Hong Kong Exchanges and Clearing Limited (“HKEx”) published a consultation paper on proposed new Listing Rules for Mineral and Exploration Companies on September 11, 2009 (the “Proposed Rules”). Amongst other things, the Proposed Rules would expand the eligibility requirements for Mineral and Exploration Company listing applicants, increasing capitalization requirements, adding provisions to ensure that such applicants have adequate rights to participate actively in the relevant exploration and/or extraction work and would provide an alternative for those applicants who are unable to meet current financial track record requirements. HKEx cited increasing interest from natural resource companies wishing to list on the Exchange and a desire to bring the regulatory framework inline with international best practices as motivations behind the Proposed Rules. The consultation paper calls for comments from interested parties by November 11, 2009.

Mineral and Exploration Company Defined

The Proposed Rules define a Mineral and Exploration Company as one whose “principal activity, whether directly or through its subsidiaries, involves the exploration for or extraction of natural resources including minerals, oil and gas or solid fuels.” Principal activity is one that represents 25 percent or more of the company’s assets, gross revenue or operating expenses. Existing listed issuers engaged in the resources sector would not be automatically treated as Mineral and Exploration Companies unless they complete a major transaction to acquire mineral or exploration assets after the Proposed Rules take effect.

New Provisions Requiring New Applicant Mineral and Exploration Companies to Demonstrate Possession of Adequate Exploration and/or Extraction Rights

The Proposed Rules contain provisions requiring that new applicant Mineral and Exploration Companies demonstrate by one of two methods that they have adequate rights to participate actively in the exploration and/or extraction of resources. Under the first method, new listing applicant Mineral and Exploration Companies would need to demonstrate that they have either a controlling interest in a majority (by value) of the assets in which they have invested or, through other rights, have significant influence over the extraction of those resources. Under the second method, such an applicant would need to demonstrate that it has adequate agreements with the third party possessing the relevant rights.

In support of the two methods provided in the Proposed Rules for new listing Mineral Exploration Companies to demonstrate that they have adequate exploration and/or extraction rights, HKEx noted the importance of such companies having adequate control over exploration and/or extraction in order to protect against ownership claims from other interests. HKEx further noted that such protection is even more vital in emerging markets. HKEx adopted the second method for demonstrating adequate control based on the recognition that companies sometimes engage in exploratory activity under joint ventures or operate in jurisdictions where exploration is carried out under specific government mandates. HKEx also acknowledged that some new listing applicant Mineral and Exploration Companies will not have reached the production stage and will therefore not be in a position to obtain rights to extract relevant reserves. For those companies, the Proposed Rules would require disclosure of how they plan to proceed to production and the relevant risks to obtaining relevant rights.

New Capitalization Requirements for New Applicant Mineral and Exploration Companies

New applicant Mineral and Exploration Companies would be required to provide disclosure in relation to their cash operating costs and working capital under the Proposed Rules. Required working capital disclosures would include, at a minimum, general and administrative costs, property holding costs and the cost of proposed exploration and development. New applicant Mineral and Exploration Companies would be required to demonstrate that they have sufficient working capital for 125 percent of their budgeted working capital needs for the next twelve months. The Proposed Rules would adopt the VALMIN Code’s definition of cash operating costs. Finally, companies already in production would be required to disclose their operating cash cost per appropriate unit for the mineral(s) and/or oil and gas produced.

In adopting the requirement that new listing applicant Mineral and Exploration Companies have 125 percent of budgeted working capital for the next twelve months on hand, HKEx cited the difficulty in estimating working capital for a longer period of time. HKEx further noted the need for the extra 25 percent buffer beyond that budgeted for the upcoming year as production and/or exploration costs often exceed estimates.

Alternative Eligibility Requirements for New Applicant Mineral and Exploration Companies that Cannot Meet the Financial Track Record Requirements

The Proposed Rules would provide a separate option for new applicant Mineral and Exploration Companies that are unable to meet the financial track record requirements under Listing Rule 8.05. Such companies would have to demonstrate that their boards and senior management, taken together, have adequate experience relevant to the mining and/or exploration activity that the applicant is pursuing. Any relied upon individuals would be required to have a minimum of five years relevant experience.

Existing rules already require that mining and/or exploration companies unable to meet the track record requirements of Rule 8.05 have a minimum of three years of experience in mining and/or exploration activities. HKEx cited the inexperience of Hong Kong investors in investing in exploration ventures in comparison with international investors as the reasoning behind these proposed changes.


The Proposed Rules would represent a major expansion of the Listing Rules as they regard new applicant Mineral and Exploration Companies. The Proposed Rules would add to existing rules to require new applicant Mineral and Exploration companies to demonstrate their possession of adequate exploration and/or extraction rights and demonstrate sufficient capitalization and cash flow. Further, the Proposed Rules would impact new applicant Mineral and Exploration companies by providing an alternative for those unable to meet existing financial track record requirements.