SouthGobi Announces Discloseable and Connected Transaction Deferral of Payment Obligation Under Prior Deferral Agreement

*VANCOUVER, BC / ACCESSWIRE / April 30, 2024 / *SouthGobi Resources Ltd. (TSX-V:SGQ)(HK:1878) ("*SouthGobi*" or the "*Company*") announces the deferral of payment obligation under prior deferral agreement.

*Background*

This announcement is made by SouthGobi Resources Ltd. (the "*Company*", together with its subsidiaries, the "*Group*") pursuant to Rule 13.09(2) and Chapters 14 and 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).

Reference is made to the announcements of the Company dated November 11, 2022, November 17, 2023 and January 19, 2024 (collectively, the "Announcements"). Unless otherwise specified, terms used in this announcement shall have the meaning as defined in the Announcements.

The Company announces deferral of payment obligations under a prior deferral agreement 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.

*The April 2024 Deferral Agreement*

The Company announces that, on April 30, 2024, the Company and its subsidiaries, namely SouthGobi Sands LLC and SGQ Coal Investment Pte. Ltd., entered into a new deferral agreement (the "*April 2024 Deferral Agreement*") with JDZF, pursuant to which JDZF agreed to grant the Company a deferral of the remaining US$1,100,000 of payment-in-kind interest which was payable on November 19, 2022 under the Convertible Debenture (the "*November 2022 PIK Interest*"), the payment of which was deferred under the November 2022 Deferral Agreement until November 19, 2023, as well as related deferral fees under the November 2022 Deferral Agreement (collectively, the "*Deferred Amounts*").

The principal terms of the April 2024 Deferral Agreement are as follows:

*Effectiveness of the April 2024 Deferral Agreement*

The effectiveness of the April 2024 Deferral Agreement is subject to the Company providing notice to, and obtaining acceptance (if required) from the TSX Venture Exchange ("*TSX-V*") and requisite approval from disinterested shareholders of the Company in accordance with the requirements of applicable Canadian securities laws, Rule 14.33 and Rule 14A.36 of the Hong Kong Listing Rules.

*The Deferral*

JDZF agrees to grant the Company a deferral (the "*Deferra*l") of the Deferred Amounts until August 31, 2025 (the "*Deferral Date*").

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 outstanding balance of such Deferred Amounts (the "*Deferral Fees*"), commencing on the date on which each such Deferred Amounts would otherwise have been due and payable under the Convertible Debenture.

The April 2024 Deferral Agreement does not contemplate a fixed repayment schedule for the Deferred Amounts or related deferral fees. Instead, the April 2024 Deferral Agreement requires the Company to use its best efforts to pay the Deferred Amounts and related deferral fees due and payable under the April 2024 Deferral Agreement to JDZF. During the period beginning as of the effective date of the April 2024 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 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 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.

The occurrence of a Deferral Event of Default or an Event of Default (as such term is defined in the Convertible Debenture) will: (i) entitle JDZF to pursue any and all remedies against the Company and the Guarantors in accordance with the Convertible Debenture; and (ii) result in the principal, interest and other amounts owing under the April 2024 Deferral Agreement, the Convertible Debenture and related security agreements becoming immediately due and payable without any requirement for JDZF to deliver notice to the Company.

The aforementioned summary of the principal terms of the April 2024 Deferral Agreement is not comprehensive, and is qualified in its entirety by reference to the full text of the April 2024 Deferral Agreement, a copy of which has been filed on the Company's profile on SEDAR+ at www.sedarplus.ca.

*Basis of Determination of the Deferral Fees*

The Deferral Fees which are expected to be satisfied by the internal resources and/or external borrowings of the Group were determined on an arm's length basis (or on terms no less favourable to the Group than terms available from independent third parties) among the parties to the April 2024 Deferral Agreement, taking into account the following factors:

the deferral fees stipulated under the previous deferral agreements, including the deferral fee at the rate of 6.4% per annum as consideration for the deferred interest payments arising from the Convertible Debenture contemplated under the March 2024 Deferral Agreement, which is the latest deferral agreement before the April 2024 Deferral Agreement;

historically, the higher finance costs incurred by the Group for receiving financial assistance from independent third parties of the Group within the past five years, the rate of which generally fell within the range of 15% to 16%;

based on publicly available information and to the Company's understanding, the finance costs of industry peers and listed companies in similar industry as the Group are of a similar range as the those of the Deferral Fees, with the interest rates ranged from 3% to 9.25% per annum; and

the reasons and benefits as set out in the section headed "Reasons for and benefits of the April 2024 Deferral Agreement" below.

*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 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 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. 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 since 1998. Ms. Chonglin Zhu was the Chief Financial Officer of Tianyu Group from March 2015 to September 2022, and was also responsible for managing JDZF. Ms. Chonglin Zhu has served as the executive Director and Senior Vice President of Finance of the Company since September 8, 2022, and was appointed as the Chief Financial Officer of the Company on February 2, 2024.

*Reasons for and Benefits of the April 2024 Deferral Agreement*

In evaluating the transaction contemplated under the April 2024 Deferral Agreement, the board (the "*Board*") of directors (the "*Directors*") of the Company has taken into account, among other things, the terms of the Deferral and the April 2024 Deferral Agreement, the Company's financial position and the possible funding alternatives reasonably available to the Company and considered that: (i) the Deferral is offered on reasonable commercial terms not less advantageous to the 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 its shareholders (the "*Shareholders*") will be served by approving the Deferral and the April 2024 Deferral Agreement.

*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 "*Deferral Interested Directors*"); and (ii) the 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 Shareholders) are of the view that the April 2024 Deferral Agreement 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 Deferral Interested Directors who have a material interest in the April 2024 Deferral Agreement and the transaction contemplated thereunder were required to abstain from voting on the Board resolutions approving the same. Except for the Deferral Interested Directors, none of the Company's Directors have any material interest in the April 2024 Deferral Agreement 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 Requirements 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 April 2024 Deferral Agreement, excluding the common shares beneficially owned by JDZF (as defined below) (the "*Disinterested Shareholders*" or the "*Independent Shareholders*") as: (i) JDZF is a related party of the Company for purposes of MI 61-101 for the reason that JDZF has beneficial ownership of more than 10% of the voting rights attached to the outstanding common shares of the Company; and (ii) the April 2024 Deferral Agreement is a related party transaction for purposes of MI 61-101 because the April 2024 Deferral Agreement 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 April 2024 Deferral Agreement.

With respect to the deferral of the November 2022 PIK Interest, PIK Interest under the terms of the Convertible Debenture must be paid and satisfied by the Company by way of issuing common shares in the capital of the Company ("*Common Shares*") at an issue price determined based on the 50-trading day volume weighted average price ("*VWAP*") of the Company's common shares as at the date of payment. Shareholders are cautioned that, as a result of deferring the payment date of November 2022 PIK Interest, the final number of Common Shares that the Company will issue to satisfy the November 2024 PIK Interest will depend on the prevailing 50 trading day VWAP of the Common Shares as of the future payment date, and may result in a number of Common Shares being issued that could be greater than, or lesser than, then number of Common Shares that the Company would have had to issue on the original payment date for the November 2024 PIK Interest.

*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 hence a connected person of the Company. The entering into of the April 2024 Deferral Agreement constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

As one or more of the applicable percentage ratios (as defined under Rule 14.07 of the Hong Kong Listing Rules) in respect of the transaction contemplated under the April 2024 Deferral Agreement exceed 0.1% but all are less than 5%, the entering into of the April 2024 Deferral Agreement, on a standalone basis, constitutes a connected transaction of the Company and is subject to reporting and announcement requirements but exempt from circular Independent Shareholders' approval requirement under Chapter 14A of the Hong Kong Listing Rules.

Pursuant to Rules 14.22 and 14A.81 of the Hong Kong Listing Rules, as the counterparty to the November 2023 Deferral Agreement and the March 2024 Deferral Agreement (the "*Previous Transactions*") is JDZF and such transactions are similar in nature and completed within a 12-month period, such transactions shall be aggregated with the April 2024 Deferral Agreement.

Accordingly, as one or more of the applicable percentage ratios (as defined under Rule 14.07 of the Hong Kong Listing Rules) in respect of the transaction contemplated under the April 2024 Deferral Agreement, upon aggregation with the Previous Transactions, exceed 5% but all are less than 25%, the entering into of the April 2024 Deferral Agreement, on an aggregated basis, constitutes a discloseable and connected transaction of the Company and is subject to reporting, announcement, circular and Independent Shareholders' approval requirements under Chapter 14 and Chapter 14A of the Hong Kong Listing Rules.

*The Meeting and Despatch of Management Proxy Circular*

At the Company's upcoming annual and special general meeting of shareholders (the "*Meeting*"), the Company will, among other things, propose a resolution for the Independent Shareholders to consider and, if thought fit, approve the April 2024 Deferral Agreement and the transaction contemplated thereunder, as well as the March 2024 Deferral Agreement.

Given that the Deferral Interested Shareholder is involved in and/or interested in the April 2024 Deferral Agreement and the transaction contemplated thereunder, the Deferral Interested Shareholder 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 the Deferral Interested Shareholder will be excluded from the vote to approve the April 2024 Deferral Agreement.

Save for the aforesaid and to the Directors' best knowledge, information and belief and having made all reasonable enquiries, no other Shareholder has a material interest in the April 2024 Deferral Agreement and therefore no other Shareholder is required to abstain from voting on the relevant resolution at the Meeting.

As the April 2024 Deferral Agreement and the transaction contemplated thereunder are subject to the approval by the Independent Shareholders, the Independent Board Committee 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 has 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 Deferral and the April 2024 Deferral Agreement; (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, which 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 May 28, 2024 (which is anticipated to be more than fifteen business days after the date of publication of this announcement) as more time is required for the Company to compile certain information to be included in the Management Proxy Circular for the Meeting. 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.

If there is any inconsistency or discrepancy between the English and Chinese version, 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: info@southgobi.com

*Mr. Ruibin Xu*

*Chief Executive Officer*

Office: +1 604 762 6783 (Canada)

+852 2156 1438 (Hong Kong)

Website: www.southgobi.com

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.

*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 April 2024 Deferral Agreement and March 2024 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 providing notice and successfully obtaining acceptance (if any) of the April 2024 Deferral Agreement from the TSX-V and the requisite approval from disinterested shareholders of the Company of the April 2024 Deferral Agreement 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.

*SOURCE: *SouthGobi Resources Ltd.
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