Commencement of the Resource Legislation Package in NSW

We recently published an article on the Resource Legislation Package passed by the NSW Parliament on 2 November 2015.

The Resources Legislation Package is made up of five separate pieces of legislation which make extensive changes to the Mining Act 1992 (NSW) (Mining Act) and Petroleum (Onshore) Act 1991 (NSW) (Petroleum Act).  The following parts of the reform package came into effect on 18 December 2015.

All sections of the Mining and Petroleum Legislation Amendment (Grant of Coal and Petroleum Prospecting Titles) Act 2015 (NSW) commenced except for one minor provision related to opal mining. Most importantly, this means that the new process for allocating coal and coal seam gas titles will now apply.  As a result, the direct allocation of an exploration licence for coal will be limited to circumstances where the application is made by an existing holder of a exploration licence, assessment lease or mining lease for an ‘operational allocation purpose’.

The Mining Amendment (Licences for Operational Allocation Purposes) Regulation 2015 (NSW) which amends the Mining Regulation 2010 (NSW) (Mining Amendment Regulation), together with the ‘Guidelines for coal exploration licence applications for operational allocation purposes’, also commenced on 18 December 2015 and prescribes the following as ‘operational allocation purposes’:

• in relation to applications by holders of exploration licences or assessment leases – the purpose of both developing a better mine design proposal and recovering coal resources that would otherwise be likely to be sterilised, and
• in relation to applications by holders of mining leases, each of the following: 
• the purpose of extending the life of a mine 
• the purpose of developing a better mine design
• the purpose of recovering coal resources that would otherwise be likely to be sterilised, and
• the purpose of obtaining an exploration licence for coal over the subsoil above or below the stratum to which the mining lease concerned relates or over the surface above the land to which that mining lease relates. 

The Mining Amendment Regulation also provides that:

• an application for an ‘operational allocation purposes’ can only be sought over a maximum surface area of 33% of the area of the land to which the existing exploration licence, assessment lease or mining lease concerned relates, and
• with reference to clause (b)(iv) above, the boundary of subsoil or the surface area of the land to which the application relates must not exceed the boundary of the area of land to which the mining lease concerned relates.  

One section of the Mining and Petroleum Legislation Amendment (Harmonisation) Act 2015 (NSW) commenced enabling the beneficial use of gas on an exploration licence or assessment lease.

Limited sections of the Mining and Petroleum Legislation Amendment (Land Access Arbitration) Act 2015 (NSW) commenced enabling seismic works under either an exploration licence or assessment lease (Mining Act) or petroleum title (Petroleum Act) on a road without owner’s consent.

The remaining sections of the above legislation are yet to commence.

Petroleum (Onshore) Amendment (Beneficial Use of Gas) Regulation 2015 (NSW) commenced under the Petroleum Act.  This new regulation amended the Petroleum (Onshore) Regulations to enable the beneficial use of gas on an exploration licence or assessment lease following the commencement of the relevant section of the Harmonisation Act.

As noted in our previous publication, the Protection of the Environment Operations Amendment (Enforcement of Gas and Other Petroleum Legislation) Act 2015 (NSW) commenced 1 December 2015.

The Work Health and Safety (Mines and Petroleum) Legislation Amendment (Harmonisation) Act 2015 (NSW) has still not commenced.  

Samantha Daly, Kate Swain

US investigation into BHP Billiton concluded

• $25 million civil penalty imposed

• No findings of corrupt intent or bribery

• Remedial efforts to enhance compliance program and full cooperation by the company acknowledged

After a lengthy investigation by the U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) relating to potential breaches of anti-corruption laws which began in 2009, global resources company BHP Billiton announced this week that the matter had been resolved.

The investigation by the US regulators primarily related to the company’s minerals exploration and development efforts and its hospitality program in connection with its sponsorship of the 2008 Beijing Olympic Games.  BHP Billiton cooperated fully with the SEC and DOJ since the investigation began and has since developed a world class anti-corruption compliance program.

The SEC imposed a civil penalty of US$25 million (which is relatively low in comparison to the penalties imposed in the top 10 enforcement actions for breaches of US anti-corruption laws ranging from US$185 million to US$800 million).  Interestingly, the SEC made no findings of corrupt intent or bribery by BHP Billiton.  The DOJ completed its criminal investigation without taking any action.

The SEC noted that the settlement ‘reflects BHP Billiton’s remedial efforts and cooperation with the SEC’s investigation’.  The company is required to report to the SEC on the operation of its compliance program for a 12 month period.

The SEC found that BHP Billiton failed to devise and maintain sufficient internal controls over its hospitality program in connection with its sponsorship of the Beijing Olympics, where the company invited 176 government officials and employees of state-owned enterprises to attend the Games.  Sponsored guests mainly from Africa and Asia were provided with hospitality packages that included event tickets, luxury hotel accommodation, and tours.

The SEC stated in its cease-and-desist order released earlier this week that, ‘as a result of its failure to design and maintain sufficient internal controls over the Olympic global hospitality program, BHP Billiton invited a number of government officials who were involved with, or in a position to influence, pending negotiations, efforts by BHP Billiton to obtain access rights, or other pending matters’.
The company stated publically that while it made efforts at the time to address the risks relating to inviting government officials to the Olympics, the controls it relied on were insufficient to satisfy the internal accounting controls requirements of the US anti-corruption laws.

Mining and resources companies, particularly those operating in high risk countries, should ensure that they have adequate procedures in place to manage the corruption risk associated with giving gifts, meals and entertainment to government officials, especially where the official is in position to influence pending negotiations or decisions regarding the grant of mining and petroleum licences. 

If anything of value is given or offered to government officials, it should be appropriate in the circumstances, having regard to whether any other things of value have been given to the government official in the previous six months, whether it is of an appropriate value and nature considering the government official’s position and whether it serves only a legitimate business purpose.

Since the commencement of the US investigation, BHP Billiton has undertaken the following significant remedial action, which was important in demonstrating its strong culture of compliance and its commitment to operating to the highest standards:

• creating an independent compliance function that reports to the head of the legal function and the Risk and Audit Committee of the board
• enhancing its policies and procedures regarding hospitality, gift giving, use of third party agents and business partners and other high-risk areas
• enhancing its financial and auditing controls
• conducting extensive employee training globally on anti-corruption issues, and
• overhauling its processes for conducting internal investigations of potential violations of anti-corruption laws.

Tiffany McLean

ICAC recommends fundamental changes to exploration licence approval process

On 30 October 2013, the Independent Commission Against Corruption (ICAC) provided its report to Parliament titled ‘Reducing the opportunities and incentives for corruption in the State’s management of coal resources’.  The Commission’s report makes 26 recommendations to prevent and minimise the reoccurrence of corruption as identified in recent ICAC investigations into the granting of exploration licences (ELs) in NSW.

Key recommendations

The key recommendations made by ICAC include:

• the development of a set of predetermined factors to provide guidance in the release, allocation and development of NSW coal resources
• the establishment of a steering group chaired by the NSW Department of Planning and Infrastructure and made up of senior public servants from the Resources and Energy Division of the Department of Trade and Investment, Regional Infrastructure and Services, the Department of Planning and Infrastructure and the NSW Treasury to develop a protocol for the release and allocation of ELs
• the establishment of an assessment panel comprised of experts from the departments identified above to provide further technical information and analysis to the steering committee and to provide a triple bottom line assessment of the environment, social and economic factors of allocating an EL in a particular area
• the assessment panel should conduct technical analysis of preferred companies to determine if each company has the technical expertise to undertake the exploration activities and analysis of their financial position for their capacity to fund exploration work
• the  Government’s decisions on the release of mature areas for ELs and the auction of those ELs should be linked to the likelihood of approval to mine
• the auction method should be the preferred approach to allocating the State’s coal resources and this auction process should be overseen by the New South Wales Treasury.  Where direct allocation is appropriate, it should be the subject of oversight by an assessment panel comprised of practitioners with relevant expertise from the key departments
• the current renewal of ELs should be replaced by exponentially escalating lease rent, allowing commercial decisions to be made in an environment of certainty, removing the incentives to renew ELs repeatedly without progressing to mining, and
• the development of a transitional regime for moving all existing ELs to this rent based arrangement.

Implications for current tenement holders

The following significant implications arise as a result of these recommendations:

• the renewal of ELs in the future may be subject to exponentially increasing rent arrangement whereby the tenement holder is required to increase payments to the NSW Government each time the EL is renewed
• the existing practice of sitting on tenements for extended periods of time without meaningful steps being taken to develop the resource is unlikely to be possible under the proposed regime
• an auction process may be applied to grant the majority of ELs which means that the company with the highest cash bid or highest exploration work program will be awarded the EL
• if preliminary exploration in a particular area does not fall within the strategic assessment areas recommended by the NSW Department of Planning and Infrastructure, there is potential that future ELs will not be granted over the area, and
• there will be a more stringent analysis of the technical and financial capabilities of a preferred company to carry out and fund the exploration activities before an EL is granted.

Direct allocation

Importantly, ICAC recognises that in some situations direct allocations will continue to be necessary but there should be greater oversight of the direct allocation system.  Specifically, the ICAC recommends the assessment panel adopts a ‘triple bottom line’ approach when advising on direct allocations.  Potential arguments identified in the ICAC report for direct allocation applications include when the applicant mining company:

• is seeking an EL in close proximity to its existing operations
• is the only mining company interested in the resource, or
• can better serve the wider interests of the government by the innovative work programs they are proposing.

On this basis, mining companies may still be able to obtain ELs through direct allocation but any new regime for granting ELs is likely to place significant constraints on this allocation process.

Next stage

The recommendations will be provided to the relevant public authorities for consideration, with a response required within three months prior to any plan of action being implemented. 

Samantha Daly, Patrick Holland, Brendan Tobin, Kate Swain

New initiatives to assist junior explorers

Flow-through capital raising, the new JORC code and the first ever non-cash tender for coal exploration were the hot topics at the Mining 2013 Resources Convention held in Brisbane this month.

McCullough Robertson’s Resources Group attended the Convention from 23 to 25 October 2013.  It was an opportunity to review the state of the sector and discuss the challenges and opportunities ahead, particularly those facing junior explorers.  This post covers some of the key themes of the conference.

Tax credit scheme

The Federal Government has expressed its commitment to introduce an Exploration Development Incentive benefiting exploration companies.

It will introduce an incentive that will allow investors to deduct the expense of mining exploration against their taxable income, starting on 1 July 2014. 

The scheme is expected to target small exploration companies by limiting eligibility to companies with no taxable income and will be capped at $100 million over the forward estimates.

McCullough Robertson Commercial and Tax Partner Hayden Bentley shares his thoughts on this issue during Day 1 of the Convention. 

First ever non-cash tender for coal exploration

During the conference, the Queensland Minister for Natural Resources and Mines, Andrew Cripps announced the first ever non-cash tender for coal exploration.  The seven areas of land being made available for coal exploration by the Department of Natural Resources and Mines (DNRM) collectively cover more than 1,292 square kilometres in the northern Bowen Basin.

DNRM officers will assess applications for this land based on the competitiveness of the ‘work programs’ submitted by explorers, but there will be no requirement for cash bids to be made.  Interested parties have until 2.30pm on Wednesday 5 March 2014 to lodge their tender applications.

McCullough Robertson Corporate Special Counsel Warwick Walsh discusses this announcement as well as issues around accessing capital for exploration and international investment in the sector during Day 2 of the Convention. 

Corporate update - the new JORC Code

A key topic of the conference was the new JORC Code and ASX Listing Rules relating to the disclosure of reserves and resources by ASX-listed mining and oil and gas exploration and production companies that will come into effect on 1 December 2013.  More information about this issue, a well as flow-through capital raising and continuous disclosure obligations around analysts' briefings that has seen Newcrest Mining feature frequently in the news lately, is detailed in the Corporate Update presentation delivered at the conference by Corporate Partner Isaac West and Hayden Bentley.

Click here to launch our Mining 2013 Resources Convention presentation for more information.

Hayden Bentley, Isaac West, Warwick Walsh