Early Warning News Release for Od Sar Trading Co., Limited

Od Sar Trading Co., Limited has acquired US$19 million of accrued payment-in-kind (PIK) interest from JD Zhixing Fund L.P. (JDZF), a stake linked to SouthGobi Resources Ltd.’s US$250 million convertible debenture. The assignment grants Od Sar the right to receive approximately 82,144,401 common shares, which represents roughly 21.66% of SouthGobi’s outstanding shares on an undiluted basis.

Od Sar has demanded immediate payment of US$17 million of the assigned interest and anticipates receiving 73,497,622 shares, accounting for approximately 19.83% of the outstanding shares. While the transaction shifts a significant block of potential shares to a third party and reduces JDZF’s direct exposure, it does not alter SouthGobi’s underlying repayment obligations. The company remains liable for the US$19 million of PIK interest now held by Od Sar, which is to be satisfied through the issuance of shares. The conversion price is based on a 50-day volume-weighted average price (VWAP), illustrated at CAD$0.3272 per share.

SouthGobi Resources Ltd. (SGQ) faces material negative implications for existing shareholders following the issuance of 73.5–82.1 million new shares, a move that dilutes current holders by approximately 20–22% and immediately reduces per-share claims on assets and earnings. The assignment of rights from JDZF to Od Sar, coupled with Od Sar’s immediate demand for shares, indicates that JDZF is offloading its rights to a third party. This development undermines confidence in JDZF’s role as a patient, supportive stakeholder, a reliance that has been disclosed repeatedly in the company’s going-concern notes.

The conversion price of approximately CAD$0.33 per share implies a deeply distressed effective valuation, consistent with the company’s negative equity and working-capital deficiency. While the dilutive potential was previously disclosed in earlier releases, the formal demand and the identity of a new, arms-length significant holder constitute new facts that crystallize the dilution risk and remove prior ambiguity regarding JDZF’s intentions. Market reaction is expected to be negative, as the situation confirms that the PIK interest is being monetized by a third party rather than remaining within the JDZF relationship as part of a potential broader restructuring deal.

SouthGobi Resources Ltd. is a Mongolia-focused coal miner that has been producing and selling coal to customers in China since 2008. Its flagship asset is the Ovoot Tolgoi Mine, an open-pit operation located in the Umnugobi Aimag of Mongolia near the Chinese border. The company also holds the Soumber Deposit, which is designated as strategic but remains in development amid some license uncertainty due to a Special Needs Territory overlay. Infrastructure includes a 20-km paved highway connecting the mine to the Shivee Khuren-Ceke border crossing, which generates toll revenue via RDCC LLC.