SouthGobi Resources : Announcements and Notices - Update on Interest Payment Obligations with CIC

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南戈壁資源有限公司*

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

(Hong Kong Stock Code: 1878) (Toronto Stock Code: SGQ)

This announcement is made by SouthGobi Resources Ltd. (HK: 1878, TSX: SGQ) (the "Company") pursuant to Rule 13.09(2)(a) of the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") and the Inside Information Provisions (as defined under the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571, Laws of Hong Kong).

Pursuant to the terms of the convertible debenture between China Investment Corporation ('CIC') and the Company signed in November 2009 (the "Convertible Debenture"), the Company's interest payment obligation to CIC is comprised of cash Interest and PIK interest payable in common shares of the Company. On each issue date anniversary, the Company is obligated to issue PIK shares to CIC. Pursuant to the terms of the Convertible Debenture, the Company was obliged to issue 14.9 million ordinary shares to CIC on November 19, 2016 as its annual issuance of PIK shares (the "2016 PIK Shares"). As at the date of this announcement, the Company has not issued the 2016 PIK Shares. The 2016 PIK Shares will be issued to CIC after the Company and CIC confirm that the issuance of the 2016 PIK Shares will not trigger a general offer obligation as pursuant to the Takeovers Code, and a ruling from the Securities and Futures Commission of Hong Kong may be required.

Further reference is made to the Company's announcement of July 18, 2016, the Company had agreed to repay US$20.7 million of cash interest and associated costs on December 19, 2016. At the date of this announcement, the Company has not repaid such amounts. The Company advises that it is finalizing a new deferral agreement (the "December 2016 Deferral Agreement") with CIC to agree on a revised repayment schedule of such amounts, subject to final approval and execution from both parties. The key terms of the December 2016 Deferral Agreement to be finalized include the below:

1. The Company will repay US$1.4 million of cash interest and associated costs monthly on average during the period from December 2016 to April 2017;

   * For identification purposes only

2. The Company will repay US$14.3 million of cash interest and associated costs on May 19, 2017;

3. The Company will pay a deferral fee at a rate of 6.4% per annum as a consideration for deferral; and

4. At any time before the above amounts are fully repaid, the Company is required to consult with and obtain written consent from CIC prior to effecting a replacement or termination of either or both of its Chief Executive Officer and its Chief Financial Officer; otherwise this will constitute an event of default for the Convertible Debenture. Such consent shall not be unreasonably withheld to affect the exercise of fiduciary duties of the board of directors of the Company.

Further details of the December 2016 Deferral Agreement will be disclosed after the execution of the December 2016 Deferral Agreement.

While the Company believes that the December 2016 Deferral Agreement will be executed prior to December 31, 2016, there is no assurance that a repayment plan which is favourable to the Company will be concluded. If the Company is unable to reach an agreement with CIC with respect to repayment of sums owed and is not able to repay such amounts within applicable cure periods, the principal amount owing and all accrued and unpaid interest under the Convertible Debenture would immediately become due and payable upon notice to the Company by CIC. In such event, the value of the Company's common shares could be materially and negatively affected and, as a result, shareholders of the Company and potential investors are advised to exercise caution when dealing in the securities of the Company.

The Company will provide further updates as appropriate.

By order of the Board

Chairman

Hong Kong, December 20, 2016

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

December 20, 2016

Pursuant to the terms of the convertible debenture between CIC and the Company signed in November 2009 (the "Convertible Debenture"), the Company's interest payment obligation to CIC is comprised of cash Interest and PIK interest payable in common shares of the Company. On each issue date anniversary, the Company is obligated to issue PIK shares to CIC. Pursuant to the terms of the Convertible Debenture, the Company was obliged to issue 14.9 million ordinary shares to CIC on November 19, 2016 as its annual issuance of PIK shares (the "2016 PIK Shares"). As at the date of this announcement, the Company has not issued the 2016 PIK Shares. The 2016 PIK Shares will be issued to CIC after the Company and CIC confirm that the issuance of the 2016 PIK Shares will not trigger a general offer obligation as pursuant to the Takeovers Code, and a ruling from the Securities and Futures Commission of Hong Kong may be required.

Further reference is made to the Company's announcement of July 18, 2016, the Company had agreed to repay US$20.7 million of cash interest and associated costs on December 19, 2016. At the date of this announcement, the Company has not repaid such amounts. The Company advises that it is finalizing a new deferral agreement (the "December 2016 Deferral Agreement") with CIC to agree on a revised repayment schedule of such amounts, subject to final approval and execution from both parties. The key terms of the December 2016 Deferral Agreement to be finalized include the below:

1. The Company will repay US$1.4 million of cash interest and associated costs monthly on average during the period from December 2016 to April 2017;

2. The Company will repay US$14.3 million of cash interest and associated costs on May 19, 2017;

3. The Company will pay a deferral fee at a rate of 6.4% per annum as a consideration for deferral; and

4. At any time before the above amounts are fully repaid, the Company is required to consult with and obtain written consent from CIC prior to effecting a replacement or termination of either or both of its Chief Executive Officer and its Chief Financial Officer; otherwise this will constitute an event of default for the Convertible Debenture. Such consent shall not be unreasonably withheld to affect the exercise of fiduciary duties of the board of directors of the Company.

Further details of the December 2016 Deferral Agreement will be disclosed after the execution of the December 2016 Deferral Agreement.

While the Company believes that the December 2016 Deferral Agreement will be executed prior to December 31, 2016, there is no assurance that a repayment plan which is favourable to the Company will be concluded. If the Company is unable to reach an agreement with CIC with respect to repayment of sums owed and is not able to repay such amounts within applicable cure periods, the principal amount owing and all accrued and unpaid interest under the Convertible Debenture would immediately become due and payable upon notice to the Company by CIC. In such event, the value of the Company's common shares could be materially and negatively affected and, as a result, shareholders of the Company and potential investors are advised to exercise caution when dealing in the securities of the Company.

The Company will provide further updates as appropriate.

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 and exploration licences of its other metallurgical and thermal coal deposits in South Gobi Region of Mongolia. SouthGobi produces and sells coal to customers in China.

Kino Fu

Office: +852 2156 7030

Email: kino.fu@southgobi.com