(1) Inside Information and Announcement Pursuant to Rule 13.09 of the Listing Rules IN Relation to Voluntary Delisting; (2) Amendments to the Articles of Continuation; and (3) Amendments to the Equity Incentive Plan Vancouver – Southgobi Resources Ltd. (TSX: SGQ, Hk: 1878) (“ Southgobi” OR the “ Com
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July 28, 2022
(1) INSIDE INFORMATION AND ANNOUNCEMENT PURSUANT
TO RULE 13.09 OF THE LISTING RULES IN RELATION TO
VOLUNTARY DELISTING;
(2) AMENDMENTS TO THE ARTICLES OF CONTINUATION; AND
(3) AMENDMENTS TO THE EQUITY INCENTIVE PLAN
VANCOUVER – SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) (“ SouthGobi” or the “ Company”)
announces that, this announcement is made by SouthGobi Resources Ltd. (the “Company”) pursuant to Rules
13.09 and 13.51(1) of the Rules Governing the Listing of Securities (the “ Listing Rules”) on the Hong Kong
Stock Exchange, paragraph 3.42 of the Guidance Letter HKEX -GL-112-22 (the “ Guidance Letter”) and the
inside information provisions under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws
of Hong Kong).
1. VOLUNTARY DELISTING
1.1 Background
Reference is made to the Company’s announcement dated April 21, 2022 (Hong Kong time) (“Announcement”).
Unless otherwise specified, capitalized terms used in the Announcement shall have the same meanings when
used herein.
1.2 Delisting from a Recognised Stock Exchange and Receipt of the Exchange Acknowledgment
The Company has been primarily listed on the TSX (Stock Code: SGQ) since December 2009 and secondary
listed on the HKEX (Stock Code: 1878) since January 2010. In April 2022, the Company approved plans for a
voluntary delisting from the TSX and listing of its shares on the TSX -V and proceeded with the relevant
preparatory work and necessary proc edures to complete such process. Since TSX -V is not one of the
Recognised Stock Exchanges (as defined under the Listing Rules), such change in the Company’s listing status
from TSX to TSX-V constitutes a voluntary delisting from its Recognised Stock Exchange of primary listing (i.e.
TSX) for the purpose of Rule 19C.13A of the Listing Rules. The Company has applied to the TSX for the
voluntary delisting (“ Delisting”) and to the TSX -V for the listing of the Company’s shares on the TSX -V. In
accordance with Section 720(b) of the TSX Company Manual, the Company will not need to obtain shareholder
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approval as a condition of acceptance of the voluntary delisting because it will list its shares on the HKEX and
TSX-V concurrent with the voluntary delisting from the TSX.
As disclosed in the Announcement and the Management Proxy Circular, the Company has submitted a written
notification to the Hong Kong Stock Exchange (“ Notification”) in relation to the proposed Delisting detailing ,
among other things, that it was ant icipated that the Delisting shall become effective on July 29, 2022 and the
Company will fully comply with the applicable Listing Rules from the Effective Date, save for certain exceptions
and waivers as detailed in this announcement. On July 28, 2022, the Company received an acknowledgment
from the Hong Kong Stock Exchange in respect of the Delisting issued pursuant to paragraph 3.34 of the
Guidance Letter (“ Exchange Acknowledgment ”), which informs the Company on the dis -application of the
stock marker “S” on the Effective Date and, upon the Delisting, the Hong Kong Stock Exchange will regard the
Company as having a primary (rather than secondary) listing status on the Hong Kong Stock Exchange pursuant
to Rule 19C.13A of the Listing Rules. While it was disc losed in the Management Proxy Circular that the
anticipated effective date of the Delisting would be July 29, 2022, the Company wishes to update its
Shareholders and investors that, subject to obtaining the said approvals from the TSX and TSX-V, the Company
is targeting to complete the Delisting prior to mid -September 2022. The Company will provide further updates
to the Shareholders and the public on the date on which the Delisting is to be completed (the “Effective Date”).
1.3 Reasons for the Delisting
As disclosed in the Announcement, the Company’s board of directors (“Board”) determined that it is in the best
interest of the Company and its shareholders (“ Shareholders”) as a whole to seek a listing of the Company’s
common shares on the TSX -V, and to vo luntary delist from the TSX, as a listing on the TSX -V offers more
flexible listing requirements for an existing TSX -listed issuer seeking a listing on the TSX -V as a Tier 2 mining
issuer in relation to minimum working capital or financial resources and bu siness activity, which better
accommodate the Company’s current operational and financial position, while still providing Shareholders with
continued liquidity on a stock exchange which is recognized for its leadership in mining issuer listings.
1.4 Compliance with the Listing Rules upon Delisting
Upon the Effective Date, it is expected that the Company will be able to comply with all the relevant Listing
Rules applicable to a primary listed issuer, including the Listing Rules where exceptions, waivers and
exemptions had been granted to the Company as a secondary listed issuer on the Hong Kong Stock Exchange
(the “Existing Waivers”) which are expected to be withdrawn or will no longer be applicable upon the Effective
Date, unless otherwise separately waived o r exempted by the Hong Kong Stock Exchange. The Company
intends that, save as otherwise being exempted or waived by the Hong Kong Stock Exchange as detailed in
paragraphs 1.5 and 1.6 below, it has taken and will take all reasonable and prudent steps to comply with all the
relevant Listing Rules applicable to the Company following the Effective Date by making all necessary
arrangements (“ Arrangements”) to effectuate the Delisting, as obliged by the applicable Listing Rules
requirements. The Arrangements include, amongst other things:
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(i) amendments (“Articles Amendments”) to the Articles of Continuation of the Company (“ Articles”) to
satisfy the requirements pursuant to Appendix 3 to the Listing Rules, which were approved by the
Shareholders at the Company’s annual general and special meeting held on July 21, 2022 (the
“Shareholders Meeting”) and shall be effective upon the Delisting;
(ii) amendments (“ EIP Amendments ”) to the Company’s existing Employee’s and Directors’ Equity
Incentive Plan (“ Equity Incentive Plan ”), which were approved by the Shareholders at the
Shareholders Meeting and shall be effective upon the Delisting;
(iii) review of the existing internal control policies and adoption of all necessary internal control measures,
including the new Corporate Governance Policy approved by the Board prior to the Effective Date, to
ensure, inter alia, its ongoing compliance with applicable requirements under Chapters 13, 14 and 14A
of the Listing Rules, as well as rules governing the disclosure of inside information, share repurchase,
potential conflict of interest and dealing in the listed securities by the Directors;
(iv) amendments to charters of its Audit Committee and Compensation and Benefits Committee to comply
with Appendix 14 to the Listing Rules; and
(v) arrangement for suitable training for the Directors following the Delisting to ensure that they participate
in continuous professional development to advance and refresh their knowledge and skills as directors
of a HKEX-listed company.
Please refer to the Management Proxy Circular of the Company dated June 22, 2022 published on the Stock
Exchange’s website (www.hkexnews.hk) and the Company’s website (www.southgobi.com) (the “Management
Proxy Circular”) for, amongst others, details of the Articles Amendments, the EIP Amendments and the Equity
Incentive Plan. At the Shareholders Meeting, amongst others, the Shareholders passed a special resolution to
approve the Articles Amendments and passed ordinary resolutions to approve the EIP Amendments. Please
refer to the poll results announcement of the Company dated July 22, 2022 (the “Poll Results Announcement”)
for further details of the results of the Shareholders Meeting.
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1.5 Waiver from Listing Rules on “Two-way” Voting
Requirements under the Listing Rules
Rule 13.38 of the Listing Rules requires that the Company sends, with the notice convening a meeting of holders
of listed securities to all persons entitled to vote at the meeting, proxy forms with provision for “two-way” voting,
i.e., the Shareholders are provided with options to vote “for” or “against” the resolutions, on all resolutions
intended to be proposed at a meeting.
Reasons for applying the waiver
Pursuant to applicable British Columbia corporate laws, the election of Directors or the appointment of auditors
of the Company (“Auditors”) are conducted through “plurality voting” method, i.e., Sh areholders are only able
either to vote for the resolution or to withhold from voting. Shareholders are not provided the opportunity to vote
against the resolution, and the “withheld” votes are not counted in the tally of votes, meaning that, for example,
a resolution can be passed if only one vote is cast “for” such resolution, even where the majority of Shareholders
have withheld from voting. As such, the proxy forms will state that the Shareholder is only able either to vote for
the resolution or withhold from voting. The Company is prohibited under the applicable law to amend the Articles
and override the relevant statutory provisions, and this precludes the use of “two-way” voting for the election of
Directors and the appointment of Auditors. Therefore, the Company would conflict with applicable British
Columbia corporate laws to strictly comply with Rule 13.38 of the Listing Rules.
Given the preclusion of the use of “two -way” voting for the election of directors under the British Columbia
corporate laws and as a requirement for TSX-listed company, the Company has adopted a majority voting policy
to uncontested meetings (i.e., the number of nominees for election is equal to the number of Directors to be
elected as set out in the Company’s management information circular for the particular meeting) for the election
of the Directors (the " Majority Voting Policy"). Pursuant to the Majority Voting Policy, each Director must be
elected individually (rather than as a slate) by a majority (50% plus one vote) of the votes cast (i.e., more votes
‘‘for’’ than votes ‘‘withheld’’) with respect to his or her election. They are required to deliver a pre -executed
resignation to the Company, which would be used immediately if a Director nominee is not elected by at least
a majority of the votes cast with respect to his or her election, effectively tendering his or her resignation to the
Board. The Majority Voting Policy is intended to provide shareholders of TSX -listed companies with an ability
to vote "against" a Director nominee.
On the other hand, the Majority Voting Policy adopted by the Company for election of the Directors does not
apply to appointment of Auditors. The reason is that if the Majority Voting Policy applies to the appointment of
Auditors, a newly elected auditor whose appointment is not approved by a majority vote (i.e., the ‘‘for’’ votes are
less than the ‘‘withheld’’ votes) will be forced to resign and a vacancy will thus be created. Furthermore, under
the applicable British Columbia corporate laws, the Majority Voting Policy cannot bind outside parties like the
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Auditors and the Auditors are under no obligations to abide to the Majority Voting Policy implemented by the
Company.
Waiver application
The Company has applied to the Hong Kong Stock Exchange for a waiver from strict compliance with Rule
13.38 of the Listing Rules, subject to the Delisting becoming effective and to the Hong Kong Stock Exchange’s
approval on the following bases:
(i) the Company has already established the Audit Committee (all members of which are independent non-
executive Directors) and the Nominating and Corporate Governance Committee (all members of which
are independent non -executive Directors) which will determine and make recommendations on, with
delegated responsibilities and in compliance with the requirements of the Listing Rules and on an
annual basis, the appointment of Auditors and the nomination of Directors. Each of the independent
non-executive Directors is also s ubject to re -election by the Shareholders in each annual meeting of
the Shareholders;
(ii) under the British Columbia corporate laws, it is not possible to amend the Articles to achieve the same
effect of the Majority Voting Policy. The Company undertakes that , upon the Delisting, it will continue
to voluntarily adopt the Majority Voting Policy in uncontested elections of Directors, which is consistent
with the standard practice for TSX -listed companies in Canada. The Company will also extend the
applicability of the Majority Voting Policy to contested elections of Directors, which is permitted under
Canadian corporate law;
(iii) where the number of the ‘‘withheld’’ votes exceeds that of the ‘‘for’’ votes of the elected Auditors which
gives rise to concerns of the D irectors regarding the appropriateness of such Auditors’ appointment,
the Directors will, upon consulting the Audit Committee, call a special meeting of the Shareholders and
propose ordinary resolutions to the Shareholders to consider removing the elected Auditors and
appointing replacement Auditors in its stead for the remainder of its term. The Company considers that
this arrangement will allow the Shareholders to express their objection to the appointment of the
Auditors, and at the same time ensure that the Company will not be bereft of Auditors; and
(iv) Shareholders who hold in aggregate not less than 1/20 (5%) of the issued voting shares of the Company
may requisition a general meeting of Shareholders. Upon receiving a valid requisition, the Board must
call a general meeting within four months after the date of requisition to transact the business stated in
the requisition. Directors and Auditors can be removed by ordinary resolutions at a meeting of
Shareholders in favour of such removal, where Shareholders will have the option to vote ''for'' or
''against'' such a resolution to remove a director or an auditor at such meeting. If the Directors do not,
within 21 days after the date on which the requisition is received by the Company, send notice of a
general meeting, the requisitioning Shareholders, or any one or more of them holding, in the aggregate,
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more than 1/40 of the issued Shares that carry the right to vote at general meetings, may send notice
of a general meeting to be held to transact the business stated in the requisition.
1.6 Waiver from certain c ontinuing connected transaction requirements under Chapter 14A of the
Listing Rules
Background of the continuing connected transactions
The Convertible Debenture and the Cooperation Agreement
Prior to the secondary listing of the Company on the Stock Ex change, the Company, upon the approval by the
Shareholders, issued the convertible debenture (“ Convertible Debenture ”) to Land Breeze II S.à.r.l (“ Land
Breeze”), a wholly-owned subsidiary of China Investment Corporation (“CIC”), on November 19, 2009 to provide
necessary financing to support the Company’s expansion plans in Mongolia, repayment of debt due, and other
general corporate purposes. As negotiated and entered into in conjunction with, and as a condition to the CIC’s
subscription of the Convertible Debenture, the Company and CIC (through Fullbloom Investment Corporation
(“Fullbloom”), its wholly -owned subsidiary) also executed a cooperation agreement (“ Cooperation
Agreement”) on the same date, pursuant to which both parties agreed to use their best endeavours to improve
cross-border commerce in order to facilitate improved access to the China market for Mongolian commerce,
and vice versa.
The key terms of the Convertible Debenture and the relevant accounting treatment and policies were set out in
the prospectus of the Company dated January 15, 2010.
Amended and Restated Cooperation Agreement
On April 23, 2019, the Company and CIC (through Land Breeze) entered into a deferral agreement (“ 2019
Deferral Agreement”) pursuant to which Land Breeze agreed to a deferral and revised repayment schedule in
respect of the outstanding cash interest and payment in kind interest shares payable under the Convertible
Debenture (“Deferral”). On the same day, the Company amended and restated the Cooperation Agre ement
(“Amended and Restated Cooperation Agreement ”, together with the Cooperation Agreement, the
“Cooperation Agreements ”) with CIC (through Fullbloom) to clarify the original intent of the parties for
calculating service fee payable by the Company under the Cooperation Agreement, pursuant to which a service
fee would be calculated based on revenues derived by the Company and all of its subsidiaries which derive
sales into China (“ Net Revenues”) (rather than the net revenues realised by the Company and its Mongolian
subsidiaries). Such amendment to the Cooperation Agreement was minimal and did not trigger Shareholders’
approval requirement at the time.
The 2019 Deferral Agreement and the Amended and Restated Cooperation Agreement were disclosed in the
announcement of the Company and the management proxy circular of the Company dated April 23, 2019 (the
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“Disclosure Documents”), and the 2019 Deferral Agreement and the Deferral were approved at the general
meeting of Shareholders on May 30, 2019.
Sale Transaction
On May 27, 2022, the Company announced that CIC has entered into an agreement (“ Sale Transaction”) to
sell the Sale Shares (as defined below) to JD Zhixing Fund L.P. (“ Fund”). In connection with the Sale
Transaction, the Fund would be assigned with all of CIC’s rights in and obligations under, among the others: (i)
the Convertible Debenture; (ii) the Amended and Restated Cooperation Agreement; and (iii) the deferral
agreements (including the 2019 Deferral Agreement) between CIC, the Company and certain of its subsidiaries
in connection with the deferral of interest payments and other outstanding fees under the Convertible Debenture
and the Amended and Restated Cooperation Agreement. Assignment of rights and obligations under the
Amended and Restated Cooperation Agreement by CIC to the Fund required consent from the Company (which
consent shall not be unreasonably withheld), and the Company provided such consent.
The Company expects the completion of the Sale Transaction (“ Completion”) shall take place prior to the
Effective Date.
Listing Rules implications
Prior to Completion and at the date of this announcement, CIC holds 64,766,591 Shares (“ Sale Shares ”),
representing approximately 23.62% of the total share capital of the Company. Accordingly, the Fund (and its
associates) will become connected persons of the Company following Completion and upon Delisting. As such,
pursuant to Chapter 14A of the Listing Rules, the continuing transactions under the Amended and Restated
Cooperation Agreement shall constitute continuing connected transactions of the Company upon Delisting.
Pursuant to paragraph 1.2 under Appendix to the Guidance Letter HKEX -GL-112-22, since the Company had
already entered into continuing transactions under the Amended and Restated Co operation Agreement which
remained subsisting as at the date of the Notification, and such transactions are expected to continue after the
Delisting becomes effective, the Company is required to fully comply with the applicable Listing Rules on such
transactions.
The Company cannot rule out the possibility that the highest applicable percentage ratios (other than the profits
ratio) under the Listing Rules in respect of the service fee payable under the Amended and Restated
Cooperation Agreement would exce ed 5% for most part of the remainder of the Term. As such, the Amended
and Restated Cooperation Agreement, unless otherwise exempted, will be subject to the reporting, annual
review, announcement, circular, independent financial advice, and Shareholders’ a pproval requirements under
Chapter 14A of the Listing Rules.
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Waiver application
The Company has applied to the Hong Kong Stock Exchange for a waiver from strict compliance with (i) the
independent Shareholders’ approval requirement under Rule 14A.36 of the Listing Rules in respect of the
transactions under the Amended and Restated Cooperation Agreement; and (ii) the requirement under Rule
14A.53 of the Listing Rules to set an annual cap expressed in monetary terms for the fees payable by the
Company under the Amended and Restated Cooperation Agreement. The Directors consider that it would be
unduly burdensome and impracticable if the continuing connected transactions under the Amended and
Restated Cooperation Agreement are subject these requirements for the following reasons:
(A) The Amended and Restated Cooperation Agreement is an agreement for a fixed period with fixed terms
The key terms of the Amended and Restated Cooperation Agreement are as follows:
(i) CIC would provide, among others, advice and services to the Company on matters that include coal
products sales, procurement of transportation and logistics services, marketing of coal products,
procurement of goods and services, and creation of economies of scale (the “ Services”);
(ii) CIC would receive a customary commercial payment for such Services in an amount equal to 2.5% of
all Net Revenues, which would be calculated and paid by the Company in quarterly instalments; and
(iii) coterminous with the Convertible Debenture, the Amended and Restated Cooperation Agreement has
a term of 30 years from November 19, 2009 (“ Term”) subject to earlier termination with both of the
following conditions fulfilled:
a. the Convertible Debenture is fully converted into Shares or otherwise fully repaid; and
b. following such conversion or repayment, CIC holds less than 15% of the total issued and
outstanding Shares.
Effective upon Completion, the Fund has agreed to waive certain service fee payable by the Company under
the Amended and Restated Cooperation Agreement (the “Fee Waiver”), effectively reducing the service fee
payable from 2.5% to 1.5% of all Net Revenues. Having discussed with the Fund, save for the Fee Waiver, both
the Company and the Fund have a mutual understanding that they have no plan or intention to va ry the terms
of the Amended and Restated Cooperation Agreement in the foreseeable future.
The Amended and Restated Cooperation Agreement, combined with the Fee Waiver, remain an agreement for
a fixed period with fixed terms. Despite the Sale Transaction w hich triggered the assignment of the Amended
and Restated Cooperation Agreement, there has been no change to the scope of the Services and the Term of
the Amended and Restated Cooperation Agreement. The Company will continue to benefit from the provision