Win the Battle Lose the War

27 Aug 2020

Kimberley Minerals v Spinifex Abrasives

In 2006 Mr Molloy of Spinifex Abrasives purchased the Hawkestone Creek Abrasive Mineral Deposit (Hawkstone Project) with viable deposits of high-value metamorphic minerals with garnet, rutile, andalusite, and zircon.  The resource estimate defined at that time was 300,000 tonnes of contained garnet at 30% and 2.2 Mt of staurolite at 15%.

In 2011 Mr Molloy applied for Mining Lease 04/455 (the location where that M was).  The ML is granted in 2015 and he spends the next three years seeking funding to develop the Hawkstone Project.

Being from Kingaroy in Queensland, Mr Molloy may well have been unfamiliar with the WA Mining Act. Spinifex Resources lodged a Form 5 expenditure report for the 2017 to 2018 year for an amount of $51,849.20. The commitment for same period is $41,600.  The marketing expenditure Mr Molloy uses on the Form5 is not allowable under the Mining Act. His alternative at the time was an application for an exemption from expenditure at a cost of $360.

Kimberley Minerals – a small private company, holding 1000sqkm of tenure in the West Kimberley region, sought to expand into Spinifex’s Hawkstone Project, but any approaches that may have been made were rebuffed by Mr Molloy.

Kimberley Minerals requests Ms Watts, a very talented lawyer, formerly of Hunt and Humphries (a leading mining law firm in WA), to lodge an Application of Forfeiture on M04/455 in an effort to take advantage of Mr Molloy’s potential mistakes on the Form5.

Mr Molloy may have failed to appreciate the gravity of matter. He neglected to obtain legal representation as soon as possible and ended up in the Warden’s Court self-represented, suffering enormously under Ms Watts’ expert counsel (see Kimberley v Spinifex).

On the day of the Hearing, Mr Molloy requested the Warden adjourn the case, saying he had been injured, presented a medical certificate and lifted his shirt to show bruises. Warden O’Sullivan, known to be a stickler for procedure, required comprehensive evidence from anyone in his court, which Mr Molloy failed to provide. Warden O’Sullivan chose to deny Mr Molloy’s request for adjournment, citing cost implications to all parties, the inconvenience to Kimberley, the public interest for not having case in dispute continue for an extended period, and not wasting the court’s time.  Notwithstanding, Warden O’Sullivan gives allowances to Mr Molloy, such as: sitting down when needed, and allowing Supplementary Submissions to be submitted after the Hearing.  These submissions were deemed by Warden O’Sullivan to be totally inadequate.

When the Form 5 expenditure was examined it was deemed to be non-claimable except for the rent.  The initial $26,250 (Exploration Activity category) – that was described as “Monthly Marketing Arena, Consulting Geologist travel etc” on the Form5.  Ms Watts cross examined Mr Molloy about the expenditure. He admitted that all the work since M04/455 was granted was not ground work but marketing project finance and “on ground work was a waste of time”. This really demonstrates his lack of knowledge of the Mining Act.  As per the Mining Act the Warden said all this expenditure is not claimable on a Form5.

The $8,320 (Administrative Expenses category) an amount of 20% of minimum expenditure requirement is allowed under the Act.  Ms Watts continuing the cross examination had Mr Molloy admit he had never done a calculation, but instead just used 20% amount allowed under the Mining Act. Further, no evidence was led that any administration cost was attributable to M04/455 or to substantiate the amount claimed.  The Warden said all these reasons were fatal to using the administrative expenditure on the Form 5.

Additionally, the $17,279.20 (Rents and Rates category) Mr Molloy did not supply evidence that the rates were paid, so the Warden only allowed the rents claimable (being an amount of $7,321.60).

Reason for Forfeiture

Warden O’Sullivan quoted Commercial Properties v Italo Nominees:

 “Upon prima facie proof of non-compliance the plaintiff establishes a prima facie case for forfeiture and the evidentiary burden then shifts to the defendant to satisfy the court that the case is not otherwise of sufficient gravity to justify forfeiture”.

The Warden deemed the case severe enough for forfeiture of M04/455 because:

  1. Of all the expenditure, only the rent was deemed expenditure;
  2. Since grant, no ground disturbing work was done on M04/455;
  3. All the previous Form5s relied heavily on marketing project finance;
  4. No Exemption from Expenditure was applied for;
  5. Mr Molloy to support his testimony supplied no evidence of JV partner supplying $35M for the project; and.
  6. No additional evidence was supplied in Mr Molloy’s Supplementary Submissions.

Kimberley Minerals would be pleased with the outcome as they now have prospecting licence applications over the Hawkstone Project, the former area of M04/455. The ground must be considered valuable with another player, MOPM Mining lodging applications over the Hawkstone Project. But by winning the short game will Kimberley Minerals win the long game?

In an article in the Cairns Post West Australian court decision leaves all mining leases insecure and subject to claim jumpers” Kimberley Minerals was accused of claim-jumping and fraud in the WA Mining Warden’s Court.  Have Kimberley Minerals made an enemy of Mr Molloy and may face his combative tactics at every turn?

Every time Kimberley lodges a tenement application, they may have to contend with Mr Molloy lodging an Objection.  Every time Kimberley lodges a Form 5 will they face an Application for Forfeiture by Mr Molloy? With an Application for Forfeiture on Kimberly’s tenements, will they be able of raise money, float the company, enter into a joint venture?

While winning the battle, Kimberley Minerals may have started their own war.

If you don’t want to suffer the same fate as Mr Molloy educate yourself or your team about mining, environmental and/or heritage compliance, to be better prepared to manage adverse tenure situations, consider attending LandTrack Systems series of courses:

Practical Tenement Management

Advanced Tenement Management

Environment Essentials

Navigating Exploration Agreements

LandTrack Systems also has a tenement/agreement/environment management system that is indispensable in assisting management tracking situations like those outlined in this article.