Deferral of Payment Obligation Under Convertible Debenture
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November 11, 2022
DEFERRAL OF PAYMENT OBLIGATION
UNDER CONVERTIBLE DEBENTURE
VANCOUVER – SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) (“SouthGobi” or the
“Company”) announces that reference is made to the announcement of the Company dated
August 31, 2022 (the “ Announcement”) in relation to a private sale transaction among JD
Zhixing Fund L.P. (“JDZF”), Land Breeze and Fullbloom (the “Sale Transaction”) on August
30, 2022. Unless oth erwise specified, terms used in this announcement shall have the
meaning as defined in the Announcement.
Upon the completion of the Sale Transaction, JDZF became the registered holder of the
Company’s US$250 million Convertible Debenture issued on Novembe r 19, 2009 (the
“Convertible Debenture”). The rights and obligations under (i) the Convertible Debenture and
related security documents; (ii) the Cooperation Agreement and related documents; (iii) the
deferral agreements between Land Breeze, the Company an d certain of its subsidiaries in
connection with the deferral of interest payments and other outstanding fees under the
Convertible Debenture and the Cooperation Agreement; and (iv) the security holders
agreement between the Company, Land Breeze and a form er shareholder of the Company,
were assigned to JDZF effective as of August 30, 2022.
The Company announces that, on November 11, 2022, the Company entered into a new
deferral agreement (the “ 2022 November Deferral Agreement ”) with JDZF, pursuant to
which JDZF agreed to grant the Company (i) a deferral of the interest payments which will be
due and payable on November 19, 2022 under the Convertible Debenture; and (ii) a deferral
of the management fees under the Amended and Restated Cooperation Agreement.
The effectiveness of the 2022 November Deferral Agreement and the respective obligations,
covenants and agreements of each party under the 2022 November Deferral Agreement are
subject to the Company obtaining the requisite ac ceptance thereof from the Toronto Stock
Exchange.
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The principal terms of the 2022 November Deferral Agreement are as follows:
JDZF agreed to grant the Company a deferral of the following payments until
November 19, 2023:
(i) a deferral of US$7,065,753 out of the semi -annual cash interest payment in the
accrued sum of US$8,065,753 payable to JDZF on November 19, 2022 under the
Convertible Debenture (the “2022 November Cash Interest”);
(ii) a deferral of US$1,100,000 out of the payment -in kind interest payment i n the
accrued sum of US$4,000,000 payable to JDZF on November 19, 2022 under the
Convertible Debenture (the “2022 November PIK Interest”, together with the 2022
November Cash Interest, the “Deferred Amounts”); and
(iii) a deferral of management fees payable to JDZF on November 15, 2022, February
15, 2023, May 16, 2023 and August 15, 2023, respectively, under the Amended
and Restated Cooperation Agreement (the “Deferred Management Fees”);
As consideration for the deferral of the Deferred Amounts, the Company agrees to pay
JDZF a deferral fee equal to 6.4% per annum on the Deferred Amounts (the “Deferral
Fee”) payable under the Convertible Debenture, commencing on November 19, 2022;
As consideration for the deferral of the Deferred Management Fees, the Company
agrees to pay JDZF a deferral fee equal to 1.5% per annum on the outstanding balance
of the Deferred Management Fees (the “ Cooperation Agreement Deferral Fees ”)
payable under the Amended and Restated Cooperation Agreement, commencing on
the date on which each such Deferred Management Fee would otherwise have been
due and payable under the Amended and Restated Cooperation Agreement;
If at any time before the Deferred Amounts, Deferred Management Fees, the Deferral
Fee and the Cooperation Agreement Deferra l Fees are fully repaid, the Company
proposes to appoint, replace or terminate one or more of its chief executive officer, its
chief financial officer or any other senior executive(s) in charge of its principal business
function or its principal subsidiary , the Company will first consult with, and obtain
written consent (such consent shall not be unreasonably withheld) from JDZF prior to
effecting such appointment, replacement or termination;
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The Company agreed to comply with all of its obligations under t he prior deferral
agreements assigned to JDZF; and
The Company and JDZF agreed that nothing in the 2022 November Deferral
Agreement prejudices JDZF’s rights to pursue any of its remedies at any time pursuant
to the prior deferral agreements.
The Company anticipates paying JDZF a cash payment of US$1,000,000 as partial payment
for the 2022 November Cash Interest on or before November 19, 2022. The Company will pay
JDZF the remaining US$2,900,000 of the 2022 November PIK Interest on November 19, 2022
by way of issuing and delivering a certain number of PIK interest shares to JDZF which will be
determined based on the volume weighted average price of the Company’s common shares
during the 50 consecutive trading days preceding November 19, 2022, all in accordance with
the terms of the Convertible Debenture.
The Company will make further announcements regarding the potential of further future
deferrals of its payment obligations under the Convertible Debenture as and when appropriate.
There can be no assurance, however, that any agreement for future deferrals will be reached
with the major shareholder either at all or on favourable terms.
If there is any inconsistency or discrepancy between the English version and the Chinese
version, the English version shall prevail.
About SouthGobi
SouthGobi, listed on the Toronto and Hong Kong stock exchanges, owns and operates its
flagship Ovoot Tolgoi coal mine in Mongolia. It also holds the mining licences of its other
metallurgical and thermal coal deposits in South Gobi region of Mongolia. SouthGobi produces
and sells coal to customers in China.
Contact:
Investor Relations
Office: +852 2156 1438 (Hong Kong)
+1 604 762 6783 (Canada)
Email: [email protected]
Website: www.southgobi.com
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Forward-Looking Statements
Certain information included in this press release that is not current or historical factual
information constitutes forward -looking statements or information within the meaning of
applicable securities laws (collectively, “forward -looking statements”), including information
about the potential of further future deferrals of its payment obligations under the Convertible
Debenture. Forward-looking statements are frequently characterized by words such as “plan”,
“expect”, “project”, “intend”, “believe”, “anticipate”, "could", "should", "seek", "likely", "estimate"
and other similar words or statements that certain events or conditions “may” or “will” occur.
Forward-looking statements are based on certain factors and assumptions including , among
other things, the Company’s ability to successfully negotiate a future deferrals of its payment
obligations under the Convertible Debenture and other similar factors that may cause actual
results to differ materially from what the Company currently expects. Actual results may vary
from the forward-looking statements. Readers are cautioned not to place undue importance
on forward-looking statements, which speaks only as of the date of this disclosure, and not to
rely upon this information as of any o ther date. While the Company may elect to, it is under
no obligation and does not undertake to, update or revise any forward -looking statements,
whether as a result of new information, further events or otherwise at any particular time,
except as required by law. Additional information concerning factors that may cause actual
results to materially differ from those in such forward -looking statements is contained in the
Company’s filings with Canadian securities regulatory authorities and can be found under the
Company’s profile on SEDAR at www.sedar.com.