Due Diligence Guidelines –
Regarding the preparation of a listing document, a sponsor should perform, without limitation … achieve a thorough understanding of the listing applicant, including its business, history, background, structure and systems. [Paragraph 17.6(d)(ii) of the Code of Conduct]
13.2.1 It is important for the sponsor to gain an understanding of the Mineral Company’s entire operations, including technical aspects of any processing operations carried out.
13.2.2 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:
(a) A workflow diagram of the major steps/processes for the applicant’s business.
(b) Technical details of the capacities, production volumes and utilisation rates of the mines, oilfields and/or the production plants.21
13.3 Recommended Steps
13.3.1 The sponsor should conduct a review of the operations of the Mineral Company, including any processing/downstream operations (including beneficiation plants, smelters, refineries etc.), as set out in the Competent Person’s Report. The sponsor should also conduct an interview with the senior operations team to ensure that the operations and processes are properly understood and clearly explained in the Competent Person’s Report and elsewhere in the listing document.
13.3.2 The sponsor should also obtain details of how the Mineral Company conducts inventory management and also what systems are used to verify ownership of its equipment fleet. The sponsor should review the inventory management policies and also review (on a “sample” basis if appropriate) purchase/lease contracts for equipment.
13.3.3 For pre-production assets, the sponsor should review the feasibility studies for the processing operations and consider and discuss with management the development and financing risks in bringing these into operation. Where the company intends to use innovative or relatively untested processing technology, the sponsor should conduct further due diligence including more detailed discussions with management and the Competent Person, and comparisons against other relevant precedents in operation, to ensure that risks are appropriately described.
13.3.4 For pre-production assets, the sponsor should also review the feasibility studies for rates of recovery and discuss the reasonableness of the assumptions with management and the Competent Person.
13.3.5 Where relevant, the sponsor should consider what assumptions have been made in any economic model as to continuity of the processing operations and whether these are consistent with historical interruptions and lost days.
13.3.6 Where the Mineral Company does not own (or intend to develop) its own processing or refining facilities, the sponsor should review the terms of access to such facilities.
13.3.7 The sponsor should also discuss with management and with lawyers in relevant jurisdictions whether the Mineral Company has the requisite rights to use any third party intellectual property it may require, and whether its own intellectual property rights are sufficiently protected.
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.