Australia's FIRB regime: the impact on transactions in energy & resources sectors

Introduction

Generally, foreign investors seeking to acquire securities in Australian mining companies and Australian real property assets, which includes mining tenements, will first need to obtain the approval of the Foreign Investment Review Board (FIRB). Australia’s FIRB regime requires that certain mining acquisitions by ‘foreign persons’, including foreign investors and foreign government investors, be examined in order to determine whether the particular foreign investment proposal is contrary to the national interest.

Key takeaways

• It is important for any potential foreign investor to consider the implications of the FIRB regime in relation to any proposed transaction involving companies in the mining and energy sector and note whether FIRB must be notified by reference to the relevant thresholds.
• Each mining and exploration tenement must be closely examined to determine whether the notification exemption may apply and whether the prospective foreign investor may be able to obtain an exemption certificate.
• Penalties for non-compliance are severe and FIRB should be notified before any action takes place where the acquisition may be regulated by the FIRB regime.

Mining tenements

For the purposes of the FIRB regime, a mining tenement will include mining leases and licences, petroleum production leases (both onshore and offshore), rights that preserve a right to recover minerals, oil or gas, leases under which the lessee has rights to recover minerals, oil or gas (including subleases) and an interest in any of these (including, certain interests in profit/income sharing agreements).

Under section 4 of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA), a mining tenement is a type of Australian land. Acquisitions of interests in a mining tenement by foreign persons are notifiable to FIRB regardless of the value, except if acquired directly from the Australian government or a government of a State or Territory. However, foreign investors from Chile, New Zealand and the United States of America will have the benefit of a higher value threshold of A$1,134,000,000 for acquisitions of mining tenements by virtue of the relevant Free Trade Agreements entered into with Australia. Investors from all other countries, regardless of the existence of a Free Trade Agreement with Australia, will be required to notify FIRB for any acquisition of a mining tenement.

Foreign government investors must notify FIRB of any acquisition of a legal or equitable interest in a mining tenement, regardless of the value of the transaction.

Exploration tenements

While the terms of an exploration tenement will vary by jurisdiction and the type of exploration tenement, they will generally be for a set period and allow for activities including sampling, testing, drilling, surveys and prospecting. The definition of a tenement in section 5 of the Foreign Acquisitions and Takeovers Regulation 2015 (Cth) (Regulation) provides that an exploration tenement will generally not be considered an interest in Australian land for the purposes of sections 4 and 12 of the FATA. Therefore, there is generally no requirement for a foreign investor to notify FIRB, regardless of the value of the tenement and who it is acquired from.

However, acquisitions of interests in exploration tenements may be notifiable in circumstances where the exploration tenement confers a right to the foreign person that allows for the occupation of the underlying land for a period of time that is likely to exceed five years (including any extension or renewal). As each tenement will involve different rights and obligations on the holder it will be necessary to determine whether the exploration tenement confers such a right and whether the value of the acquisition will exceed the relevant threshold. This threshold will vary depending on the classification of the underlying land to which the exploration tenement relates.

Under section 47 of the FATA and section 56 of the Regulation, foreign government investors must notify FIRB of any acquisition of a legal or equitable interest in an exploration tenement, regardless of the value of the transaction. This includes when an existing tenement is being converted to a different tenement (such as an exploration tenement being converted to a mining tenement) and where the interests in the tenement(s) is acquired directly from the Australian, State or Territory government (for example, when the exploration tenement or permit is being issued).

Acquisition of securities in mining companies

A foreign investor will be required to notify FIRB in relation to an acquisition of a substantial interest¹ in an Australian mining, production or exploration entity (including a parent or subsidiary) which holds tenements (if the foreign person would be required to notify FIRB under the relevant rules relating to the acquisition of mining or exploration tenements) and where the value of the acquisition meets the relevant threshold.

It is important to note that despite the definition of substantial interest under section 47 of the FATA and sections 52(1)(d) and (56) of the Regulation, a foreign government investor must notify FIRB if it acquires a 10% interest in an Australian mining, production or exploration entity, regardless of value.

There is a requirement to notify FIRB in circumstances where an acquisition of shares in an Australian mining, production or exploration entity meets the prescribed value threshold (A$261,000,000), where the company carries on an Australian business, and the action results in a change in control.

Under section 54 of the FATA, there is a change in ‘control’ where the Treasurer of Australia is satisfied that the acquisition has the result of a foreign person having control of the mining tenement(s) and thereby control of the business. This will encompass situations where a foreign person, as a result of the acquisition, has or will have the ability to determine questions relating to the acquisition and disposal of an interest in a tenement, include agreements relating to leasing assets, the right to use assets, participating in profits or management and control of the business.

In addition to the above, an acquisition of an interest in an Australian mining, production or exploration entity may be notifiable to FIRB where the value of the company’s interests in Australian land (including mining or production tenements) exceeds 50% of its total assets by value.

Exemption certificates

It is possible for prospective foreign investors to obtain an exemption certificate under section 43 of the Regulation allowing the foreign investor to undertake a program of acquisitions of securities in Australian mining, production or exploration entities or tenements without having to obtain FIRB approval for each individual acquisition. This would be advantageous to, for example, large investment funds, particularly those with low-risk foreign government investors, and investors who intend to make a series of passive investments in the energy and resource sector.

The Treasurer would generally grant the exemption provided that the acquisition is not contrary to the national interest.

Fees are payable for an exemption certificate at the time of the application and at the end of each six month period for which the exemption applies.

Acquisition in the underlying land for mining operations

Foreign persons may be required to notify FIRB before acquiring an interest in land in Australia which is intended to be used to undertake mining operations. Notification is only required if the relevant value thresholds are triggered. The relevant thresholds are outlined in the table below.

In addition to notifying FIRB, foreign persons may need to obtain a no objection notification from FIRB where the relevant value thresholds are met for more than one type of land in Australia. The Treasurer can issue a no objection notification for certain investments under sections 74 or 75 of the FATA if the Treasurer considers that the investment is not contrary to the national interest.

Acquisition of an interest in an operational mine

Under the FIRB regime, an operational mine is considered to be low threshold commercial land. Foreign government investors are required to notify before acquiring any interest in developed commercial land, regardless of the value. Other foreign persons need to notify before acquiring an interest in developed commercial land only if the value of the interest is more than the relevant notification threshold ($1,134,000,000).

Fees

The relevant fee for lodging an application with FIRB is payable at the time of application, with statutory processing timelines for making a decision as to whether to approve a transaction commencing from when the correct fee is paid.

The fees payable when lodging an application to acquire an interest in a mining tenement or securities in a mining entity are outlined in the table below.

Penalties

Strict penalties (including civil and criminal penalties) may apply for breaches of Australia’s foreign investment rules. If an offence is committed, this may result in imprisonment for up to THREE years, a fine of $157,500, or both. Alternatively, a fine of up to A$52,500 may be imposed for a civil contravention.

Thresholds

For Foreign Investors

For Foreign Government Investors

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¹ A substantial interest is defined under section 4 of the FATA as, for an entity — the person holds an interest of at least 20% in the entity; or for a trust (including a unit trust) — the person, together with any one or more associates, holds a beneficial interest in at least 20% of the income or property of the trust.

² Agreement country investors are Chilean, Chinese, Japanese, New Zealand, Singaporean, South Korean and United States investors, except foreign government investors. This will include Singapore once amendments to the Australia‑Singapore Free Trade Agreement come into force.

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