Update on the Winchelsea mine.

                                                             Th’ offender’s sorrow lends but weak relief

To him that bears the strong offence’s loss

Sonnet 34, 11-12

This post examines the current state of play in relation to the Winchelsea mine on Groote Eylandt.

I have previously discussed the mine and its ownership structure in a number of posts. I don’t propose to canvass in this post all the details previously discussed; instead I refer interested readers to those posts (link here, link here and link here).

AAAC and its subsidiary.

In summary, Winchelsea Mining is 70 percent owned by Anindilyakwa Advancement Aboriginal Corporation (AAAC) with the remaining thirty percent owned by Aus China International Mining Pty. Ltd. (AusChina). In their 2023 Financial Report dated 16 October 2023 (link here), the AAAC Directors stated:

The Subsidiary was established in 2018 and the mining project is part of a comprehensive economic strategy to enhance Groote’s Future Fund to maintain important economic, cultural and community programs for the island’s people permanently into the future. Winchelsea will be an Aboriginal owned and operated mining venture. The core vision of the project is to raise enough revenue to permanently support the economic and social future of all Anindilyakwa speaking clans of the Groote Archipelago.

The Subsidiary holds an Exploration License on ‘Akwamburrkba' (Winchelsea Island). The Subsidiary also holds a Mineral Lease on this site for a period of 30 years which was granted on 25 March 2022.

The Subsidiary is currently completing a Business Feasibility Study and progressing through various regulatory approval processes which is expected to be completed in 2024. Mine development should occur in 2024 targeting an operational start-up and manganese ore sales by 2025….

…. The Mining Project will see a large scale of infrastructure built on Winchelsea Island and the Little Paradise site on Groote Eylandt. Where possible, the buildings will be repurposed for future projects, such as multi use facilities and relocatable buildings. Beyond the life of the mine, it is intended there will be other various projects, including an aquaculture business, as well as other businesses such as tourism, timber mills and restaurants. There is a final project feasibility study being conducted which will detail a closure plan and mine rehabilitation including associated estimated costs for the specific site restoration costs [emphasis added] ….

…. Key management personnel of the Subsidiary [ie Winchelsea] during the year were as follows: Mark Hewitt (Director and Secretary, appointed: 18 June 2018); Dongfang Yu (Director, appointed: 1 September 2018);  Hui Yu (Director, appointed: 1 September 2018); Tony Wurramarrba (Director, appointed: 1 September 2018); Xiaoli Liu (Executive Assistant, appointed: 10 September 2018).

… The total remuneration paid to key management personnel of Winchelsea Mining Pty Limited during the year ended 30 June 2023 was $398,763 (30 June 2022: $485,885).

…. As reported in the 30 June 2020 financial statements, if the Subsidiary applies for a Mineral Lease, arising from the Groote Eylandt Tenements, the Subsidiary agrees it is obliged to pay a mineral lease payment of $10 million (plus GST if applicable) to Yukida Resources Pty Ltd as part of the consideration for the transfer to the company for the tenements. On 3 March 2021, the Subsidiary entered into a variation agreement with Yukida Resources Pty Ltd to revise the mineral lease payment from $10 million to $2.5 million. As part of this revision, an additional $6.25 million is payable upon achieving the first milestone, being the first shipment of product.

As I have previously noted both Mr Wurramarrba (now deceased) and Mr Hewitt were in receipt of full-time salaries from the ALC, a Commonwealth statutory body. Thus, any salary payments to them from Winchelsea would be in addition to those Commonwealth salaries (which are determined by the Commonwealth Remuneration Tribunal on the basis that the recipients are working full time). Ms Xiaoli Liu (also referred to as Ms Sophie Liu below) is Mr Hewitt’s spouse. She has at various times been involved in managing the ALC Royalty Management Unit, as well as her role as Operations Officer within GHAC and as Executive Officer within Winchelsea Mining.

This matrix of overlapping and parallel roles clearly creates a complex array of potential conflicts of interest. Further, as I have previously noted, it is somewhat strange that none of the Directors of AAAC are appointed as Directors of Winchelsea. In my view this reflects the fact that the ALC in effect controls AAAC by virtue of its control over virtually the entirety of its revenue, as well as the allocations for direct payments to unspecified ‘traditional owners’ that are made by AAAC. Finally, it is unclear at present whether Mr Wurramarrba has been replaced on the Board of Winchelsea and whether Mr Hewitt remains on the Board of Winchelsea following his dismissal by the ALC.

The 2022 financial statements report a correction to previous reports with the following effect: in 2019 the AAAC received $10 million from Aus China for the issue of 4000 shares (with AAAC holding 6000 shares). This ownership structure was further adjusted in April 2023 by the issue of a further 3,333 shares to AAAC at nominal cost. The current ownership structure is thus 70 percent AAAC and 30 percent AusChina.

The financial reports for AAAC for 2022 and 2023 and the ALC Annual Report for 2024 indicate that ALC has provided AAAC with $5 million in mine related s.64(3) payments in 2022 (and a further $1.35 million in TO payments); $5.38 million in mine related payments in 2023; and in 2024 just over $2 million (not broken down). ALC funding to AAAC over the past three years, primarily for the development of the Winchelsea mine, thus totals at least $12.3 million (in addition to the AusChina initial contribution of $10 million.

There is no publicly available information on the arrangements between AAAC and AusChina for contributions to mine development, though one might speculate that Aus China are not required to pay any further contributions given the quantum of their initial investment. The fact that the April 2023 increase in AAAC equity (from 60 to 70 percent of Winchelsea) appears to have involved no additional investment from AAAC beyond a $60 payment raises the question: why did Aud China agree to it? What did they get in return for their consent?  In this context it is worth remembering that this transfer occurred after the ALC had a draft copy of the ANAO Audit report.

Little Paradise

As noted above, the Winchelsea mine will involve infrastructure development at the Little Paradise site. Investment in infrastructure for Little Paradise has been primarily channelled through Groote Holdings Aboriginal Corporation (GHAC). As noted in the 2022 GHAC Financial statements (link here)

Groote Holdings Aboriginal Corporation was established to primarily focus on delivering the foundation assets and business – skill development programs necessary to support development of the Winchelsea Mining project in the short-term and the Aquaculture export- industry in the longer – term.

The financial statements for GHAC identify the following ALC investments in GHAC. In FY 2021, $4.6 million; in FY 2022, just over $27 million; in FY 2023, just over $16.6 million; and in FY 2024, $15.4m. The vast bulk of these funds, which total $63.6 million, relate to potential Winchelsea project related infrastructure and/or payments to TOs. Given that Little Paradise is described as multi-purpose, and in the absence of any detailed accounting for mine expenditure, let’s assume the Winchelsea related expenditure amounts to around $50 million. When we add in the AAAC expenditure, we have an investment to date of around $60m (compared to AusChina’s initial $10 million). To date, it appears that the TO’s on Groote have provided over 80 percent of the funds expended on developing the Winchelsea mine, yet only own 70 percent of the equity in the company. It is difficult to reconcile this apparent outcome with the ALC’s role in protecting TO interests on Groote. Unfortunately, the situation gets worse.

Both the Winchelsea Mini Development and the Little Paradise Development have been subject to assessment by the NT Environmental Protection Authority.

In a report to the NTEPA prepared for GHAC dated July 2024 (link here), consultants CDM Smith Australia state (inter alia)

1.2 Proponent Details. …. GHAC is moving quickly but diligently to realise the vision of achieving a perpetual Future Groote Cultural Economy and controlling the destiny via strategic investments and partnerships. The initial investments in infrastructure are targeted towards assets that will facilitate the ongoing economic development activities on Groote Eylandt.  With income streams from the Winchelsea Mining Pty Ltd, a joint venture (JV) between Anindilyakwa Advancement Aboriginal Corporation “AAAC” (Bara/Jaragba Clan owned) and AusChina International Mining Pty Ltd.  Seed capital can be invested into developing Little Paradise enterprises.  (page 3).

Figure 1-3 on page 23 provides the GHAC Organisation Structure. It shows that the Executive Director is Mark Hewitt, and that amongst the seven Direct reports are ‘Governance and CFO’ provided by ENMARK and the Operations Officer is Sophie Liu who has responsibility for Operations and Development, Traditional Owner Clan Business Support, Marketing and Procurement, Winchelsea JV partner liaison, and human relations.

Beyond the Traditional Owners, consultation with various Government, community and industry stakeholders has been completed. A partial summary of the consultation is as follows: ….

Commonwealth Government (Minister for Indigenous Australian) – On 11 March 2022 the ALC submitted a request for consent regarding Section 19(4A) and 27(3) of the Land Rights Act. As part of that submission, ALC provided a comprehensive overview of the Little Paradise Project in documentation attached to the consent request letter.

The report confirms that the initial function of the Logistics and Base Camp will be to provide logistics support for the Winchelsea mine, and that this is to be developed in year one of the five-year implementation schedule for Little Paradise (see section 2.3.3 and table 2.7).  

According to the NTEPA website (link here) in June 2023, the EPA suspended assessment of the Little Paradise development at the request of GHAC. In November 2023 the GHAC Little Paradise referral was withdrawn from the environmental assessment process by the proponent. This is likely linked to the EPA decision on Winchelsea (see below).

The information outlined above documents the scale of the investments to date in developing the Winchelsea project, the vast majority of which have been sourced from section 64(3) payments which under the Aboriginal Land Rights (Northern Territory) Act 1976 (ALRA) , a land council is required to pay to Aboriginal Corporations for the benefit of residents and TOs. It also confirms the potential influence and likely control exercised by the ALC over GHAC by virtue of the ALC CEO being a GHAC Director and the GHAC CEO (Executive Director). This is apparently an unremunerated role, and adds complexity to the overlapping links between the ALC and Winchelsea Mining. And finally, the information confirms that the former Minister, Mr Wyatt, and NIAA were apprised of the ongoing developments at Little Paradise (and presumably of their relationship to the Winchelsea mine project) in March 2022.

Winchelsea Mining Pty Ltd

In May 2023, Winchelsea Mining CEO Mark Hewitt notified the EPA of a variation in the Winchelsea development project and submitted a Notice of Significant Variation (NOSV) of proposed action under s51(1) of the Environmental Protection Act 2019 (link here) to the EPA.

That document included the following assertion:

  With Winchelsea Mining being a private company registered by the Anindilyakwa Advancement Aboriginal Corporation, which is managed by the Anindilyakwa Land Council (ALC), the ALC board is constantly informed of the Project and status of the proposed revision. The board consults more broadly on the Project changes with a broader group of up to 240 Traditional Owners representing Anindilyakwa’s two clan groups. As such the revised mine plan is authorised by the Traditional Owners of Winchelsea Island. [emphasis added].

The variation submission also confirms that the Winchelsea project is based on mining a resource of around 11.8 million tonnes of ore. I previously attempted to assess the value of this resource and concluded that the projected revenue would not be adequate to cover the cost of the projected infrastructure being developed for the mine. In reviewing this assessment, I have now concluded that my previous post (link here) substantially underestimated the value of the Winchelsea resource. This was due to an error in my calculations, in particular, my failure to take into account the concentration rate in the Winchelsea ore. I apologise to readers and have added a correction to my previous post. My previous post stated:

According to the sampling undertaken by Xenith, the total proved and probable ore reserves (as at October 2020) were 11.8 million tonnes with an average manganese concentration of 26%. Xenith estimated the costs of extraction and processing (Table 8.1) and this led to the estimation of net ore prices for the various categories of ore (Table 8.2 at Appendix E). Estimated FOB prices varied between A$5.68 and A$1.74 dmtu (dry metric tonne unit). 

The price of manganese ore has risen over the past year, and it is currently in the region of A$6 per metric tonne. It is unclear what Xenith’s estimated net FOB prices would be today. However, if we assume a resource of 11.8 million tonnes and an average ore price of A$6 per tonne times 26 (to take into account the average concentration of 26%) then the gross value of the Winchelsea Resource would be A$1.8 billion. Crucial to mine profitability would be the costs of extraction and transport to market and of course the future price of manganese ore. Notwithstanding my earlier calculation error, it remains unclear in my view whether Winchelsea Mining, which has no previous experience in bringing a major project into operation, has the commercial capability to raise the capital required to develop the resource, and if so whether it can overcome the numerous financial risks (such as exchange rate risk and an uncertain trade policy environment) and the increasingly uncertain environmental and climate challenges in a cost-effective manner. The ultimate profitability of the project and the financial benefits for the traditional owners of Winchelsea Island and the Groote archipelago generally are in my view far from certain.

Moreover, and importantly, there is no transparency over the structure of the Joint Venture arrangements between AAAC and AusChina. The risk here is that the TO’s who have effectively given up access to alternative and less risky uses for the s.64(3) payments in favour of investments in the development of the mine will not not receive an equitable share of profits and/or financial transfers as the mine’s development and operation progresses. Another important issue is that it is far from clear that the social and environmental costs of the mine on the broader Groote population (including Groote’s Aboriginal residents) are adequately understood in the wider community and will be adequately factored into the calculus underpinning mine development. The major concern in my view is that the role of the Land Council in protecting traditional owner interests has been compromised by the complex array of systemic conflicts of interest that have been established, the impact of which continues to this day.

One obvious and in my view concerning issue is the disjunction between the rhetoric promulgated by the ALC that the development of the mine will be in the interest of all traditional owners on Groote, and the legal ownership structure which vests 70 percent of mine ownership in AAAC owned by the representatives of just two clans. In the event that the mine is successfully developed, this disjunction will likely become a source of serious conflict. It represents in my view a failure by the ALC in its core statutory function, a failure which can be directly traced to the conflicts of interest built into its governance.

In July 2024, the NT EPA responded to the Winchelsea’s Notice of Variation with a document titled Direction to include additional information in the supplement and form and manner to publish the supplement  (link here). The Direction listed 30 areas which required more information or analysis. Apart from a range of environment and cultural heritage related information, the EPA made the following comment/request:

Comment: The draft EIS states that as the proposed 50-person accommodation camp and other supporting infrastructure will be located on Groote Eylandt and developed by a separate entity, and it is not considered in the EIS. Due to the dependency of the proposed action on this supporting infrastructure, consideration of this development is required in the EIS. Limited information is provided in the referral regarding the usage of Bartalumba Bay wharf in the construction phase of the project. This activity may cause an indirect impact to stakeholders / other users of the wharf.

Information required in the supplement: Provide an assessment of the potential social and economic impacts on the Groote Eylandt community from the development of supporting infrastructure (including accommodation camp) and from the use of Bartalumba Bay wharf [emphasis added].

The alternative ‘separate entity’ referred to in the supplementary direction from the EPA is clearly GHAC and its Little Paradise project.

Conclusion

A media article dated 1 January 2021 which is still up on the ALC website is headed ‘Mine nearly ready to go: Traditional owners on Groote Eylandt hope to start mining manganese on their own land by mid-2022’ (link here and link here). The article lays out the strategic vision for the mine and mentions in particular that Winchelsea is working with the Northern Australian Infrastructure Facility (NAIF) to lend it $100 million to develop the mine. Clearly the discussions with NAIF have so far come to nought (no public explanation has been provided by the ALC or Winchelsea), and the optimistic timelines have clearly blown out. The recent EPA decision suggests that there could be a further two years wait just to obtain the relevant environmental approvals.

The recent dismissal of Mr Hewitt from the ALC for reasons that have not been made public raises the fundamental questions: where to now for the Winchelsea mine proposal? The fundamental question in my view is for the land council on behalf of all Groote Traditional owners to independently reassess the project’s commercial viability and the fairness of the mining agreement that the land council presumably agreed to while its CEO (and key proselytizer for the project) was simultaneously the Executive Director of Winchelsea Mining. Yet the capacity of the land council to undertake this task while the myriad compromised and conflicted structures identified in the ANAO report are still in place, and while the National Anti-Corruption Commission is continuing its investigations, is clearly doubtful.

In my view, the case for the minister to step in and ensure that the ALC (and the GHAC and AAAC Boards) have access to independent and commercially astute financial advice in relation to the future of the Winchelsea project appears incontrovertible. Ongoing delay will only serve to further complicate the issues in play.

Apart from the possibility of commercial failure, a failure to act will increase the risk that AusChina, the minority interests in the Winchelsea Joint Venture, will decide that its interests will be best served by conjuring up a proposal to sell their equity in the putative mine to Indigenous interests on Groote for a price beyond its real worth.

 While I don’t rule out the possibility that the mine should ultimately proceed, such a possibility is only feasible if its ownership structure, its prospective commercial viability, and the economic, social and cultural viability of the pathway to development of the resource is thoroughly investigated by an independent and commercially experienced person.

We need look no further than the Ayers Rock Resort to find an example of a ‘good idea’ that has served as a sponge soaking up millions of dollars that might have been spent more wisely to benefit Indigenous Australians across the whole country (link here). In that case, the proponents were commercially experienced members of the board of the Indigenous Land Corporation, a Commonwealth statutory corporation, who pursued a course of action which led to financial disaster. The ILSC is still seeking to escape the millstone around its neck, and the losers have been the myriad Indigenous corporations that might have been supported by the ILSC and have not been. The resonances with Winchelsea are crystal clear. If the worst comes to pass, the sorrow of Ministers who were complicit or failed to act when they might have will be ‘but weak relief’.