Restrictions introduced by the West Australian and Federal Governments to curb the spread of COVID-19 has disrupted operations and increased the economic pressures on mining and exploration companies. This has resulted in a major repurposing of expenditure across the resources sector as companies implement preventative and contingency measures to protect against risks to the sustainability of their operations such as changes to fly-in, fly-out (FIFO) rosters and using chartered air services over commercial carriers.
Under the Mining Act 1978 (WA) (Mining Act), the holder of a tenement (other than a retention licence) is required to meet minimum expenditure requirements in respect of exploration and mining activities. On 27 March 2020, the Minister for Mines and Petroleum, Bill Johnston, announced an exemption from exploration expenditure if tenement holders are unable to meet expenditure requirements as a direct result of COVID-19 or because of restrictions imposed by State or Federal Governments. This exemption is valid until 31 March 2021, unless rescinded earlier. Other measures are being considered by DMIRS to assist tenement holders during this time. The Minister’s decision will be a lifeline for explorers. By omission, there is (at least presently) no corresponding relief for mining expenditure. Applications for an exemption from mining expenditure will be dealt with under the Mining Act on a case by case basis, which will test the flexibility of the existing statutory exemptions in light of COVID-19.
This article looks at those existing statutory exemptions that a tenement holder may seek to rely on if they are unable to meet their expenditure requirements arising out of the effect of government restrictions introduced to combat the spread of COVID-19.
The current government restrictions
Restrictions introduced by the State and Federal Governments relating to movement and travel into, and within Western Australia, have challenged the viability of operational mines and prompted mining companies to implement new procedures to avoid a COVID-19 outbreak on mine sites. In summary:
- Western Australia’s borders are closed to all international and interstate travel. However, workers employed by the mining industry are currently exempt;
- intrastate travel restrictions within Western Australia as follows:
(i) State imposed regional restrictions that do not apply to workers employed in the mining industry;
(ii) Commonwealth imposed regional restrictions that do not apply to workers employed in the mining industry (this does not extend to workers involved in mineral exploration);
(iii) restrictions on entry into regional Aboriginal communities, which applies to mining and mineral exploration workers; and
(iv) potential self-imposed restrictions by native title holders on lands subject to native title determinations.
Anecdotally, these restrictions on travel and movement have caused miners to redirect expenditure towards a significant overhaul of current operational practices (particularly in relation to FIFO workers) and for some, the deferral or suspension of operations where mining is otherwise impracticable at this time. Such responsive measures are likely to create difficulties for miners in securing approvals required to mine or progress mining activities, and in satisfying the expenditure condition on mining leases – given the State government’s expenditure relief is only available to explorers.
The “political or other difficulties” exemption
An exemption under section 102(2)(g) of the Mining Act may be granted on the basis that the tenement holder has experienced ‘political, environmental or other difficulties’ in obtaining requisite approvals, which prevent or restrict mining in a manner that is impractical.
Traditionally, an application for exemption under section 102(2)(g) of the Mining Act will only be granted where a tenement holder has made a ‘genuine attempt’ to obtain the approval in question.
Some mining companies have moved to suspend or reconfigure their operations to cope with the disruption of recent government restrictions and COVID-19. The government maintains it is currently business as usual for the resources sector, but given the introduction of regional travel restrictions and government departments moving to work remotely, approvals may prove challenging to obtain. This could lead to situations in which section 102(2)(g) could be enlivened.
The economy and ‘any other reason’
The Minister also has a general discretion under section 102(3) of the Mining Act to grant an exemption from mining expenditure if a reason exists which is sufficient to justify an exemption. A novel situation like COVID-19 may provide sufficient reason to justify relief – however substantive evidence linking the lack of expenditure to the effects of COVID-19 will be required. Likewise, the prevailing economic conditions and difficult financial markets may enliven other statutory provisions, which provide an exemption on the basis that: (i) there is a need to raise capital to fund mining activities (section 102(2)(b)); or (ii) existing economic problems affect the viability of mining operations (section 102(2)(e)).
COVID-19 and expenditure relief for mining leases
The obligation to spend the prescribed expenditure on a mining tenement is not a fixed requirement. It is well settled that the exploitation of the mineral wealth of the State requires a planned and methodical approach, compliance with relevant laws and within the existing financial and economic circumstances that prevail at the time.
Compliance with State and Federal laws and the prevailing economic climate may constitute sufficient grounds for an exemption from mining expenditure. This echoes the sentiment in section 102(2)(g) of the Mining Act, which provides relief from mining expenditure where political acts create difficulty in obtaining approvals required to mine or restrict mining in a manner that is impractical.
By way of example, the restrictions on intrastate travel and entry into vulnerable Aboriginal communities or those restrictions self-imposed by native title holders will effectively require miners to suspend works required to obtain heritage approvals, which are required before mining or other ground-disturbing work can commence. Further, restrictions on the movement and utilisation of FIFO and other essential mining industry workers will complicate workforce, health and safety and other approvals required to legally operate mines. Ultimately, whether the impact of these restrictive measures reflect the circumstantial relief set out in section 102(2)(g) of the Mining Act will be decided on a case-by-case basis.
What to expect next
The disruption to the resources sector and the broader economy caused by COVID-19 is likely to have an impact on the ability of companies to meet their mining expenditure obligations. It is too early to tell the extent of the impact, but given the level of disruption at the moment, tenement holders should be thinking about how they will approach their expenditure obligations for the current and next expenditure years. The restrictions introduced by the State and Federal Governments on travel, movement and social distancing have presented a unique challenge for the mining industry given the location of mine sites, the importance of ongoing heritage work, a mobilised workforce and the proximity in which on-site personnel work. In the absence of broader general relief in relation to expenditure from the State Government, miners will need to carefully detail how this novel situation fits within the relief offered under the Mining Act.
For more advice, get in touch with our Mining Lawyers.