The danger of 'more of the same'

WITH the mining industry in freefall, a fundamental change in philosophy if the sector is to learn from past failures, a top resources lawyer says.
The danger of 'more of the same' The danger of 'more of the same' The danger of 'more of the same' The danger of 'more of the same' The danger of 'more of the same'

Robert Milbourne

Anthony Barich

Brisbane-based mining and resources lawyer Robert Milbourne of international law firm K&L Gates says that “now more than ever is the time to rethink assumptions and fundamentals in how the industry operates, incorporates lessons learned from experiences or failures in the past, and focuses on how best to train professionals for a changing future”

How to best prepare for the “new normal” in the resource sector will be assessed at a training workshop hosted by Milbourne on May 29 at his Brisbane offices.

To this end, he told ICN that continuing with a "more of the same" approach was dangerous at best and negligence at worst.

“After a decade not only of a mining boom, but also of severe weather events, the planning, structure and liabilities attached to mining operations will face an entirely different legal and operational environment,” Milbourne said.

“The recent cyclone Pam which divested Vanuatu, for example, was the largest weather system in recent recorded history for the Southern Hemisphere – and remote mining operations now must assume similar events are possible to strike wherever they are in development or operation.

“Force majeure is one such change – the mine flooding which caused so many pits to cease operation may no longer be ‘unforeseeable’ and hence, failure to plan to mitigate such events may result in companies no longer being able to claim force majeure as they have in the past, which could expose companies to bankrupting liabilities if unmitigated.”

Milbourne said the structuring of joint venture agreements and farm-in arrangements were also changing as a result of the "new normal".

With an influx of private equity and new sources of capital, "streaming deals" – once unheard of in the sector – are becoming a source of capital necessary to get new mines into operation.

He added that valuation, once a relatively clear cut exercise, now must be substantively re-thought.

“Among the more amazing circumstances in the last few years, the global mining companies have lost well over half their market cap and many juniors are training at less than 90% of their recent highs,” he said.

“Forming joint venture arrangements which rely on future payouts based on 'fair market value’ now must be more strategically understood in structuring deals.

“Other changes, such as the viability of relying on take or pay agreements to backstop major project financings – such as the Wiggins Island Coal Export Terminal – will also need to be reconsidered in light of recent developments.”

The Mining 101 seminar will be jointly presented with Xstract Consultants Mark Noppe, Kevin Irving and Matthew Longworth.