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Unearthed... 10 Hot Topics
ASIC Information Sheet 214
Industry is concerned about the ramifications of ASIC Statement 214, including in relation to the level of uncertainty surrounding “secure funding”, the potential impact on future capital raisings by the Australian resources sector and the broader economic impact this may have. We understand that the regulators are working on some (much needed) additional guidance but in the meantime we expect ASX and ASIC will be paying close attention to the Diggers & Dealers presentations.
For more background follow these links:
- Regulator rumble: ASIC and ASX to clamp down on juniors - The impact of ASIC Information Sheet 214 on the Disclosure of Scoping Studies by Julie Athanasoff, Vikram Kumar and Kyle Moss, June 2016.
- Looking beyond ASIC Information Sheet 214 by Patrick Tydde and Danielle Lukic, June 2016.
Changes to ASX admission requirements and other developments
ASX released its consultation paper proposing to change the admission requirements for entities seeking admission to the official list. The changes, if progressed, are likely to impact small cap IPO candidates and back-door listings and consequently were the subject of considerable comment from mining industry groups.
ASX is currently assessing the feedback received and discussing it with regulators and other stakeholders. ASX expects to release a final version of the rule changes and associated guidance in September or October after it has completed those discussions and has deferred the start date for the changes until 19 December 2016.
In the meantime, ASX is also cracking down on announcements of contractual negotiations that fail to name the counterparty. It is important to note that if companies chose to announce their non-binding contractual arrangements, ASX will expect to see the counterparty names.
For more background follow these links:
- ASX proposes changes to admissions requirements by Julie Athanasoff, Adam D'Andreti, Sarah Turner, Lucy Hall and David Naoum, May 2016.
- What's in a name? by Sarah Turner and Vikram Kumar, July 2016
Roe 8 and what it means
After much press coverage and debate over the EPA’s handling of the Roe 8 decision, the Court of Appeal has clarified that the EPA was not required to take into account certain of its policies when making recommendations. Although the Court of Appeal’s approach somewhat relaxed the EPA’s obligations, this decision only related to certain EPA policies, so it remains prudent to consider (and potentially to expressly address) any government policy that may be applicable when preparing documents such as a proposal the subject of an administrative decision or recommendation.
For more background follow this link:
- The Roe 8 Saga: The Government succeeds on appeal by Marshall McKenna, Guy Greer and Claudia Henfry, July 2016.
Introduction of rangelands leases
The draft Land Administration Amendment Bill 2016 (WA) proposes the introduction of rangelands leases that may be granted over rangelands by the Minister for Lands for “any purpose that is, or purposes that are, principally consistent with the preservation of the rangelands as a natural resource.”
Rangelands Leases are designed to provide an alternative to the significant limitations on land use imposed on pastoral leases and therefore maximise the potential of WA’s vast rangelands by enabling multiple and varied land uses. This is intended to create new economic and social opportunities and enable the development of more sustainable business models for those rangelands, including those that might benefit the mining industry.
For more background follow this link:
- The implications for miners of unlocking the rangelands in Western Australia by Claire Boyd and Samer Aljanabi, March 2016.
Shire rates - it's that time of year
At this time of year, miners are likely to be concerned about any potential surprises in their rates notices. The ability, and willingness, of local governments to impose differential rating on land the subject of mining tenements and/or land containing capital improvements has long been a concern of the mining industry. It is now exacerbated by the valuation of workers camps on a Gross Rental Value basis. Miners are encouraged to consider their rates notices carefully, including the valuations placed on them and raise any queries with the relevant Shires.
For a related discussion follow this link:
- Transient Workers Accommodation rates may be capable of being challenged by Marshall McKenna, June 2016.
New sources of energy generation
The mining sector is starting to see real benefits from turning to natural gas and renewable energy.
There is new technology which would allow modified mining fleet vehicles to run on compressed natural gas rather than diesel, which would reduce fuel costs and CO2 emissions.
The falling cost of solar generation and storage technologies is encouraging their use to power off-grid mine sites. By reducing the use of diesel generators, companies are able to lower their electricity costs and improve environmental outcomes.
Sandfire Resources NL (Sandfire) is a notable example, integrating a 10.6 MW solar PV installation into its existing diesel generation facility at the DeGrussa Copper Mine (DeGrussa Mine), together with 6 MW (1.8 MWh) of storage capacity. The DeGrussa Mine facility is the world’s largest off-grid solar powered system used in the mining industry. Sandfire is reported to have entered into a 6 year power purchase agreement, with an upfront cash contribution to the project of less than $1 million (out of a total cost of $40 million). The company expects that the solar generated power will provide the majority of the DeGrussa Mine’s daytime electricity requirements, offsetting more than 20% of total diesel consumption.
Other examples include solar generation at Independence Group's recently commissioned Nova nickel project and Rio Tinto's Weipa bauxite mine.
Digital disruption and innovation
The mining industry has seen a significant development in innovation and efficiency. For example, in 2015 more data was generated and collected each day than existed through all of 2003, via sensors and other devices from mining equipment. This data has been used by miners and equipment manufacturers to track performance and eliminate unforeseen maintenance, resulting in time and monetary savings.
The industry has also started to see a shift towards automation at a rapid pace. Not only has the use of autonomous machines increased, but the complexity of the tasks they can perform and their reliability has also risen. This has had an effect not only on productivity and cost savings, but also on safety, as machines can now perform hazardous or dangerous tasks. The main use of autonomous machines remains in the realm of transportation, as companies have seen a reduction in cost of ownership of 15 to 40 percent (depending on cost of labour) thanks to automated haulage. However, the transition to automation has not always been seamless, for example the software glitches delaying the rollout of Rio Tinto’s $US518 million AutoHaul program in the Pilbara.
The mining industry is likely to benefit from automated contract drafting, with the success of software such as Contract Express, Ariba, Neota Logic and CobbleStone Systems. Blockchain (a form of digital database) is likely to have a profound impact on commerce, including securing smart contracts, which can self-execute for example by automatically releasing payment upon delivery of a good tracked by GPS.
Further, 3D printing is allowing miners to ‘print’ parts on demand where it would not have been feasible to wait for a replacement to arrive.
The law, and clients, are sometimes struggling to keep up with the rapid development of these new technologies and the implications for business. For further reading on these and related issues, click through to the G+T Digital Focus Area.
Health and safety on mine sites
In the last couple of years there has been growing concern about the social cost of FIFO arrangements, identifying punishing rosters and long periods away from home as associated with the growing number of FIFO workers taking their own lives. The WA State Parliament report on the impact of FIFO work practices on mental health was released in June 2015 and made 30 recommendations. A number of these recommendations were to be progressed through the proposed Work Health and Safety (Resources) Bill.
This proposed Bill is still to be presented to Parliament. The DMP released a regulatory impact statement on the proposed Bill in February 2016 and has indicated that there will be a regulatory impact statement and consultation on the regulations that would support the proposed Work Health and Safety (Resources) Act this year.
In the meantime:
- earlier this year the Chamber of Minerals and Energy published the Blueprint for mental health and wellbeing to assist the resources sector in promoting wellbeing in the workforce; and
- the WA Police have been running Operation Redwater, a drug detection initiative in the oil and gas and mining industries, targeting remote worksites in the Pilbara. The latest phase of Operation Redwater (June 2016) saw an extensive 4-day raid of 4 different sites in the area.
As always, mining companies need to remain vigilant about their duties to staff and their responsibility for them while they are at work.
Foreign resident capital gains withholding - more red tape
For agreements signed on and from 1 July 2016, new rules require purchasers of certain taxable Australian property to withhold 10% of the first element of tax cost base (which will usually mean the purchase price, but could mean a higher amount if the parties are not acting at arm’s length) and pay it to the ATO. The relevant taxable Australian property includes:
- real property in Australia with a market value of $2 million or more;
- a valuable lease over real property in Australia with a market value of $2 million or more;
- a mining, quarrying or prospecting right (eg a mining tenement) with a market value of $2 million or more;
- an interest in an Australian entity where more than 50% of its assets include any of the above asset types (ie an indirect interest). Note transactions conducted through an approved stock exchange are typically excluded, although arguably schemes and takeovers are not conducted on the relevant stock exchange for these purposes; or
- a valuable option or right to acquire any of the above asset types.
This is an advance CGT collection mechanism, and a powerful information gathering tool for the ATO. The 10% non-final (ie, the vendor will still need to lodge a tax return) withholding is intended to apply to property only when the vendor is a foreign resident. However, by implication all vendors are assumed to be a foreign resident unless they obtain certification from the ATO that they are not.
An Australian resident vendor of Australian real property needs to obtain a clearance certificate from the ATO prior to signing to ensure they do not incur the withholding (although the ATO have indicated that obtaining clearance prior to settlement is all that is required). For other asset types, a vendor declaration confirming non-foreign residency or that the asset in question is not taxable Australian property may be sufficient.
Changes to the Foreign Investment regime
On 1 December 2015 the new Foreign Acquisitions and Takeovers Act came into force. As with the old regime, subject to certain exceptions, acquisitions of mining and production tenements are notifiable under the Act regardless of the value of the transaction, however all applications now incur significant application fees.
As of 1 July 2016, mining, production or exploration tenement transactions attract a fee of $10,100 or $25,300 and interests in securities in an entity will incur a fee starting at $25,300.