SouthGobi obtains 2026 to 2027 JDZF payment deferral

Executive Summary

• SouthGobi Resources Ltd. entered into a new deferral agreement with JD Zhixing Fund LP (JDZF), the holder of its $250 million convertible debenture and largest shareholder, to defer significant cash interest, PIK interest, and management fee obligations.
• The agreement defers approximately $168.1 million in total deferred amounts (including ~$140.5M from the March 2025 agreement, ~$7.9M May 2026 interest, ~$12.1M Nov 2026 interest/PIK, and ~$7.6M management fees) until August 31, 2027.
• The deferral is subject to shareholder approval at the upcoming Annual General Meeting, with JDZF abstaining from the vote due to its related-party status.

Key Details

• Deferral Amounts:
  • 2025 Deferred Amounts: Deferral of cash interest, PIK interest, and management fees totaling approximately $140.5 million, originally due under the March 20, 2025 agreement.
  • May 2026 Cash Interest: Deferral of approximately $7.9 million, originally due May 19, 2026.
  • November 2026 Interest/PIK: Deferral of cash interest (~$8.1 million) and PIK interest (~$4.0 million), originally due November 19, 2026.
  • Management Fees: Deferral of approximately $7.6 million, due on May 16, Aug 15, Nov 15, 2026, and Feb 15, 2027, under the amended and restated co-operation agreement.
• Deferral Fees:
  • Convertible Debenture Obligations: A fee of 6.4% per annum on the outstanding balance of deferred amounts related to the debenture.
  • Co-operation Agreement Obligations: A fee of 1.5% per annum on the outstanding balance of deferred amounts related to the co-operation agreement.
• Repayment Terms: No fixed repayment schedule; the company must use "best efforts" to repay based on monthly assessments of working capital requirements. Monthly financial updates and good-faith discussions regarding repayment amounts are required.
• Governance & Consent:
  • The company must obtain written consent from JDZF (not to be unreasonably withheld) before appointing, replacing, or terminating the CEO, CFO, or other senior executives in charge of principal business functions.
  • Default events entitle JDZF to accelerate all principal, interest, and fees immediately.
• Shareholder Approval:
  • Required under Multilateral Instrument 61-101 (Canadian securities laws) and Hong Kong Listing Rules.
  • JDZF holds ~28.87% of voting rights (85,714,194 shares) and will abstain from voting.
  • An Independent Board Committee and Independent Financial Adviser have been appointed to advise independent shareholders.
• Regulatory Status:
  • Classified as a discloseable and connected transaction under Hong Kong Listing Rules (Chapter 14A).
  • Aggregated with the previous March 2025 agreement, the transaction exceeds 5% but remains below 25% of applicable percentage ratios, triggering reporting, announcement, circular, and independent shareholder approval requirements.
• PIK Interest Note: Deferral of PIK interest means the number of common shares issued to satisfy these obligations will depend on the 50-trading-day VWAP at the future payment date, potentially resulting in more or fewer shares than originally anticipated.

Notable Quotes

• "The deferral is designed to improve the financial position of the company... enhance the company's ability to continue as a going concern in the near term and provide the company with financial flexibility to consider and explore different measures to secure additional capital or to pursue a strategic debt restructuring or refinancing plan with JDZF." — Board of Directors