SGQ.V · 2023-03-26 12:00:00

Deferral of Payment Obligations Under Convertible Debenture; Major and Connected Transaction

Financings Debt & Credit Facilities

March 26, 2023

DEFERRAL OF PAYMENT OBLIGATIONS UNDER

CONVERTIBLE DEBENTURE;

MAJOR AND CONNECTED TRANSACTION

VANCOUVER – SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) (“SouthGobi” or the

“Company”) announces that, on March 24, 2023, the Company entered into a new deferral

agreement (the “ March 2023 Deferral Agreement ”) with JD Zhixing Fund L.P. (“ JDZF”),

pursuant to which JDZF agreed to grant the Company (i) a deferral of the cas h interest

payment of approximately US$7.9 million (the “May 2023 Cash Interest”) which will be due

and payable on May 19, 2023 under the Company’s US$250 million convertible debenture

(the “Convertible Debenture”); (ii) a deferral of the cash interest, ma nagement fees, and

related deferral fees of approximately US$ 8.7 million (the “ May 2022 Deferred Amounts ”)

which will be due and payable to JDZF on or before August 31, 2023 under the deferral

agreement dated May 13, 2022; (iii) the cash and PIK interest, and related deferral fees of

approximately US$13.5 million (the “ July 2021 Deferred Amounts ”) which will be due and

payable to JDZF on or before August 31, 2023 under the deferral agreement dated July 30,

2021; and (iv) the cash and PIK interest, management fees, and related deferral fees of

approximately US$110.4 million (the “November 2020 Deferred Amounts”, and together with

the May 2023 Cash Interest, the May 2022 Deferred Amounts and the July 2021 Deferred

Amounts, the “March 2023 Deferred Amounts”) which will be due and payable to JDZF on

or before August 31, 2023 under the deferral agreement dated November 19, 2020. J DZF is

the registered holder of the Company’s US$250 million Convertible Debenture issued on

November 19, 2009 and the Company’s largest shareholder.

Pursuant to Section 501(c) of the Toronto Stock Exchange (“TSX”) Company Manual and Rule

14A.36 of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong

Limited (the “HKEX Listing Rules”), the Company will be seeking approval of the March 2023

Deferral Agreement from disinterested shareholders at a meeting of shareholders (the

“Meeting”) to be held at a future date to be set by the board of directors of the Company (the

“Board”).

The March 2023 Deferral Agreement

The principal terms of the March 2023 Deferral Agreement are as follows:

Effectiveness of the March 2023 Deferral Agreement

 The March 2023 Deferral Agreement is subject to the approvals from the TSX and the

shareholders of the Company in accordance with the requirements of Section 501(c)

of the TSX Company Manual and the HKEX Listing Rules. See “Shareholders Approval

Pursuant to TSX Requirements” below.

The Deferral

 JDZF agrees to grant the Company a deferral (the “ Deferral”) of the March 2023

Deferred Amounts until August 31, 2024 (the “Deferral Date”).

 As consideration for the Deferral of the March 2023 Deferred Amounts which relate to

payment obligations arising from the Convertible Debenture, the Company agreed to

pay JDZF a deferral fee equal to 6.4% per annum on the outstanding balance of such

March 2023 Deferred Amounts, commencing on the date on which each suc h March

2023 Deferred Amounts would otherwise have been due and payable under the

Convertible Debenture.

 As consideration for the deferral of the March 2023 Deferral Amounts which relate to

payment obligations arising from the amended and restated cooperat ion agreement

dated April 23, 2019 (the “ Amended and Restated Cooperation Agreement ”), the

Company agreed to pay JDZF a deferral fee equal to 1.5% per annum on the

outstanding balance of such March 2023 Deferral Amounts commencing on the date

on which each such March 2023 Deferral Amounts would otherwise have been due

and payable under the Amended and Restated Cooperation Agreement.

 The March 2023 Deferral Agreement does not contemplate a fixed repayment

schedule for the March 2023 Deferred Amounts or relat ed deferral fees. Instead, the

March 2023 Deferral Agreement requires the Company to use its best efforts to pay

the March 2023 Deferred Amounts and related deferral fees due and payable under

the March 2023 Deferral Agreement to JDZF. During the period be ginning as of the

effective date of the March 2023 Deferral Agreement and ending as of the Deferral

Date, the Company will provide JDZF with monthly updates of its financial status and

business operations, and the Company and JDZF will on a monthly basis discuss and

assess in good faith the amount (if any) of the March 2023 Deferred Amounts and

related deferral fees that the Company may be able to repay to JDZF, having regard

to the working capital requirements of the Company’s operations and business at such

time and with the view of ensuring that the Company’s operations and business would

not be materially prejudiced as a result of any repayment.

Other Covenants and Event of Defaults

 If at any time before the March 2023 Deferred Amounts and related def erral 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 subsid iary, 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.

Pursuant to the March 2023 Deferral Agreement, the Company and certain of its subsidiaries

agreed to certain other covenants with respect to additional debt incurrence, asset sales and

dividends, and certain events of default which are customary to financing transactions of a

similar nature. A summary of these cove nants and events of default will be set out in the

Company’s management proxy circular (the “Management Proxy Circular”) to be mailed to

shareholders in connection with the Meeting.

The foregoing summary of the principal terms of the March 2023 Deferral A greement is not

comprehensive, and is qualified in its entirety by reference to the full text of the March 2023

Deferral Agreement, a copy of which has been filed on the Company’s profile on SEDAR at

www.sedar.com.

Board Review and Approval

The March 202 3 Deferral Agreement and the transactions contemplated thereunder were

reviewed and approved by the disinterested members of the Board, as well as the Company’s

independent directors. After considering, among other things, the terms of the Deferral and

the March 2023 Deferral Agreement, the Company’s financial position and the possible

funding alternatives reasonably available to the Company, the Board is of the view that: (i) the

Deferral is offered on reasonable commercial terms not less advantageous to t he Company

than if the Company obtained similar financing from a person dealing at arm’s length with the

Company; (ii) the terms of the Deferral are reasonable in the circumstances of the Company;

(iii) the Deferral is designed to improve the financial position of the Company; (iv) the Deferral

will enhance the Company’s ability to continue as a going concern in the near term and provide

the Company with financial flexibility to consider and explore different measures to secure

additional capital or to pursue a strategic debt restructuring or refinancing plan with JDZF; and

(v) the best interests of the Company and shareholders will be served by approving the

Deferral and the March 2023 Deferral Agreement.

Shareholders’ Approval Pursuant to TSX and HKEX Listing Rules Requirements

Pursuant to Section 501(c) of the TSX Company Manual, the Company is required to seek

approval of the March 2023 Deferral Agreement from shareholders, other than the Interested

Shareholder (as defined below) (the “ Disinterested Sha reholders”) because (i) the

Interested Shareholder is a related party to the Company (as a result of its beneficial

ownership of more than 10% of the outstanding common shares of the Company); and (ii) the

aggregate amount of deferral fees payable to the Interested Shareholder will be greater than

10% of the market capitalization of the Company.

Pursuant to HKEX Listing Rules, JDZF is a substantial shareholder and hence a connected

person of the Company. The entering into of the March 2023 Deferral Agreement constitutes

a "connected transaction". As one or more of the applicable percentage ratios (as defined

under the HKEX Listing Rules) in respect of the transaction is/are more than 25% but all of

the applicable percentage ratios are less than 100%, the entering into of the March 2023

Deferral Agreement constitutes a major and connected transaction of the Company, which is

subject to the reporting, announcement, circular and the independent Shareholders’ approval

requirements under Chapter 14 and Chapter 14A of the Listing Rules.

To the best of the Company’s knowledge , 85,714,194 common shares, representing

approximately 29.0% of the issued and outstanding common shares of the Company, are

beneficially owned by JDZF (the “ Interested Shareholder ”). Accordingly, the 85,714,194

votes attached to the common shares beneficially owned, or over which control or direction is

exercised, by the Interested Shareholder will be excluded from the vote to approve the March

2023 Deferral Agreement.

Full details of the Deferral and the March 2023 Deferral Agreement will be included in the

Management Proxy Circular prepared for the Meeting, which will be filed under the Company’s

profile on SEDAR at www.sedar.com and mailed to shareholders of the Company in

accordance with applicable securities laws. The Company will make a further announcement

to shareholders with respect to the date, time and venue of the Meeting as soon as it is fixed

by the Board.

Multilateral Instrument 61-101 Requirements

JDZF is a “related party” of the Company and the Deferral constitutes a “related party

transaction” within the meaning of Multilateral Instrument 61 -101 - Protection of Minority

Security Holders in Special Transactions (“ MI 61 -101”). The Board, acting in good faith,

including all of the independent members of the Board, acting in good faith, have determined

that the Company is in serious financial difficulty, that the Deferral is designed to improve the

Company’s financial position and that the terms of the Deferral are reasonable in the

Company’s circumstances. As such, the Company is relying on the exemption from the formal

valuation requirements of MI 61 -101 based on the financial hardship exemption set forth in

Section 5.5(1)(g) of MI 61-101.

If there is any inconsistency or discrepancy between the English and 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

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 timing with respect to the mailing of the Management Information Circular and

convening of the Meeting, and approval of the March 2023 Deferral Agreement by

disinterested shareholders. 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 successfully obtaining acceptance

of the March 2023 Deferral Agreement from the TSX and the requisite approval from

disinterested shareholders of the Com pany of the March 2023 Deferral Agreement in

accordance with applicable TSX rules and the HKEX Listing Rules 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 other 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 auth orities and the

website of the Hong Kong regulatory filings and disclosures of listed issuer information. These

can be found under the Company’s profile on SEDAR and HKEXnews respectively, at

www.sedar.com and www.hkexnews.hk.

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