8 min read
In Australia, mining companies are granted an authority, lease, licence or permit by the state or territory government under the relevant Mining Act to explore or develop mineral resources. These 'mining tenements' transfer the property rights in the extracted mineral resources from the 'Crown' to the tenement holder, but they do not convey any property rights in the surface land, and often co-exist with the surface land rights.
In some cases, the tenement holder will have limited rights of entry under the relevant Mining Act. For example, in Queensland and Western Australia, the mining tenement holder may enter private land to conduct low-impact exploration activities, provided they give adequate prior notice. However, generally speaking, the tenement holder may need to secure some other form of property rights (ie tenure or right of access) before it can undertake more invasive exploration programs or mineral production. In more remote areas, third-party consent is not required to access land for mining operations (for example, where the underlying rights are unallocated Crown land).
This article is a refresher as to common arrangements available to tenement holders and considers the varying degrees of security, flexibility, suitability and cost that each option provides.
The most common way of securing tenure for the purpose of carrying out mining operations over private land or where a pastoral lease exists is to negotiate an access and compensation agreement with the existing landowner or holder of the pastoral lease. Under these agreements, the mining operator obtains permission to access the land to undertake mining activities and other actions (eg exploration drilling exploration). In exchange for the disruption caused by those activities, the tenement holder typically pays the landowner or holder of the pastoral lease compensation, which is usually an annual payment plus additional payments for specific activities, including amounts for events such as cattle strikes.
The total amount of compensation payable is often the most contentious point in negotiations, as landowners or holders of the pastoral lease seek to maximise the value of their land or leasehold interest and minimise day-to-day disruption, while tenement holders try to minimise costs. Each Mining Act has its own list of factors that contribute to calculating the 'compensable loss', but most often the total compensation is determined by agreement. As negotiations can often break down, tenement holders may appeal to an independent authority to determine an appropriate level of compensation.
The term of an access and compensation agreement is usually linked to the term of the relevant mining tenement(s) that overlap the land. Provided the mining operator does not forfeit the mining tenement (due to failing to meet minimum expenditure requirements or breaching a condition of the tenement) or allow the mining tenement to expire, an access and compensation agreement can provide an agreement as to managing overlapping interests for the life of the mining operation.
It is important to note, however, that an access and compensation agreement may be limited to a set activity such as exploration, and may deliberately or otherwise not address conversion to mining tenements and expansion to mining activities (exploration agreements are typically simpler and cheaper to prepare in circumstances where there is no guarantee a resource will be proven up). This can present savvy landowners with another opportunity to negotiate additional compensation and terms at a later stage, when the project has been proven up and locking in access arrangements is likely on the critical path for project development.
Other key considerations include day-to-day interactions, access and maintenance of access roads, and issues around noise and odour. One more tricky issue to negotiate is how and when relocation of existing infrastructure occurs (eg structures and pipelines), or if not moved, how to compensate for operational inefficiencies, or - where the tenement is a mining lease - compensation for any sterilised ore, what remediation action the tenement holder must undertake post-mining operations and how easily the agreement can be assigned to new occupiers.
Access and compensation agreements are not the most secure form of tenure as they do not 'run with the land'. Most agreements contractually restrict the landowner from selling the land unless they procure the incoming buyer to sign a deed of covenant requiring them to comply with the landowner's obligations under the relevant access and compensation agreement. To address the potential risk of a landowner failing to procure a deed of covenant, a mining operator may also seek a right to lodge an absolute caveat against the title to the property (usually by creating a charge on the land so that there is a caveatable interest), but this is often resisted by landowners because of the way it constrains their rights to deal in the property.
Purchasing the fee simple interest in land (or, where applicable, the underlying pastoral lease) is a common strategy for mining companies and provides the tenement holder with the advantage of freely exploring and using the land without any restriction, subject to the conditions of its mining tenements and environmental approvals and any native title agreements. Purchasing the land also gives complete certainty of tenure. One of the key items we consider when conducting due diligence on a mining operation (eg where a third party is looking to acquire an equity interest in a mining company) is the land interactions such as ownership or access arrangements.
However, there can be several key issues with securing tenure in this manner:
- Cost: The mine operator will likely incur a significant upfront capital outlay, depending on the size and the nature of the land it is purchasing, which for cash-constrained mine operators can simply not be feasible. The immediacy of that outlay can be diminished by agreeing to pay the contract price in instalments, or enter into an option arrangement discussed below. Sometimes, too, the transaction can involve a sale and leaseback until such time as operations commence.
- No obligation to sell: Landowners are under no obligation to sell their land and, unlike access and compensation agreements, there is no mechanism available to the tenement holder to resolve any 'roadblocks' in negotiations.
- Logistical challenge: The presence of native title interests or heritage interests may preclude the mine operator from purchasing the fee simple interest in the entire mining tenement area.
We often see mine operators enter into call option agreements, which gives them the right to purchase the property during an agreed option period. These agreements provide the tenement operator with certainty of tenure (which helps where miners are seeking certainty around being able to secure project finance) while also allowing them to delay the capital outlay until a decision to mine where funding has been secured. Further, as the options to purchase create an interest in land that are caveatable interests, an absolute caveat registered against the title to the property prevents any dealings in the land without the mining operators' involvement. The financial and logistical hurdles associated with purchasing land often dissuades mine operators from going down this path, however, in certain circumstances, it may be the most appropriate way to deal with difficult tenure interactions and provides certainty for stakeholders.
Leases can be used to secure additional tenure for the construction and operation of supporting infrastructure (eg power stations, accommodation camps). Leases can be executed with private landowners, secured under the Mining Act (such as a general purpose lease or miscellaneous licence), or entered into with the Crown (ie the state or territory government). In fact, entering into long-term Crown leases can offer tenement holders a cost-effective way of securing surface rights.
For leases with private landowners, we recommend that mine operators carefully consider how the term of the lease is structured. For example, it may be preferable to include a number of options to ensure that the mine operator is not 'locked-in' and forced to pay rent beyond mine closure. The mine operator should also make certain that the permitted uses under the lease are sufficiently broad to ensure the area can be used for its intended purpose.
The benefit of acquiring a leasehold interest is that if the term exceeds three years then it can be registered against the title to the property.
Licences granted by third parties are not uncommon, and we have seen them increasingly being used for ancillary infrastructure for mining projects. Before granting or accepting a licence it is important to check that the land can be used for the purpose proposed for the licence. Unlike leases, licences do not convey a proprietary interest in the land to the licensee or provide exclusive possession, and care needs to be used including around PPSR registrations where infrastructure is to be sited on a licence area. Further, as licences are not registrable interests, it may be more difficult to satisfy a financier's bankability assessment.
Easements are most commonly used to secure tenure for access tracks and other miscellaneous infrastructure, such as transmission lines and water pipelines. Easements permit mine operators to cross over or enter an 'easement area', for the purposes of constructing, maintaining and decommissioning infrastructure.
To secure an easement, a tenement holder will usually only need to make a single up-front payment to the grantor. Further, as easements are registerable interests that can 'run with the land' or attach to another property interest (eg a lease), they can be used effectively to 'link' key areas together in a cost-effective manner.
When negotiating an easement, it is important for a mining company to ensure that their maintenance obligations and responsibility for the 'easement area' are clearly stated and understood. The market standard is that the tenement holder is solely responsible for maintaining the easement area, including managing fire risk. As easement areas are often shared areas, it is critical that the tenement holders perform those maintenance obligations, otherwise they may be held responsible for third-party damage or injury.