Current trends and regulatory changes for the mining industry in QLD – a quick review

If announcements are anything to go by, the immediate future for the mining industry at a regulatory level is looking brighter. The Queensland Government has announced their intention to attempt to decrease the inefficiencies that currently exist at a compliance level in the resources sector.

Accordingly, the Queensland Government has recently enacted legislation to streamline and harmonise procedures for dealing with different types of resource interests, including exploration permits and mining leases.

The legislation reduces the initial terms of mining claims from 10 years to 5 years, and creates a new class of ‘non-assessable transfers’ (change of name, transfers of mortgages and subleases), that are not required to be assessed before being registered. The legislation also creates a new online platform, which aims to deliver information contained in mining and petroleum registers more efficiently.  

The Queensland Government has also announced its intention to minimise the red tape that exists in current legislation. The Office of Best Practice Regulation released a report in October 2012 recommending an immediate review of occupational health and safety legislation and workers’ compensation legislation that “impose red tape, increase the cost of business and reduce competition” with a view to reducing the burden of regulation by 20% over six years. 

A global contract law? What is in store for Australia?

Some utopian visions of the world foresee that, in a globalising economy, we will be ruled by a ‘global law’ – a law that is not connected to any particular nation state. But the concept of a universal law, applying across nation states, regardless of the nationality of market participants is in fact very old. It is found in the medieval concept of the lex mercatoria – the law merchant – which applied to all merchants in the vibrant medieval international economy. Now, in response to the internationalisation of markets, we are seeing a resurgence of that vision, especially by nations such as Australia which stand outside any of the major trading blocs and seek to be relevant.

The Australian Government has recently released a discussion paper, Improving Australia’s Law and Justice Framework: A discussion paper to explore the scope for reforming Australian contract law: Discussion Paper. Such reforms are said to be necessary in light of the lack of uniformity of contract law across Australian jurisdictions, the lack of clarity as to the applicable law in particular contract disputes and international developments in contract law. The discussion paper is a broad-ranging one and covers many issues including the possible codification and ‘harmonisation’ of contract law.

Of particular interest and importance are the aspects of the paper relating to Australia’s contract law in the context of international commerce. The paper notes that a key potential obstacle to greater economic integration with Australia’s main trading partners are the differences between their systems of contract law and Australia’s and acknowledges the potential benefits in Australia being an early adopter of the developing “international law of commerce”. The paper makes reference to a number of important international approaches to contract law including the United Nations Convention on Contracts for the International Sale of Goods (Vienna Convention) and the UNIDROIT Principles of International Commercial Contracts. Each of these have been attempts at codifying parts of the law merchant. They are important sources of restatement of the fundamental rules that apply to any international transaction.

The challenge for Australia is how it best integrates its economy into the international world economy, especially in this ‘Asian Century’. The discussion paper on the reform of Australian contract law should be seen in the context of two other projects already underway or about to proceed. The first is the Prime Minister’s forthcoming White Paper on Australia in the Asian Century: Australia in the Asia Century. The second is the possible project to be approved in April by the Standing Council on Law and Justice (previously known as the Standing Committee of Attorneys-General) on the private international law aspects of commerce: Standing Council on Law and Justice.

All three projects sharpen our focus on the international dimensions of our economy and legal system.

This is an exciting time for those concerned about the international dimensions of commerce – these projects bring many opportunities for reform but also great risks. As the projects proceed we will bring you insights into the issues and thinking that stand behind them.

This post is written by Freehills Partner Don Robertson.

Foreign mining investors to be stripped of majority ownership

Foreign mining investors will be required to divest majority ownership in companies holding mining business permits under a new Presidential Regulation issued recently.

On February 21 this year, the Indonesian Government implemented a forced divestment framework to capture and ultimately control mining projects.  This new regulation, Government Regulation No.24, deals with a number of issues including the procedures for the extension of Contracts of Work and Coal Contracts of Work but the provisions that are getting most attention are those requiring an increased compulsory divestment of ownership to Indonesian Participants.

The new Indonesian Mining Law enable foreign investors to hold mining business permits for the first time.  But here’s the kicker – foreign investment companies that hold licences for a producing mine of 5 year maturity are required to divest 20% of the mine to Indonesian Participants, and after ten years the shareholding percentage held by Indonesian Participants must be not less than 51% (it goes up incrementally from 5 years).  There is also stipulation on which Indonesian Participants have priority.  Shares must be offered to the Central Government and if it is not interested, then to the Provincial Government or Regional Governments; State owned and regional owned enterprises; and finally to national private business entities that are 100% owned by domestic investors.

Shares offered to State and regional owned enterprises or  to national private business entities must be offered by way of auction, but it is not yet clear how this process will work. Others areas of concern are that the regulations are yet to provide any details on the pricing of offers made to the a Government.

There are of course a number of technicalities around what happens to existing Contracts of Work and Coal Contracts of Work including how and whether they can be extended – but what is clear is that companies operating in this area need to familiarise themselves with these laws, and quickly as they are already in effect!

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).

Production targets should be backed up by competent persons

Market confusion the likely outcome if changes aren’t made regarding the disclosure of production targets says ASIC.

According to ASIC’s recent public submission paper responding to issues papers from the ASX and JORC, the reporting of production targets and financial information based solely on Inferred Mineral Resources or exploration targets could lead the market to be misinformed, inferring that the target or prospect will be achieved when in fact a high level of uncertainty actually surrounds the underlying resource.

Currently neither the JORC Code nor the ASX Listing rules explicitly address this issue other than requiring that companies have ‘reasonable grounds’ for making the statement – reasonable grounds being based on completion of sufficient work measured against various modifying factors.

Looking at international equivalents, ASIC noted that unlike ASX’s Option 5A, the South African and European codes don’t allow production targets or statements about future matters implying economic viability based only on Inferred Mineral Resources – at least some Ore Reserves are required.

It is, however, allowed in Canada. Companies are required to make full disclosure by way of technical reports written and consented to by qualified people who generally are independent.

Based on this, ASIC’s response is that production targets and other forward-looking statements should be consented to by a Competent Person under the JORC Code – an issue that neither the ASX or JORC issues paper addressed.

If these changes are implemented companies will have greater certainty over the requirements attached to production level disclosure. An eradication of future unsupported production assumptions will inherently bolster market integrity. However feasibility issues of engaging a competent person and completing sufficient work may increase the compliance burden on junior miners.

For a full copy of the ASIC submissions paper go to:

http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/ASIC-submission-asx-jorc-published-1-December-2011.pdf/$file/ASIC-submission-asx-jorc-published-1-December-2011.pdf

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.

Unconventional moves: changes to WA onshore gas regulation

WA has proven it is alive to the fact that there is an increasing importance of unconventional gas resources, with the WA Department of Mines and Petroleum (DMP) releasing on Monday its response to Dr Tina Hunter’s report on the regulation of shale, coal seam and tight gas activities in onshore WA.

Stakeholders should take a keen interest this response as it proposes amendments to provide for public disclosure of the chemicals used in fraccing operations, and of approved environmental management plans – information which is usually commercially sensitive. 

Dr Hunter’s report was commissioned by the DMP to provide an independent assessment of the existing regulatory framework for unconventional gas resources. Their response indicates that changes are afoot for the regulatory regime for onshore gas activities in WA, particularly on key issues associated with development of unconventional gas resources – with the reform package seeking to propose:

1. legislative amendments to mandate full disclosure of chemicals used in fraccing operations and publication of approved environmental management plans on the DMP website
2. new Resource Management Regulations to regulate onshore petroleum activities and which will:
• specifically address field sterilisation
• incorporate requirements for field abandonment; and
• address onshore decommissioning
3. new Environment Management Regulations to regulate onshore petroleum activities including gas from unconventional sources and which will:
• clarify guidelines for management of produced water from fraccing processes; and
• include management guidelines for produced water from abandoned wells.

The Resource Management Regulations and the Environment Management Regulations are expected to be released for stakeholder input by mid 2012 and end 2011 respectively.