16 December 2022
As the holder of a mining tenement, it may be necessary in certain circumstances that in order to exploit the value of mineral-rich land, you are required to enter into a mineral rights agreement with a third party. For tenement holders, it is critical that your rights and interests are sufficiently protected under the agreement to mitigate future risk of uncertainty or litigation.
The basics
To ensure that your rights are adequately protected under a mineral rights agreement, it helps to understand some basic aspects of WA’s mining law.
Who owns the minerals?
In Western Australia, as is the case in every other State and Territory, separate legislative frameworks govern rights to minerals. Here, that legislative framework is the Mining Act 1978 (WA) (Mining Act).
The Mining Act provides that the Crown owns all minerals in the land and that any party who wishes to carry out mining on the land will need to obtain a mining tenement.1 All Crown land (as defined by the Mining Act), not being the subject of a mining tenement, is open for mining.2
What are minerals?
The Mining Act defines minerals as any naturally occurring substance obtained or obtainable from any land by mining operations carried out on or under the surface of the land.3
Further, the Mining Act delineates what is not a mineral. This includes soil and meteorites occurring on Crown land; and limestone, rock, gravel, sand, shale and clay,4 occurring on private land.5
Why might I need a mineral rights agreement?
Although land in Western Australia is generally open for mining, much of the mineral-rich land in our State is already subject to existing mining tenements.
Those mining and exploration companies that hold existing tenements over the land generally seek to exploit the land for a dedicated suite of minerals such as precious metals or rare earths.
Tenement holders may find value in engaging with other exploration and mining companies to enable their land to be dually exploited. Dual exploitation by a third party may be favourable to the tenement holder with respect to tax implications, expenditure requirements, joint mining operations and royalties.
But doing so is not without risk. A mineral rights agreement may provide a framework for mitigating that risk. Such an agreement should contemplate the following questions.
Who bears the ultimate risk?
One of the primary risks associated with entering into a mineral rights agreement is identifying who in fact owns the ultimate risk. That risk can be summarised as the risk that you will lose your rights to the land. This may occur if you fail to observe and comply with the conditions imposed over your tenement, which may subsequently render your tenement liable for forfeiture.6
It is necessary to safeguard your mineral rights agreement by including mechanisms that ensure you as the mining tenement holder are sufficiently informed of material circumstances in a timely manner to enable you to comply with your reporting obligations which may arise under the Mining Act.
Who is responsible for the reporting obligations?
It may also be necessary to ensure that you are specify time frames with which third parties are required to deliver up information that is pertinent to you satisfying you reporting obligations. This may include for example, expenditure associated with mining and exploration, or rehabilitation.
Additionally, it is of the utmost importance to ensure that mechanisms with which to deliver up information are not simply limited to ensuring your obligations are met under the Mining Act. As a tenement holder, it is paramount to ensure that all relevant information is made available to you so as to satisfy your reporting obligations with respect to environmental, cultural and safety reporting in Western Australia.
Which minerals do you actually own?
Mineral rights agreements may fail to sufficiently define the specific suite of minerals the parties to an agreement will have rights over, giving rise to the potential for conflicts between the parties.
If you are currently in the process of negotiating a mineral rights agreement, it is prudent to avoid phrases such as “… and related minerals” or “… and co-products or by products of…” when defining the minerals over which one party has the rights. Rather, it is prudent to specify each individual mineral over which you intend to have the rights.
Who has priority to mine?
Another risk parties may face when relying upon their mineral rights agreement is in determining who has priority to mine when there is co-mineralisation.
Parties should not only consider who has priority, but should also consider whether prioritising the extraction of one mineral over another will jeopardise the recovery or extraction of other minerals from a single source. In these circumstances, it is advisable to engage a geologist or technical specialist who can fairly guide parties through this decision making process. The role of such a specialist should be included in the agreement.
In circumstances where there is co-mineralisation, alternative mechanisms to overcome the priority issue often include providing priority to the party that has invested the greatest amount financially in the project or the tenement, or alternatively, negotiating a royalty agreement in favour of the party that does not have priority.
Dispute resolution and expert determination
A mineral rights agreement should always include a detailed dispute resolution clause. The purpose of such a clause is to ensure there is clearly defined process for efficient dispute resolution and to avoid a stalemate between the parties.
There are many ways in which a dispute resolution clause can be drafted and each circumstance must be considered in order to work out the most appropriate dispute resolution clause for a particular agreement. It may, for example, be desirable for the parties to appoint senior members from each party to discuss any dispute within a relatively short time of the dispute emerging to attempt to resolve any such dispute. In other instances and depending on the nature of the dispute, it may be more efficient to refer disputes, particularly those of a technical nature, to an expert for determination.
Referring a matter to an expert is often beneficial prior to referring that same matter to mediation, arbitration or litigation. The agreement should ensure parties have agreed as to who will bear the costs of an expert, be it a single party, jointly, or as determined by the expert themselves.
When referring a matter to an expert, it is important to ensure the scope of the dispute is well defined. Experts are generally assisted by submissions from the parties in order to promote the expedient findings and recommendations, which parties should agree in advance will be binding with the exception to circumstances of a manifest error.
Summary
Taking the time to carefully consider and prepare for the risks that may arise once commercially viable mineral deposits are found on your tenement can save significant amounts of time and money and may ultimately mitigate the need to engage in a costly and turbulent litigious process.
If you are interested in protecting your rights, or are subject to a dispute under an existing agreement, please do not hesitate to reach out to the team at Bennett.
Footnotes
- Mining Act s 9
- Mining Act s 18
- Mining Act s8 (1)
- Other than mineral sand, silica sand, garnet sand, oil shale, kaolin, bentonite, attapulgite or montmorillonite
- For the complete definition of ‘Crown land’ and ‘private land’, please refer to s 8(1) of the Mining Act
- Mining Act s 96
View ProfileDisclaimer: The information published in this article is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.
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