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Hong Kong – Regulatory Watch.

16 May, 2013

 

Exchange publishes FAQs on Listing Rule requirements for Mineral Companies

 

In February and March 2013, the Exchange published various frequently asked questions and responses (“FAQs”) relating to Chapter 18 mineral companies, highlights of which we set out below:

 

(i) Competent Person’s submission on relevant experience.During the vetting of a notifiable transaction involving a Competent Person under Rule 18.21(1), the Competent Person must submit to the Exchange sufficient details of his previous experience to demonstrate its relevance to the mineral or petroleum assets being acquired or disposed of. A list of previous engagements is required, including: (i) the period of each engagement; (ii) a description of each project undertaken with the location and type of resources involved, and the relevance to the resources being acquired or disposed of; (iii) details of any technical reports on the resources of the project, including the reporting standards and the use of the reports; and (iv) details of his role and responsibilities in the project and the preparation of any technical report.


(ii) Rule 18.04 waiver requirements. In considering whether to grant a waiver under Rule 18.04 to a mineral company that is unable to satisfy the Rule 8.05 profit tests, the Exchange expects its board members and senior management to have a spread of experience across various aspects relevant to the company’s mining business, including exploration, construction, mining, processing and marketing.


(iii) Rule 18.04 waiver availability. A mineral company can still apply for a Rule 18.04 waiver even though it is unable to satisfy the management and ownership continuity requirements.


(iv) Valuation Reports in Competent Person’s Reports. The Exchange has confirmed that a Valuation Report or an economic analysis may form part of a Competent Person’s Report, given that in such a case the Competent Person issuing them must also meet the requirements to qualify as a Competent Evaluator under Rule 18.23.

 

(v) “Effective date” of Valuation Reports and Competent Person’s Reports. The “effective date” of these Reports (which Rule 18.24 requires to be less than six months before publication of the listing document or circular) is the date of the appraisal (i.e., when Resources and Reserves are estimated or valued), not the date when the Report is issued.


(vi) Basis of 125% working capital analysis. In preparing this analysis under Rule 18.03(4), the proposed exploration and development costs to be included relate to ‘daily operation’ working capital items such as loan repayments, contracting fees for excavating minerals and costs of transporting them, whereas the 
capital expenditures that do not need to be included (as stated in the note to the Rule) relate to development of infrastructure, processing facilities etc. 

 

Adoption of HKFRS 10 / IFRS10: Compliance Implications


Hong Kong Financial Reporting Standard (“HKFRS”) 10 / International Financial Reporting Standard (“IFRS”) 10, entitled “Consolidated Financial Statements”, are in effect for annual periods beginning on or after 1 January 2013. HKFRS/IFRS 10 set out new requirements on the principle of control for the purpose of determining which entities are to be consolidated in an issuer’s consolidated financial statements. An investee which was not previously classified as a subsidiary of the issuer may be classified as such, and so be consolidated, 
under the new requirements.

 

The implementation of HKFRS/IFRS 10 may have the following practical implications for issuers’ compliance with the accounting standards and the Rules:


•     financial statement disclosures, including an assessment in accounts for the year ended December 31, 2012 of the financial impact of HKFRS/IFRS 10 on subsequent accounts, and restating comparative data for 2012 in the 2013 accounts with a reconciliation;
•     disclosure of inside information arising from the consolidation or deconsolidation of entities (such as the impact on the issuer’s financial position);
•     compliance requirements in relation to transactions and activities of the new subsidiaries, including inside information, notifiable transactions and connected transactions, spin-offs and share option schemes; and
•     other areas of concern resulting from an expanded group of connected persons (such as public float of the issuer, voting rights on corporate actions and transactions, and dealing restrictions under the Model Code).

 

 

For further information, please contact:

 

John Moore, Partner, Morrison Foerster
johnmoore@mofo.com
 

Stephen Birkett, Morrison Foerster

sbirkett@mofo.com

 

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