HKEx currently allows resources firms that cannot meet the three-year profit track record requirement to list on the main board, only if they have 'adequate economically exploitable reserves' backed up by expert opinion. They must also provide estimates of the time and investment needed to bring their projects into revenue-earning production.

HKEx proposes that these conditions, set out in Chapter 18 of the listing rules, stay in place to protect investors from being exposed to 'high risks of failure of early-stage exploration companies', even though it admits that stock exchanges in Australia, South Africa, Canada and Britain allow exploration-stage companies to list.

'I believe that not allowing pure exploration companies to list on the Hong Kong stock exchange will result in your exchange not getting the early foot in the door,' wrote Mark Ashley, chief executive of Australian metals miner Apex Minerals, in his submission to HKEx.

The Law Society said the local bourse might lose out to rivals such as Singapore, which is conducting consultations over allowing early-stage exploration companies to list on its second board.

Australia mining industry consultancy Runge's Asia office wrote: 'One must ask what further protective measures would HKEx seek for pure exploration companies that would improve upon the current proposed measures?'

In London, such companies can only list on the second board, the Alternative Investment Market. To qualify for a main-board listing, companies must demonstrate that commercial extraction is viable.

As the mainland economy booms, many resource companies need to raise funds to expand exploration and production projects to meet energy and metals demand. But with bank lending hard to come by due to the risky nature of resource projects and a lack of reliable collateral, stock market financing becomes a more viable option.

However, due to the current listing rules, many resource companies and mining permit owners have abandoned flotation plans and sold their assets to companies already listed in Hong Kong in what are known as reverse takeovers.

Others simply list overseas first and come to Hong Kong when they are about to start commercial production.

'The problem today is that Chapter 18 is not detailed enough. People don't know how to interpret it and that creates lots of risks,' said Alexander Molyneux, the chief executive of Mongolia coal miner SouthGobi Energy Resources, who joined the company last year after spending 10 years at investment banks on resource deals.

'With Chapter 18, one can spend around HK$7 million on legal and accounting fees and still not be sure about listing because the rules are so unclear,' he said. 'So a lot of people do reverse takeovers instead, which is worse for the exchange since it loses control over the disclosure to some extent.'

So far, only a handful of mineral companies have completed Hong Kong listings using profit record exemption in Chapter 18, including Sino Gold Mining, Real Gold Mining and CVM Minerals. Another, Molyneux's SouthGobi, is currently marketing its listing.

Other commentators, while agreeing that early-stage explorers should be allowed to list, suggested they be restricted to the disclosure-based second board, the Growth Enterprise Market.

David Robson, the chairman of Canada- and Kazakhstan-listed Tethys Petroleum, which has considered listing in Hong Kong, said the GEM was a 'logical' choice.

'Allowing such companies to list on the main board could damage the stock market's credibility,' he said.

However, under current GEM rules, pure exploration firms would not be able to list, because applicants must have at least HK$20 million positive cash flow from their operations in total for the two financial years preceding their listing.

Hong Kong interest in mining companies has risen in tandem with the mainland's growing demand for metals, energy and other resources.

So much so that resource companies now account for about 15 per cent of the total market capitalisation, according to HKEx. A notable example is Mongolia Energy Corp, whose shares rocketed to HK$17.70 in May 2008 on hefty trading volumes from 27 HK cents in February 2007.

This is despite the fact that it was still working to confirm how much coal would be economically recoverable and was unable to say when production could start.

It is this sort of zeal among local investors that had regulators and other market participants worried it could open the floodgates of exploration companies looking to list here.

Resource exploration is a risky business, which tends to only yield success after heavy capital investment over many projects and years.

'Determination of oil and gas reserves and resources is by its very essence an inexact science. Even on a developed producing field with numerous wells and modern seismic data, there can be surprises,' said Robson. 'I have seen huge variations in reserves on a particular field in work carried out by different reserve engineering firms using the same rules.'

Despite criticism by mining firms, some investment professionals supported the HKEx proposals.

Tony Espina, managing director of Goldride Securities, said: 'They are neither too strict, so as to make us uncompetitive, nor too lenient, with negative implications for the quality of the market.'

However, while noting the proposed changes would provide much-needed clarity for share issuers, he said there would still be uncertainty on whether a mining company can become listed. This is because applicants need approval from the exchange's listing division and listing committee, as well as the Securities and Futures Commission.

'Unless we change the listing regime to one based purely on disclosure and post-listing vetting, there can be no certainty that a company will be accepted for listing. Whether a listing is approved has nothing to do with the listing rules but more to do with how they are applied and interpreted,' Espina said.

Investor education is essential before implementation of a disclosure-based regime, Espina added, citing common misunderstandings among investors of the meaning of 'resources' and 'reserves' as an example. Resources have less certainty in terms of recoverability compared with reserves.

Molyneux agreed it was better for HKEx to err on the conservative side. 'As the Hong Kong market evolves, it is better not to jump from one extreme to the other,' he said. 'We don't want to be like London's AIM, where you basically can list without any resources and not much disclosure, which is more like a casino.'

Sun Hung Kai Financial chief executive Joseph Tong Tang said the HKEx proposals were useful for investment bankers and share issuers, since they set out the standards for defining reserves and resources, qualifications and responsibilities of independent experts and valuers required to substantiate candidates' claims on mining projects' resources and financial potential. This would help bankers and issuers to assess if their mining projects would qualify to apply for a listing in Hong Kong.

'The proposals, if implemented, will be a big step forward,' Tong said. 'These are useful guidelines to potential issuers and market practitioners, as well as useful information for investors.'

An HKEx spokesman said the listing division was still analysing the responses.