This article is an extract from The Mining Law Review, 11th Edition. Click here for the full guide.
Government policy is generally geared towards fostering a framework in which growth in the mining sector can be encouraged, recognising the critical role mining plays in Australia's overall economic growth and the fact that Australia holds some of the world's largest resources of gold, iron ore, lead, nickel, uranium and zinc.2 Australia also has a significant mining equipment, technology and services (METS) sector, supporting the local mining industry.
Mining in Australia has had to make a number of adaptations in face of the ongoing covid-19 pandemic. However, as a result of careful and ongoing engagement with government and recognition by federal and state governments of the mining industry as an essential service, mining operations continued throughout the covid-19 pandemic largely uninterrupted. Mining companies and unions have implemented strict controls to restrict the occurrence and extent of any outbreaks at mine sites. Autonomous technologies and remote operations centres have been used to mitigate some of the difficulties resulting from the covid-19 pandemic. Strong price increases for base metals, iron ore and coal have led to an overall very strong result for the Australian mining sector in 2021–2022, with Australia's mining sector accounting for around 10 per cent of Australia's total gross domestic product, around two-thirds of Australia's total exports and directly employing more than a quarter of a million people.3
i Constitutional framework
Australia is a federal constitutional monarchy under a parliamentary democracy, formed in 1901 as a result of an agreement among six self-governing British colonies, which became the six states (and which later included three self-governing territories). The head of state is King Charles III, who is represented by the Governor-General. The King appoints the Governor-General on the advice of the Prime Minister of Australia but has no active role in the day-to-day operations of government. Australia's Constitution establishes a centralised federal government (known as the Commonwealth government) and various state and territory governments. The Constitution also reserves exclusive responsibility for certain matters (i.e., trade, commerce and defence) to the Commonwealth government, and allocates law-making responsibilities among the Commonwealth and the states and territories.
In relation to minerals ownership, the default legal position is that all title to minerals is vested in the state or territory in which they are located. The legal framework around the development of mining projects is, therefore, generally governed by the mining laws of the various states and territories; however, the commissioning of a mining project will require compliance with a range of Commonwealth laws (environmental, employment, foreign ownership and native title) and certain state and territory laws (i.e., resource royalty obligations and stamp duty).
ii Government policy
The current federal government, led by the Australian Labor Party, was elected in May 2022, following three consecutive terms of the centre-right Liberal–National Party coalition government. Federal governments in Australia have three-year maximum terms before another election must occur, meaning the next federal election must occur no later than May 2025. Government policy at all levels aims to provide a relatively well-defined system of laws and procedures governing the development of mining projects, and a proactive foreign investment regime. Regardless of political persuasion, all governments are aware that a favourable foreign investment culture provides impetus for the funding of large-scale mining projects. In this regard, Australia consistently ranks in the top echelon of leading 'inward-investment' destinations according to the 2021 Fraser Institute's Annual Survey of Mining Companies, which ranked Western Australia as the most attractive jurisdiction in the world for mining investment (considering policy perception and mineral potential).4
In addition, five of Australia's eight states and territories were in the top 20 most attractive jurisdictions in the world for mining and mineral exploration investment (on both a geologic and policy basis) in the survey, underscoring Australia's position as a world-leading mining jurisdiction.5
II Legal framework
i Legislative overview and jurisdictional separation
Each of the states and territories has enacted its own laws relating to exploration and development of mining operations. While there has been little effort to standardise these laws, they have many common features, and generally Australia has a relatively uniform legal approach to mining. The government of each state and territory is responsible for granting and administering all tenements to explore for and produce minerals within its borders. Depending on its nature, a tenement holder is entitled to an exclusive right to explore, maintain or extract minerals within the tenement boundaries.
All the various legislative regimes have at least two common stages – exploration and mining – with some including a third retention stage, which allows a tenement holder to retain rights over a prospective area after a discovery until commercial production is feasible.
The common types of tenements are summarised below:
|Exploration licence||Retention licence||Mining lease|
|Purpose||Allows the holder to carry out exploration and assessment activities to determine potential prospectivity.||Retains and protects title over a mineral discovery where mining is currently impracticable until commercial production becomes feasible.||Allows for development and commercial extraction and disposal of minerals from the tenement area.|
|Typical term||Usually granted for an initial term of five years (with right to renew). Often subject to compulsory surrender or relinquishment requirements each year during the term.||Usually granted for an initial term of five years (with right to renew).||Varies depending on jurisdiction (e.g., 21-year initial term in Western Australia and for a variable period in Queensland, usually determined by the mine life).|
Entry to land to carry out exploration operations.
Extracting certain quantities of minerals for assessment.
Right to apply for conversion into retention licence or mining lease.
Entry to land to carry out appraisal (and resource maintenance) activities.
Right to apply for conversion into mining lease when production becomes commercially viable.
Exclusive possession of tenement area for mining operations.
Right to construct and operate production facilities (subject to additional approvals).
Extracting commercial quantities for sale or export.
Minimum annual exploration expenditure commitments apply to ensure proper appraisal and analysis occurs.
Yearly rental payments are required to keep the tenement in good standing.
Holder is required to establish nature of resource and demonstrate why production is commercially not feasible (but can subsequently become commercially feasible).
Yearly rental payments are required.
Royalty obligations, payable to government based on extracted mineral.
Yearly rental payments are required.
Environmental rehabilitation bond payments.
ii Mineral reporting requirements
Generally, most tenements impose conditions requiring the holder to provide the government with annual resource delineation reports, and information about operations being carried out in respect of the tenements, primarily to ensure the government is kept appraised of the activities being undertaken on the tenement and their prospectivity.
iii Public reporting or disclosure requirements for mining companies
Mining companies listed on the Australian Securities Exchange (ASX) are subject to continuous disclosure requirements (imposed by the ASX Listing Rules, which each listed entity must comply with, and the Corporations Act 2001 (Cth)) in relation to both their operations and mineral resource reporting, to ensure fair and informed market participation. A range of disclosure obligations is imposed by the ASX Listing Rules, but the key principle is that any information that a reasonable person would expect to have a material effect on the price or value of the shares of the company must immediately be released to the market.
There are also disclosure requirements that are specific to mining companies. These require disclosure to be made in relation to all mining, exploration and tenement activities in accordance with the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). A company must promptly report on any material changes in its mineral resources or ore reserves (as defined in the JORC Code), and this report must be prepared by a 'competent person' (who must be a member or fellow of the Australasian Institute of Mining and Metallurgy or the Australian Institute of Geoscientists, or both). The key requirements include the following:
- the maiden reporting of mineral reserves or resources (or material changes to previously reported reserve or resource estimates) must include prescribed supporting information and the 'competent person' must consent to the form of the disclosure;
- the consent of the 'competent person' is not required for subsequent disclosure of the same material;
- a listed mining company must include a mineral resource or reserve report in its annual reports, and provide quarterly reports to the market on its activities;
- a feasibility or pre-feasibility study must be carried out prior to the declaration of an ore reserve;6 and
- a mining company can only release production targets, financial forecasts or income-based discounted cash flow valuations if the entity has a 'reasonable basis' for the statement. The Australian Securities and Investment Commission (ASIC) has indicated that this requires (among other things) having 'reasonable grounds' for any assumptions made regarding the availability of funding (if funding is yet to be secured). The assumptions upon which the forecasts are based must be disclosed and the market must be updated if the assumptions materially change or are proven to be inaccurate.7
III Mining rights and required licences and permits
The default legal position in Australia is that all title to minerals is vested in the state or territory in which they are located. The overwhelming majority of land available (and prospective) for mining activity is Crown land or public reserves. Mining activities on Crown land or public reserves are regulated by the general mining legislation and controlled by the Department of Mines of each respective state or territory, which is responsible for administering and granting tenements to interested parties to carry out mining activities. The granting of a tenement provides the holder with authorisation from the relevant state or territory to carry out exploration or mining activities in that area. While the state or territory remains the legal owner of the minerals, a tenement holder is entitled to exclusive possession of a tenement area (for mining purposes) and the right to sell and realise value from minerals extracted from a tenement, subject to the payment of a royalty to the government.
ii Surface and mining rights
Tenement holders' rights to carry out mining activities on the land surface usually depend upon the particular mining operations in question, but typically include rights to access water and public roads, to construct buildings, plants, roads and railways, and to conduct primary treatment operations and other ancillary acts.
If a tenement holder seeks to engage in these activities on private land, there is an obligation to consult the private landowner and agree access compensation. Consultation usually commences after wider exploration activities are completed (including detailed geological and geophysical surveys), leading to an access agreement or arrangement being entered into to enable the pursuit of an application and grant of a mining tenement. Generally, mining tenements will not be granted over privately held land unless some form of access or compensation arrangement has been agreed (and if there is a failure to agree such, there is provision for arrangements to be determined by court process).
iii Additional permits and licences
There are numerous other permits and licences required at each stage of the mining cycle in Australia. The major permits and licences applicable for most mining developments include environmental permits, planning and development approvals, health and safety permits, and rights to use water, electricity and other utilities.
A key issue for many miners currently is the volume of government approvals required to commission mining projects and the duplication of these approvals sometimes required by state and Commonwealth regulators. While this issue continues to be assessed by the Commonwealth (with the new Labor government committing to establishing an independent environmental regulator), any changes will need to be supported by clear and objective criteria, in order to provide predictability and certainty to project proponents and stakeholders.8
As an illustration of the regulatory issues facing miners, in 2014 the Gina Rinehart-led Hancock Prospecting commissioned the Roy Hill iron ore project, located in the Pilbara region of Western Australia. The project (a 55 million tonne per annum greenfield iron ore project) required an estimated 4,000 separate government approvals to reach the final commissioning and construction phase.9
In July 2019, the Western Australia Environmental Protection Authority (EPA) granted BHP a Strategic Proposal approval covering its future Pilbara iron ore operations for the next 50–100 years. While individual components of the Strategic Proposal may require further EPA approvals, it is expected to reduce the environmental approval time for future operations by 50 per cent.10 Herbert Smith Freehills advised BHP on obtaining this 'Strategic Proposal' approval.
The issue of 'Scope 3' emissions (i.e., indirect carbon emissions through supply chains and end users) was the subject of consideration in New South Wales and Western Australia during 2019. In February 2019, a development consent for a new open-cut metallurgical coal mine was refused by the New South Wales Land and Environment Court, with the court noting the impact use of the mine's production would have on climate change as a relevant consideration.11
While there has been a series of test cases and a growing body of case law in Australia and overseas recognising the impact of climate change on government decision-making and private law duties, in 2022 the Federal Court decision in Sharma v. Minister for the Environment, which found a novel duty of care is owed by the Minister for the Environment to Australian children in respect of climate change (in the context of approving a coal mine extension), was unanimously overturned on appeal.12
iv Closure and remediation of mining projects
The mining laws in most states and territories require mining lease holders to provide a rehabilitation bond to the Department of Mines, which is returned to the holder once the mined land is fully rehabilitated.13 Additionally, most regimes require a mining lease holder to put in place a detailed rehabilitation plan, which generally requires complete costings of full rehabilitation activities to be submitted to the Department of Mines and regular updates if the scope of operations changes. Mining regulators in Australia are vigilant in their assessment and clarification of rehabilitation plans, and have the power to require changes or adjustments, as well as call for additional funds to be added to the rehabilitation bond if they deem it insufficient to repair the land in question after mining ceases. Mine rehabilitation has also become an increasing focus as a number of projects reach the end of their intended mining life and have been sold to smaller companies for a nominal consideration and assumption of rehabilitation obligations.
IV Environmental and social considerations
i Environmental, health and safety regulations
Environmental assessment, approvals and compliance with legislative requirements are mandatory for the commissioning and operation of all mining projects in Australia. Environmental assessments and approvals are governed by both Commonwealth and state and territory legislation. Depending on the size, significance and impact of the mining project in question, the regulator may require environmental assessment to be undertaken in respect of:
- minimisation of the effects on flora, fauna, land or habitat;
- environmental pollution and contamination of land; and
- management and use of water resources, including protections against contamination of groundwater.
Health and safety issues are governed by occupational health and safety legislation administered by each state and territory through statutory bodies with wide-ranging powers. The structure of the legislative framework differs across Australia. Many states regulate health and safety at mine sites through a specific piece of legislation that differs from the legislation applicable to industry more broadly. Mine operators should also be aware of the myriad other pieces of health and safety legislation that may regulate certain parts of their operations. Separate statutory regimes exist to govern (among other things) the safe operation of rail infrastructure, aerodromes, the transport of goods by road, electricity, dangerous goods and explosives. Notwithstanding this, the fundamental principles of each piece of health and safety legislation are broadly similar. Each piece of legislation requires the duty holder to take a risk-based approach to safety by identifying hazards, assessing the risks that arise from those hazards and taking reasonably practicable steps to control those risks. A primary duty of care is imposed on the mine operator to manage and control work sites, and to ensure the health and safety of its workers (which includes contractors and other indirect employees). Directors and officers of mining companies also have a personal duty to exercise due diligence to ensure their company is compliant with all applicable workplace health and safety laws. In addition, often quite onerous duties are imposed on the most senior person at a mine to take responsibility for the implementation of the mine's safety management system. Certain Australian states also have industrial manslaughter offences (for corporations and senior officers) relating to fatal workplace incidents, with penalties including significant fines (up to A$1.65 million for an individual and A$16.5 million for a corporation) and imprisonment for individuals, with maximum sentences ranging from five years to life imprisonment.
In June 2022, the Western Australia Parliament reported on its inquiry into sexual harassment against women in the fly-in fly-out (FIFO) mining industry. This report identified significant workplace cultural issues within remote mining workplaces and made a number of practical recommendations, which are being actively considered and implemented by the mining industry.14
ii Environmental compliance
Companies wishing to commission mining projects must prepare (sometimes in conjunction with the relevant environmental regulatory body) an assessment of the anticipated environmental impact of their project. That assessment is generally opened for public consultation or comment. A determination is then made by the relevant environment minister and the grant of environmental approval is generally subject to conditions that aim to minimise the overall environmental impact of the mining project.
In addition to obtaining state or territory government approval for a project, assessment and approval under the Commonwealth Environment Protection and Biodiversity Conservation Act 1999 (Cth) is required to take an action that will affect 'a matter of national environmental significance'. Generally speaking, 'matters of national environmental significance' involve sensitive areas or species (e.g., the Great Barrier Reef) but matters that affect Commonwealth lands, waters, protected flora and fauna and other politically sensitive actions, such as large-scale mining projects (particularly uranium projects), are also caught.
While there is provision for the Commonwealth to delegate authority to the states or territories in certain circumstances, in practice this rarely occurs – especially in relation to large-scale or high-value projects. This potential duplication of environmental approvals between state and Commonwealth regulators is another key issue for mining companies to navigate and one that causes significant delays in some projects (but as noted above, steps are being taken at the federal level to address this).
The Commonwealth government introduced legislation on 27 July 2022 that proposes to commit Australia's greenhouse gas reduction targets (43 per cent reduction compared to 2005 levels by 2030 and net zero by 2050) into law.15 A companion law also proposes to amend existing legislation to enable government agencies to take these targets into consideration when exercising their powers, which has the potential to impact some approval or investment decisions.
The Commonwealth government is also reviewing the safeguard mechanism (which limits emissions from facilities that emit more than 100,000 tonnes of Scope 1 carbon dioxide). The review is intended to manage the emissions from trade exposed and emissions intensive industries (both through the use of carbon offsets and emissions reduction), and is designed to force emissions reductions by the approximately 215 facilities covered by the safeguard mechanism by 3.5 to 6 per cent a year to 2030, to achieve an aggregate abatement of about 170 million tonnes of CO₂-eq to 2030.16
iii Third-party rights
Until 1992, the legal system did not recognise that Australia's indigenous inhabitants had any rights or interests in relation to land or waters. The Mabo decision of the High Court of Australia17 recognised that the 'native title' rights of Aboriginal people survived the acquisition of sovereignty by non-indigenous people. Native title law in Australia is complex and cannot be covered extensively here, but generally speaking, the key provisions in respect of native title rights are set out in the Native Title Act 1993 (Cth) (NTA), which aims to:
- protect and recognise native title rights;
- provide for the validation of past acts and intermediate past acts;
- establish ways in which future acts affecting native title may proceed; and
- establish a mechanism for determining competing interests.
The NTA also confirms that certain grants (mainly freehold grants and leases conferring rights of exclusive possession) have extinguished native title rights. Where native title is not extinguished, the NTA protects those rights by imposing a firm regime, which governs any 'act' (i.e., the grant of a mining tenement) occurring after 1 January 1994.
Generally speaking, any grant of a mining tenement after 1 January 1994 will be valid provided that it complies with the NTA regime. In most cases, the proposed grant triggers a 'right-to-negotiate' process, whereby the Department of Mines, the proposed tenure-holder and the native title-holder are required to negotiate in good faith the process by which a mining tenement can be granted. These agreements commonly include compensation to the indigenous community, provision of employment or community benefits, and protection for areas of cultural heritage significance.
If the parties cannot reach agreement, there is an adjudicated process that can be accessed under the NTA.
In March 2019, the High Court of Australia delivered the first judicial assessment on how native title compensation is to be calculated. In particular, the High Court of Australia confirmed that native compensation includes both economic and non-economic loss factors (such as cultural or spiritual loss) and that (in some cases) cultural loss can be a significant portion of the overall compensation.18
Crucially, in most cases, a right of veto does not arise; however, the process can be time-consuming and costly, and depending on the proposed area, certain projects cannot proceed without an agreement with the indigenous native title-holder (this is usually dictated by state and territory legislation rather than the NTA).
There are also Aboriginal cultural heritage rights that may exist in respect of certain land independent of any native title rights that may arise, and there are defined mechanisms (usually enshrined in state and territory legislation) that govern this.
In December 2021, new legislation was enacted in Western Australia protecting Aboriginal heritage and regulating the conduct of activities that have the potential to impact Aboriginal heritage sites. The legislation includes tiered activities (Tiers 1, 2 and 3) and due diligence processes that must be undertaken prior to obtaining approvals. Enactment of the legislation commences a 12–18 month transition period, during which detailed regulations will be prepared to support the implementation of the new legislative framework.
iv Additional considerations
There are no other additional considerations of note.
V Operations, processing and sale of minerals
It is rare for governments or government instrumentalities to participate in mining operations. Project development is generally carried out by commercial parties, who gain authorisation to conduct mining activities through the grant of mining tenements. However, there are opportunities to obtain Australian government financial support for minerals exploration and development, most notably via the Northern Australia Infrastructure Facility (NAIF), the Critical Minerals Facility and Clean Energy Finance Corporation, which has provided debt financing to a number of mining and mining infrastructure projects in Australia. The total amount of NAIF loans (for both mining and non-mining purposes) is currently A$3.1 billion of its A$5 billion capacity.19 Notable mining investments supported by Australian government financial investment include:
- Sheffield Resources' Thunderbird Mineral Sand Project (A$160 million loan facility);
- Iluka's Eneabba Rare Earths Refinery Project (A$1.206 billion loan facility);
- BCI Minerals' Mardie Salt and Sulphate of Potash Project (A$600 million loan facility, supplemented by A$140 million of commercial debt); and
- Pilbara Minerals' Pilgangoora Project (A$50 million in debt and equity financing)
i Processing and operations
The importation and use of earth-moving, construction and mining machinery is strictly regulated because of the threat it can pose to the environment by introducing soil, plant material and other quarantine risks. The biosecurity sector of the federal Department of Agriculture is responsible for monitoring importation and use of such mining machinery. Typically, new machinery does not require an import permit to enter Australia, but may be subject to an inspection to ensure it is free of contamination. All used machinery requires an import permit and may be subject to quarantine restrictions upon arrival. Regardless of whether new or used, all machinery imported requires a cleanliness declaration stating the machinery is clean and free of all soil, plant and animal debris.20
Port and rail infrastructure is typically privately owned (often by mine operators) and access to infrastructure is regulated by state and federal competition laws.
ii Sale, import and export of extracted or processed minerals
There are generally very few legislative restrictions in place in relation to the processing, exporting or sale of Australian minerals. As a signatory to the Nuclear Non-Proliferation Treaty, Australia has generally sought to restrict the sale of Australian uranium to countries that are also signatories to that treaty (although India is an exception to this general rule), and where Australian uranium is exported, Australia has required purchasers to track the material (more closely than is required by the International Atomic Energy Agency) to ensure it is used only for peaceful purposes. In recent times, Australia has sought to take an active role in policing the use of exported uranium and has participated in international sanctions by banning exports to certain countries. Certain Australian states have prohibitions on uranium mining.
Other than the foregoing, and an overarching requirement to have export clearance, there are generally no legislative export controls or limitations in place for extracted or processed minerals.
iii Foreign investment
Foreign investment is overseen by the Foreign Investment Review Board (FIRB), a Commonwealth government body responsible for administering the Foreign Acquisitions and Takeovers Act 1975 (Cth) (the Act) and examining proposals by foreign persons to invest in Australia. The FIRB is responsible for reviewing such proposals and making recommendations to the Australian Treasurer on whether they should be approved in accordance with the Act; however, the Treasurer has the ultimate decision to approve or reject a proposal (and does not have to accept the FIRB's recommendation). With effect from 1 January 2021, comprehensive reforms to the foreign investment review framework took effect. These reforms included enhanced national security review of sensitive acquisitions, extra powers and resources to monitor and enforce compliance with conditions and adjustments to the monetary thresholds that trigger obligations to notify the FIRB.21
In considering a proposal, the FIRB assesses whether it is 'contrary to the national interest'; however, the Act does not define 'national interest'. This is intentional and allows proposals to be assessed case by case, recognising that national interests change over time and flexibility is necessary to account for variable economic and industry conditions. In the 12-month period ending on 30 June 2021, the FIRB approved A$11.5 billion of investment in minerals exploration and development, with the number of approvals given increased by almost 50 per cent. The total number of approvals during that period in the minerals exploration and development sector was 148, with the United States, China and the Cayman Islands being the largest source countries of investment by value in the sector.22 Generally, when considering whether a proposal is in the 'national interest', regard is given to broad topics contained in Australia's foreign investment policy (such as national security, data protection, competition, and other government policies (e.g., tax or environment) that affect the economy and broader community) and the 'character' of the proposed investor.
Ordinarily, under Australia's foreign investment framework, certain foreign investment proposals require approval irrespective of their value. All direct investment in Australia by foreign governments and their related entities, including state-owned enterprises and sovereign wealth funds, requires approval.
Importantly, the acquisition of an interest in a mining or production tenement (except for agreement country investors) requires FIRB approval, irrespective of value. The acquisition of an interest in exploration tenements generally does not require foreign investment approval (other than in circumstances involving foreign government investors or if the tenement is over national security land). This exception (and where applicable, lower thresholds) for agreement country investors can only be relied upon if the entity making the investment is an 'enterprise' or 'national' of the relevant agreement country.
Certain investments (which do not require mandatory notification and approval) may be subject to a call-in power, which can be extinguished by voluntary notification of the proposed action.
Foreign government investors require approval for the acquisition of at least 10 per cent of the securities in a mining, production or exploration entity (being an entity for which the total value of its interests in mining or exploration tenements is greater than 50 per cent of its total assets). Private investors may need foreign investment approval to acquire an interest in the securities of an entity that holds mining and production tenements depending on a number of factors (including the nature and value of the investment and the proportion of target entity's total asset value that comprises mining tenements).
Generally speaking, an application for a new mining tenement (or a transition from an exploration to a mining tenement) will generally not trigger any FIRB approval requirement, as the granting of property rights by a government will not constitute an 'acquisition' for the purposes of the Act. The only exception to this is in the case of a foreign government investor or where the tenement relates to 'national security land', where approval for conversions of tenements from exploration to mining, to acquire an interest in tenements directly from the Australian government or (in the case of foreign government investors only) to acquire an interest of at least 10 per cent in the securities of a mining, production or exploration entity.
Royalties are payable to the Crown on extraction of minerals, although the amount and calculation varies depending on the location and the mineral. Typically, royalties are either flat-rate (i.e., the cost per tonne), ad valorem (a percentage of the value of minerals recovered) or profit-based. Private royalties may also be payable when the mining rights have been transferred between private parties subject to the payment of an existing private royalty.
While the minerals royalty policy in Australia is generally stable, in June 2022 the Queensland government announced significant changes to the royalty regime for coal, by introducing new royalty rates for prices above A$150 per tonne (with the highest rate being 40 per cent for the portion of the price per tonne above A$300). The change makes future investment in the sector more challenging and ultimately is likely to be negative for both the State of Queensland and the industry.23
General duties and taxes are payable in the same manner as for any other business within Australia, such as local government rates and fees, stamp duty, goods and services tax, capital gains tax or income tax. The Commonwealth government has introduced a junior mineral exploration tax credit, which allows tax losses from greenfield exploration to be distributed as a refundable tax credit to Australian resident tax shareholders who subscribed for shares in the entity during the relevant income year. The total exploration credits available for issue during the scheme is capped at A$100 million over a four-year period (and are allocated on a first-come, first-served basis). The scheme was extended in June 2021 for a further four years.
There are no other duties of note.
iv Other fees
There are no other fees of note.
VII Outlook and trends
i Competitiveness and productivity
Australia is considered an attractive environment for domestic and foreign investment, benefiting from a climate of relatively low interest rates, low inflation, a competitive currency relative to other global currencies and geographical proximity to key Asian markets. For the year ended 31 December 2021, foreign direct investment in Australia across all sectors was steady at A$4,136.1 billion, drawing on capital inflows from major trading partners such as the United States, the United Kingdom, European Union, Japan, the Association of Southeast Asian Nations and China.24
Seasonally adjusted quarterly exploration expenditure increased by 4.7 per cent (A$43.6 million) to A$968.5 million in the March 2022 quarter, reflecting a net increase of 14.76 per cent from the March 2021 quarter seasonally adjusted estimate.25
ii Innovation and technological change
There is a growing awareness among mining companies that technological innovation, which can enable mining companies to streamline production, reduce bottlenecks and reduce labour costs, will be critical in keeping rising operational costs in check and increasing productivity. Automation, in the form of remote operations technologies, is already an increasing feature of larger mining operations and GlobalData figures show that Australia is the world leader in the use of autonomous trucks.26
We expect this trend to continue and that the use of mining technology will become more widespread as costs decrease over time. Willingness to innovate and embrace new technology to enhance productivity and operational efficiency has given a competitive advantage to early adopters.
As mining companies embrace these changes, they will need to be alive to the cyber and data protection risks that accompany the use of new technologies. Inadequate cybersecurity exposes mining companies to a number of potential outcomes, including damage to a company's reputation, equipment or profits, production and workforce challenges or delays to change, as well as serious safety and security problems. Large companies are particularly vulnerable targets owing to their significant role in global supply chains and national economies. Many mining companies have adopted vigilant cybersecurity policies and, in response, have educated staff on managing risks to enhance cybersafety.
iii Commodity prices and demand
In financial year 2022, Australian resources set a new export revenue record of A$413 billion, contributing 69 per cent of Australia's total export revenue. New records were recorded for coal (A$112.8 billion) and aluminium, alumina and bauxite (A$14.4 billion) and copper (A$12.5 billion), consistent with higher prices for those commodities. Iron ore and gold (A$133.8 billion and A$25.8 billion respectively) continued to be significant trade contributors (although recorded slightly lower export revenue compared to previous years).27 Forecast increased demand for battery minerals (including lithium, copper and critical minerals) has supported investment in those sectors (targeting anticipated increases in government investment in renewables and low-emissions technologies).
Australia's production of seaborne coal and iron ore is generally of a high grade and quality, allowing producers to realise a price premium.
iv Access to capital
While there was an increased level IPO activity and secondary capital raisings in the Australian mining sector in 2021 and the first half of the 2022, the combination of rising interest rates and inflation has made capital markets more challenging as the year has progressed.
Debt funding for greenfield mining projects continues to be challenging, although there have been a number of successful project financings for Australian gold developments and as noted earlier in this chapter, a number of strategic minerals projects have received Australian government financial support (in conjunction with private capital). As a result, the smaller miners continue to assess the viability of non-traditional financing arrangements, such as metals streaming, private royalties and other forms of innovative financing. Offtake partners have also been a source of debt and equity funding for greenfield development projects (particularly in the lithium space). As noted above, government financing via the NAIF (and other Australian government funding sources) has been a source of debt financing for a number of mining projects in northern Australia.
For major miners, increased cash flow from existing operations has allowed capital expenditure to be funded from retained earnings, although those miners have also had to navigate competing demands from shareholders for available cash to be returned to shareholders via dividends and share buy-backs.
Private equity funds continue to show interest in the Australian mining sector and have been linked to a number of potential M&A transactions within the sector; the number of mining projects acquired or funded by specialist mining private equity funds has increased, particularly in the coal and gold sectors.
v Corporate consolidation in the mining sector
Major multinational miners continue to look for opportunities to divest assets that are considered 'non-core' to their global portfolio and opportunities to expand their exposure to minerals that are critical to clean energy developments. Recent significant mining M&A transactions in the Australian mining sector included IGO's acquisition of a 24.99 per cent indirect interest in the Greenbushes Lithium Mining and Processing Operations and a 49 per cent indirect interest in the Kwinana Hydroxide Plant (US$1.4 billion), IGO's divestment of a 30 per cent interest in the Tropicana Gold Mine (A$903 million) and acquisition of Western Areas Limited via a scheme of arrangement (US$1.08 billion), the demerger of Iluka's Mining Area C royalty to establish Deterra Royalties and demerger of its Sierra Rutile business, BHP Mitsui on its sale of an 80 per cent interest in BHP Mitsui Coal (US$1.35 billion), South32's acquisition of 45 per cent interest in the Sierra Gorda Copper mine (US$2.05 billion) and the sale of a non-core royalty portfolio (US$200 million)the sale of Barrick's 50 per cent interest in the Kalgoorlie Superpit to Saracen Mineral Holdings Limited (and the subsequent sale of Newmont's 50 per cent interest to Northern Star Resources Limited Wesfarmers' acquisition of Kidman Resources Ltd (A$800 million), Rio Tinto's divestment of its Queensland coal assets to Glencore (US$1.7 billion), EMR Capital/Adaro Energy (US$2.25 billion) and Whitehaven Coal (US$200 million), Wesfarmers' divestment of its 40 per cent interest in the Bengalla Joint Venture to New Hope Corporation (A$860 million) and South32's acquisition of a 50 per cent interest in the Eagle Downs Joint Venture. Mineral Resources and Hancock Prospecting also announced a legally binding agreement to jointly investigate the potential to develop a new iron ore export facility at the Port of Port Hedland. Herbert Smith Freehills acted for either the buyer, the seller, a potential buyer or key stakeholder in relation to each of these transactions.
vi Sustainability and community
As automated technologies and lean business models are introduced to reduce costs and improve productivity, access to capital becomes limited and the market adjusts to lower commodity prices, which will affect the communities built around mining.
Stakeholders are calling for increased transparency in the way mining companies work with communities and manage the environmental effects of operations. Mining companies withdrawing from communities and scaling down operations will need to manage potential reputational damage and how this affects local economies, including social dislocation. Activist organisations are increasingly litigious and savvy with their use of social media and other corporate accountability mechanisms, such as the complaints investigation processes through the National Contact Point for the OECD Guidelines for Multinational Enterprises. To meet increased expectations, mining companies will need to maintain open communication, proactively seek to minimise adverse outcomes and collaborate with a range of stakeholders.