The Case of Mines

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You know that saying, “If you don’t have anything nice to say, don’t say anything at all”?

We’ll now turn today’s Daily Reckoning over to Slipstream Trader Murray Dawes. Remember, yesterday’s DR included a chart showing the price of Brent Crude oil. Murray generally applies his theory of price action to stocks and indexes. But it can be useful for currencies and commodities, too.

Here’s what he had to say (chart below):

In the last couple of days the price action has actually been quite bullish for oil. You can see quite clearly the distribution that it has been trading in since March. The Point of Control comes in around $113.50 which was breached for the first time in two months last night. Also the downtrend of the past six months was breached to the upside last night as well.We have seen good support coming in around the 200 day moving average. The price is now in short intermediate and long term uptrend. Initial targets are to the high of the structure at $120 and from there to the April high around $126. A close below the 200 day moving average at $108 would negate this view.

Brent Crude Breaks Out

Brent Crude Breaks Out

By the way, Murray’s latest weekly update is now available over on YouTube. You can view it here. According to Murray: “In this week’s update I have drawn a line in the sand in the S+P 500. The next week or two will either prove me right to be bearish or we are on the verge of a large rally to the upside. If the S+P 500 can break above c. 1320-1330 then I am going to have to reassess my view. I am expecting to see a wall of selling in the 1300 area and I believe that will set up a great shorting opportunity from there. I compared the current price action to the price action in early 2008 just before the market started to crash. The set ups are very similar…” For more, head to Murray’s YouTube page.

And before we get to the real heart of today’s Reckoning – reader mail on property rights, gold, and the Law – an update on Europe’s sovereign meltdown. It continues.

The latest issue is that banks and institutions will sell government bonds before they crash. And then investors and savers will take their cash out of banks while they can, before the banks crash.

That’s a simplistic and gloomy summary. But it’s not far off the mark. In the meantime, the government of Italian Prime Minister Silvio Berlusconi is on the ropes and the bond market continues to hover near the point of no return. According to the Financial Times:

Italy’s bond yields and their spread over German Bunds see-sawed on Tuesday as the European Central Bank intervened in an attempt to stem the sharp increases that will increase the cost of financing Italy’s €1,900bn ($2,620bn) public debt. Despite the ECB’s efforts, the 10-year bond yield hit a euro-era high of 6.77 per cent, while the spread over German debt widened to a record 497 basis points.

The Germans don’t want the ECB to intervene. Bond buying means money printing. And that means a weaker Euro, not to mention the precedent that the way out of a debt crisis is inflation. The Germans fear this. But do they fear the collapse of the government bond market and the banking system more?

We’re about to find out. Stay tuned. And in the meantime, let’s turn to gold, silver, the Crown and property rights in Australia, or the lack thereof.

The readers have spoken! You may remember that last week we raised the issue of who really owns land in Australia. It was part of our mostly futile attempt to figure out who matters more under Australian law, the Individual, or the State. Our suspicion (and worry) is that the Individual doesn’t really have any claim to his land at all.

In any event, a few helpful emails arrived educating us on the subject. We can’t claim any of them are right, because we aren’t a lawyer. But they’re all interesting and informative. And, if you’re a fan of individual property rights, probably not too reassuring (although if you’re a communist you’ll be quite pleased).

Dear Dan,

The law here in Vic and I believe in most of Oz is that titleholders (owners of property) only own their land down to a depth of three feet (old dimension) and no more. This is called “The Torrens” system and was I believe taken from English law when Oz was first settled. Therefore if any minerals are located on a title holders property beyond the 3 feet then government steps in and claims ‘the asset’. And government here has the cheek to claim it’s a Democracy!!!!!

Ros G

Cheers Ros. It sounds like the Torrens system is about guaranteeing proof of title. This is reassuring because it’s based on the idea of private property ownership. You need to be able to show that you legally own something in order to prevent someone from simply taking it. But do you own the minerals and metals on or in your land? Hmm.

Hi Dan,

Love your work.

Just on mining in NSW – I used to work in the Mines Department (I don’t expect things have changed since I worked there).

When land is first alienated from the Crown, all minerals that are declared as minerals at the date of the alienation are reserved by the Crown. Later as new minerals become of value such as sapphires these are declared to be minerals in the meaning of the Mining Act. In this case, for land already alienated, these new minerals will be owned by the landowner. It is actually possible to separate the title to the land and the minerals and sell them separately.

Also the State was clever enough to define Gold as “not a mineral” giving Gold special status and thus always remain owned by the Crown regards of the alienation date or process. Further the state of NSW also has a policy of promoting mining and the subsequent collection of the royalties. Where there are private minerals such as sapphires, in some areas, the land owner (mineral owner) will receive the royalties but still has no say over where there is mining underground or open cut on his land.

The only rights are those of priority (first in best dressed) of mining exploration rights. From within these areas applications for mining licences may be granted.

Thank You,

Jeff

This is fascinating. Our brief research – which is admittedly incomplete – shows that Australian and New Zealand laws that govern the ownership of minerals all derive, as you might expect, from English law. This is where it gets interesting.

Under English law, the State (or Crown) is presumed to own all the gold and silver in the ground…no matter where it’s found. That precedent was set back in 1568 when Thomas Percy, the 7th Earl of Northumberland, was taken to court by Elizabeth, the Queen of England. The Queen needed gold and silver to prepare for the long-expected conflict with Catholic Spain.

A jury of Percy’s peers found that the gold on his land wasn’t really his. In “The Case of Mines”, the jury concluded, “That by the law all mines of gold and silver within the realm, whether they be in the lands of the Queen, or of subjects, belong to the Queen by prerogative, with liberty to dig and carry away the ores thereof, and with other such incidents thereto as are necessary to be used for the getting of the ore.”

It’s pretty cheeky to use the words “liberty” and “belong to the Queen by prerogative” in the same sentence. But this just proves that whether it’s a monarch, a tyrant, a Parliament, or a Congress, the State is always in pursuit of money with which to make war. Not much has changed.

But doesn’t this mean that all the gold and silver in Australia are, by common law, property of the Crown and the State? Somebody get Bob Brown on the phone! He’s going to love this. Of course the State knows nothing about gold mining or geology. So it will have to be careful to at least grant the illusion of private ownership in order to incentivise productive activity…before it moves in for the kill.

Incidentally, Thomas Percy the 7th Earl of Northumberland is not the same Thomas Percy, accessory to Guy Fawkes in the Gunpowder Plot. But they are related. Percy the 7th Earl died in 1572 (he was executed for treason). Percy the co-conspirator was a distant relative. He was shot on the run after his role in the attempt to blow up the King and Parliament and his head was displayed on a spike outside Parliament.

Dear Dan,

Firstly, thanks for churning out “The Daily Reckoning”. I love it! [You’re welcome]

Secondly, I thought I would respond re mineral/gas exploration in Australia (I know a fair amount about this) and my understanding of the law (not perfect I am sure).

A lot of property is leasehold, not freehold so the grazier/farmer only has the right to the top few centimetres of country to grow crops or raise animals on.

Old freehold had the mineral rights but this was excluded from freehold grant from around Federation. So even freehold farms are bought and sold without mineral rights.

The State sells the right to explore for minerals, coal, petroleum, geothermal energy etc separately, over the same ground, just to make sure the legal profession is kept fully employed.

Companies spend billions on exploration and the landholder cannot stop entry but must, at least, be compensated for any loss or damage or more recently be paid for allowing exploration work to go ahead.

Most companies do their dough as exploration is high risk. Mines are hard to find so most companies mine the stock market instead; this is a far more reliable source of income.

However if you are a great explorer, or very lucky, you may find a mineable deposit or a gas/oil field.

It is then up to the explorer to get a Mining or Petroleum Lease, which cannot be granted unless the property is purchased or a compensation agreement made with the land holder. This is when the landholder really cashes in (I believe in the USA landholders generally have the mineral right attached to the land, so the process is a little different.)

The process has worked well over the years as experienced explorers worked in with the farmer /grazier to ensure no disruption to their activities and to help them out wherever possible i.e. upgrading farm tracks/drilling water bores for their use free of charge etc.

Unfortunately during the recent mining boom, landholders have been approached by numerous exploration companies, generally listed ones who have a time horizon of three months to their next quarterly report.

Often untrained and inexperienced field staff assume they can just march on because ultimately there is a legal right to do so. The best approach is for the explorer to assume they have no rights and are guests on the property and to behave accordingly.

If the explorer can raise the finance, complete all environmental ,native title, cultural heritage and feasibility studies and get all the approvals from local, State and Federal governments, then they have the right to establish a new mine and try and stay in business.

The process includes public advertising and objection periods where any environmental group or member of the public can object to the development.

After investing hundreds of millions of dollars of risk capital then you produce into a world market where others set the price of your commodity and the price is in US $ so the exchange rate variation can cause a 50 % or greater change in revenue from year to year.

Meanwhile you pay wages (including f$#@ing payroll tax); superannuation, rates, fuel etc and then the state lease rentals and state royalties (which are not based on profit and can be 10% of the gross income) and then if anything is left federal company tax.

The good news is that if you are producing red or black stuff you will soon pay an additional mining tax , if its black you will pay a high carbon tax (even on fugitive emissions you cannot control and which no one else in the world imposes on their industry).

If you produce white, gold ,silver ,green or copper coloured stuff you don’t pay a mining tax and only a small carbon tax unless you want to refine or value ad to it when you pay a high carbon tax no matter which colour it is.

So I hope you now have more understand exploration, mining, minerals and taxation in Australia.

Cheers,

Chris

P.S.Do you know a good psychiatrist you could recommend as I am still in this industry

P.P.S. My prediction is there will be a massive collapse in exploration across Australia during the coming fall in the commodity markets which will not recover for many decades and Governments will have to give incentives to restart it.

Yes politicians truly believe they cannot kill this golden goose and even if they do they will get to the next election before being punished.

We understand things much better now. Perhaps we should develop a colour-coded system rating the risk of various mining projects, with Green being the highest risk of all. Thank you for a great note.

And finally…

I have just LEARNED more reading the below in the last 10 minutes than I have learned in the last ONE year! My God you all are incredible…thank you so much for giving so much to us readers….being of not as high intelligence but not from lack of trying, my nose can smell a stench but I can never quite locate the direction as I am deaf in one ear (trying to be funny here)….thank you for giving me the source AND helping me pinpoint the direction…

Sincerely, and with much respect and appreciation,

Giselle

You’re quite welcome. Thanks for reading.

Dan Denning,
for The Daily Reckoning Australia

Dan Denning
Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.
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5 Comments on "The Case of Mines"

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Luke
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Just have to mention there are well over several hundred different types of land ranging from state freehold to commonwealth leasehold and different laws apply to each on mining them. As a general rule mining companies can mine under the states freehold and leasehold but different regulations apply to each. For instance you can’t start certain types of mines within 2kms of a house, 50m from a horse trough and 1-2km from a permanent waterway. It’s all very complicated and changes all the time and is different from state to state. Generally an agreement for royalties or rent must be… Read more »
Ross
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I would like to speak in defence of the property laws that evolved through to the late 19th century and seek to convince others that, for inspiration, we need to go back to days of “the common weal” or “common good”. As a non socialist agrarian I have disagreed with Dan previously on his limited libertarian view of private ownership of land. Firstly, nobody who is an agrarian (and that would include Jefferson if he were always consistent) would claim other than custodianship of land. In respect of property rights, a right of extinguishment of arable land should be owned… Read more »
Ross
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Why not make a day of it? Why did Swan say that the MRRT was not a two speed solution? Because, if it were proved to be so, it wouldn’t be constitutional! I quote no other than Robert Gordon Menzies, a quite distinguished constitutional beak in his day, and as our longest serving politicans and Prime Ministers one who had various partisan positions on all the major constitutional law cases in his days from the 20’s through to the 60’s. We quote from his book Central Power in the Australian Commonwealth. This book was actually a transcript of a series… Read more »
Ross
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William
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And exactly how far down does one’s property rights extend to in the good ole US of A. To the core of the earth?

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