Doing Business in Australia: Chapter 18 - Natural Resources

Most of Australia’s mining activity is conducted onshore. There is significant offshore petroleum exploration and production. A number of statutes (federal, state and territory) govern mining and petroleum operations. In general, any company wishing to conduct exploration or development must satisfy the government concerned that it has the financial and technological resources to support the activities proposed.

State and territory governments administer the acts and regulations bearing on the mining and petroleum industries within their jurisdiction. This includes:

• the issue of exploration and production titles and the approval and registration of dealings affecting those titles;
• the approval of mineral and petroleum exploration and development projects (usually in two stages);
• the supervision of operations to ensure the observance of good mining and oilfield practices, compliance with health and safety requirements and the protection of the environment; and
• the levying of rents, royalties and other charges.

A mining title, which could be an exploration licence (followed, in some States and Territories by a ‘retention title’ such as mineral development licences in Queensland), a mining lease or a title for ancillary purposes (such as for processing facilities, accommodation or power transmission lines), must be obtained under the relevant legislation before any exploration or mining operations may be undertaken in respect of minerals. It is important to inspect the relevant mining register as well as any available title documents to assess the terms and conditions attaching to the mining title and any registered dealings.

Most mining and petroleum statutes contain a requirement that the holder of a title obtain government approval in respect of certain dealings affecting mining or petroleum titles. Government approval, where granted, may be subject to conditions. In general, an assignment or sale involving a transfer of all (or part) of a mining or petroleum title will require government approval and registration.

Almost all natural resources in Australia are owned by or reserved to the Crown. It is, however, possible to have privately owned minerals. It is important to check the original property grant to determine whether all minerals have been reserved to the Crown. In any event, the right to explore for or mine minerals (whether privately owned or otherwise) is dependent upon the grant of the relevant government approvals.

Each state and the Northern Territory has at least one mining statute for mining in general. Additional legislation will also be relevant – e.g. in relation to  coal mining and safety of operations, rehabilitation and financial provisioning etc..

The state and territory mining statutes are similar in structure and approach, but there are many variations in the legislative treatment of mining titles. There are also differences in the practice and procedures of the federal and state government mining departments in the administration of the legislation and regulations.

Two principal forms of title exist under mining statutes:

• the exploration title (usually called an exploration licence), required to conduct exploration activities, including drilling and testing; and
• the production title (usually called a mining lease), required to conduct commercial mineral extraction activities.

An exploration permit or mining lease will be subject to prescribed terms and conditions. These will include obligations to lodge periodical reports and pay rent. Conditions imposed on a mining title may also regulate how and when certain exploration or mining activities can be undertaken.

For example, in Western Australia, in respect of an exploration licence applied for:

• before 10 February 2006, relinquishment of 50% of the exploration licence is required at the expiration of both the third and fourth year of the exploration licence term; and
• after 10 February 2006, 40% of the ground must be surrendered at the end of the sixth year of the exploration licence. The purpose of these compulsory surrender provisions is to prevent large areas of land from being tied up by one explorer and to provide equitable access to land by other explorers.

Mining royalty arrangements differ among the states and territories and also vary depending on the nature of minerals mined. Sharing the return from record high coal prices has recently attracted particular attention in Australia. Queensland has increased the royalty rates applicable at different coal prices and New South Wales passed legislation to allow it to implement a coal price cap.

Environmental and planning approvals

Separate land use planning and environmental legislation has been enacted by each Australian state and territory. In general, some form of environmental or land use approval is required when a company proposes to undertake exploration activities. Regulatory approvals required under environmental and planning legislation are critical for the development of mining projects. Further information can be found in Chapter 16 of this publication, ‘Environmental and Planning Regulation’ .

Surface rights

There is obviously tension between an owner or occupier of land (often a farmer) and a mining title holder who needs to access and/or disturb that land. The law here can be quite complex.

Consent is required for the grant of a mining title over certain types of occupied land. In other cases, consent is required for entry onto occupied land after the title has been granted.

Under state mining legislation, it is necessary to compensate a landholder where that landholder’s surface rights are affected by mining operations. Compensation to be paid to the owner or occupier may include compensation for deprivation of possession of the surface of the land, damage to the surface of the land and loss of or damage to any improvements (among other things).

Petroleum

In all states and territories (other than the Australian Capital Territory) separate legislation covers onshore, as distinct from offshore, petroleum exploration and production. In terms of offshore exploration and production, there is a state offshore regime (which extends three natural miles seawards from the baseline of the territorial sea) and a federal offshore regime (which extends to waters which are more than three nautical miles seawards of the baseline of the territorial sea). State legislation also exists to regulate the construction and operation of petroleum pipelines. In respect of gas pipelines, national access principles have been developed to allow third parties to negotiate access to some of the larger gas pipelines in Australia. Federal legislation seeks to protect key petroleum and gas pipelines (‘critical infrastructure’) from national and international security risks to ensure security of Australia’s energy networks. 

As with minerals, different types of petroleum titles are issued under the petroleum statutes. These include exploration permits which authorise exploration for petroleum, as well as production licences which allow a holder to recover petroleum following a commercial discovery and to conduct necessary production operations and works. A petroleum pipeline licence is required to construct and operate a petroleum pipeline.

Coal seam gas

CSG, also called coal seam or coal/bed methane, is a naturally formed gas consisting of methane. The methane is typically attached to the coal surface (fractures and cleats) or micropores and held in place by reservoir and water pressure. CSG is released when pressure on the coal seam is reduced, usually after water is removed from the seam.

CSG was historically extracted in connection with coal mining for safety reasons, but is now considered a viable energy source in its own right.

For example, in Queensland, CSG (being a hydrocarbon) can be exploited through a coal mining lease (with appropriate conditions) or through the relevant petroleum legislation. Complex requirements are imposed on overlapping mining titles for minerals and petroleum leases for CSG aimed at facilitating efficient cooperation and optimising safe extraction and production of both resources.

However, it should be noted that the following restrictions in relation to CSG apply in Australian states and territories:

• Victoria has a permanent ban on CSG and hydraulic fracturing (also known as ‘fracking’), but has lifted its previous moratorium on exploration of onshore conventional gas reserves;
• New South Wales has ‘exclusion zones’ that ban CSG extraction activities within and around high risk community and environmental areas; and
• Tasmania has a moratorium on hydraulic fracking in the state until 2025.

The Northern Territory and Western Australia had moratoriums on CSG extraction overturned in 2018 (although, in Western Australia, there are still significant areas where fracking is not permitted). The Northern Territory has compliance monitoring requirements for CSG extraction as a result of implementing recommendations from an inquiry. Queensland impose strict monitoring obligations and safety thresholds on the extraction of CSG, with remediation compliance and penalties imposed where CSG extraction causes harm to the environment.

Overlapping titles

There is the possibility of overlap between coal, petroleum, CSG and oil shale titles. It may be necessary for title-holders to enter into appropriate coordination agreements. This is a very complex area and miners are advised to seek advice on proposed resource projects.

Legislation regulating the capture and storage of carbon dioxide underground also adds to the overlap complexity.

Geothermal power

Geothermal power is energy generated from heat stored in the earth, or the collection of absorbed heat derived from underground. In Australia, barriers to identification, processing and investment in geothermal energy mean it is not used as a power source but there are known locations where geothermal energy is detectable. There are three key geothermal projects being undertaken in Australia, at either feasibility or demonstration stage (the AGL Thermal Storage Project in South Australia, and the MGA and Yanderra thermal energy demonstrations in New South Wales).  The NSW Government has implemented a temporary control over exploration in NSW for geothermal energy by authorising a mineral allocation area and have said it will not assess any applications until the geological and economic potential is better understood.

A number of states have legislation in place regulating exploration for geothermal energy. Exploration and extraction of geothermal energy is regulated and permits are required. In September 2022 Queensland became the first jurisdiction to legislate application of the United Nations Framework Classification for Resources to Geothermal energy for classifying and reporting geothermal energy resources.

Native title and Aboriginal cultural heritage rights must be considered and complied with throughout the life of natural resources projects. Further information can be found in Chapter 20 of this publication, ‘Native Title and Aboriginal Cultural Heritage’.

Joint venture arrangements provide a convenient structure for bringing together capital and talent for mining and petroleum enterprises. For more information regarding joint ventures, see Chapter 3 of this publication, 'Business Structures'.

The Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA) regulates acquisitions by foreign persons of Australian assets or shares in Australian companies. M&A transactions in the natural resources sector often require approval under FATA, not only due to the value of the transactions but also because lower thresholds typically apply in relation to the acquisition of target entities that are land rich or hold production tenements in mining or oil and gas. This is set out in more detail in Chapter 10 of this publication, 'Foreign Investment Regulation'.

Taxation

In Australia, taxes are imposed by the Australian Government, state and territory governments, and local government bodies (see Chapter 11 of this publication, ‘Taxation, stamp duty and customs duty’). Expert advice is required in planning an investment in Australian natural resources and in ensuring ongoing compliance with taxation obligations. To give just one example, the Australian Tax Office is vigilant on transfer pricing, including when a mineral or petroleum is sold to other parts of a corporate group in foreign jurisdictions.

The Petroleum Resource Rent Tax (PRRT) is a federal profits-based tax that applies to offshore Australian oil and gas projects (as a separate regime in addition to the federal income tax).

Transfer (stamp) duty is a state-based tax affecting a broad range of transactions. Each state and territory in Australia has its own stamp duties legislation, resulting in a complex set of duties laws. As transfer duty can have a significant impact on natural resources transactions and companies, it is important that investors be aware of and consider the potential duties implications of a proposed transaction.

Various natural resource royalties are applied by state and territory governments on mineral, petroleum and gas production within the applicable jurisdiction. Excise is also levied by the Australian Government on certain forms of petroleum.

Government assistance

On the reverse side, Australian Government assistance to the natural resources industries substantially takes the form of income taxation concessions.

Special tax deductions exist for capital expenditure on exploration and production of petroleum and natural gas. These include the amount spent on successful cash bids and the costs of exploratory surveys, drilling and well-head plans, natural gas liquefaction plant, access roads, and housing and welfare.

A company which is mining or prospecting for minerals may also be allowed deductions for capital expenditure on exploration and prospecting, site preparation, buildings, access roads, certain treatment plants, other improvements and plants necessary for those operations, housing and welfare and site rehabilitation.

Cash bids relating to general mining and exploration titles are also deductible. Various tax deductions are also available for the use of transport facilities.

The timing for the deductions depends on the nature of the expenditure. For instance, exploration related expenditure can sometimes be deductible immediately in full, whereas other capital expenditure is generally deductible (amortised) over the life of the applicable individual asset, project, or mining/petroleum right (title) to which that expenditure relates.

Cash bids relating to general mining and exploration titles are also deductible. Various tax deductions are also available for the use of transport facilities.

The timing for the deductions depends on the nature of the expenditure. For instance, exploration related expenditure can sometimes be deductible immediately in full, whereas other capital expenditure is generally deductible (amortised) over the life of the applicable individual asset, project, or mining/petroleum right (title) to which that expenditure relates.

Government bodies

The Australian Government empowers federal authorities to develop policy, initiatives and projects to support development of and investment in the resources sector. In particular the Department of Industry, Science and Resources and the Department of Climate Change, Energy, the Environment and Water assist the Australian Government to develop and implement policy by engaging with industry and the community and providing educational resources.

The Australian Government also supports the Commonwealth Scientific and Industrial Research Organisation (CSIRO), Australia’s national science agency, which aims to increase the competitiveness, sustainability and security of energy and minerals resources while heading to Net Zero.

The Australian Government also has established regulatory bodies to administer and oversee the Australian resources and energy sectors, including the:

• Australian Energy Regulator, which monitors and enforces national energy legislation;
• Australian Energy Market Commission, which administers and regulates the Australian energy market;
• National Offshore Petroleum Titles Administrator, which administers titles and data management for petroleum and greenhouse gas titles; and
• Critical Minerals Office, which provides national policy and strategic advice on critical minerals and facilitates strategic investment in critical minerals production. 

In addition, state governments offer various forms of assistance to the industry including free mapping services, advice on exploration and development and a range of other services.

The Australian Government released Australia’s National Resources Statement in February 2019 setting out the Government’s policy and long-term reform agenda for the Australian resources sector. The statement contains an action plan to achieve the following five priorities to:

• deliver the most globally attractive and competitive investment destination for resources projects;
• develop new industries and resources regions;
• invest in new technologies and approaches, especially to deliver better environmental outcomes;
• create well paid and secure jobs; and
• support communities to ensure they receive benefits from the development of Australian resources.

The Australian Government has since released its Critical Minerals Strategy in March 2022, as part of Australia’s Global Resources Strategy, setting out the Government’s long-term plan to grow Australia’s critical minerals sector and expand Australia’s processing and production capabilities for critical minerals to meet growing global demand. The Critical Minerals Strategy aims to exploit Australia’s large critical minerals reserves, invest in Australian expertise in critical minerals extraction and processing, and establish robust supply chains to provide a reliable, secure and resilient international supply of critical minerals. At the time of writing the Albanese Government is developing a new National Critical Minerals Strategy in consultation with the industry.

Industry bodies

The object of industry bodies is to promote mining and petroleum interests and act as advocates for those interests. Most states have a minerals industry advocacy body (such as the Queensland Resources Council, NSW Minerals Council, Chamber of Minerals and Energy of Western Australia and the Southern Australian Chamber of Mines and Energy), and at the federal level is the Minerals Council of Australia. The Association of Mining and Exploration Companies also plays a role in this regard.

In the petroleum industry, the Australian Petroleum Production and Exploration Association Limited (APPEA) promotes upstream interests, and the Australian Institute of Petroleum promotes downstream interests. Both are national bodies.