Reforms to the Western Australian Government's approach to the funding of rehabilitation of mining tenements will have implications for both current tenement holders and those looking to buy or sell mining tenements in the future.
On 5 November 2012, the Western Australian Parliament passed the Mining Rehabilitation Fund Act 2012 (WA) (MRF Act). (Fund). The Fund has been designed to secure the rehabilitation obligations of tenement holders by requiring them to pay an annual levy into the Fund. These payments are then used for future rehabilitation of abandoned mine sites and other land affected by a tenement holder's mining operations.
The new law follows a recent study by the Western Australian Government which estimated that under the current bond system the Government has insufficient funds to cover the cost of rehabilitation of abandoned mining tenements, and its financial exposure to these costs could exceed $100 million.
When will the new law commence?
The MRF Act is scheduled to take effect on 31 July 2013. However, as at the date of this briefing, the regulations for implementing the new law have yet to be released to the public. The regulations are intended to set out, amongst other things, the administrative framework for calculating/paying the levy. We anticipate the Fund won't become operative until the regulations come into force.
Who is liable to pay?
From 31 July 2013, holders of 'mining authorisations' (Holders) will be required to make annual levy contributions into the Fund.
Under the MRF Act, a 'mining authorisation' is defined as:
- mining tenements as defined in the Mining Act 1978 (Mining Act) other than those granted or held pursuant to a State Agreement; or
- rights granted or held pursuant to a State Agreement, which will be specified in the regulations (yet to be made public).
How is the levy calculated?
The levy will be calculated based on data (submitted by the Holders) showing, amongst other things, the number of hectares of disturbed land in each tenement for the purpose of estimating the total closure liability (including rehabilitation costs).
Mining tenements with an estimated closure liability below a certain threshold amount will be exempt from the levy. Once the Department of Mines and Petroleum (DMP) has completed its assessment of the estimated closure liability, the Holder will be issued with an assessment notice specifying, amongst other things, the annual levy amount to be paid and the day on which it will become payable.
Levy contributions will be assessed by the DMP on a per tenement (rather than a whole of project) basis, which means separate levies may be charged for different tenements irrespective of whether those tenements apply to the same project.
The obligation to pay the levy for a given year, and any penalties for non-payment, will be borne by the Holder who holds the mining tenement on the due date. This liability remains with that Holder even if the tenement is transferred to a third party after the due date.
As noted earlier, the framework for calculating and paying the levy (eg the rates applicable per-hectare, the levy percentage applicable to certain Holders, and the threshold amount for exemption purposes) is intended to be set out in the as yet to be released regulations.
The MRF Act imposes an obligation on each Holder to disclose (in an approved form and manner) certain information relevant to their mine operations, by a prescribed date, for the purposes of determining the Holder's annual levy contribution. Failure to comply with these disclosure obligations, including providing false and misleading information, could result in the Holder being liable for a maximum penalty of $20,000.
Further, if any information provided by a Holder is not acceptable or defective, the DMP may issue an assessment based upon its estimate of the annual levy contribution payable by that Holder. This may not necessarily reflect the actual closure liability associated with the Holder's mining operations.
Holders' right to object and appeal
A Holder will have the right to object to an assessment notice (or reassessment notice) issued by the DMP based on certain prescribed grounds, including that the DMP has erred in its assessment or reassessment of the annual levy contribution specified in the relevant notice.
After determining the objection, the amount of the annual levy contribution payable by the Holder may be increased or decreased (as the case may be).
A Holder who is aggrieved by the outcome of an objection may apply to the State Administrative Tribunal for a review of the decision.
Implications for Holders
As is the case under the current bond system, the DMP will only draw from the Fund in circumstances where a Holder has not fulfilled its rehabilitation/closure obligations. However, unlike the bond system, the Fund will essentially cross-secure the rehabilitation obligations of all Holders so that the DMP will be entitled to draw from the Fund if any Holder does not meet its rehabilitation/closure obligations.
The MRF Act does not amend the Mining Act and environmental security bonds can still be applied (in accordance with the Mining Act) towards the rehabilitation of mining tenements granted under the Mining Act. Accordingly, the MRF Act will not result in the retirement of bonds under the Mining Act and Holders will still need to bear that liability in addition to making annual levy contributions under the MRF Act.
The obligation to pay levies into the Fund will be in addition to any obligations a Holder may have under the Contaminated Sites Act 2003.
When negotiating sale documentation, purchasers of mining tenements will need to consider the inclusion of provisions that:
provide for the annual levy contribution payable by the seller to be pro-rated so that contractually the purchaser assumes the obligation to pay from the date of completion of the sale (which may be some time prior to the date on which the purchaser becomes the registered holder of a tenement); and
if necessary, oblige the seller to give the purchaser copies of, or access to, the seller's historical records for purposes of satisfying any information requests by the DMP relating to the seller's operations on the tenements for the purposes of calculation of the levy.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.