HONG KONG, CHINA--(Marketwired - Jul 28, 2015) - SouthGobi Resources Ltd. (TSX:SGQ) (HKSE:1878) ("SouthGobi" or the "Company") today announces a change in executive director, an update on its funding plan, a deferral of the May CIC Convertible Debenture interest payment due date until November 19, 2015 and a request for an extension of its TSX delisting review. All figures are in U.S. Dollars unless otherwise stated.
MANAGEMENT CHANGES
As previously announced, the Company has been advised that China Cinda (HK) Investments Management Company Limited ("Cinda") has acquired control of Novel Sunrise Investments Limited ("Novel"), the Company's largest shareholder, holding approximately 29% of the Company's common shares. The Company further understands that Cinda is indirectly owned and controlled by the Ministry of Finance of the People's Republic of China.
Cinda has confirmed to the Company its continuing support for the Company's funding plan (the "Funding Plan") referred to in the Company's Management Discussion and Analysis ("MD&A") issued on May 11, 2015 (see Section 5: "Liquidity and Capital Resources" under the subheading "Proposed Funding Plan"), which is available at www.sedar.com.
On July 26, 2015, the Company's board of directors appointed Mr. Yulan Guo, a director of both Novel and the Company, as Executive Director and Interim CEO of the Company, replacing Mr. Ted Chan, effective immediately. Mr. Chan is now a Non-Executive Director of the Company. Mr. Ningqiao Li, also a director of Novel, continues to serve as a director of the Company.
The Company expects that there will be further changes to its management and changes to its proposed slate of directors described in its management proxy circular dated July 7, 2015, and will issue further releases once more details are known.
PROGRESS ON THE FUNDING PLAN
Following discussions with Cinda, the Company announces the following arrangements in furtherance of the Funding Plan, subject to all necessary regulatory filings and approvals, in order to enhance its operating cash flow:
Customer Offtake Agreements
Pursuant to an existing customer offtake agreement, the Company has received a payment of $1 million on July 24, 2015 and expects to receive an additional $3 million in payments under the offtake agreement over the course of the next three weeks, in weekly instalments of $1.0 million, which will assist the Company's short term cash flow.
The Company expects to enter into new offtake agreements with existing customers and other third parties in the current quarter with a view to generating total aggregate proceeds to the Company of $4 million to $6 million per month (subject to monthly production in excess of 200,000 tonnes of coal).
Loans
The Company intends to advance negotiations for loans from certain of its customers and other third parties for aggregate proceeds of up to $11.5 million. The Company anticipates finalizing and accessing such loans over the course of the current quarter. These loans are intended to assist in supplementing the Company's near term cash flow needs. There is no assurance that the Company will be successful in securing these loans or the offtake agreements described above and any failure to secure such loans or offtake agreements could have a material and adverse effect on the Company's financial liquidity.
Other Funding Initiatives
Further to the Company's announcement dated July 23, 2015, the Company has decided to pursue the funding plan described above rather than additional equity placements with CITIC Merchant Co., Limited or other parties at the present time. The Company has requested a funding drawdown on the interim loan facility commitment provided by Wilson Chen, the former controlling shareholder of Novel; however, the Company has to date not received such funding. The Company continues pursuing the loan facilities described in more detail in the Company's announcement dated June 22, 2015 and available on SEDAR at www.sedar.com.
CIC CONVERTIBLE DEBENTURE
China Investment Corporation ("CIC") has agreed, subject to certain conditions and limitations, to grant a further deferral of payment of the May 2015 cash interest installment of approximately $7.9 million originally due on May 19, 2015 under the Convertible Debenture (the "May Installment") until November 19, 2015, to allow the Company sufficient time to complete changes to its management and to progress the Funding Plan. As consideration for the extension, the Company has agreed to pay CIC a deferral fee of 6.4% per annum on the amount of the May 2015 cash interest installment.
The CIC Convertible Debenture bears interest at a rate of 8.0% per annum (6.4% payable semi-annually in cash and 1.6% payable annually in the Company's shares). The second interest installment for 2015 under the Convertible Debenture will also become due on November 19, 2015, subject to a three day cure period. CIC has indicated to the Company that further deferrals may be granted to the Company, in CIC's sole discretion, based on positive performance and operational achievements during the deferral period.
In the event the Company fails to pay the May 2015 and November 2015 cash interest installments when due on November 19, 2015, this would result in an event of default under the CIC Convertible Debenture and CIC would have the right to declare the full principal and accrued interest owing thereunder immediately due and payable, which could result in voluntary or involuntary proceedings involving the Company (including bankruptcy) as discussed under the heading "Risk Factors" in the MD&A issued on March 30, 2015 and available on SEDAR at www.sedar.com.
In all other respects, the provisions of the CIC Convertible Debenture remain in full force and effect and the deferral of the May interest payment by CIC is without prejudice to CIC's right to pursue any of its remedies at any time if an event of default occurs pursuant to the continuing terms of the CIC Convertible Debenture.
TSX DELISTING REVIEW
As announced by the Company on July 23, 2015, a meeting of the Listings Committee of TSX was scheduled to be held on July 27, 2015 and their decision was expected no later than July 29, 2015.
The Company has requested an approval from TSX for a 30 day extension of the delisting review hearing until August 27, 2015.
The Company believes the extension will provide sufficient time for the implementation of the next stage of the Funding Plan, which will allow it to meet its short term financing needs, and that it will be compliant with the continued listing requirements of the TSX; however, no assurance can be provided that the TSX will grant the Company the requested extension nor can any assurance be provided as to the outcome of the remedial delisting review when it occurs and the Company's Common Shares may become subject to delisting from the TSX.
For additional detail, please refer to the section "Liquidity and Capital Resources" under the heading "TSX Financial Hardship Exemption Application and Status of Listing on the TSX" in the MD&A issued on May 11, 2015 and available on SEDAR at www.sedar.com.
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 ability to sign further coal offtake agreements, further interest payment deferrals by CIC under the Convertible Debenture, additional changes to management or the Company's board of directors, the outcome of TSX delisting review and receipt of extensions therefor; 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.
