Pitcher Partners urges small miners to reconsider compliance

By admin - November 28, 2017

High Court action “a wake-up call” to consider risk profile of the sector

Smaller mining companies have been put on notice to be wary of compliance with mining company law, as notices begin to arrive informing more than 50 Western Australian miners that their often long-standing lease applications will be declared null and void.

The notices have been sent by the Department of Mines, Industry Regulation, and Safety to miners whose lease applications are now deemed invalid after a High Court decision that has sent shockwaves through smaller explorers.

The crux of the decision is that all documents required to be lodged when seeking a mining lease, including a mineralisation report, have been lodged at the same time as the application rather than in the weeks or months afterwards.

The decision, known as Forrest and Forrest Pty Ltd v Wilson, has seen the Department reportedly poring back through records to investigate applications and leases granted over 11 years.

And many smaller resources companies are now scrambling to review leases they thought were secure.

The issue

On 28 July 2011, Yarri Mining Pty Ltd and Onslow Resources Ltd, lodged applications for mining leases over land near Onslow in the Pilbara region of Western Australia.

The land was on the Minderoo pastoral station, owned by mining magnate Andrew Forrest’s private company, Forrest & Forrest Pty Ltd.

Importantly, neither application was accompanied by a mining proposal or a mineralization report as set out in the Mining Act 1978 (WA) — something not uncommon for mining lease applications. Mr Forrest lodged objections to the applications in September 2011 but in 2014 a recommendation was made by the warden to the Minister that the leases be granted.

After an application for judicial review of the decision, the matter arrived in the Court of Appeal to the Supreme Court of Western Australia. Although the Court of Appeal found that mineralisation reports should be lodged contemporaneously with lease applications, it found that the application could progress to the warden — provided a mineralisation report was lodged at a later point in time.

The decision

Mr Forrest appealed to the High Court and in August a majority of the Court upheld the appeal. The High Court held that compliance with the the requirements of the specific section of the Mining Act that related to lodgement of documents was a condition for exercising powers under the Act.

In other words, if the State were to to use its powers to grant exclusive rights to resources, it was ordinarily regarded as essential that a company had lodged all compliant documents needed for those powers to be used.

The fallout

Since the bombshell High Court decision in August, the WA Government has investigated a legislative fix, but it appears clear many miners will need to start their lease application process again.

The DMP has indicated that all affected mining lease applicants need to re-submit new mining lease applications that comply with the relevant requirements of the Mining Act — although this can take many months or even years to achieve.

The issue is made more challenging due to the cost of re-pegging land, compliance with other requirements and regulations, and the ever-present threat that what was assumed to be a secured lease could now be open to challenge.

It is also possible other mining tenure rights — including those in other states — will need to be reviewed in light of the High Court decision, particularly if they have similar requirements for contemporaneous lodgement of documents.

The response

Pitcher Partners Perth chairman Bryan Hughes said the changes represented a wake-up call for the mining sector.  

“Andrew Forrest's win in the High Court emphasises the need for mining companies, big and small, to strictly adhere with the legislation, or be at risk of losing what they have,” Mr Hughes said.  

“This particular requirement for documents to be lodged at the time of application has been put under the spotlight and the Department is required by law to now address it.”

Mr Hughes said there was limited option for any discretion by the Department in the wake of the High Court decision.   

“From my extensive experience with the Department, they are very commercial, but always within the parameters set by the law, which they obviously must adhere to,” he said.

Mr Hughes said the additional challenge of compliance would be particularly felt by junior miners and explorers — with implications for their viability.

While major mining groups like Gina Rinehart’s Roy Hill have reportedly reapplied for leases to ensure they do not lose control of their sites, this would not be a feasible approach for every miner.

“This decision again highlights the ongoing battle that smaller companies, with limited and stretched resources, have in complying with the ever increasing complexities of our system,” Mr Hughes said.

“Investors need to be looking at the resources and expertise of smaller companies to deliver what they are promising, and perhaps building a greater premium in for the added risks that may be present.  

“Some of the smaller companies affected by this will not have the resources to re-peg the ground and re-apply, as Roy Hill has sensibly done, and therefore they could be at risk of losing their projects.”

The next steps

For a state like Western Australia, home to many resources companies that are small explorers or junior miners, decisions such as Forrest & Forrest v Wilson can have lasting repercussions.

The decision also underscores the increasing complexity for small resources companies in complying with, and understanding, the various requirements in place for operations.

Mr Hughes said investors needed to be aware of the risk that smaller companies could run foul of regulations — and should factor in the ability of a small explorer or miner to comply not only with this change but others into the future.

In turn, miners and explorers should be thorough in auditing and examining their compliance mechanisms and to seek advice and take urgent steps to ensure they were ticking the right boxes.

“If you were going in to make a substantial cornerstone investment in one of these small players then your due diligence will absolutely include considering their systems and protocols for all these things,” Mr Hughes said.

“Do they outsource? Who do they outsource to and what are their credentials? If their compliance is delivered in house, what are the credentials of the people there?

“The risks are greater now and there could be an issue that arises that will have more impact on a smaller company than on a larger company.”

Mr Hughes urged miners and explorers to ensure they were across the issue of compliance and foreshadowed changes to mining law and to seek urgent advice if they believed their operations, leases or future prospects could be at risk.

Chairman of Pitcher Partners Perth Bryan Hughes specialises in corporate turnarounds, reconstructions and insolvency. He has led the turnaround and recapitalisation of many companies in administration. Bryan pioneered Voluntary Administration processes to recapitalise ASX listed companies and has been successfully undertaking these for over 20 years. 

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