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SouthGobi Resources Announces Select Second Quarter 2014 Operating Results

HONG KONG, CHINA -- (Marketwired) -- 07/10/14 -- SouthGobi Resources Ltd. (TSX: SGQ)(HKSE: 1878) (the "Company" or "SouthGobi") today announced select second quarter 2014 operating results. All figures are in U.S. Dollars unless otherwise stated.

Select Operating Results

The Company's select operating results for the three months ended June 30, 2014, including comparative periods, are summarized in the table below:



                                  ------------------------------------------
                                              Three months ended
                                  ------------------------------------------
                                          30-Jun        31-Mar        30-Jun
                                            2014          2014          2013
----------------------------------------------------------------------------
Raw coal production (millions of
 tonnes)                                    0.55          0.64          0.17

Sales volumes (millions of tonnes)
  Premium semi-soft coking coal                -             -          0.21
  Standard semi-soft coking coal            0.40          0.29             -
  Thermal coal                              0.51          0.10          0.11
  Total                                     0.91          0.39          0.32
----------------------------------------------------------------------------

The Company continues to operate under difficult market conditions. Coal prices in China declined further in the second quarter compared to the first quarter of 2014 as a result of strong seaborne and domestic supply. The decline in coal prices has been partially offset by the increase in the Company's volumes in the second quarter compared to the seasonally slow first quarter.

In June 2014, following a review of operations in response to current market conditions, the Company reduced its production and placed approximately half of its workforce in furlough. This furlough is anticipated to remain in place until the end of July subject to market conditions. Contracted sales volumes are expected to be met from the combination of the existing coal stockpile and reduced production volumes.

On June 26, 2014, the Ovoot Tolgoi mine site region experienced torrential rain and flooding which temporarily interrupted mining operations. The impact on the Company's operations is not expected to be material.

Other Information

Cash Position and Liquidity

The Company's cash position and liquidity as at June 30, 2014, including comparative periods, is summarized in the table below. Amounts are presented in millions of U.S. Dollars.



                            ------------------------------------------------
                                                 As at
                            ------------------------------------------------
                                  30-Jun      31-Mar      31-Dec      30-Jun
                                    2014        2014        2013        2013
----------------------------------------------------------------------------
Cash                         $       8.8 $       9.9 $      21.8 $      19.2
----------------------------------------------------------------------------

The changes in the Company's cash position in periods noted above are inclusive of cash interest paid on the China Investment Corporation ("CIC") convertible debenture in the amount of $7.9 million in the second quarter of 2014, $8.1 million in the fourth quarter of 2013, and nil in the second quarter of 2013. The next cash interest payment on the CIC convertible debenture of approximately $8 million is due on November 19, 2014.

On May 25, 2014, the Company announced it obtained a $10 million revolving credit facility from Turquoise Hill Resources Ltd. ("Turquoise Hill") to meet its short term working capital requirements with a maturity date of August 30, 2014. The terms and conditions of this facility were filed on SEDAR (www.sedar.com) on June 2, 2014. As at June 30, 2014, the Company had drawn down $3.8 million under this facility.

The Company continues to actively seek additional sources of financing to continue operating and meet its objectives, which includes increasing the level of prepaid coal sales. As at 30 June, the balance of customer prepayments for future coal deliveries amounted to $10.9 million including the receipt of $6.5 million received on June 30, 2014.

As at July 10, 2014, the Company had cash of $7.3 million and the amount drawn down under the Turquoise Hill loan facility remained at $3.8 million.

Sale of Tsagaan Tolgoi Deposit

The Company has completed the sale of Tsagaan Tolgoi Deposit in the second quarter of 2014 for an amount of $2 million. The net proceed generated for the Company after taxes and costs was $1.3 million.

Tax Investigation Case

The trial date for the tax investigation case against SouthGobi Sands LLC and three of its former employees as detailed in the Company's June 24 announcement has been deferred until August 25, 2014.

Outlook

Coal production in the second half of 2014 will be paced to meet contracted sales volumes.

The Company continues to experience negative impacts on its margins and liquidity and there can be no assurance that the Company will have sufficient funding for the balance of 2014 to be able to continue as a going concern, as more fully detailed in its Management's Discussion and Analysis for the quarter ended March 31, 2014, available on SEDAR at www.sedar.com, and, in particular, section 5 "Liquidity and Capital Resources" and section 11 "Risk Factors" thereof. Therefore the Company is actively seeking additional sources of financing to continue operating and meet its objectives. The Company remains focused on minimizing uncommitted capital expenditures while preserving its growth options.

About SouthGobi

SouthGobi is listed on the Toronto and Hong Kong stock exchanges, in which Turquoise Hill Resources Ltd. ("Turquoise Hill"), also publicly listed in Toronto and New York, has a 56% shareholding. Turquoise Hill took management control of SouthGobi in September 2012 and made changes to the board and senior management. Rio Tinto has a majority shareholding in Turquoise Hill.

SouthGobi 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, the Mongolian registered company that holds the mining and exploration licenses in Mongolia and operates the flagship Ovoot Tolgoi coal mine. Ovoot Tolgoi produces and sells coal to customers in China.

Forward-Looking Statements: This document includes forward-looking statements. Forward-looking statements include, but are not limited to: the Company's expectations of sufficient liquidity and capital resources to meets its ongoing obligations and future contractual commitments, including the Company's ability to secure additional funding; the possibility of the CIC convertible debenture and all accrued and unpaid interest becoming immediately due; the continued pressure on the coal prices in China, and the related impact on the Company's margins and liquidity; the Company's expectation that its royalty per tonne calculated under the new "flexible tariff" royalty regime will decrease compared to the prior reference price royalty regime; and other statements that are not historical facts. When used in this document, the words such as "plan", "estimate", "expect", "intend", "may", and similar expressions are forward-looking statements. Although SouthGobi believes that the expectations reflected in these forward-looking statements are reasonable, such statements involve risks and uncertainties and no assurance can be given that actual results will be consistent with these forward-looking statements. Important factors that could cause actual results to differ from these forward-looking statements are disclosed under the heading "Risk Factors" in SouthGobi's Management's Discussion and Analysis for the year ended December 31, 2013 which is available at www.sedar.com.

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