SouthGobi Resources Limited
TSX : SGQ
HKSE : 1878

SouthGobi Resources Limited

June 22, 2015 07:51 ET

SouthGobi Announces Progress on its Funding Plan, an Extension of the TSX Delisting Review to Permit Completion of the Proposed Private Placements, and the Revised Timing for its 2015 AGM

HONG KONG, CHINA--(Marketwired - June 22, 2015) - SouthGobi Resources Ltd. (TSX:SGQ)(HKSE:1878) ("SouthGobi" or the "Company") announces progress on its funding plan (the "Funding Plan") to meet the Company's obligations as they fall due and continue to achieve its business objectives. The Company also announces the extension of the Toronto Stock Exchange ("TSX") delisting review to permit completion of the proposed private placements of its common shares, and the postponement of its Annual Meeting of Shareholders (the "AGM") from July 24, 2015 to August 6, 2015.

Progress on the Funding Plan

Since April 23, 2015 when the Company announced the successful completion of a private placement with Novel Sunrise Investments Limited ("Novel Sunrise") as a new significant investor and strategic partner, the Company has ramped up its mining operations gradually and progressed the Funding Plan that was referred to in the Company's Management Discussion and Analysis ("MD&A") issued on May 11, 2015 in Section 5. "Liquidity and capital resources" under the subheading "Proposed Funding Plan" and available at www.sedar.com.

In this connection, the Company announces the following arrangements in furtherance of its Funding Plan, subject to all necessary regulatory filings and approvals:

· Private Placements of Common Shares - The Company has negotiated private placements of its common shares for aggregate gross proceeds of US$31.6 million with sophisticated investors (the "Investors") to inject additional capital resources into the Company. Closing of the placements is expected to occur on or before July 14, 2015. Under the terms of the subscription agreements for the private placements, the Company will issue the Investors approximately 55 million common shares in the Company (each, a "Common Share"), priced at C$0.71 per share (a 20% discount to the five day volume weighted average price of the common shares on the TSX at June 19, 2015). As a result, the new Common Shares represent in the aggregate an approximately 21% equity interest in the Company following completion of these issuances.

· Offtake Arrangements - A supply agreement has been executed with a China-based buyer for the sale of 1.8 million tonnes of coal from July 2015 to July 2016. Discussions are continuing with other third parties in connection with additional coal supply agreements and the Company anticipates negotiating further agreements as it ramps up its production schedule as a result of securing additional financing to address its working capital requirements.

· Interim Loan - Until the proceeds of the private placements are received, the Company has secured a loan for up to US$8 million from a principal of Novel Sunrise, with immediate availability, to address funding obligations pending the closing of the private placements. Advances will be in a minimum amount of US$2 million, with interest at LIBOR + 12% per annum, payable in cash on a quarterly basis in arrears, and maturing on June 18, 2016. The loan is unsecured and is subject to mandatory repayment upon completion of US$30 million of equity or other debt financing.

· Revolving Loan Commitment - the Company has also secured a revolving loan commitment of RMB200 million (approximately US$32 million) from a Chinese commercial bank, subject to the finalization of definitive documentation. The revolving loan commitment is intended to provide additional support to the Company in funding its operational objectives.

The utilization of these funding facilities made available to the Company will meet the requirements for permitted debt under its existing convertible debenture agreement with the China Investment Corporation ("CIC").

Cash Position and Liquidity

Prior to the financings, as at June 22, 2015 the Company's current unrestricted cash position was approximately US $1.4 million. The Company believes that its current cash resources, together with the above funding mechanisms, will be sufficient to address its current obligations and to fund its operations during the next six months and beyond.

The Company believes that the dispute with the Government of Mongolia concerning its tax judgment (see the Company's MD&A issued on May 11, 2015 under the heading "Governmental and Regulatory Investigations" and available at www.sedar.com) can be resolved in a manner that is acceptable for the Company. However, there can be no assurance of a solution in this regard. The Company will continue to assess its options, including additional financing if and as required, to meet its obligations.

Status of TSX Delisting Review

On February 25, 2015 the Company was placed on a remedial delisting review in connection with its reliance on the financial hardship exemption which allowed the Company to complete the private placement with Novel Sunrise without seeking shareholder approval. A delisting review is customary practice under TSX policies when a listed company relies on the financial hardship exemption. Reference is made to the Company's MD&A as noted above under the heading "TSX Financial Hardship Exemption Application and Status of Listing on the TSX" for additional details.

Following an extension request by the Company to address delays in the implementation of its Funding Plan, the Continued Listing Committee of the TSX (the "Committee") deferred its delisting decision as to whether the Company had met the listing requirements of the TSX to June 24, 2015.

The Company has provided the Committee with information in connection with the arrangements described above in furtherance of its Funding Plan in support of its submission that it has now met the listing requirements of the TSX in a manner sufficient to support the continued listing of the Company on the TSX. On June 22, 2015, the TSX advised the Company that it has granted a further 30 day extension of the delisting review to July 22, 2015 to permit completion of the proposed private placements of the Company's common shares. The TSX has advised the Company that upon completion of the private placements, it believes that the Company will be in compliance with the requirements of the TSX Company Manual for continued listing of the Company on the TSX and will terminate its delisting review, on condition that no other delisting criteria become applicable between now and the closing of the private placements.

Currently, the only delisting criteria applicable to the Company relate to evidence of six months of working capital, which the Company believes it has addressed in its submission to the Committee. However, if the Government of Mongolia's tax judgment becomes payable in full prior to closing of the private placements, the Company will need to re-confirm to the TSX that it has sufficient funds to support operations for the next six months.

Delay of Annual and Special General Meeting of Shareholders

In light of the expected changes in shareholding of the Company as a result of the proposed private placements, the Company's Nominating and Corporate Governance Committee and Board require additional time to complete the Company's governance process and finalize the Director nominees to be presented at the Company's Annual General Meeting of Shareholders (the "AGM"). As a result, the Company announces that the AGM has now been postponed from July 24, 2015 to August 6, 2015.

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.

FORWARD-LOOKING STATEMENTS

Except for statements of fact relating to the Company, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate" and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements are based on the opinions and estimates of management at the dates the statements are made, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These factors include the Company's expectations of sufficient liquidity and capital resources to meets its ongoing obligations and future
contractual commitments; the completion of the Proposed Private Placements; the implementation of the coal Offtake Agreement; the execution of the Interim Loan; the execution of the Revolving Loan Commitments; the outcome of TSX delisting review; the ability to carry out the Funding Plan and other financing plans; and other statements that are not historical facts. Except as required by law, the Company undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change. The reader is cautioned not to place undue reliance on forward-looking statements.

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