister's use of this right.

Minister may change work programme

The Minister may initiate changes to a Petroleum Mining Permit (PMP) work programme if he or she considers such changes are necessary to maximise the economic recovery of petroleum. The permit holder will have a right to refer such changes to independent expert determination.

This is a new and wide Ministerial power, not signalled in the discussion paper. Clarification as to the scope and circumstances for exercise of such a right would be welcome and the revised Minerals Programme may provide that.

Enforcement

Penalties are increased and enforcement officers are created with search and seizure powers. The Minister, the officers and New Zealand Petroleum & Minerals (NZPAM) can require the provision of any information they consider necessary from permit holders.

Access arrangements

As previously announced, the Bill requires public notification of applications for access arrangements over Crown land where the proposed mining activities are "significant". This is an important change.

We look forward to guidance in the new Minerals Programme as to what constitutes significant and hope that the threshold is pitched at an appropriate level. On the other hand, industry will welcome the new requirement for Ministers also to have regard to the economic and other benefits of the proposed activities in considering applications for access arrangements.

Disappointingly (but as flagged in the discussion paper), the Bill has not corrected the anomaly in the Act whereby a permit holder for non-petroleum minerals is unable to arbitrate a failure to agree an access arrangement with the private land-owner or occupier, except in cases of public interest.

Annual review meetings

NZPAM may require Tier 1 permit holders to attend an annual review meeting to monitor progress against the work programme and to provide an opportunity for discussion with other regulatory agencies.

The discussion paper contemplated mandatory annual meetings whereas the wording in the Bill implies a more discretionary approach. We expect the revised Minerals Programme to clarify when an annual meeting will (and won't) be required.

Iwi consultation

Tier 1 permit holders will be required to provide annual iwi engagement reports to the Minister. Further operational changes are promised to strengthen the Crown and permit holders' relationship with iwi.

The discussion paper identified this as an issue which would require further consultation but did not propose any specific initiatives.

Other changes

  • The Bill extends the CMA regime to non-petroleum mineral activity in the continental shelf and EEZ (matching the current regime for petroleum).
  • Royalties can now be imposed and changed through regulation, rather than the Minerals Programme, avoiding the need for consultation over changes.
  • Information provided by "speculative [petroleum] prospectors" is now to be held confidential for 15 years (up from five).
  • Records must be retained for either seven years after the year to which they relate or for two years after the permit ceases – whichever is the later.

Transitional arrangements

The Bill provides for a staged transition to a single revised Minerals Programme either at the decision of the permit holder or as permits are changed, extended or surrendered.

However, royalty obligations are grandfathered and will continue to be payable in accordance with the relevant existing minerals programme.

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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