We have been involved in recent consultation rounds with Stock Exchange of Hong Kong (Exchange) on the much anticipated changes to Chapter 18 of the Listing Rules of the Exchange (Listing Rules).
We are now able to share with you the new changes effective from 3 June 2010. The amendments are contained in an extensive rewrite of Chapter 18 of the Listing Rules (the New Chapter 18) and look set to enhance the reputation of the Exchange as a resources-friendly exchange.
Some of the key objectives of the New Chapter 18 are to:
- Allow companies to list if they can demonstrate at a minimum:
- for petroleum companies, at least a meaningful portfolio of Contingent Resources; or
- for mining companies, at least a meaningful portfolio of Indicated Resources;
- Require new applicant Mineral Companies to demonstrate that they have rights to participate actively in the exploration for and/or extraction of minerals or petroleum;
- Enable a Mineral Company to list notwithstanding that it is unable to satisfy the profit test, the market capitalisation/revenue cash flow test or the market capitalisation/revenue test in Listing Rule 8.05. The current version of Chapter 18 provides that the Exchange may waive the requirements of Listing Rule 8.05, if it is satisfied that the directors and management of the Mineral Company have sufficient and satisfactory experience of at least three years in mining and/or exploration activities. Under the New Chapter 18, the industry experience requirement will be increased to 5 years and we expect the management continuity test to still apply (subject to waiver). The Consultation Conclusions note that the Exchange expects that the proposed board will also possess other expertise necessary to comply with its general obligations under the Listing Rules, for example, corporate governance and accounting expertise;
- Require new applicant Mineral Companies to include independent technical reports (Competent Persons Report) on Reserves and Resources in their listing documents. The New Chapter 18 provides further guidance on the criteria for independence;
- Require new applicant Mineral Companies that have not commenced production, to disclose plans to proceed to production with indicative dates and costs. Such plans must be supported by at least a scoping study, substantiated by the opinion of a Competent Person;
- Require new applicant Mineral Companies to demonstrate that they have available working capital for 125% of the Mineral Company's present requirements, that is for the next twelve months from listing;
- Require Mineral Companies acquiring or disposing of mineral or petroleum assets as part of a major (or above) transaction (as defined in Chapter 14 of the Listing Rules) to present a Competent Persons Report in the relevant shareholder circular. Major acquisitions and above must also be accompanied by Valuation Reports prepared by a Competent Evaluator;
- Provide comprehensive risk disclosure guidance as set out in Guidance Note 7;
- Ensure investors are aware of an estimate of operating cash cost per appropriate unit where in production;
- Identify risks to not obtaining exploration or production rights where they are yet to be obtained; and
- Ensure no economic values are attributable to Possible Reserves, Contingent Resources or Prospective Resources.
In preparing the New Chapter 18 the Exchange has adopted the following standards for reporting and valuation in line with the major resource rich jurisdictions of Australia, Canada and South Africa:
- Competent Persons Reports must be prepared under a recognised reporting standard, including the JORC Code, NI 43-101 or the SAMREC Code, with regard to mineral Resources and Reserves, and PRMS (Petroleum Resources Management System) with regard to petroleum Resources and Reserves. Other standards may be used but reconciliation to one of the standards identified above must be provided - Russian or Chinese Standards are currently not acceptable unless reconciled; and
- Valuation Reports (where included or required) must be prepared under CIMVAL, the VALMIN Code or the SAMVAL Code by a Competent Evaluator.
The New Chapter 18 also imposes other obligations and requirements subsequent to listing, including:
- Preparation and disclosure of a Competent Person's Report and a Valuation Report in the relevant shareholder circular where a listed issuer acquires mineral or petroleum assets as part of a major (or above) transaction;
- Disclosure of updated statements on Reserves and Resources in the Mineral Company’s annual report; and
- Disclosure in the Mineral Company's interim (half-yearly) and annual reports of exploration, development and mining production activities and a summary of expenditure incurred on these activities during the period under review.
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