Investor presentation November 2014 November 2014| 1 Cautionary - - PowerPoint PPT Presentation

November 2014| 1

November 2014

Investor presentation

November 2014| 2

Cautionary statement

This presentation includes certain “forward-looking statements.” All statements, other than statements of historical fact, are forward-looking statements that involve various risks and uncertainties. There can be no assurances that such statements will prove accurate, and actual results and future events could differ materially from those anticipated in such statements. Such information contained herein represents management’s best judgment as of the date hereof based on information currently available. The company does not assume the obligation to update any forward-looking statement.

Forward-looking statements

November 2014| 3

Solid platform to create value for shareholders

Investment highlights

• Strategic location near the border with China, the major coal growth market
• Large resource base
• Several growth options
• Flexibility of product offering
• SouthGobi’s financial performance has been impacted by the recent declines in

the coal market

• However, longer term forecasts indicate modest growth in China’s demand for

imported coal Solid long term market fundamentals

• Secure financing
• Further improve operational efficiencies and reduce costs
• Deliver value through marketing and coal processing
• Develop Soumber deposit in the longer term

Clear strategy

November 2014| 4

27.5% 16.5% 56.0%

Key facts

• An integrated coal mining, development and

exploration company

• Incorporated in British Columbia, Canada
• Three significant coal projects in Mongolia:

– Ovoot Tolgoi Mine (producing mine) – Two development projects:

• Soumber Deposit
• Zag Suuj Deposit
• All mineral mining and exploration licenses in

good standing

• Located in the South Gobi Province of Mongolia:

– The projects are within 150km of each other – In close proximity to the Mongolia-China border

• Key terms of CIC convertible debenture:

Total shares outstanding: 187.3million

Public Float

• Share structure (as at November 11, 2014):
• Primary listing: Toronto (TSX: SGQ)

Secondary listing: Hong Kong (HKEx: 1878)

• Maturity: November 2039
• Coupon: 6.4% p.a. payable in cash; 1.6% p.a. in shares
• Base/minimum conversion value: C$11.88/C$8.88 per share
• Balance sheet (as at November 11, 2014):
• Cash $6.1m
• Debt (CIC convertible debenture) $250m

November 2014| 5

Corporate timeline

MILESTONES

New management team in place

2002 - 2005 2006 - 2008 2009 - 2011 2012 2013

Incorporation Acquired coal assets from Ivanhoe Commenced coal mining at Ovoot Tolgoi CIC invested US$500m as convertible debenture Trading on TSX Trading on HKEx Mining license for Soumber Deposit Chalco announced bid for Ivanhoe’s 58% stake in SouthGobi Production at Ovoot Tolgoi halted New President and CEO: Ross Tromans Termination

• f Chalco’s

takeover bid Resumption of production at Ovoot Tolgoi Outstanding Pre- Mining Agreements granted in Mongolia

2014

NUR announced bid for TRQ’s 29.95%stake in SouthGobi Completion of construction

• f coal-haul

highway

November 2014| 6

Key assets overview Key assets overview

Ovoot Tolgoi Complex

 Flagship Ovoot Tolgoi Mine and the Ovoot Tolgoi Underground Deposit  Ovoot Tolgoi Mine in production since 2008  Production capacity of 8 million tonnes of ROM coal  Ongoing work to optimise the mine plan and product mix

Soumber Deposit

 Located approximately 20 km east of the Ovoot Tolgoi Mine  East Soumber mining license received in July 2011  Central Soumber PMA granted in August 2013

Zag Suuj Deposit

 Pre-Mining Agreements (PMAs) granted in August 2013

November 2014| 7

SouthGobi’s assets strategically located

• Short-haul to China infrastructure
• Approximately 45km to Ceke
• Typical truck haul for coal operations
• Coal storage and rail loading available at

Chinese border

• Border upgrade completed
• In May 2012, 4 dedicated inbound and

four dedicated outbound coal gates replaced the single gate

• New coal-haul highway
• 40% interest in joint venture with

consortium partner NTB LLC to build and

• perate the road under a 17-year BOT

agreement signed in October 2011

• 3-lane paved highway built to international

standards

• Completed in September 2014 and

commissioning by December 2014

Coal-haul highway (40% interest)

November 2014| 8

At the doorstep of China, the major growing coal market

Source: SouthGobi estimates

November 2014| 9

302 86 173 22 497 123 84 293

100 200 300 400 500 600 700 800 900 1,000

Ovoot Tolgoi Complex Soumber Deposit Zag Suuj Deposit Total (100% SouthGobi)

Resource (mt)

Inferred Measured & Indicated 388

Summary of resources by mine and deposit(1)

Ovoot Tolgoi Complex resource incorporates 176mt of Proven and Probable Reserves

Note: (1) SouthGobi’s resources are prepared in accordance with the Canadian NI 43-101 resource estimation standard - the table above summarizes those resources disclosed publicly in individual NI 43-101 compliant tables. Ovoot’s resources are prepared in accordance with Australian JORC resource estimation standard.

490 106 296

A large resource base

November 2014| 10

Key assets overview Flexibility of product offer

Type Specification Semi-soft coking coal  7,100-7,300Kcal/kg  Ash: 8-10%  CSN (FSI): 4.5-6.5 Medium-ash coal  6500Kcal/kg nar  Ash: 11.5-12.0%  CSN (FSI): >2.5 Higher-ash/ sulphur coal (screened)  6,000-6,200Kcal/kg  Ash: 17.0-18.0%  CSN (FSI): c.2.5

Premium hard coking  Ro Max of 1.5% (average)  VM 19% (average) Ovoot Tolgoi Complex (current raw products) Soumber Hard coking and semi-soft coking  FSI 7.6% (average)  Ash 22.8-29.4% (raw) Zag Suuj

November 2014| 11

Ovoot Tolgoi update

• Paced production with market demand and as a

result, operated significantly below its operating capacity in the 2014

• Produced 1.36 million tonnes and sold 1.67 million

tonnes of coal in January to September 2014

• Reduced total cash costs of product sold from

$20/tonne in 2012 to $9.7/tonne in third quarter of 2014

• Ongoing work to optimise the mine plan and product

mix

November 2014| 12

Growth optionality at Soumber: preparing a 5Mtpa coking coal production capacity

• Evaluate funding options
• Complete detailed feasibility study
• Complete detailed Environmental Impact

Assessment and resettlement program

Action plan

• Located 20km east of Ovoot Tolgoi Complex
• Operational synergies via sharing of

common infrastructure

• Premium hard coking coal characteristics
• VM 19% (average)
• Ro max of 1.5% (average)
• Low to medium volatile bituminous coal
• Current total resources of 296mt
• Mining license issued July 2011
• Completed bulk sampling

Current status of development

November 2014| 13

Solid platform to create value for shareholders

Investment highlights

• Strategic location near the border with China, the major coal growth market
• Large resource base
• Several growth options
• Flexibility of product offering
• SouthGobi’s financial performance has been impacted by the recent declines in

the coal market

• However, longer term forecasts indicate modest growth in China’s demand for

imported coal Solid long term market fundamentals

• Secure financing
• Further improve operational efficiencies and reduce costs
• Deliver value through marketing and coal processing
• Develop Soumber deposit in the longer term

Clear strategy

November 2014| 14

Chinese coking coal prices

Mt

Market conditions for Mongolian coal continue to be challenging

Source: CCR Weekly Supplement

Chinese coking coal imports

Source: CCR Weekly Supplement

RMB/t incl. VAT

Baotou primary coking Wuhai washed 1/3 coking Ceke 1/3 coking coal ex-stock

200 400 600 800 1,000 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14

1 2 3 4 5 6 7 8 9 Oct 13 Nov 13 Dec 13 Jan 14

Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sept 14

Mongolia Australia Others

Mongolia accounts for 24% of China’s coking coal import in 2014 YTD

November 2014| 15

Robust growth forecast in Chinese import coal demand

CHINESE SEABORNE COAL IMPORT DEMAND

Million tonnes

Source: Company’s estimate, AME Group, BoA Merrill Lynch

CAGR 3.9% 50 100 150 200 250 300 350 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Thermal coal Coking coal

November 2014| 16

More can be done to unlock value from Mongolian coal

Chinese and Mongolian coal trade are working together in response to industry challenges with key objectives including:

• Stable coal trade between China and Mongolia
• Bringing international price standard to the Chinese Mongolian market
• Reducing the level of Chinese and Mongolian Government tax charges
• Reducing the transportation cost associated with moving coal including considering railway infrastructure
• Examining the Chinese driver visa cost and labor tax
• Reviewing the border checking procedure to ensure efficient methods are used

Potential to unlock more value from Mongolian coal

November 2014| 17

Solid platform to create value for shareholders

Investment highlights

• Strategic location near the border with China, the major coal growth market;
• Large resource base
• Several growth options
• Flexibility of product offering
• SouthGobi’s financial performance has been impacted by the recent declines in

the coal market

• However, longer term forecasts indicate modest growth in China’s demand for

imported coal Solid long term market fundamentals

• Secure financing
• Further improve operational efficiencies and reduce costs
• Deliver value through marketing and coal processing
• Develop Soumber deposit in the longer term

Clear strategy

November 2014| 18

Clear strategy for delivering value



Secure immediate and additional sources of financing



Drive operational excellence to increase production efficiency and reduce costs



Deliver value through marketing by improving the Company’s access to market and end customers and by beneficiating to improve the overall quality

• f its product



to develop Soumber Deposit in long term, while compliance requirements with the Mongolian Minerals Law for other license



Re-establish good working relationships with external stakeholders

November 2014| 19

SouthGobi’s objectives for 2014 and beyond

Operational excellence Product Development Soumber Deposit Re-establish Reputation Financing

Secure financing Focus on securing additional and immediate sources of financing Drive operational excellence Further improve operational efficiency in delivering production to meet market requirements Progress growth options Prepare development plan and financing plan of Soumber deposit Deliver value through marketing Ongoing assessment of the utilization of the wet washing facility and expanding the customer base Re-establish Company’s reputation Internal processes strengthened, continue to engage with stakeholders Operate in socially responsible manner Focus on production safety, environmental protection and community relations

Operating Responsibly Note: Certain objectives are subject to available financial resources

November 2014| 20

Appendix

November 2014| 21

CIC debenture: key terms

November 2014| 22

Experienced management team

Ross Tromans President & Chief Executive Officer

• Mr. Tromans joined the Company in September 2012. He has over 30-years sales and marketing

experience in the coal and energy sectors covering the Asian and North American markets. Most recently, he was General Manager Marketing at Rio Tinto Coal Australia where he was responsible for the development and implementation of the overall marketing strategy for thermal, coking and semi-soft coal. Previously, Mr. Tromans held senior roles at Rio Tinto including General Manager Marketing and Sales at Rio Tinto Alcan, Director New Markets and Service at Kennecott Energy and General Manager Marketing at Kaltim Prima Coal. Bertrand Troiano Chief Financial Officer

• Mr. Troiano has joined SouthGobi in April 2013. Mr. Troiano, began his career in corporate

banking with BNP-Paribas in Japan and has spent the past 13 years in finance roles in the mining and metal industry. During this time, he worked for Pechiney, Alcan and Rio Tinto in the United States, the Netherlands and Canada. Prior to joining SouthGobi, Mr. Troiano was Finance Director for Rio Tinto Alcan's Business Development, Major Projects and Technology group.

• S. Enkh-Amgalan

President and Executive Director, SouthGobi Sands LLC

• Mr. Enkh-Amgalan joined the Company in July 2013 from Clean Energy LLC, a subsidiary of

Newcom Group, where he was CEO and led the successful development of the first commercial scale wind farm in Mongolia. Prior to this, he gained extensive experience in the extractive industry through a number of senior management positions at the MCS Group of companies. Most recently this included Chief Executive Officer of Nordstar Resources LLC and MCS Petro Mongolia LLC. Before this, he was Vice President, Corporate Development at Mongolian Mining Corporation.