SouthGobi Announces Inside Information JD Zhixing Fund L.P. Assigns Payment-In-Kind Interest Under Convertible Debenture

SouthGobi Resources Ltd. (SGQ) announced that JD Zhixing Fund L.P. (JDZF), the company’s largest shareholder and holder of a US$250 million Convertible Debenture, has assigned the right to receive US$19 million of accrued payment-in-kind (PIK) interest to Od Sar Trading Co. Limited. The Assignee intends to convert this US$19 million PIK interest into common shares of SouthGobi Resources Ltd. in the near future, subject to the terms of the original debenture and deferral agreements.

The transaction involves the assignment of PIK interest rights from JD Zhixing Fund L.P. (Assignor) to Od Sar Trading Co. Limited (Assignee). The assigned amount consists of US$19 million of accrued and outstanding payment-in-kind interest under the Convertible Debenture issued on November 19, 2009. The payment date for the Assigned PIK Interest is deferred until August 31, 2027, pursuant to the March 23, 2026 deferral agreement. The assignment does not alter this deferral date or the terms of the March 2026 Deferral Agreement.

Under the conversion mechanism, the Assignee may require the Company to satisfy the US$19 million obligation by issuing fully paid and non-assessable common shares. The number of shares is determined by dividing the US$19 million by the 50-day volume-weighted average price (VWAP) of the Common Shares as of the requested payment date. Illustrative calculations suggest the Assignee could receive approximately 82.1 million shares, representing 21.66% of the issued and outstanding common shares.

The illustrative share issuance is based on the following assumptions: * Assumed VWAP: CAD$0.327 per share. * Exchange Rate: Bank of Canada CAD/USD daily average of 0.7069. * Estimated Shares: 82,140,266 Common Shares. * Dilution Impact: Approximately 21.66% of the issued and outstanding Common Shares.

The Company will announce the actual issuance of Common Shares once the transaction is finalized and the VWAP is determined.

"The Company has been notified by the Assignee that the Assignee intends to convert the Assigned PIK Interest into, and require the Company to issue, Common Shares in the near future," the company stated. "Shareholders are cautioned that, the final number of Common Shares that the Company will issue to satisfy the Assigned PIK Interest will depend on the prevailing 50-day VWAP as of the future payment date."