Core Viewpoint - SouthGobi Resources Ltd. has announced that its subsidiary, Southgobi Sands LLC, has entered into a secured loan agreement with Khan Bank JSC for a principal amount of up to RMB 235 million (approximately CAD 46,095,250) [1] Group 1 - The loan agreement stipulates that the lender will provide a maximum loan of RMB 235 million (approximately CAD 46,095,250) to Southgobi Sands LLC [1] - The loan term is set for 18 months from the date of the first payment [1] - The interest rate on the loan is 10% per annum, calculated on the outstanding principal based on a 365-day year [1]

Core Viewpoint - Southgobi Sands LLC (SGS), a subsidiary of SouthGobi Resources Ltd. (01878), has entered into a secured loan agreement with Khan Bank JSC for a principal amount of up to RMB 235 million (approximately CAD 46,095,250) [1] Group 1: Loan Agreement Details - The loan agreement was established on October 7, 2025, with Khan Bank JSC as the lender [1] - The loan amount is capped at RMB 235 million (approximately CAD 46,095,250) [1] - The loan has a term of 18 months from the date of the first payment [1] - Interest on the loan is charged at an annual rate of 10% on the outstanding principal, calculated based on a 365-day year [1]

香港交易及結算所有限公司及香港聯合交易所有限公司（「香港聯交所」）對本公佈的內容概不負責， 對其準確性或完整性亦不發表任何聲明，並明確表示概不會就因本公佈全部或任何部分內容而產生或 因依賴該等內容而引致的任何損失承擔任何責任。 SOUTHGOBI RESOURCES LTD. 南戈壁資源有限公司* （根據加拿大英屬哥倫比亞法例存續的有限公司） （香港股份代號︰1878） （多倫多證券交易所創業板股份代號︰SGQ） 人民幣 2.35 億元之有抵押貸款 本公告乃由南戈壁資源有限公司（「本公司」）遵照香港聯交所證券上市規則第 13.09(2)條及 證券及期貨條例（香港法例第 571 章）第 XIVA 部內幕消息條文而作出。 本公司宣佈，其於蒙古營運的附屬公司 Southgobi Sands LLC（「SGS」），已根據與 Khan Bank JSC（「貸款人」）於 2025 年 10 月 7 日訂立的貸款協議（「貸款協議」）之條款，訂立 本金最多為人民幣 235,000,000 元（相當於約加元 46,095,250）之有抵押貸款（「貸款」）。 貸款條款 貸款之主要條款規定，貸款人將向 SGS 提供最多為人民幣 2 ...

股份發行人及根據《上市規則》第十九B章上市的香港預託證券發行人的證券變動月報表 | 截至月份: | 2025年9月30日 | 狀態: 新提交 | | --- | --- | --- | | 致：香港交易及結算所有限公司 | | | | 公司名稱: | 南戈壁資源有限公司 | | | 呈交日期: | 2025年10月6日 | | | I. 法定/註冊股本變動 不適用 | | | FF301 第 1 頁 共 10 頁 v 1.1.1 FF301 II. 已發行股份及/或庫存股份變動 | 1. 股份分類 | 普通股 | | 股份類別 | 不適用 | | 於香港聯交所上市 (註1) | 是 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 證券代號 (如上市) | 01878 | 說明 | | | | | | | | | | 已發行股份（不包括庫存股份）數目 | | | 庫存股份數目 | | 已發行股份總數 | | | 上月底結存 | | | | 296,704,666 | | 0 | | 296,704,666 | | 增加 / 減少 (-) ...

Group 1 - The core viewpoint of the article highlights a general increase in coal stocks in the Hong Kong market on September 8, with notable gains among various companies [1] Group 2 - Strength Development saw a rise of 2.6% [1] - China Qinfa, Yanzhou Coal Mining, China Coal Energy, and South Gobi all increased by over 2% [1] - China Shenhua rose by 1.5%, while Yida Zong also gained over 1% [1] - Shougang Resources followed the upward trend [1]

Group 1 - The core viewpoint of the article highlights a bullish trend in the coal sector of the Hong Kong stock market, driven by favorable macroeconomic conditions such as "loose monetary policy, low interest rates, and improved risk appetite" [1] - The report from Zhongtai Securities indicates that the coal industry is expected to enter a new upward cycle due to the "anti-involution" policy, which is anticipated to strengthen expectations for capacity reduction and promote high-quality development within the sector [1] - The report suggests that there is a time lag between policy expectations and their realization, indicating that sector rotation may occur imminently, and advises investors to focus on liquidity and risk appetite improvements rather than short-term earnings reports [1] Group 2 - The article lists several coal stocks that experienced gains, with notable increases including Strength Development up by 2.6%, China Qinfa and Yanzhou Coal Energy both up over 2%, and China Shenhua up by 1.5% [1] - The report emphasizes the importance of capturing investment opportunities arising from the dual catalysts of coal valuation recovery and performance elasticity, as the industry prepares for a new upward cycle [1]

股份發行人及根據《上市規則》第十九B章上市的香港預託證券發行人的證券變動月報表 | 截至月份: | 2025年8月31日 | 狀態: 新提交 | | --- | --- | --- | | 致：香港交易及結算所有限公司 | | | | 公司名稱: | 南戈壁資源有限公司 | | | 呈交日期: | 2025年9月3日 | | | I. 法定/註冊股本變動 不適用 | | | (A). 股份期權（根據發行人的股份期權計劃） FF301 第 1 頁 共 10 頁 v 1.1.1 FF301 II. 已發行股份及/或庫存股份變動 | 1. 股份分類 | 普通股 | | 股份類別 | 不適用 | | 於香港聯交所上市 (註1) | 是 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 證券代號 (如上市) | 01878 | 說明 | | | | | | | | | | 已發行股份（不包括庫存股份）數目 | | | 庫存股份數目 | | 已發行股份總數 | | | 上月底結存 | | | | 296,704,666 | | 0 | | 296, ...

[Forward-Looking Statements](index=2&type=section&id=Forward-Looking%20Statements) This section outlines various forward-looking statements regarding the company's operational capabilities, financial adjustments, and future outlook - This section contains multiple forward-looking statements concerning the company's going concern ability, balance sheet adjustments, liquidity, future financing needs, operational and development plans, production levels, negotiations with the Mongolian government, ability to pay tax penalties, class action lawsuit outcomes, impairment analysis, coal washing facility efficiency improvements, product value enhancement, environmental impact, China's coal demand and industry trends, and the outlook for 2025 and beyond[3](index=3&type=chunk) - Forward-looking statements are based on management's opinions and estimates, subject to various risks and uncertainties including mining activity uncertainties, cost overruns, reserve estimate deviations, regulatory changes, licensing issues, risks of the Mongolian government designating deposits as strategic, tax penalty payment risks, convertible debenture valuation model changes, debt default risks, legal amendment impacts, coal price fluctuations, class action lawsuit outcomes, customer credit risks, and cash flow and liquidity risks[5](index=5&type=chunk) [Introduction](index=4&type=section&id=Introduction) This MD&A, as of June 30, 2025, should be read with the interim financial statements, prepared under IAS 34 and presented in USD - This Management Discussion and Analysis (MD&A) as of June 30, 2025, should be read in conjunction with the company's condensed consolidated interim financial statements and notes, prepared in accordance with IAS 34 and presented in US dollars, with Chinese subsidiaries' functional currency in RMB and Mongolian operations in MNT[8](index=8&type=chunk)[9](index=9&type=chunk) - Scientific or technical disclosures in this MD&A regarding the Ovoot Tolgoi Coal Mine and Soumber Deposits are extracted from technical reports prepared by Bao-Wan Minerals Ltd. under NI 43-101, and prepared or supervised by independent qualified persons including Jaydee Ammugauan and Xu Tao[11](index=11&type=chunk)[12](index=12&type=chunk) [1. Overview](index=5&type=section&id=1.%20Overview) The company, a comprehensive coal mining and exploration entity, faces significant operational and financial challenges, including a shift to operating loss and ongoing negotiations with the Mongolian government [Company Profile](index=5&type=section&id=Company%20Profile) SouthGobi Resources Ltd. is an integrated coal mining, development, and exploration company operating flagship Ovoot Tolgoi mine in Mongolia, selling primarily to China - The company is an integrated coal mining, development, and exploration company with **808 employees**, whose common shares are traded on the Hong Kong Stock Exchange (1878) and TSX-V (SGQ)[13](index=13&type=chunk) - The company wholly owns the Ovoot Tolgoi open-pit coal mine, Soumber Deposits, and Zag Suuj Deposit development project, all located in Mongolia's Umnugobi Province, adjacent to the China-Mongolia border[13](index=13&type=chunk) - The Ovoot Tolgoi Coal Mine is the flagship asset, approximately **40 kilometers** from the Shivee Khuren-Ceke border crossing, primarily producing standard and premium semi-soft coking coal, with some high-ash products processed into semi-soft coking coal and unwashed coal sold as thermal coal, mainly to China[13](index=13&type=chunk) [Significant Events and Summary](index=6&type=section&id=Significant%20Events%20and%20Summary) The company experienced a shift to operating loss, government designation of strategic deposits, tax penalty resolution, and a deferral agreement, with significant going concern uncertainties [Operating Performance](index=6&type=section&id=Operating%20Performance) Despite increased mining operations and sales volume, the company's operating performance shifted from profit to loss due to a significant decline in average realized selling prices - Since 2024, the company has expanded its mining operations, employing various coal processing methods including screening, wet washing, and dry beneficiation, to improve coal quality and output, facilitating coal exports to China[14](index=14&type=chunk) 2025 Q2 Operating Performance Comparison | Metric | 2025 Q2 | 2024 Q2 | Change | Change Rate | | :--- | :--- | :--- | :--- | :--- | | Sales Volume (million tonnes) | 3.00 | 1.20 | Increase 1.80 million tonnes | +150% | | Average Realized Selling Price (USD/tonne) | 52.6 | 77.6 | Decrease 25 USD/tonne | -32.2% | - The decrease in average realized selling price was primarily due to the downturn in the Chinese coal market, leading the company to change its product mix and sell a larger proportion of lower-priced coal products[14](index=14&type=chunk) [Financial Performance](index=6&type=section&id=Financial%20Performance) The company reported an operating loss of $14.3 million in Q2 2025, primarily due to lower selling prices, product mix changes, and inventory impairment 2025 Q2 Operating Profit/Loss Comparison | Metric | 2025 Q2 | 2024 Q2 | Change | | :--- | :--- | :--- | :--- | | Operating Profit/(Loss) (million USD) | (14.3) | 15.0 | Shift to Loss | - The shift to financial loss was mainly due to a decrease in average realized selling price, a change in product mix (selling more processed coal with higher production costs), and a **$12.3 million** coal inventory impairment loss[16](index=16&type=chunk) [Notice from Mongolian Government Plenipotentiary and Designation of Company's Deposits as Strategically Important](index=6&type=section&id=Notice%20from%20Mongolian%20Government%20Plenipotentiary%20and%20Designation%20of%20Company's%20Deposits%20as%20Strategically%20Important) The Mongolian government designated the company's deposits as strategically important, initiating negotiations for state ownership interests in SGS - On February 5, 2025, the Mongolian government resolved to appoint a plenipotentiary representative to negotiate with legal entities holding strategic mineral mining licenses, in accordance with the Law on the National Wealth Fund, to determine the proportion of Mongolia's interest[15](index=15&type=chunk) - SGS received a letter from the Mongolian government's plenipotentiary representative on April 2, 2025, inviting it to participate in discussions to determine the Mongolian government's ownership interest in SGS, with preliminary discussions commencing on April 24, 2025[16](index=16&type=chunk)[18](index=18&type=chunk) - The mineral deposits covered by the company's four Mongolian mining licenses, including the Ovoot Tolgoi Coal Mine and Soumber Deposits, have been designated as strategically important by the Mongolian government authorities[18](index=18&type=chunk) [Additional Taxes and Penalties Imposed by Mongolian Tax Authority](index=7&type=section&id=Additional%20Taxes%20and%20Penalties%20Imposed%20by%20Mongolian%20Tax%20Authority) Tax penalties initially around $75-80 million were reduced to $26.5 million by TDRC, with the company having paid $17.3 million and planning to pay the remainder from operating cash - The Mongolian Tax Authority's tax audit of SGS for the 2017-2020 tax years initially imposed penalties of approximately **$75 million**, which were later re-evaluated and increased to approximately **$80 million**[18](index=18&type=chunk)[19](index=19&type=chunk) - Following a TDRC resolution, the tax penalty amount was reduced from approximately **$80 million** to approximately **$26.5 million**, and the company decided not to appeal this decision to the first instance administrative court[20](index=20&type=chunk) - Mongolian tax officials attempted to request the court to overturn the TDRC's decision, but the first instance administrative court refused to accept it, and the appellate court upheld the first instance administrative court's order, making the TDRC's decision final; the company has paid **$17.3 million** and expects to pay the remaining outstanding taxes and penalties from operating cash[21](index=21&type=chunk)[22](index=22&type=chunk) [March 2025 Deferral Agreement](index=9&type=section&id=March%202025%20Deferral%20Agreement) The company and JDZF agreed to defer approximately $111.6 million in various payments until August 31, 2026, subject to shareholder approval and specific terms - The company and JDZF entered into the March 2025 Deferral Agreement, deferring multiple payments, including cash and payment-in-kind interest, management fees, and related deferral fees, totaling approximately **$111.6 million**, until August 31, 2026[24](index=24&type=chunk)[25](index=25&type=chunk) - The Deferral Agreement was approved by disinterested shareholders at the Annual General Meeting on June 27, 2025[24](index=24&type=chunk) - The company is required to pay a deferral fee at an annual interest rate of **6.4%** for convertible debenture-related amounts and **1.5%** for cooperation agreement-related amounts; the agreement has no fixed repayment schedule, with the company discussing repayment amounts monthly with JDZF and requiring JDZF's written consent before any changes in senior management[25](index=25&type=chunk)[28](index=28&type=chunk) [Going Concern](index=10&type=section&id=Going%20Concern) Significant uncertainties regarding the company's going concern ability arise from asset and working capital deficiencies - Certain adverse conditions and significant uncertainties, including asset and working capital deficiencies, raise substantial doubt about the company's going concern assumption[28](index=28&type=chunk) [2. Review of Operating Data and Financial Performance](index=11&type=section&id=2.%20Review%20of%20Operating%20Data%20and%20Financial%20Performance) The company experienced significant sales volume growth but a sharp decline in average realized selling prices, leading to operating losses despite improved stripping ratios [Operating Data Summary](index=11&type=section&id=Operating%20Data%20Summary) Q2 2025 saw significant coal sales volume growth but a substantial drop in average realized selling prices, with improved stripping ratios 2025 Q2 and H1 Operating Data Comparison | Metric | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Total Coal Sales Volume (million tonnes) | 2.96 | 1.20 | 5.02 | 2.25 | | Average Realized Selling Price (USD/tonne) | 52.55 | 77.55 | 55.41 | 78.47 | | Cost of Sales of Products Sold (USD/tonne) | 53.87 | 61.32 | 58.39 | 52.94 | | Total Cash Cost of Products Sold (USD/tonne) | 46.20 | 49.57 | 50.08 | 41.27 | | Stripping Ratio (cubic meters/tonne) | 5.08 | 7.27 | 5.01 | 8.27 | [Operating Data Review](index=12&type=section&id=Operating%20Data%20Review) Average realized selling prices declined in Q2 2025 and H1 2025 due to market downturns and product mix changes, while sales volumes increased significantly - The average realized selling price for Q2 2025 was **$52.6 per tonne**, a decrease from **$77.6 per tonne** in Q2 2024, primarily due to the downturn in the Chinese coal market and a change in product mix (selling more lower-priced coal products)[32](index=32&type=chunk) - The unit cost of sales for products sold in Q2 2025 was **$53.9 per tonne**, a decrease from **$61.3 per tonne** in Q2 2024, mainly due to changes in product mix and increased raw coal sales volume[32](index=32&type=chunk) - Sales volume for the first six months of 2025 was **5.0 million tonnes**, a significant increase from **2.3 million tonnes** in the first six months of 2024, but the average realized selling price decreased from **$78.5 per tonne** to **$55.4 per tonne** for the same reasons; the unit cost of sales increased from **$52.9 per tonne** to **$58.4 per tonne** due to business expansion into higher-cost processed coal categories[34](index=34&type=chunk) [Financial Performance Summary](index=13&type=section&id=Financial%20Performance%20Summary) Both Q2 and H1 2025 saw operating losses, driven by lower selling prices, higher-cost processed coal sales, and coal inventory impairment 2025 Q2 and H1 Financial Performance Summary | Metric (thousand USD) | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Revenue | 155,289 | 92,821 | 278,156 | 174,990 | | Cost of Sales | (159,452) | (73,582) | (293,141) | (119,115) | | Operating Profit/(Loss) | (14,326) | 15,045 | (30,000) | 47,193 | | Net Profit/(Loss) Attributable to Equity Holders | (22,806) | (2,085) | (49,011) | 10,167 | | Basic and Diluted Earnings/(Loss) Per Share (USD) | (0.077) | (0.007) | (0.165) | 0.034 | - Operating losses were recorded in both Q2 2025 and H1 2025, primarily due to a decrease in average realized selling price, a change in product mix (selling more processed coal with higher production costs), and a **$12.3 million** coal inventory impairment loss[39](index=39&type=chunk)[46](index=46&type=chunk) - The increase in revenue was mainly driven by expanded sales networks, diversified customer base, and increased sales volume due to an expanded range of coal product categories; the increase in cost of sales was primarily due to higher sales volume, business expansion into higher-cost processed coal categories, and selling more products to more distant destinations with higher transportation costs[39](index=39&type=chunk)[47](index=47&type=chunk) - Net other operating expenses increased, mainly due to higher management fees and a **$12.3 million** coal inventory impairment loss, partially offset by the write-off of **$6.3 million** in other payables[41](index=41&type=chunk)[48](index=48&type=chunk) [Quarterly Operating Data Summary](index=17&type=section&id=Quarterly%20Operating%20Data%20Summary) Quarterly data shows substantial sales volume growth in Q2 2025 but a continuous decline in average realized selling prices Quarterly Operating Data Comparison (Q2 2023 - Q2 2025) | Metric | Jun 30, 2025 | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | Jun 30, 2024 | Mar 31, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Coal Sales Volume (million tonnes) | 2.96 | 2.06 | 2.66 | 2.11 | 1.20 | 1.05 | 0.96 | 1.15 | | Average Realized Selling Price (USD/tonne) | 52.55 | 59.51 | 65.72 | 67.77 | 77.55 | 79.52 | 92.93 | 85.57 | | Cost of Sales of Products Sold (USD/tonne) | 53.87 | 64.90 | 48.92 | 52.77 | 61.32 | 43.36 | 38.17 | 42.23 | | Total Cash Cost of Products Sold (USD/tonne) | 46.20 | 55.67 | 39.80 | 42.68 | 49.57 | 31.78 | 28.03 | 33.08 | | Stripping Ratio (cubic meters/tonne) | 5.08 | 4.93 | 4.17 | 5.48 | 7.27 | 9.87 | 5.85 | 6.24 | [Quarterly Financial Performance Summary](index=18&type=section&id=Quarterly%20Financial%20Performance%20Summary) Q2 2025 revenue increased significantly, but gross profit and operating profit turned to losses, with expanded net losses Quarterly Financial Performance Comparison (Q2 2023 - Q2 2025) | Metric (thousand USD) | Jun 30, 2025 | Mar 31, 2025 | Dec 31, 2024 | Sep 30, 2024 | Jun 30, 2024 | Mar 31, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Revenue | 155,289 | 122,867 | 174,640 | 143,748 | 92,821 | 82,169 | 88,504 | 97,979 | | Gross Profit/(Loss) | (4,163) | (10,822) | 44,521 | 32,394 | 19,239 | 36,636 | 51,859 | 49,410 | | Operating Profit/(Loss) | (14,326) | (15,674) | 79,052 | 27,697 | 15,045 | 32,148 | 42,044 | 46,343 | | Net Profit/(Loss) | (22,806) | (26,205) | 72,291 | 10,039 | (2,085) | 12,252 | 24,336 | 29,349 | | Basic Earnings/(Loss) Per Share | (0.077) | (0.088) | 0.244 | 0.034 | (0.007) | 0.041 | 0.082 | 0.099 | [3. Non-IFRS Financial Measures](index=18&type=section&id=3.%20Non-IFRS%20Financial%20Measures) The company uses non-IFRS financial measures like cash costs and idle mine asset costs to monitor operational efficiency and provide relevant financial insights [Cash Costs](index=19&type=section&id=Cash%20Costs) Cash costs, a non-IFRS measure, reflect cash production and related costs for inventory, excluding idle mine asset costs and non-cash expenses - Cash costs are a non-IFRS financial measure that reflects the cash production and related cash costs incurred to bring inventory to its present location and condition, excluding idle mine asset costs and non-cash expenses, used to monitor internal operating cash costs[58](index=58&type=chunk) Total Cash Cost of Products Sold Comparison | Metric | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Total Cash Cost of Products Sold (USD/tonne) | 46.20 | 49.57 | 50.08 | 41.27 | - The cash cost per tonne of products sold decreased from **$49.6** in Q2 2024 to **$46.2** in Q2 2025, primarily due to changes in product mix and increased raw coal sales volume[59](index=59&type=chunk) [Idle Mine Asset Costs](index=20&type=section&id=Idle%20Mine%20Asset%20Costs) Idle mine asset costs, including share-based compensation and impairment, are used for internal gross profit monitoring and investor information - Idle mine asset costs include share-based compensation expenses, coal inventory impairment, and depreciation and depletion of property, plant, and equipment and mineral properties, used for internal gross profit monitoring[60](index=60&type=chunk) Gross Profit/(Loss) Reconciliation (thousand USD) | Metric | 2025 Q2 | 2024 Q2 | 2025 H1 | 2024 H1 | | :--- | :--- | :--- | :--- | :--- | | Gross Profit/(Loss) (excluding idle mine asset costs) | (3,852) | 19,303 | (14,423) | 55,985 | | Less non-cash idle mine asset costs | (311) | (64) | (562) | (110) | | Gross Profit/(Loss) (including idle mine asset costs) | (4,163) | 19,239 | (14,985) | 55,875 | [4. Properties](index=19&type=section&id=4.%20Properties) The company holds six mining licenses in Mongolia, with the Ovoot Tolgoi Coal Mine as its flagship operating asset, strategically located near the Chinese border [Operating Coal Mines](index=20&type=section&id=Operating%20Coal%20Mines) The company operates the Ovoot Tolgoi Coal Mine, its flagship asset, strategically located near the China-Mongolia border, producing semi-soft coking coal and thermal coal [Ovoot Tolgoi Coal Mine](index=20&type=section&id=Ovoot%20Tolgoi%20Coal%20Mine) The Ovoot Tolgoi Coal Mine, a flagship asset in Mongolia, produces semi-soft coking coal and thermal coal, aiming to expand market penetration in China - The Ovoot Tolgoi Coal Mine is the company's flagship asset, located in Umnugobi Aimag, Mongolia, approximately **40 kilometers** from the Shivee Khuren-Ceke border crossing with China, and has been in operation since 2008[13](index=13&type=chunk)[64](index=64&type=chunk) - Primary products include standard and premium semi-soft coking coal, with some high-ash products processed into semi-soft coking coal, and unwashed products sold as thermal coal; the company aims to develop markets, seek long-term supply agreements with Chinese end-users, and enhance product quality and market penetration in China through various coal processing methods[13](index=13&type=chunk)[64](index=64&type=chunk) [Resources](index=20&type=section&id=Resources) Resource estimates for the Ovoot Tolgoi deposit are detailed in the technical report prepared by Bao-Wan Minerals Ltd., available on SEDAR+ - Resource estimates for the Ovoot Tolgoi deposit are contained in the Ovoot Tolgoi Technical Report prepared by Bao-Wan Minerals Ltd. on behalf of the company, a copy of which was filed on the SEDAR+ website on December 2, 2024[65](index=65&type=chunk) [Reserves](index=20&type=section&id=Reserves) Reserve estimates for the Ovoot Tolgoi deposit are detailed in the technical report prepared by Bao-Wan Minerals Ltd., available on SEDAR+ - Reserve estimates for the Ovoot Tolgoi deposit are contained in the Ovoot Tolgoi Technical Report prepared by Bao-Wan Minerals Ltd. on behalf of the company, a copy of which was filed on the SEDAR+ website on December 2, 2024[66](index=66&type=chunk) [Mining Operations](index=21&type=section&id=Mining%20Operations) Ovoot Tolgoi employs open-pit bench mining with large-scale hydraulic excavators and trucks, supported by a predominantly Mongolian workforce [Mining Method](index=21&type=section&id=Mining%20Method) The Ovoot Tolgoi deposit utilizes open-pit bench mining with large-scale hydraulic excavators and trucks for high-productivity extraction in steeply dipping coal seams - The Ovoot Tolgoi deposit employs open-pit bench mining, utilizing large-scale hydraulic excavators, shovels, and trucks for high-productivity extraction in steeply dipping coal seams[68](index=68&type=chunk) [Mining Equipment](index=21&type=section&id=Mining%20Equipment) The current mining fleet includes Liebherr hydraulic excavators and MT4400AC haul trucks, along with various auxiliary equipment - The mining fleet currently in use includes one Liebherr 996 hydraulic excavator (**34 cubic meters**), four Liebherr R9250 hydraulic excavators (**15 cubic meters**), nineteen MT4400AC haul trucks (**240-tonne** carrying capacity), and various auxiliary equipment[69](index=69&type=chunk) [Workforce](index=21&type=section&id=Workforce) As of June 30, 2025, SGS employed 701 staff in Mongolia, with 99% being Mongolian nationals and 36% local residents - As of June 30, 2025, SGS employed **701 staff** in Mongolia, of whom **697 (99%)** were Mongolian nationals and **250 (36%)** were local residents[70](index=70&type=chunk) [5. Liquidity and Capital Resources](index=21&type=section&id=5.%20Liquidity%20and%20Capital%20Resources) The company manages liquidity through planning and forecasting, addressing tax penalties and deferral agreements, while facing significant going concern uncertainties [Liquidity and Capital Management](index=21&type=section&id=Liquidity%20and%20Capital%20Management) The company manages liquidity through planning, budgeting, and forecasting, addressing tax penalties and deferral agreements, while relying on major shareholder support amid going concern uncertainties [Additional Taxes and Penalties Imposed by Mongolian Tax Authority](index=21&type=section&id=Additional%20Taxes%20and%20Penalties%20Imposed%20by%20Mongolian%20Tax%20Authority) Tax penalties initially around $75-80 million were reduced to $26.5 million by TDRC, with the company having paid $17.3 million and planning to pay the remainder from operating cash - The Mongolian Tax Authority's tax audit of SGS for the 2017-2020 tax years initially imposed penalties of approximately **$75 million**, which were later re-evaluated and increased to approximately **$80 million**[72](index=72&type=chunk)[73](index=73&type=chunk) - Following a TDRC resolution, the tax penalty amount was reduced from approximately **$80 million** to approximately **$26.5 million**, and the company decided not to appeal this decision to the first instance administrative court[74](index=74&type=chunk) - Mongolian tax officials attempted to request the court to overturn the TDRC's decision, but the first instance administrative court refused to accept it, and the appellate court upheld the first instance administrative court's order, making the TDRC's decision final; the company has paid **$17.3 million** and expects to pay the remaining outstanding taxes and penalties from operating cash[75](index=75&type=chunk)[76](index=76&type=chunk) [Going Concern Considerations](index=23&type=section&id=Going%20Concern%20Considerations) Asset and working capital deficiencies raise significant doubts about the company's going concern ability, despite measures like deferral agreements and anticipated shareholder support Asset and Working Capital Deficiencies (thousand USD) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Asset Deficiency | 108,406 | 49,843 | | Working Capital Deficiency | 147,962 | 228,134 | - The working capital deficiency includes **$212.3 million** in trade and other payables and **$28.2 million** in additional taxes and penalties, which could lead to potential legal actions or bankruptcy proceedings[78](index=78&type=chunk)[79](index=79&type=chunk) - The company has taken steps to improve liquidity, including entering into a deferral agreement with JDZF, negotiating repayment plans with suppliers, and expecting to receive financial support of up to **$127 million (RMB 900 million)** from an affiliate of its major shareholder; management believes it has sufficient financial resources to continue operations, but the timely availability of financial support is a key uncertainty for going concern[80](index=80&type=chunk)[81](index=81&type=chunk) [Convertible Debentures](index=24&type=section&id=Convertible%20Debentures) The company issued $500 million in convertible debentures to CIC in 2009, with $250 million remaining outstanding and rights transferred to JDZF in 2022 - The company issued **$500 million** in secured convertible debentures to CIC in November 2009, with an annual interest rate of **8.0% (6.4% cash, 1.6% shares)** and a maximum term of **30 years**; **$250 million** of the debentures were converted in 2010, with the remaining **$250 million** principal unchanged[83](index=83&type=chunk) - In August 2022, CIC transferred the convertible debentures and related rights and obligations to JDZF[188](index=188&type=chunk) - Debenture terms include: **8% annual interest (6.4% cash, 1.6% shares)**, a maximum **30-year term**, secured by a first charge on company assets, a conversion price of **CAD 11.88** or the 50-day volume-weighted average price on the conversion date (whichever is lower, with a minimum of **CAD 8.88**); JDZF has the right to appoint directors, voting rights not exceeding **29.9%**, and certain pre-emptive rights[190](index=190&type=chunk) [Deferral Agreement](index=25&type=section&id=Deferral%20Agreement) The company and JDZF agreed to defer approximately $111.6 million in various payments until August 31, 2026, subject to shareholder approval and specific terms - The company and JDZF entered into the March 2025 Deferral Agreement, deferring multiple payments, including cash and payment-in-kind interest, management fees, and related deferral fees, totaling approximately **$111.6 million**, until August 31, 2026[24](index=24&type=chunk)[85](index=85&type=chunk) - The Deferral Agreement was approved by disinterested shareholders at the Annual General Meeting on June 27, 2025[24](index=24&type=chunk)[85](index=85&type=chunk) - The company is required to pay a deferral fee at an annual interest rate of **6.4%** for convertible debenture-related amounts and **1.5%** for cooperation agreement-related amounts; the agreement has no fixed repayment schedule, with the company discussing repayment amounts monthly with JDZF and requiring JDZF's written consent before any changes in senior management[25](index=25&type=chunk)[86](index=86&type=chunk) [Net Debt to Equity Ratio](index=26&type=section&id=Net%20Debt%20to%20Equity%20Ratio) The company's net debt to equity ratio improved to -476% as of June 30, 2025, but remains negative, indicating negative equity Net Debt to Equity Ratio Comparison | Metric | Jun 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Net Debt to Equity Ratio | -476% | -945% | [Cash Flow Summary](index=26&type=section&id=Cash%20Flow%20Summary) In H1 2025, net cash from operating activities increased, cash used in investing activities decreased, and cash used in financing activities significantly reduced [Net Cash Flows from Operating Activities](index=26&type=section&id=Net%20Cash%20Flows%20from%20Operating%20Activities) Net cash flows from operating activities increased to $34.6 million in H1 2025, primarily due to higher sales volume Net Cash Flows from Operating Activities (thousand USD) | Metric | 2025 H1 | 2024 H1 | Change | | :--- | :--- | :--- | :--- | | Net Cash Flows from Operating Activities | 34,570 | 32,355 | Increase 2,215 | [Cash Used in Investing Activities](index=26&type=section&id=Cash%20Used%20in%20Investing%20Activities) Cash used in investing activities decreased to $39.3 million in H1 2025, mainly for property, plant, and equipment expenditures Cash Used in Investing Activities (thousand USD) | Metric | 2025 H1 | 2024 H1 | Change | | :--- | :--- | :--- | :--- | | Cash Used in Investing Activities | (39,349) | (64,294) | Decrease 24,945 | | Property, Plant, and Equipment Expenditures | 39,600 | 64,000 | Decrease 24,400 | [Cash Used in Financing Activities](index=26&type=section&id=Cash%20Used%20in%20Financing%20Activities) Cash used in financing activities significantly decreased to $0.4 million in H1 2025 Cash Used in Financing Activities (thousand USD) | Metric | 2025 H1 | 2024 H1 | Change | | :--- | :--- | :--- | :--- | | Cash Used in Financing Activities | (374) | (3,291) | Decrease 2,917 | [Contractual Obligations and Guarantees](index=26&type=section&id=Contractual%20Obligations%20and%20Guarantees) As of June 30, 2025, the company's total future minimum payment commitments amounted to $11.04 million, primarily for capital expenditures Contractual Obligations and Guarantees (thousand USD) | Obligation Type | Within 1 Year | 2-3 Years | Over 3 Years | Total | | :--- | :--- | :--- | :--- | :--- | | Capital Expenditure Commitments | 1,964 | 3,848 | 3,815 | 9,627 | | Operating Expenditure Commitments | 1,216 | 38 | 159 | 1,413 | | Total | 3,180 | 3,886 | 3,974 | 11,040 | [Ovoot Tolgoi Coal Mine Impairment Analysis](index=26&type=section&id=Ovoot%20Tolgoi%20Coal%20Mine%20Impairment%20Analysis) Impairment indicators were identified for the Ovoot Tolgoi mine due to future coal price uncertainty, but no impairment was recognized as recoverable amounts exceeded carrying values - As of June 30, 2025, impairment indicators were identified for the Ovoot Tolgoi Coal Mine cash-generating unit, due to uncertainty regarding future Chinese coal prices[93](index=93&type=chunk) - No impairment of non-financial assets was recognized for the six months ended June 30, 2025, as the recoverable amount exceeded the carrying value[93](index=93&type=chunk) [Financial Instruments](index=27&type=section&id=Financial%20Instruments) The fair values of the company's financial instruments generally align with carrying values, except for certain liabilities, with convertible debenture derivatives valued using Monte Carlo simulation - The fair values of all the company's financial instruments are similar to their carrying values, except for trade and other payables, interest-bearing borrowings, and convertible debentures, whose fair values are lower than their respective carrying values[95](index=95&type=chunk) - The fair value of the convertible debenture embedded derivative is determined using a Monte Carlo simulation valuation model, and the company mitigates related risks by ensuring corporate activities comply with all contractual obligations under the convertible debentures[95](index=95&type=chunk) Financial Assets and Liabilities (thousand USD) | Metric | Jun 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Financial Assets** | | | | Cash | 2,614 | 8,590 | | Restricted Cash | 838 | 274 | | Trade and Other Receivables | 17,233 | 31,486 | | **Financial Liabilities** | | | | Convertible Debentures - Embedded Derivative | 7 | 63 | | Trade and Other Payables | 212,289 | 169,281 | | Lease Liabilities | 1,979 | 2,192 | | Convertible Debentures - Debt Host and Accrued Interest | 222,392 | 204,855 | [6. Regulatory Matters and Contingencies](index=28&type=section&id=6.%20Regulatory%20Matters%20and%20Contingencies) The company faces ongoing litigation, disputes over special protection areas, and risks from frequent changes in Mongolian tax laws [Litigation](index=28&type=section&id=Litigation) The company faces an ongoing class action lawsuit regarding misstatements, with a conditional settlement of CAD 6.8 million covered by insurance awaiting court approval - The company has faced a class action lawsuit since 2014, alleging misrepresentations due to previously restated financial statements; while claims against former officers and directors have been dismissed, the class action against the company is ongoing[97](index=97&type=chunk)[98](index=98&type=chunk) - The company reached a conditional settlement with the class action plaintiffs for **CAD 6.8 million**, covering all liabilities, legal fees, etc., to be borne by the company's insurance provider since January 2014[98](index=98&type=chunk) - The settlement agreement is subject to approval by a judge of the Ontario Superior Court of Justice, with a motion expected to be filed on or before December 31, 2025[98](index=98&type=chunk) [Special Needs Areas in Umnugobi Province](index=29&type=section&id=Special%20Needs%20Areas%20in%20Umnugobi%20Province) Disputes over mining license areas being designated as special protection zones have been largely resolved in the company's favor, with court rulings invalidating attempts to re-include them - The Soumber mining license areas were previously included in special protected areas, prohibiting mining activities; SGS reached an amicable agreement with local authorities to exclude the license areas from the special needs area[101](index=101&type=chunk) - As of July 2021, two license areas no longer overlap with special needs areas, but the company is still negotiating with Mongolian authorities regarding the remaining license area[102](index=102&type=chunk) - The local Citizens' Representative Khural attempted to re-include the license areas into the protected zone, but both the Umnugobi Province First Instance Court and the Appellate Court ruled their claims invalid, and the Appellate Court's decision is final[102](index=102&type=chunk)[103](index=103&type=chunk) [Tax Laws](index=30&type=section&id=Tax%20Laws) Frequent changes in Mongolian tax laws pose risks of additional taxes and penalties, though a significant tax penalty reduction was upheld by the appeals court - The interpretation and changes to Mongolian tax, currency, and customs laws are frequent, potentially leading to the imposition of significant additional taxes, penalties, and interest on the company[104](index=104&type=chunk) - Mongolian tax officials attempted to request the court to overturn the TDRC's decision to reduce SGS's tax penalties from approximately **$80 million** to approximately **$26.5 million**, but the first instance administrative court refused to accept it, and the appellate court upheld the first instance administrative court's order, making the TDRC's decision final[105](index=105&type=chunk)[106](index=106&type=chunk) - The company recorded a reversal of additional taxes and penalties of **$48.5 million** in 2024 and has paid **$17.3 million** to date; management will continue to assess the impact of subsequent events on tax liabilities[106](index=106&type=chunk)[108](index=108&type=chunk) [7. Outstanding Share Data](index=31&type=section&id=7.%20Outstanding%20Share%20Data) As of August 14, 2025, the company had approximately 296.7 million common shares outstanding, with key shareholders including JDZF, Blueport International Holdings, and Voyage Wisdom - As of August 14, 2025, the company had approximately **296.7 million** common shares issued and outstanding, along with incentive stock options to subscribe for approximately **1.2 million** unissued common shares at an exercise price of **HKD 1.41**, but no preferred shares outstanding[109](index=109&type=chunk) Major Shareholder Holdings (as of August 14, 2025) | Shareholder Name | Number of Shares Held (approx.) | Percentage of Issued and Outstanding Common Shares (approx.) | | :--- | :--- | :--- | | JDZF | 85.7 million shares | 28.9% | | Blueport International Holdings Limited | 46.4 million shares | 15.6% | | Voyage Wisdom Limited | 25.8 million shares | 8.7% | [8. Disclosure Controls and Procedures and Internal Control Over Financial Reporting](index=31&type=section&id=8.%20Disclosure%20Controls%20and%20Procedures%20and%20Internal%20Control%20Over%20Financial%20Reporting) No significant changes occurred in the company's internal controls over financial reporting during the most recent quarter - No significant changes occurred in the company's internal controls over financial reporting during the most recently completed quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[110](index=110&type=chunk) [9. Critical Accounting Estimates and Judgments](index=31&type=section&id=9.%20Critical%20Accounting%20Estimates%20and%20Judgments) No new IFRS accounting standards or interpretations are expected to significantly impact the company, with details available in the interim financial statements - No new IFRS accounting standards or interpretations not yet effective are expected to have a significant impact on the company[110](index=110&type=chunk) - Information regarding accounting judgments and estimates can be found in Note 2.3 to the company's condensed consolidated interim financial statements for the quarter ended June 30, 2025[110](index=110&type=chunk) [10. Risk Factors](index=31&type=section&id=10.%20Risk%20Factors) The company's business involves various risks and uncertainties, consistent with those disclosed in its annual information form for the year ended December 31, 2024 - The company's business involves certain risks, some of which are beyond its control; the significant risks and uncertainties affecting the company, their potential impact on operations, and key risk management strategies are substantially consistent with those disclosed in the company's most recently filed Annual Information Form for the year ended December 31, 2024[111](index=111&type=chunk) [11. Hong Kong Listing Rules Requirements](index=32&type=section&id=11.%20Hong%20Kong%20Listing%20Rules%20Requirements) The company has no significant investments, acquisitions, dispositions, or future capital asset plans, and details its employee compensation and benefits [Significant Investments](index=32&type=section&id=Significant%20Investments) As of June 30, 2025, the company had no significant investments other than those in joint ventures and associates - As of June 30, 2025, the company had no significant investments other than those in joint ventures and associates[113](index=113&type=chunk) [Significant Acquisitions and Dispositions of Subsidiaries, Joint Ventures, and Associates](index=32&type=section&id=Significant%20Acquisitions%20and%20Dispositions%20of%20Subsidiaries,%20Joint%20Ventures,%20and%20Associates) For the six months ended June 30, 2025, the company had no significant acquisitions or dispositions of subsidiaries, joint ventures, or associates - For the six months ended June 30, 2025, the company had no significant acquisitions or dispositions of subsidiaries, joint ventures, or associates[114](index=114&type=chunk) [Future Plans for Material Investments or Capital Assets](index=32&type=section&id=Future%20Plans%20for%20Material%20Investments%20or%20Capital%20Assets) As of June 30, 2025, the company had no specific plans for material investments or capital assets - As of June 30, 2025, the company had no specific plans for material investments or capital assets[115](index=115&type=chunk) [Employees](index=32&type=section&id=Employees) As of June 30, 2025, the company employed 808 individuals, offering competitive compensation and a share option scheme to attract and retain talent - As of June 30, 2025, the company had a total of **808 employees**[116](index=116&type=chunk) - The company offers competitive compensation packages, including salaries, director's fees, key performance indicators linked to performance targets, discretionary bonuses, and other benefits, and has a share option scheme to attract, retain, motivate, and reward employees, while also funding external training courses[116](index=116&type=chunk) [12. Outlook](index=32&type=section&id=12.%20Outlook) The company anticipates a reshaping of the international coal market due to geopolitical shifts and aims to expand its market presence in China with JDZF's support [Market Environment and Company Strategy](index=32&type=section&id=Market%20Environment%20and%20Company%20Strategy) The company expects global geopolitical shifts to reshape the international coal market, focusing on expanding its Chinese market reach and customer base with JDZF's support - The global geopolitical landscape and US-China trade tensions are expected to reshape the international coal market, with Chinese coal users potentially shifting to more stable and reliable supply sources such as Australia, Russia, Canada, and Mongolia[117](index=117&type=chunk) - Enhanced cooperation between the Chinese and Mongolian governments will strengthen trade ties and improve infrastructure, creating favorable conditions for Mongolian coal exports to China[117](index=117&type=chunk) - Despite challenges in China's property market and infrastructure investment leading to a decline in coking coal demand, the company remains cautiously optimistic about the Chinese coal market, expecting coal to remain a primary energy source and supply constraints to cause price volatility[117](index=117&type=chunk) - With the continued assistance and support of JDZF, the company will focus on expanding its market reach and customer base in China to improve the profitability of its coal products[117](index=117&type=chunk) [Medium-Term Objectives](index=33&type=section&id=Medium-Term%20Objectives) Medium-term goals include expanding mining operations, optimizing product mix, increasing market reach, enhancing production, and optimizing cost structures while operating safely - The company will continue to expand its mining operations and coal processing capabilities to capture market share[120](index=120&type=chunk) - Optimize product portfolio: Produce economically efficient blended coal products by improving mining operations, utilizing dry and wet washing coal processing plants, and trading and blending different coal types[121](index=121&type=chunk) - Expand market reach and customer base: Increase sales volume and improve selling prices by expanding sales networks, diversifying customer base, increasing coal logistics capacity, and setting market-driven sales prices[121](index=121&type=chunk) - Increase production and optimize cost structure: Aim to increase coal production to leverage economies of scale and reduce production costs by engaging large third-party contract mining companies, strengthening procurement management, continuous training, and improving productivity[121](index=121&type=chunk) - Operate safely and socially responsibly: Maintain the highest standards of health, safety, and environmental protection[121](index=121&type=chunk) [Long-Term Competitive Advantages](index=33&type=section&id=Long-Term%20Competitive%20Advantages) Long-term competitive advantages include the strategic location of Ovoot Tolgoi, substantial reserves, growth potential of other deposits, and its role as a bridge between China and Mongolia - Strategic location: The Ovoot Tolgoi Coal Mine is approximately **40 kilometers** from major Chinese coal markets and has railway connections to key Chinese coal distribution hubs[121](index=121&type=chunk) - Substantial reserve base: The Ovoot Tolgoi deposit holds at least **82.3 million tonnes** of mineral reserves[121](index=121&type=chunk) - Several growth potentials: Including the Soumber Deposits and Zag Suuj Deposit[121](index=121&type=chunk) - Bridge between China and Mongolia: The company is well-positioned to seize business opportunities between China and Mongolia and will seek assistance and support from its two largest shareholders (experienced Chinese coal mining enterprises)[121](index=121&type=chunk)

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