Southgobi Announces Fourth Quarter and Full Year 2025 Financial and Operating Results
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R ESOURCE S
March 27, 2026
SOUTHGOBI ANNOUNCES FOURTH QUARTER AND FULL YEAR 2025
FINANCIAL AND OPERATING RESULTS
HONG KONG – SouthGobi Resources Ltd. (Hong Kong Stock Exchange (“HKEX”): 1878, TSX
Venture Exchange ( “TSX-V”): SGQ) (the “Company ” or “SouthGobi ”) today announces its financial
and operating results for the quarter and year ended December 31, 2025. All figures are in U.S.
dollars ( “USD”) unless otherwise stated.
The Board of Directors (the “Board”) wish to inform that the Company ’s independent auditors,
BDO Limited, have completed their audit of the consolidated financial statements of the Company
for the year ended December 31, 2025 in accordance with IFRS Accounting Standards as issued
by the International Accounting Standards Board ( “IFRS Accounting Standards ”) and would like
to announce the audited annual results of the Company for the year ended December 31, 2025
together with the comparative figures for the previous year and the respective notes in this
announcement.
SIGNIFICANT EVENTS AND HIGHLIGHTS
The Company ’s significant events and highlights for the year ended December 31, 2025 and the
subsequent period to March 27, 2026 are as follows:
• Operating Results – The Company increased the scale of its mining operations since
2024, as well as implementing various coal processing methods, including screening, wet
washing and dry coal processing, which have resulted in improved coal quality and enhanced
production volume and growth of coal export volume into China during the year.
In response to the market demand for different coal products, the Company focused on
expanding the categories of coal products in its portfolio, including mixed coal, wet washed
coal and dry processed coal. In addition, the Company has experienced success with
processing its inventory of F-grade coal products through cost-effective screening procedures.
As a result of the improvement in the quality of the processed F-grade coal, the Company
was able to meet the import coal quality standards established by Chinese authorities and has
been exporting this product to China for sale since the first quarter of 2024, further enhancing
the Company ’s coal export volume.
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The Company recorded sales volume of 11.2 million tonnes in 2025 compared to 7.0 million
tonnes in 2024, while the Company recorded an average realised selling price of $53.5 per
tonne in 2025 compared to $70.4 per tonne in 2024. The decrease in the average realised
selling price was mainly due to the Company facing headwinds in the China coal market since
2024, leading to the Company changing its product mix to sell a greater percentage of lower-
priced coal products.
• Financial Results – The Company recorded a $133.2 million loss from operations in 2025
compared to a $153.9 million profit from operations in 2024. The financial results were
impacted by the decreased average realised selling price in 2025 as compared to 2024, the
change in product mix year-over-year (as the Company sold more processed coal with higher
production costs) and impairment losses on coal stockpile and items of property, plant and
equipment of $77.3 million and $42.0 million were recorded respectively in 2025.
• Notice from Mongolian Government Plenipotentiary and designation of Company ’s
mining deposits as mineral deposits of strategic importance – On April 2, 2025,
Southgobi Sands LLC ( “SGS”) received a letter from a plenipotentiary representative of
the Mongolian government (the “Letter”) which invited SGS to participate in negotiations in
relation to determining the Mongolian state ’s ownership interest in SGS, being the legal entity
which holds the Company ’s coal mining and exploration licenses in Mongolia.
The Letter states that, in furtherance of Mongolia ’s National Wealth Fund Law which was
passed in April 2024, the Mongolian government resolved on February 5, 2025 to appoint
a plenipotentiary representative (the “Plenipotentiary Representative of the Mongolian
Government ”) to negotiate with legal persons holding a mining license for a deposit
designated by the Mongolian government as a strategically important deposit ( “Mineral
Deposits of Strategic Importance ”) in relation to determining the proportionate interest the
Mongolian state has in such legal entity or whether to replace the Mongolian state ’s interest
with a royalty interest.
The Company has been advised by its Mongolian legal counsel that, the Government of
Mongolia is empowered to participate on an equity ownership basis with the license holder
in the exploitation and/or mining of each Mineral Deposit of Strategic Importance on terms to
be negotiated between the Government of Mongolia and such license holder. Based solely
on the knowledge of the Company ’s Mongolian legal counsel, the Company is aware that
various other license holders of Mineral Deposits of Strategic Importance have entered into
similar negotiations with the Plenipotentiary Representative of the Mongolian Government.
The Company also understands that any legal person holding a special licence for a Mineral
Deposit of Strategic Importance shall not, individually or jointly with other entities having a
common interest, hold more than 34% of the total issued and outstanding shares of such
legal person. However, there is uncertainty as to how these regulations will be interpreted
and applied to a publicly-listed company which is the beneficial owner of a Mineral Deposit
of Strategic Importance. In the event that the aforementioned ownership restriction is not
complied with, the Government of Mongolia shall have the right to appoint a Plenipotentiary
Representative to take charge of managing such legal person to ensure legal compliance.
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On April 24, 2025, SGS initiated preliminary discussions with the Plenipotentiary
Representative of the Mongolian Government. The Company anticipates that the discussion
between SGS and the Plenipotentiary Representative of the Mongolian Government will
continue and both parties will endeavour to engage in good faith for the purpose of arriving
at a mutual and constructive understanding and agreement. The Company intends to fully
cooperate with the Mongolian government and provide all necessary information to the extent
permitted by applicable law.
As at the date of this press release, the deposits covered by four of the Company ’s Mongolian
mining licenses have been designated as Mineral Deposits of Strategic Importance by
Mongolian government authorities. The relevant mining licenses relate to the Company ’s
Ovoot Tolgoi Mine and the Soumber Deposit.
• 2025 March Deferral Agreement – On March 20, 2025, the Company and JD Zhixing Fund
L.P. ( “JDZF”) entered into a deferral agreement (the “2025 March Deferral Agreement ”)
pursuant to which JDZF agreed to grant the Company a deferral of (i) the cash and payment-
in-kind interest ( “PIK Interest ”), management fees, and related deferral fees in the aggregate
amount of approximately $111.6 million which will be due and payable to JDZF on or before
August 31, 2025 pursuant to the deferral agreement dated March 19, 2024 and the deferral
agreement dated April 30, 2024; (ii) semi-annual cash interest payment of approximately $7.9
million payable to JDZF on May 19, 2025 under the Convertible Debenture; (iii) semi-annual
cash interest payments of approximately $8.1 million payable to JDZF on November 19,
2025 and the $4.0 million in PIK Interest payable to JDZF on November 19, 2025 under the
Convertible Debenture; and (iv) management fees in the aggregate amount of approximately
$6.1 million payable to JDZF on May 16, 2025, August 15, 2025, November 15, 2025 and
February 15, 2026, respectively, under the amended and restated mutual cooperation
agreement (the “Amended and Restated Cooperation Agreement ”) (collectively, the “2025
March Deferred Amounts ”).
The effectiveness of the 2025 March Deferral Agreement and the respective covenants,
agreements and obligations of each party under the 2025 March Deferral Agreement
was subject to the Company obtaining the requisite approval of the 2025 March Deferral
Agreement from shareholders in accordance with the requirements of applicable Canadian
securities laws and Rule 14.33 and Rule 14A.36 of the Rules Governing the Listing of
Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules ”). The 2025
March Deferral Agreement was approved by the Company ’s disinterested shareholders at the
annual general meeting ( “AGM”) of shareholders convened on June 27, 2025.
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The principal terms of the 2025 March Deferral Agreement are as follows:
• Payment of the 2025 March Deferred Amounts will be deferred until August 31, 2026
(the “2025 March Deferral Agreement Deferral Date ”).
• As consideration for the deferral of the 2025 March Deferred Amounts which relate to the
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 2025
March Deferred Amounts, commencing on the date on which each such 2025 March
Deferred Amounts would otherwise have been due and payable under the Convertible
Debenture.
• As consideration for the deferral of the 2025 March Deferred Amounts which relate to
payment obligations arising from 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 2025 March Deferred Amounts commencing on the date on
which each such 2025 March Deferred Amounts would otherwise have been due and
payable under the Amended and Restated Cooperation Agreement.
• The 2025 March Deferral Agreement does not contemplate a fixed repayment schedule
for the 2025 March Deferred Amounts or related deferral fees. Instead, the 2025 March
Deferral Agreement requires the Company to use its best efforts to pay the 2025
March Deferred Amounts and related deferral fees due and payable under the 2025
March Deferral Agreement to JDZF. During the period beginning as of the effective
date of the 2025 March Deferral Agreement and ending as of the 2025 March Deferral
Agreement 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 2025 March 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.
• If at any time before the 2025 March Deferred Amounts and related deferral 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.
On March 23, 2026, the Company and JDZF entered into a subsequent deferral agreement
with respect to the 2025 March Deferred Amounts. Refer below under the heading entitled
“2026 March Deferral Agreement ”.
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• Additional Tax and Tax Penalty Imposed by the Mongolian Tax Authority ( “MTA”) – On
July 18, 2023, SGS received an official notice (the “Notice”) issued by the MTA stating that
the MTA had completed a periodic tax audit (the “Audit”) on the financial information of SGS
for the tax assessment years between 2017 and 2020, including transfer pricing, royalty, air-
pollution fee and unpaid tax payables. As a result of the Audit, the MTA notified SGS that it is
imposing a tax penalty against SGS in the amount of approximately $75.0 million. The penalty
mainly relates to the different view on the interpretation of tax law between the Company and
the MTA. Under Mongolian law, the Company had a period of 30 days from the date of receipt
of the Notice to file an appeal in relation to the Audit. Subsequently the Company engaged an
independent tax consultant in Mongolia to provide tax advice and support to the Company and
filed an appeal letter in relation to the Audit with the MTA in accordance with Mongolian laws
on August 17, 2023.
On February 8, 2024, SGS received notice from the Tax Dispute Resolution Council ( “TDRC”)
which stated that, after the TDRC ’s review, the TDRC issued a decision in relation to SGS ’
appeal of the Audit, and ordered that the audit assessments set forth in the Notice of July 18,
2023 be sent back to the MTA for review and re-assessment.
On February 22, 2024, SGS received another notice from the MTA stating that the MTA
anticipated commencing the re-assessment process on or about March 7, 2024 and the
duration of such process will be approximately 45 working days.
On May 15, 2024, SGS received a notice (the “Revised Notice ”) from the MTA regarding the
re-assessment result on the Audit (the “Re-assessment Result ”). The re-assessed amount of
the tax penalty is approximately $80.0 million. In accordance with applicable Mongolian laws,
SGS is entitled to file an appeal to the TDRC regarding the Re-assessment Result within a
30-day period from the date of receiving the Revised Notice.
On June 12, 2024, following consultation with its independent tax consultant in Mongolia, SGS
submitted an appeal letter to the TDRC regarding the Re-assessment Result, in accordance
with applicable Mongolian laws.
On January 10, 2025, SGS received a resolution dated December 19, 2024 (the “Resolution ”)
from the TDRC in response to the appeal letter sent by SGS to the TDRC on June 12,
2024, relating to the Re-assessment Result. As set forth in the Resolution, the TDRC
has determined to reduce the re-assessed amount of tax penalty against SGS from
approximately $80.0 million to approximately $26.5 million (the “Revised Re-assessment
Result”). In accordance with applicable Mongolian laws, SGS is entitled to file an appeal
to the Administrative Court of First Instance in Ulaanbaatar, Mongolia (the “Administrative
Court of First Instance ”) regarding the Revised Re-assessment Result within a 30-day period
from the date of receiving the Resolution. After careful consideration and consultation with
the Company ’s independent tax consultant in Mongolia, the Company has determined not to
pursue a further appeal of the Revised Re-assessment Result with the Administrative Court of
First Instance.
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On March 19, 2025, SGS received correspondence from the Administrative Court of First
Instance requesting supplemental information regarding a court proceeding initiated by
certain officers of the MTA (the “MTA Officials ”) against the TDRC. Upon further enquiry,
SGS obtained a copy of an order dated March 7, 2025 issued by the Administrative Court of
First Instance regarding commencement of court proceedings brought by the MTA Officials.
The MTA Officials petitioned the court to overturn the TDRC ’s ruling that reduced SGS ’s
tax penalty from approximately $80.0 million to approximately $26.5 million (the “Proposed
Case”).
On April 25, 2025, SGS obtained a copy of an order dated April 15, 2025 (the “Latest Court
Order”) issued by the Administrative Court of First Instance refusing to accept the Proposed
Case. According to the Latest Court Order, the Proposed Case was dismissed by the
Administrative Court of First Instance. According to applicable Mongolian laws, the plaintiff is
entitled to file an appeal to the appellate court, and the Company understood that the MTA
Officials, as plaintiff in the Proposed Case, filed an appeal.
On June 9, 2025, SGS obtained a copy of a judgement dated May 27, 2025 (the “Appellate
Court Judgement ”) issued by the Appellate Court for Administrative in Ulaanbaatar, Mongolia
(the “Appellate Court ”). As per the Appellate Court Judgement, the Appellate Court upheld the
court order issued by the Judge of the Administrative Court of First Instance on April 15, 2025.
As a result, the claim brought by the MTA Officials against the TDRC in an attempt to dispute
or overturn the previous decision made by the TDRC regarding the Re-assessment Result
has been dismissed and rejected. According to applicable Mongolian law, the Appellate Court
Judgement shall be final and is not subject to further appeal.
In the prior year, the Company recorded an additional tax and tax penalty in the amount of
$45.5 million, which consists of a tax penalty payable of $26.5 million and a provision for
additional late tax penalty of $19.0 million. As a result of the Revised Re-assessment Result,
the Company recorded a reversal of additional tax and tax penalty of $48.5 million in 2024.
To date, the Company has paid the MTA an aggregate of $22.2 million in relation to the
aforementioned tax penalty. The Company anticipates paying down the outstanding amount of
the tax and tax penalty from cash generated from operations in the normal course. According
to Mongolian tax law, the MTA has a legal authority to demand payment of the outstanding
amount of the Revised Re-assessment Result from the Company at its discretion.
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• Bank Loan – On October 7, 2025, SGS has entered into a bank loan (the “2025 Bank Loan ”)
for a principal amount of up to RMB235 million (equivalent to approximately $33.1 million)
from Khan Bank JSC (the “Bank”) with the key commercial terms as follows:
• Maturity date set at 18 months from drawdown (the “Term”);
• Interest rate of 10% per annum on the outstanding principal and interest is calculated on
a 365-day year basis;
• Loan repayments will consist of interest-only payments during the initial 12 months of
the Term, followed by principal amortisation payments during months 13 to 18 of the
Term;
• Certain items of property, plant and equipment with carrying amount of $2.2 million,
land-use rights and intangible assets were pledged as security for the 2025 Bank Loan;
and
• The Company intends to use the proceeds of the 2025 Bank Loan to support working
capital, operating expenses, taxes and the settlement of accounts payable of SGS.
• Lawsuit – In January 2014, Siskinds LLP, a Canadian law firm, filed a class action (the “Class
Action”) against the Company, certain of its former senior officers and directors, and its former
auditors (the “Former Auditors ”), in the Ontario Court in relation to the Company ’s restatement
of certain financial statements previously disclosed in the Company ’s public fillings (the
“Restatement ”).
To commence and proceed with the Class Action, the plaintiff was required to seek leave
of the Court under the Ontario Securities Act (the “Leave Motion ”) and certify the action as
a class proceeding under the Ontario Class Proceedings Act. The Ontario Court rendered
its decision on the Leave Motion on November 5, 2015, dismissing the action against the
former senior officers and directors and allowing the action to proceed against the Company
in respect of alleged misrepresentation affecting trades in the secondary market for the
Company ’s securities arising from the Restatement. The action against the Former Auditors
was settled by the plaintiff on the eve of the Leave Motion.
Both the plaintiff and the Company appealed the Leave Motion decision to the Ontario Court
of Appeal. On September 18, 2017, the Ontario Court of Appeal dismissed the Company ’s
appeal of the Leave Motion to permit the plaintiff to commence and proceed with the Class
Action. Concurrently, the Ontario Court of Appeal granted leave for the plaintiff to proceed with
their action against the former senior officers and directors in relation to the Restatement.
The Company filed an application for leave to appeal to the Supreme Court of Canada in
November 2017, but the leave to appeal to the Supreme Court of Canada was dismissed in
June 2018.
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In December 2018, the parties agreed to a consent Certification Order, whereby the action
against the former senior officers and directors was withdrawn and the Class Action would
only proceed against the Company, creating the class plaintiffs (the “Class Plaintiffs ”) and
permitting the Class Plaintiffs to proceed with the Class Action against only the Company.
Counsel for the plaintiffs and defendant have: (i) completed document production and
oral examinations for discovery; (ii) served expert reports on liability and damages; and
(iii) designed a mediation process and finalised, with the participation of the relevant
Company ’s insurers, the mediation under the guidance of former Chief Justice of Ontario
George Strathy, which mediation was held and completed on August 11, 2025 (the
“Mediation ”).
As a result of the Mediation, the Class Plaintiffs and the Company have conditionally settled
(the “Settlement ”) the Class Action for CA$6.8 million, including all liability and class counsel
fees, notice and administrative costs, fees, costs and expenses related to the litigation and the
settlement (the “Settlement Payments ”). The Settlement Payments are the obligation of the
Company ’s insurers as of January 2014.
The Settlement was approved by Justice Morgan of the Ontario Superior Court of Justice on
December 2, 2025. No appeals have been filed and the time to file an appeal has expired.
• 2026 March Deferral Agreement – On March 23, 2026, the Company and JDZF entered
into an agreement (the “2026 March Deferral Agreement ”) pursuant to which JDZF agreed
to grant the Company a deferral of (i) the cash and PIK Interest, management fees, and
related deferral fees in the aggregate amount of approximately $140.5 million which will be
due and payable to JDZF on or before August 31, 2026 pursuant to the deferral agreement
dated March 20, 2025; (ii) semi-annual cash interest payment of approximately $7.9 million
payable to JDZF on May 19, 2026 under the Convertible Debenture; (iii) semi-annual cash
interest payments of approximately $8.1 million payable to JDZF on November 19, 2026 and
the $4.0 million in PIK Interest payable to JDZF on November 19, 2026 under the Convertible
Debenture; and (iv) management fees in the aggregate amount of approximately $7.6 million
payable to JDZF on May 16, 2026, August 15, 2026, November 15, 2026 and February 15,
2027, respectively, under the Amended and Restated Cooperation Agreement (collectively, the
“2026 March Deferred Amounts ”).
The effectiveness of the 2026 March Deferral Agreement and the respective covenants,
agreements and obligations of each party under the 2026 March Deferral Agreement
are subject to the Company obtaining the requisite approval of the 2026 March Deferral
Agreement from shareholders in accordance with the requirements of applicable Canadian
securities laws and Rule 14.33 and Rule 14A.36 of the Listing Rules. The Company will be
seeking approval of the 2026 March Deferral Agreement from disinterested shareholders at
the Company ’s upcoming AGM of shareholders, which will be held at a future date to be set by
the Board.