Listing mineral companies
Long considered a financial gateway to China, more recently Hong Kong has emerged as a viable market for natural resource companies seeking to raise capital in Asia. Listing of mineral companies on the Hong Kong Stock Exchange Limited (“HKEx”) is governed by Chapter 18 of the HKEx’s Listing Rules which was introduced by the HKEx to encourage listings by overseas natural resources companies.
Chapter 18 of the HKEx’s Listing Rules (which includes a definition of “Mineral Companies” that incorporates petroleum companies) clarifies the process by which early stage Mineral Companies not yet in production might benefit from a waiver from the HKEx’s standard financial and track record tests. The HKEx has made clear its aim to develop Hong Kong into an international hub for natural resource companies. It is expected that an increased concentration of listed natural resource companies will lead to increased investor awareness and knowledge about the natural resource sector which in-turn will gradually enhance Hong Kong’s reputation as a natural resources market.
Charltons advises listed issuers and prospective listing applicants on:-
- requirements relating to management
- requirements relating to resources and reserves
- requirements relating to control over mining assets
- restructuring and holding structures
- connected transactions
- asset “spin-offs”
- pre-IPO submissions on suitability for listing
- publicity requirements during listing process
- on-going announcement requirements for listed companies
For further information about Charltons’natural resources practice , experience and transaction highlights please visit our dedicated natural resources law website www.charltonsnaturalresources.com
Financial standard requirements for mineral company listing applicants
A Main Board listing applicant is required under Rule 8.05 of the Main Board Listing Rules to meet one of the following financial standards:
- a profit of not less than HK$20 million in the most recent financial year, and a profit of not less than HK$30 million in aggregate for the 2 financial years before that; and (ii) an expected market capitalisation of at least HK$500 million at the time of listing; or
- a positive cash flow generated from operating activities to be listed of not less than HK$100 million in aggregate for the 3 most recent financial years; (ii) a revenue of not less than HK$500 million for the preceding audited financial year; and (iii) a market capitalisation (at the time of listing) of not less than HK$2 billion; or
- a revenue of not less than HK$500 million for the preceding audited financial year; and (ii) a market capitalisation of not less than HK$4 billion at the time listing.
Rule 18.04 of the Main Board Listing Rules provides that a mineral company which is unable to meet the financial standard requirements under Rule 8.05 can still apply for listing if it can demonstrate to the HKEx that 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 a minimum of 5 years relevant industry experience and details of this relevant experience must be disclosed in the applicant’s listing document. A mineral company is required under the Note to Rule 18.04 of the Main Board Listing Rules to demonstrate that its primary activity is exploration for and/or extraction of Natural Resources in order to apply for the waiver from complying with the financial standard requirements.
The Stock Exchange of Hong Kong Limited (the “HKEx”) issued a guidance letter (HKEx-GL52-13) (the “Guidance Letter”) in February 2020 to provide guidance to new applicants which are mineral companies on inter alia (i) disclosures in the listing documents and (ii) the application of Main Board Listing Rule 18.04.
The Guidance Letter sets out two conditions that must be satisfied should the mineral company wish to rely on the exemption provided for in Main Board Listing Rule 18.04. The new applicant mineral company seeking to rely on Main Board Listing Rule 18.04 must demonstrate that it has a clear path to commercial production and that it has sufficient relevant experience.
The Guidance Letter also clarifies how a mineral company can demonstrate a clear path to commercial production as well as providing further details on the relevant experience required of its directors and management. For a detailed discussion on the Guidance Letter, please see Charltons’ note ‘Introduction to Listing on the Main Board of the Hong Kong Stock Exchange Limited (HKEx).’
Within the mining and natural resource sector, the objective of the HKEx is the development of the HKEx as an international market for mining companies to list and raise funds. Currently, more than 150 companies listed on the HKEx are pure play metals and mining or energy companies with the market capitalisation of resource sector companies on the HKEx having increased x 30 since 1999.
Some noteworthy listings include:
Hengxing Gold Holding Company Ltd – a company that involves gold mining, production and exploration, listed in May 2014, raising HK$375.2 million.
Shandong Gold Mining – gold company engaged in gold exploration, mining, processing, smelting and sales, listed in September 2018, raising HK$4.82 billion.
Ganfeng Lithium Co Ltd – producer and seller of lithium metal and other chemical products of lithium, listed in October 2018, raising HK$3.17 billion.
Yancoal Australia Ltd – Australia’s largest pure-play coal producer, listed in December 2018, raising HK$1.183 billion.
Dragon Mining Limited – principally engaged in gold exploration, mining and processing with operating mines, listed in November 2018, raising HK$1.01 billion.
Charltons has experience with listing mineral companies and other matters within the natural resource sector.