Focus: Mineral resource retention licences come to Victoria
13 February 2012
In brief: Under new reforms that bring Victoria into line with other Australian jurisdictions, holders of exploration licences are now able to preserve their exclusive rights over potential mining sites. Partner Scott Langford and Lawyers Tristan Moseby and Brendan Wood report.
How does it affect you?
- The recent reforms introduce a new category of mineral resources licence, which exists in similar form in other Australian jurisdictions.
- The new retention licences allow holders of exploration licences to preserve their exclusive rights over potential mining sites while further studies are conducted to assess the commercial viability of development of an identified mineral prospect.
Background
As previously reported, in April 2009, the Victorian Department of Primary Industries (DPI) commenced a review of the Victorian mining legislation, which is the Mineral Resources (Sustainable Development) Act 1990 (Vic) (the MRSD Act). The review was conducted in two stages. The stage-one reforms were implemented with effect from 1 February 2012.
Before the reforms, the MRSD Act offered only two key types of licences to explore for, and mine, minerals (other than stone) on a large commercial scale: exploration licences and mining licences. The holder of an exploration licence has the exclusive right to explore a designated area for minerals, and to, should it later desire, apply for a mining licence. A mining licence permits its holder to mine and take ownership of minerals.
Exploration licences are routinely granted for very large tracts of public and private land. In recognition of the need to encourage licence holders to focus their exploratory activities over the term of their licence, to reduce the burden on owners of land over which an exploration licence is granted, and to promote competition and new investment in the industry, the MRSD Act contains a relinquishment regime. Under this regime, the area covered by an exploration licence must be reduced by specified percentages on certain anniversaries of the licence having been issued. Over the term of an exploration licence, the area to which the licence applies must be aggressively reduced.
It is not unusual for a holder of an exploration licence to locate mineral deposits of potential interest, but to require further time to study the site, to determine whether commercial exploitation of the deposits is feasible. Before 1 February 2012, an exploration licence holder facing a mandatory reduction to the area covered by its licence may have had little choice but to apply for a mining licence or else forfeit the potential mining site. Application for a mining licence in circumstances where the commercial viability of the site remains under investigation is not desirable, as the conditions attached to a mining licence will commonly require the licence holder to commit to substantial programs of works and to meeting minimum expenditure requirements.
The new retention licence regime is intended to fill the void between exploration licences and mining licences.
Retention licences
Rights available to retention licence holders
A retention licence allows the holder to retain rights to mineral resources that are not economically viable to mine but that may become so in the future, and to carry out activities to establish the economic viability of mining the relevant resources.
On the face of the MRSD Act and the associated explanatory materials, it is arguable that the exploration rights conferred under a retention licence could be limited to those directed towards establishing the economic viability of mining the particular mineral resource identified in the licence application. However, we understand that the DPI's position is that a retention licence can support exploration for types of minerals for which a mineral resource has not been identified, subject to an appropriate work plan being provided.
Despite this, as the Minister will issue retention licences for 'the area the Minister determines as the area that may be required for the purpose of mining a mineral resource in the future', exploration licences will still usually be required to enable exploration to take place in the vicinity of an identified mineral resource, but outside of the area of a potential mining operation for that mineral resource.
A retention licence is valid for a period of time specified in the conditions of the licence, which is not to exceed 10 years. It may be renewed twice, for renewal periods not exceeding 10 years each. These terms provide significant tenure security beyond the maximum 15-year term (including renewals) of an exploration licence.
Application
A retention licence can be sought over land covered by an exploration licence if the applicant holds that exploration licence, or has the holder's written consent. A retention licence cannot be granted over land that is already covered by another retention licence or retention licence application. If a retention licence is registered over land covered by an exploration licence, that land ceases to be covered by the exploration licence.
An applicant for a retention licence must meet a range of requirements, which include the following. They must:
- identify the mineral or minerals to which the licence will relate;
- describe, according to the ministerial guidelines (which are yet to be released), a 'mineral resource'; and
- demonstrate that there is a reasonable prospect that the mining of the mineral resource described in the application will be economically viable.
It is worth noting that a retention licence applicant may, in some circumstances, avoid a new general requirement on licence applicants to satisfy the Minister that they genuinely intend to do work and have an appropriate program of work, if the Minister considers it unnecessary or inappropriate for them to do so. It is unclear at this stage how this discretion will be exercised in practice.
Identifying a mineral resource
A key prerequisite to an application for a retention licence is identifying a mineral resource. A 'mineral resource' is defined as a 'concentration of a mineral or minerals that is or may be economically viable to mine'. Although further details of how an applicant may establish a 'mineral resource' have not yet been officially released, an educated guess may be made as to the likely criteria. A DPI factsheet indicates that the specific requirements will be set out in ministerial guidelines, but that the appropriate standard will generally be an 'inferred resource' for the purposes of the Joint Ore Reserves Committee Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). The JORC Code defines an 'Inferred Mineral Resource' as:
that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability.
A guideline to the JORC Code states that the concept of an Inferred Mineral Resource is 'intended to cover situations where a mineral concentration or occurrence has been identified and limited measurements and sampling completed, but where the data are insufficient to allow the geological and/or grade continuity to be confidently interpreted.'
Other aspects of the reforms
Other aspects of the reforms that took effect on 1 February 2012 include the following:
- Applicants for mining licences, and for renewal of mining licences, will need to identify a mineral resource to the standard noted above. Exploration alone will not be permitted under a mining licence.
- A new 'prospecting licence' has been introduced. A simpler regime will apply to these licences, which are for those wishing to undertake small-scale exploration and mining activities.
- The exploration licence regime has been tightened, so that areas covered by the licence must be reduced further than was previously the case and renewals may only be granted twice, and then only in more limited circumstances.
- More scope is provided for landholders and miners to come to private agreements in relation to compensation, and to relax landholder consent requirements for low-impact exploration.
- Further clarity is provided on the 'fit and proper person' test, which applies when applying for a licence, or a renewal of a licence.
- Provision is made for rent to be paid to the state on all licence types under the MRSD Act, rather than just mining licences, as was previously the case, from the date on which the licence is granted.
Conclusion
Especially given the current economic uncertainties, these reforms will be warmly welcomed by those wishing to preserve their position while assessing the commercial viability of potential Victorian mine developments. Please do not hesitate to contact us if you require further information.