Clive Palmer and Al Gore team up in a remarkable day for carbon in Australia

Yesterday was a remarkable day here for carbon-related issues.

Clive Palmer has substantially changed position. He won’t support Direct Action - he says that it ‘is a waste of money’. Nor will he support the abolition of various key existing carbon-related statutory agencies or the Renewable Energy Target. What he now advocates is the implementation of an emissions trading scheme (ETS), but one which will be ‘zero-rated’ until Australia’s major trading partners (5  named countries including the US and China) have ‘equivalent’ schemes. He says that he will ‘move amendments’ to the Government’s Bills to do these things. He announced all of this to journalists gathered in the Great Hall of Parliament in the company of no less than Al Gore, both of whom left without taking or answering any questions. There will be plenty of them today.
 
It appears that he is now advocating a variation on what Rudd announced in July 2013 – an early move to the ‘flexible’ phase of carbon pricing, only a ‘zero-rated’ one. Milne of the Greens has picked up on this saying that she and her party will support moving to the market-based ‘flexible’ phase of carbon pricing under the Clean Energy Act in FY2014-2015 rather than FY2015-2016 as currently proposed.        

Labor has said this morning, through shadow environment Minister Mark Butler, that Labor went to the last election promising to get rid of the fixed carbon price and to move straight to the emissions trading scheme, and that it therefore has no trouble with the repeal of the fixed price but that it does have a problem with the repeal of a meaningful ETS.

Recently, Xenophon and others have made noises that the issues raised by the Government’s Bills are too complex and important to be decided in haste in the first weeks of a new Senate. Palmer’s actions yesterday will add weight to these calls.

Palmer’s position, if maintained, means that it’s likely that the Government’s Bills will be defeated in the Senate, a prospect which was unimaginable until yesterday.

Meanwhile, the Clean Energy Act remains in force unamended.

Stay tuned!

This article was written by John Taberner, Consultant, and Michael Voros, Special Counsel.

For further information, please contact John Taberner, Michael Voros, or your usual Herbert Smith Freehills contact.

Australia-Korea FTA concluded

On 5 December 2013, Australia and South Korea concluded negotiations for a Free Trade Agreement (FTA).

Trade with South Korea was valued at AU$31.9 billion in 2012, making Korea Australia’s fourth biggest two-way trading partner (following China, Japan and the United States) and third largest export market.

As a result of the FTA, tariffs will be eliminated on key Australian exports to Korea such as beef, wheat, dairy, wine, horticulture and seafood, resources, energy and manufactured goods. The FTA will also provide new market opportunities in other industries such as education, telecommunications and financial, accounting and legal services.

View the full article here.

For further information, please contact Lewis McDonald, Leon Chung or Donald Robertson or your usual Herbert Smith Freehills contact.

Qld: Draft Qld Ports Strategy proposes to concentrate port development in QLD to 5 key port areas

The Queensland Government released its draft Ports Strategy on Thursday 17 October 2013.

The draft Ports Strategy proposes to:

• declare that Brisbane, Mackay / Hay Point (in 2 separate zones), Gladstone, Townsville and Abbot Point ports will be the 5 priority port development areas (PPDAs) in Qld,
• limit port expansion and development to within these 5 PPDAs (by prohibiting capital dredging for deep water port facilities outside the PPDAs) until 2022,
• permit port and terminal expansion and development (including dredging) within the 5 PPDAs via a Government-facilitated staged and incremental expansion process, and
• require PPDA’s to comply with a set of master plan guidelines (the details of which have not yet been released).

The draft Ports Strategy aims to:

• achieve a balance between the ‘twin goals’ of sustainable economic port development and environmental protection, and
• preserve the Queensland Government’s commitment in the GBR Ports Strategy (which is based on UNESCO recommendation) to restrict port development outside Queensland’s established major trading ports within or adjoining the GBRWHA.

The draft implementing legislation is intended to be in place by next year.

The Queensland Government is also continuing its review of port governance and supply chain coordination and delivery across the Queensland port network.

The closing date for submissions is Friday 13 December 2013.

To review the draft Ports Strategy: Queensland Ports Strategy Draft for consultation

A strange thing happened at Africa Downunder

A strange thing happened at the annual Africa Downunder conference in Perth last week, and it had nothing to do with the record attendance of more than 2,500 delegates from Australian and overseas mining companies, service providers, financiers and governments.

It was the vastly different, almost conflicting, messages coming out of senior Australian government ministers who spoke at the conference.In one corner, was Australia’s current Foreign Affairs minister Bob Carr. In the other, was former Prime Minister and subsequent Foreign Minister, Kevin Rudd. Both seasoned political campaigners well equipped to speak of the importance of Africa to the hundreds of delegates that crammed into the Riverside Ballroom.

Carr had clearly studied his briefing notes as he lauded the role that Africa has and will play in Australia’s economic and social development, challenging the conventional wisdom that we were all living witnesses to the ‘Asian century’. In Carr’s words, “what we’ve seen since 2000, could well be an African century”. Heads nodded in agreement, media bulletins were issued. Job done.

Rudd, however, appeared far less interested in talking about Africa, focusing almost his entire speech on the continued rise of China whilst launching the release of the “Fuelling the Dragon” report by the ASPI and the Brenthurst Foundation.

In contrast to Carr, Rudd began his speech declaring that “the core question confronting treasuries and finance ministries around the world at present is what is the near, medium and long term prospects for the Chinese economy.” There was less head nodding, more head scratching. Little mention was made of Africa. In fact, in the entire 20 minute speech Rudd mentioned Africa on fewer than four occasions.

One might readily conclude that Rudd’s last minute call-up in place of the ill Resources minister, Martin Ferguson, meant that a ‘revert to type’ presentation was inevitable for the former Prime Minister. Whatever the reasons, the contrast in the political messages from two of Australia’s most senior government ministers at Australia’s largest mining conference, was striking. But were they conflicting?

One conclusion that is easily drawn from the presentations and discussions with participants during the three day conference, is that they are not conflicting messages – that Africa probably needs China more than it needs Australia, but that China needs Australian expertise, resources and know-how to unlock its growing need for natural resources.

During a conference breakfast, hosted by BDO, Herbert Smith Partner, Michael Walter, joined other panellists to discuss and field questions from the audience on the impact that China’s growing need for “rocks and crops” is having on Australian mining companies’ business plans for Africa, and how we can work effectively with China in our collaborative African mining pursuits.

According to Michael, the huge amount of interest in Africa, and relationships with China, was much in evidence in a great turnout for the breakfast briefing and some thoughtful and searching questioning.
 
Austrade also hosted a luncheon which saw Senior Trade Commissioner for Sub-Saharan Africa, John Madew, speak about the importance of our government’s role in assisting Africa with the three “A”s – access, advice and advocacy. In his speech, CEO of Fortescue Metals, Andrew Forrest, urged Australian mining companies to replicate the high environment standards that they display in their Australian operations across their African operations. He also highlighted the importance of Australian mining companies investing in corporate social responsibility programs that make a sustainable difference to the lives of the African communities in which they operate.

With the impending merger of Freehills with international law firm Herbert Smith due to launch on 1 October, the conference was a great networking opportunity for the respective Freehills and Herbert Smith mining teams and a tremendous success generally.

Herbert Smith Freehills will provide clients with an impressive global mining practice boasting over 30 years of experience advising across the entire continent of Africa in both French and English. With offices strategically placed in Perth, Singapore, Shanghai, Beijing, Paris, New York and London, and an office to be opened on the ground in Guinea, Herbert Smith Freehills’ mining clients will benefit from seamless service all the way from the office in Australia, China or Europe, to the minesite in Africa.

AFP gives insight on Australian anti-bribery laws

In a climate of aggressive enforcement of foreign bribery, both in Australia and overseas, many companies are questioning the precise scope and application of foreign bribery laws and what kinds of actions they should be taking to minimise their risk of exposure. In a joint panel discussion held at Freehills’ Sydney offices on 15 June 2012 and co-hosted by Deloitte, AFP Assistant Commissioner Ramzi Jabbour provided a rare insight into the AFP’s approach to the enforcement of Australia’s foreign bribery laws.

In particular, the AFP Assistant Commissioner provided guidance on how the AFP assesses payments for hospitality, gifts and charitable donations, or payments which may fall within the facilitation payments defence. He highlighted the AFP’s interest in working with industries such as the resources industry to raise awareness and encourage self-reporting.

While many Australian companies are well aware of corruption risks, they may struggle with the precise scope and application of Australia’s foreign bribery laws as well as overseas laws that may now apply to Australian companies, for example, in the US and the UK. Of particular concern are the scope of the facilitation payments defence and the grey areas of corporate hospitality, travel, charitable donations and gifts.

In total the AFP has conducted 29 bribery investigations to date. The Assistant Commissioner commented that the AFP has not targeted particular industries. It is keen to work with industry groups to raise awareness, particularly those industries at higher risk because of the nature of the industry, or the regions in which they operate. One example is the resources industry. The AFP is currently in the process of preparing a ‘fact sheet’ to assist companies to identify and navigate the risks.

Matters to date have generally come from whistleblowers or self-reporting by companies. The AFP sees self-reporting as important but has no power to negotiate outcomes with companies that self-report. 

While each matter will turn on its own facts, key considerations for the AFP when assessing hospitality, travel payments or charitable donations, or facilitation payments are whether these are:

• reasonable in the circumstances
• for a business purpose, and
• clearly documented. 

Transparency will be key. The AFP does not have a specific threshold value when assessing payments, and the cumulative value will be relevant. What may be reasonable on one occasion may become questionable if it is occurring on a regular basis. Payments for close personal protection in dangerous regions may also be legitimate but again should be fully documented.

A key takeaway from the panel was that awareness is critical. Companies need to be aware of how they may be exposed to risks because of the culture and environment in which they operate, the contracts they have in place and the business partners they are working with. Implementing appropriate policies and procedures, continually monitoring risks and clearly documenting payments will stand companies in good stead.

This post is written by Freehills Partner Caroline Cox.

Freehills would like to thank AFP Assistant Commissioner Ramzi Jabbour and Frank O’Toole, Partner Deloitte for participating in the panel discussion. 

CSG: The state of play in Victoria

In recent weeks, the approach to coal seam gas (CSG) mining in Victoria has been explored and debated both in the Victorian Parliament and out in the farming lands of the State.

Recent Developments

In moves to understand how better to develop and regulate Victoria’s CSG potential the Victorian Parliament’s Economic Development and Infrastructure Committee released a report entitled ‘Inquiry into greenfields mineral exploration and project development in Victoria’ (Report) on 22 May. The Victorian Government also recently became a signatory to the National Partnership Agreement on Coal Seam Gas and Large Coal Mining Development (Partnership Agreement) with the Commonwealth, Queensland, New South Wales and South Australia.

The Report recommends the Victorian Government establish an appropriate process to enable open consultation with stakeholders, including local communities, for issues regarding future coal seam gas exploration and development.

If adopted, increased communication between different stakeholders may lead to more balanced and informed views. The risk, however, is that increased communication may not be sufficient to stymie the conjecture and angst surrounding unconventional gas extraction, with the result being that any potential mutual benefit for farmers and miners is buried beneath the noise.

The Partnership Agreement advocates a strengthening of the science underpinning the regulation of these industries by establishing the Independent Expert Scientific Committee on CSG and Large Coal Mining (IESC). The IESC aims to address public concerns about the actual and potential impacts of CSG and coal mining activities on water resources by increasing public access to information as the IESC will make public its advice and findings from any research it oversees.

Community Murmurs

Community groups in Toongabbie, Forrest, Colac and Wonthaggi are all calling for a ban on CSG and at minimum, a full scale public inquiry.

The concerns of the community groups campaigning against CSG are echoed by Mark Wakeham, Campaign Director at Environment Victoria (EV). In his presentation to the Committee, Mark raised a number of concerns, in particular the imbalances between:

• the assumption that exploration will be beneficial for the State and the continued environmental unknowns; and 
• the levels of strategic assessment of conflicting land uses, namely mining and agriculture.

In support for those community groups calling for a ban on CSG, EV has recommended a moratorium on CSG, as adopted by the NSW Government until:

• quantified measures indicate CSG operations actually operate at a lower emission level than coal fired energy generation; and 
• the full environmental impact of hydraulic fracturing is known. 

The Environment Protection Authority (EPA) has already identified a number of environmental impacts associated with coal seam gas extraction, including impacts on groundwater and also wastewater generation. It has been argued that the EPA could take a more active role in the exploration process to aid conservation. Of course this would add to the already increasing costs and pressures on mining companies.

What happens next

There is currently no CSG production in Victoria, or any applications to begin CSG production in the State. However ExxonMobil recently showed appetite to investigate CSG potential in Victoria when it entered into a farm-in agreement with Ignite Energy Resources to evaluate the scope for commercial production of CSG in the Gippsland Basin. It remains to be seen how the impacts of the Report, the Partnership Agreement and campaigning by the growing number of community groups will play out.

Mauritius paves the way for Australian route into Africa

We have previously blogged about Africa’s importance to Australian mining , and the vast amount of resources work going on in the region – but how can you get your foot in the door?

On Monday night we attempted to answer this when our Perth office hosted 50 guests from the mining, legal and accountancy sectors to talk about African investment and why Mauritius could be your gateway into Africa. The seminar included informative and thought-provoking presentations from the Mauritian Board of Investment, Intercontinental Trust Ltd, Stock Exchange of Mauritius, and HSBC Bank (Mauritius) Ltd, each highlighting the opportunities in this region.

Freehills partner, Justin Little, set the scene with an overview of Australian mining companies’ increasing investment in resource-rich African projects and the legal and commercial challenges that these companies face, including: a lack of infrastructure, skills shortage, reporting and compliance issues, political and social instability, the threat of the nationalisation of the mining industry, changes in fiscal regimes and obtaining financing.  Justin’s overall message was “opportunity knocks for those investors who are prepared to tackle and surmount the challenges that mining in Africa poses” but “the potential for elephant-sized discoveries comes with elephant-sized risks”.

Against the backdrop of these challenges, Managing Director of the Mauritian Board of Investment, Ken Poonoosamy, spoke about the attractive business environment that Mauritius – “the star and key of the Indian Ocean” – has to offer and how its economic, political, legal and fiscal regimes create a competitive platform for Australian companies wishing to invest in Africa.

White sandy beaches and pristine azure blue waters aside, why use Mauritius as an international hub for investing into Africa as opposed to another country or investing directly into Africa?  Why would you not, was the resounding answer from CEO of Intercontinental Trust, Ben Lim, who gave insight into the many perceived benefits of using Mauritius, such as its bilateral investment treaties and fourteen double taxation agreements with Africa, its membership of the African Union and regional economic blocs (such as COMESA and SADC), low income and corporation taxes, lack of capital gains tax and relative ease and efficiency of establishing corporate vehicles.  Ben contrasted this with the arguably less attractive option of investing directly into Africa which comes with the burden of high withholding taxes, capital gains tax, high investment risks and no preferential access.

If that was not enough for the audience to start booking their flights, Chief Executive of the Stock Exchange of Mauritius, Sunil Benimadhu, threw into the bargain the possibility for Australian investors to list their companies on Mauritius’s very own Stock Exchange – one which, according to Sunil, offers a cost competitive and stream-lined listing process, while accommodating dual-listing, and trading in various currencies including USD, GBP and the Euro.

Despite the building momentum behind Australian mining companies investing into Africa, the start-up costs of their projects are significant and, so, financing is often the end game for investors.  Participants were therefore pleased to hear from Managing Director of HSBC Mauritius, James Boucher, that the Mauritian banking system has grown over the years to become part of a sophisticated international banking system – one which is becoming increasingly tailored to its foreign mining clients and which covers the full box and dice of business solutions and services, ranging from acquisition, project, export and trade finance, foreign exchange and treasury services to cash management.

We would like to thank our presenters Ken, Ben, Sunil and James for sharing their knowledge and insight into what Mauritius has to offer as a gateway into Africa.

Mining M&A continues to surge

by Simon Reed, Partner, Perth

Looking back at the public M&A activity in the last 6 months, the mining and energy sectors clearly stand out accounting for almost half of all deals.

But what does this all mean? What do numbers and stats really tell us?

Well, they tell us that even though total deal numbers are slightly down on previous years (57 public M&A deals announced, compared to 75 deals in the same period in FY2011), energy and resources is still dominant. They tell us that there’s been significant activity at the upper end of the market, where in the mining sector 35% of transactions exceeded $500 million in value (this is even higher in the energy sector – which includes coal plays – where 60% of the deals announced related to targets of $500 million or more in value). Some notable deals were the bids for Anvil Mining and Sundance Resources as well as the proposed merger of Aston Resources and Whitehaven Coal.

They tell us that Western Australia continues to play a key role in the public M&A activity, with the majority of targeted companies having projects either in Western Australia or Africa. Of the 17 resources deals announced in the first half of FY2012, 53% had primary assets located in Western Australia. 35% of those targets had assets located in Africa – a trend we expect to see grow.

They also show us a couple of interesting trends that have emerged in how mining M&A is being executed: the strong preference in the resources sector is to undertake friendly deals with target board support. 70% of resources deals have been launched with target board support – contrast this to the energy sector, where the vast majority of transactions have been initiated as hostile deals.

Finally, against a backdrop of stronger preferences for cash consideration in public M&A generally, the resources sector continues to show an appetite for scrip consideration, with resources deals being launched with an equal preference for scrip or cash.

Anti-bribery and the mining push into developing countries

2011 was an active year for law enforcers on the foreign bribery and corruption front.

Australian business found itself in a new era – where law enforcers around the world have been pursuing bribery and corruption issues with renewed vigour and increased cross-jurisdictional co-operation. If they weren’t before, Boards are now asking their managements teams whether their companies are doing enough to manage bribery risk and how it is being dealt with in commercial arrangements ranging from ongoing contractual arrangements to one-off acquisitions. 2011 also marked the commencement of the UK Bribery Act – with a number of far reaching consequences, including that many payments that in the past may not have been bribery will now certainly constitute bribery under the UK law. The end of 2011 also flagged that some payments, which in the past would not have been bribery under Australian law, soon may be.

Any Australian business that operates in countries where demands for small payments to lubricate regulatory and other public processes is common are now faced with a risk to the business, its employees and its directors, and a dilemma in how they deal with business transactions in these countries going forward. The dilemma is underscored by mind boggling penalties for getting it wrong.

Toward the end of 2011, the Attorney General’s Department released a Public Consultation Paper inviting comment on the Government’s review of Australian anti-bribery legislation, with particular focus on the treatment of facilitation payments under Australian law.

Presently, if a charge is brought in relation to a payment made to a foreign public official that would otherwise be classified as a bribe under Australian law, it will be a complete defence if the payment was a ‘facilitation payment’.

To be a facilitation payment, the value of the payment must be minor, it must have been paid for the dominant purpose of securing or expediting a routine government function which itself is of a minor nature, and as soon as practicable after the payment a record (which satisfies particular legal requirements) must be made – the most difficult of these being that the payor must effectively obtain a receipt from the foreign official.

In March 1999, the Howard Government amended the Commonwealth Criminal Code to include the offence of bribing a foreign public official. In relation to the facilitation payments, the Government said: “Small payments are something left for local officials to stamp out and it is not appropriate or practical for foreign governments to be concerning themselves with expensive international prosecutions. This approach reflects what is provided for in the Convention and is similar to legislation in the USA and Canada.” [Senate Hansard, 10 March 1999]

For the next 12 years not much happened under Australian anti-bribery laws. That was until the charges laid on 1 July 2011 in the Securency matter. Prior to then, Australian law makers and enforcers had been subject to polite but consistent criticism about a lack of action. In around October 2012 the UN Working Group on Bribery in International Transactions is due to release its ‘phase 3’ report on Australian bribery laws. In broad terms the report will comment on the degree to which Australian laws have been enforced since their introduction. It is likely that Australia will be in for further criticism about a lack of action.

It is against that background that the Federal Government’s ‘assessment of Australia’s anti-bribery laws’ can be better understood. That it will focus on a defence which has never been (and never had to be) invoked is curious.  It can’t be that the prospect of potential defendants invoking the defence has scared off prosecutors. After-all, the recording keeping hurdles imposed in an Australian context mean that the defence will rarely be satisfied. Further, a similar defence is available in USA, and that country is by far the most active, and successful, in enforcing its bribery legislation. The defence is rarely raised by defendants in USA prosecutions for foreign bribery. More likely, the impetus for the Federal Government’s assessment is the renewed emphasis on bribery of foreign officials brought about by the commencement of the UK Bribery Act, and anticipated criticism in the form of the UN’s phase 3 report.

Just how this fits with the Federal Government’s encouragement of Australian business to move into new offshore markets, particularly Africa, is unclear. The World Bank estimates that half of the 10 fast growing economies over the next 5 years will be in Africa. Presently, Australian business reportedly has 665 projects in 42 African countries, with 220 of these being commenced in the passed 20 Months. Meanwhile, in October 2011 Foreign Minister Kevin Rudd launched a $30 million initiative to foster mining development in Africa. This can be contrasted with a public survey of conducted by Transparency International in 2010 – 2011 of more than 6,000 people across the Democratic Republic of Congo, Malawi, Mozambique, South Africa, Zambia and Zimbabwe, the results of which included that 62% of those surveyed considered that corruption had increased in their countries, and 56% actually admitted to having paid a bribe to one of 9 service providers (ie government services) in the previous 12 months. Alarmingly, the police were considered the most corrupt institution in each of the countries.

Regardless, Australian business finds itself in this new era. In the context of the Public Consultation Paper released last 2011, Australian business should now consider that, to the extent the facilitation payments defence ever had any life under Australian laws, it will soon be dead. In response to the UK Bribery Act and these latest developments, many of Freehills’ clients are updating their Codes of Conduct to explicitly outlaw such payments by their employees and others. Any Australian business operating in countries where demands for such payments are common, including fast emerging African economies, should certainly act to prohibit the making of such payments. Business impacts of refusing such demands will also need to be anticipated and planned for. To do otherwise risks the employee, the business and its directors committing criminal offences punishable in Australia (irrespective of where the facilitation payment is made).

National harmonisation of safety laws gathers momentum

The New Year is here. The year of harmonised national safety laws. 

The harmonisation process is well underway with the goal of achieving balanced and nationally consistent safety laws becoming ever closer after five jurisdictions recently enacted the Model Work Health and Safety Act (Model Act). 

New South Wales, Queensland, Northern Territory, Australian Capital Territory and the Commonwealth have all taken the final steps to ensure the commencement of the Model Act from 1 January 2012. While South Australia and Tasmania will likely take similar steps either later this year or early in 2013 to enact bills before their parliaments, Victoria or Western Australia are yet to release any bill. It is still unclear whether they will adopt the Model Act. But we are closer than ever to harmonisation.

For the mining industry, the Model Act will place the primary duties under the regulations on mine operators, and will endeavour to strike the right balance between providing the requirements that are necessary to maximise work health and safety outcomes without being too prescriptive. 

The status of the Model Work Health and Safety Regulations is a little less certain. While the regulations have been have been finalised by Safe Work Australia, they are yet to be adopted in all of the five jurisdictions which have agreed to adopt the Model Act.

So 2012 has begun, and will be a year to watch the safety space – especially for those in mining industry where safety remains a high priority.

Wiggins Island – something to be celebrated

As a person who spends a large amount of their time dealing with mining infrastructure, the rate of structural reform and progress in the area can be frustrating.  The Wiggins Island port project is however something to be celebrated.

It should be celebrated for the hard work and persistence of all of those involved - the miners, WICET, the State and GPC. Most of all it should be celebrated by all of the mining industry in Queensland (and further afield).

Wiggins Island will provide a great platform for future infrastructure investment. It will be a platform irrespective of your chosen model. Wiggins established a successful consortium. It has proved to the industry and the lending fraternity that a large infrastructure project can be financed by a large divergent group – a group of large and small miners. The model holds hope for the start-up miner, as well as the established miner in expansion mode.

The financial close of Wiggins Island has come at the right time. The demand for thermal and metallurgical coal remains strong. The pipeline of new and expansion projects (particularly having regard to the Galillee) is huge. That pipeline of development has an equally large pipeline of rail and port developments.

The State of Queensland has recently announced proponents for 6 new terminals at Abbot Point. Each one of those terminals will be wholly funded by the using miners. At least one of the proponents is a consortium of mining companies (again large and small).

Such a scale of development comes with many challenges. There is of course the challenge of finding a skilled workforce to develop the infrastructure. Input costs are forever rising.

The largest challenge however is one of coordination. For infrastructure to be brought on line efficiently, each part of the coal chain needs to be developed in sync. There is no point in developing a mine and port, without a rail solution.

Without coordination the industry faces uncertainty and inevitable delay. To date the Queensland mining industry has suffered as a result of a lack of coordination. For coordination to be effective the only party that can impose it is the Government. We keep our fingers crossed.

This article was written by Freehills Partner Jay Leary.

Record Mining Investment set to continue

Mining investment is up 74 percent since last year, and 34 percent in the last six months.

Last week the Bureau of Resources and Energy Economics (BREE) published their biannual report on Mining Industry Major Projects – showing the silver (or is that gold?) lining in the face of economic doom and gloom.

At the end of October there were 102 projects at an advanced stage of development with a record high capital expenditure of $231.8 billion.

So can we expect more for 2012? Put simply – yes. Investment is set to continue with 302 less advanced projects registering a potential capital expenditure of $224.3 billion.

BREE’s Chief Economist said "Significant growth in coal, iron ore and gas exports are expected to occur over the medium and long term, underpinned by the capital investment that is occurring in these sectors."
Of the 102 advanced projects 40 are Mineral Projects representing capital expenditure of $30.7. billion Major iron ore projects include: CITIC Pacific’s US$6.1 billion Sino Iron Project; BHP Billiton's US$3.4 billion Jimblebar mine and Fortescue Metals Solomon Hub Stage 1 having an iron ore capacity of 60 million tonnes a year at a capital cost of US$2.7 billion. The largest advanced gold project is Newcrest’s Cadia East development in New South Wales, which is scheduled for completion in 2013 with a capital cost of $1.9 billion.

37 Energy Projects with capital expenditure of $170 billion. The Gorgon LNG project is the largest single resource project undertaken in Australia with an estimated capital expenditure of $43 billion.

21 Infrastructure Projects with a capital expenditure of $25 billion. The largest of these is Wiggins Island Coal Terminal which is located in Gladstone at an expected to cost around $2.5 billion to construct.

4 Mineral Processing Plants with a capital expenditure of $6.4 billion. The two largest mineral processing projects are both alumina refineries. The Worsley Refinery Efficiency and Growth project in Western Australia, scheduled for completion in 2012 for an estimated capital cost of US$3.5 billion. Expansion of the Yarwun refinery in Queensland at an expected capital cost of US$2.3 billion.

In 2010-11, New Capital Expenditure increased by 28 per cent to $51 billion, an all time record around three times the average annual expenditure over the past 30 years ($17.1 billion).

In 2010-11 Exploration Expenditure increased 9 per cent to $6.2 billion from 2009-10, the second highest level on record. Nearly all sectors increased their exploration with Coal increasing by 62 per cent; Copper 60 per cent; Base Metals 46 per cent; Uranium 26 per cent; Iron Ore 27 per cent; and Gold 13 per cent. Petroleum was the only major sector to slide decreasing by 8 per cent.

The accumulated capital expenditure of Completed Projects in the last six months totalled $9.6 billon. The largest energy project was the Cossack Wanaea Lambert Hermes field redevelopment and floating production, storage and offtake vessel located at the North West Shelf in the Carnarvon Basin, Western Australia, completed at a cost of US$1.47 billion and has the capacity to produce up to 60,000 barrels a day of oil. The Kitan oil project at a capital cost of US$600 million has an oil production capacity of 35 000 barrels a day.

What a great time to be a part of such a vibrant and prosperous industry

For a full copy of the report go to:
http://www.bree.gov.au/documents/publications/resources/BREE_MEMP_NOV2011.pdf

Can the mining sector lead diversity?

The resources sector is no different than any other male dominated industry, where attracting and retaining women in non-traditional roles and developing women to senior leadership roles is a difficult challenge.

But the need to increase female participation is even more compelling in this sector, where projected labour shortages could impact Australia’s future prosperity.

Government projections are that Australia will require 70,000 additional skilled workers for major resources projects over the next five years, and they have accepted the recommendations of the National Resources Sector Employment Taskforce, including the need for a strategy for attracting and retaining women in the resources and construction sectors.

So what now?

Cath Pattenden of the University of Queensland is currently reviewing progress for women in the resources sector.

Her statistics are telling. Currently the sector employs 17% women compared to the 45% women in the broader workforce, with only 3% in site-based roles.

Men earn more than women at almost every level. EOWA 2010 Census data shows that materials companies represent over one quarter of the ASX 200 index, yet only 4.3% of executive key management and 5% of board members are women.

The good news is that this is a marked improvement from the late 80s when less than 10% of workers in the resources sector were women.

However, these statistics show there is lots of scope for improvement.

While the solutions to the challenge of increasing female participation are many and varied, retention of female talent will no doubt be improved with better management of workers through pregnancy and early years of parenthood.

To help resources sector employers, the Minerals Council of Australia commissioned Freehills to develop a comprehensive parental leave and flexible work toolkit aiming to inform and educate employees, supervisors and managers of their rights and responsibilities around parental leave and flexible working arrangements.

It is one step to address a complex problem.

The challenges in the resources sector are well known: low enrolment of women in relevant tertiary courses; lack of women applicants for non-traditional roles; 12 hour rosters which are inconsistent with most childcare arrangements; remote locations, which in some cases lack facilities for families; the fly-in/fly-out schedules used at some remote locations; the lack of female mentors and role models; perception that the tough work cultures do not embrace diversity; concerns about safe jobs during pregnancy.

The less obvious challenges involve: the social conditioning that still subtly directs our children from birth towards traditional gendered roles (trucks vs dolls); the unconscious bias that affects most of us to more readily associate women with family and men with work; the unequal share of domestic responsibilities, which shows that working women still bear the majority of domestic and caring responsibilities; the operation of homophily, which is the tendency of individuals to associate and bond with similar others (eg. men with men).

There is no question that improving gender diversity in the resources sector is difficult. At the same time, there is recognition that change will help overcome projected labour shortages in the future and result in better workplaces and more profitable businesses.

Earlier this year the Minerals Council of Australia hosted a Women in Mining workshop which showed there is strong momentum for change among industry bodies, employers and women’s networking groups.

Their request is for the companies to show leadership with real actions that support the goal of increasing female participation and leadership.

The new ASX reporting requirements on diversity policies with measurable gender targets is an important starting point.

There is a great opportunity for change with the support of all industry participants, however those highly committed women in mining need lots more support to achieve that change in the next five years.

This article was written by Freehills partner Kate Jenkins and was first published by Australian Mining.

Disclosing production targets

Controversy surrounds listed mining companies disclosing their production targets with the ASX and JORC unexpectedly deciding to release separate consultation papers on the issue.

The production target disclosures debate was highlighted in ‘08 with the Midwest Corporation Limited Takeovers Panel decision and arose again in August ’11 when Tigers Realm Coal Limited reissued its prospectus having removed all references to forecast production tonnages and dates, capital development and operating cost estimates for a number of its projects.

Neither the ASX Listing Rules nor the JORC code specifically address the disclosure of production targets in their present form but leave the requirement for having ‘reasonable grounds’ for making a statement contained in s670A(2), s728(2) and s769C of the Corporations Act 2001 (Cth).

ASIC Regulatory Guide 170 gives some colour to what is meant by ‘having reasonable grounds’ but a considerable degree of discretion is retained by individual companies due to the ’08 decision and the lack of detail in the rules and regulations governing the issue.

The ASX has suggested a mandatory minimum reporting obligation whereas JORC has stated that it considers this approach to be overly prescriptive. After failing to agree on a preferred approach to the matter, the ASX and JORC decided to release separate consultation papers on the issue.

So what’s the likely outcome of the dual consultation process?  

In addition to formalising the production targets disclosure requirements applicable to mining companies, the process is likely to require companies to identify:

1. the key assumptions made in calculating the target
2. the key contingencies and risks associated with the realisation of the target
3. a cautionary statement highlighting the aspirational nature of the target.

These elements would all need to be disclosed clearly and unambiguously in an equally prominent manner to the target, as well as being proximately situated to the target in the disclosure.

Two of the more restrictive approaches canvassed in the ASX discussion paper would also see companies banned from disclosing production targets based on exploration targets or inferred mineral resources in greenfields projects respectively.

Let’s see where the debate ends up.

Carbon price passed: Now what?

After many years, 2 Prime Ministers and 3 opposition leaders to name a few, the Federal Parliament passed carbon price legislation yesterday. The price will apply from 1 July 2012 at $23/t Carbon Dioxide equivalent in the first year.

Many will be unhappy about this, but our focus must now turn to what do we do about it. We can’t ‘wait and see’ anymore.

The Opposition has committed to ‘roll back’ the carbon price if it wins government in the future. However, a roll back would be very difficult and appears unlikely, or at least not for some time (meaning we must still prepare for the carbon price).

So there are 2 key questions:

1. What does it mean for the mining industry?
2. What should the mining industry do about it?

What does it mean for the mining industry?

A carbon price will increase the cost of activities that directly or indirectly (ie through their inputs) emit greenhouse gas emissions. For mining the key carbon costs will attach to gas, coal, diesel and electricity use. Coal mines will also face direct costs for their direct methane emissions.

Whether carbon costs are directly paid to government by the mining company or its suppliers will depend on where the emissions arise and who has operational control of them.

Notably, the default position for liquid fuels is they will not be subject to the carbon price regime (with an obligation to obtain and surrender permits). Instead some liquid fuels, including off-road mining and power generation fuel, will face an equivalent carbon price through the fuel tax/rebate system. Mining diesel use will have a reduced diesel fuel rebate, initially at 6.21c/L in 2012/2013. Large fuel users will have the opportunity to ‘opt in’ to the carbon price regime and then need to obtain and surrender permits instead of paying through the fuel tax system. The ‘opt in’ regime is yet to be finalised, but this opportunity is expected to be available for users of fuel that produce more than 25,000t CO2e pa (about 9.1mL of diesel).

This generally means mining companies will pay for their fuel use, any power generation they undertake and coal methane emissions. Suppliers will most likely have any other direct liability. Those suppliers will in turn look to pass their costs through to the mining company.

The end result is the mining company will pay for their carbon footprints, directly or indirectly. Therefore the mining company’s commercial exposure is best calculated on the basis of its total emissions profile. 

Some compensation is being made available for ‘emissions-intensive, trade-exposed’ industries. However, it appears to be of limited availability for the mining industry. It will give some compensation to some minerals refining. Gassy coal miners will be able to access separate compensation.

What should the mining industry do about it?

Key steps include:

1. Review and design contracts: It is important to review and design your contractual arrangements to best manage carbon costs. This is generally achieved where all parties accept appropriate pass through. You should always consider where emissions (and therefore costs and risks) are likely to arise and how they can be best managed.
2. Offsets: Carbon offsets may be one key way to manage carbon costs. The ‘Carbon Farming Initiative’ voluntary scheme will present positive emissions reduction opportunities.
3. Disclosure: Be careful what statements you are making publicly and in your financial documents.
4. Approvals: If you are going through an approval process, any carbon offset proposals or negotiations should be revisited.
5. Compensation: Review what compensation may be available.
6. Opt in?: Large fuel users should consider whether to opt in to the carbon price regime or not. Main reasons to do so are to more effectively manage the carbon price exposure, including through the use of offsets.

ASX calls for submissions on reforms to Aussie resource reporting

The ASX has asked for submissions on proposed reforms to resource reporting in an aim to harmonise Australian reporting requirements with international best reporting practice, enhance access to capital and reduce costs.

The proposed reforms will affect the internal work listed companies must do to support disclosure and how disclosure is made.

The paper covers two areas:

• Part A – mining companies, looks at enhancing disclosure of exploration information, Mineral Resources, Ore Reserves and associated production targets by reference to international reporting requirements and reporting issues identified in the Aussie market.
• Part B – oil and gas companies, looks at promoting consistency and confidence in reporting of petroleum reserves, other petroleum resources and related production targets by adopting standardised technical definitions, a petroleum resources classification system and updated general reporting requirements.

Aussie mining and oil and gas companies have until 27 January 2012 to comment on these proposed reforms.

Interestingly, the Australasian Joint Ore Reserves Committee (JORC) has cited an inability by the ASX to reach an agreement with JORC in respect of a joint paper. As a result, JORC will release its own issues paper in respect of the JORC Code. Mining companies should make separate submissions to both the ASX and JORC.

For a full copy of the paper go to http://www.asxgroup.com.au/media/PDFs/ASX_LRs_Review_Issues_Paper_mining_and_oil_gas_reserve_and_resource_reporting_20111005.pdf

Double edged sword of E&R boom

Last night Freehills hosted 80 guests from the energy & resources industry at a Gala Dinner preceding the AMPLA Conference, with Key Note Speaker Shadow Minister for Energy & Resources, the Hon. Ian Macfarlane outlining the double edged sword of prosperity and scrutiny that is influencing Australian E&R. Prosperity in the form of projects totalling over “$300b in the pipeline” versus domestic and international scrutiny. “Now is the time to make the most of the boom,” he said, reflecting on increases in employment in his local electorate due to the coal seam industry. “E&R has come of age” as now the community are witness to the revitalisation of regional Australia. 

Macfarlane spoke of the responsibility of ensuring everyone is a beneficiary of these prosperous times falls on Government to “get it right… involve those participants not directly involved,” and called for co-operation and co-existence with farming and manufacturing in his address, stating that the Coalition would ensure that no tariffs would hinder these industries allowing for greater benefit from co-operative projects.

However, it was not all positive with Macfarlane reflecting on Australia’s current political dynamic with a Green controlled Gillard Government at the helm the carbon tax that will be passed by Christmas. But the political banter was to be expected and did not overshadow the engaging address.

Macfarlane affirmed the Coalition’s intention to repeal the Carbon Tax and any Mineral Resource Rent Tax, stating that the Coalition’s policy is that such taxes will stifle the current boom by placing Australian E&R in an un-competitive position, compared to Africa and South America. The speculation of the future remains, however when questioned over the current stability of foreign investment he was more direct, admitting confidence was destroyed and investors spooked by “weird things”, such as the ousting of Rudd, condensate tax on North West Shelf producers, failed super profits, and now the carbon tax. “if we were to win…the fix would not be quick and would take 10 years to recover.”

The elephant in the room was the timeframe and process of unwinding the taxes.

The final insight was the notion of a sovereign fund. Macfarlane argued that it is irresponsible for Labor to immediately spend the proceeds from the mining taxes. He would like to see a sovereign fund raised from the “unusual amounts” provided by the boom to be retained and grow from the interest rather than being spent. Though he stressed that a sovereign fund is not a Coalition policy. 

Macfarlane concluded that the end of the boom would one day come, and would require action to secure prosperity 20 or 30 years down the track. 

However, it remains uncertain as to exactly what a successful Coalition would do.

As noted by Business Spectator’s Robert Gottliebsen in his column this morning, the mood of the night was buoyant. Freehills would like to sincerely thank the Hon. Ian Macfarlane for his insightful address.

Your comments are most welcome.

Keynote speaker the Hon. Ian Macfarlane.

Business Spectator’s Robert Gottliebsen quizzing Macfarlane during question time.

Freehills’ Mining Industry Lead Partner, John Tivey with keynote speaker the Hon. Ian Macfarlane.