Listing

Management Requirements for Mineral Companies

Main Board

A new applicant mineral company that cannot satisfy the profit test, the market capitalisation/revenue/cash flow test or the market capitalisation/revenue test described in the section Key Requirements For Listing may still be accepted for listing if it establishes to the Exchange's satisfaction that its directors and senior management, taken together, have a minimum of 5 years' experience relevant to the exploration and/or extraction activity that the mineral company is pursuing.

Details of such experience must be included in the applicant's listing document. The Exchange expects most companies seeking a waiver from the track record / financial tests based on management experience to be at the development stage, although companies which are in production are not necessarily precluded as they may have junior assets which are yet to be developed. Companies that are in production will however need to be able to show a clear path to profitability in order to be accepted for listing.

GEM

There is no equivalent waiver from the requirement under the GEM Listing Rules for cash flow from operating activities of at least HK$20 million over the 2 preceding years. The Exchange may however waive the 2-year trading record requirement if satisfied that the directors and senior management have a minimum of 5 years' relevant experience. The cash flow requirement must however be met for the shorter trading record period.

Charltons is experienced in advising mineral companies and their sponsors and underwriters on the Exchange's management experience requirements and making applications for waivers based on management experience. At a preliminary stage we can coordinate the collection and verification of supporting documentation in relation to directors' and senior managements' experience. Mineral companies should note that the minimum 5 years' experience should be relevant to the exploration and/or extraction activity that the mineral company is pursuing. For example, the directors and senior management of a mineral company involved in the exploration and production of base metals should have experience in the base metals sector. Experience in, for example, coal or iron ore exploration and/or production or even more general industry experience may not be deemed relevant for the purposes of satisfying the 5 years' experience requirement.

Independent non-executive directors

There will generally be no maximum number of directors stated in the Articles of Association of an issuer. However, under the Listing Rules, every board of directors of a listed issuer must include at least three independent non-executive directors. At least one of the independent non-executive directors must have appropriate professional qualifications or accounting or related financial management expertise.

Every independent non-executive director must satisfy the Exchange that he has the character, integrity, independence and experience to fulfil his role effectively. The Exchange may stipulate a minimum number of independent non-executive directors which is higher than three if, in the opinion of the Exchange, the size of the board or other circumstances of the listed issuer justify it.

In assessing the independence of a non-executive director, the Exchange will take into account the following factors, none of which is necessarily conclusive. Independence is more likely to be questioned if the director:

  1. holds more than 1% of the total issued share capital of the listed issuer;
  2. has received an interest in any securities of the listed issuer as a gift, or by means of other financial assistance, from a connected person or the listed issuer itself. However, the director will still be considered independent if he receives shares or interests in securities from the listed issuer or its subsidiaries (but not from connected persons) as part of his director's fee or pursuant to share option schemes established in accordance with the Listing Rules.
  3. is a director, partner or principal of a professional adviser which currently provides or has within one year immediately prior to the date of his proposed appointment provided services, or is an employee of such professional adviser who is or has been involved in providing such services during the same period, to:

    (a) the listed issuer, its holding company or any of their respective subsidiaries or connected persons; or any person who was a controlling shareholder or,

    (b) where there was no controlling shareholder, any person who was the chief executive or a director (other than an independent non-executive director), of the listed issuer within one year immediately prior to the date of the proposed appointment, or any of their associates;

  4. has a material interest in any principal business activity of or is involved in any material business dealings with the listed issuer, its holding company or their respective subsidiaries or with any connected persons of the listed issuer;
  5. is on the board specifically to protect the interests of an entity whose interests are not the same as those of the shareholders as a whole;
  6. is or was connected with a director, the chief executive or a substantial shareholder of the listed issuer within two years immediately prior to the date of his proposed appointment;
    Any person cohabiting as a spouse with, and any child, step-child, parent, step-parent, brother, sister, step-brother and step-sister of, a director, the chief executive or a substantial shareholder of the listed issuer is, considered to be connected with that director, chief executive or substantial shareholder. A father-in-law, mother-in-law, son-in-law, daughter-in-law, grandparent, grandchild, uncle, aunt, cousin, brother-in-law, sister-in-law, nephew and niece of a director, the chief executive or a substantial shareholder of the listed issuer may in some circumstances also be considered to be so connected. In such cases, the listed issuer will need to provide the Exchange with all relevant information to enable the Exchange to make a determination.
  7. is, or has at any time during the two years immediately prior to the date of his proposed appointment been, an executive or director (other than an independent non-executive director) of the listed issuer, of its holding company or of any of their respective subsidiaries or of any connected persons of the listed issuer; and
    An "executive" includes any person who has any management function in the company and any person who acts as a company secretary of the company.
  8. is financially dependent on the listed issuer, its holding company or any of their respective subsidiaries or connected persons of the listed issuer.

Directors must satisfy the required levels of skill, care and diligence. Delegating their functions is permissible but does not absolve them from their responsibilities or from applying the required levels of skill, care and diligence. Directors do not satisfy these required levels if they pay attention to the issuer's affairs only at formal meetings. At a minimum, they must take an active interest in the issuer's affairs and obtain a general understanding of its business. They must follow up anything untoward that comes to their attention.

Where a proposed independent non-executive director fails to meet any of the independence guidelines set out in the Listing Rules, the listed issuer must demonstrate to the satisfaction of the Exchange, prior to the proposed appointment, that the person is independent. The listed issuer must also disclose the reasons why such person is considered to be independent in the announcement of his appointment as well as in the next annual report published after his appointment. In cases of doubt, the listed issuer must consult the Exchange at an early stage.

Director Competence

Every director of a listed issuer must satisfy the Exchange that he has the character, experience and integrity and is able to demonstrate a standard of competence commensurate with his position as a director of a listed issuer. The Exchange may request further information regarding the background, experience, other business interests or character of any director or proposed director of a listed issuer.