Inside Information and Announcement Pursuant To Rule 13.09 of the Listing Rules in Relation to Voluntary Delisting; Amendments to the Articles of Continuation; and Amendments to the Equity Incentive Plan

SouthGobi Resources Ltd. (TSX:SGQ, HK:1878) ("SouthGobi" or the "Company") announces that, this announcement is made by SouthGobi Resources Ltd. (the "Company") pursuant to Rules 13.09 and 13.51(1) of the Rules Governing the Listing of Securities (the "Listing Rules") on the Hong Kong Stock Exchange, paragraph 3.42 of the Guidance Letter HKEX-GL-112-22 (the "Guidance Letter") and the inside information provisions under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong

1. VOLUNTARY DELISTING

1.1 Background

Reference is made to the Company's announcement dated April 21, 2022 (Hong Kong time) ("Announcement"). Unless otherwise specified, capitalized terms used in the Announcement shall have the same meanings when used herein.

1.2 Delisting from a Recognised Stock Exchange and Receipt of the Exchange Acknowledgment

The Company has been primarily listed on the TSX (Stock Code: SGQ) since December 2009 and secondary listed on the HKEX (Stock Code: 1878) since January 2010. In April 2022, the Company approved plans for a voluntary delisting from the TSX and listing of its shares on the TSX-V and proceeded with the relevant preparatory work and necessary procedures to complete such process. Since TSX-V is not one of the Recognised Stock Exchanges (as defined under the Listing Rules), such change in the Company's listing status from TSX to TSX-V constitutes a voluntary delisting from its Recognised Stock Exchange of primary listing (i.e. TSX) for the purpose of Rule 19C.13A of the Listing Rules. The Company has applied to the TSX for the voluntary delisting ("Delisting") and to the TSX-V for the listing of the Company's shares on the TSX-V. In accordance with Section 720(b) of the TSX Company Manual, the Company will not need to obtain shareholder approval as a condition of acceptance of the voluntary delisting because it will list its shares on the HKEX and TSX-V concurrent with the voluntary delisting from the TSX.

As disclosed in the Announcement and the Management Proxy Circular, the Company has submitted a written notification to the Hong Kong Stock Exchange ("Notification") in relation to the proposed Delisting detailing, among other things, that it was anticipated that the Delisting shall become effective on July 29, 2022 and the Company will fully comply with the applicable Listing Rules from the Effective Date, save for certain exceptions and waivers as detailed in this announcement. On July 28, 2022, the Company received an acknowledgment from the Hong Kong Stock Exchange in respect of the Delisting issued pursuant to paragraph 3.34 of the Guidance Letter ("Exchange Acknowledgment"), which informs the Company on the dis-application of the stock marker "S" on the Effective Date and, upon the Delisting, the Hong Kong Stock Exchange will regard the Company as having a primary (rather than secondary) listing status on the Hong Kong Stock Exchange pursuant to Rule 19C.13A of the Listing Rules. While it was disclosed in the Management Proxy Circular that the anticipated effective date of the Delisting would be July 29, 2022, the Company wishes to update its Shareholders and investors that, subject to obtaining the said approvals from the TSX and TSX-V, the Company is targeting to complete the Delisting prior to mid-September 2022. The Company will provide further updates to the Shareholders and the public on the date on which the Delisting is to be completed (the "Effective Date").

1.3 Reasons for the Delisting

As disclosed in the Announcement, the Company's board of directors ("Board") determined that it is in the best interest of the Company and its shareholders ("Shareholders") as a whole to seek a listing of the Company's common shares on the TSX-V, and to voluntary delist from the TSX, as a listing on the TSX-V offers more flexible listing requirements for an existing TSX-listed issuer seeking a listing on the TSX-V as a Tier 2 mining issuer in relation to minimum working capital or financial resources and business activity, which better accommodate the Company's current operational and financial position, while still providing Shareholders with continued liquidity on a stock exchange which is recognized for its leadership in mining issuer listings.

1.4 Compliance with the Listing Rules upon Delisting

Upon the Effective Date, it is expected that the Company will be able to comply with all the relevant Listing Rules applicable to a primary listed issuer, including the Listing Rules where exceptions, waivers and exemptions had been granted to the Company as a secondary listed issuer on the Hong Kong Stock Exchange (the "Existing Waivers") which are expected to be withdrawn or will no longer be applicable upon the Effective Date, unless otherwise separately waived or exempted by the Hong Kong Stock Exchange. The Company intends that, save as otherwise being exempted or waived by the Hong Kong Stock Exchange as detailed in paragraphs 1.5 and 1.6 below, it has taken and will take all reasonable and prudent steps to comply with all the relevant Listing Rules applicable to the Company following the Effective Date by making all necessary arrangements ("Arrangements") to effectuate the Delisting, as obliged by the applicable Listing Rules requirements. The Arrangements include, amongst other things:

1. amendments ("Articles Amendments") to the Articles of Continuation of the Company ("Articles") to satisfy the requirements pursuant to Appendix 3 to the Listing Rules, which were approved by the Shareholders at the Company's annual general and special meeting held on July 21, 2022 (the "Shareholders Meeting") and shall be effective upon the Delisting;
2. amendments ("EIP Amendments") to the Company's existing Employee's and Directors' Equity Incentive Plan ("Equity Incentive Plan"), which were approved by the Shareholders at the Shareholders Meeting and shall be effective upon the Delisting;
3. review of the existing internal control policies and adoption of all necessary internal control measures, including the new Corporate Governance Policy approved by the Board prior to the Effective Date, to ensure, inter alia,its ongoing compliance with applicable requirements under Chapters 13, 14 and 14A of the Listing Rules, as well as rules governing the disclosure of inside information, share repurchase, potential conflict of interest and dealing in the listed securities by the Directors;
4. amendments to charters of its Audit Committee and Compensation and Benefits Committee to comply with Appendix 14 to the Listing Rules; and
5. arrangement for suitable training for the Directors following the Delisting to ensure that they participate in continuous professional development to advance and refresh their knowledge and skills as directors of a HKEX-listed company.

Please refer to the Management Proxy Circular of the Company dated June 22, 2022 published on the Stock Exchange's website (www.hkexnews.hk) and the Company's website (www.southgobi.com) (the "Management Proxy Circular") for, amongst others, details of the Articles Amendments, the EIP Amendments and the Equity Incentive Plan. At the Shareholders Meeting, amongst others, the Shareholders passed a special resolution to approve the Articles Amendments and passed ordinary resolutions to approve the EIP Amendments. Please refer to the poll results announcement of the Company dated July 22, 2022 (the "Poll Results Announcement") for further details of the results of the Shareholders Meeting.

1.5 Waiver from Listing Rules on "Two-way" Voting

Requirements under the Listing Rules

Rule 13.38 of the Listing Rules requires that the Company sends, with the notice convening a meeting of holders of listed securities to all persons entitled to vote at the meeting, proxy forms with provision for "two-way" voting, i.e., the Shareholders are provided with options to vote "for" or "against" the resolutions, on all resolutions intended to be proposed at a meeting.

Reasons for applying the waiver

Pursuant to applicable British Columbia corporate laws, the election of Directors or the appointment of auditors of the Company ("Auditors") are conducted through "plurality voting" method, i.e., Shareholders are only able either to vote for the resolution or to withhold from voting. Shareholders are not provided the opportunity to vote against the resolution, and the "withheld" votes are not counted in the tally of votes, meaning that, for example, a resolution can be passed if only one vote is cast "for" such resolution, even where the majority of Shareholders have withheld from voting. As such, the proxy forms will state that the Shareholder is only able either to vote for the resolution or withhold from voting. The Company is prohibited under the applicable law to amend the Articles and override the relevant statutory provisions, and this precludes the use of "two-way" voting for the election of Directors and the appointment of Auditors. Therefore, the Company would conflict with applicable British Columbia corporate laws to strictly comply with Rule 13.38 of the Listing Rules.

Given the preclusion of the use of "two-way" voting for the election of directors under the British Columbia corporate laws and as a requirement for TSX-listed company, the Company has adopted a majority voting policy to uncontested meetings (i.e., the number of nominees for election is equal to the number of Directors to be elected as set out in the Company's management information circular for the particular meeting) for the election of the Directors (the "Majority Voting Policy"). Pursuant to the Majority Voting Policy, each Director must be elected individually (rather than as a slate) by a majority (50% plus one vote) of the votes cast (i.e., more votes ‘‘for'' than votes ‘‘withheld'') with respect to his or her election. They are required to deliver a pre-executed resignation to the Company, which would be used immediately if a Director nominee is not elected by at least a majority of the votes cast with respect to his or her election, effectively tendering his or her resignation to the Board. The Majority Voting Policy is intended to provide shareholders of TSX-listed companies with an ability to vote "against" a Director nominee.

On the other hand, the Majority Voting Policy adopted by the Company for election of the Directors does not apply to appointment of Auditors. The reason is that if the Majority Voting Policy applies to the appointment of Auditors, a newly elected auditor whose appointment is not approved by a majority vote (i.e., the ‘‘for'' votes are less than the ‘‘withheld'' votes) will be forced to resign and a vacancy will thus be created. Furthermore, under the applicable British Columbia corporate laws, the Majority Voting Policy cannot bind outside parties like the Auditors and the Auditors are under no obligations to abide to the Majority Voting Policy implemented by the Company.

Waiver application

The Company has applied to the Hong Kong Stock Exchange for a waiver from strict compliance with Rule 13.38 of the Listing Rules, subject to the Delisting becoming effective and to the Hong Kong Stock Exchange's approval on the following bases:

1. the Company has already established the Audit Committee (all members of which are independent non-executive Directors) and the Nominating and Corporate Governance Committee (all members of which are independent non-executive Directors) which will determine and make recommendations on, with delegated responsibilities and in compliance with the requirements of the Listing Rules and on an annual basis, the appointment of Auditors and the nomination of Directors. Each of the independent non-executive Directors is also subject to re-election by the Shareholders in each annual meeting of the Shareholders;
2. under the British Columbia corporate laws, it is not possible to amend the Articles to achieve the same effect of the Majority Voting Policy. The Company undertakes that, upon the Delisting, it will continue to voluntarily adopt the Majority Voting Policy in uncontested elections of Directors, which is consistent with the standard practice for TSX-listed companies in Canada. The Company will also extend the applicability of the Majority Voting Policy to contested elections of Directors, which is permitted under Canadian corporate law;
3. where the number of the ‘‘withheld'' votes exceeds that of the ‘‘for'' votes of the elected Auditors which gives rise to concerns of the Directors regarding the appropriateness of such Auditors' appointment, the Directors will, upon consulting the Audit Committee, call a special meeting of the Shareholders and propose ordinary resolutions to the Shareholders to consider removing the elected Auditors and appointing replacement Auditors in its stead for the remainder of its term. The Company considers that this arrangement will allow the Shareholders to express their objection to the appointment of the Auditors, and at the same time ensure that the Company will not be bereft of Auditors; and
4. Shareholders who hold in aggregate not less than 1/20 (5%) of the issued voting shares of the Company may requisition a general meeting of Shareholders. Upon receiving a valid requisition, the Board must call a general meeting within four months after the date of requisition to transact the business stated in the requisition. Directors and Auditors can be removed by ordinary resolutions at a meeting of Shareholders in favour of such removal, where Shareholders will have the option to vote ''for'' or ''against'' such a resolution to remove a director or an auditor at such meeting. If the Directors do not, within 21 days after the date on which the requisition is received by the Company, send notice of a general meeting, the requisitioning Shareholders, or any one or more of them holding, in the aggregate, more than 1/40 of the issued Shares that carry the right to vote at general meetings, may send notice of a general meeting to be held to transact the business stated in the requisition.

1.6 Waiver from certain continuing connected transaction requirements under Chapter 14A of the Listing Rules

Background of the continuing connected transactions

The Convertible Debenture and the Cooperation Agreement

Prior to the secondary listing of the Company on the Stock Exchange, the Company, upon the approval by the Shareholders, issued the convertible debenture ("Convertible Debenture") to Land Breeze II S.à.r.l ("Land Breeze"), a wholly-owned subsidiary of China Investment Corporation ("CIC"), on November 19, 2009 to provide necessary financing to support the Company's expansion plans in Mongolia, repayment of debt due, and other general corporate purposes. As negotiated and entered into in conjunction with, and as a condition to the CIC's subscription of the Convertible Debenture, the Company and CIC (through Fullbloom Investment Corporation ("Fullbloom"), its wholly-owned subsidiary) also executed a cooperation agreement ("Cooperation Agreement") on the same date, pursuant to which both parties agreed to use their best endeavours to improve cross-border commerce in order to facilitate improved access to the China market for Mongolian commerce, and vice versa.

The key terms of the Convertible Debenture and the relevant accounting treatment and policies were set out in the prospectus of the Company dated January 15, 2010.

Amended and Restated Cooperation Agreement

On April 23, 2019, the Company and CIC (through Land Breeze) entered into a deferral agreement ("2019 Deferral Agreement") pursuant to which Land Breeze agreed to a deferral and revised repayment schedule in respect of the outstanding cash interest and payment in kind interest shares payable under the Convertible Debenture ("Deferral"). On the same day, the Company amended and restated the Cooperation Agreement ("Amended and Restated Cooperation Agreement", together with the Cooperation Agreement, the "Cooperation Agreements") with CIC (through Fullbloom) to clarify the original intent of the parties for calculating service fee payable by the Company under the Cooperation Agreement, pursuant to which a service fee would be calculated based on revenues derived by the Company and all of its subsidiaries which derive sales into China ("Net Revenues") (rather than the net revenues realised by the Company and its Mongolian subsidiaries). Such amendment to the Cooperation Agreement was minimal and did not trigger Shareholders' approval requirement at the time.

The 2019 Deferral Agreement and the Amended and Restated Cooperation Agreement were disclosed in the announcement of the Company and the management proxy circular of the Company dated April 23, 2019 (the "Disclosure Documents"), and the 2019 Deferral Agreement and the Deferral were approved at the general meeting of Shareholders on May 30, 2019.

Sale Transaction

On May 27, 2022, the Company announced that CIC has entered into an agreement ("Sale Transaction") to sell the Sale Shares (as defined below) to JD Zhixing Fund L.P. ("Fund"). In connection with the Sale Transaction, the Fund would be assigned with all of CIC's rights in and obligations under, among the others: (i) the Convertible Debenture; (ii) the Amended and Restated Cooperation Agreement; and (iii) the deferral agreements (including the 2019 Deferral Agreement) between CIC, the Company and certain of its subsidiaries in connection with the deferral of interest payments and other outstanding fees under the Convertible Debenture and the Amended and Restated Cooperation Agreement. Assignment of rights and obligations under the Amended and Restated Cooperation Agreement by CIC to the Fund required consent from the Company (which consent shall not be unreasonably withheld), and the Company provided such consent.

The Company expects the completion of the Sale Transaction ("Completion") shall take place prior to the Effective Date.

Listing Rules implications

Prior to Completion and at the date of this announcement, CIC holds 64,766,591 Shares ("Sale Shares"), representing approximately 23.62% of the total share capital of the Company. Accordingly, the Fund (and its associates) will become connected persons of the Company following Completion and upon Delisting. As such, pursuant to Chapter 14A of the Listing Rules, the continuing transactions under the Amended and Restated Cooperation Agreement shall constitute continuing connected transactions of the Company upon Delisting.

Pursuant to paragraph 1.2 under Appendix to the Guidance Letter HKEX-GL-112-22, since the Company had already entered into continuing transactions under the Amended and Restated Cooperation Agreement which remained subsisting as at the date of the Notification, and such transactions are expected to continue after the Delisting becomes effective, the Company is required to fully comply with the applicable Listing Rules on such transactions.

The Company cannot rule out the possibility that the highest applicable percentage ratios (other than the profits ratio) under the Listing Rules in respect of the service fee payable under the Amended and Restated Cooperation Agreement would exceed 5% for most part of the remainder of the Term. As such, the Amended and Restated Cooperation Agreement, unless otherwise exempted, will be subject to the reporting, annual review, announcement, circular, independent financial advice, and Shareholders' approval requirements under Chapter 14A of the Listing Rules.

Waiver application

The Company has applied to the Hong Kong Stock Exchange for a waiver from strict compliance with (i) the independent Shareholders' approval requirement under Rule 14A.36 of the Listing Rules in respect of the transactions under the Amended and Restated Cooperation Agreement; and (ii) the requirement under Rule 14A.53 of the Listing Rules to set an annual cap expressed in monetary terms for the fees payable by the Company under the Amended and Restated Cooperation Agreement. The Directors consider that it would be unduly burdensome and impracticable if the continuing connected transactions under the Amended and Restated Cooperation Agreement are subject these requirements for the following reasons:

(A) The Amended and Restated Cooperation Agreement is an agreement for a fixed period with fixed terms

The key terms of the Amended and Restated Cooperation Agreement are as follows:

1. CIC would provide, among others, advice and services to the Company on matters that include coal products sales, procurement of transportation and logistics services, marketing of coal products, procurement of goods and services, and creation of economies of scale (the "Services");
2. CIC would receive a customary commercial payment for such Services in an amount equal to 2.5% of all Net Revenues, which would be calculated and paid by the Company in quarterly instalments; and
3. coterminous with the Convertible Debenture, the Amended and Restated Cooperation Agreement has a term of 30 years from November 19, 2009 ("Term") subject to earlier termination with both of the following conditions fulfilled:
   1. the Convertible Debenture is fully converted into Shares or otherwise fully repaid; and
   2. following such conversion or repayment, CIC holds less than 15% of the total issued and outstanding Shares.

Effective upon Completion, the Fund has agreed to waive certain service fee payable by the Company under the Amended and Restated Cooperation Agreement (the "Fee Waiver"), effectively reducing the service fee payable from 2.5% to 1.5% of all Net Revenues. Having discussed with the Fund, save for the Fee Waiver, both the Company and the Fund have a mutual understanding that they have no plan or intention to vary the terms of the Amended and Restated Cooperation Agreement in the foreseeable future.

The Amended and Restated Cooperation Agreement, combined with the Fee Waiver, remain an agreement for a fixed period with fixed terms. Despite the Sale Transaction which triggered the assignment of the Amended and Restated Cooperation Agreement, there has been no change to the scope of the Services and the Term of the Amended and Restated Cooperation Agreement. The Company will continue to benefit from the provision of Services by the counterparty (i.e., CIC, and following Completion, the Fund) throughout the Term of the agreement at a fixed service fee rate of Net Revenues. No separate agreement is required to be entered into between the Company and the Fund for the Amended and Restated Cooperation Agreement to take effect.

(B) Continuation of the Amended and Restated Cooperation Agreement is fundamental to the Company's business operations

(i)Relationship between theCooperation Agreement and the Convertible Debenture

The Convertible Debenture and the Cooperation Agreement are coterminous with each other. The Cooperation Agreement stipulates that it was entered into "in connection with" the issuance of the Convertible Debenture. In addition, both agreements were approved by the Board as well as the Shareholders at the same time prior to their respective execution.

In furtherance of the above, any breach of the Company's payment obligation under the Cooperation Agreement may constitute an event of default under the Convertible Debenture, accelerating repayment obligation of the Convertible Debenture. Also, the Company has no definitive right to terminate the Cooperation Agreement (and hence the Amended and Restated Cooperation Agreement) before the expiration of the Term unless the Convertible Debenture is repaid. It would be impracticable for the Company, and not in the best interest of the Company and its Shareholders as a whole, to repay the above outstanding amount before the expiry of the Term and to terminate the Amended and Restated Cooperation Agreement.

(ii) Support and services provided to the Company under the Amended and Restated Cooperation Agreement

The Company is a prominent coal producer in Mongolia, focusing on mining and exploration of coking coal and thermal coal. The Company's flagship mine is located approximately 40 kilometres from the China-Mongolia border. Due to the strategic location of its mine, the Company sells almost all its coal products to customers in China as part of its business model. The success of the Company's business model was and continues to be dependable on the growth of its target customers, which are all within China.

CIC is a wholly state-owned company mainly engaged in foreign exchange investment management businesses. As set out in the Cooperation Agreement (as amended and restated by the Amended and Restated Cooperation Agreement), the service provided by CIC during the term of the Cooperation Agreement includes, among others, (i) marketing of products, including identification of, and introduction to, potential new customers for the products of the Company; (ii) procurement of transportation and logistics services within the PRC; and (iii) procurement of goods and services within the PRC for the mining projects of the Company, including identification of, and introduction to, potential new suppliers and service providers. Other benefits brought to the Company by the Cooperation Agreement and the Amended and Restated Cooperation Agreement include:

1. CIC has been advising the Company on its operations since 2009, including the setting up of the mine site, wash plant and purchasing of mining equipment; and
2. The Company's sales channel was initially limited to local areas. Over the years, CIC assisted with reconfiguring the Company's sales, marketing and procurement strategies and the establishment of certain subsidiaries under the Company in China, which enabled the Company to sell its coal products directly to local customers in China at higher prices thereby improving the Company's gross profit margin as a whole.

On the other hand, the Fund is an exempted limited partnership formed under the laws of the Cayman Islands. The Fund's general partner and limited partner are JD Dingxing Limited and Inner Mongolia Tianyu Trading Limited, respectively. To the Company's best knowledge and belief, the ultimate beneficial owner of the limited partner is Mr. An Yong (安勇) and that of the general partner is Ms. Zhu Chonglin (朱重臨). Mr. An Yong is the founder and Chairman of Tianyu Group, and he has been conducting business in Inner Mongolia since 1998. Ms. Zhu Chonglin is responsible for managing the Fund, and is also the CFO of Tianyu Group. Tianyu Group was established in 2010 and it is based in Wuhai City, which is known to be one of the major sales hubs for the coal market in Inner Mongolia. To the best of the Directors' knowledge, Tianyu Group is a leading enterprise group with integrated coal mining, coal washing and coking, kaolinite mining, research and development, real estate, warehousing, logistics, investment, and other industries, with high-efficiency production and operation capabilities.

It is expected that the Fund will provide the Services under the Amended and Restated Cooperation Agreement following Completion. The Company believes that the Fund is resourceful in the PRC and has strong synergetic value to provide the Company with the Services under the Amended and Restated Cooperation Agreement. The Company expects to benefit from the Fund's well-established connections, sales and supply chain network as well as sector experience, that they will help improve the profit margin of the Company by referring new customers in China to the Company and enhancing the efficiency of the Company's logistics network to further its customer reach.

Based on the above, the Directors are of the view that the continuation of the Amended and Restated Cooperation Agreement is fundamental to the Company's business operations. Given such essentiality to the Company, it was and remains to be in the interest of the Company to secure such long-term business collaboration relationship. Upon Delisting, the Company will continue to utilize the Services provided by the Fund under the Amended and Restated Cooperation Agreement, which are essential to the Company's ordinary and usual course of conducting its mining business.

(C) Relevant transactions were approval by independent Shareholders and disclosed in public documents

The Cooperation Agreements were entered into and was approved by the Shareholders in 2009 which is prior to the initial listing of the Company's shares on the Stock Exchange. The adoption of the Amended and Restated Cooperation Agreement and the key terms thereof were disclosed in the Disclosure Documents. The 2019 Deferral Agreement was also approved by the Shareholders at the general meeting of the Shareholders dated May 30, 2019. Accordingly, the Directors believe that the investors should be well aware of such terms, and it would be unduly burdensome and impracticable if the continuing connected transactions under the Amended and Restated Cooperation Agreement are subject to strict compliance with the requirements set out under Chapter 14A of the Listing Rules, including, among others, the requirement to obtain approval from the independent Shareholders and the requirement to set an annual cap expressed in monetary terms pursuant to Chapter 14A the Listing Rules.

(D) The Amended and Restated Cooperation Agreement is on normal commercial terms or better

The Company engaged DL Securities (HK) Limited to act as the independent financial adviser (the "Independent Financial Adviser") to advise the Board in connection with the Cooperation Agreement and the Amended and Restated Cooperation Agreement. In order to provide its opinion and recommendation, the Independent Financial Adviser has, amongst other things, conducted the following:

1. reviewed the Cooperation Agreement, the Amended Restated Cooperation Agreement and other related documents which the Independent Financial Adviser deemed necessary;
2. reviewed the Convertible Debenture issued by the Company dated November 19, 2009;
3. reviewed relevant extract of the transaction documents in relation to the Sale Transaction;
4. the financial statements of the Company for the year ended 31 December 2021;
5. reviewed the prospectus of the Company dated January 15, 2010; and
6. reviewed certain continuing connected transactions announced by companies listed on the Hong Kong Stock Exchange which are comparable to the transactions contemplated under the Cooperation Agreement (as amended and restated by the Amended and Restated Cooperation Agreement) and identified similar agency arrangement, long term sales arrangement and cooperation arrangement entered into between companies listed on the Hong Kong Stock Exchange with their connected persons.

Having thoroughly considered the opinion and recommendation made by the Independent Financial Adviser to the Board, the Board (including the independent non-executive Directors) are of the view that the Amended and Restated Cooperation Agreement is on normal commercial terms or better, which are fair and reasonable and are in the interests of the Company and its Shareholders as a whole, based on the following:

1. the nature of the Amended and Restated Cooperation Agreement is closely related with the Convertible Debenture. Consideration was given to the large-scale fundraising of the Convertible Debenture vis-à-vis the financial performance and operational scale of the Company, both at the time of the initial subscription of the Convertible Debenture and at present; as well as the fact that the continuation of the Amended and Restated Cooperation Agreement is fundamental to the Company's business operations as explained above;
2. the Directors also believe the scope of "Net Revenues" was carefully crafted to exclude extraordinary items, such as certain permissible deductions which include royalties that had been paid or accrued during the period. The service fee payable under the Amended and Restated Cooperation Agreement, calculated and paid by the Company in quarterly instalments (where Company is required to make payment within 45 days after the end of each quarter), is a realistic financial commitment for the Company in its ordinary course of business. Further, the Directors are of the view that, among others, (a) the existing 2.5% service fee rate does not significantly deviate from the comparable transactions of relevant listed companies, (b) the lowering of the service fee rate from 2.5% to 1.5% represents a more favourable commercial term for the Company, (c) the service fee only accounts for a relatively small portion as compared to the increment in gross profit margin on the sales revenue, and (d) it is expected that the Fund will utilize the comprehensive sales network of Tianyu Group in Inner Mongolia which would assist the expansion of the Company's customers base.
3. the Cooperation Agreement shares similarities with offtake arrangements which are common for mining companies. Under offtake arrangements, mining companies receive financial support from the off-takers through financing or investment in the mining operation as well as operational support from the off-takers, such as in the form of joint venture and/or jointly operate the mining projects. These offtake arrangements usually cover the life of the corresponding joint venture and/or the useful life of the mine. Hence, it is normal business practice for agreements in the nature of cooperation agreements to have a long duration with a fixed term to provide stability to the Company's business in achieving its long-term goals. Due to the size and caliber of the counterparty to the Cooperation Agreement, the Directors consider significant synergetic value from a long-term strategic cooperation with CIC and following Completion of the Sales Transaction, the Fund. With such long Term of 30 years from the date of entering into the Cooperation Agreement, it would be impracticable for the Company to estimate the annual caps expressed in monetary terms for the remainder of the Term;
4. the maximum aggregate annual value of the agreement, which was set at a pre-determined percentage of Net Revenues (instead of setting an annual cap expressed in monetary terms), is consistent with normal industry practice; and
5. going forward, the Company shall comply with all applicable annual reporting requirements under Chapter 14A of the Listing Rules in relation to the Amended and Restated Cooperation Agreement. In addition, the Company shall comply with all applicable reporting and shareholders' approval requirements under Chapter 14A of the Listing Rules in the event of any renewal or amendment of material terms of the Amended and Restated Cooperation Agreement.

1.7 Impact and the Way Forward

The Company is continuously assessing the legal, financial, and operational impact of the Delisting to the Company. The Company wishes to advise the Shareholders and potential investors that, if the Delisting is accepted by the Hong Kong Stock Exchange, the "S" stock marker is expected to cease to be affixed to the Company's Chinese and English stock short name on the Hong Kong Stock Exchange on the Effective Date. As of the date of this announcement, the Company believes the Delisting will not bring about any material impact to Shareholders and potential investors trading on the Hong Kong Stock Exchange.

In the event the Company is unable to demonstrate full compliance with an applicable Listing Rule in time (where no waiver has been granted by the Stock Exchange) upon the Effective Date, the Stock Exchange may request the Company to delay the Effective Date. For the avoidance of doubt, notwithstanding the Notification or receipt of the Exchange Acknowledgment, the Company will continue to be entitled to the Existing Waivers before the Delisting becomes effective provided that it remains primary listed on the TSX. Such Existing Waivers include, among others, the following specific waivers granted by the Hong Kong Stock Exchange, exemption and ruling granted by the Securities and Futures Commission of Hong Kong ("SFC"), on an individual basis:

Details of the aforementioned Existing Waivers are set out in the prospectus of the Company dated January 15, 2010. The aforementioned Existing Waivers will be withdrawn upon the Effective Date, and the Company is expected to fully comply with the relevant Listing Rules and provisions of the SFO.

The Company has been observing The Codes on Takeovers and Mergers and Share Buy-backs (the "Codes") as approved by the Securities and Futures Commission of Hong Kong (as amended from time to time) since June 2014 when the Takeovers and Mergers Panel issued a ruling that the Company should be considered a "public company in Hong Kong" within the meaning of the Codes. Please refer to the Panel Discussion published by the Takeovers and Mergers Panel on June 30, 2014, for further details.

2. AMENDMENTS TO THE ARTICLES

Certain amendments have been made to the Articles in anticipation of the Delisting. Please refer to the Management Proxy Circular for a summary of the key Articles Amendments, which mainly serve the purpose of complying with Appendix 3 to the Listing Rules, and a full set of the new Articles reflecting all the Articles Amendments.

At the Shareholders Meeting, Shareholders passed a special resolution to approve the Articles Amendments. Please refer to the Poll Results Announcement for further details. The new Articles will come into effect upon the Delisting becoming effective, which will be published on the websites of the Stock Exchange (www.hkexnews.hk) and the Company (www.southgobi.com).

3. AMENDMENTS TO THE EQUITY INCENTIVE PLAN

The Company adopted the Equity Incentive Plan in 2003, which was last amended, restated, and approved by the Shareholders in June 2021. The Equity Incentive Plan has three components: (i) a share option plan (the "Share Option Plan"), which provides for the grant to eligible participants of incentive stock options ("Options") exercisable to purchase Shares; (ii) a share bonus plan (the "Share Bonus Plan"), which provides for awards of fully paid Shares to eligible participants as and when determined by the Board to be warranted on the basis of past performance; and (iii) a share purchase plan (the "Share Purchase Plan"), under which eligible participants have the opportunity to purchase Shares through payroll deductions which are supplemented by additional contributions by the Company.

The EIP Amendments were made in order to comply with Chapter 17 of the Listing Rules, the rules and policies of TSX-V, requirements regarding the Delisting and customary market practices. The EIP Amendments include: (i) amending the terms of the existing Share Option Plan to comply with applicable Listing Rules; (ii) removing the Share Bonus Plan component from the Equity Incentive Plan; and (iii) amending the terms of the Equity Incentive Plan generally to comply with applicable rules and policies of the TSX-V. The EIP Amendments have subsequently been approved by the Shareholders at the Shareholders Meeting, details of which are available in the Poll Results Announcement. The EIP Amendments shall become effective upon completion of the Delisting.

4. UPDATE ON EFFECTIVE DATE OF THE DELISTING

Despite the receipt of the Exchange Acknowledgement, the Delisting remains conditional upon the Company obtaining approvals from the TSX and the TSX-V in connection with the Delisting. While it was disclosed in the Management Proxy Circular that the anticipated effective date would be July 29, 2022, the Company wishes to update its Shareholders and investors that, subject to obtaining the said approvals from the TSX and TSX-V, the Company is targeting to complete the Delisting prior to mid-September 2022. The Company will keep the Shareholders and the public informed about the progress of the Delisting.

There may exist certain uncertainties as to whether and when the Delisting will proceed. Shareholders who have any queries about the implications of the Delisting are advised to obtain appropriate professional advice. Shareholders and potential investors are advised to exercise caution when dealing in the securities of the Company.

The Company will closely monitor the development of the aforesaid matters and keep the Shareholders and potential investors informed of any material development in connection with the above matters by way of periodic announcements and/or further announcement(s) as and when appropriate.

If there is any inconsistency or discrepancy between the English version and the Chinese version, the English version shall prevail.

About SouthGobi

SouthGobi, listed on the Toronto and Hong Kong stock exchanges, owns and operates its flagship Ovoot Tolgoi coal mine in Mongolia. It also holds the mining licences of its other metallurgical and thermal coal deposits in South Gobi region of Mongolia. SouthGobi produces and sells coal to customers in China.

Contact:

Investor Relations
Office: +852 2156 1438 (Hong Kong)
+1 604 762 6783 (Canada)
Email: info@southgobi.com
Website: www.southgobi.com

Forward-Looking Statements

Certain information included in this announcement that is not current or historical factual information constitutes forward-looking statements or information within the meaning of applicable securities laws (collectively, "forward-looking statements"), including information regarding including the Company's application to the HKEX to convert its current listing on the HKEX to a primary listing, and the Company's continued listing on the TSX while the Delisting is under review by the HKEX, respectively. Forward-looking statements are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "could", "should", "seek", "likely", "estimate" and other similar words or statements that certain events or conditions "may" or "will" occur. Forward-looking statements are based on certain factors and assumptions including, among other things, the ability of the Company to satisfy the ability of the Company to satisfy the HKEX's primary listing requirements and the HKEX approving the Delisting and other similar factors that may cause actual results to differ materially from what the Company currently expects. Actual results may vary from the forward-looking statements. Readers are cautioned not to place undue importance on forward-looking statements, which speaks only as of the date of this disclosure, and not to rely upon this information as of any other date. While the Company may elect to, it is under no obligation and does not undertake to, update or revise any forward-looking statements, whether as a result of new information, further events or otherwise at any particular time, except as required by law. Additional information concerning factors that may cause actual results to materially differ from those in such forward-looking statements is contained in the Company's filings with Canadian securities regulatory authorities and can be found under the Company's profile on SEDAR at www.sedar.com.

SOURCE: SouthGobi Resources Ltd.