Inside Information Important Notice Regarding the Law on Mineral Resources of Mongolia

The most recent news release (January 28, 2026) provides a critical update regarding Article 5.7 of the Law on Mineral Resources of Mongolia. The Mongolian government is imposing ownership restrictions on legal persons holding mining licenses for "strategically important mineral deposits," which includes SouthGobi's Ovoot Tolgoi and Soumber deposits. The regulation limits any single shareholder or concert party to a maximum of 34% of total issued shares. Non-compliance may grant the Mongolian government the power to appoint a plenipotentiary representative to manage the company. While the largest shareholder currently holds 28.87%, the company is in ongoing discussions with a government representative regarding the "state's potential ownership interest."

This news is highly negative and introduces severe sovereign risk. The 34% cap restricts the company's ability to seek a "white knight" investor or receive further concentrated financial support from its current largest shareholder (JDZF) without triggering government intervention. More importantly, the mention of "the state's potential ownership interest" suggests a possible forced equity transfer or nationalization-lite scenario, where the government takes a significant stake in the company's subsidiary, SouthGobi Sands LLC. This follows a trend of increasing resource nationalism in Mongolia. Coupled with the company's existing "going concern" warnings and asset deficiency, this regulatory pressure could wipe out common shareholders if a state-mandated restructuring occurs.

SouthGobi Resources is a coal producer operating in Mongolia. Its flagship project is the Ovoot Tolgoi open-pit coal mine, located approximately 40km from the Chinese border. This proximity provides a significant logistics advantage for exporting coking and thermal coal to the Chinese steel industry. The company also holds the Soumber and Zag Suuj deposits, which are in the exploration/development stages.