A landmark decision of the Supreme Court of Western Australia delivered on 15 September 2017 will make it easier for tenement holders to get an exemption from their expenditure obligations.  The decision in Brewer v O'Sullivan, Warden At Kalgoorlie [No2] [2017] WASC 269 has established the entitlement of holders of a group of tenements to obtain a “project exemption” on the basis of expenditure on both “exploration activities” and “activities connected with or related to exploration”.  This means that mining companies can count more of their spending (specifically spending connected with or related to exploration) toward meeting their expenditure obligations, and so it will be easier to get expenditure relief under the “project exemption”. 

Gilbert + Tobin represented the successful tenement holder, Siberia Mining Corporation Pty Ltd, in the case.  As a result of the Court ruling, mining companies will be able to better target their expenditure on key aspects of their projects, and not have to incur expenditure merely for the purpose of meeting minimum spending commitments for their tenements.  Tim O’Leary, Partner, supervised the case and said that the ruling “provides welcome certainty for the mining industry regarding applications for exemption from expenditure obligations”.   

The “project exemption” and the Court’s decision   

The Court held that an exemption under section 102(2)(h) of the Mining Act can be granted on the basis of expenditure on exploration activities and expenditure on activities connected with or related to exploration.  The Court had not considered previously the current form of section 102(2)(h), and so the decision is now the binding authority on this issue.  It also means that the Mining Warden’s findings on this issue to a contrary effect, such as in GMK & Big Bell v Morgan [2016] WAMW 14, should not be followed: in that case, it was held that only expenditure reported as “Mineral Exploration Expenditure” on the relevant departmental form (a “Form 5”) could be used to calculate the “aggregate exploration expenditure” of a combined reporting group.  But the Court has rejected this “form over substance” interpretation. 

Why the confusion?

“Exploration expenditure” is not defined in the Mining Act, but section 102(2a) defines “aggregate exploration expenditure” to mean expenditure:

1. on, or in connection with, exploration for minerals on the combined reporting tenements; and
2. worked out in a manner specified in the regulations.

Regulation 58A(2) sets out the manner in which the “aggregate exploration expenditure” is to be worked out. It states that the expenditure is to be calculated by adding together the total exploration expenditure shown in each relevant operations report (that is, each Form 5).  It does not state expressly, though, which heads of expenditure (or “boxes”) on the Form 5 are to be used to calculate aggregate exploration expenditure.  

It had been held previously that only items reported as “Mineral Exploration Expenditure” could be used.  But that approach fails to give effect to the words “in connection with” in section 102(2a).  The Court’s decision has the effect that expenditure other than that noted under “Mineral Exploration Expenditure” can be used to calculate “aggregate exploration expenditure”.  Lauren Shave, Senior Associate, argued this aspect of the case before the Court and said that the Court’s judgment gives primacy to the text of the legislation and promotes “substance over form”. 

Calculation of “aggregate exploration expenditure”

Justice Pritchard found that in order to determine the “total exploration expenditure” on each Form 5, it is necessary to consider the expenditure information provided in the report, and (having regard to the description of the activities in the attachment to that report) to determine whether each item of expenditure was expenditure “on or in connection with exploration for minerals” on the tenement in question.  Her Honour found that expenditure “in connection with exploration” is not to be construed narrowly, and is clearly capable of including expenses such as rent and rates for the tenement, and preparatory work relevant to exploration for minerals, such as the cost of obtaining expert reports or native title authorisation.

Each amount of “exploration expenditure” must then be added together to reach a “total exploration expenditure” for that tenement. Finally, the “aggregated exploration expenditure” is calculated by adding all of the “total exploration expenditure” amounts drawn from each operations report.

Other matters

The Court’s decision is also significant because it establishes that an applicant for forfeiture has no relevant interest (merely because of their forfeiture application) in the outcome of an exemption application over the same tenement that would entitle the applicant for forfeiture to procedural fairness regarding that exemption application.  The lodgement of a forfeiture application is insufficient to create such an interest, and any applicant for forfeiture has ample opportunity to ascertain whether an exemption application has been lodged.  An applicant for forfeiture is not entitled to notice of the fact of the exemption application, which will (in the absence of any objection being lodged) be conducted as an “entirely separate” application to the forfeiture application.

Finally, the exemptions that the Court upheld were granted for tenements in respect of which expenditure had been claimed by Siberia Mining in amounts that exceeded the minimum expenditure commitments for the tenements.  Recent decisions that exemption applications can not be made, and that exemptions can not be granted, in circumstances where claimed expenditure exceeds the minimum commitment (for example, Carnegie Gold v Brewer [2017] WAMW 7 and [2017] WAMW 7B) are inconsistent with the Supreme Court’s finding and so should not be followed.

If you have any questions regarding the Court’s decision, or application for exemption for expenditure please telephone us.