Certifying Form 5 Expenditure

18 Mar 2020

LandTrack Systems held a seminar on the 13 March 2020 that addressed the issues raised in Focus v Brosnan case about ensuring the accuracy and providing evidence of the expenditure provided on Operation Reports (commonly known as Form 5s) and calculating and proving administration expenditure.

To reiterate a couple of points Warden O’Sullivan highlighted in the lodgement of a Form 5;

the following certification is signed by the tenement holder or agent:

I certify …[the Form 5]…constitutes a true statement of the operations carried out and moneys expended on this mining tenement…”. [the Warden’s highlighting].

The Warden stated that the tenement holder should properly analyse the expenditure reported and have sufficient resources to meet the obligation. “The mere fact that an accounting system is said to exist is insufficient to enable the tenement holder to certify the information” on the Form 5.

The Warden stated the evidence required to certify a Form 5 is that:

  1. Instructions are issued to those inputting the information;
  2. On a regular basis, instructions are issued to reinforce those instructions;
  3. The relevant data is regularly audited for accuracy, apportionment, and proper characterisation as prescribed by the Mining Act and Regulations;
  4. The certifier has sufficient experience and training; and
  5. The certifier was aware of the requirements in calculating administration expenses.

Even though Focus spent $67M on 150 tenements and met expenditure on all of them, Focus’ application for an extension of time for the exemption application was refused because Focus were unable to demonstrate the evidence of compliance or show sufficient resources were provided to tenement management to undertake his assigned task.

The seminar demonstrated that mining companies should institute business processes to secure their tenure in light of the Warden’s decision and multiple serial plainters that exist in the industry. A few processes are suggested below:

  1. A company’s accounts department’s processes of collecting, documenting and reporting expenditure data requires consistency with the requirements of the Mining Act and Regulations (including the clarifying decisions of the Courts). From our experience this is usually lacking because they are focused on compliance with ASX reporting requirements. Therefore, make sure your accounts department is well aware of the implications of Warden O’Sullivan’s comments and the potential impact of non-compliance.
  2. Formulate a chart of accounts that reflects the online Form 5 categories under the Mining Act and Regulations. This statement sounds simple but once you get into the detail it can become quite complicated. Please review our White Paper written on this topic.
  3. Document instructions on how the chart of accounts should be used and circulate this to staff on a regular basis This is an attempt to build evidence.
  4. Have Geologists and others, document on each of the invoices how the expenditure is apportioned and characterised. This should be done in a consistent, reasonable and practical manner, uniform with the chart of accounts and instructions issued. This practice should be replicated in a digital environment.
  5. Audit the data regularly for accuracy, apportionment, and characterisation so it complies with the Mining Act and Regulations.  Having the data audited for compliance with the ASX is not sufficient.
  6. Provide adequate training for tenement managers. There is no formal tertiary education for tenement managers.  Most are assigned the role with limited experience and learn on the job, this being an invitation for mistakes.  LandTrack Systems can provide the training tenement managers need, so they won’t be get caught out with ambiguous legislation. We also keep the industry up to date on changing laws and DMIRS policies.
  7. When calculating administration expenses, it must be done in a logical, consistent and reasonable manner and not just use the 20% cap imposed by the Mining Act and Regulations. Administration calculations should probably be done on a regular basis and again, document the calculations. It was stated by one of the participants that consistently using the 20% cap for expenditure was an invitation for the serial plainters in identifying tenements or companies to target.
  8. The person certifying the Form 5 must have in depth knowledge (not just a general overview) of the company’s accounts department’s processes to have full confidence in the accuracy of the expenditure claimed. The person must also have sufficient knowledge of the company’s data recording of exploration (eg geophysics, drill holes and assay samples) to have full confidence in the accuracy of the data claimed.  This lack of evidence was part of the reason the application for extension of term was refused for Focus.  The more remote a person is from the company’s business processes the less ability they have to certify a Form 5 is true and accurate.

As the Focus case highlights it is essential to implement these procedures if you want to certify the Form 5’s expenditure is accurate and defend any applications for forfeitures against your tenements n a Warden’s court.

LandTrack Systems’ holds a number of courses that prepares Tenement Managers to certify a Form5:

  1. Practical Tenement Management –  gives a holistic overview of tenement management;
  2. Advanced Tenement Management – a more indepth view of tenement management; and
  3. Understanding Tenement Expenditure  – in-depth session about tenement expenditure and how to calculate your administration and overhead expenditure.

We are hosting Understanding Tenement Expenditure course on 16-17 April.

In addition, LandTrack can supply  Expenditure Watch, which is a tool to provide robust expenditure tracking and auditing for submission of Form 5s and Combined Group Reporting.

If you wish to attend any of those courses listed, or require further information please contact me.