New MB Chapter 18 / GEM Chapter 18A
Mineral Companies
Janet Chiu
Assistant Vice President
Compliance and Monitoring Department
Listing Division, HKEx
Background
• 11 September 2009
Consultation paper on New Listing Rules For
Mineral and Exploration Companies published
• 11 November 2009
Consultation period ended
• 20 May 2010
Consultation conclusions published
• 3 June 10
Effective date of new Rules
2
Purpose of the reform
•
Ensure investors are provided with material, relevant and reliable information
relating to mineral assets
•
Align our rules with international standards
•
Broaden investor choice by allowing the listing of exploration companies with
“identified resources” (i.e. at least indicated mineral resources / contingent
petroleum resources)
3
New Listing Rules for Mineral Companies
•
The brand-new Main Board Chapter 18 / GEM Chapter 18A set out:
 additional eligibility and disclosure requirements for new listing of mineral
companies
 disclosure requirements for transactions involving mineral and/or
petroleum assets
 continuing obligations to provide update on issuers’ mining operations
•
Main Board Guidance Note 7 / GEM Practice Note 4 provides a suggested risk
assessment for mineral companies
•
Main Board Appendix 25 / GEM Appendix 18 specifies the content of a
competent person’s report for petroleum assets
4
Agenda
•
Definition of “Mineral Company”
•
New listing requirements for Mineral Companies
•
Impact of the new Rules on listed issuers
•
Transaction related obligations
•
Continuing obligations
5
What is a mineral company?
6
Who will become a “Mineral Company”? (1)
1.
A new applicant whose major activity is the exploration for and/or extraction
of natural resources
What is referred as “major activity”?
 Activity representing ≥ 25% of assets, revenue or operating expenses
of the issuer group
2.
A listed issuer that completes a major or above acquisition of mineral and/or
petroleum assets
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Who will become a “Mineral Company”? (2)
How about the listed issuers who are engaged in resources sector
before the Rule amendments?
• They will not be automatically treated as Mineral Companies.
• They would be treated as Mineral Companies only if they undertake
major (or above) acquisitions of mineral and/or petroleum assets
after the new Rules take effect.
8
New listing requirements for
Mineral Companies
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Exploration / extraction rights
MLR 18.03(1) / GLR 18A.03(1)
•
Must have adequate rights which provides sufficient influence over the
exploration for and/or extraction of natural resources, either through:
 control over majority of assets; or
 other rights under arrangements acceptable to the Exchange
10
Portfolio of reserves / resources
MLR 18.03(2) / GLR 18A.03(2)
•
Must have discovered at least a portfolio of:
 Indicated resources (for mineral companies)
 Contingent resources (for petroleum companies)
•
This portfolio must be meaningful and of sufficient substance to justify the
listing.
•
Early stage exploration assets are not eligible for listing at this time.
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Working Capital
•
Must have sufficient working capital for 125% of present requirement for at
least the next 12 months (MLR 18.03(4) / GLR 18A.03(4))
•
Must also provide production details
 Companies in production
 provide an estimate of cash operating costs
(MLR 18.03(3) and 18.06 / GLR 18A.03(3) and 18A.06)
 Companies not yet start production
 demonstrate a clear path (with indicative dates and costs) to
commercial production supported by an independent Scoping Study
(i.e. a preliminary evaluation of economic viability of mineral
resources)
(MLR 18.07 / GLR 18A.07)
12
Track record requirement
MLR 18.04 / GLR 18A.04
•
Mineral Companies unable to satisfy the track record requirements can still
apply for listing if:
 its directors and senior managers, taken together, have sufficient
experience relevant to the exploration and/or extraction activity that the
mineral company is pursuing (individuals relied on must have at least 5
years experience)
•
Considerations:
 The company’s primary activity is the exploration for and/or extraction of
natural resources
 Companies that are already in production will not be considered
favourably unless they have development activity on hand and can
demonstrate a path to commercial production
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Listing documents for new applicants
MLR 18.05-18.08 / GLR 18A.05-18A.08 set out the required disclosures, including:
•
A Competent Person’s Report on reserves and resources
•
A statement confirming no material changes since the effective date of the
Competent Person’s Report / descriptions of any material changes
•
Details of all prospecting, exploration, exploitation, land use and mining rights,
and details of material rights to be obtained
•
Specific and general risks
•
Disclosure on social and environmental considerations, if relevant and material
•
For those not yet in production, plans to production with indicative dates and
costs supported as least by a Scoping Study
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Impact of the new Rules on listed issuers
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Impact of the new Rules on listed issuers (1)
Under what circumstances will the new rules have impact on listed
issuers if they are not classified as Mineral Companies at the time
of listing?
• The new Rules only affect Non-Mineral Companies if:
 they acquire material mineral and/or petroleum assets
 they publicly disclose details of their reserves and/or
resources
• The new Rules are not intended to have retrospective effect.
• On completion of the acquisition, they will be treated as a Mineral
Company
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Impact of the new Rules on listed issuers (2)
Then how about those issuers who are classified as Mineral
Companies?
•
In addition to the above, they are subject to additional disclosure
obligations when they:
 dispose of material mineral and/or petroleum assets
 publish interim / annual reports
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Summary of events triggering listed issuers’
obligations under the new Rules
Listed
issuers
Transaction
Acquisition
Non-mineral
Companies

Mineral
Companies

Continuing obligation
Disposal
Interim report
Annual report




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Transaction related obligations
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Key principles
•
To provide investors and shareholders with sufficient and reliable information
on significant transactions involving mineral and/or petroleum assets.
•
Information on mineral and petroleum assets must be:
 prepared in accordance with widely recognised reporting codes
 substantiated by independent competent person
 presented in readily understandable manner with sufficient details
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What Transactions are subject to the new Rules?
Old Rules
Discloseable transaction or above
(i.e. percentage ratio ≥ 5%)
Expected diversion to exploration of
≥ 10% of the issuer’s total assets
New Rules
“Relevant Notifiable transaction”
(with percentage ratio ≥ 25%)
- Major transaction
- VSA / VSD
- Reverse takeover
Expected contribution from exploration
≥ 10% of the issuer’s pre-tax operating
profits or revenue
Note: Aggregation principles under MLR14.22 / GLR19.22 apply
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What should be disclosed for acquisition cases? (1)
• For acquisition transactions, on top of MB Ch 14 & 14A / GEM Ch 19 & 20 (if
relevant) requirements, the circular must include the following additional
information in respect of the assets being acquired:
 A Competent Person’s Report (MLR 18.09(2) / GLR 18A.09(2))
 No material changes statement / descriptions of any material changes
since the effective date of the Competent Person’s Report
(MLR 18.05(2) / GLR 18A.05(2))
 Disclosure of specific and general risks (MLR 18.05(5) / GLR 18A.05(5))
 Other relevant and material information (MLR 18.05(3), (4) & (6) / GLR
18A.05(3), (4) & (6))
• However, a Valuation Report on the mineral or petroleum assets being
acquired must be provided in this scenario (MLR 18.09(3) / GLR 18A.09(3))
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What should be disclosed for acquisition cases? (2)
If the target asset is acquired from a company which already has an
independent CPR / Valuation Report , is it necessary for the listed issuer to
obtain a new one?
• MLR 18.12 / GLR 18A.12 provides for dispensation from the CPR or
Valuation Report requirements if the issuer can:
 provide a previously published report which complies with the
required reporting standard and is no more than six months old; and
 provide a statement confirming no material changes since the
effective date of the previously published report;
• The issuer must obtain prior written consent of the responsible
Competent Person/ Competent Evaluator for the publication of these
materials. (MLR 18.13 / GLR 18A.13)
(FAQ series 12, No. 14)
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What should be disclosed for disposal cases?
• For disposal transactions, on top of MB Ch 14 & 14A / GEM Ch 19 & 20 (if
relevant) requirements, the circular must include the following additional
information in respect of the assets being disposed of:
 a Competent Person’s Report (MLR 18.09(2) / GLR 18A.09(2))
 details of any material liabilities that remain with the issuer on the disposal
(Note to MLR 18.09(4) / GLR 18A.09(4))
• The Exchange may dispense with the requirement for a CPR on disposals where
shareholders have sufficient information on the assets being disposed of
(FAQ series 12, No. 12)
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Competent Person’s Report (CPR) (1)
MLR 18.28-18.33 / GLR 18A.28-18A.33 specify the reporting standards for CPR:
Reporting standards
(Notes)
For mineral assets
• the JORC Code
• NI 43-101
• SAMREC Code
Effective date
Within 6 months
For petroleum assets
• PRMS
Notes:
• Subject to modifications under MLR 18.30/18.33 or GLR 18A.30/18A.33
• MB Appendix 25 / GEM Appendix 18 set out the content of a CPR for petroleum
assets
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Competent Person’s Report (CPR) (2)
Will the Exchange accept other reporting standards for the
presentation of reserves and/or resources?
• The required reporting standards assess what is commercially
extractable while some standards focus on “in-situ” estimates.
• Where information is presented in accordance with other reporting
standards, a reconciliation to the required reporting standards must be
provided.
• We will monitor the development of other codes to ensure our position
reflects international best practice.
(FAQ series 12, No. 18)
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Mineral Reporting (Modifications)
•
For CPR on mineral reserves and/or resources, issuers must also satisfy the
modifications under MLR 18.30 / GLR 18A.30:
 Estimates of mineral reserves are supported, at a minimum, by a prefeasibility study.
 Estimates of mineral reserves and resources must be disclosed
separately.
 Indicated and measured resources can be included in economic analyses
but basis on which they are economically extractable and the discount for
conversion to mineral Reserves must be disclosed.
 Valuations for inferred resources are not permitted
 For profit forecasts and forward looking valuations, the basis for
commodity prices and material assumptions must be included, as well as
sensitivity analyses on price.
27
Petroleum Reporting (Modifications)
•
For CPR on petroleum reserves and/or resources, issuers must also satisfy the
modifications under MLR 18.33 / GLR 18A.33:
 Method and reason for choice of estimation of petroleum reserves must be
disclosed (i.e. deterministic or probabilistic).
 If NPVs attributable to proved and proved plus probable reserves are
disclosed, they are presented:
- on a post-tax basis at varying discount rates or a fixed discount rate of
10%
- using a forecast price or a constant price as base case
 Economic values must not be attached to possible reserves, contingent
resources or prospective resources
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Valuation Report (1)
Valuation is a mandatory requirement for acquisition cases under the new
Rules (MLR 18.34 and GLR 18A.34)
Reporting standards (Note)
• VALMIN Code
• CIMVAL
• SAMVAL Code
Effective date
Within 6 months
Note: Only VALMIN Code is applicable to petroleum assets.
• Disclosure of basis of valuation, assumptions and reasons for the selection
of valuation method
• If more than one valuation method is used and different valuations result,
commentary on how the valuations compare and the reason for selecting the
value adopted
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Valuation Report (2)
MB R14A.59(6) / GEM 20.59(7) requires a valuation if the primary
significance of the asset being acquired is its capital value. Is the
valuation requirement in Chapter 18 applicable to a connected
transaction?
• Yes, but only for those connected transactions with size ≥ 25% (i.e.
the transactions are also certified as major transactions or above).
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Valuation Report (3)
Will valuations of mineral and/or petroleum assets based on
discounted cast flows (DCF) be regarded as profit forecasts under
MLR 14.61 / GLR 19.61?
• No. We will not regard the DCF as a profit forecast under MLR 14.61
/ GLR 19.61.
• However, issuers must disclose all relevant assumptions and the
reason why a particular valuation method is chosen.
(FAQ series 12, No. 21)
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Competent Person/ Competent Evaluator (1)
MLR 18.21-18.23 / GLR 18A.21-18A.23
• Experience
Competent Person
Competent Evaluator
At least 5 years experience relevant
to the type of mineral/ petroleum
assets and to the mining activity
the issuer is undertaking
At least 10 years relevant and recent
general mining or petroleum experience;
at least 5 years of relevant and recent
experience in assessing and/or valuing
mineral or petroleum assets
• Must be professionally qualified
• Must be a member of a Recognised Professional Organisation
• Must be independent
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Competent Person/ Competent Evaluator (2)
Why the Competent Evaluator is required to have a minimum of 10
years experience (compared to the 5 years experience
requirement on Competent Person)?
• Our requirement largely follows the requirements under the VALMIN
Code.
• The CIMVAL and SAMVAL Codes are not as specific as the VALMIN
Code but require that extensive experience should be obtained to
value mineral assets.
• We adopt a bright line experience requirement for clarity.
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Continuing obligations
34
Annual update of reserves / resources (1)
•
Listed issuers that publicly disclose details of reserves and/or resources
must give updates of such information in their annual reports, under
consistent reporting standards (MLR 18.15 / GLR 18A.15)
•
Mineral Companies must include updates of reserves and resources in
their annual reports in accordance with the required reporting standard
under which they were previously disclosed (MLR 18.16 / GLR 18A.16)
•
Any data on reserves and resources must be presented in tables which
can be understood by a non-technical person. Statements should include
estimates of volume, tonnage and grades (MLR 18.17 / GLR 18A.17)
35
Annual update of reserves / resources (2)
What information should the issuer disclose for annual update?
Scope
Update of reserves and/or resources information
publicly disclosed after the effective of the new
Rules
Reporting standard(s)
The previously adopted reporting standard
OR
An international reporting standard recognised under
the new Rules
Minimum disclosure(s) *
- Volume, tonnage and grades
- all assumptions adopted
Presentation of data
In tables and in a manner readily understandable to
a non-technical person
* Annual updates may take the form of a no material change statement.
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Annual update of reserves / resources (3)
Who are qualified to provide the annual updates?
• Annual updates are not required to be supported by Competent
Persons.
• However, the information must at least be substantiated by the
issuer’s internal expert.
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Half-Yearly disclosure
MLR 18.14 / GLR 18A.14
•
Only Mineral Companies are subject to this requirement
•
They must disclose in their interim and annual report:

details of their exploration, development and mining production
activities; and

a summary of expenditure incurred on these activities during the
review period.
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Recap of requirements for
Mineral Companies and other listed issuers
Requirements
Major (or above) acquisition
- CPR & Valuation Report
All
Listed issuers
Mineral
Companies


Major (or above) disposal
- CPR
Annual update of publicly disclosed
reserves and resources statement
Half-yearly disclosure of exploration,
development and mining production
activities and related expenditures
incurred




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Thank you
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