BACK in October 2009, we alerted you to proposed changes that the Hong Kong Securities Exchange (HKSE) flagged to relax the eligibility criteria for mineral companies seeking admission.
The recent finalisation of these changes (due to commence this month) is a real win for exploration companies looking for access to the very active Hong Kong markets.
While the HKSE has been willing to consider applications from mineral companies on a case-by-case basis for some time, this ad hoc approach left the landscape full of uncertainty for new applicants. In contrast, the new rules provide clear guidance to issuers participating in the natural resources industry.
Previous rules required mineral companies to meet onerous financial tests on admission based around a combination of profit, market capitalisation and revenue and also required a 3 year operating history. To list under the new relaxed rules, mineral companies must:
• have as their major activity (representing 25 per cent or more of the total assets, revenue or operating expenses), the exploration for and/or extraction of natural resources;
• have adequate reserves (which are at least ‘indicated’ or ‘contingent’) identified under a reporting standard and which have been substantiated by a competent person;
• either be in production, or be able to map out the path to production with an indicative timeframe and costs;
• have sufficient working capital for 125 per cent of their budgeted needs for the next 12 months;
• (in lieu of meeting financial track record requirements), be able to demonstrate that its board and senior management have sufficient experience (of at least five years each) relevant to their activities; and
• demonstrate possession of adequate exploration and/or extraction rights through either control of, or significant influence over, resource assets or exploration/extraction rights or by having adequate agreements with others possessing these rights.
The new rules also stipulate that resources, reserves and exploration results are to be reported in compliance with an acceptable code (such as a JORC type code or the Petroleum Resources Management System). This brings the HKSE disclosure regime into line with domestic requirements, representing an advantage to Australian applicants by effectively reducing compliance costs and offering convenience for those operating across multiple jurisdictions.
Andrew Vigar of Mining Associates (see profile below), an active participant in the mining industry in both Australia and Hong Kong directly engaged (along with us) with the HKSE prior to the release of the new rules and explains that: “It should be remembered that the HKSE is a major market and the small exploration companies that raise $5 million or $10 million on the ASX or TSX would in any case be swamped in a market that requires a market cap of $100M to get even minimal attention.
“We would suggest that this is a market that provides another option to companies that have strong management and a viable project requiring in excess of $100 million in capital for mine construction or expansion.”
Robert Friedland (chairman of Ivanhoe Mines) stated in his keynote address at Mines and Money Hong Kong 2010 that ‘Hong Kong will become the largest mining finance market in the world’.
With the introduction of these rule changes, the HKSE has positioned itself as a cornerstone market for miners (particularly those based in Queensland) seeking to bank roll the development of projects to take them to commercial production.
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