SouthGobi Resources Limited
TSX : SGQ
HKSE : 1878

SouthGobi Resources Limited

March 22, 2015 19:42 ET

SouthGobi's Appeal in Tax Case Will Be Heard by Mongolia's Court of Appeal on March 25, 2015

Turquoise Hill Resources Ltd. to Announce Select Financial Information in Respect of SouthGobi Prior to March 30, 2015

HONG KONG, CHINA--(Marketwired - March 22, 2015) - SouthGobi Resources Ltd. (TSX:SGQ)(HK:1878) ("SouthGobi" or the "Company") announced on February 1, 2015, that on January 30, 2015, three former employees of SouthGobi Sands LLC ("SGS"), the Company's Mongolian subsidiary, were found guilty of tax evasion by the panel of appointed judges from the Second District Criminal Court of Justice. Sentences for the former employees ranged from 5 years and 6 months to 5 years and 10 months of imprisonment in the correctional facilities of strict regimen in Mongolia and fines of MNT1,000,000 (approximately US$510) or the equivalent amount in assets for each defendant. In addition, SGS has been found to be financially liable as a "civil defendant" for a penalty of MNT35.3 billion (approximately US$17.7 million at March 20, 2015).

The Company is resolute in defending itself and firmly rejects the Court's verdict. Therefore, it filed an appeal against the Court's verdict on February 18, 2015. The Company has been notified by the 10th Appeal Court for Criminal Case of Mongolia that the hearing for the appeal has been set for March 25, 2015, subject to any postponement that can be granted by the appointed judge. The Company's decision to appeal the Court's verdict is consistent with its view that there have been gross violations of the Mongolian law throughout the investigations and Court's process.

The Company, including SGS, has prepared its financial statements in compliance with International Financial Reporting Standards ("IFRS"), and lodged all its tax returns as required under Mongolian tax law. During the investigative period, the Company requested that one of the largest and most reputable international auditing firms conduct an independent assessment of the allegations raised through the investigations. The auditing firm concluded that the experts' reports had no basis and were the result of incomplete reviews and the erroneous interpretation of a mining company's financial statements prepared in accordance with Mongolian accounting and reporting standards and Mongolian tax laws. The auditing firm also concluded the experts had failed to consider all relevant information and documents provided by the Company during the investigations.

The General Tax Law of Mongolia outlines the process and authorities who should be responsible for the resolution of tax disputes, none of which have been followed in this case. The Company has enquired and not received any explanation as to why the case is being treated as a criminal case. Consequently, the Company disputes both the process as well as the conclusions of the investigations that led to the accusations and verdict against SGS. No new evidence was presented during the latest Court hearing and the Company firmly considers these allegations were never proven.

The Company reiterates that it has not committed tax evasion and will continue to vigorously defend itself through the appeal process.

OTHER INFORMATION

The Company expects to announce its fourth quarter and full year 2014 financial results on March 30, 2015. Refer to press release "SouthGobi Resources to announce fourth quarter and full year 2014 financial results on March 30, 2015" issued by the Company on March 18, 2015 and available on SEDAR at www.sedar.com.

Turquoise Hill Resources Ltd. ("Turquoise Hill"), which owns 47.9% of the Company's shares as at March 20, 2015, has informed the Company that it will issue its fourth quarter and full year 2014 financial results prior to March 30, 2015.

Turquoise Hill has advised the Company that it will include select financial information for the 11 months ended November 30, 2014 including Revenue and Cost of Sales and additional information for the 12 months ended December 31, 2014 as it relates to their investment in the Company.

Investors are cautioned that the information presented by Turquoise Hill should not be relied upon as a representation of the Company's 12 month results given:

  • Turquoise Hill presents its financial information in accordance with US Generally Accepted Accounting Principles ("USGAAP") whilst SouthGobi presents its financial information in accordance with International Financial Reporting Standards ("IFRS");
  • The Company understands that Turquoise Hill's financial results will reflect USGAAP adjustments that result from the change of status of Turquoise Hill's SouthGobi shareholding from consolidated to equity accounted as well as from a continuing operation to a discontinued operation combined with the investment in the Company being accounted for as held for sale. Those adjustments will be specific to Turquoise Hill's own financial treatment of its investment, and will result in material differences from the Company's own 2014 financial results; and
  • Variances in the time period for certain disclosures (e.g. 11 months compared to 12 months).

As a consequence, the information presented by Turquoise Hill may be materially different compared to the Company's full year audited results expected to be released on March 30, 2015. Turquoise Hill's financial statements should therefore not be relied upon by SouthGobi investors as representative of the Company's actual 2014 year-end financial results.

Full details in respect of Turquoise Hill's fourth quarter and full year 2014 financial results will be made available on SEDAR at www.sedar.com.

For the reasons mentioned above, shareholders of the Company and potential investors are advised to exercise caution in using information expected to be released by Turquoise Hill pertaining to SouthGobi.

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, 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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