By Peter Brammall
I was reading a recent Warden’s Court decision, Vermilion Metals Pty Ltd v Kirkalocka Gold SPV Pty Ltd & Anor [2026] WAMW 12.
It is a very long judgment, running to almost 300 pages, but one phrase immediately stood out to me. The Warden found that 19 tenements had effectively been “left to wither on the vine”.
That is a dramatic conclusion, particularly when you consider that millions of dollars had been spent on the broader mining operation.
The decision is worth reading because it deals with a problem that can easily arise in a large mining project. Considerable money may be spent on the mine, infrastructure, employees, maintenance and administration, but that does not necessarily mean the expenditure commitments have been met on every tenement in the project.
That distinction can become very important when someone applies for forfeiture.
Millions spent, but on which tenements?
Vermilion Metals applied for the forfeiture of 21 exploration licences and mining leases held by Kirkalocka Gold SPV and Adaman Minerals.
The tenements were part of the Kirkalocka and Snake Well projects. The companies had experienced significant financial difficulties and had been subject to receivership, administration and a deed of company arrangement.
There was no real argument that substantial amounts of money had been spent. There was an established open-pit gold mine, considerable infrastructure and a much larger collection of surrounding mining and exploration tenure.
However, the question before the Warden was not simply how much the companies had spent overall.
The question was whether the required expenditure could be demonstrated on each individual tenement.
After considering the evidence, Warden McPhee found that the expenditure had been concentrated overwhelmingly on two tenements: M59/233 and M59/234. These contained the gold mine and its main supporting infrastructure.
Those two tenements were found to have satisfied their expenditure conditions.
The other 19 tenements were found to be materially non-compliant, and the Warden concluded that the non-compliance was sufficiently serious to recommend their forfeiture.
The final decision on forfeiture rests with the Minister, but a recommendation of this kind places the tenements in a very serious position.
The danger of treating expenditure as one project total
What interested me most about the case was the attempt to spread the broader project expenditure across the various tenements.
The respondents relied on several different methods to allocate wages, office expenses, executive salaries, maintenance costs and other expenses among the tenements. These were referred to in the judgment as the Kirkalocka Method, Snake Well Method, Gold Mine Method, Project Method and Meridian Method.
The difficulty was that these methods had been developed after the relevant expenditure years, largely to answer the forfeiture proceedings. They had not been used when the expenditure was incurred or when the Forms 5 were originally prepared.
The different calculations also produced some extraordinary results.
For one exploration licence, E59/1775-I, the expenditure requirement was $70,000.
One method produced expenditure of $105,645, or 151% of the commitment. Another produced $299,436, or 428%. When most of the apportioned administrative expenditure was removed, the amount fell to $25,195—only 36% of the commitment.
On another tenement, one calculation produced expenditure exceeding 1,500% of the minimum requirement, while a different method produced only 58%.
Clearly, those results could not all reflect what had actually occurred.
The Warden was not prepared to accept a calculation simply because it produced a compliant outcome. There still had to be evidence connecting the expense to work undertaken on, or in connection with, the particular tenement.
This is where project-based accounting can create a real problem.
From an operational or accounting perspective, it may make sense to treat several tenements as one project. Staff may work across the project, invoices may be coded to a general project number and management may focus on the total annual budget.
The Mining Act, however, imposes expenditure conditions on individual tenements.
A large amount spent on the main mining lease does not automatically protect the exploration licences surrounding it.
The Warden put the principle clearly:
“Expenditure on one tenement cannot be relied upon as expenditure on another, unless there is a nexus between the expenditure and the tenement, in real terms in evidence.”
That does not mean expenditure can never be apportioned.
For example, an aerial survey may cover several tenements without distinguishing between them. In that situation, a reasonable apportionment may be appropriate.
But the company must first be able to identify the work, show that it related to the relevant ground and demonstrate that it applied across the tenements included in the calculation.
You cannot simply begin with a large pool of project expenditure and then divide it among the tenements according to what is needed to make each one compliant.
The Forms 5 raised even more questions
The Forms 5 were another unusual part of the case.
The Warden found that the Forms 5 filed for all 21 tenements were misleading.
The most obvious example involved M59/234. The evidence eventually established that millions of dollars had been spent on that tenement, but its Form 5 recorded expenditure of only a little over $100,000.
No witness with direct knowledge adequately explained how that figure had been calculated or how it came to be included in the register.
On the other tenements, expenditure had been reported, but the respondents could not produce reliable evidence demonstrating that the claimed work had occurred on or in connection with the individual tenure.
The Warden concluded that the Forms 5 had been filed either recklessly as to their accuracy or wilfully misleadingly.
There is an important legal distinction in the judgment. An inaccurate or misleading Form 5 does not, by itself, allow a private applicant to obtain forfeiture. There must still be an actual failure to satisfy the substantive expenditure condition.
That saved M59/233 and M59/234 from these forfeiture applications because substantive expenditure compliance had been established.
However, the misleading Forms 5 were far from irrelevant. Once under-expenditure was established on the other tenements, the state of the Forms 5 substantially increased the gravity of the non-compliance.
A knowingly false or misleading Form 5 may also constitute a separate offence under the Mining Regulations.
The practical lesson is that the Form 5 should not be treated as something completed at the end of the year simply to meet a lodgement date. The figures need to be supported by the accounting records, operational evidence and the work actually undertaken on the relevant tenement.
Poor records did not provide an excuse
The respondents also suggested that poor historical record-keeping contributed to their difficulties.
The Warden did not accept that explanation.
A number of people who may have been able to explain the financial records, expenditure decisions and preparation of the Forms 5 were not called to give evidence.
This left the respondents relying heavily on calculations developed after the event, rather than evidence from the people who had authorised, recorded or undertaken the work.
Poor records are not a defence to expenditure non-compliance. In fact, they may make it almost impossible to defend a forfeiture application, even where the company believes that enough money was spent.
The company needs to be able to trace the expenditure:
- from the invoice or payroll record;
- to the work or activity undertaken;
- to the relevant project; and
- ultimately to the individual tenement or tenements that benefited from the work.
If that connection is not recorded at the time, trying to reconstruct it several years later can be extremely difficult.
A change of ownership did not remove the risk
Another interesting aspect of the case was that Glyden Resources acquired control of the respondent companies during the proceedings.
The Warden did not regard the new ownership as wiping away the earlier non-compliance.
Glyden had acquired the companies with knowledge of the forfeiture applications and their possible consequences. The registered tenement holders remained responsible for the historical expenditure failures, despite the change in their ownership and control.
This is particularly important when undertaking due diligence on a distressed mining company.
It is not enough to confirm that Forms 5 have been lodged or that the register records apparently compliant expenditure. A purchaser should ask whether the underlying expenditure can actually be substantiated.
If the acquisition involves purchasing the company that holds the tenements, the purchaser may also be acquiring the consequences of that company’s previous expenditure and reporting practices.
What should tenement holders take from the decision?
The main lesson is that total project expenditure is not the same thing as expenditure compliance on each tenement.
Companies need to consider expenditure allocation throughout the year—not attempt to reconstruct it after a forfeiture application has been lodged.
For every expense being claimed, it should be possible to answer some basic questions:
- What work was done?
- Who performed it?
- Which tenement or tenements did it relate to?
- Why is it allowable expenditure?
- If it was apportioned, what was the basis of the calculation?
- What records support the claim?
If those questions cannot be answered, the expenditure may be difficult to defend.
Where it becomes apparent that a commitment will not be met, the company should also consider whether there are grounds for an exemption. That decision should be made early enough for the exemption application to be properly prepared and supported.
Understanding Tenement Expenditure
This decision covers many of the issues we discuss in LandTrack’s Understanding Tenement Expenditure training course.
The course is not just about completing a Form 5. It looks at how expenditure commitments work, what expenditure may be claimed, how costs can be allocated across tenements, the records needed to support the claim and when an exemption should be considered.
The Vermilion Metals decision shows why this matters.
A company can spend millions of dollars on a mining project and still place valuable tenure at risk if it cannot demonstrate where the money was spent and how that expenditure related to each tenement.
By the time a forfeiture application is lodged, it may be too late to fix the records or reconstruct what actually happened.
Without that evidence, surrounding tenure may simply be left, in the Warden’s words, “to wither on the vine”.
This article provides general information and does not constitute legal advice.
