Chapter 23

Due Diligence Guidelines –

Mineral Companies

18. Outsourcing of EPC, Mining and Processing

18.1 Guidance

18.1.1 Some Mineral Companies outsource the construction of the project to one or more construction firms with the requisite experience, know-how and equipment. Where the listing applicant is part of a larger group, the construction firm may also be a related party which may, depending on the circumstances, raise issues of reliance on the parent and may impact on the Mineral Company’s suitability for listing and independence under Listing Rule 8.94 and Listing Rule 8.10. Sponsors should understand the arrangements required for a particular project and the parties involved at each stage of construction and development.

18.1.2 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) Details pertaining to the contractors, including selection criteria and total fees.

(b) Salient terms of the agreements with contractors.

(c) Status of contractors’ licences/permits and details of the applicant’s internal controls to ensure that the contractors comply with all applicable rules and the contractual terms.

(d) Availability of contractors providing similar services on similar terms, and how the applicant manages the risks associated with the outsourcing arrangement and reliance on the contractors.26

18.2 Recommended Steps

18.2.1 The sponsor should discuss with the Mineral Company and the Competent Person the outsourcing arrangements for engaging contractors for construction of the project and understand the process by which the contractor(s) was chosen.

18.2.2 The sponsor should discuss with management the role of the third party provider and the extent of the services to be provided.

18.2.3 The sponsor, together with lawyers in relevant jurisdictions, should review the construction agreements and understand the key terms of these agreements and identify any unusual or onerous provisions. The sponsor should also discuss with management how the terms were reached and in particular the basis of fees/costs if the contractor is a related party.

18.2.4 The sponsor should normally conduct an interview with such counterparties, and consider issues such as counterparty risk and the possibility of cost increases under the outsourcing arrangement. The sponsor should make further enquiries into how the counterparty intends to fulfil its obligations under the outsourcing arrangements.


26. Paragraph 3.18 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 Outsourcing

EPC (Engineering Procurement Construction)

Mineral Companies Outsource Construction of a Project to a Construction Firm

Outsourcing of EPC, Mining and Processing

Mineral Company Suitability For Listing and Independence Under Listing Rule 8.94 and Listing Rule 8.10

Exchange Guidance Letter GL52-13

Listing Applicant Outsourcing Arrangements for Engaging Contractors

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