Select Page


Connected Transactions

Chapter 14A (Main Board) and Chapter 20 (GEM) of the Hong Kong Stock Exchange’s (HKEX) Listing Rules (HKEX Listing Rules) contain certain safeguards intended to ensure that the interests of shareholders as a whole are taken into account by a listed issuer when the listed issuer enters into connected transactions.

There is a general requirement for connected transactions to be disclosed and subject to independent shareholders’ approval. Connected transactions may be either one-off transactions (in the case of listed issuers) or continuing transactions (in the case of both listed issuers and new applicants). Different rules apply in each case. A listed issuer must, in respect of all connected transactions, enter into a written agreement with the relevant parties. Connected transactions require notification to the HKEX, an announcement and shareholder circular, independent shareholder approval, independent financial advice and an independent valuation. There is no general exemption for transactions in the ordinary course of business unless the transaction can be classified as de minimis. A mineral company can apply to the HKEX for a waiver from the reporting, disclosure and independent shareholders’ approval requirements.

Depending on the nature of the relationship between the parties, off-takes, infrastructure access agreements, mining services agreements, ECPs and ECPMs, royalty agreements, product marketing agreements and non-compete agreements may constitute connected transactions. A connected transaction may also be a notifiable transaction under the HKEX Listing Rules.

The HKEX Listing Rules requirement that continuing connected transactions be re-approved by shareholders every three years is particularly onerous for mineral companies as longer term “life-of-mine” agreements are common in the industry. Key project development agreements such as infrastructure access agreements and ECPs / ECPMs go to the very core of mining projects. Mining companies naturally seek security and value through longer term partnerships. The mining industry is also unique in that it is often clustered in certain mineral rich geographical areas. This often leads to the enactment of local and/or national legislation in relation to the allocation and use of limited infrastructure and utilities. Mineral companies may, in certain circumstances, be forced to share infrastructure or use particular service providers. These persons may be connected, and the mineral company may not have the alternative option of engaging an independent third party. In addition, farm-in/farm-out arrangements and structures where mine operators and contractors take equity positions in mineral companies in consideration of work to be performed may also create connected person relationships with the listing applicant. The HKEX has generally shown itself to be flexible as regards the renewal periods for continuing connected transactions in this respect and will, if a persuasive argument can be made as to why such a waiver should be granted, grant a limited waiver from the reporting, disclosure and independent shareholders’ approval requirements.

Although the HKEX has shown some flexibility as regards waivers from the usual three year periods for continuing connected transactions, it is unlikely the HKEX will contemplate a waiver for the duration of the life of mine. This creates an additional problem for Hong Kong listed mineral companies who will need to consider the inclusion of a break clause in their life of mine agreements with connected parties, or alternatively run the risk having to seek independent shareholders’ approval as the HKEX requires. While shareholders might not be expected to act to the company’s and their own detriment by voting down a key agreement, the listed issuer should not presume that such a scenario will not arise.

Read our latest News

Platinum demand increases

Zijin Mining invests in lithium

NATURAL RESOURCES News Zijin Mining, one of China’s largest gold and copper producers has acquired Neo Lithium Corporation for $770 million in a bid to carve out a stable supply chain for the future. This comes as the latest in a slew of...

Platinum demand increases

Price of steel rapidly increasing

NATURAL RESOURCES News The lack of supply for steel has US companies scrambling to produce cans, metal desks and filing cabinets, Peloton bikes and cars as prices have shot up to $1940 a ton this September compared to $560 for both 2019...

Platinum demand increases

Financial institutions adopt IPCC targets

NATURAL RESOURCES News Shying away from the International Energy Agency’s ‘Net Zero by 2050’ plan, which bars committed companies from operating new fossil fuel exploration projects this year, most banks have chosen to follow the...

Platinum demand increases

China increases local coal production

NATURAL RESOURCES News As the United Nation’s COP26 climate conference looms, President Xi Jinping has won international praise for promising that China’s peak carbon emissions would peak before 2030, and the country would achieve carbon...

Platinum demand increases

Exploration tech backed by billionaire

NATURAL RESOURCES News KoBold Metals (“KoBold”), an exploration company which discovers materials critical for the electric vehicle and renewable energy revolutions has partnered with BHP to search Western Australia for metals and critical...