Bills Digest no. 79 2008–09
Uranium Royalty (Northern Territory) Bill
2008
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Contact officer & copyright details
Passage history
Date
introduced: 3
December 2008
House:
House of
Representatives
Portfolio:
Resources and
Energy
Commencement:
Sections 1 and 2 of the
Bill commence on Royal Assent. The operative provisions will
commence on Proclamation, or six months after Royal Assent,
whichever is the earlier.
Links: The
relevant links to the Bill, Explanatory Memorandum and
second reading speech can be accessed via BillsNet, which is at
http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
To introduce a legislative royalty regime to any future
uranium mine in the Northern Territory. This will effectively apply
the existing 18% profits-based royalty regime that is prescribed by
Northern Territory law.
Under section 35 of
the Atomic Energy Act 1953, the Commonwealth has ownership
of all uranium[1]
found in the Territories, including the Northern Territory. Also,
under subclause 4(2) of the Northern Territory (Self Government)
Regulations 1978, the Northern Territory government is prohibited
from specifically legislating with respect to uranium mining. It
may however pass general mining legislation.
Section 34 of
Mining Management Act 2001 (NT) covers all
general mining operations in Northern Territory. It requires that a
mining operation can only be carried out consistent with an
authorisation issued by the relevant Territory Minister. Where an
application for an authorisation relates to uranium the Territory
Minister must consult with the Commonwealth Minister about
‘matters in writing agreed between them’ and
‘must act in accordance with any advice provided by the
Commonwealth Minister’, and thus the Commonwealth has
effective power of veto regarding new uranium mines in the Northern
Territory.[2]
The Northern Territory government may however regulate
permits covering the exploration for, and assessment of, uranium
deposits.
The Ranger mine is the
only operating uranium mine within the Northern Territory. It was
originally authorised under the Atomic Energy Act
1953. Ranger is located within, though is not
actually part of, the World heritage listed Kakadu National Park.
The mine is leased from the Aboriginal traditional owners, title to
the land being held by the Kakadu Land Trust. The Ranger mine is on
a 7860 hectare lease of which about 500 hectares is actually
disturbed by the mining and milling activities. It is managed by
Energy Resources of
Australia (ERA) Limited and in 2008 produced some 5 339 tonnes
of uranium oxide ore. Mining at Ranger was previously expected to
end in 2008, and processing in 2014, but it is now expected to
operate until at least 2020.
The development of the
Jabiluka deposit is on hold. According to
ERA:
Final
Northern Territory approvals for the development of the mine were
received in June 1998. ERA commenced stage one of development on 15
June 1998. This was completed on 4 July 1999 and includes surface
works, a water management pond and the exploratory
decline.
Following ERA’s completion of
stage one development in 1999, the 17-hectare development site
(which includes surface works, a water management pond and
exploratory decline - all of which are common to both development
options) was placed on standby and environmental care and
maintenance to facilitate further community discussion on the
project.
Since
then, ERA has stated that there will be no further development at
Jabiluka without the support of the Aboriginal people through their
representatives, the NLC.
The
Nabarlek uranium mine, operated from 1979 until 1989, and was
decommissioned in 1994/95.
The royalty regimes
applying to Ranger, Jabiluka and Nabarlek were negotiated between
the Commonwealth and holders of the mining authorities on
‘project by project’ basis, rather than a standard rate
being contained in legislation. According to the Explanatory
Memorandum, the agreed rates where set:
… taking into account a range
of factors, including the world market for uranium, any
non-statutory payments to Aboriginal communities, the loss or
damage likely to be suffered by Aboriginal communities affected by
the proposed mining interest and the royalty rate set for other
mines.
The
Ranger mine is the only uranium mine currently operating in the NT.
Its royalty of 5.5% ad valorem is composed of three components
– 2.5% which is the royalty applicable on Aboriginal reserves
under the then NT Mining Ordinance, 1.75% which is the notional
negotiated payment for traditional owners (the Australia Government
pays the sum of these first two components (4.25%) into the
Aboriginal Benefits Account (ABA)) and 1.25% which the Australian
Government pays to the NT Government as a grant in lieu of royalty
under the terms of a 1978 Memorandum of Understanding between the
Commonwealth and NT Governments. The 1.25% paid to the NT
Government equates to the royalty rate for minerals under the NT
Mining Ordinance at the time of self-government in 1978.
The
Narbalek deposit was relatively small and mining was completed in
1988 and the mine site rehabilitated. An ad valorem royalty of
3.75% applied to the Narbalek operation. The Jabiluka mineral
lease, which is yet to be activated, specifies an ad valorem
royalty of 5.25%. The Jabiluka royalty comprised two components of
4% payable into the ABA and 1.25% payable to the NT Government.
However, this royalty arrangement applied only until 30 June 1990
and the project has not proceeded.[3]
Note that because of
the definition of ‘designated substances’ in clause 4
of the Bill, the proposed uranium royalty regime will not apply to
the Ranger mine.
More information on
Northern Territory uranium deposits that are at advanced
exploration and /or assessment stage is contained in Appendix
1.
In August 2005, the
then Industry Minister, announced the formation of a steering
committee to develop an Australian Uranium Industry Framework. The
Framework was intended to:
identify opportunities for, and
impediments to, the further development of the Australian uranium
mining industry over the short, medium and longer
term…including ensuring a consistent and efficient
regulatory regime for uranium mining.[4]
The steering
group’s report was released in September 2006. In
recommending the establishment of a royalty regime in the Northern
Territory, the report stated:
The
current application of royalty arrangements for uranium development
in the Northern Territory on a project‑by-project basis is a
major source of uncertainty and therefore could affect investment
decisions in the sector.
……
Separate royalty regimes may be
inappropriate to a growing uranium mining sector as new entrants to
the uranium industry are uncertain about their potential royalty
liabilities. Another issue is that current arrangements mean that
multi‑product uranium mines could be subject both to the
Northern Territory Government’s profit‑based royalty
regime and the royalty regime imposed by the Australian Government.
This would lead to administrative complexity and tax-driven
investment decisions. An administratively simpler uranium royalty
regime would apply consistently to all areas of the Northern
Territory as a whole. Any new approach should be implemented
following a careful review of possible options and would need to
balance the needs of Indigenous communities, the uranium mining
sector and governments.[5]
An implementation
group was formed in 2007 to progress the various recommendations,
including on the Northern Territory royalty issue, but no
legislation was introduced before the October 2007
election.
The steering
group’s report did not make any specific recommendation as to
whether the proposed royalty regime should be ad valorem (a
percentage of revenue from the mined product), profit-based, or
some combination of the two. However, according to the Explanatory
Memorandum, extensive consultation about this issue was undertaken
during 2006 and 2007. As part of this process, economic modelling
of the alternatives was also undertaken. Readers are referred to
pages 22-23 for details of the consultative process and 28-29
regarding economic modelling. Note at least the section dealing
with consultation (and possibly the entire regulatory impact
statement, contained in pages 13-32 of the Explanatory Memorandum)
appears to have been written in around mid 2007.[6] However, it is understood that the
current Government has consulted with relevant stakeholders during
2008 before introducing the Bill into Parliament[7] - something which is implied by
the Minister’s seconding reading speech in which he makes
reference to ‘the large amount of work undertaken over the
past two years’.[8] The economic modelling used uranium prices of
US$30-36 per lb: although uranium ‘spot’ prices have
fallen from their 2007 peak, they are still currently around US$50
lb.
According to the
Explanatory Memorandum, the profit-based option, based on the
existing Northern
Territory 18% royalty regime under the Mineral Royalty
Act (NT) (the Mineral Royalty Act) was the best
option:
…[it] provides a balance
between the interests of the Government, industry and Land
Councils, in that:
- Government would be
implementing a profit-based regime: which is economically efficient
in terms of encouraging investment; is consistent with the royalty
regime which has applied in the NT for 25 years and thus its
administration is well understood by NT Treasury and the industry;
and would treat uranium the same as other minerals in the NT for
royalty purposes;
- the industry would
get a royalty regime which is more economically efficient in terms
of encouraging investment and is consistent with the royalty regime
which has applied in the NT for 25 years, enabling uranium to be
treated the same for royalty purposes as non-uranium minerals, but
the industry would not get deductibility for the traditional owner
negotiated royalty in calculating the statutory
royalty;
- Land Councils
interests in ensuring that royalty equivalent payments are not
eroded through deductibility of the traditional owner negotiated
royalty would be met, and as 64% of royalty equivalents are already
derived from mining operations subject to the NT's profit-based
royalty, the extension of the NT's profit-based royalty regime to
new uranium mines should be a manageable issue.[9]
The Aboriginal
Land Rights (Northern Territory) Act 1976 (ALRNTA) currently
requires companies wishing to conduct exploration or to open a mine
(of any type) on Aboriginal land to reach agreements with the
relevant Land Council. In practice, such agreements contain a
negotiated royalty of around 2% ad valorem, which is payable even
when the operation is not recording a profit. This negotiated
royalty is in addition to the royalty that is paid by the company
to the Commonwealth, though due to the operation of sections 63-64
of ALRNTA, the Commonwealth pays this royalty into the
Aboriginals Benefit Account (ABA), with Aboriginal people in
areas affected by the mine receiving 30% of these
royalties.
The Explanatory
Memorandum notes that the Northern Territory Indigenous Land
Councils favoured the ad valorem option for the new
regime:
The
Land Councils support an ad valorem royalty because they consider
the royalty equivalents paid into the ABA would be more predictable
and thus income payments from the ABA to traditional owners would
be more stable. Despite mines being more likely to be economic
under a profit-based royalty, the Land Councils in general do not
support a profit-based royalty because little or no royalty may be
payable at some stages during the life of a mine which would
adversely affect the level of royalty equivalent payments into the
ABA and income payments from the ABA to traditional owners. This
position has been maintained despite the fact that 64% of royalty
equivalent payments into the ABA are already derived from
non-uranium mines which are subject to the profit-based royalty so
traditional owners are already managing the royalty fluctuations.
The Central Land Council, however, has indicated that it could
accept a profit-based royalty providing that traditional owner
negotiated royalties would not be deductible in calculating
statutory royalties.[10]
The Mineral Royalty
Act does not allow specifically for any negotiated royalties to be
deducted in calculating the 18% profit-based royalty. Section 4CA
does give the Minister a broad discretion to agree to a deduction
(as long as it is expenditure relevant to production), but it
appears this is a once-off deduction, and thus only affects a
royalty for the first year of production.[11]
The Bill has been referred to the
Senate Economics Committee for inquiry and report by 30 April 2009.
Details of the inquiry are at
http://www.aph.gov.au/senate/committee/economics_ctte/uranium_09/index.htm.
There appears to have been no comment on the Bill
to date by the Opposition or minor parties. Since the royalty
proposal was developed under the then Howard Government, the
Opposition is likely to support the Bill at least in
principle.
As noted, on page 7 of
this Digest, the Explanatory Memorandum indicates a preference for
ad valorem royalty by the Northern Territory Indigenous land
councils, with industry and the Northern Territory Government
supporting the profit-based royalty regime proposed by the
Bill.
More detailed position
statements should be known once submissions to the Senate committee
inquiry are publicly released, probably around mid to late
February.[12]
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Given that the regime will apply
only to any future uranium mines, the likely financial implications
in the immediate future seem modest. However, the Explanatory
Memorandum comments:
The
Commonwealth will be in a revenue negative position for new
projects containing designated substances on Aboriginal land, as
declared under the Aboriginal Land Rights (Northern Territory)
Act 1976, as the Commonwealth would be required to make two
payments of amounts equivalent to the royalties collected –
one payment to the Aboriginals Benefit Account and one payment to
the Northern Territory Government.
However, this will make uranium
royalties consistent with the existing Northern Territory mineral
royalty regime for other minerals. Additionally, this royalty
regime will obviate any additional administrative complexity for
Northern Territory royalty collection processes, especially in
relation to poly-metallic mines containing designated substances,
i.e. where a Northern Territory and Commonwealth royalty is
liable.[13]
Clause
4 contains various definitions. Notably it defines
‘designated substances’ – on which the royalty is
payable – as excluding any substance obtained or obtainable
from the Ranger Project Area. Thus the current Ranger mine royalty
arrangements are not affected by the Act.
Clause
5 binds both the Commonwealth and the Northern Territory
to the Act, but states that it does not render them liable for a
prosecution.
Clause 6 imposes
the royalty. It does so specifying that the Mineral Royalty
Act (NT) (Mineral Royalty Act), and any other
Northern Territory law relevant to the operation of the Mineral
Royalty Act, also applies to designated substances as a law of the
Commonwealth, subject to the modifications set out in the table in
clause 6, as well as any specified in regulations made under the
Act.
Under the modifications set out in
the table in clause 6, uranium mining companies will pay the
royalty to the Northern Territory, but the Northern Territory will
be collecting this on behalf of the Commonwealth. However, as
explained later in the Digest in regard to clause
17, the Commonwealth effectively transfers the royalty
amounts to the Northern Territory Government. The remainder of the
matters in the clause 6 table essentially allow for the Northern
Territory to administer the proposed uranium royalty
regime.
Subclause 7(1)
allows the Commonwealth Minister to make arrangements with the
Northern Territory Minister about the exercise of powers, duties or
functions under the Act by the Northern Territory, including
Ministers, officials, statutory bodies or courts. The Explanatory
Memorandum comments:
The
administrative arrangements shall be between the Minister
administering the Act (currently the Commonwealth Minister for
Resources and Energy) and the Northern Territory Treasurer and will
outline a number of administrative matters including (but not
limited to) apportionment principles for poly-metallic mines,
reporting obligations and dispute resolution processes arising from
disputes between the Commonwealth and the Northern Territory
Governments.[14]
Such arrangements, and
any variation or revocation of them, must be in writing and
published in the Commonwealth Gazette: subclauses
7(4)-(5). The Minister has stated in his second reading
speech these arrangements will be negotiated before the proposed
Act comes into effect.[15] Presumably such written arrangements would not be a
legislative instrument, or even if it was, it is unlikely it would
be disallowable due to the operation of subsection 44(1) of the
Legislative Instruments Act 2003.[16] Subclause 7(2)
require both the Commonwealth and the Northern Territory to comply
with any arrangements that are in force. The royalty regime imposed
by clause 6 does not have effect until any clause 7 arrangement is
‘in operation’: subclause
6(3).
Clause 8 states
that the royalty imposed by clause 6 is not a tax. The
royalty is a payment to the Commonwealth for exploiting something
(uranium and related minerals) that belongs to the Commonwealth,
and thus is neither a tax or fee for service.
Clause 9
effectively means that the operation of the royalty regime imposed
by clause 6 does not allow the Commonwealth to appropriate (take or
spend) Northern Territory public money.
Clauses
10-16 deal with the application of law and judicial
proceedings. These provide that Northern Territory courts have
jurisdiction in ‘all matters arising out of’ the
Mineral Royalty Act and any other Northern Territory law that
applies as a law of the Commonwealth under the provisions of the
Act: see particularly clause 12.
Clauses
10-11 deal with limitations in conferral of any power on
Northern Territory courts. Clause 11 for example
specifies that clause 6 cannot confer any such powers on a Northern
Territory court where this would be contrary to the Commonwealth
Constitution.[17]
Clause 15 allows for certain other Commonwealth
laws not to apply the Mineral Royalty Act and any other Northern
Territory law that applies as a law of the Commonwealth under the
provisions of the Act. Notably, Chapter 2 of the Criminal Code
Act 1995, which contains general principles of criminal
responsibility under Commonwealth law, are not to apply, although
this can be modified by regulations. The Explanatory Memorandum
states:
These
Commonwealth laws do not apply as the corresponding Northern
Territory power will be applied in respect to offences to maintain
consistency with the royalty regime for other minerals.[18]
Clauses
17-18 deal with the transfer of royalty or associated
payments between the Commonwealth and Northern Territory
Governments. Whilst under the proposed royalty regime these
(‘the received payments’) are collected by the Northern
Territory, they are still Commonwealth money. However,
clause 17 requires the Commonwealth to pay the
Northern Territory an amount equal to the received payments, so the
net effect is that the Northern Territory receives the royalty.
Clause 18 provides that such payments are to be
paid from the Consolidated Revenue Fund (CRF), and the CRF is
appropriated accordingly – thus there is no need for any
separate authorisation for such payments from the ordinary
semi-annual Appropriation Bills.
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The list of Australia's Uranium Deposits
and Prospective Mines prepared by the Australian Uranium
Association shows the location and details of at least six NT
proposals as at November 2008:
Koongarra, NT
Koongarra is a small but relatively
high grade uranium deposit in the Alligator Rivers of the Northern
Territory. It lies some 30 km south of Ranger and 3 kilometres east
of Nourlangie Rock. When the Kakadu National Park was set up in
1979, the land covered by the Koongarra Special Mineral Lease was
excluded. However, the Lease area is on Aboriginal
land….Following the 1996 change of federal Government, all
aspects of the project were reassessed by Cogema, but in April 2000
the (Aboriginal) Northern Land Council vetoed development of the
project for five years.
The
upper orebody has proved and probable ore reserves with an average
grade of almost 0.8% U3O8, containing 14 500
tonnes of uranium oxide accessible by open pit mining, and with
associated gold. Proposed production was 1375 tonnes
U3O8 per year. A poorly-defined lower orebody
is estimated to contain 2000 tonnes of uranium oxide in 0.3% ore
but does not form part of the reserves.
Mount Fitch, NT
Mount
Fitch was discovered in 1965 and is part of the old Rum Jungle
workings near Batchelor, 64 km south of Darwin. Compass Resources
NL has been active in the area for some years, primarily
focused on the Browns deposit, a copper-cobalt-nickel deposit close
to the old Intermediate open pit. In 2006 Compass reported
resources of 4050 tonnes U3O8 at Mt Fitch,
averaging 0.046%.
Angela, NT
The
Angela deposit, 25 km south of Alice Springs was discovered in 1973
and extensively drilled by Uranerz Australia to 1989, under a
Uranerz-MIM joint venture which reported 11,500 tonnes of
U3O8 at 0.10 to 0.13% (measured, indicated,
& inferred resources), spread over 5.7 kilometres strike length
in sandstone to a depth of 650 metres and open at depth.
After
Uranerz departed from Australia in 1991, Angela was held under a
retention licence, but this was relinquished due to prevailing
Labor Government policy. The NT government in February 2008
accepted a bid by 50-50 joint venturers Paladin Energy Ltd and
Cameco Australia to explore the deposit with the adjacent Pamela
deposit. The new Angela Project JV has committed to spend $5
million on confirming the resources once a licence is issued, with
a view to then undertaking a bankable feasibility study. It
is expected to have a conventional hard rock mill and an alkaline
leaching circuit, with production possibly in 2011.
Bigrlyi, NT
Bigrlyi is a series of discontinuous
lenses outcropping over 12.5 km in hard sandstone along the
northern edge of the Ngalia Basin in NT, 390 km NW of Alice
Springs. Central Pacific Minerals NL in 1982 reported resources of
2181 tonnes U3O8 averaging 0.372% in eight
separate lenses, the main mineral being uraninite, along with
vanadium minerals. In mid 2008 the deposit was held by a joint
venture including Energy
Metals Ltd (53.74%) and Valhalla Uranium (42.06%, Paladin
subsidiary) who have reported indicated resources of 4050 tonnes
U3O8 at 0.173% average (and 4000 t
V2O5) and inferred resources of 6500 tonnes
at 0.125%, with cut-off of 0.05%. Energy Metals, the
operator, has announced good recoveries and relatively low acid
consumption from metallurgical testwork. A proposed open cut
mine is expected to produce at least 6800 tonnes
U3O8 with similar amount of vanadium
byproduct over ten years. An additional 550 t
U3O8 would be accessible
underground.
Nolans Bore, NT
This
is a deposit of rare earths, about 135 km north of Alice Springs,
and has some uranium as potential by-product. Arafura Resources intends
to develop it as a rare earths mine.
Napperby, NT
The
Napperby project in the Northern Territory, 150 km northwest of
Alice Springs, is an historic uranium prospect, comprising an
extensive near-surface, consistent mineralised zone that is
relatively low grade calcrete, but is close to
infrastructure. An inferred resource of 670 tonnes in 0.36%
ore over one kilometre of paleochannel was reported in 2006.
Toro Energy took over
the project from Deep Yellow, and is now defining the resource with
a view to assessing the viability of mining it. The
resource figure was increased to 1420 tonnes at 0.0305%
U3O8 in July 2008.
Westmoreland, Qld (&
NT)
This
comprises the eastern end of a series of small prospects and
deposits spread over about 50 kilometres straddling the Queensland
- Northern Territory border, about 400 kilometres north of Mount
Isa. Westmoreland is on the Queensland side of the border and its
deposits extend over about 10 kilometres.
The
first uranium mineralisation was discovered here in 1956, by a
prospector with a Geiger counter. Late in 1956 the Bureau of
Mineral Resources flew an airborne scintillometer survey and
recognised anomalies in outcrops of the Westmoreland conglomerate
held by Mount Isa Mines Ltd (MIM). Further work resulted in three
mining leases being pegged over the Redtree deposit in
1959.
In
1967 Queensland Mines Pty Ltd obtained an exploration permit over
the area surrounding the MIM-ZC leases and commenced a major
drilling program which identified further Redtree deposits and the
Huarabagoo deposit. In 1975 Queensland Mines formed a Joint Venture
with Urangesellschaft Australia Pty Ltd, Anglo Australian Resources
NL and IOL Petroleum Ltd, with the IOL share later being taken over
by a CRA subsidiary. In the period 1976 to 1983 Urangesellschaft
discovered the Junnagunna deposit while they were managing the
Joint Venture. In 1985 Queensland Mines resumed
management.
In
1990 CRA Exploration Pty Ltd (now Rio Tinto Exploration P/L)
entered the Queensland Mines - Urangesellschaft Joint Venture and
took over the exploration work with a view to earning equity in the
Joint Venture. In 1997 Rio Tinto took over the whole project (it
already had a 100% interest in the original MIM-ZC mining leases at
Redtree), but relinquished the leases in 2000.
The NT
Department of Regional Development, Primary Industry, Fisheries and
Resources also provides announcements on recent uranium mining
ventures within its jurisdiction.
Members, Senators and
Parliamentary staff can obtain further information from the
Parliamentary Library on (02) 6277 2764.
Angus
Martyn
29 January 2009
Bills Digest Service
Parliamentary Library
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