SouthGobi Resources : Announcements and Notices - SOUTHGOBI ANNOUNCES FOURTH QUARTER AND FULL YEAR 2019 FINANCIAL AND OPERATING RESULTS

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R E S O U R C E S

SOUTHGOBI RESOURCES LTD.

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)

SouthGobi announces fourth quarter and full year 2019

financial and operating results

SouthGobi Resources Ltd. (the "Company" or "SouthGobi") today announces its financial and operating results for the quarter and the year ended December 31, 2019.

Please see the attached announcement for more details. The information per the attached announcement is available on the SEDAR website at www.sedar.com and the website of the Hong Kong Stock Exchange at www.hkexnews.hk.

By order of the Board

SouthGobi Resources Ltd.

Mao Sun

Lead Director

Vancouver, November 26, 2020

Hong Kong, November 26, 2020

As at the date of this announcement, the executive director of the Company is Mr. Dalanguerban; the independent non-executive directors are Messrs. Yingbin Ian He, Mao Sun and Ms. Jin Lan Quan; and the non-executive directors are Messrs. Jianmin Bao, Zhiwei Chen and Ben Niu.

*  For identification purposes only

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R E S O U R C E S

November 26, 2020

SOUTHGOBI RESOURCES ANNOUNCES FOURTH QUARTER AND

FULL YEAR 2019 FINANCIAL AND OPERATING RESULTS

HONG KONG - SouthGobi Resources Ltd. (Toronto Stock Exchange ("TSX"): SGQ, Hong

Kong Stock Exchange ("HKEX"): 1878) (the "Company" or "SouthGobi") today announces its financial and operating results for the quarter and the year ended December 31, 2019. All figures are in U.S. dollars ("USD") unless otherwise stated.

Reference is made to the announcement of the Company dated March 30, 2020 in relation to the unaudited financial and operating results for the year ended December 31, 2019 (the "Unaudited Annual Results Announcement") and the announcements dated April 27, 2020, May 17, 2020, June 30, 2020, July 24, 2020 and August 12, 2020 in relation to, among other things, the further delay in publication of the audited annual results announcement and the dispatch of the annual report for the year ended December 31, 2019 (collectively the "Announcements"). Unless otherwise defined, capitalised terms used in this announcement shall have the same meanings as those defined in the Unaudited Annual Results Announcement and the Announcements.

The Board wish to inform that the Company's independent auditors, BDO Limited ("BDO"), have completed their audit of the consolidated financial statements of the Company for the year ended 31 December 2019 in accordance with Canadian generally accepted auditing standards and would like to announce the audited annual results of the Company for the year ended December 31, 2019 together with the comparative figures for the previous year and the respective notes in this announcement.

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SIGNIFICANT EVENTS AND HIGHLIGHTS

The Company's significant events and highlights for the year ended December 31, 2019 and the subsequent period to November 26, 2020 are as follows:

• Operating Results - The Company's sales volume increased from 2.8 million tonnes in 2018 to 3.7 million tonnes in 2019. The average selling price of coal decreased from $37.1 per tonne in 2018 to $34.9 per tonne in 2019. The decrease in the average selling price was principally attributable to (i) a change of the Company's product mix, as sales of premium semi-soft coking coal represented a smaller proportion of total sales in 2019; and (ii) a higher portion of sales made at the mine gate instead of transporting the coal to the Company's Inner Mongolia subsidiary and selling to third party customers within China.
• Financial Results - The Company recorded a $29.8 million profit from operations in 2019 compared to a $10.5 million loss from operations in 2018. The improvement in profit from operations was principally attributable to (i) a lower provision for doubtful trade and other receivables being made during the year ($0.5 million and $20.9 million for 2019 and 2018, respectively); and (ii) increased sales volume.
• Impact of the Coronavirus Disease 2019 ("COVID-19") Pandemic - The Company was informed that effective as of February 11, 2020, the Mongolian State Emergency Commission closed Mongolia's southern border with China in order to prevent the spread of COVID-19.Accordingly, the Company suspended coal exports to China beginning as of February 11, 2020 as a result of the border closure.
  On March 28, 2020, the Mongolian-Chinese border was re-opened for coal export on a trial basis, with a limit imposed on the total volume of coal that was permitted to be exported during this trial period. The Company has experienced a continuous improvement in the volume of coal exported to China since March 28, 2020. During the period between April to October 2020, an aggregate of 1.9 million tonnes of coal was exported by the Company from Mongolia to China, as compared to an aggregate of 2.0 million tonnes of coal during the same period in the 2019 calendar year.
  The border closure has had an adverse impact on the Company's sales and cash flows in the first and second quarter of 2020. In order to mitigate the financial impact of the border closures and preserve its working capital, the Company temporarily ceased major mining operations (including coal mining), reduced production to only coal-blending activities and placed approximately half of its workforce on furlough effective as of February 2020. Since August 2, 2020, the Company has resumed its mining operations, which includes mining, blending and washing of coal. As at October 31, 2020, SouthGobi Sands LLC ("SGS"), a subsidiary of the Company, employed 208 employees at the Ovoot Tolgoi Mine site (December 31, 2019: 383 employees). The Company produced 1.1 million tonnes from August to October 2020, as compared to 1.3 million tonnes from August to October 2019. There were a few COVID-19 cases reported in Ulaanbaatar (being the capital city of Mongolia) on November 11, 2020. As a result, the Mongolian local authorities have taken certain precautionary steps to minimize further transmission and announced a lockdown for the city until December 2, 2020. Although the mining operations

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and the export of coal from Mongolia to China continues as of the date hereof, there can be no guarantee that the Company will be able to continue exporting coal to China, or the border crossings would not be the subject of additional closures as a result of COVID-19 in the future. The Company will continue to closely monitor the development of the COVID-19 pandemic and the impact it has on coal exports to China and will react promptly to preserve the working capital of the Company.

Based on a preliminary review of the information and operational data of the Company currently available, the Company expects to record a net loss for the three months ended March 31, 2020 and for the six months ended June 30, 2020. The anticipated net loss was principally attributable to decreased sales volumes in the first quarter of 2020 as a result of the closure of the Mongolian-Chinese border crossings which took effect in February 2020 and therefore, the Company was unable to export coal into China as a result. In the event that the Company's ability to export coal into the Chinese market becomes restricted or limited again as a result of any future restrictions which may be implemented at the Mongolian-Chinese border crossing, this is expected to have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.

• China Investment Corporation (together with its wholly-owned subsidiaries and affiliates, "CIC") convertible debenture ("CIC Convertible Debenture") - On April 23, 2019, the Company executed a deferral agreement (the "2019 Deferral Agreement") with CIC in relation to a deferral and revised repayment schedule in respect of (i) $41.8 million of outstanding cash and payment in kind interest ("PIK Interest") and associated costs due and payable to CIC on November 19, 2018 (the "Outstanding Interest Payable") under the CIC Convertible Debenture and a deferral agreement executed with CIC on June 12, 2017 (the "June 2017 Deferral Agreement"); and (ii) $27.9 million of cash and PIK Interest payments payable to CIC under the CIC Convertible Debenture from April 23, 2019 to and including May 19, 2020 (the "Deferral"). Pursuant to Section 501(c) of the TSX Company Manual, the 2019 Deferral Agreement was approved at the Company's adjourned annual and special meeting of shareholders on June 13, 2019.
  The key repayment terms of the 2019 Deferral Agreement are: (i) the Company agreed to pay a total of $14.3 million over eight instalments from November 2019 to June 2020; (ii) the Company agreed to pay the PIK Interest covered by the Deferral by way of cash payments, rather than the issuance of Common Shares; and (iii) the Company agreed to pay the remaining balance of $62.6 million on June 20, 2020. The Company agreed to pay a deferral fee at a rate of 6.4% per annum in consideration of the deferred amounts.

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