A recent decision ( [2018]WAMW 13 MH Gold & Others v Phoenix &Anor) by Warden J O’Sullivan highlights the dangers of being unenlightened about the Mining Acts and its principles.

MH Gold & Others owned 13 tenements in the Mt Holland region and only spent money on developing the Blue Vein mine on a single mining lease and failed to spend money on their other adjoining tenements. Under the Mining Act there is a requirement to meet the legislated commitment each year or apply for an exemption from expenditure for specific stipulated reasons.

The Warden refused the exemption from expenditure applications on the other tenements for the 2016 year even though $8.3M was spent on developing a gold resource and a lithium resource and $110M Joint Venture was entered into.

As the warden said “Not every commercial decision will sit comfortably with the Mining Act.”

From the 72 page decision I have attempted to summarise a few key points.

MH Gold stated on the operations expenditure reports a 20% administration expense, which is the maximum allowable under the Mining Act. The Warden disallowed this amount stating:

“Reg 96C(3) does not sanction the practice of allocation the %20 towards administration expenses automatically without recourse to the what was actually expended on administration”

The Warden also stated administration costs can be claimed even though no exploration has taken place on the tenements, but the administration amount must be calculated. MH Gold applied for an exemption from expenditure under 102(2)(h), the tenements are part of a combined reporting group (‘CRG’).

All the expenditure within the CRG was spent on ‘mining related expenses’ developing Blue Vein Mine, which is not exploration expenditure and is disallow expenditure under CRG. Then after mining related expenses and 20% administration expenses were excluded the CRG expenditure was $102,771 below the CRG’s commitment of $551,933. Therefore the exemption was not eligible under 102(2)(h). As an aside, the ASX announcements were used as evidence that all CRG expenditure was mining expenditure not exploration expenditure.

Also used as exemption application was s102(2)(b), time is required to evaluate work on the tenement, plan exploration and raise capital.

The capital raising was for the mining and not for the exploration and there was also an absence of a plan for exploration, thus the reason for exemption was disallowed.

Another reason used was s102(2)(f), the tenement contains a mineral deposit to sustain future operations. The warden interpreted this strictly and said the tenement must contain an economic deposit needed to sustain a mining operation. None of the tenements did and the reason was disallowed.

The final reason was under S102(3), being, any other reason the Minister sees fit.

The following reasons were given:

• $4.5M spent by Convergent before 2016
• After the 2016 year $3.7M spent by Kidman, including discovery of a Lithum resource and production due in 12months
• $110 M JV entered into by Kidman and SQM
• The Minister noted significant jobs being created

The Warden said the post expenditure events failed to explain why the expenditure was not met in the 2016 year and there must be sufficient reason why the expenditure in not met in the relevant year.

In conclusion, the Warden refused the exemptions, and one wonders about the logic of the Warden’s application of the Mining Act. But it is a lesson to all mining company management they need to be aware about the nuances of the Mining Act. In this case only an extra $102,000 needed to be spent on exploration, a plan developed for exploration of the tenements and the company’s overheads were calculated, and they would have a problem.

LandTrack Systems offers short courses for anyone wanting to learn about the nuances of the Mining Act.