Court of Justice of Mongolia Declares that SouthGobi Sands and Three of Its Former Employees are Guilty of Tax Evasion

HONG KONG, CHINA--(Marketwired - Feb. 1, 2015) - SouthGobi Resources Ltd. (TSX:SGQ)(HKSE:1878) ("SouthGobi" or the "Company") announced on January 7, 2015, that the Company had been informed that the re-investigation by the State Investigation Agency into alleged violations of Mongolian taxation law against three (3) former employees of SouthGobi Sands LLC ("SGS"), the Company's Mongolian subsidiary, and against SGS as "civil defendant" had been completed and that the case had been transferred back to the Second District Criminal Court of Justice for trial. Further detail in respect of the tax investigations can be found in section 6 "Regulatory issues and investigations" of the Company's Management Discussion and Analysis ("MD&A") for the three months ended September 30, 2014, which is available at www.sedar.com.

The trial commenced on January 28, 2015. On January 30, 2015, the panel of appointed judges from the Second District Criminal Court of Justice found the three (3) former employees guilty of tax evasion and gave sentences ranging from 5 years and 6 months to 5 years and 10 months of imprisonment in the correctional facilities of strict regimen in Mongolia.

Although SGS was not a party to the criminal proceedings and was not allowed to call witnesses in its own defence, the Court declared it to be financially liable as a "civil defendant" for a penalty of MNT35.3 billion (approximately US$18.1 million). The Company is awaiting written reasons for the Court's judgment. The Company has been advised that the penalty would only be payable after a final appeal.

Notwithstanding the intention to file appeals by SGS and its three (3) former employees, the Company understands that under Mongolian law the former employees will not be granted bail after the Court's sentence and have been remanded into custody.

President and CEO Mr. Enkh-Amgalan Sengee said "We are extremely disappointed by the Court's decision. The conclusions reached by the experts as highlighted in their report presented to the Court are erroneous and there is a complete lack of evidence to support this harsh verdict. We fully support our former employees and will lodge an immediate appeal against the Court's decision".

BACKGROUND AND ANALYSIS

SGS and its former employees Messrs. Justin Kapla, Hilarion Cajucom Jr. and Cristobal David have been subject to various investigations with regards to allegations of breaching Mongolia's taxation laws for the past thirty months. Since October 2012, these persons have been prevented from leaving Mongolia under Mongolia's Law on the Legal Status of Foreign Citizens. The experts appointed by the relevant authorities in Mongolia have issued in total four reports (one report after each series of investigations). These reports have all been different and contradicted one another in terms of content and final sums of purported tax evasion. The conclusions contained in the experts' reports are neither supported by nor consistent with Mongolian tax law or international accounting standards utilized by reputable Mongolian and international firms. The Company believes that the inconsistencies are manifest when considering the systematic changes in the sums of alleged tax evasion from one report to another. For example, the total amount alleged in the latest report dated December 2014 is MNT35.3 billion, i.e.: