Australia: DRE's tenement KPIs, new SEPP mining and sovereign risk in NSW title grants

Tenements Update
Last Updated: 22 August 2013
Article by Jennifer Anderson

DRE's new tenement KPIs

The Department of Resources & Energy's (DRE) new "Mineral resources – Service delivery standards" sets out the new timeframes for processing applications under the Mining Act 1992 (NSW) (NSW Mining Act).

These standards apply to all applications lodged from 1 July 2013. DRE has also confirmed that the service delivery standards are based on complete applications without major deficiencies. A copy of the standards is published on the DRE's website.

The standards set out, in Table 1, the reduced target timeframes for processing new and renewal applications. For coal, the timeframe is 95 business days for new applications and 55 business days for renewal applications, which includes time for the public comment process and ministerial approval. For other minerals, the standards allow 45 business days for new applications and 45 business days for renewal applications.

The standards confirm that the reduced timeframes for processing applications do not change the requirement for development consent before the tenement is granted. The standards also include comments on the time that should be allowed for activities, such as lodging subsidence management plans (at least six months), before commencement dates are sought.

The standards set out DRE's KPIs regarding the target timeframes and require that quarterly performance reports be issued. The standards also indicate that DRE will meet regularly with the NSW Minerals Council and the Association of Mining and Exploration Companies to examine opportunities for further improvement.

There are exceptions that allow DRE to "stop the clock" on the performance standard, which are detailed in Table 2 of the standards. These relate to circumstances outside of DRE's control. However, it is worth noting that the standards also state that DRE should continue processing applications while the clock is stopped, where practicable. Under the new standards, DRE may reject an application with major deficiencies without stopping the clock.

What this means for you

The commitments to timely service by the DRE are encouraging. While it is important to work closely with DRE on its processes, it remains critical that applicants form their own view about whether those DRE processes are in line with legislation and if they comply with all requirements of the Act and Regulation. Any failure to meet legislative requirements can provide a weakness in the authority, which can be fatal to an application. Although time is always very important, compliance is critical given a timely, but flawed, application will produce an authority that may not survive challenge.

Where applicants are notified of a "stop clock" exception, they should scrutinise the notification to ensure that DRE has all relevant information, such as clarifications on open Environment Protection and Biodiversity Conservation processes, litigation or unresolved issues with third parties.

Comments close on proposed amendments to SEPP Mining

Submissions on the draft amendments to the State Environmental Planning Policy (Mining, Petroleum Production and Extractive Industries) 2007 (SEPP Mining) closed on 12 August 2013.

The draft changes to the SEPP Mining introduce a criterion of "significance of resource" and make that criterion the consent authority's principal consideration when determining whether to grant consent to a proposed mining development. Under the draft changes, the weight to be given by the consent authority to other criteria is to be proportionate to the importance of that other matter relative to the significance of the resource.

In assessing an application, the consent authority must consider the significance of the resource that is the subject of the application in terms of:

  • the economic benefits of developing the resource, both to NSW and the region in which the development is proposed to be carried out, and
  • any advice by the Director-General of the Department of Trade and Investment, Regional Infrastructure and Services about the relative significance of the resource in comparison with other resources across the State.

In providing advice, the Director-General should cover relevant matters, including:

  • the size, quality and availability of the resource
  • access and the proximity of the land to existing or proposed infrastructure
  • the relationship of the resource to any existing mine, and
  • whether other industries or projects depend on the development of the resource.

The need to provide this level of direction to the consent authority via a SEPP may result from the decision to strip the decision-making role from Planning Assessment Commission about state significant development.

The NSW Government now appears to have recognised the importance of the mining industry to the State and the damage regulatory uncertainty during the past few years has created. However, there remain some risks and missed opportunities, including:

  • the possibility of a challenge—the changes may be challenged on the basis that they are beyond the Government's power to make a SEPP. This argument would likely centre on the need to give criteria weight relative to the significance of the resource, which means some considerations may be devalued (Justice Preston's "polycentric problem" as discussed in Bulga Milbrodale Progress Association Inc v Minister for Planning and Infrastructure and Warkworth Mining Limited [2013] NSWLEC 48)
  • there is no mention of the approach or standards required to satisfy the biodiversity offsetting requirements—as Preston J recognised in Warkworth, "...sufficient measurable conservation gain for the particular components of biological diversity impacted by the Project..." is required. What is baffling many observers is what it will take to satisfy that requirement, which these changes could have usefully addressed, and
  • there is no detail about the application of the amendments to projects that remain in the Part 3A process.

Sovereign risk in NSW title grants

Sovereign risk includes the risk of invalidity to a tenement due to shortcomings in government grant processes, or in lack of legislative certainty of the title granted.

The NSW Mining Act contains limited protections for granted titles from legal challenge, but does not offer legislative protection of title invalidity from government process shortcomings.

The NSW Mining Act also does not provide indefeasibility of title. This concept is generally understood in real property law and forms a basis on which people invest in real estate with certainty and on which banks are willing to enter mortgages.

The following developments (ICAC, Gold and Copper and the Productivity Commission's draft report on mineral and energy resource exploration in Australia) will almost certainly influence changes to NSW Government processes for coal and other mineral allocation.

ICAC Mount Penny report

On 31 July 2013, Commissioner Ipp issued his report 'Investigation into the conduct of Ian McDonald, Edward Obeid Senior, Moses Obeid and others' (Mount Penny report). This investigation concerned a number of matters, including the circumstances surrounding a decision made in 2008 by Ian MacDonald, the then NSW energy minister, to grant the Mount Penny tenement.

The Commission also examined a number of other matters arising from the decision to call for limited expressions of interest for the awarding of exploration licences.

The Mount Penny report contemplates further reports by the Commissioner, including recommendations on possible amendments of the NSW Mining Act.

The Mount Penny report comments on aspects of the coal allocation process that was investigated and refers to a separate "corruption prevention report". The further report may comment on the potential for a role of a probity auditor in allocation processes. ICAC has advised that this report may issue in August 2013.

In the Mount Penny report, the Commissioner comments on the value of "additional financial contribution" (which the Commission was not to resolve). The Commissioner comments that the more likely correct approach to contribution calculation is by reference to DRE's coal allocation guidelines (which reference a monetary amount per tonne of the estimated resource), rather than proposing a negligible contribution that reflects little knowledge of the true value of a resource.

There are obvious difficulties with this approach in many instances, such as areas where the resource is not known and areas where only a mining purposes lease is required. There are still further reports to come from ICAC regarding the exploration licences that were issued by former Minister MacDonald and the development of policy and law is likely to follow on from those reports.

Recap of Gold and Copper decision

Gold And Copper Resources Pty Limited v Minister for Resources and Energy [2013] NSWLEC 66

The NSW Mining Act does not allow applicants, who are granted titles, to assume that a tenement grant decision-maker has considered all legislative requirements. For these applicants, the administrative law principles of presumption of regularity may also be of limited effect.

In the May 2013 issue of Tenements Update, we discussed the Gold and Copper decision in which an exploration licence renewal was held invalid due to the Minister's delegate determining the renewal application did not consider "special circumstances", as required by the NSW Mining Act. In this case, the special circumstance was the renewal of an exploration licence by more than one half of its area. The Court held the renewal invalid, even though DRE's Exploration Titles Committee had considered the special circumstances. To find out more about this decision, click here.

We are liaising with DRE as it considers its processes following this development. In this way, we can clarify what our tenement applicant clients may do in addition to their customary engagement with DRE on tenement application processes.

Australian Government Productivity Commission draft report issued

The Productivity Commission draft report on the state of mineral and energy resource exploration in Australia was issued on 31 May 2013. The final report is scheduled to be issued at end of September 2013.

The draft report makes several recommendations to improve the certainty and transparency of allocation of rights to explore, including:

  • publication of the Government's exploration licensing objectives, application assessment criteria and the outcomes of assessments, including the name of the successful bidder and the reasons why their bid was successful, and
  • if legislation requires the Minister to notify a person of an exploration licence decision, it should also require that the notice include the reasons for the decision.

The draft report notes that publication of decisions may assist successful applicants to defend the grant, but also notes that there is a risk of vexatious challenges to decisions.

What do these developments mean?

Until there is legislative certainty, explorers, miners and investors in resources need to be informed of title validity risk. They also need to understand the steps they can take to proactively manage the risk beyond what already applies.

Risk management strategies should include express engagement with DRE about process assurance for pending and proposed applications, and consider additional documentation of that engagement.

There may also be the need to disclosure internal recommendations about capital investment in exploration or mining in public reports, as well as in title risk descriptions in private or public funding raisings.

Agripower decision and the NSW Mining Act

Agripower Australia Ltd v J & D Rigging Pty Ltd & Ors [2013] QSC

The Agripower decision considered the application of the Building and Construction Industry Payments Act 2004 (Qld) (Qld BCIP Act) in the context of construction work carried out on a mine in Queensland. In that decision, the Court held that a mining lease was not an interest in land.

The Court found that mining plant on a mining lease, which was required to be removed by the lease conditions and commissioned to be dismantled, did not form "part of the land". It also found that the work of dismantling the mining plant was not "construction work" under the Qld BCIP Act and, accordingly, that the statutory process for determining construction payment disputes was not available in this case.

An appeal has been lodged in the Queensland Court of Appeal.

What if this happened in NSW under the NSW Mining Act?

In the Agripower decision, the mining lease holder was not the freehold landowner and it is uncertain what difference it may have made in the Agripower case if the holder of the mining lease and the freehold landholder had been the same entity.

In mining in NSW it is common for the freehold landholder and the mining lease holder to be the same entity or be different entities with the same beneficial ownership.

In this decision the Court was not required to consider any equivalent to s 265 of the NSW Mining Act, which, for almost all cases, requires the mining lease holder to enter an access and compensation agreement with the landholder and accordingly did not have to consider whether this nexus of the mining lease to the freehold land could be material to attracting jurisdiction of the NSW BCIP Act.

In NSW, are mining leases interests in land?

Unlike the Mineral Resources Act 1989 (Qld), which expressly provides that the grant of a mining tenement does not create an estate or interest in land, the NSW Mining Act does not include a express provision on this point.

Under the Interpretation Act 1987 (NSW) land is defined to include tenements. The concept of tenements is not defined in that Act or in the NSW Mining Act. As a lease from the Crown, a mining lease should be capable of interpretation as an interest in NSW land for any property-based nexus test, as is the case for jurisdiction under the NSW BCIP Act.

IN NSW, when is mining plant part of the land?

In the Agripower decision, the Court referenced the Queensland legislation stating that each mining lease is subject to a condition that the leaseholder shall remove all plant and equipment, unless otherwise approved.

In NSW, the NSW Mining Act does not explicitly require this condition in every mining lease and permits the Minister to require plant removal. Each case of plant would require evaluation and even a NSW mining lease, including a condition requiring removal of plant, may not determine the matter. For example, DRE may allow mining-related plant to be left in place for non-mining use and form part of the land beyond mining lease rehabilitation.

What this means for you

If a dispute over payment is a prospect under a construction contract at a NSW mining site, then explorers', miners' and investors' preparations should include an assessment of the detail around the issue of "land" in their circumstances.

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.

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Jennifer Anderson
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