Chapter 23

Due Diligence Guidelines –

Mineral Companies

12. Project Development

12.1 Standard

12.1.1 A sponsor should conduct the following independent due diligence steps: … conduct inspection of key physical assets including where appropriate production facilities. [Paragraph 17.6(e)(ii) of the Code of Conduct]

12.1.2 Typical due diligence inquiries in respect of each new applicant and the preparation of its listing document and supporting information include:…undertaking a physical inspection of material assets, whether owned or leased, including property, plant, equipment, inventory and biological assets (for example, livestock or crops) used or to be used in connection with the new applicant’s business. [Paragraph 13(e) of Practice Note 21 to the Listing Rules]

12.2 Guidance

12.2.1 It is customary for representatives of the sponsor to conduct a site visit to the mine site/project site and any production facilities of the Mineral Company, as part of the sponsor’s general due diligence process. Where possible, the sponsor should be accompanied by the Competent Person on such site visits. Whilst the limitations of a site visit cannot be expected to reveal to the sponsor all material issues, the sponsors should be alive to issues which it observes based upon its experience of other projects. For example, where competing projects can be observed on contiguous properties, the impact of these should be discussed with management. Sponsors should also seek to understand if there are overlapping tenements or if there are different rights-holders at varying levels of depth of exploration and/or extraction.

12.2.2 In addition, sponsors should note that the Exchange would expect the information set out in Exchange Guidance Letter GL52-13 to be disclosed in the listing document, where applicable:

(a) Key stages of construction leading to commercial production.

(b) Commercial/financial options available in the event of upside and downside market developments.20

12.3 Recommended Steps

12.3.1 For a Mineral Company involved in the exploration for and/or extraction of mineral Resources and Reserves:

(a) The sponsor should make enquiries of the management as to the key aspects of its mine plan based upon the experience of the sponsors’ industry experts on previous deals. For example, the sponsor may look at issues such as the gradient of pit walls on open pit mines, or the particular mining methods adopted in the case of underground mines. The sponsor’s focus should be on whether the management’s views are plausible, rather than “optimal”.

(b) The expected grade of ore mined and product produced should be discussed for the life of the mine. The sponsor should discuss with the Competent Person and the management whether there is any intention in the mine plan to undergo “high-grading” of ore early in the mine life.

12.3.2 For a Mineral Company exploring for and/or extracting Petroleum Resources and Reserves:

(a) The sponsor should make enquiries of the management as to the key aspects of its field development plan based upon the experience of the sponsors’ industry experts on previous deals;

(b) The sponsor should understand the inter-relationship with other producers with concessions in the same field, and the effect of any unitisation arrangements.

12.3.3 Assumptions as to the feasibility of year-round operation, and day/night operation should also be explored with management.

12.3.4 The sponsor should review the Competent Person’s Report, relevant title/licence searches and discuss with management to understand whether there are any overlapping tenements or other rights holders at a different depth or any surface rights holders, and if any, the relationship with these rights-holders and the impact on the Mineral Company’s projects.


20. Paragraph 3.16 of Exchange Guidance Letter GL52-13.


HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. See here for the full terms and conditions.

Mineral Companies Project Development

Mineral Companies Due Diligence Guidelines

Paragraph 17.6(e)(ii) of the Code of Conduct

Hong Kong Stock Exchange Listing Rule 18

Exchange Guidance Letter GL52-13

Mineral Company Competent Person’s Report

Mineral Company Title Search License Search

Mineral Company Site Visit by Sponsor
Natural Resources Company Project Due Diligence

Table of contents