13 Sep 2012

Hitting the brakes: Scaling back your mine and the legalities of economic practicality Part 1

by James Minchinton, Mark Geritz

When scaling back mining operations, you have a number of different legal obligations that need to be followed.

In tough or uncertain economic times it is only natural for miners to consider scaling back their operations. Doing so requires careful planning on many fronts.

On the legal front, a number of laws apply to changes to mining operations. While these laws don't prevent a miner from making operational decisions in response to market forces, they do impose obligations with which miners need to comply.

In this two-part article we'll set out some of the main legal processes in Queensland that a miner may need to follow when seeking to scale back its operations.

Updating development plans

Changing mining operations may trigger a requirement that a mining lease holder for coal submit a later development plan. Failure to comply with a development plan – for example, by changing mining operations but not updating the development plan – is an offence under the Mineral Resources Act 1989 (Qld) (MRA) and could lead to a financial penalty or loss of the mining lease.

The relevant trigger here is where the holder of the mining lease proposes to, or becomes aware of, a significant change to the nature and extent of an authorised activity which is not already dealt with under its current development plan. The holder must lodge a later development plan as soon as practicable. What amounts to a significant change will be a matter of fact and degree.

A current development plan is not amended under the MRA. Rather, a later development plan is lodged which will, once approved, replace the current development plan.

A later development plan must comply with the general requirements for development plans, highlight significant changes from the previous development plan, and state the reasons for the change.

To take effect, the later development plan must be approved by the Minister.

One risk of lodging later development plans introducing a significant change that is a cessation or reduction of mining is that the Minister may require the mining lease holder to surrender some of the area of the mining lease.

This is probably to prevent land banking by miners. While there are no fixed criteria for when a partial surrender is required, the length of any delay before mining in an area will likely be a relevant factor.

Updating plan of operations

Changing mining operations may also trigger a requirement to amend or replace the plan of operations for the mining lease.

The holder of a mining lease can only carry out an activity under the mining lease if it is carrying out the activity consistently with the plan itself, so if the current plan diverges from the proposed activities the holder must amend or replace the plan of operations.

To do this, the holder must give the administering authority a written notice that states the amendment of the plan, or that the original plan is replaced. This must be accompanied by an audit statement and, in the case of a replacement, the replacement plan itself.

An amended plan of operations or replacement plan of operations is not approved per se, but if the administering authority does not take issue with it within 28 days, then the plan is taken to be amended or replaced.

Like development plans, there is a risk that the administering authority under the Environmental Protection Act 1994 (Qld) may take that opportunity to amend the environmental authority. If it proposes an amendment, the environmental authority holder has the right to make representations about it.

Approval conditions

While it is unlikely that the conditions of a mining lease or environmental authority would prevent any scaling back of mining operations, the holder should check them anyway to ensure that the proposed changes to the operations are consistent with them.

For example, if the miner is proposing a permanent cessation of mining activities, and there is a condition about where a final void is to be located, not locating it there is a potential breach of the conditions.

If the holder cannot comply with the conditions, it may need to apply to amend the conditions of the mining lease or environmental authority, as the case may be.

Safety obligations

A site senior executive for a mine at which operations are being scaled back will need to ensure that the safety and health management system adequately addresses the issues associated with the scaling back of operations such as decommissioning part of the mine site. A prudent operator or holder should verify that this is done by the site senior executive.

In addition, if the area of the coal mine under the Coal Mining Safety and Health Act 1999 (Qld) or a mine under the Mining and Quarrying Safety and Health Act 1999 (Qld) is to be reduced as a result of the scaling back, the inspector must be given notice of the changed boundaries of that coal mine or mine.

In Part 2…

A decision to scale back mining operations may also affect various contracts to which the miner is a party, such as haulage, sales or service contracts and compensation under landowner agreements.

In Part 2 we'll explore the ways in which compensation and contracts can be affected, and how the miner can manage these issues.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.