Australia: Implications of DRE's new Short Mining Lease Conditions (Coal) 2013

Tenements Update
Last Updated: 14 November 2013
Article by Jennifer Anderson, Andrew White and Alan McKelvey

In this month's Tenements Update we consider the Department of Resource & Energy's (DRE) new short Mining Lease Conditions (Coal) 2013 (2013 Conditions) as they impact tenement management, acquisition and financing due diligence, and operations efficiency, following an announcement by the Minister for Resources and Energy on 17 October 2013.

The changes to the mining lease standards are said to be designed to achieve reduction in  duplication,  red tape and to improve regulatory outcomes. Minister Hartcher said that "these changes are about reducing unnecessary and often confusing duplication across agencies". The changes result in the number of conditions for future standard coal mining leases being reduced from 24 to nine conditions and for other future mining leases for other minerals from 23 to eight conditions.

Summary of the nine conditions under the new 2013 conditions

Notice to landholders

The 2013 Conditions clarify that the notice to be given to mining lease landholders of grants or renewals does not need to be issued to secondary landholders. Broadly, secondary landholders are holders of registered interests in land, excepting mortgagees in possession, lessees and Ministers relevant to conservation arrangements affecting the land.

This means potentially fewer notices are required to be issued when compared to the earlier DRE conditions versions, most recently Mining Lease Conditions 2008 and Mining Lease Conditions 2010 (earlier Conditions).

Rehabilitation

The 2013 Conditions require rehabilitation following mining activities to be to the satisfaction of the Minister, which is essentially unchanged from the earlier Conditions.

Mining Operations Plan (MOP) and Annual Rehabilitation Report

The 2013 Conditions that relate to MOPS and annual rehabilitation reports have been updated and simplified and also incorporate DRE's recently published standards for MOPs, ESG3: Mining Operations Plan (MOP) Guidelines September 2013.

Also, under the 2013 Conditions an annual Rehabilitation Report replaces the annual Environmental Management Report.

Compliance report

The 2013 Conditions introduce a new requirement for reporting on compliance with the Mining Act 1992 (NSW) (Mining Act) and the mining lease conditions in a report to be lodged at DRE annually. The compliance report will accompany applications for renewal, transfer, and part or whole cancellation of the mining lease. The compliance report also must be lodged at DRE at expiry of the mining lease if it is not to be renewed, and at any other date required by the Minister.

The earlier Conditions required compliance with the Mining Act and mining lease conditions but did not include the express compliance report obligation.

Impact on tenement management

The compliance report requirements set a new bar against which current tenement management systems should be checked for adequacy to allow complete compliance reporting as required.

Until DRE's requirements for the report are published, our view is that the compliance report should detail each condition and each relevant Mining Act and Mining Regulations condition, and also detail the documentation or other record available to evidence compliance. DRE has informed us that it does not expect to advise of further specific requirements for this reporting obligation during this year.

While the compliance report condition will be in mining leases granted under the 2013 Conditions, as the compliance report will touch on certain conditions that are relevant to a whole mine site, at some sites the systems needed to comply with this 2013 Condition reporting requirement will also apply to areas within Mining Leases that come under the earlier Conditions.

Tenement acquisition or financing due diligence process

Pre-acquisition due diligence ahead of purchases or financings, including mining leases proposed transfers, should include a review of any compliance reports under 2013 Conditions. The report may be a reference point for vendor or borrower warranties for tenement compliance, including for mining leases pending renewal where DRE requires compliance.

Environmental incident report

The 2013 Conditions are updated and simplified, including omitting the earlier Conditions' specific mention of "serious complaint from landholders or public" as a reportable incident.

Subsidence management

These conditions have been updated and simplified and affect underground miners.

Resource recovery

The 2013 Conditions continue the obligation to optimise resource recovery to the extent economically feasible, but the earlier Conditions' extensive language of scope for government oversight has been left out.

We do not believe that the new condition will create scope for additional mine planning flexibility compared to the position under the earlier Conditions, and DRE has confirmed to us that the intent of the condition is unchanged.

Security

The 2013 Conditions continue to require the bank guarantee obligation, providing for a "security deposit". While a cash deposit is not stated, DRE has confirmed to us that a cash deposit will still be an option. DRE also informed us that the potential to add a new mining lease to an existing security for a site continues where appropriate.

Cooperation agreement

The 2013 Conditions are expressed to apply to "any overlapping title(s)" and are not limited to potential cooperation agreements with Petroleum Exploration Licences, as was the case under the earlier Conditions.

Special conditions

The 2013 Conditions contemplate that special conditions may be included.

Notable omissions

Notable among DRE's earlier Conditions not carried over is the omission of the "working requirement" of labour and expenditure commitments.  Also, the common condition requiring approval from the landowner before trees are cleared is omitted.

Potential opportunity

A mine site with multiple mining leases may achieve operational efficiencies and costs savings in tenement management, if all mining leases are on the same 2013 Conditions.

Conditions under existing mining leases are updated onto new standard conditions in limited circumstances, and, on renewal, often on transfer and expected upon consolidation. Special Conditions may be carried over into the updated conditions.

The potential benefit of consolidation of mining leases is addressed in our earlier update.

It is unclear whether there is scope for in effect requesting updating of the conditions at other points, such as in applications to vary the tenement area, or when endorsements are added to the tenement, such as the methane endorsement.

It is also unclear whether mining leases that contain earlier Conditions may be made consistent with the 2013 Conditions by suspending the earlier Conditions that are not carried over, excluding Special Conditions. The suspension would apply until the mining lease conditions are updated when the lease is renewed, transferred or otherwise dealt with.

Further information

We advise on tenements including applications preparation, acquisition and financing due diligence, and preparation of reports on tenement and Mining Act conditions. We also represent clients in engagement with Government and third parties in tenement applications and dealings.

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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