SouthGobi Resources : Announcements and Notices - Southgobi Resources Announces Second Quarter 2016 Financial and Operating Results

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

南戈壁資源有限公司*

(a company continued under the laws of British Columbia, Canada with limited liability)

(Stock Code: 1878)

Please see the attached announcement for more details. The information which is available at www.sedar.com per the attached announcement is also available at www.hkexnews.hk.

By order of the Board

Chairman

Hong Kong, August 15, 2016

As of the date of this announcement, the executive directors are Messrs. Ningqiao Li, Aminbuhe and Yulan Guo; the independent non-executive directors are Messrs. Zhu Liu, Mao Sun and Ms. Jin Lan Quan; the non-executive director is Mr. Huiyi Wang.

* For identification purposes only

August 15, 2016

HONG KONG - SouthGobi Resources Ltd. (TSX: SGQ, HK: 1878) (the "Company" or "SouthGobi") today announced its financial and operating results for the three and six months ended June 30, 2016. All figures are in U.S. Dollars unless otherwise stated.

SIGNIFICANT EVENTS AND HIGHLIGHTS

The Company's significant events and highlights for the three months ended June 30, 2016 and subsequent period to August 15, 2016 are as follows:

• Operating results - The Company continues to operate under difficult market conditions as prices for coal remained weak in China through the second quarter of 2016. The impact of these conditions on the Company's operations continues to be exacerbated given the Company's liquidity constraints. The Company sold 0.82 million tonnes of its coal products during the quarter compared to 0.19 million tonnes in the second quarter of 2015. The production for the second quarter of 2016 was 0.67 million tonnes compared to 0.62 million tonnes for the second quarter of 2015.

• Shareholder loan - On May 16, 2016, Turquoise Hill Resources Limited ("Turquoise Hill") signed a deferral letter agreement with the Company ("May 2016 Deferral Letter Agreement"), in which Turquoise Hill agreed to a limited and circumscribed deferral of repayment of all remaining amounts and obligations now and hereafter owing under the Turquoise Hill shareholder loan ("TRQ Loan") to December 29, 2017. The Company has agreed to repay $0.15 million per month starting on May 31, 2016 and ending on April 28, 2017; $0.2 million per month starting on May 31, 2017 and ending on December 29, 2017, at which time all remaining obligations will become due. Interest shall continue to accrue on all outstanding obligations at 12-month US dollar LIBOR rate. The amount due in May to July 2016 has been paid as at August 15, 2016.

• Class Action Lawsuit - On May 24, 2016, the Ontario Superior Court of Justice granted the Company leave to appeal the decision made on November 5, 2015, which granted the plaintiff permission to commence an action claiming damages under the Ontario Securities Act with respect to the Company's restatement of financial statements as previously disclosed in the Company's public filings.

  The plaintiff has also appealed. The Ontario Court of Appeal granted an adjournment of the plaintiff's original hearing date of June 27, 2016, pending the expected consolidation of the Divisional Court appeal brought on behalf of the Company. The parties have consented to a consolidation of the appeals in principle and are negotiating the terms of the Consent Order. It is expected that the Motion seeking consolidation on consent will be filed with the Court‎ in August and the Court of Appeal will deal with the consolidation quickly. Assuming that the Court of Appeal will grant the consent order, the appeals will be perfected in September and heard together in the spring of 2017.

• China Investment Corporation ("CIC") convertible debenture(the "CIC Convertible Debenture") - On July 13, 2016, the Company executed deferral agreement with CIC which covers outstanding deferred cash interest obligations and associated costs of $18.8 million as of July 13, 2016 and the next Issue Date Anniversary Cash Interest payment of $8.1 million due on November 19, 2016. Pursuant to the deferral agreement, the Company has agreed to repay $1.3 to $1.4 million monthly from July to November 2016 and repay $20.7 million on December 19, 2016. In consideration for the deferred payments of $18.8 million, the Company will pay a deferral fee at a rate of 6.4% per annum to CIC. The interest due in July 2016 has been paid as at August 15, 2016.

  Although CIC and the Company had finalized the terms of a deferral of CIC interest payments at the end of the second quarter, a formal written agreement had not been executed as at June 30, 2016. As a consequence, International Accounting Standard 1 ("IAS 1") required the Company to classify the entire balance of the CIC Convertible Debenture as a current liability as at June 30, 2016, notwithstanding the fact that CIC had agreed to the terms of the deferral and had not indicated any intention to deliver notice of default or accelerate the maturity of the debenture. Following the execution of the deferral agreement on July 13, 2016, the CIC Convertible Debenture met the requirements of IAS 1. The Company anticipates that both the debt host and the fair value of the embedded derivative will be classified as a non-current liability going forward, unless a future event of default occurs under the terms of the CIC Convertible Debenture.

• Short-term bridge loan - The Company repaid the first tranche of the short-term bridge loan of $4.9 million on July 26, 2016. During June and July 2016, the Company drew the second tranche of $5.0 million. $1.5 million and $3.5 million will mature in March and April 2017, respectively.

• Retirement of a Director - Mr. Pierre Lebel retired as Lead Director and Independent Non-Executive Director on June 30, 2016.

• Going Concern - As at the date hereof, the Company is focused on securing additional sources of financing and continues to minimize uncommitted capital expenditures in order to pay the interest due under the CIC Convertible Debenture, the short-term bridge loan, the TRQ Loan and the bank loan, meet the Company's obligations as they fall due and achieve its business objectives in 2016. However,

there is no guarantee that the Company will be able to successfully secure additional sources of financing. Unless the Company acquires additional sources of financing and/or funding in the short term, the ability of the Company to continue as a going concern is threatened. If the Company is unable to continue as a going concern it may be forced to seek relief under applicable bankruptcy and insolvency legislation. See section "Liquidity and Capital Resources" for details. As at August 15, 2016, the Company had cash of $0.8 million.

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