Southgobi Announces Connected Transaction Involving Amendment of Convertible Debenture
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May 13, 2024
SOUTHGOBI ANNOUNCES CONNECTED TRANSACTION
INVOLVING AMENDMENT OF CONVERTIBLE DEBENTURE
VANCOUVER – SouthGobi Resources Ltd. (TSX-V: SGQ, HK: 1878) (“SouthGobi” or the
“Company”, together with its subsidiaries, the “Group”) announces that, on May 13, 2024, it
has entered into an amendment agreement (the “Convertible Debenture Amendment”) with
JD Zhixing Fund L.P. (“ JDZF”), the registered holder of the Company’s US$250 million
Convertible Debenture issued on November 19, 2009 (the “Convertible Debenture”) and the
Company’s largest shareholder, to amend certain terms of the Convertible Debenture.
This announcement is made by the Company pursuant to Rule 13.09(2) and Chapter 14A of
the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “ Hong
Kong Listing Rules”) and the Inside Information Provisions under Part XIVA of the Securities
and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).
Convertible Debenture Amendment
Pursuant to the Convertible Debenture Amendment, the Company may, by resolution of the
board of directors of the Company (the “ Board”), at any time and from time to time prepay,
without penalty, the whole or any part of the principal amount outstanding under the
Convertible Debenture, together with accrued cash interest and PIK interest thereon to the
date of prepayment, provided that:
(i) the Company has, not later than three (3) business days prior to the proposed
prepayment date, delivered to JDZF an irrevocable written notice, signed by an
independent director of the Company and setting out the terms of the prepayment;
(ii) the amount of such prepayment reduces the then outstanding principal amount under
the Convertible Debenture by an amount that is (I) not less than US$500,000 and (II)
if in excess of US$500,000, an integral multiple of US$500,000; and
(iii) the proposed prepayment date falls on a business day.
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The Company is not providing any additional form of consideration to JDZF in connection with
the Convertible Debenture Amendment. Aside from the aforementioned amendments, the
existing terms of the Convertible Debenture continue in full force and effect and unchanged.
The effectiveness of the Convertible Debenture Amendment is subject to the Company
providing notice to, and obtaining acceptance (if required) from the TSX Venture Exchange
(“TSX-V”) and the Hong Kong Stock Exchange, as well as requisite approval from
disinterested shareholders of the Company in accordance with the requirements of applicable
securities laws.
The aforementioned summary of the principal terms of the Convertible Debenture Amendment
is not comprehensive, and is qualified in its entirety by reference to the full text of the
Convertible Debenture Amendment, a copy of which has been filed on the Company’s profile
on SEDAR+ at www.sedarplus.ca.
General Information of the Parties
The Group
The Company is an integrated coal mining, development and trading company. SGQ Coal
Investment Pte. Ltd. is a wholly-owned subsidiary of the Company incorporated under the laws
of Singapore, which is principally engaged in the investment holding business activities.
Southgobi Sands LLC is a wholly -owned subsidiary of the Company incorporated under the
laws of Mongolia, which is principally engaged in coal mining, development and exploration of
properties in Mongolia.
JDZF
JDZF is an exempt limited partnership formed under the laws of the Cayman Islands, which is
principally engaged in investment holding activities. JDZF’s general partner and limited partner
are JD Dingxing Limited and Inner Mongolia Tianyu Trading Limited, respectively. To the best
of the Company’s knowledge and belief, the ultimate beneficial owner of the limited partner is
Mr. Yong An and the general partner is Ms. Chonglin Zhu. Mr. Yong An is the Chairman and
founder of Inner Mongolia Tianyu Innovation Investment Group Co. Ltd.* (內蒙古天宇創 新投
資集團有限公司) (“Tianyu Group”), and has conducted business in Inner Mongolia region
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since 1998. Ms. Chonglin Zhu was the Chief Financial Officer of Tianyu Group from March
2015 to September 2022, and was also res ponsible for managing JDZF. Ms. Chonglin Zhu
has served as an Executive Director of the Company since September 8, 2022. She was the
Company’s Senior Vice President of Finance from September 8, 2022 to February 2, 2024,
and appointed as the Company’s Chief Financial Officer on February 2, 2024.
Reasons for and Benefits of the Convertible Debenture Amendment
In evaluating the terms of the Convertible Debenture Amendment and reaching its conclusion
and making its recommendation in support of the Convertib le Debenture Amendment, the
Board (excluding the Amendment Interested Directors (as defined below)), considered a
number of factors, including the following: (i) the Convertible Debenture Amendment is
designed to improve the financial position of the Compa ny, as it provides the Company with
an ability to repay the principal amount and accrued cash interest or PIK interest, without
penalty, at the discretion of the Board, if doing so is in the best interests of the Company; (ii)
the Convertible Debenture Ame ndment improves the financial flexibility of the Company, as
the Company did not have a right to prepay the principal amount outstanding under the
Convertible Debenture under the original terms of the Convertible Debenture; (iii) the terms of
the Convertible Debenture Amendment are reasonable in the circumstances of the Company,
in particular given that the Company is not providing any additional form of consideration to
JDZF in connection with the Convertible Debenture Amendment; and (iv) the best interests of
the Company and shareholders will be served by approving the Convertible Debenture
Amendment.
Board Review and Approval
Based on the above, the Board (excluding (i) the Directors who are appointed by JDZF
pursuant to contractual nomination rights contained in the securityholders agreement between
the Company, JDZF and a former shareholder of the Company and certain deferral
agreements between JDZF, the Company and certain of its subsidiaries relating to the
Convertible Debenture, namely, Mr. Ruibin Xu, Ms. Chonglin Zhu and Mr. Chen Shen
(collectively, the “ Amendment Interested Directors ”); and (ii) a special committee of the
Board struck to negotiate and consider the terms of the Convertible Debenture Amendment,
which consisted solely of independent non-executive Directors, whose views are to be
contained in the letter from the independent board committee (the “ Independent Board
Committee”) in the Company’s management proxy circular (the “ Management Proxy
Circular”) to be despatched to the Sh areholders) are of the view that the Convertible
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Debenture Amendment and the transaction contemplated thereunder are entered, despite not
in the ordinary and usual course of business of the Group, on normal commercial terms (on
arm’s length basis or terms no less favourable to the Group than terms available from
independent third parties), and are fair and reasonable and in the interests of the Company
and the Shareholders as a whole.
The Amendment Interested Directors who have a material interest in the C onvertible
Debenture Amendment and the transaction contemplated thereunder were required to abstain
from voting on the Board resolutions approving the same. Except for the Amendment
Interested Directors, none of the Directors have any material in terest in the Convertible
Debenture Amendment and the transaction contemplated thereunder, and none of the
Directors were required to abstain from voting on the Board resolutions approving the same.
Shareholders’ Approval Pursuant to MI 61 -101 Requiremen ts under applicable
Canadian securities laws
Pursuant to Part 5 of Multilateral Instrument 61-101 (“MI 61-101”) under applicable Canadian
securities laws, the Company is required to seek minority shareholder approval of the
Convertible Debenture Amendment , excluding the common shares beneficially owned by
JDZF (as defined below) (the “ Disinterested Shareholders ” or the “ Independent
Shareholders”) because: (i) JDZF is a related party of the Company for purposes of MI 61 -
101 because JDZF has beneficial owner ship of more than 10% of the voting rights attached
to the outstanding common shares of the Company; and (ii) the Convertible Debenture
Amendment is a related party transaction for purposes of MI 61-101 because the Convertible
Debenture Amendment materially amends the terms of an outstanding debt or liability owed
by the Company to a related party.
To the best of the Company’s knowledge, as of the date hereof, 85,714,194 common shares,
representing approximately 28.98% of the issued and outstanding common shares of the
Company, are beneficially owned by JDZF. Accordingly, the 85,714,194 votes attached to the
common shares beneficially owned, or over which control or direction is exercised by JDZF
will be excluded from the vote to approve the Convertible Debenture Amendment.
There is no requirement for the Convertible Debenture Amendment to be the subject of a
formal valuation by virtue of not being within the scope of related party transactions set out in
Section 5.4 of MI 61 101.
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Hong Kong Listing Rules implications
Pursuant to the Hong Kong Listing Rules, JDZF is a substantial shareholder of the Company
holding approximately 28.98% of the Company’s issued common shares and therefore a
connected person of the Company. The entering into of the Convertible Debenture
Amendment constitutes a connected transaction of the Company and is subject to the
Independent Shareholders’ approval requirements under Chapter 14A of the Hong Kong
Listing Rules.
According to Rule 28.05 of the Hong Kong Listing Rules, any alterations in the terms of
convertible debt securities after issue must be approved by the Hong Kong Stock Exchange,
except where the alterations take effect automatically under the existing terms of such
convertible debt securities. The Company will apply to the Hong Kong Stock Exchange for
approval for the entering into of the Convertible Debenture Amendment pursuant to Rule 28.05
of the Hong Kong Listing Rules.
The Meeting and Despatch of Management Proxy Circular
The Company will be seeking approval of the Convertible Debenture Amendment from
Independent Shareholders at a special meeting of shareholders (the “Meeting”) to be held on
or before August 30, 2024. The Company will, among other things, propose a resolution for
the Independent Shareholders to consider and, if thought fit, approve the Convertible
Debenture Amendment and the transaction contemplated thereunder.
Given that JDZF is involved in and/or interested in the Convertible Debenture Amendment and
the transaction contemplated thereunder, JDZF will abstain from voting at the Meeting on the
resolution approving it. Accordingly, the 85, 714,194 votes attached to the Common Shares
beneficially owned, or over which control or direction is exercised, by JDZF will be excluded
from the vote to approve the Convertible Debenture Amendment.
Save for the aforesaid and to the Board’s best knowledge, information and belief and having
made all reasonable enquiries, no other shareholder has a material interest in the Convertible
Debenture Amendment and therefore no other shareholder is required to abstain from voting
on the relevant resolution at the Meeting.
As the Convertible Debenture Amendment and the transaction contemplated thereunder are
subject to the approval by the Independent Shareholders, the Independent Board Committee
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comprising of all the independent non -executive Directors, namely Mr. Yingbin Ian He, Mr.
Mao Sun and Ms. Jin Lan Quan, has been established by the Company to advise the
Independent Shareholders in respect of the above transaction. The Company h as appointed
an independent financial adviser (the “ Independent Financial Adviser ”) to advise the
Independent Board Committee and the Independent Shareholders in respect of the above
transaction.
The Management Proxy Circular containing, among other things, (i) details of the Convertible
Debenture Amendment; (ii) a letter from the Independent Board Committee to the Independent
Shareholders; (iii) the recommendations from the Independent Financial Adviser to the
Independent Board Committee and the Independent Shareholders; and (iv) the notice of the
Meeting, will be filed under the Company’s profile on SEDAR+ at www.sedarplus.ca and
despatched to shareholders of the Company in accordance with applicable securities laws on
or before August 30, 2024.
If there is any inconsistency or discrepancy between the English and Chinese versi on, the
English version shall prevail.
About SouthGobi
SouthGobi, listed on the Hong Kong Stock Exchange and the TSX Venture Exchange, 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
Email: [email protected]
Mr. Ruibin Xu
Chief Executive Officer
Office: +1 604 762 6783 (Canada)
+852 2156 1438 (Hong Kong)
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 timing with respect to the mailing of the Management Information Circular and
convening of the Meeting, and approval of the Convertible Debenture Amendment by
Disinterested Shareholders. Forward -looking statements are frequen tly 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 providing notice and successfully
obtaining acceptance (if any) of the Convertible Debenture Amendment from the TSX -V and
the requisite approval from Disin terested Shareholders of the Company of the Convertible
Debenture Amendment in accordance with applicable Canadian securities laws and Hong
Kong Stock Exchange requirements 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 authorities 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.sedarplus.ca and www.hkexnews.hk.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is
defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy
or accuracy of this release.