Six important cases for mining executives from the March 2023 quarter

17 minute read  17.05.2023 David Suttner, Edward Fearis, Angus Paterson

We consider six recent cases that explore current issues in the mining sector.

The cases are relevant to commercial decision makers in the mining sector. They include a determination that a failure to meet minimum expenditure requirements was a breach of an essential term of an option agreement, useful clarification regarding the requirements for a compliant s58(1)(b) exploration statement and regarding the factors to be considered by the Warden's Court in determining whether to recommend an exemption from expenditure conditions, a determination by the Warden that the Warden's Court has jurisdiction to hear a challenge to the validity of the Minister's grant of surface rights and the imposition of a fine for failure by a company to meet its continuous disclosure obligations.

1. Clause requiring a party to meet minimum annual expenditure an essential term of an agreement

In Richore Pty Ltd v Cougar Metals NL [2023] WASC 2, the Supreme Court found that a clause of an option agreement which required a party to meet all minimum annual expenditure commitments in respect of a tenement was an essential term of the agreement. The Court accordingly found that breach of this clause entitled the innocent party to terminate the agreement despite the fact that an exemption from forfeiture was obtained.

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Pyke Hill Resources Pty Ltd (Pyke Hill) was the registered holder of a mining lease. It entered into an option agreement with Cougar Metals (Cougar), and granted Cougar an option to acquire rights to explore and mine the tenement. Richore later acquired a 50% interest in the tenement, which Pyke Hill held on trust for it. Clause 6(a)(ii) of the option agreement required Cougar to:

attend to all proper administration in respect of the Tenement … and otherwise maintain the Tenement in good standing including payment of all statutory minimum annual expenditure commitments in respect of the Tenement. (Minimum Expenditure Clause)

The minimum annual expenditure for the tenement was not met for the 2019-20 year, albeit an exemption was subsequently granted.

Pyke Hill and Richore commenced proceedings in the Warden's Court. They sought a declaration that the option agreement had been validly terminated by Pyke Hill inter alia on the basis that Cougar Metals had failed to cause the minimum annual expenditure to be met. Pyke Hill's claim failed in the Warden's Court.

On appeal, the Supreme Court determined that the Minimum Expenditure Clause was an essential term of the option agreement and that Cougar's breach entitled Pyke Hill to terminate. The Court held it was an essential term inter alia on the basis that Pyke Hill would not have entered into the agreement but for the promise of performance contained in the clause. In response to Cougar's argument that the clause had not been breached because an exemption was granted and, accordingly, the tenement was not forfeited, the Court noted:

  • the Minimum Expenditure Clause was directed to guarding against the risk of forfeiture,
  • any level of failure to meet the expenditure threshold exposed the tenement to a risk of forfeiture, and
  • damages would be an inadequate remedy.

The Court held that the effect of the exemption was to deem the tenement holder to be relieved of the obligation to spend and did not deem the money to have been spent by the due date. As the money was not spent, the Minimum Expenditure Clause was breached.

2. Compliant section 58(1)(b) exploration statement essential for exploration licence application to be valid

In Toolonga Mineral Sand Pty Ltd v Callum and Belinda Carruth & Ors [2023] WAMW 6, Warden Cleary determined that an application for an exploration licence must be accompanied by a compliant section 58(1)(b) exploration statement to be valid. She also determined that, in the absence of a compliant statement, the Warden has no jurisdiction or power to make a recommendation or send a report to the Minister. Consequently, there was no valid application to enliven the Minister's power to grant the licence. The Warden also determined that non-compliance with s 58(1)(b) cannot be regularised by the provision of further information after the application is made.

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Toolonga Mineral Sand Pty Ltd (Toolonga) applied for exploration licences near Kalbarri to explore for chalk. Murchison Hydrogen Renewables Pty Ltd and Hydrogen Renewables Australia Pty Ltd are the developers of the Muchison Hydrogen Renewables Project, a project to produce ammonia for export using wind and solar energy. They hold licences under the Land Administration Act 1997 (WA) for the project. They objected to Toolonga's application for exploration licences over the same ground as the project, alleging it would not be in the public interest and the application did not comply with the requirements of section 58(1)(b) of the Mining Act 1978 (WA).

Warden Cleary determined that Toolonga's section 58(1)(b) statement was non-compliant because the program of work only covered the first year of the five year term. Her Honour observed that it was "incongruous" that Toolonga could provide an undertaking that it has sufficient financial resources to undertake the work for the anticipated life of the tenement in such circumstances. Although finding it unnecessary to decide the other bases of non-compliance, Warden Cleary observed that an applicant must identify how any shareholders or external consultants listed in the section 58(1)(b) statement are available to the applicant.

Because a non-compliant section 58(1)(b) statement prevents the registrar/warden assessing whether the applicant can effectively explore the ground applied for, neither a report nor recommendation to the Minister can be made (by the registrar in cases without an objection, or the warden in cases where an objection is lodged). For this reason, a compliant statement is a precondition to a valid application. Without a valid application, the warden (or registrar in cases of no objection) does not have the jurisdiction or power to give a report to the Minister nor make a recommendation. Without that report, the Minister has no jurisdiction, or power, to grant the application. The Minister's power in section 59(6) to grant an application despite non-compliance with the Mining Act does not extend to invalid applications (which in any event, do not reach the Minister for determination because of their invalidity).

In reaching that conclusion, her Honour followed Justice Allanson's decision in Golden Pig Enterprises Pty Ltd v O’Sullivan [2021] WASC 396 as directly on point. She preferred it to the older decision of the Full Court of the Supreme Court in In the matter of an application for a Writ of Certiorari against the Warden at Coolgardie Ivan Brown SM; Ex parte Aberfoyle Resources Ltd and Eldorado Resources Ltd unreported, Full Court of the Supreme Court of Western Australia, 19 April 1989, BC 8901132. In the latter case, the Full Court had found that a non-compliant s 58(1)(b) statement did not invalidate the application. Her Honour applied Golden Pig because it was directly on point, and, adopting as it does the High Court's reasoning in Forrest & Forrest v Wilson [2017] HCA 30; (2017) 262 CLR 510, her Honour was bound by it.

This case provides important clarity on the consequences of non-compliant section 58(1)(b) statements, which is especially important following the recent decisions of True Fella Pty Ltd v Pantoro South Pty Ltd [2022] WAMW 19 and Azure Minerals Ltd v D & G Geraghty Pty Ltd [2022] WAMW 27. It confirms that industry practice of providing one year explorations programs is not compliant.

In the matter of competing applications for exploration licences by Ariela Nominees Pty Ltd and others [2023] WAMW 4, a failure to provide a program for the full five year term also led Warden McPhee to a preliminary view of non-compliance in respect of the 8 applications under consideration in that case.

In the matter of competing applications for exploration licences by Barto Gold Mining Ltd & Ors [2023] WAMW 2, Warden Cleary provided further guidance in the course of considering six exploration licence applications. The Warden found five of those applications to be invalid for failing to provide a program for the full five year term in their respective section 58(1)(b) statements. The Warden determined the remaining application to be compliant, as its section 58(1)(b) statement:

  • included a statement that the objective is to test “the entire area subject of this application”;
  • named the minerals sought, and why;
  • included a year-by-year summary of processes for years one to three and then for years 4 and 5 combined, each year building on the earlier with options depending on what is found; and
  • included a year-by-year summary of expected expenditure for years one to three and then for years 4 and 5 combined, not itemised, however with notes explaining any possible variances to that budget based on finds.

Finding that only one application was compliant, the Warden determined a ballot was not necessary. While the sufficiency of a section 58(1)(b) statement may vary from case to case, the Warden's findings provide important guidance on what may suffice, especially in light of the many recent findings of non-compliance.

3. Warden's Court determines it has jurisdiction to hear challenge to validity of Minister's grant of surface rights

In Peter John Panizza v Barto Gold & Ors [2023] WAWC 2, the Warden's Court determined that it has jurisdiction under the Mining Act 1978 (WA) to hear a challenge to the validity of the Minister's grant of surface rights over a mining tenement. It also has the power to make a declaration of invalidity in respect of that grant.

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In 1990, the Minister for Mines granted surface rights (i.e. rights over the top 30m of the land) in respect of a particular mining lease. The owner of the land on which the mining lease was located, Peter Panizza, commenced proceedings, seeking a declaration that the Minister's grant of surface rights was invalid. Barto Gold Mining Pty Ltd (Barto Gold) (the current tenement holder) and the Minister applied to dismiss the proceedings on the ground that the Warden's Court did not have jurisdiction to hear Mr Panizza's challenge.

Section 132 of the Mining Act outlines matters in relation to which the Warden's Court has jurisdiction, known as the "touchstones" of jurisdiction. The Warden rejected Barto Gold and the Minister's arguments that the jurisdiction under section 132 was limited to private disputes between private parties, and that parliament could not have intended to grant the Warden's Court the power to effectively judicially review decisions of the Minister (to whom, the Warden of Mines sitting administratively, can only make recommendations).

Rather, the Warden found the Court does have the jurisdiction to hear Mr Panizza's challenge, and jurisdiction to make the declaration of invalidity sought, as the proceedings concerned the following touchstones of jurisdiction:

  • the area of the tenement;
  • the ownership of mining products found in the first 30m of ground; and
  • the rights claimed in, under or in relation to the mining tenement or purported mining tenement.

While the Warden determined that the Court has jurisdiction to hear Mr Panizza's challenge to the grant of surface rights, the Warden is yet to determine whether the grant of surface rights was invalid. This issue will proceed to trial at a later date.

4. Warden's Court determines that "warehousing" is a factor that may be considered in recommending whether to grant an exemption from expenditure conditions

In Regis Resources Limited v Richmond [2023] WAMW 5, the Warden's Court held that the factors to be considered in determining whether an exemption from expenditure conditions should be granted are not limited to those set out in section 102(4) of the Mining Act 1978 (WA). Therefore, the Minister could consider policy considerations, such as whether the applicant was "warehousing" tenements (where tenements are strategically retained in a way that avoids having to mine the land and comply with expenditure requirements).

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Regis Resources Limited (Regis) applied for a certificate of exemption from expenditure conditions under section 102(2)(h) of the Mining Act. Mr Richmond objected to the certificates of exemption being granted, claiming Regis was involved in warehousing the tenements. Mr Richmond argued that warehousing is contrary to the principles of the Mining Act and a relevant consideration the Warden, and therefore the Minister can have regard to when deciding whether to grant certificates of exemption. Regis denied warehousing the tenements and argued it was not a factor that could be taken into account under section 102(4). Regis also argued that if it was to be taken into account, it did not have enough weight to justify a recommendation of refusal of its exemption application.

There was evidence Regis and companies it was associated with had been surrendering tenements very shortly before the terms were to expire, which was followed by an associated company or Regis marking out the same ground hours later and then applying for the tenement. The companies had also continuously applied for prospecting and exploration licenses without ever committing to mining certain areas of land, effectively preventing other parties from lodging applications to access the resources on the ground.

Section 102(4) states that when considering an application for exemption, regard "shall be had" to the current grounds upon which exemptions have been granted and to the work done and the money spent on the tenement by the holder. The Warden found that section 102(4) was not exhaustive. For example, general policy and the principles of the Mining Act must be considered. The Warden held that one of the policies underpinning section 102(4) was that an exemption should not be granted if the process was being used to circumvent the policy that those who hold tenements must be willing and able to explore or mine that tenement within a reasonable time frame, or release the tenement so that another has that opportunity.

The Warden found that while the many transfers, share arrangements, heads of agreement, conversions and amalgamations by Regis and its associated companies were of themselves legitimate methods of dealing in tenements, the totality of the evidence showed an intention by Regis, in conjunction with the associated companies, to circumvent the principles of the Mining Act. The Warden accordingly recommended refusal of Regis's application for exemption.

5. Court of Appeal declines to permanently stay court proceedings, notwithstanding a prior recommendation by the Warden on the relevant issue

In BHP Minerals Pty Ltd v Aquila Steel Pty Ltd [2023] WASCA 21, the Court of Appeal dismissed BHP Minerals Pty Ltd's (BHP) appeal against a lower court's decision refusing to permanently "stay" (or halt) the proceedings. In the proceedings, Aquila Steel Pty Ltd (Aquila) sought declarations regarding the grant and scope of certain iron ore tenements. BHP sought a permanent stay of these proceedings, alleging that they were an "abuse of process" as the Warden had already made a recommendation to the Minister in relation to the relevant issue and Aquila had already sought judicial review of the Warden's decision. In dismissing BHP's appeal, the Court of Appeal held that:

  • The Minister does not have jurisdiction to determine the scope and effect of the grant of mining tenements pursuant to the procedures under the Mining Regulations 1981 (WA) for objections to mining surveys.
  • The proper construction of the scope and legal effect of the grant is a matter for court determination.
  • Court proceedings seeking declarations regarding the grant and scope of mining tenements are an appropriate vehicle for determining disputes relating to mining tenements.

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In 1967, BHP was authorised to temporarily occupy an area of land (Reserve) and to prospect for iron ore on the Reserve. The boundaries of the Reserve were fixed by reference to a point named as "Rocklea Homestead". However, two Rocklea Homesteads were erected, with the first Rocklea Homestead being erected approximately 400 metres further east than the second. BHP and Aquila were subsequently granted mining tenements in the area. A dispute arose in relation to the area of the tenements. The parties disputed which Rocklea Homestead should be used to determine the area of the Reserve, which would necessarily impact the size of their tenements.

A survey of Aquila's tenement was undertaken by reference to the second Rocklea Homestead. This enlarged Aquila's tenements by 400 metres. BHP objected to the survey pursuant to the Mining Regulations. At first instance, the Warden recommended BHP's objection be upheld, which reduced Aquila's tenement by 400 metres. Aquila then commenced two separate proceedings in relation to the Warden's decision: first, judicial review proceedings challenging the Warden's decision; second, proceedings seeking declarations regarding the grant and scope of the mining tenements.

BHP applied for a permanent stay of the declaratory proceedings, alleging they were an abuse of process as:

  • the scope of the area of the Reserve had already been dealt with by the Warden;
  • the Warden had made a decision and recommendation to the Minister;
  • Aquila had already exercised its right to judicial review; and
  • the Warden's decision would lead to a final determination by the Minister regarding the grant of the tenements.

The lower court dismissed BHP's application and BHP then appealed to the Court of Appeal. The Court of Appeal dismissed BHP's appeal. It found that the procedure for objections set out in the Mining Regulations was purely an administrative procedure for the determination of the boundaries of tenements where a survey is objected to. It said it does not confer on the Minister jurisdiction to finally determine the scope of a tenement. Rather, the Court of Appeal found that the issue was properly one for determination by a court.

6. Penalty for admitted breaches of continuous disclosure obligations

In ASIC v Australian Mines Limited [2023] FCA 9, Australian Mines Limited (AML) admitted to making false and misleading statements in an announcement and two investor presentations (collectively Publications) regarding an offtake agreement it had entered into. In particular, the Publications stated that AML had secured finance, when in fact it had not. They also overvalued the offtake agreement as it was valued without accounting for a discount the buyer was entitled to. AML admitted its actions constituted breaches of its continuous disclosure obligations. Accordingly, the Federal Court made declarations to that effect and approved orders agreed between AML and ASIC for AML to pay a penalty of $450,000.

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In February 2018, a buyer entered into an agreement with a subsidiary of AML to purchase offtake from AML's cobalt, nickel and scandium project. The offtake agreement was subject to a condition precedent that the subsidiary obtain finance for the development and construction of the project. Further terms of the offtake agreement provided that the buyer would recommend a financial advisor to assist to secure the finance and, if the buyer exercised an option to acquire shares in AML, it would be entitled to a discount under the offtake agreement.

Later in February 2018, AML made an announcement that described the offtake agreement but did not disclose the role of the buyer in recommending a financial advisor and the potential discount under the share option.

In investor presentations in April and May 2018, AML's managing director represented inter alia that:

  • it was a condition of the offtake agreement that the buyer commit to funding construction of the plan, which was false;
  • AML had secured finance from the buyer for the construction of the plant, which was false; and
  • the value of the offtake agreement was $5 billion, which was misleading because the buyer's discount under the share option was not factored into the valuation.

AML admitted its conduct breached its continuous disclosure obligations. Accordingly, the Court made declarations to this effect and approved a penalty of $450,000 that had been agreed between AML and ASIC. In doing so, the Court noted that:

  • The breaches were serious as they concerned a false claim that funding had been secured for a major project and involved the managing director, who had actual knowledge of the matters.
  • The information that was not disclosed was uniquely within the knowledge of AML and the buyer.
  • AML had made corrective disclosures, cooperated and admitted the breaches.
  • AML had adopted a new continuous disclosure policy.
  • There was no evidence of deliberate flouting or intention to mislead the market.
  • The managing director had resigned as a director and also had his employment terminated.
  • There was no evidence of loss or damage to shareholders, or profit or benefit to AML.

Contact us for further information or detail on any of the cases listed above.

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