Form 5 and Exemption from Expenditure (WA)
Regulation 21 stipulates the expenditure requirements for exploration licences. Refer to - Expenditure requirements of exploration licences
To accommodate a company's monthly accounting processes, the expenditure in the month of a tenement's anniversary may be reported in the current or following year of that tenement's anniversary.
The Operations Report - Expenditure on Mining Tenement (PDF) is required to be lodged within 60 day of the anniversary date, online or by paper form. DMIRS is seeking to make it compulsory to lodge expenditure online.
At the end of the Form 5 are instructions as to what may be included in each expenditure category. DMIRS has also published a guide for completing a Form 5: Guide to Completion of Form5 .
A.MINERAL EXPLORATION ACTIVITIES
Geological activities: geological mapping, sampling, drilling supervision, core logging, non-core drill-sample logging, geological data processing and interpretation, petrology, planning of exploration programs, report preparation; where appropriate, general prospecting can be added here.
Geochemical activities: geochemical sampling, analysis of surface geochemical samples or subsurface drilling samples, geochemical data processing and interpretation. ALSO show number of samples collected.
Geophysical activities (surface/subsurface): ground geophysical surveys, downhole logging, geophysical data processing and interpretation.
Airborne geophysical activities: aerial survey costs, geophysical data processing and interpretation.
Remote sensing activities: aerial photography, remote sensing images, photo interpretation, image processing and interpretation.
Mineralogical activities (exploration for diamonds, heavy mineral sands, etc.): bulk sampling, mineral separation, mineralogy and analysis of diamond indicator minerals or other minerals.
Surveying activities: gridding, line clearing, grid tie-in, tenement boundaries, etc.
Core drilling: diamond drilling costs (including pre-collar open-hole non-core drilling), access road and drill-site preparation; ALSO show metres drilled and number of holes completed.
Non-core drilling: drilling costs, access road preparation; ALSO show metres drilled and number of holes completed. Costs for deep geochemical sampling by auger or air-core drilling can also be shown here. (N.B. Specify drilling for groundwater supply.)
Costeaning: plant and equipment hire for trenching and bulk sampling.
Field supplies: exploration equipment, consumables and supplies, plant and equipment hire, fuel, oil, etc., depreciation of direct exploration equipment, wages for non-professional field personnel.
Drafting activities: drafting equipment, consumables and supplies, salaries for drafting personnel.
Travel: travel costs directly associated with mineral exploration activities conducted on the tenement.
Field camp activities: establishment and maintenance of exploration base camps, food and accommodation, vehicle costs, contractor helicopter support.
Environmental: environmental studies.
Feasibility study activities: [no further information has been given for this section though the Big Bell Decision some feasibility studies should be classed as Mining Activities]
Rehabilitation activities: [no further information has been given for this section]
B. MINING ACTIVITIES (DEVELOPMENT AND PRODUCTION) Mine planning, open-cut mining, underground mining, shaft sinking, decline construction, underground drilling, pre-blast bench drilling, ore treatment, construction and maintenance of ore stockpiles, waste dumps, tailings dams and dumps, etc. ALSO show tonnes mined or treated. Any costs associated with care and maintenance on an idle mining operation can also be shown here.
C. ABORIGINAL HERITAGE SURVEYS Evidence that a survey has been conducted must be provided to the Department.
D. ANNUAL TENEMENT RENT AND RATES Rental and local government rates, paid in connection with the mining tenement each year.
E. ADMINISTRATION AND OVERHEADS All non-field activities such as head office costs, accounting, mining tenement management, administration, research, literature studies, training, etc.
F. LAND ACCESS/NATIVE TITLE All other native title and land access costs including private land access costs but excluding payments for compensation. N.B. The amount allowed under E and F not to exceed 20% of the minimum expenditure commitment or the total expenditure incurred on activities, whichever is the greater.M Hunt Mining Law in WA The Federation Press for further elaboration.
The following are deemed to be expenditure for mining (s8 has a wide definition of mining including fossicking, prospecting and exploring for minerals, and mining operations ) :
- r96C lists
- Aboriginal heritage surveys even while the tenement is an application.
- Rehabilitation even in connection with a tenement.
- Annual rent and rates.
- Administration and land access costs up to 20% of commitment or 20% of total expenditure, whichever is greater
- Cutting and polishing minerals
- Aerial surveys
- s118A: A person's expenditure where the person has been authorised in writing to carry out mining by the tenement holder.
- The courts hold the following as expenditure (M Hunt Mining Law WA 4th Edition Federation Press p181):
- Cost of travel to and from the tenement except for viewing
- Cost of accommodation and field supplies except where they are normal living expenses
- Drilling costs
- Metal detecting, dollying, panning and sampling except when taken place at home. Note that the Warden used the value of person's time as ascribed in Minimum Conditions of Employment Act 1993
- Cost of plant and equipment in the year of purchase
- Earth moving equipment hire including environmental rehabilitation and walking it into a tenement but not off the tenement
- Stationery and office equipment
- Maps and plan printing
- Evaluation and assessment of geologists (desk top studies), geological reporting, core storage, tenement administration: see Commercial Properties P/L v Italo Nominees P/L
- Tools and equipment
- Wages and supervisory work
- Payment is not required as long as a liability is incurred eg a geologist writing a report.
The following is deemed not expenditure:
- r96C states
- Marking out a mining tenement
- Costs associated with the sale of mining tenement
- Research not related to a specific tenement
- Compensation payments
- The courts have deemed the following is not expenditure
- Depreciation of plant and equipment Craig v Spargos Exploration NL (M Hunt doubted the authority of this decision)
- Caretakers expenses; though where a caretaker was undertaking mining related activities (environmental monitoring) it was deemed allowable
- Loss on sale of fixed assets
- Research by the holder
- An optionee conducting research on whether to exercise the option. Also applied for a due diligence by a prospective purchaser
- Food and accommodation that are normal living expenses
- Share of gold paid to a tributer
- Expenses relating to use of the mineral after production eg marketing and freight
- Hire of ones own vehicle
Warden J O'Sullivan in Extension Hill Pty Ltd v Crimson Metals stated The cap on administration expenses operates to limit the amount (as a percentage) that can be claimed even if the actual figure exceeds 20%. The object of that provision is to ensure that mining activity or exploration takes place and that administration costs are not over-represented in the total amount claimed.
Warden Calder's remarks in Mawson West Ltd & Anor v Saruman Holdings Pty Ltd explains how Administration Expenditure should be allocated to tenements. In my opinion, those provisions of the Mining Act and Regulations and the instructions in the Form 5 to which I have made reference do not have the effect that where expenditure on administration and overheads is in fact less than 20 per cent of the minimum prescribed expenditure or less than 20 per cent of the total of allowable expenditure on all other activities the holder is entitled to record in the Form 5, as expenditure on administration and overheads, 20 per cent of either of the minimum prescribed expenditure or the aggregate of allowable expenditure on all other activities.
If there was no expenditure on administration or overheads which can be directly or indirectly attributed to a tenement, then nothing may be claimed. If the actual amount of any such expenditure is less than 20 per cent of the aggregate amount of allowable expenditure on other activities, then 20 per cent of that other expenditure may not be claimed for administration or overheads. The holder may only claim actual expenditure
Under the s102 of the Mining Act an exemption from expenditure may be granted for the following reasons:
- The title to the mining tenement is in dispute: s102(2)(a).
- Time is required to evaluate work done, to plan future exploration or mining or to raise capital: 102(2)(b).
- Time is required to purchase and erect plant and machinery: 102(2)(c).
- The ground the subject of the tenement is for any sufficient reason unworkable: s102(2)(d).
- The ground the subject of the mining tenement contains a mineral deposit which is uneconomic but may become economic or market problems make the mining unviable: s102(2)(e).
- The ground of the mining tenement contains ore required to sustain future operations of an existing or proposed mining operation:s102(2)
- Political, environmental or other difficulties in obtaining requisite approvals prevent mining or restrict it in a manner that is, or subject to conditions that are impracticable: s102(2)(g)
- The tenement is comprised within a project involving more than one tenement and that expenditure on a tenement or tenements in that project would have been such as to satisfy the expenditure requirements in relation to the tenement concerned had that aggregate expenditure been apportioned in respect of the various tenements comprised in this project s102(2)(h). For a greater explanation refer to Policy Guidelines Exemption from Expenditure (PDF)
- The Minister may grant an exemption for any other reason other than those set out above, which, in his opinion, is sufficient to justify an exemption.
Refer to p206 -p222 M Hunt Mining Law WA 4th Edition Federation Press for greater explanation.Brewer v O'Sullivan Warden at Kalgoorlie No2 2017 WASC 269 and now "found that expenditure “in connection with exploration” is not to be construed narrowly, and is clearly capable of including expenses such as rent and rates for the tenement, and preparatory work relevant to exploration for minerals, such as the cost of obtaining expert reports or native title authorisation".
On 1 July 2016 Warden Maughan in the GMK Exploration Pty Ltd and Big Bell Gold Operations Pty Ltd v Glyn Thomas Morgan (Big Bell Decision) brought into question the expenditure that can be used in calculating the “aggregate exploration expenditure” for the purposes of exemptions from expenditure under 102(2)(h), contrary to the Department of Mines, Industry Regulation and Safety (DMIRS) Policy Guidelines Exemption from Expenditure (PDF)
The Form 5s expenditure is divided into the following categories of expenditure:
- A MINERAL – EXPLORATION ACTIVITIES
- B MINING ACTIVITIES
- C ABORIGINAL HERITAGE SURVEYS
- D ANNUAL TENEMENT RENT AND RATES
- E ADMINISTRATION/OVERHEADS
- F (OTHER) LAND ACCESS THE NATIVE TITLE COSTS
Currently DMIRS accepts for “aggregate exploration expenditure” all categories except B Mining Activities. We have confirmed with DMIRS on 18 May 2017 that to quote “it is business as usual”.
One interpretation of the Big Bell Decision is that only A MINERAL - EXPLORATION ACTIVITIES can only be included as “aggregate exploration expenditure” and/or if there is expenditure in the both A and B categories the other categories must be apportioned by the percentage of the expenditure in A and B categories.
An alternate interpretation of the statements in paras 136 to 141 referred (which the above interpretation relies on), is they should not be read in isolation, but read in reference to the details of this particular case. Warden Maughan adopts Warden’s Wilson interpretation in Blackfin v Mineralogy and the subsequent amendment of the Mining Act that MINING ACTIVITIES cannot be used for aggregate exploration expenditure. Then because Big Bell and GMK used feasibility study expenditure under Exploration Expenditure, which Maughan regarded as MINING ACTIVITIES (contrary to Form 5 instructions) and as such all the C, D, E, F expenditures on the Form 5 are also mining expenditure on that particular Form 5.
DMIRS mentioned that there is a Supreme Court case considering this issue but this has not been verified.
However, if you are using category C, D, E, F expenditures in aggregate exploration expenditure for an exemption application under 102(2)h, a Warden in a hearing may follow Warden Maughan’s precedent.
Therefore, consider carefully the categories used for the aggregate exploration expenditure.