SouthGobi Resources Limited
TSX : SGQ
HKSE : 1878

SouthGobi Resources Limited

December 01, 2014 07:13 ET

SouthGobi Resources Announces It Entered Into Private Placement Agreements for the Issue of New Shares

The cure period for the payment of the November 2014 cash interest due to CIC will continue until December 4, 2014

HONG KONG, CHINA--(Marketwired - Dec. 1, 2014) - SouthGobi Resources Ltd. (TSX:SGQ)(HKSE:1878) ("SouthGobi" or the "Company") announces it entered into private placement agreements for the issue of new Common Shares in the Company for gross proceeds of approximately US$9.0 million. In addition, the Company announces that China Investment Corporation ("CIC") has agreed that the cure period with respect to the November 2014 cash interest payment due on the secured convertible debenture held by a wholly owned subsidiary of CIC will continue until December 4, 2014.

Private Placement

The Company has entered into private placement agreements with independent investors through Yue Xiu Securities Co. Ltd ("Placing Agent"). The total gross proceeds from the private placements are approximately US$9.0 million (approximately US$8.9 million net after fees) through the issue of 24,360,773 Common Shares ("Placing Shares") at CAD$0.42 per share ("Placing Price").

The proceeds from the private placements will be applied towards the November 2014 installment of the cash interest due on the CIC convertible debenture.

The Placing Price of CAD$0.42 represents a discount of approximately 17.8% to the volume-weighted average price per Common Share of approximately CAD$0.51 as quoted on the Toronto Stock Exchange ("TSX") for the last five consecutive trading days immediately prior to the date of this announcement.

The Placing Price was determined with reference to the prevailing market price of the Common Shares of the Company and was negotiated on an arm's length basis between the Company and the Placing Agent. The Placing Agent will receive a placing commission of 1.5% of the amount which is equal to the Placing Price multiplied by the number of the Placing Shares. The placing commission was agreed after arm's length negotiations between the Company and the Placing Agent.

The closings of the placements require acceptance of notice of the placement by the TSX and are not subject to the Company's shareholders' approval.

The private placements are expected to increase the total number of Common Shares in the Company to 218,751,008.

The Placing Shares rank pari passu in all respects among themselves and with the issued Common Shares of the Company.

China Investment Corporation Interest payment deferral

In November 2009, the Company entered into a financing agreement with a wholly owned subsidiary of CIC for US$500 million in the form of a secured, convertible debenture bearing interest at 8.0% (6.4% payable semi-annually in cash and 1.6% payable annually in the Company's shares) with a maximum term of 30 years. The CIC convertible debenture is secured by a charge over the Company's assets and certain subsidiaries.

US$250.0 million aggregate principal amount of the CIC convertible debenture was converted into Common Shares in 2010.

On November 19, 2014 the Company was due to pay approximately US$8.1 million in cash and the equivalent of US$4.0 million in Common Shares. On November 20, 2014, the Company announced it was delaying the CIC cash interest payment until December 1, 2014 and continued to seek additional funding.

On November 21, 2014 the Company issued 7,067,848 Common Shares to CIC fulfilling the share component of the interest payment. As at December 1, 2014, CIC owned, through its indirect wholly owned subsidiary, approximately 19% of the issued and outstanding Common Shares of the Company.

CIC has agreed that the cure period with respect to the November 2014 cash interest payment on the convertible debenture will continue until December 4, 2014. In the event the Company fails to make the CIC convertible debenture interest installment when due on December 4, 2014, this would result in an event of default under the CIC convertible debenture and CIC would have the right to declare the principle and accrued interest owing thereunder immediately due and payable, which could result in voluntary or involuntary 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.

Current financial position

At December 1, 2014, the Company has cash of US$4.1 million which excludes proceeds from the private placements. The Company intends to apply the net proceeds of the proposed private placements towards the November 2014 installment of the cash interest due on the CIC convertible debenture.

The Company continues to seek additional funding in order to fund its operations and meet its objectives.

About SouthGobi

SouthGobi is listed on the Toronto and Hong Kong stock exchanges, in which Turquoise Hill Resources Ltd. ("Turquoise Hill"), also publicly listed in Toronto and New York, has a 53.9% shareholding (47.9% after completion of the proposed private placement). Turquoise Hill took management control of SouthGobi in September 2012 and made changes to the board and senior management. Rio Tinto has a majority shareholding in Turquoise Hill.

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.

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