Australia: Gammon or game over? The serious consequences of a mining lease cancellation that you should know about

In Queensland, the Minister for Natural Resources, Mines and Energy (Minister) has the power to cancel various types of tenements including a mining lease (ML). However, the decision to cancel an ML is one the Minister does not take lightly.

This article explores the important consequences that can result from the cancellation of an ML, including unforeseen restrictions for the former ML holder with respect to its other obligations, as recently highlighted in the case of The Chief Executive administering the Environmental Protection Act 1994 v Baal Gammon Copper Pty Ltd & Anor [2020] QPEC 28 (Baal Gammon Case).

Cancelling an ML

ML holders are required to comply with relevant legislative requirements that provide a clear framework for the operating standards expected by the State. When an ML holder fails to meet these standards, the Minister may choose initiate the cancellation process.

The Minister may cancel an ML in the event that an ML holder has failed to comply with certain requirements of the Mineral Resources Act 1989 (Qld) (MRA). Section 308 of the MRA provides that the Minister may cancel an ML if the ML holder has:

• carried out activities that are not consistent the purposes for which the ML was granted;
• failed to pay the royalty or any other amount payable under the ML by the due date; or
• failed to comply with any condition under the ML.

Prior to cancelling an ML, the Minister is required to give notice to the ML holder, inviting it to make submissions about why the ML should not be cancelled. A copy of the notice is given to any other person who holds a recorded interest in the ML. This affords natural justice and procedural fairness to the ML holder. The Minister may only act to cancel an ML if any submissions are determined not be satisfactory.

If the Minister decides to cancel an ML, the Minister is again required to give notice to the ML holder, and any other person who holds a recorded interest in the ML, of the decision together with the reasons for cancellation.

Effect of a cancellation

The cancellation of an ML takes effect the day after the Minister's decision. To the extent the decision is communicated by the Minister by post (which remains the way many decisions are communicated by the Department to tenement holders), this could lead to delay in the former ML holder becoming aware of the already effective decision.

The MRA provides that upon cancellation of an ML:

• the former ML holder must immediately remove each post or other thing used to mark the land;
• any mineral and other property brought onto the ML area by the former ML holder divests from the owner and vests in the State; and
• the Minister can draw upon on any security held for the ML (for specified purposes).

Importantly, and as was highlighted in the Baal Gammon Case, the effect of the cancellation could lead to disputes about title to property brought onto the ML area by contractors or other third parties.

The MRA provides a mechanism for any person who claims an interest in mineral or property immediately before the ML cancellation (including the former ML holder) to apply for the Minister's permission to remove that mineral or property from the land. An application must be made within 20 days from cancellation taking effect, or a longer period of not more than three months is agreed with the Minister.

The Minister must approve an application if satisfied that the person was entitled to the property before it vested in the State, and that there is sufficient security held against the cancelled ML to meet the relevant costs. Once the property is removed by the person with the Minister's position, title in the property vests in the person entitled to it immediately before the termination of the ML.

Critically, if any property remains on the land that fell within the ML area for three months after its cancellation, and no successful application is made for its removal, the property may be sold by the Minster, either by public auction or other means. Property of no commercial value may be disposed of or destroyed.

The MRA dictates an order of priority in which the proceeds of any property sale are to be applied. This includes paying the reasonable expenses of the sale, costs of rectifying damage for which deposited security was not used or was inadequate, amounts owing to the State under the MRA or the Environmental Protection Act 1994 (Qld) (EP Act), and any rates or charges owed by the former ML holder to the local government. The balance of any funds remaining is then returned the former ML holder.

The Chief Executive v Baal Gammon Copper

The Baal Gammon Case required the Planning and Environment Court to consider whether Baal Gammon Copper Pty Ltd (BGC) was in contempt of Court for failing to comply with Court orders. The Court found that BGC had a lawful exercise for failing to comply arising out of the consequence of the cancellation of BGC's MLs for its Baal Gammon Mine (Mine), among other matters.

DES)). The Court's order outlined a substantial program of works, comprising interim and final measures, which BGC was required to follow over an extended period of time (Order).

BGC's MLs were cancelled by the Minister towards the end of the period during which the interim measures were to be carried out, and before the period during which final measures were required to be carried out. The cancellation was on the basis BGC had failed to comply with the conditions requiring payments of rent and royalties, etc. BGC did not provide any submissions about the intended cancellation of the MLs when invited to do so.

BGC contended that the cancellation of its MLs hampered its ability to comply with the Order due to practical difficulties including the:

• time required to prepare an application seeking to challenge the cancellation of the MLs;
• time required to deal with contentions from officers of the Department of Natural Resources, Mines and Energy (DNRME) that property on the ML area vested in the State, including the cars driven by employees to the site;
• reluctance of third party contractors to undertake work on the Mine as a result of DNRME's contentions; and
• reluctance of potential lenders to advance funds to BGC in light of the cancellation.

Further, there was evidence on BGC's behalf that representatives of DNRME had prevented BGC from accessing the laptop belonging to a third party contractor, which was at the Mine and had been used to collate data relevant to complying with the Order.

There was no challenge to this evidence by DES during the hearing before the Court. Rather, the Court was satisfied that it aptly illustrated the practical effect of an ML cancellation. The Court found that it created confusion around BGC's rights to enter the ML area and whether it could use the property which automatically vested in the State to comply with the Order. The Court acknowledged that the confusion was the by-product of actions taken by officers of DNRME, who were not a party to the proceedings which were brought under the EPA.

Simply put, cancelling the MLs disrupted BGC's relationships with contractors, experts and employees. These were the very persons required to enter the ML area to comply with the Order. The Court accepted that this was a clear and unexpected distraction for BGC.

Important reminder for ML holders

Although primarily a case dealing with contempt, the Baal Gammon Case is an important example of the practical consequences which can arise from the cancellation of an ML, including unexpected constraints that may result.

ML holders should not underestimate the Minister's power to cancel an ML or how it may affect their ability to meet subsequent requirements by law, including any relevant environmental authority issued under the EPA, or business operations generally.

It is important that ML holders are aware of the procedural fairness processes available to them under the MRA to avoid or reduce the significant impacts of an ML cancellation including:

• receiving notice of the Minister's intention to cancel an ML;
• the opportunity to show cause for why an ML should not be cancelled;
• receiving notice, if the ML is cancelled, of the reasons why it was cancelled; and
• the opportunity to make an application for the Minister's permission to remove mineral or property, if the applicant has interest in that mineral or property, which otherwise vests in the State upon cancellation.

DES's powers to cancel an environmental authority (EA) connected to an ML under the EPA is separate to the Minister's power to cancel the ML itself. Accordingly, the cancellation of an EA alone will not affect the ML holder's right to access land, property and mineral within the ML area – although it will impact whether certain activities can be lawfully carried out. In practice, however, it is more common for DNRME and DES to deal with the relevant EA and ML within similar timeframes.

Given the current economic uncertainty and difficulties many ML holders may be facing, and that an ML can be terminated for non-payment of royalties or any other amounts payable under the ML, it remains to be seen whether there will be an increase in ML cancellation activity. In any event, it is important for ML holders, contractors and employees to be aware of the timeframes associated with applications to remove property from the ML area.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.