Mutooroo Metals Pty Ltd v Hesarejo Pty Ltd - [2009] SAWC 15

Wardens Court of South Australia
(District Court Administrative and Disciplinary Division)
MUTOOROO METALS PTY LTD v HESAREJO PTY LTD
[2009] SAWC 15
Judgment of Senior Warden Cannon
4 August 2006
MINING LAW
Mining Lease - Forfeiture - Breach of Labour - Sufficient Gravity

MUTOOROO METALS PTY LTD v HESAREJO PTY LTD
[2009] SAWC 15

This is an ex tempore judgment. I reserve the right to correct errors of syntax and grammar. I also reserve the right to refer to earlier judgments if the matter goes on appeal to justify assertions of legal principle that I will make in this judgment. The parties are all here. It is desirable that I dispose of the matter now rather than reserving it.
This is a plaint dated 13 January filed on 13 January this year by Mutooroo Metals Pty Ltd. I accept that is a wholly owned subsidiary of Havilah Resources NL, a public listed company. It is complaining of the lack of activity of Hesarejo Pty Ltd in relation to mining lease 5678. The mining lease has been exhibited. There was a transfer to which minister’s consent was given on 16 October ’95 and it was actually registered on 15 November ‘95 to the present lease holder.
It has been renewed since then. It has currency until 2011. There’s been no suspension of labour conditions and I’m told no application for any. The obligation under the lease is to work the lease and I quote clause 6.4:
‘The lessee hereby further covenants with the minister as follows:
4), to mine the land in a fair, orderly, skilful and workmanlike manner in accordance with the first schedule hereto and bona fide exclusively for the purpose for which it is demised so as to effect maximum recovery of the mineral resources, consistent with economic practicability and shall ensure that all waste materials containing minerals are so placed that they are reasonably accessible for re-treatment.’
The first schedule says this:
‘1.    Mining operations for the recovery of copper by in situ leaching technique may be conducted.
2.     Mining operations must be in accordance with a developmental plan approved in writing by the Chief Inspector of Mines.
3.     Mining, buildings and plant may be established with the prior approval in writing of the Chief Inspector of Mines.’
There is a mining developmental plan, received by the department on 12 November ’94. It was submitted by the previous lessee, Brink Mining Pty Ltd. The approval of that plan accrues to the present lease holder and has since it took over at the end of ‘95. I will not dwell on all the detail of the plan even though it is all important. I focus on p.4. The plan sets out a developmental program to re-establish all drill holes from the previous tenement holder (that’s previous to Brink); take samples on a monthly basis; use existing drainage pits to permit recirculating fluids to the mine; there will be a 20,000 litre mild steel tank surrounded by a earth wall as a safety precaution to store acid.
There will be pumps:
‘A submersible pump will be installed and pregnant liquor will be pumped to the existing settling tanks and in those the pH will be adjusted to 1.8-2.0. The pregnant liquor from the settling tanks is then to be pumps at 500 l per minute through a Kennycott-type cone and that is charged with light gauge shredded scrap iron. The copper cement that will be deposited as a result of that process is to be discharged at two to four hourly intervals ready for transport to Burra. Pumping and copper recovery will be done on an almost 24 hour a day basis. The barren liquor will be adjusted to a pH of 2 before recirculating to the underground working.’
That is the approved mining method under the lease.
The regulations under the Mining Act1978 apply to lease conditions. Regulation 50 is relevant. Regulation 50(3) provides:
‘Unless otherwise determined by the Wardens Court, a mining lease must immediately after the minister gives notice that the lease has been approved, be diligently worked –
(a)     by at least one person the basis of at least 100 hours of work per calendar month; or
(b)     as specified in the lease; or
(c)     as approved by the minister from time to time.’
There’s no evidence here of the minister making any approval separate from the material I’ve set out above. There is a mining method and a quantity of activity set out in the approved developmental plan programme under the first schedule and I’ve quoted that.
There have been various authorities which I will not dwell on in this ex tempore judgment, but may come back to if there is an appeal, as to the inter-relationship between obligations to work in accordance with the first schedule in these leases, which are a standard form, and the regulation requirement of 100 hours work per calendar month. There are authorities of courts higher than this, suggesting that the developmental plan obligation supplants the obligation of 100 hours of work per calendar month and indeed, there are authorities from higher courts to the effect that if there is no developmental plan and the lease says it must be mined in accordance with the developmental plan, then there is no obligation to work because the pre-condition, namely approval of the developmental plan to allow work to commence is not in place.
I have previously expressed my lack of ease and comfort with those authorities, but I am bound by them. In my view the preferred view is that mining leases are an operational lease, whereas claims are for exploration and pre-operational activity. Once the miner is granted a lease, the miner should be working it. This Court always thought, prior to being corrected by higher courts, that regulation 50(3) put a bottom line of 100 hours per calendar month under the required activity of any mining lease in this State. I repeat this for the benefit of the appeal court, if it goes on appeal. I proceed on the established authorities that in this case the 100 hours was not in place until there was a developmental plan. There was a developmental plan approved for this lease and the developmental program has in mind the matters I have set out above; a substantial pumping operation using a substantial amount of acid to achieve a desired pH level using the settling tanks which are on the lease, and that it will be almost a 24 hour a day operation.
The obligation then is to mine this lease exactly as the developmental program set out and that obligation was in place when this leaseholder took the lease over. My own interpretation is that once a developmental program is in place then there would be a parallel and underpinning obligation to work 100 hours a month in accordance with the regulations. That would in this case be by the way because it is a lesser obligation than the work approved in the developmental program. The developmental plan conceives an operation here of nearly 24/7, in other words full-time 24 hours a day.
I turn to the facts. The mining returns disclose no successful mining from this lease. It’s acknowledged by Mr O’Connell that he has not been successful in mining this commercially. In referring to Mr O’Connell, I encompass his company, Hesarejo Pty Ltd. There has been no operation of the type conceived in the developmental plan; that’s patent from the mining returns and his own evidence.
I have heard evidence which is all on transcript from the plaintor’s directors, Mr Johnson and Mr Giles. I noted within that evidence, but did not bother to slow the process by excluding it as we went along, some hearsay evidence. I mention examples being what the land owner said, and what the workers doing drilling said about lack of activity. This is partly to contradict the evidence I heard at the previous hearing from Mr Worsching. I make it absolutely clear and unambiguous in this judgment that I have carefully filtered from my mind all hearsay evidence and none of it has been used by me in drawing the conclusions in this judgment.
I also note a complaint by Mr O’Connell about the fact that a trespass on his lease occurred. This occurred when Mr Giles and Mr Johnson who were drilling nearby walked the lease. The lease had a padlocked gate. The fact that it was private must have been obvious to them. I turn my mind to Bunning and Cross and other authorities as to whether evidence obtained by unlawful means should be excluded. The real origin of that rule is two-fold; one, to assert public policy to prevent evidence being obtained unlawfully and the other, to prevent unfairness. Neither of those applies here. There was no practical harm by these two geologists walking over a lease area that should have been in production but was not, to satisfy themselves as to the existing evidence. Indeed the public policy would tend to encourage them doing that, to assist the self-regulating policy behind the Mining Act 1978 and regulations to ensure that where a lease or other tenement is not being operated in accordance with its requirements, it can be plainted and if the case is made out, forfeited. Other miners are encouraged to identify that and take out plaints to remove the non-productive non-active miner so that someone else can try and develop the resource for the betterment of the general economic activity of the State. So no Bunning and Cross principle lies here to exclude any evidence of Mr Giles and Mr Johnson so obtained.
I accept that the head company Havilah Resources NL undertook a significant drilling program to identify a potential open-cut resource to the south-west of the mining lease the subject of this plaint. Mr O’Connell has attempted to infer that there has been misleading conduct by Havilah in its public pronouncements. Ultimately that’s a matter for ASIC and I don’t intend my judgment to traverse upon whether or not ASIC should do anything about that. Simply in my judgment I am not confused by what Havilah has said in its prospectus. It has pointed out that there was a resource previously identified by Broken Hill South, some of which is in this mining lease, that Havilah through its subsidiary, Mutooroo Metals Pty Ltd have by modelling and the drilling I’ve mentioned above identified separately a resource within no doubt the previously larger resource (larger in geographical area) mentioned by Broken Hill South. None of the resource identified, modelled and proposed for the open-cut is affected by the existing mining lease. So there is no confusion nor any inconsistency apparent in my mind about the public statements of Mutooroo Metals and Havilah Resources, and the evidence of the two directors who have given evidence before me.
For completeness, before I get to recent activities, it is clear that there has been a gross breach of the labour requirements of this lease since the lease was taken over by the existing lessee at the end of 1995 until well into 2005, a decade of inactivity. Simply the type of mining proposed in the approved developmental plan has never occurred for a decade.
There were some background negotiations between these parties once the EL had been taken by Havilah Resources over a larger area encompassing the area within the lease. I don’t know the detail of that. I don’t want to. I don’t need to. I mention it only by way of background.
Against that proven total inactivity and non-compliance with labour conditions, as required by the first schedule explained by the developmental plan, and if I’m correct, underpinned by the minimum of 100 hours a month, then some activity occurred. I heard about that from the witness last time. I’m sceptical about his evidence. I’ve noted carefully the criticisms that have been made of it today (but no the hearsay). They to some extent echo views I formed myself.
When Klaus says that he was out there through August, two or three days a week, I think he was exaggerating. When he says he established a pumping operation, I accept that that occurred. The pumping operation involved one half kilowatt hour submersible Grundfos pump. There is another one available, it hasn’t actually been in the operation. The pumping has been of the ground-water from the mine into a small steel tank. Some large webbing type netting with smaller fishnet containing scrap steel is within the tank and by some form of naturally occurring electrolysis, some copper comes out of the ground-water and you end up with a mixture of iron oxide, copper, copper sulphate and iron sulphate. What I have just described, I correct myself, is the product of the acid process proposed in the developmental program.
In any event, you end up by the process that Klaus was using, with some copper mixed with iron in various combination with oxides etc, details of which I don’t need. They are set out in the statement that I’ve received from Mr O’Connell. The total success from this operation is in a small bag on site and another small pile beside the tank. The produce produced is not commercially valuable. Simply put, that operation is totally remote from the developmental plan technique, save and except that something is being pumped from the mine. It is not an operation of the type, nor of the scale, nor of the nature, nor using the same equipment, such as the settling tanks that were approved by the department. It was not compliance with the labour conditions. It was not compliance with the labour conditions in accordance with the developmental plan. Also, it was not 100 hours a month if I regard the 100 hours a month as a minimum. There has to be compliance with the processes proposed and approved in the developmental plan.
Klaus’s evidence, suspect as I find it, even if taken at face value and accepted, would not prove work in accordance with the obligations. Therefore the proposed defence under regulation 92 of the regulations, is not available. Regulation 92.1 provides in effect that once you start complying with the labour requirement, then any previous liability for forfeiture is extinguished by the subsequent compliance. Regulation 92(2)(b), provides that:
‘Sub-regulation (1) does not apply if proceedings for forfeiture of the tenement are commenced under the Act within one month after the liability to forfeiture arises, and before the tenement holder takes steps to rectify the non-compliance.’
In this case, there’s no established later compliance. Secondly I would in passing make a point of interpretation. Clearly that regulation is in place to protect genuine miners actually mining, who fall into fault but later remedy the position from opportunistic forfeiting. That is not the case before the court today. What I have is a person holding a lease for a decade, doing nothing and seeking by a last ditch effort of activity outside the developmental programme, to stave off a recommendation for forfeiture.
On all the findings above, there is a breach of the labour conditions in a material respect. In relation to whether it is of sufficient gravity, I first of all note the grossness of the breach. I also note what I think is a very important consideration and that is the relative likelihood of a successful forfeiture resulting in a successful mining operation. The present leaseholder has had this lease for more than a decade, and although there are some speculative ideas as to how a leaching operation might proceed, there is just nothing tangible to suggest that left with the lease, the existing leaseholder will succeed in mounting a mining operation.
It’s uncertain whether the plaintor will succeed in mining successfully, but it does have concrete proposals to undertake a substantial open-cut mining operation in the immediate vicinity to the southwest of the existing lease. It says that the benefit of the lease to it will be primarily to be available for overburden, but they will drill to see whether the resource they have established with drilling does usefully stand at depth under the existing lease.
There is an element in their plaint of aggrievement that they should be subject to stringent requirements in relation to their exploration licence in contrast to seeing a lease derelict and no apparent activity by the department to insure compliance. That is of course, part of the reason for the Act having a self-regulation element to it that if a miner sees another not working, it is encouraged to take a plaint for forfeiture. Everything points to the fact that I should recommend forfeiture here.
Finally I mention an oversight in my summary above, that the leaseholder has not produced any documentary evidence to support the evidence that work was done. For all the reasons above, I’m going to recommend that this lease be forfeited. There is no application for costs.
Regarding removal of equipment, the process forward is that my order doesn’t actually operate to forfeit the lease. It is a matter for the Minister to do the forfeiture, f he accepts my recommendation. I make a recommendation, and he then decides whether to forfeit it.
There is a right of appeal. That is exercised to the ERD Court