Insights

20/06/16

WA Energy + Resources Update | June 2016

Welcome to the latest edition of the WA Resources Update, your regular newsletter about key developments for the Western Australian mining sector.


ASIC guidance on forward-looking statemens creates headaches for miners

Julie Athanasoff discusses the impact of ASIC's Information Sheet 214 in the mining and resources sector.  Click here to listen to a podcast.


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

As indicated in our article Looking beyond ASIC Information Sheet 214 by Patrick Tydde and Danielle Lukic, there has been considerable backlash amongst the Australian mining industry against ASIC Information Sheet 214 (ASIC Statement).

Since the ASIC Statement has been released, ASX (the disclosure regulator) has required a number of junior mining companies to limit their disclosures regarding scoping studies to statements that the studies are positive and justify the company’s decision to advance the project or proceed to the next stage, such as progressing a feasibility study.  In other cases, ASX has required junior mining companies to retract previous disclosures regarding scoping study results which contain forward-looking statements including production targets, forecast financial information and income based cash flow valuations. The reason given for the retraction is the company’s inability to establish a reasonable basis for securing funding as and when required by the project’s development or production schedules, as required by the ASIC Statement.  Investors have been advised that there is no certainty that sufficient project development funding will be secured for the project and that the economic viability of the project has not been established despite the encouraging results of the scoping study.

While ASIC has publicly stated that it has always been the case that the assumptions underlying forward-looking statements must be based on reasonable grounds and there is nothing new in the ASIC Statement, ASX’s approach to enforcement of disclosures of forward-looking statements by junior mining companies has changed since the ASIC Statement was released.  This is because the current interpretation and guidance by ASIC and/or ASX as to what will constitute reasonable grounds for assumptions underlying production targets, forecast financial information, income based cash flow statements and other forward-looking statements goes further than previously stated in any guidance note published by ASIC or ASX.  

In particular, ASIC comments that unless an entity has reasonable grounds for making statements about scoping studies or preliminary results these should not be disclosed. ASIC’s interpretation appears to be that to establish reasonable grounds to support a forward-looking statement as to a project’s potential viability in a scoping study, an entity must have and disclose objectively reasonable grounds that support the conclusion that funding will become available as and when required by the project’s development or production schedules.  ASIC comments that this concept is covered by the JORC Code’s ‘economic’ modifying factor.

A scoping study is by its nature an order of magnitude technical and economic study of the potential viability of mineral resources.  It is commonly the first economic evaluation of a project and may be based on a combination of directly gathered project data together with assumptions borrowed from similar deposits or operations. The JORC Code already requires an entity to include appropriate cautionary statements when making a disclosure regarding a scoping study to warn investors that the results are based on low-level technical and economic assessments which are insufficient to support estimation of an economically mineable ore reserve or to provide assurance of an economic development case or to provide certainty that the conclusions of the scoping study will be realised, and other appropriate warnings which are generally understood by investors. In addition, Chapter 5 of the ASX Listing Rules contain additional requirements which must be satisfied when reporting on production targets and forecast financial information in any disclosure.

Industry is concerned about the ramifications of the ASIC Statement, 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.  AMEC has raised these concerns with ASIC, and ASIC has agreed to participate in an industry roundtable with industry at the end of June.  
 
For more information please click here to listen to Julie Athanasoff (Partner in Corporate Advisory of Gilbert + Tobin) speak about the ASIC Statement or click here to read our article on ASIC’s Information Sheet 214).

ASX and proposed changes to the admission requirements

The ASX has released its consultation paper proposing to change the admission requirements for entities seeking admission to the official list (click here to see our full article detailing the proposed changes to the ASX Listing Rules). The changes, if progressed, are likely to impact small cap IPO candidates and back-door listings.

In the context of backdoor listings, ASX has already begun to enforce bringing forward the date of suspension of trading to immediately after the transaction announcement. Previously, the suspension would occur from the date of the shareholder meeting, providing the opportunity to gauge the market reaction after the transaction was announced which can in turn assist with the pricing of any capital raising to be undertaken by the entity.

ASX has also commenced restricting entities from accessing a waiver from the '20 cent rule' if that entity’s shares last traded at a price less than 2 cents (a proposed addition to the ASX Guidance Note 12's criteria to access the waiver). Those entities will need to consolidate their share capital in a backdoor listing.

Further, the ASX proposes to:

  • increase the threshold of the ‘assets test’ to net tangible assets of at least $5 million (after deducting the costs of fundraising), or a market capitalisation of $20 million (currently $3 million and $10 million respectively);

  • introduce a requirement for entities seeking admission under the assets test to produce audited accounts for the last 3 full financial years, in line with entities seeking admission under the profits test;

  • introduce a 20% minimum free float requirement, with free float to be defined by ASX as those securities which are not restricted securities or subject to voluntary escrow and held by non-affiliated shareholders (currently 10%);

  • increase the profits test to consolidated profits of $500,000 for the 12 months prior to admission (currently $400,000); and

  • standardise admission requirements for all entities admitted under the assets test by requiring them to have at least $1.5 million in working capital after taking into account the entity’s first full financial year’s budgeted revenue, administration costs and the cost of acquiring any assets referred to in the prospectus (to the extent that those costs will be met out of working capital). Currently this requirement only applies to oil and gas exploration entities.

The proposed increase of the net tangible asset threshold from $3 to $5 million under the ‘assets test’ is likely to have a significant impact on the ability of junior mining companies to proceed with a listing. Most junior mining companies seek to be admitted to the official list of ASX on the basis of their net tangible assets given that they are unlikely to have generated any substantial profits. As acknowledged in the consultation paper, admission under the ‘assets test’ test has provided a pathway for resources entities in the exploration phase of their life cycle and other entities in the early stage of their life cycle to list and raise funds when other sources of funds may not be available. If implemented, the amendments to the net tangible asset threshold have the potential to further contribute to the decline in Australian mineral exploration we have witnessed in recent years.

Submissions are due to ASX by 24 June 2016. It is expected that final changes to the Listing Rules will be released in early August 2016, and will come into effect on 1 September 2016.


Looking beyond ASIC Information Sheet 214

By Patrick Tydde and Danielle Lukic

The media has recently reported considerable backlash to the ASIC Information Sheet 214 (ASIC Statement) issued in April 2016 relating to forward-looking statements made by mining companies.  The ASIC Statement provides guidance on what information can be included in forward-looking statements.  Industry bodies have criticised what they perceive to be overly onerous disclosure requirements, which limit the information that can be released to the market by mining companies and are said to impinge on a company’s ability to raise funds.

However, mining companies need to be aware that, notwithstanding the ASIC Statement, any forward-looking statements made by it, whether predictive or aspirational in nature, must be based on reasonable grounds.  Otherwise the making of that statement may amount to misleading or deceptive conduct in contravention of the Australian Consumer Law (ACL) or the Corporations Act 2001 (Cth) and expose the company to shareholder class actions. 

The ASIC Statement concerns forward-looking statements made by mining or exploration companies.  Those statements include production targets (i.e. forecasts of future mineral extraction), forecast financial information or discounted cash flow valuations.  The ASIC Statement was intended to give guidance on, among other things, the legal requirement that any forward-looking statement be based on reasonable grounds.  For a further discussion of the ASIC Statement, please see the article in this Newsletter entitledRegulator rumble: ASIC and ASX to clamp down on juniors.

The ASIC Statement comments that the question of whether a mining company has reasonable grounds for making forward-looking statements of the nature set out above is informed by the relevant professional and industry standards, such as the JORC and VALMIN codes. 

ASIC has stated that an up-to-date and correctly estimated ore reserve estimate is sufficient to establish reasonable grounds for a forward-looking statement.  However, a mineral resource estimate is not sufficient because the JORC definition of mineral resource was not sufficiently rigorous. Further, the disclosure of production targets and forecast financial information based solely on exploration targets, or solely or partly on 'historical' or 'foreign' estimates of mineralisation would not amount to reasonable grounds as the information was too conceptual, speculative and unreliable. 

In the context of project valuations, the material assumptions underlying the forward-looking statement must be specific, not speculative or hypothetical.  That is, a hypothetical net present valuation of a project’s worth based on an assumption that funding would be provided by a third party was likely to be misleading.
 
There has recently been considerable criticism of the ASIC Statement by industry bodies who assert that it has the effect of limiting the ability of mining companies to encourage investment to fund further exploration and development.  In particular, AMEC has stated that broad ramifications arose from the ASIC Statement as it (i) “created a greater level of uncertainty surrounding ‘secure funding’, and will therefore undermine market integrity and confidence”; (ii) “could starve the industry of future capital and send companies offshore for capital”; and (iii) could put at risk "significant future economic, financial and social dividends provided by the resources sector”.

However, it is important to remember that the ASIC Statement does not alter the law concerning misleading or deceptive statements.  That is, any statement as to a future matter that is made without reasonable grounds will be taken to be misleading in contravention of the ACL and the Corporations Act.

That extends to what ASIC refers to as an “aspirational statement” (described as a statement about a company’s present intention for the future with no predictive nature) which must also be based on reasonable grounds, notwithstanding the fact that ASIC has suggested otherwise in the ASIC Statement.  For example (using an example of an “aspirational statement” from the ASIC Statement) a statement that an entity would not consider a project with less than a specified mineral resource will be misleading if the specified mineral resource was in fact lower than the resource threshold required by the company.

The potential for a claim of misleading or deceptive conduct now takes on an increased significance following the recent NSW Supreme Court judgment in the case of Re HIH Insurance Ltd (in liq) [2016] NSWSC 428 which may open the floodgates to shareholder class actions relating to misleading company statements.  That decision confirmed that it is no longer necessary for shareholders in Australia to prove that they actually relied on a company’s misleading statement to establish a claim for misleading or deceptive conduct.  Instead, the Court decided that it was enough for a plaintiff shareholder to prove that the company’s share price was distorted by the misleading statement at the time the shares were purchased by the shareholder.

Accordingly, even if ASIC does retract from the position taken in the ASIC Statement, as has been urged by some commentators, the potential to be on the receiving end of a shareholder class action for misleading or deceptive conduct ought to be enough to convince mining companies to exercise great caution before making any forward-looking statements, to ensure there are reasonable grounds for those statements which can be objectively substantiated.


Reservations Only - Labor's proposed National Gas Reservation Policy

By Emily Tsokos

  • The Australian Labor Party has proposed a new national gas reservation policy if it wins the upcoming federal election.
  • Any new LNG export facility, significant expansion of an existing natural gas export facility or a significant material expansion of supply will need approval from a new FIRB-styled Domestic Gas Review Board.
  • The Domestic Gas Review Board will assess if the project is in the “national interest”.
  • Western Australia is the only state with an active domestic gas reservation policy of 15% LNG equivalent for a project.  The ERA has recommended it be rescinded.
  • The new national policy will, if implemented, impose additional regulation on investors and has the potential to act as a disincentive to foreign investment, exploration and innovation.  Even though it is likely to see lower East Coast domestic gas prices in the short term, there is potential for it to increase prices and lessen supply in the long-term.
  • This proposed policy raises issues around Australia’s energy security for all industries.

Overview

With the accelerated development of the LNG industry in Australia and more recently, the new phase of LNG exports from Queensland, the issue of national gas reservation has re-emerged with the announcement of Labor’s proposed national gas reservation policy.

The current position

The Commonwealth Government has previously stated that it does not support a domestic gas reservation policy as it would have negative consequences for the economy.1 The ACCC has recently supported this assertion in the East Coast Gas Inquiry Report.2 A key finding was recommending against domestic gas reservation policies.3 The report stated that in the short term, although such policies may reduce prices for domestic users as additional gas is forced onto the domestic market above efficient market demand, these artificially reduced prices weaken the economic incentives for further gas exploration and appraisal.4

Labor's proposed national gas reservation policy

Labor has outlined a domestic gas reservation policy that it proposes to implement if it wins the Federal election in July.5

Under this policy a project proponent of:

  • any new LNG export facility;
  • significant expansion of an existing natural gas export facility; or
  • a significant material expansion of supply,

will need to apply to the newly established Domestic Gas Review Board for approval of the proposed project.6  No further details have been provided at this stage.  It is likely that “export facilities” would extend to floating LNG facilities and “significant expansion” would include the construction of additional LNG trains.

The Domestic Gas Review Board will consider a project proponent’s application, having regard to whether the application is in the “national interest”.7  “National interest” is currently defined as taking into account a cost-benefit analysis that considers economic, strategic, social, regional, industrial and employment impacts, as well as the maintenance of a strong and viable natural resources industry.8  There are obvious parallels between this process and an application to the Foreign Investment Review Board which also makes determinations as to what is in “the national interest”.9

The policy also notes that the Domestic Gas Review Board will take into account State based regulations and determinations, including decisions in those States that already have reservation policies in place.10  It is not clear whether a commitment to provide domestic gas pursuant to a State policy will offset a national commitment or what level of commitment will in fact be required.  It also raises interesting questions for the future of offshore floating LNG facilities, which are purpose built for LNG offshore with no domestic gas infrastructure.  Will these projects be required to transport gas onshore for input into the domestic gas network or will a gas swap system be implemented for these types of projects?

The Domestic Gas Review Board will make recommendations to the Treasurer, who shall seek advice from the Minister for Industry and Minister for Resources before making a decision.11

The debate

APPEA is strongly opposed to the idea of a domestic gas reservation and Labor’s proposed policy, stating that it will discourage rather than stimulate investment in Australia’s gas reserves.12

Although opinions on the policy are generally divided between gas producers and major gas users, Fortescue Metals Group has come out against the policy and instead supports a stricter interpretation of offshore petroleum retention lease rules.13

The opposing view is that the LNG export industry has contributed to rising gas prices, has the unintended side effect of placing domestic gas supply at risk and increasing the price of gas for Australian manufacturers and households.14 

The essence of the debate is a choice between letting the market decide the price of domestic gas (where the East Coast market is now pegged to an international LNG net-back price), or government intervention to secure domestic gas for Australian industry and households at a subsidised price.

It is also noted that as a member of the World Trade Organisation, Australia is a party to the General Agreement on Tariffs and Trade (GATT) and questions have been raised previously as to whether a domestic gas reservation policy would in fact be in breach of GATT.15  If the national gas reservation policy were to be implemented, the limits of the policy and Australia’s GATT obligations may be subject to scrutiny.

The Western Australian experience

Western Australia introduced a domestic gas reservation policy in 2006 to ensure that sufficient supplies of gas were available to underpin Western Australia’s long term energy security and economic development.16  LNG participants are required to reserve the equivalent of 15% of LNG production from each export gas project (which can be offset from sources other than the fields producing the exported gas).17  This requirement to provide domestic gas is tied to a project proponent’s access to land.  The North West Shelf, Gorgon and Pluto projects currently provide domestic gas to Western Australia and when completed, the Wheatstone project will also provide domestic gas.  Prelude and Ichthys, although offshore Western Australia, operate in Commonwealth waters and are outside the scope of Western Australia’s domestic gas obligations.  The Browse project (currently on hold due to project economics)18 has also made domestic gas commitments.

In 2014, the Economic Regulation Authority reviewed the operation of the WA policy,19 and recommended that it be rescinded as soon as practicable.20  The ERA stated that policy intervention can only be justified if there is some market failure that has been identified and that higher prices are a function of free market dynamics, and not in themselves, a market failure.21  It also stated that the policy reduced the incentive for investment in the gas industry, inhibited efficiency and innovation and assisted uncompetitive industries at the expense of investment in other sectors.22

Legislation was introduced in Queensland in 2011 that requires acreage to be reserved for gas to be supplied to the domestic market, although this has not been utilised.23  No other states or territories currently have domestic gas reservation policies.24

Conclusion

In the current era of low commodity prices and increased international competition for investment capital, the increased regulatory burden of a national gas reservation policy appears to be a risky move.  This is particularly so given the subjective nature of the FIRB-style “national interest test” and potential for projects that have already taken FID to have economics reassessed.

Bringing more gas into the market is considered by both sides of the debate to be an effective way to keep gas prices down. However, the reservation policy may be a disincentive to explore for new gas fields. 

It must also be noted that continual subsidising of uncompetitive industries may not encourage established industries to innovate, which is at odds with Australia’s current focus on innovation and the benefits it can bring to the economy.25  Even though a domestic gas reservation policy will see lower domestic gas prices in the short term, it may increase prices and lessen supply in the long-term.

What is certain, however, is that a discussion over gas supply in the broader context of energy security is an important issue for all sectors of the Australian economy.

Footnotes

1 Australian Commonwealth Department of Resources, Energy and Tourism, Energy White Paper, Canberra, 2012,http://ewp.industry.gov.au/sites/prod.ewp/files/EnergyWhitePaper.pdf - accessed 3 June 2016.
2 Australian Competition & Consumer Commission, East Coast Gas Inquiry Report, April 2016https://www.accc.gov.au/system/files/1074_Gas%20enquiry%20report_FA_21Ap...– accessed 3 June 2016.
3 Ibid, 8 and 67-68.
4 Ibid.
5 The Australian Labor Party, A National Interest Test for Australia’s Gas - Labor’s 100 Positive Policies –http://www.100positivepolicies.org.au/a_national_interest_test_for_austr... accessed 1 June 2016.
6 Ibid.
7 Ibid.
8 Ibid.
9 Foreign Acquisitions and Takeovers Act 1975 (Cth) and Guidance Note 23, November 2015.
10 Ibid.
11 Ibid.
12 APPEA Media Release, Labor’s “national interest test” fails gas consumers, 18 May 2016http://www.appea.com.au/media_release/labors-national-interest-test-fail...
13 P Garvey, ‘Federal election 2016: policy dividing WA’s gas industry’, The Australian, 19 May 2016.
14 Labor, n 5.
15 NSW Parliamentary Research Service, Gas: resources, industry structure and reservation policies, Briefing Paper No 12/2013, December 2013, 93-98.
16

 

The Government of Western Australia – Department of Premier and Cabinet, Western Australian Policy on Securing Domestic Gas Supplies, 2006.  Prior to 2006, domestic gas supply obligations and prices were provided under state agreements with the North West Shelf.
17 This offset option has not been utilised by any project.
18 M Chambers ‘Woodside Shelves Browse FLNG Project Amid Low Oil Prices’, The Australian, 24 March 2016.
19 Economic Regulation Authority, Inquiry into Microeconomic Reform in Western Australia: Final Report, presented on 30 June 2014 and tabled on 28 July 2014.
20 Ibid, 383.
21 Ibid, 382.
22
 
Ibid, 355-356.  In contrast, the WA Economic and Standing Committee, after a review of the domestic gas policy in relation to the challenges and opportunities posed by floating LNG, recommended that it be retained: Western Australia Legislative Assembly - Economics Industry and Standing Committee, The Economic Impact of Floating LNG on Western Australia,  Report No 2, May 2014, p 225.
 
23 Petroleum and Gas (Production and Safety) Act 2004, s 175A - A Prospective Gas Production Land Reserve would require gas produced from the land to not be supplied other than to the Australian market.
24 In 2012 New South Wales briefly considered adopting a domestic gas reservation policy, but this was not taken further.
25 Australian Government Department of Industry, Innovation and Science, Australian Innovation System Report, 2015.

Transient Workers Accommodation rates may be capable of being challenged

By Marshall McKenna

The State Administrative Tribunal recently overturned the Valuer General’s assessment of the gross rental value (GRV) for a remote transient workers’ accommodation facility.  Any GRV assessed on a ‘comparable’ basis rather than on the ‘assessed value’ may be vulnerable.
 
Additionally, an ‘assessed value’ based on depreciated values of accommodation units and other facilities that were derived from accounting allocations (given that the whole facility was constructed under a lump sum EPCM contract and no values were attributable to any particular building etc) was held to be valid.
 
Finally, there is an anomaly in the valuation of Land Act that means that the valuation of a portion of a miscellaneous license granted under the Mining Act may be higher than the valuation of the whole.  Accordingly, consideration should be given to whether a ‘specific purpose’ miscellaneous license ought be used for the construction of  transient workforce accommodation facilities (TWAs) rather than using portion of a ‘multipurpose’ license.

GRV vs Assessed Value

From 2013, Local Governments became entitled to levy rates in relation to TWAs on a ‘gross rental value’ rather than on the ‘unimproved value’ of the land on which they are situated.
 
A challenge to the process for implementing that policy was disallowed,but more recently, a challenge to the Valuer General’s assessment of the gross rental value of a remote TWA was upheld by the SAT. 
 
All rates are based on the value of the land in question.  Prior to 2013, rates for mining facilities were assessed on the basis of the unimproved value of the land upon which they were situated.  Given the remote location of many TWAs, the unimproved value applicable to them is low.  Following a change in policy, assessment of TWAs was to be undertaken on a GRV basis.  This resulted in at least one instance of rates increasing 100-fold.
 
The GRV of a property is assessed, if possible, on the hypothetical scenario of what a willing tenant would pay a willing landlord.  In urban settings, this is most commonly done by reviewing the actual rents paid in relation to comparable properties and inferring what a reasonable rental value would be for the property from that data.  As not all properties are identical, there can be reasonable adjustments made to reflect any differences between the ‘comparable’ properties and the ‘assessed’ property. 
 
The valuation of TWAs by reference to rentals paid in relation to comparable facilities can be difficult as there are few TWAs that are leased rather than owner operated.
 
In the case of CITIC Pacific Mining Management Pty Ltd v Valuer GeneralSAT considered the validity of assessing the GRV of a remote facility with 3 much smaller facilities.  The Eramurra facility was located approximately 110 kilometres south and east of Karratha and housed in excess of 1600 workers.  The facilities relied on by the Valuer General were located within the townships of Karratha and Roeburne respectively and contained between 16 and 48 accommodation units.
 
The argument in the case turned on the validity of using ‘comparables’ that were located a significant distance from each other, were not of the same size and not of the same standard in amenities. The Valuer General asserted that each factor could be the subject of a ‘reasonable’ adjustment.  CITIC argued that in the circumstances, the adjustments were so significant as to be guesswork and therefore not ‘reasonable’.
 
In short, the SAT decided that the differential in size was fatal to the potential to compare the facilities in question.  The remoteness of the Eramurra facility as compared with the other facilities was also a significant issue.  However, any difference in amenity could be the subject of an adjustment.

Calculating Assessed value

Accordingly, the SAT then replaced the ‘comparable’ valuation with an ‘assessed' valuation in accordance with the Valuation of Land Act. 
 
Assessed value is 5% of the capital value of the land. Capital value is in turn defined to be the unimproved value of the land plus the depreciated replacement costs of the facility in question.  In this case, the facility was constructed under an EPCM contract and the value of that contract was allocated to buildings rather than necessarily to each item that formed part of the accommodation.  For example, values were allocated to accommodation, mess and other facilities but not to roads, cabling and other infrastructure. 
 
The SAT decided that, absent evidence that the method used understated the replacement of costs of the facility (and there was no admissible evidence presented to that effect) it could use the figures allocated by the mining company to calculate the depreciated replacement cost.

An anomaly?

In determining the unimproved value of the land upon which Eramurra is situated, there is a statutory method for calculating the unimproved value of any mining tenement, being 5 times the annual rent of the tenement (in this case, $42,428).  On the other hand, if land that is being assessed does not fall within any other definition, it is to be assessed on the basis of freehold (which was agreed to be approximately $6M). 
 
SAT held that the section that applies to mining tenements did not apply in this case as the Eramurra facility was constructed on only part of a mining tenement.  Accordingly, it may be worth considering whether a TWA ought to be constructed on part of a multipurpose licence or on a specific purpose licence given that this could result in a significant valuation differential.

What does this mean for holders of TWAs

The valuation for the Eramurra facility was reduced from slightly more than $12M to approximately $3.4M.  That resulted in an effective rate reduction of more than two thirds.
 
Tenement holders will shortly be receiving rate notices. Rate reductions of the magnitude identified above will not be achievable in all cases, but there is significant potential for review of the Valuer General’s current methodology, which may result in significant cost saving.  There are time limits within which one can challenge a valuation, so it may be worth reviewing the assessed value of any TWAs so that decisions can be made promptly after receiving rate notices.

Footnotes

1 Pastoral Management Pty Ltd v Minister for Local Government [2014] WASC 378

2 [2016] WASAT 23


Validity of renewed licences - the current state of play

By Marshall McKenna

The decision of the Full Federal Court in State of Western Australia v Graham on behalf of the Ngadju People clearly mandates the process of renewals undertaken by the State of Western Australia in relation to mining tenements for the purposes of the Native Title Act 1993 (Cth) (NTA).  There is, however, an application for special leave to appeal to the High Court outstanding in that matter and an undecided case on the renewal of pastoral leases which together means the question of validity of renewed mining tenements has yet to be comprehensively decided.
 
It is likely that renewal of an interest granted under a statute is a valid renewal for the purposes of the NTA, notwithstanding that there may have been a change in legislation that, by extension, changes the rights available under the statutory license. That is, the right to negotiate process is not applicable to renewals of such tenements. The position may be different if one statutory license is replaced with a different form of statutory license that allows significantly different activities to be undertaken (for example, substitution of a Range Lands Lease under the forthcoming legislation instead of a Pastoral Lease).

The Ngadju Case

The Full Court's decision in the Ngadju case arose in the context of a prior decision of Justice Marshall1 to the effect that mining leases and other tenements granted under a particular state agreement had not been validly renewed for the purposes of the Native Title Act. The key reasoning of Justice Marshall was that tenements granted under a particular state agreement carried with them significantly greater burdens and obligations than tenements granted under the Mining Act.
 
The Full Court decided that his Honour had proceeded from an incorrect basis and that the correct analysis was that no tenements had been granted under any state agreement at all. Rather, in the Full Court’s view, all of the relevant tenements were authorised or facilitated by the State Agreement but the power to grant them arose under and was exercised in accordance with the Mining Act 1978 or the Mining Act 1904.2
 
This conclusion arises because of the particular wording of the relevant State Agreement. The decision is likely to apply to most State Agreements, but not all State Agreements are in the same form and is possible that some tenements have in fact been granted under a State Agreement rather than under the Mining Act.
 
Equally important, the Full Court held that the nature of a mining tenement is not a proprietary interest in land. This follows a line of authority which is certainly applicable in relation to duties cases,3 but which seems somewhat counterintuitive in describing the nature of the rights and interests granted to the holder of such a tenement. That is, while it is difficult to see how a right to occupy land for long periods for the purpose of, and with the entitlement to, mine is other than a possessory interest, the Courts appear to regard it as a mere licence.
 
The consequences of the Ngadju case, subject to the application for special leave to appeal, are that renewals of mining tenements granted under State Agreements are likely to be treated as renewals of mining tenements generally for the purpose of the Native Title Act. That is, there is no need to engage in the ‘right to negotiate’ process under the Native Title Act in relation to the renewal or re-grant of mining tenements.
 
An application for special leave has been lodged.  It is likely to be heard in the next few months and will almost certainly be heard before the end of the year.  If special leave is not granted then the position in Ngadju is likely to be considered to be the prevailing law, subject to the following comments.

The Tijwarl case

A lesser known but interesting case that is that of Tjiwarl v Western Australia.  The trial is complete and Justice Mortimer has reserved her decision, which is likely to be delivered in the next few months.
 
A key issue in that case is the question of whether the renewal of pastoral leases in 2015 was a permissible renewal for the purposes of the NTA.  The basis of the argument is that the applicants in that case say that many pastoral leases that fell due for renewal were granted under the Land Act 1933, and the pastoral leases that were reissued were granted under the Land Administration Act 1995.  It is asserted that a pastoral lease under the 1995 Act creates a greater proprietary interest than the original lease. This is because (it is alleged) additional activities may be undertaken under a pastoral lease granted under the 1995 legislation.  The State has, consistently with its position in Ngadju, submitted that a pastoral lease does not create any proprietary interest in land but is a mere licence to undertake activities (i.e. like a mining tenement), and in any event, if there is a proprietary interest and if it has ‘expanded’, it expanded on the enactment of the 1995 Act.4
 
On one view, the decision in the Ngadju case requires her Honour to reject the applicants' submissions and to hold that the pastoral lease renews were compliant with the provisions of the Native Title Act.  If she holds otherwise, there will be significant doubt as to the scope and effectiveness of the Ngadju ruling.

What does this mean for your tenements?

The key issue here is that certain sections of the Native Title Act are only now being the subject of close judicial consideration. Part of that consideration overlaps with the question of definition of the nature of a mining tenement, which was still a matter of controversy as recently as 2010.
 
There is likely to be some uncertainty in this area while the more obscure points of the interpretation of the Native Title Act are considered in the next few years. In the meantime, some consideration needs to be given to the applicable process for the renewal of mining leases, particularly where the renewal is of a tenement initially granted under the Mining Act 1904, if granted in accordance with a State Agreement (regardless of whether the grant is under the State Agreement or under the Mining Act) or where the entitlements under the tenement have changed over time (i.e. where conditions or entitlements are changed after the date of grant).  However, for the time being, the State of Western Australia will not be requiring parties renewing mining tenements to participate in the right to negotiate.

Footnotes

1 As with the replacement of the Mining Act 1904 with the Mining Act 1978, the Land Administration Act 1995 has transitional provisions which deem interests granted under the 1993 Act to be equivalent interests under the 1995 legislation.
2 See Graham on behalf of the Ngadju people v State of Western Australia [2014] FCA 1247.
3 For technical reasons, the Full Court held, in effect, that there is no difference in the rights that arose under the Mining Act 1904 and the Mining Act 1978
4 See Tec Desert Pty Ltd Commissioner of State Revenue of WA (2010) 241 CLR 576; [201] HCA 49 at [27] – [47]; See tooCommissioner of State Revenue v Oz Minerals(201) 46 WAR 156;[2013] WASCA239 at [109]
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