MINERAL and PETROLEUM OWNERSHIP and ROYALTIES
Who owns the minerals and petroleum in NSW?
In all but very rare cases the NSW Government (the Crown) owns the minerals and petroleum beneath the surface of the land on behalf of the people of NSW.
Useful background to the issue of ownership of minerals and petroleum in NSW was provided by the NSW Parliamentary Research Service in a briefing paper produced in September 2012[i]:
‘In the nineteenth century, the ownership of minerals (except gold and silver) depended on whether the Crown grant of land reserved minerals to the Crown and what minerals were reserved.[ii] Gold and silver were royal minerals and remained the property of the Crown regardless of reservations.
For most of the nineteenth century the policy of Crown reservations in relation to minerals varied. This was the case until the Crown Lands Act 1884 and the Mining Act 1889 provided for all grants of land issued under the Act to contain a reservation of minerals. Minerals were defined as:
Coal, kerosene, shale and any of the following metals or any ore containing the same viz.— Gold, silver, copper, tin, iron, antimony, cinnabar, galena, nickel, cobalt, platinum, bismuth, and manganese and any other substance which may from time to time be declared a mineral within the meaning of (the Crown Lands Act 1884) by proclamation of the Governor published in the Gazette.[iii]
Some deeds were issued containing a reservation of minerals as proclaimed under the Mining Act 1889. These comprised minerals defined under the Crown Lands Act 1884.
No proclamation was made under the Act before it was replaced by the Crown Lands Consolidation Act 1913.
That Act ‘continued the policy of reservation of minerals from all Crown lands, and adopted the same definition of 'minerals'’.[iv] Proclamations adding to the list of minerals were made in 1922 (including petroleum), 1955, 1957, 1971 and 1983.45 The Crown Lands Act 1989 (currently in force) continued the policy of the previous Acts.
Subject to certain exceptions, private ownership of minerals continues to exist if the land on or below which the minerals are situated was part of a Crown grant which did not reserve those minerals to the Crown.
Private ownership does not exist in the royal minerals of gold and silver.
Nor does it exist in petroleum, which the Crown acquired by legislation in 1955.[v]
A further exception is coal, which the Crown acquired by legislation in 1981.[vi] Coal ownership was acquired by the Crown via the Coal Acquisition Act 1981. The Coal Ownership (Restitution) Act 1990 provided landholders with the opportunity to have coal ownership determined for their land. Separate coal titles were issued for those landholders who requested restation of their coal rights. This scheme was closed on 31 December 2007.
A recent exception is uranium, which was acquired by legislation in 2012.[vii]
Royalties paid for minerals and petroleum[viii]
A royalty is the price charged by the Crown for the transfer of the right to extract a mineral resource, the price (royalty rate) is prescribed in legislation.
In 2013-14 the royalty revenue generated by the NSW minerals sector was $1.32 billion, with coal accounting for approximately 93% of the total.
The collection of mining royalties is based on 'self assessment', which means it is the responsibility of the mining lease holder to calculate and promptly lodge all royalty returns. To ensure royalty leaseholders comply, audits are undertaken annually.
Mining royalties in NSW are payable on minerals, which are divided into coal royalties, mineral (non-coal) royalties, and petroleum royalties.
Royalties are levied on all coal recovered in New South Wales, and two types of coal royalties apply: Ad Valorem Royalty and Coal Reject Royalty.
Ad Valorem royalty
Royalty for coal is charged as a percentage of the value of production (total revenue less allowable deductions).
The coal ad valorem royalty rates are 6.2% for deep underground mines (coal extracted below 400 metres), 7.2% for underground mines and 8.2% for open cut mines.
Coal reject royalty
Royalty is payable if the coal reject is used or disposed of for the purpose of producing energy.
Coal reject is defined as a by-product of the mining or processing of coal that has energy value of less than 16 gigajoules per dry tonne or contains more than 35% ash by dry weight.
The rate of royalty on coal in coal reject is no more than half the rate applicable to coal.
Currently, royalty is payable at the rate of 10% of the ‘well-head value’ of the petroleum. The well head is the point where the petroleum reaches the surface and the ‘well-head value’ is the revenue less certain expenses incurred downstream of the well head.
Royalty is payable monthly by the end of the following month.
Mineral (non-coal) royalties
Two separate types of mineral (non-coal) royalties exist: quantum royalty and ad valorem royalty.
Quantum royalty is levied at a flat rate per unit of quantity. The rate of royalty is dependent on the mineral being extracted and is generally utilised for low value-to-volume minerals such as gypsum limestone and clays.
Ad Valorem royalty
Ad valorem royalty is applied to high value-to-volume minerals. Ad valorem royalties are levied as a percentage of the total value of minerals recovered, or the ex-mine value.
The ex-mine value refers to the value of the mineral once it is mined and brought to the surface. In some cases the costs associated with the processing or treatment may be allowable deductions.
However, the costs associated with exploration, development and mining of the ore body and the rehabilitation of the site are not allowable deductions.
The base rate applicable for ad valorem minerals is 4% of ‘ex-mine’ value.
Royalties on privately owned minerals
Where royalty is collected on minerals not owned by the Crown legislation requires that 7/8th or 87.5% of the royalty collected is paid to the private mineral owner.
[i] NSW Parliamentary Research Service Exploration and mining on private land in NSW: a brief legislative history (NSW Government, September 2012)
[ii] A Bradbrook et al Australian Real Property Law (Lawbook Company, 5th ed, 2011) p 794
[iii] Crown Lands Act 1884 (NSW) s 3
[iv] Forbes J and Lang A, Australian Mining and Petroleum Laws (Butterworths, 2nd ed, 1987) p 20
[v] Petroleum Act 1955 (NSW)
[vi] NSW Parliamentary Research Service Exploration and mining on private land in NSW: a brief legislative history (September 2012)
[vii] Mining Legislation Amendment (Uranium Exploration) Act 2012 (NSW)
[viii] NSW Government Royalty (NSW Trade and Investment). Accessed September 2014