Court of Justice of Mongolia Declares that SouthGobi Sands and Three of Its Former Employees are Guilty of Tax Evasion - Seite 2

• 85% lower compared to the amount alleged in the second experts' report dated December 2012 (MNT234 billion); and
• 59% lower compared to the amount alleged in the third experts' report dated January 2014 (MNT84.9 billion).

These inconsistencies and errors in the experts' reports were recognized by the same panel of appointed judges from the Second District Criminal Court of Justice in August 2014, who at that time, viewed the Prosecutor's accusations as lacking evidence and ordered the case be returned for re-investigation. The fourth and latest experts' report resulting from this re-investigation was presented to the Court on January 28, 29 and 30, 2015. It appears that this report contains the same information and errors as the three previous reports although the amount of alleged tax evasion had been reduced. The Company believes that the latest report, like the previous reports, fails to provide any evidence supporting the case against SGS and its former employees.

The Company, including SGS, has prepared its financial statements in compliance with International Financial Reporting Standards ("IFRS"), and lodged all its tax returns as required under Mongolian tax law. For the period under investigation, i.e. between 2007 and 2011, the Company earned revenues of MNT456.8 billion (US$349.7 million) from coal sales and paid MNT103.1 billion (US$79.7 million) in taxes in Mongolia. The amounts of purported tax evasion, when added to the taxes already paid by SGS, would mean the Company's tax rate as a percentage of revenue (not profit) would be 74%, 41% and 30% respectively. This would be grossly above the amounts prescribed to be paid on taxable income under Mongolian law.

During the investigative period, the Company requested that one of the largest and most reputable international auditing firms conduct an independent assessment of the allegations raised through the investigations. The auditing firm concluded that the experts' reports had no basis and were the result of incomplete reviews and erroneous interpretation of a mining company's financial statements prepared in accordance with Mongolian accounting and reporting standards and Mongolian tax laws. The auditing firm also concluded the experts had failed to consider all relevant information and documents provided by the Company during the investigations. To illustrate the confusion and lack of support for the experts' conclusions presented by the Prosecutor to the Court in the hearings of January 28, 29 and 30, 2015, the Company notes, by way of example: