Resources Sector risks losing assets

OUT AND ABOUT: What is akin to making sure your name tag is sewn into your underpants the new Personal Property Securities Act (PPSA) is looming as a danger to resources companies that are unprepared for its introduction.

If the mining industry didn’t have enough to worry about with the Minerals Resource Rent Tax and the Carbon Tax, companies now have to ensure they don’t lose their assets.

According to law firm Minter Ellison the results of recent surveys have shown the mining sector falsely believes the new PPSA laws are more an issue for banks and financiers to deal with, rather than explorers or miners.

The frightening truth of the matter is that these companies potentially risk losing ownership their key assets such as mining fleets or even ore stockpiles unless they comply with the new property focused Federal legislation due to come into effect in three months.

The Act replaces more than 70 State, Territory and Commonwealth property security registers and has specific potential impacts on the resources sector for project assets sanctioned at Commonwealth level.

Speaking over the clinking knives and forks at a Diggers & Dealers breakfast briefing, Perth-based Minter Ellison special counsel Stephanie Rowland said that the very complexity of joint venture agreements and other wide-ranging contractual arrangements common across mining, dictated that earlier compliance could prevent significant financial disputation.

“The new law is a total rewrite of how ownership of personal property needs to be documented and registered,” Rowland said.

“This brings with it, significant new obligations on resources participants to clearly register exactly where their ownership interests lie in a project or their company.

“Explorers and miners that are not PPSA ready by October, run the risk of losing valuable rights to competing interests that will rank ahead of them under the new regime’s requirements.”

Rowland provided those present with a recent example of what could possibly happen to Australian companies that disregard the importance of registering.

Under similar laws in New Zealand an accommodation supplier was leasing five units to a client, which in turn was being supported by a merchant financier.

The original supplier failed to adequately register its interest in the units, while the financier, under its arrangements with the client company, held a debenture over its assets.

When this company became insolvent, the financier, not the original supplier of the units, was deemed to have correct ownership entitlement.

“It is those very type of arrangements which dominate agreements between parties driving Australia’s exploration, mine construction and mine operating regimes,” Rowland said.

“So the potential for damage or loss to a third party from non-compliance, is now sizeable.”

Ms Rowland urged the resources sector needed to appreciate the implications of the PPSA as there are any number of property relevant to most mining projects which are deemed ‘personal property’ and therefore have ownership rights defined.

These include:

– Plant and equipment;

– Ore stockpiles, ore in circuit and processed ore; and

– Confidential data (for example seismic data) which could be a very valuable part of a Joint Venture’s property pool.

To protect itself from needlessly losing the interest to its property, whenever a mining or joint venture or exploration party owning personal property (including lessors under lease arrangements) enabled another party to have possession of that property, that owner must register its interest on the PPS Register.

“The definition of a security interest under the PPSA has been made intentionally broader than under existing laws and is intended to capture arrangements not previously necessarily thought to constitute a security,” Rowland said.

“For miners and explorers contemplating or holding existing JVs, this could include for example, commercially sensitive information, and rights to its ownership need to be protected via proper registration on the PPS Register.

Rowland counselled miners and explorers to adopt a pro-active stance to the PPSA by preparing for it, and implementing its procedures.

She said this could be achieved by:

– Carrying out a comprehensive review which tested all current contracts in force;

– Checking the supply terms and financing arrangements and clauses in standard contracts; and

– Identifying those assets affected and transactions that may need registration, and to come to grips with how the PPSA would apply to their exploration and mining objectives.