The HKEX Listing Rules do not require a valuation report to be provided at the IPO stage. Valuation reports must however be included in the circular to shareholders where mineral or petroleum assets are acquired as part of a major acquisition.
Where a valuation is prepared it must be prepared by a Competent Evaluator. In addition to meeting the requirements for a Competent Person, a Competent Evaluator must have:
- at least 10 years’ relevant mining or petroleum experience (as appropriate);
- at least five years’ relevant and recent experience in the assessment and/or valuation of mineral or petroleum assets or securities (as appropriate); and
- hold all necessary licences.
A Competent Person’s Report or the Valuation Report may be performed by the same Competent Person provided he or she is also a Competent Evaluator.
Valuations must be prepared in accordance with one of the following Codes:
- The Standards and Guidelines for Valuation of Mineral Properties endorsed by the Canadian Institute of Mining, Metallurgy and Petroleum, February 2003 (final version) as amended from time to time (CIMVAL);
- The South African Code for the Reporting of Mineral Asset Valuation (2008 edition) as amended from time to time (the SAMVAL Code); or
- The Code for the Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports (2005 edition), as prepared by the VALMIN Committee, a joint committee of The Australasian Institute of Geoscientists and the Mineral Industry Consultants Association as amended from time to time (the VALMIN Code).
Additional Disclosures Requirements for Pre-production Stage Companies
A listing applicant which has not yet commenced production will be required to disclose in its listing document its plans to proceed to production with indicative dates and costs. These plans must be supported by a “Scoping Study” which is defined as a “preliminary evaluation of a mineral project, including an assessment of the economic viability of mineral resources … [and which] should include forecast production schedules and cost estimates based on data under which the resources can be identified.” The Scoping Study must be substantiated by the opinion of a Competent Person.
If exploration or extraction rights have not yet been obtained, any risks relevant to obtaining these rights must be prominently disclosed in the listing document.
If a mineral company is involved in the exploration for or extraction of resources, it must prominently disclose to investors that its resources may not ultimately be extracted at a profit.
Additional Disclosures Requirements for Production Stage Companies
Mineral companies that have commenced production must disclose an estimate of the operating cash cost per appropriate unit for the minerals and/or petroleum produced. Applicants are required to set out the components of the following cash operating costs separately by category: (i) workforce employment; (ii) consumables; (iii) fuel, electricity, water and other services; (iv) on and off-site administration; (v) environmental protection and monitoring; (vi) transportation of workforce; (vii) product marketing and transport; (viii) non-income taxes, royalties and other governmental charges; and (ix) contingency allowances.
The Competent Person’s Report must have an effective date less than six months before the date of publishing the listing document and the applicant’s listing document must include a statement that no material changes have occurred since the date of the Competent Person’s Report. If there are material changes, these must be prominently disclosed.
The effective date being the date when the contents of the Competent Person’s Report r Valuation Report are valid.
Disclaimers and Indemnities
A Competent Person’s Report or Valuation Report may contain disclaimers of sections or topics outside their scope of expertise in which the Competent Person or Competent Evaluator relied upon other experts’ opinions, but must not contain any disclaimers of the report in its entirety.
The Competent Person or Competent Evaluator must prominently disclose in the Competent Person’s Report or Valuation Report the nature and details of all indemnities provided by the issuer. Indemnities for reliance placed on information provided by issuers and third party experts (for information outside the Competent Person’s or Competent Evaluator’s expertise) are generally acceptable. Indemnities for fraud and gross negligence are generally unacceptable.
A Competent Person must:
- have a minimum of five years’ relevant experience;
- be professionally qualified, and be a member of a relevant Recognised Professional Organisation (defined below), in a jurisdiction where in the HKEX’s opinion, the statutory securities regulator has satisfactory arrangements with the SFC for mutual assistance and exchange of information (by way of the IOSCO Multilateral MOU or other bilateral agreement acceptable to HKEx);
- be independent of the listing applicant, its directors, senior management and advisers; and
- take overall responsibility for the Competent Person’s Report.
A “Recognised Professional Organisation” is a self-regulatory organisation of professional individuals in the mining or petroleum industry which admits individuals on the basis of their academic qualifications and experience, requires compliance with professional standards of competence and ethics established by the organisation and has disciplinary powers including the power to suspend or expel a member.
In order to be considered “independent”, the Competent Person must:
- have no economic or beneficial interest (present or contingent) in any of the assets being reported on;
- not be remunerated with a fee dependent on the findings of the Competent Person’s Report;
- in the case of an individual, not be an officer, employee or proposed officer of the listing applicant or any of its group, holding or associated company of the listing applicant; and
- in the case of a firm, not be a group, holding or associated company of the listing applicant. Any of the firm’s partners or officers must not be officers or proposed officers of any group, holding or associated company of the listing applicant.
Requirements for Statements of Resources/Reserves
Presentation of data
Data on resources and/or reserves presented in a listing document, a Competent Person’s Report, a Valuation Report or annual report, must be presented in tables in a manner readily understandable to a non-technical person. All assumptions must be clearly disclosed and statements should include an estimate of volume, tonnage and grades.
Requirements for statements of mineral resources/reserves
Estimates of mineral reserves are required to be supported at least by a pre-feasibility study and estimates of mineral resources and reserves must be disclosed separately.
“Indicated Resources” and “Measured Resources” must only be included in economic analyses if the basis on which they are considered to be economically extractable is explained and they are appropriately discounted for the probabilities of their conversion to mineral reserves. All assumptions must be clearly stated. Valuations for “Inferred Resources” are not permitted.
The methods used to determine commodity prices used in pre-feasibility studies, feasibility studies and valuations of “Indicated Resources”, “Measured Resources” and “Reserves” must be clearly explained together with all material assumptions and the basis on which those prices represent reasonable views of futures prices are explained. If a contract for future prices of mineral reserves exists, the contract price must be used.
For forecast valuations of reserves and profit forecasts, sensitivity analyses to higher and lower prices should be supplied and all assumptions must be clearly disclosed.
Requirements for statements of petroleum resources/reserves
Appendix 25 to the Main Board Listing Rules (Appendix 18 to the GEM Rules) sets out the information that must be included in a Competent Person’s Report for mineral companies involved in the exploration for and/or extraction of petroleum resources and reserves.
The information disclosed on mineral resources, reserves and/or exploration results must be disclosed either under PRMS as modified by the HKEX Listing Rules or under any other code which the HKEX accepts as providing a comparable standard of disclosure and sufficient assessment of the underlying assets.
The following additional requirements apply:
- if estimates of reserves are disclosed, the method and reason for choice of estimation must be disclosed (i.e. deterministic or probabilistic methods, as defined in PRMS). Where the probabilistic method is used, the underlying confidence levels applied must be stated;
- if the net present values (NPVs) attributable to “Proved Reserves” and “Proved plus Probable Reserves” are disclosed, they should be presented on a post-tax basis at varying discount rates (including a reflection of the weighted average cost of capital or minimum acceptable rate of return that applies to the entity at the time of evaluation) or a fixed discount rate of 10%;
There are circumstances under which the HKEX will allow the presentation of NPVs on a pre-tax basis, namely if:
- such disclosure is required or allowed under a widely adopted reporting standard; and
- is in line with disclosure made by comparable listed companies;
- “Proved Reserves” and “Proved plus Probable Reserves” must be analysed separately and principal assumptions (including prices, costs, exchange rates and effective date) and the basis of the methodology should be clearly stated;
- if the NPVs attributable to “Reserves” are disclosed, they must be presented using a forecast price as a base case or using a constant price as a base case. The bases for the forecast case must be disclosed. The constant price is defined as the unweighted arithmetic average of the closing price on the first day of each month within the 12 months before the end of the reporting period, unless prices are defined by contractual arrangements. The basis on which the forecast price is considered reasonable must be disclosed and mineral companies must comply with the HKEX Listing Rules regarding the provision of sensitivity analyses;
- if estimated volumes of “Contingent Resources” or “Prospective Resources” are disclosed, relevant risk factors must be clearly stated;
- economic values must not be attached to “Possible Reserves”, “Contingent Resources” or “Prospective Resources”; and
- where an estimate of future net revenue is disclosed, whether calculated without discount or using a discount rate, it must be prominently disclosed that the estimated values do not represent fair market value.
Additional Disclosure Requirements
Other matters which are required to be disclosed in the listing document include:
- the nature and extent of the company’s prospecting, exploration, exploitation, land use and mining rights and a description of the properties to which those rights attach, including the duration and other principal terms and conditions of the concessions and any necessary licences and consents. Details of material rights to be obtained must also be disclosed;
- a statement of any legal claims or proceedings that may have an influence on the company’s rights to explore or mine;
- a statement of specific and general risks which should be prepared having regard to Guidance Note 7 to the Main Board Rules/ Practice Note 4 to the GEM Rules on suggested risk assessment, with all material risks mentioned in the CPR disclosed in the “Risk Factors” section of the listing document; and
if relevant and material to the mineral company’s business operations, information on (a) project risks arising from environmental, social, and health and safety issues; (b) any non-governmental organisation impact on sustainability of mineral and/or exploration projects; (c) compliance with host country laws, regulations and permits, and payments made to host country governments in respect of tax, royalties and other significant payments on a country by country basis; (d) sufficient funding plans for remediation, rehabilitation and, closure and removal of facilities in a sustainable manner; (e) environmental liabilities of its projects or properties; (f) its historical experience of dealing with host country laws and practices, including management of differences between national and local practice; (g) its historical experience of dealing with concerns of local governments and communities on the sites of its mines, exploration properties, and relevant management arrangements; and (h) any claims that may exist over the land on which exploration or mining activity is being carried out, including any ancestral or native claims.
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