SouthGobi Resources Limited
TSX : SGQ
HKSE : 1878

SouthGobi Resources Limited

March 03, 2015 08:50 ET

SouthGobi Announces the Successful Completion of the Initial Tranche of the Previously Announced Private Placement Raising US$3.5 Million and the Appointment of Ted Chan as Executive Director

HONG KONG, CHINA--(Marketwired - March 3, 2015) - SouthGobi Resources Ltd. (TSX:SGQ)(HKSE:1878) ("SouthGobi" or the "Company") announces the closing of the initial tranche of a two tranche private placement with Novel Sunrise Investments Limited ("Novel Sunrise"). The initial tranche closing consisted of the issuance of 10,131,113 mandatory convertible units of the Company ("Mandatory Convertible Units") to Novel Sunrise for US$3.5 million. The private placement was approved by the Toronto Stock Exchange (the "TSX") pursuant to the financial hardship provisions of the TSX Company Manual on March 2, 2015 and the TSX has informed the Company that it has been placed on remedial delisting review.

Private Placement

As announced on February 24, 2015, the closing of the initial tranche was completed pursuant to the terms of a private placement agreement entered into between the Company and Novel Sunrise on February 24, 2015. On February 24, 2015 Novel Sunrise also entered into a Sale and Purchase Agreement ("Novel SPA") with Turquoise Hill Resources Ltd. ("Turquoise Hill"), the Company's largest shareholder, to purchase 48,705,155 Common Shares of the Company currently held by Turquoise Hill subject to applicable regulatory approvals and other customary conditions.

Each Mandatory Convertible Unit issued to Novel Sunrise in the initial tranche is convertible on a one for one basis into a Common Share of the Company, resulting in a deemed issue price of CAD$0.432 per Common Share ("Placing Price"). The Mandatory Convertible Units mandatorily convert into Common Shares upon the earlier of the closing of the Novel SPA or the termination thereof. The 10,131,113 Common Shares underlying the Mandatory Convertible Units represent 4.63% (on a pre-issuance basis) of the total number of the Company's 218,753,970 Common Shares issued and outstanding at the date of this announcement. The Mandatory Convertible Units do not have any voting rights until converted into Common Shares in accordance with their terms.

Upon closing of the Novel SPA, the private placement agreement provides for a further subscription by Novel Sunrise of up to 11,618,887 Common Shares for additional gross proceeds of approximately US$4.0 million on or before April 10, 2015 (being 45 days from the date of the Private Placement Agreement), subject to regulatory approvals and other customary closing conditions.

Appointment of Executive Director

In accordance with the private placement agreement, on March 3, 2015, Mr. Ted Chan was appointed to the Company's management team and joined the Company's Board of Directors as an Executive Director. Mr. Chan has over 25 years of enterprise management experience. Mr. Chan is currently President of Novel Sunrise which, together with its affiliated companies in China (collectively, the "Novel Group"), is a leading private enterprise in the real estate, logistics and supply chain management industries. Mr. Chan has been with the Novel Group for over 20 years. Under his leadership, the Novel Group significantly increased its involvement in the procurement of construction materials and established strong relationships, as a customer, with a number of the leading steel and cement manufacturers in China. In the 2000s, the Novel Group further expanded its business into the logistics and trading of construction materials including iron ore, coking coal, steel and cement products. The Novel Group has since grown these relationships and developed further relationships with well-established state owned trading corporations. As it has expanded its business, the Novel Group has also established strong relationships with key commercial banks in China and Hong Kong.

Prior to his position with the Novel Group, Mr. Chan was the General Manager for Beijing Wanhai Real Estate Development Co. Ltd, which developed several residential and commercial properties in gateway cities of China. Between 1991 and 1993, Mr. Chan was the Chief Representative of Ocean Trading Corporation for their Beijing office. Ocean Trading Corporation was a US based company overseeing investments and trading activities between China and the United States. Mr. Chan holds a Bachelor of Art degree from the Communication University of China in Beijing.

There is no specific term or proposed length of services for Mr. Chan's appointment, but he is subject to retirement and re-election at the Company's annual general meeting in accordance with the articles of continuation of the Company. Mr. Chan's compensation is to be determined by the Company's Board of Directors based on the recommendation of the Compensation and Benefits Committee, which is comprised of independent directors, consistent with existing Company director compensation. Mr. Chan does not have any relationship with any other directors, senior management, substantial or controlling shareholders of the Company other than as disclosed above. Save as disclosed above, there is no other information relating to the appointment of Mr. Chan as an Executive Director that is required to be disclosed pursuant to Rule 13.51(2)(h) to (v) of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (the "Listing Rules") nor any matters that need to be brought to the attention of the shareholders of the Company. Save as disclosed above, the new Executive Director does not have any interest in the shares of the Company within the meaning of part XV of the Securities and Future Ordinance.

TSX Financial Hardship Exemption Application and Status of Listing on TSX

On February 25, 2015, the TSX confirmed that the Company had been placed on remedial delisting review in connection with its reliance on the financial hardship exemption from approval by its shareholders of the private placement and advised the Company that its financial and operating results may not warrant that its securities continue to be listed on the TSX. A delisting review is customary practice under TSX policies when a listed company relies on the financial hardship exemption. SouthGobi has 90 days to comply with all requirements of the TSX for continued listing and a meeting of the TSX Continued Listing Committee to consider this matter has been scheduled for May 19, 2015. The Company believes the proceeds of the private placement will allow it to meet its short term financing needs and that it will be compliant with the continued listing requirements of the TSX within the 90 day compliance period following full completion of the private placement; however, no assurance can be provided as to the outcome of the remedial delisting review and the Company may become subject to delisting from the TSX.

Current financial position and funding plan

At March 3, 2015, the Company has cash of US$5.8 million. The funds raised from the initial tranche of the private placement are expected to enable the Company to continue to operate as a going concern through March 31, 2015, and upon closing of the balance of the private placement, through April 30, 2015.

The Company is entering into the transaction with Novel Sunrise as a new significant shareholder and strategic partner intending to bring its operational and marketing expertise to the Company. Novel Sunrise, together with its affiliated companies in China, is a leading private enterprise in the real estate, logistics and supply chain management industries. In this connection, Novel Sunrise has agreed to assist the Company in the implementation of a funding plan intended to improve cash flow for the Company and support its business strategy and operations in a difficult market, with the goal of positioning the Company with a strong future as a coal producer. The proposed plan includes introducing potential customers in China to the Company to allow the Company to expand its customer base further inland in China, and helping the Company to secure longer-term coal offtake arrangements, thereby allowing the Company to ramp up production to capacity. Novel Sunrise has also advised the Company that as part of the financing plan it intends to help the Company establish relationships with commercial banks in China and Hong Kong to help the Company to secure short term bridge loans, trading credit facilities and other types of financing.

While it is the Company's intention to proceed to implement the new funding plan with Novel Sunrise's assistance as soon as possible, the proposed plan is indicative only and the Company's ability to implement it successfully is dependent on a number of factors beyond its control, including but not limited to, China's economic growth and coal demand growth, market prices of coal, the availability of credit and market interest rates, and exchange rates of currencies of countries where the Company operates, and there can be no assurance that the Company will be able to do so, or that it will be able to do so in sufficient time to continue as a going concern. In such event, the Company is likely to be unable to meet its obligations, which could result in voluntary or involuntary insolvency proceedings involving the Company as discussed under the heading "Risk Factors" in the Management Discussion and Analysis issued on November 10, 2014 and available on SEDAR at www.sedar.com.

The Company intends to continue to seek additional financing to fund its operations and meet its objectives following the closing through the implementation of the financial plan described above.

About SouthGobi

SouthGobi is listed on the Toronto and Hong Kong stock exchanges, in which Turquoise Hill, also publicly listed in Toronto and New York, currently has a 47.9% shareholding.

SouthGobi 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, 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 Novel SPA; the outcome of TSX delisting review; the ability to carry out the proposed 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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