SouthGobi Resources Limited
HKSE : 1878

SouthGobi Resources Limited

June 29, 2015 06:00 ET

First Concept Logistics, a Subsidiary of NUR, Serves a Notice of Arbitration on SouthGobi Sands. SouthGobi Firmly Rejects the Claims as Groundless and Will Vigorously Defend Itself

HONG KONG, CHINA--(Marketwired - June 29, 2015) - SouthGobi Resources Ltd. (TSX:SGQ)(HKSE:1878) ("SouthGobi" or the "Company") announces that First Concept Logistics Limited ("First Concept"), a subsidiary of National United Resources Holdings Limited ("NUR"), has served a notice of arbitration (the "Notice") on SouthGobi Sands LLC ("SGS") - the Company's wholly-owned subsidiary in Mongolia in respect of a coal supply agreement dated May 19, 2014 as amended on June, 27, 2014 (the "Coal Supply Agreement"). SouthGobi firmly rejects the claims as groundless and will vigorously defend itself.


First Concept is a subsidiary of NUR, a publicly traded company in Hong Kong. The Company and First Concept finalized the Coal Supply Agreement in late June 2014 immediately prior to the announcement by NUR that it had entered into a share purchase agreement (the "NUR SPA") involving the Company's common shares with the Company's largest shareholder at the time, Turquoise Hill Resources Ltd. ("Turquoise Hill").

The Company notes that the closing of the NUR SPA was the subject of several delays and corresponding to these delays, First Concept has repeatedly failed to take delivery of the contracted coal notwithstanding the Company's sufficient capacity and ability to satisfy its obligations (as described in greater detail below). In May 2015, Turquoise Hill announced that the NUR SPA had expired without NUR acquiring the subject Company shares. In the Company's opinion, serious questions arise as to First Concept's motives in filing the Notice at this time, as it was filed shortly after both the expiry of the NUR SPA and the Company's announcement on June 22, 2015 of progress on its funding plan, including inter alia, a private placement of its common shares for aggregate gross proceeds of US$31.6 million. The Company expressly intends to pursue the issue of bona fides in the forthcoming arbitration proceedings.

Notice of Arbitration and Obligations under the Coal Supply Agreement

According to the Notice, First Concept alleges that SGS has breached the Coal Supply Agreement and seeks, among other items, the repayment of US$11.5 million, representing the prepayment amount advanced by First Concept under such agreement.

The Company firmly rejects the allegations of First Concept in the Notice as lacking any merit for the reasons described above. The Company emphasizes that the failure of First Concept to fulfill its obligations under the Coal Supply Agreement is the cause of the current dispute between the parties. Specifically, the obligation to collect and transport the coal, pursuant to the Coal Supply Agreement, fell squarely on First Concept, while SGS was only obligated to make the coal available at its mine location. SGS has repeatedly advised First Concept of its willingness, ability and readiness to make available the coal for collection at its stockpile. In fact, SGS, at all times during the term of the Coal Supply Agreement, had sufficient capacity and was able to meet its obligations while managing the rest of its commitments for other customers. Notwithstanding this readiness on the part of SGS, First Concept has continually failed to complete the necessary legal requirements for collection and transportation of coal and to provide a pickup schedule in accordance with industry practice.

The Company sees the Notice as an attempt by First Concept to back out from a binding contract by deliberately failing to take any reasonable efforts to comply with its obligations in its capacity as the buyer pursuant to both the Coal Supply Agreement and the applicable law and to claim back its prepayment.

The Company categorically denies First Concept's claim for repayment of the sum of US$11.5 million as wholly misconceived and will vigorously defend itself throughout the arbitration proceedings. In addition, SouthGobi reserves the right to pursue legal action against NUR and its subsidiary for compensation for any damages that result from their actions.

About SouthGobi

SouthGobi, listed on the Toronto and Hong Kong stock exchanges, is focused on exploration and development of its metallurgical and thermal coal deposits in Mongolia's South Gobi Region. It has a 100% shareholding in SouthGobi Sands LLC, a Mongolian registered company that holds the mining and exploration licences in Mongolia and operates the flagship Ovoot Tolgoi coal mine. Ovoot Tolgoi produces and sells coal to customers in China.

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