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The Mineral and Energy Resources and Other Legislation Amendment Act 2020 (Qld) (MEROLA) will introduce new rules applying to the transfer of resource tenements and the change of control of a resource tenement holder. These rules will come into effect on 7 September 2020.
A ‘direct change of control’ of a resource tenement (such as a mining or petroleum lease) occurs where the resource tenement (or an interest in the resource tenement) is transferred from the existing holder to a new holder. This commonly occurs in an asset sale transaction where the resource tenement is directly transferred from the seller to the buyer.
Under the Mineral and Energy Resources (Common Provisions) Act 2014 (Qld), the transfer of a resource tenement (or an interest in a resource tenement) is an “assessable transfer” which requires approval by the Minister (subject to limited exceptions). In deciding whether to approve an assessable transfer, the Minister is required to consider certain prescribed criteria.
MEROLA amends the prescribed criteria to introduce an additional requirement that the Minister consider whether the proposed transferee has the financial resources to fund the “estimated rehabilitation cost” for the resource activities to be carried out under the resource tenement. The “estimated rehabilitation cost” is determined under the Environmental Protection Act 1994 (Qld).
An ‘indirect change of control’ of a resource tenement occurs where there is a change in the entity that controls the company that is the holder of the resource tenement. This commonly occurs in a share sale transaction where a new entity acquires some or all of the shares in the company that is the holder, or is the parent company of the holder, of the resource tenement.
MEROLA will amend the following resources Acts to give the Minister power to impose new conditions on, or to vary the existing conditions of, the following resource tenements if the Minister reasonably believes, or is notified, that an indirect change of control has occurred in respect of a resource tenement holder:
Under the amendments, an ‘indirect change of control’ of a resource tenement holder will occur if:
In order to exercise the new power, the Minister must first be satisfied that there has been an ‘indirect change of control’ of the resource tenement holder, and that the resource tenement holder may not have the financial and technical resources to comply with the existing conditions of the resource tenement following the indirect change of control. The new power is discretionary and is intended to give the Minister the ability to mitigate the risk of the holder being unable to meet its regulatory obligations under the resource tenement.
However, it is not clear what conditions might be imposed under the new powers. The Explanatory Notes suggest that the new conditions “may include, for example, increased reporting obligations or that certain activities be undertaken.”
The amendments include a procedural fairness process. The Minister is required to notify the resource tenement holder of a proposed decision to impose new or varied conditions and of the reason for the decision. The holder then has an opportunity to make submissions to the Minister on the proposed decision.
The amendments do not include a mechanism which would allow a resource tenement holder that may be subject to an indirect change of control to seek an indicative assessment of the Minister’s decision under the new powers, in advance of the change of control occurring. Industry stakeholders argued that holders should have the ability to seek an indicative assessment in the same way that they can seek an indicative assessment of the Minister’s decision to approve an assessable transfer in advance of a direct change of control. However, the Government declined to include an indicative assessment mechanism.
The Government stated that an indicative assessment mechanism is not required because holders can seek an indicative assessment (called an ‘indicative changed holder review allocation’) under the Minerals and Energy Resources (Financial Provisioning) Act 2018 (Qld) (FP Act) in advance of an indirect change in control. An indicative changed holder review allocation under the FP Act would specify the change to the risk category allocation (i.e. ‘very low’, ‘low’, ‘moderate’ or ‘high’ risk) that the Scheme Manager would make under the FP Act if the indirect change of control occurs. The Government contends that if an indicative changed holder review allocation indicates that the holder would be allocated to a higher risk category (for example, from ‘low’ to ‘high’ risk) under the FP Act upon the proposed change of control, then this would likely indicate that the Minister may review the appropriateness of the existing conditions under the new power. The Government stated that, conversely, if the indicative change holder review allocation indicates no change in risk category to which the holder was allocated, the holder can be confident that the Minister is unlikely to impose new or varied conditions under the new power.
While the indicative assessment mechanism under the FP Act may give some indication as to whether the Minister may exercise the new power to impose new or varied conditions following an indirect change of control, it is not binding on the Minister and does not indicate what kind of new or varied conditions will be imposed.
As a result, the absence of a specific indicative assessment mechanism for decisions under the new power will create uncertainty for parties involved in transactions that will result in an indirect change of control of a resource tenement holder.
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