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,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,*,New MB Chapter 18 / GEM Chapter 18A Mineral Companies,Janet Chiu,Assistant Vice President,Compliance and Monitoring Department,Listing Division, HKEx,2,2,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,3,3,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),Purpose of the reform,4,4,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 persons report for petroleum assets,New Listing Rules for Mineral Companies,5,5,Agenda,Definition of “Mineral Company”,New listing requirements for Mineral Companies,Impact of the new Rules on listed issuers,Transaction related obligations,Continuing obligations,6,What is a mineral company?,7,7,A new applicant whose major activity is the exploration for and/or extraction of natural resources,Activity representing,25% of assets, revenue or operating expenses of the issuer group,A listed issuer that completes a major or above acquisition of mineral and/or petroleum assets,Who will become a “Mineral Company”? (1),What is referred as “major activity”?,8,8,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.,Who will become a “Mineral Company”? (2),How about the listed issuers who are engaged in resources sector before the Rule amendments?,9,New listing requirements for,Mineral Companies,10,10,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,11,11,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.,12,12,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),13,13,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 companys 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,14,14,MLR 18.05-18.08 / GLR 18A.05-18A.08,set out the required disclosures, including:,A Competent Persons Report on reserves and resources,A statement confirming no material changes since the effective date of the Competent Persons 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,Listing documents for new applicants,15,Impact of the new Rules on listed issuers,16,16,Impact of the new Rules on listed issuers (1),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,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?,17,17,Impact of the new Rules on listed issuers (2),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,Then how about those issuers who are classified as Mineral Companies?,18,Summary of events triggering listed issuers obligations under the new Rules,Listed issuers,Transaction,Continuing obligation,Acquisition,Disposal,Interim report,Annual report,Non-mineral Companies,Mineral Companies,19,Transaction related obligations,20,20,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,21,21,What Transactions are subject to the new Rules?,Old Rules,New Rules,Discloseable transaction or above,(i.e. percentage ratio,5%,),“Relevant Notifiable transaction”,(with percentage ratio ,25%,),- Major transaction,- VSA / VSD,- Reverse takeover,Expected diversion to exploration of,10%,of the issuers total assets,Expected contribution from exploration ,10%,of the issuers pre-tax operating profits or revenue,Note: Aggregation principles under MLR14.22 / GLR19.22 apply,22,22,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 Persons 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 Persons 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),23,23,What should be disclosed for acquisition cases? (2),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),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?,24,24,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 Persons 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),25,Competent Persons Report (CPR) (1),Reporting standards,(Notes),For mineral assets,the JORC Code,NI 43-101,SAMREC Code,For petroleum assets,PRMS,Effective date,Within 6 months,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,MLR 18.28-18.33 / GLR 18A.28-18A.33,specify the reporting standards for CPR:,26,26,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),Competent Persons Report (CPR),(2),Will the Exchange accept other reporting standards for the presentation of reserves and/or resources?,27,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 pre-feasibility 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.,28,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,29,Valuation Report,(1),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,Valuation is a mandatory requirement for acquisition cases under the new Rules,(MLR 18.34 and GLR 18A.34),30,30,Yes, but only for those connected transactions with size 25% (i.e. the transactions are also certified as major transactions or above).,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?,31,31,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),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?,32,32,Competent Person/ Competent Evaluator (1),MLR 18.21-18.23 / GLR 18A.21-18A.23,Experience,Must be professionally qualified,Must be a member of a Recognised Professional Organisation,Must be independent,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,33,33,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.,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)?,34,Continuing obligations,35,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),36,36,* Annual updates may take the form of a no material change statement.,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,37,37,Annual updates are not required to be supported by Competent Persons.,However, the information must at least be substantiated by the issuers internal expert.,Annual update of reserves / resources (3),Who are qualified to provide the annual updates?,38,38,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.,39,Recap of requirements for Mineral Companies and other listed issuers,Requirements,All,Listed issuers,Mineral Companies,Major (or above) acquisition,- CPR & Valuation Report,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,40,40,Thank you,
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