Focus v Brosnan & Ors – are your tenements at risk?

25 Feb 2020

A recent Warden’s court case has highlighted the need for care when calculating Administration and Overheads.

Are your tenements at risk?

Focus v Brosnan & Ors was handed down on 14 February by Warden O’Sullivan and is essential reading for the Mining Industry’s management, accountants and tenement managers.

Background:

Brosnan and Van Blitterswyk  lodged Applications of Forfeiture against Focus Mineral Ltd’s (Focus) 150 tenements on the basis that Focus failed to meet expenditure. Sixty-nine of the tenements subject to forfeiture (Tenements) are in Combined Reporting Groups, which relied on the aggregate exploration expenditure.

While the case was decided on the granting of an extensions to submit the Operations reports, Warden O’Sullivan was highly critical of the lack of processes around verifying expenditure on the tenements, including administration and overhead calculations.

Warden’s Comments:

Warden O’Sullivan was very clear that this was not the fault of the tenement manager, stating:

“[The tenement manager] may have managed to lodge all of the Form 5s by the due date, however, he did not have time to properly identify and include all of the items of expenditure in addition to verifying those items of expenditure which were already included.

It is for this reason that nothing I have said should be interpreted as a criticism [of the tenement manager].”

MinterEllison, Focus’s lawyers, requested the tenement manager review the costs on all of their tenements to determine what administration overheads actually were, a task that led to the request for the Application Extension of Time for the Exemption Application.

The Warden also stated:

“…there is no evidence upon which it could be reasonably be concluded that [Focus] were entitled to rely on let alone certify that the information in the Form 5s is true”

Furthermore:

If the certification is to mean anything, then the tenement holder or his agent must be sufficiently well informed as to the activities and expenditure on each tenement

The mere fact a system is said to exist is insufficient to enable the tenement holder to certify that the information derived from it is true

 The Warden went on to say, compiling, calculating and reporting expenditure is a difficult, time consuming task, and if a tenement holder acquires multiple tenements it does so in the knowledge that it must properly resource the tenement management. Focus’ resources for collating $67m expenditure on the 150 tenements was inadequate as surmised by the Warden from Focus’ application.

The Warden said:

with the acquisition of tenements comes the concomitant obligation to ensure sufficient resources are devoted to tenement management”.

Lessons Learned:

  1.  It is imperative to have a system of recording expenditure consistent with the Form 5 categories to quickly and efficiently meet the Mining Act’s reporting requirements
  2.  The 20% administration cost allowed on a Form 5 must be justified and auditable.

The impact of inadequate processes when reporting is potentially catastrophic to mining companies, in the worst case leading to forfeiture of the tenements.

LandTrack Systems can give your staff the training to meet these challenges.

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

Expenditure Watch, one of our tools, is also a tool which provides robust expenditure tracking and auditing for submission of Form 5s and Combined Group Reporting.