The Tenement Real Estate Crash

The decision of Pantoro vs True Fellas not so much threw a cat amongst the pigeons in Western Australia, but fundamentally altered the landscape for genuine innovation, greenfields exploration, and rent-seeking and real estating.

The TL'DR version of events is that two parties applied for the same ground at the same time, and one (Pantoro) objected to the other party's application on the grounds that it did not meet the requirements of s58.1 of the Mining Act 1978, namely;

(i)the proposed method of exploration of the area in respect of which the licence is sought; and?

(ii) the details of the programme of work proposed to be carried out in such area; and?

(iii) the estimated amount of money proposed to be expended on the exploration;

and?(iv) the technical and, subject to subsection (1aa), financial resources available to the applicant.

This Objection included the fact that the other proponent appeared to have cut and pasted from consultant websites to sustain the "Technical Capacity" requirements, and had not submitted a full 5 years of costed and budgeted work programs to sustain the requirements that it detail a Programme of Work, and had not identified the area in which the work was to be carried out.

The decision of Warden Cleary seems to have added a soupcon of doubt about the validity of all manner of EL's, and even ML's and retention licenses following on from the original EL, by stating that an application [lacking the above] is not a valid application. So, if your EL was granted off of an application where any of s58 was in doubt, there was a risk.

This included particular concerns that the budget be available for all 5 years of the license, that a programme of work was proposed for all 5 years, and that it may have to specify what methods and indeed where within the license area the proponent intended to look.

Implication: No Sausage Factories

As Wall Street knows, a crisis is just a business opportunity in disguise. This goes very much for a plethora of tenement managers who have operated a 'sausage factory' style of tenement application services where a proponent may email at any time of the day (almost) and arrange in a completely hands-off manner an EL application consisting of, to whit, the application fee, the sub-block rents, and a boilerplate cut and paste statement of work programme often supplied by the tenment manager itself, with little or no input from the proponent, and a bank statement showing (for a day at least) the proponent had enough cash lying about for one year's work. This behaviour of course served a valid purpose in that an entity or person with interest in an area of ground could swiftly and with little friction of effort, apply for that ground in a timely manner.

There was a lot made of the True Fellas v Pantoro decision by tenement managers who had operated such a business model who realised, in a reasonable swiftness, that there were a lot of their clients with granted tenure, and particularly Applications for tenure, made out of sheeps gut and boilerplate. They managed, no doubt, to revolve a considerable number of doors and charge a small European feudal sysem worth of fees, to cover their risks (and risks on behalf of their clients) by squawking loudly about how the sky falleth inwards.

Going forward, the sausage factories of Perth are shut, and must be replaced by bespoke, artisinal meatgoods, with programmes of work lovingly crafted for the full five year initial terms of the licenses. (more on this later).

Implication: Innovation Dies

The other impact of this decision by Warden Cleary is that there has been an extraordinary increase in the costs of pegging a license. Not in terms of the Application Fee ($1680) or sub-block rents, which remain unchanged. However, the requirement to have five years of expenditures, in cash, lying about in a bank account, has effectively killed off innovative speculative exploration in greenfields areas.

Consider that I identified the Munglinup REE province extended west of Esperance over ~12,000-16,000km2 in early 2020 (and, there are other belt-scale opportunities lying around right now). Assume I had $50,000 in a bank account. Prior to True Fellas v Pantoro, I could have pegged multiple ~20 block tenements, and flashed a $20K balance at the government after sinking $30K into applications and block rents up front. This would then allow land to be secured on the future likelihood of finding a means of funding the work - which is what the shallow end of the ASX is about.

After True Fellas v Pantoro in order to apply for a 20 block tenement I now need $100,000 in cash burning a hole in my pocket. For a 200 block application in the true arse end of W.A. you need $1M, or demonstrable capacity to access, raise or contract up with someone who is effectively bound to that timeline of expenditures. (you disagree? wait till someone objects on the grounds they know everyone just flashes this bank balance for a day, and wins)

This is far too onerous on even small listed companies. The assumption inherent in the logic of Warden Cleary is that the Mines Act operates to rigidly assure that only those with financial capacity should have the ability to conduct exploration - the 500% implied now means that only those with extraordinary liquid wealth will take risks.

It is worth noting that unless one protect one's intellectual property (and this can include, in this case, particular collections and interpretations of data by individuals who make critical insights and innovations in connection with exploration and geoscience) the chances of turning a trick as an individual is very low indeed. The risk of being screwed out of your innovation and ideas in the boat shoe backrooms of West Perth is far too high to just casually mention exploration ideas, so if you're innovative and insightful and can't afford belt-scale pegs (and these days, a 5+ blocks will require $50K cash) you may as well keep your trap shut. This doesn't serve Western Australia's interests.

The way forward?

The pupative requirement that the True Fellas v Pantoro interpretation of s58 of the Mines Act 1978 has created, namely for budgeted, 5 year long work programmes, with the money to back up those plans, is counterproductive, and will cost W.A. dearly in the short and long term.

But let's be honest. No one is served by too-loose regulations that allow a sausage-factory speculative real-estating of land. I've previously filled out AMEC and AusIMM questionairres complaining of warehousing of tenure under Project Status by majors, and the inability to turn over ground. This also applies, in some areas, to real estaters who squat on prospective ground and fabricate work programmes (often on application!) and wash cash in and out of shell company accounts, to play the land game. The True Fellas v Pantoro decision gives the State an ability to shut some of those doorways.

In New South Wales, for example, the Department of Mines is far more proactive about forward work programmes. It's a massive pain in the arse if you have too much tenure and too few people, obviously, because your few technical people get tied up with the mountains of red tape, let alone with the technically justified work programmes. But it's better than lazily sitting back and letting people squat on land and flip tenements without actually working them in any way whatsoever.

No one reasonably expects a proponent to determine what they will be doing in year 5 of a license when they are applying. It could still be getting soil samples. Asking a proponent to hash out a 5 year plan, especially in greenfields areas, is as useless to ensure the interests of the State as just waving through cut-and-paste programmes inserted by tenement managers on behalf of proponents. This should be 2 years, no more.

Next up is the financial and technical capacity. In South Australia, for example, it's hard to peg dozens of tenements under a handful of pop-up Pty Ltd shells, because the Department of Mines data matches the directors and shareholders, realises the entities are all controlled by the same people and the there is only one or two qualified geoscientists within cooee of the house of cards, and they give all the applications a big pause button (true story). This is justified, and DMIRS in W.A. could learn a thing or two about this sort of gumf.

We are in a massive skills shortage, and there aren't enough people to spend the money, let alone competently manage the exploration. The Government should definitely be holding applicants to task on whether they have the capacity to meet the obligations or not. To do otherwise invites what has happened in W.A., where 60% of the state is under tenure and no one's around to do the work.

However, financial capacity is not well measured by the amount of money in a bank account upon application, especially for large, remote ELA's. Requiring 5 years of money up front is onerous, extreme, and will deter even small land positions except by listed companies in heavily explored areas.

Solutions

My suggestions;

1. Applications should include a justification on why the ground was picked up
2. Applications should include a map marking out the prospective ground and areas of proposed exploration
3. There should be a technical justification of why the ground is prospective (and DMIRS should read it) written by the proponent;
4. Applications should include a programme of work for the initial 2 years, written by the proponent; expenditure on 'literature reviews' should not form part of any forward work programme so as it is clear that the ground must be worked; further it should be demonstrated beyond "I wanted to make the application" that some justification for acquiring the ground existed before the application was lodged (sorry, crafty butchers).
5. The proponent should sign a statement assuming responsibility for the contents of the application
6. The license requirements should include a re-statement of the forward programme as part of the annual report, showing where and how the tenement is to be explored over the next 12 months;
7. Financial capacity should not be assessed on tenements smaller than 20 sub-blocks (invariably this is the minimum expenditure on the tenure anyway) beyond $20,000 in a bank account to be furnished by the proponent

This would, of course, reduce the amount of Maserati wax and yacht polish being sold in Cottesloe and City Beach, because there would no longer be a sausage factory of instant applications, and the carve out of literature reviews from expenditure will hurt the squatters, but you know what? They can get out and crack a rock now and then.