Chapter 23

Due Diligence Guidelines –

Mineral Companies

20. Risks

20.1 Standard

20.1.1 A Mineral Company must include in its listing document … disclosure of specific risks and general risks. Companies should have regard to Guidance Note 7 on the suggested risk analysis. [Listing Rule 18.05(5)]

20.1.2 If relevant and material to the Mineral Company’s business operations, information on … project risks arising from environmental, social and health and safety issues. [Listing Rule 18.05(6)(a)]

20.1.3 The risk associated with the applicant’s capital expenditure projects if the expected capital expenditure is significantly more than its IPO proceeds [should be disclosed in the summary section of the listing document]. [Exchange Guidance Letter GL52-2013]

20.1.4 The listing document should disclose all material risks mentioned in the Competent Person’s Report in the Risk Factors section. Whether the applicant has taken/will take action to address key recommendations mentioned in the Competent Person’s Report should also be disclosed in the main body of the listing document. [Exchange Guidance Letter GL52-2013]

20.2 Guidance and Recommended Steps

20.2.1 The sponsor should review and understand the risk analysis in the Competent Person’s Report and ensure it has been prepared in accordance with Guidance Note 7 to the Listing Rules.

20.2.2 The risk analysis should be discussed with the Competent Person and the management to understand the basis and assumptions of the risks set out in the risk analysis (in particular the “high-risk” items) and understand the materiality of such risks in relation to the Mineral Company’s operations. The sponsor should ensure adequate disclosure of such material/high-risk items are disclosed in the relevant sections of the listing document.

20.2.3 The sponsor should discuss with the Competent Person and management how the Mineral Company has mitigated or plans to mitigate the risks identified in the risk analysis (in particular the “high-risk” items). The sponsor should ensure that adequate disclosure of these mitigation steps are made in the listing document.

20.2.4 Where the expected capital expenditure for the Mineral Company’s project(s) is significantly more than its IPO proceeds, the sponsor should review the capital expenditure assessment in the Competent Person’s Report and discuss with the Competent Person and the management to understand the assumptions and the basis on which the capital expenditure estimate has been made. The sponsor should also discuss with the management its financing plans for the project(s), including whether the Mineral Company has existing banking facilities and whether it has begun discussions with financial institutions to seek project financing. This risk should also be disclosed in the listing document. (See also section 7.)