SouthGobi Resources Ltd. — Management Reports 2023

Mar 31, 2023

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SouthGobi Resources Ltd. Management’s Discussion and Analysis of Financial Condition and Results of Operations

December 31, 2022 (Expressed in U.S. dollars)

SouthGobi Resources Ltd. Management’s Discussion and Analysis

FORWARD-LOOKING STATEMENTS

Except for statements of fact relating to SouthGobi Resources Ltd. and its subsidiaries (collectively, the “Company”), certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterised by words such as “plan”, “expect”, “project”, “intend”, “believe”, “anticipate”, "could", "should", "seek", "likely", "estimate" and other similar words or statements that certain events or conditions “may” or “will” occur. Forward-looking statements relate to management’s future outlook and anticipated events or results and are based on the opinions and estimates of management at the time the statements are made. Forward-looking statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) include, but are not limited to, statements regarding:

• the Company continuing as a going concern and its ability to realise its assets and discharge its liabilities in the normal course of operations as they become due;

• adjustments to the amounts and classifications of assets and liabilities in the Company's consolidated financial statements and the impact thereof;

• the Company’s expectations of sufficient liquidity and capital resources to meet its ongoing obligations and future contractual commitments, including the Company’s ability to settle its trade payables, to secure additional funding and to meet its obligations under each of the JD Zhixing Fund L.P. (the “Buyer” or “JDZF”) convertible debenture (the “Convertible Debenture”), the 2020 November Deferral Agreement (as defined below), the Amended and Restated Cooperation Agreement (as defined below), the 2021 July Deferral Agreement (as defined below), the 2022 May Deferral Agreement (as defined below), the 2022 November Deferral Agreement (as defined below), the 2023 March Deferral Agreement (as defined below) and the Credit Facility (as defined below) as the same become due;

• the Company's anticipated financing needs, operational and development plans and future production levels, including ramp up of the Company’s mining operations and capacity in 2023;

• the impact of the Coronavirus Disease 2019 (“COVID-19”) pandemic and the potential closure of Mongolia’s southern border with China on the Company’s business, financial condition and operations, including the resumption of coal production and coal processing at normal levels;

• the impact of the restrictions on the number of trucks crossing the border at the Ceke Port of Entry and the import coal quality standards established by Chinese authorities on the Company’s operations;

• enhancements to the infrastructure and technologies which support cross-border exports at the Ceke Port of Entry in 2023;

• the results and impact of the Ontario class action (as described under Section 7 of this MD&A under the heading entitled " Regulatory Issues and Contingencies – Class Action Lawsuit ");

• the estimates and assumptions included in the Company’s impairment analysis and the possible impact of changes thereof;

• the agreement with Ejin Jinda and the payments thereunder (as described under Section 7 of this MD&A under the heading entitled " Regulatory Issues and Contingencies – Toll Wash Plant Agreement with Ejin Jinda”);

• the ability of the Company to enhance the operational efficiency and output throughput of the washing facilities at Ovoot Tolgoi;

• the ability of the Company to enhance the product value by conducting coal processing and coal washing;

• the impact of the Company’s activities on the environment and actions taken for the purpose of mitigation of potential environmental impacts and planned focus on health, safety and environmental performance;

• the future demand for coal in China;

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

• future trends in the Chinese coal industry;

• the voluntary delisting of the Common Shares from the TSX and the listing of the Common Shares on the TSX Venture Exchange (the “TSX-V”) pursuant to the Voluntary Delisting Application (as defined below) and the Listing Application (as defined below), respectively;

• the conversion of the Company’s listing of Common Shares on the HKEX from a secondary listing to a primary listing pursuant to the Primary Listing Application (as defined below);

• the Company’s outlook and objectives for 2023 and beyond (as more particularly described under Section 15 of this MD&A under the heading entitled “ Outlook ”); and

• other statements that are not historical facts.

Forward-looking information is based on certain factors and assumptions described below and elsewhere in this MD&A, including, among other things: the current mine plan for the Ovoot Tolgoi mine; mining, production, construction and exploration activities at the Company’s mineral properties; the costs relating to anticipated capital expenditures; the capacity and future toll rate of the paved highway; plans for the progress of mining license application processes; mining methods; the Company's anticipated business activities, planned expenditures and corporate strategies; management’s business outlook, including the outlook for 2023 and beyond; currency exchange rates; operating, labour and fuel costs; the ability of the Company to raise additional financing; the anticipated royalties payable under Mongolia’s royalty regime; the future coal market conditions in China and the related impact on the Company’s margins and liquidity; the anticipated impact of the COVID-19 pandemic; the assumption that the border crossings with China will reopen for coal exports at normal levels; the anticipated demand for the Company’s coal products; future coal prices, and the level of worldwide coal production. While the Company considers these assumptions to be reasonable based on the information currently available to it, they may prove to be incorrect. Forwardlooking statements are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. These risks and uncertainties include, among other things: the uncertain nature of mining activities, actual capital and operating costs exceeding management’s estimates; variations in mineral resource and mineral reserve estimates; failure of plant, equipment or processes to operate as anticipated; the possible impacts of changes in mine life, useful life or depreciation rates on depreciation expenses; risks associated with, or changes to regulatory requirements (including environmental regulations) and the ability to obtain all necessary regulatory approvals; the potential expansion of the list of licenses published by the Government of Mongolia covering areas in which exploration and mining are purportedly prohibited on certain of the Company's mining licenses; the Government of Mongolia designating any one or more of the Company’s mineral projects in Mongolia as a Mineral Deposit of Strategic Importance; the risk of continued restrictions on the number of trucks crossing the border at the Ceke Port of Entry; the risk that the import coal quality standards established by Chinese authorities will negatively impact the Company’s operations; the risk that Mongolia’s southern borders with China will be subject for further closure; the negative impact of the COVID-19 pandemic on the demand for coal and the economy generally in China; the risk that the COVID19 pandemic is not effectively controlled in China and Mongolia; the risk that the Company’s existing coal inventories are unable to sufficiently satisfy expected sales demand; the possible impact of changes to the inputs to the valuation model used to value the embedded derivatives in the Convertible Debenture; the risk of the Company or its subsidiaries default under its existing debt obligations, including the Convertible Debenture, the deferral agreement signed on November 19, 2020 (the “2020 November Deferral Agreement”), the amended and restated mutual cooperation agreement signed on April 23, 2019 (the “Amended and Restated Cooperation Agreement”), the deferral agreement signed on July 30, 2021 (the ”2021 July Deferral Agreement”), the deferral agreement signed on May 13, 2022 (the “2022 May Deferral Agreement”), the deferral agreement signed on November 11, 2022 (the “2022 November Deferral Agreement”) and the deferral agreement signed on March 24, 2023 (the “2023 March Deferral Agreement”) and the Credit Facility; the risk of the Company failing to satisfy the listing conditions for the listing of the Common Shares from the TSX-V; the risk of the Company failing to complete the conversion of the Company’s Common Shares on the HKEX from a secondary listing to a primary listing; the impact of

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

amendments to, or the application of, the laws of Mongolia, China and other countries in which the Company carries on business; modifications to existing practices so as to comply with any future permit conditions that may be imposed by regulators; delays in obtaining approvals and lease renewals; the risk of fluctuations in coal prices and changes in China and world economic conditions; the outcome of the Class Action (as described under Section 7 of this MD&A under the heading entitled " Regulatory Issues and Contingencies – Class Action Lawsuit ") and any damages payable by the Company as a result; the risk that the calculated sales price determined by the Company for the purposes of determining the amount of royalties payable to the Mongolian government is deemed as being “non-market” under Mongolian tax law; customer credit risk; cash flow and liquidity risks; risks relating to the Company’s decision to suspend activities relating to the development of the Ceke Logistics Park project, including the risk that its investment partner may initiate legal action against the Company for failing to comply with the underlying agreements governing project development; risks relating to the ability of the Company to enhance the operational efficiency and the output throughput of the washing facilities at Ovoot Tolgoi; the risk that the Company is unable to successfully negotiate an extension of the agreement with the third party contractor relating to the operation of the wash plant at the Ovoot Tolgoi mine site and risks relating to the Company’s ability to raise additional financing and to continue as a going concern. Please refer to Section 14 of this MD&A under the heading entitled “ Risk Factors ” for a discussion of these and other risks and uncertainties relating to the Company and its operations. This list is not exhaustive of the factors that may affect any of the Company’s forwardlooking statements.

Due to assumptions, risks and uncertainties, including the assumptions, risks and uncertainties identified above and elsewhere in this MD&A, actual events may differ materially from current expectations. The Company uses forward-looking statements because it believes such statements provide useful information with respect to the currently expected future operations and financial performance of the Company, and cautions readers that the information may not be appropriate for other purposes. Except as required by law, the Company undertakes no obligation to update forward-looking statements if circumstances or management’s estimates or opinions should change. The reader is cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this MD&A; they should not rely upon this information as of any other date.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

TABLE OF CONTENTS

		Page
1.	Overview...........................................................................................................................................	7
	Significant Events and Highlights...............................................................................................	7
2.	Selected Annual Information.............................................................................................................	13
3.	Overview of Operational Data and Financial Results.......................................................................	14
4.	Non-IFRS Financial Measures..........................................................................................................	20
5.	Properties..........................................................................................................................................	22
	Operating Mine............................................................................................................................	22
	Mining Operations.......................................................................................................................	23
6.	Liquidity and Capital Resources.......................................................................................................	23
7.	Regulatory Issues and Contingencies..............................................................................................	32
8.	Environment......................................................................................................................................	34
9.	Emolument Policy.............................................................................................................................	35
10.	Outstanding Share Data...................................................................................................................	35
11.	Disclosure Controls and Procedures and Internal Controls Over Financial Reporting...................	35
12.	Critical Accounting Estimates and Judgments.................................................................................	36
13.	Recent Accounting Promouncements.............................................................................................	37
14.	Risk Factors......................................................................................................................................	38
15.	Outlook..............................................................................................................................................	56

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

INTRODUCTION

This MD&A is dated as of March 31, 2023 and should be read in conjunction with the consolidated financial statements of the Company and the notes thereto for the year ended December 31, 2022. The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The consolidated financial statements are presented in the U.S. Dollar, which is the functional currency of SouthGobi Resources Ltd. and its controlled subsidiaries, except as subsequently mentioned.

The functional currency of the Company’s Chinese subsidiaries (SouthGobi Trading (Beijing) Co., Ltd., Inner Mongolia SouthGobi Energy Co., Ltd. (“IMSGE”), Inner Mongolia SouthGobi Mining Development Co., Ltd., Inner Mongolia SouthGobi Enterprise Co., Ltd., Inner Mongolia SouthGobi Trading Co.,Ltd. and Wuhai SouthGobi Mining Resources Co., Ltd.) was Renminbi (“RMB”) and the functional currency of the Company’s Mongolian operations (SouthGobi Sands LLC (“SGS”), Mazaalai Resources LLC and RDCC LLC was the Mongolian Tugrik (“MNT”).

All figures in this MD&A are presented in U.S. dollars unless otherwise stated.

Disclosure of a scientific or technical nature in this MD&A in respect of the Company’s material mineral project, the Ovoot Tolgoi Mine, was prepared by or under the supervision of the individuals set out in the table below, each of whom is a “Qualified Person” as that term is defined in National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) of the Canadian Securities Administrators:

Property	Qualified Persons	Field of Expertise	Relationship to Company
Ovoot Tolgoi	Dr. Weiliang Wang	Resources	Independent Consultant
Ovoot Tolgoi	Vincent Li	Reserves	Independent Consultant

Disclosure of a scientific or technical nature relating to the Ovoot Tolgoi Mine contained in this MD&A is derived from a technical report (the “Ovoot Tolgoi Technical Report”) prepared in accordance with NI 43101 on the Ovoot Tolgoi Mine dated May 15, 2017, prepared by Dr. Weiliang Wang, Mr. Vincent Li and Mr. Larry Li of Dragon Mining Consulting Limited (“DMCL”). A copy of the Ovoot Tolgoi Technical Report is available under the Company’s profile on SEDAR at www.sedar.com . DMCL has not reviewed or updated the Ovoot Tolgoi Technical Report since the date of publishing.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

1. OVERVIEW

The Company is an integrated coal mining, development and exploration company with 360 employees as at December 31, 2022. As of the date hereof, the Company’s common shares (“Common Shares”) are listed for trading on the Toronto Stock Exchange (“TSX”) under the symbol SGQ and on the Hong Kong Stock Exchange (“HKEX”) under the stock code symbol 1878.

The Company owns a 100% interest in the Ovoot Tolgoi open pit coal mine (the “Ovoot Tolgoi Mine”), as well as in the following development projects, the Soumber Deposit and the Zag Suuj Deposit. These projects are located in the Umnugobi Aimag (South Gobi Province) of Mongolia, all of which are located within 150 kilometers (“km”) of each other and in close proximity to the Chinese-Mongolian border.

The Ovoot Tolgoi Mine, strategically located approximately 40km from the Shivee Khuren-Ceke crossing at the Chinese-Mongolian border (“Shivee Khuren Border Crossing”), is the Company’s flagship asset. The Company commenced mining at the Ovoot Tolgoi Mine in 2008. The Company sells a portion of its coal at the mine-gate to Chinese customers, while the remaining coal inventory is transported to China and sold via its Chinese subsidiaries at the stockyards in Ceke (Ceke, on the Chinese side of the Shivee Khuren Border Crossing, which is a major Chinese coal distribution terminal with rail connections to key coal markets in China) or certain designated locations in China as requested by customers.

Saleable products from the Ovoot Tolgoi Mine primarily consist of SouthGobi standard (“Standard”) and SouthGobi premium (“Premium”) semi-soft coking coal products. Some higher ash content product is washed or mixed and sold as semi-soft coking coal product while some of the unwashed product is sold as a thermal coal product, as and when the market allows.

Significant Events and Highlights

The Company’s significant events and highlights for the year ended December 31, 2022 and the subsequent period to March 31, 2023 are as follows:

• Operating Results – In response to the increase in the number of COVID-19 cases in Ejinaqi, a region in China’s Inner Mongolia Autonomous Region where the custom and border crossing are located, reported in late October 2021, the local government authorities imposed stringent preventive measures throughout the region, including the temporary closure of the Ceke Port of Entry located at the border of Mongolia and China. Accordingly, the Company’s coal exports into China were suspended from November 2021 to May 2022. Following the reopening of the Ceke Port of Entry for coal export on May 25, 2022, coal sales increased from 0.9 million tonnes in 2021 to 1.1 million tonnes in 2022.

Since May 25, 2022, the number of trucks permitted to cross the Chinese-Mongolian border, as well as the volume of coal exports, have increased. As a result, the Company has gradually resumed mining operations beginning on July 15, 2022. The Company’s major mining operations, including coal mining, have resumed and the Company expects to increase the volume of coal production in a gradual manner, while coal washing remains suspended for the time being. In response to the market situation, the Company has been mixing some higher ash content product with the semi-soft coking coal product and selling this mixed product to the market as processed coal in 2022.

The Company experienced an increase in the average selling price of coal from $46.0 per tonne in 2021 to $65.7 per tonne in 2022, due to improved market conditions in China.

• Financial Results – The Company recorded a $13.6 million profit from operations in 2022 compared to a $4.4 million profit from operations in 2021. The financial results for 2022 were impacted by a foreign

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

exchange gain of $4.6 million and the increased sales experienced by the Company following the reopening of the Ceke Port of Entry during the second quarter of 2022.

• Completion of Sale by China Investment Corporation (together with its wholly-owned –

• subsidiaries and affiliates, “CIC”) of its Interests in the Company The Company announced that, as disclosed in the press releases issued by CIC and JDZF respectively on August 30, 2022, the sale (the “CIC Sale Transaction”) by CIC of all of its interests in the Company, including its 64,766,591 common shares of the Company and the Convertible Debenture, to JDZF was successfully completed on August 30, 2022. Following the completion of the CIC Sale Transaction, the respective rights and obligations of CIC under (i) the Convertible Debenture and related security documents; (ii) the Amended and Restated Cooperation Agreement and related documents; (iii) the deferral agreements between CIC, the Company and certain of its subsidiaries in connection with the deferral of interest payments and other outstanding fees under the Convertible Debenture and the Amended and Restated Cooperation Agreement; and (iv) the security holders agreement between the Company, CIC and a former shareholder of the Company, were assigned to JDZF. In connection with the completion of the CIC Sale Transaction, JDZF agreed to reduce the service fee payable by the Company under the Amended and Restated Cooperation Agreement from 2.5% to 1.5% of all net revenues realised by the Company and all of its subsidiaries derived from sales into China.

• Deferral Agreements – On November 11, 2022, the Company and JDZF entered into the 2022 November Deferral Agreement pursuant to which JDZF agreed to grant the Company a deferral of: (i) semi-annual cash interest payments of $7.1 million payable to JDZF on November 19, 2022 under the Convertible Debenture; (ii) $1.1 million in payment-in-kind interest (“PIK Interest”) shares issuable to JDZF on November 19, 2022 under the Convertible Debenture (collectively, the “2022 November Deferred Interest”); and (iii) the management fees payable to JDZF on November 15, 2022, February 15, 2023, May 16, 2023 and August 15, 2023 under the Amended and Restated Cooperation Agreement (the “2022 November Deferred Management Fees”).

The principal terms of the 2022 November Deferral Agreement are as follows:

• Payment of the 2022 November Deferred Interest and the 2022 November Deferred Management Fees will be deferred until November 19, 2023;

• As consideration for the deferral of the 2022 November Deferred Interest, the Company agreed to pay JDZF a deferral fee equal to 6.4% per annum on the 2022 November Deferred Interest payable under the Convertible Debenture, commencing on November 19, 2022;

• As consideration for the deferral of the 2022 November Deferred Management Fees, the Company agreed to pay JDZF a deferral fee equal to 1.5% per annum on the outstanding balance of the 2022 Deferred Management Fees payable under the Amended and Restated Cooperation Agreement, commencing on the date on which each such 2022 November Deferred Management Fees would otherwise have been due and payable under the Amended and Restated Cooperation Agreement;

• If at any time before the 2022 November Deferred Interest and the 2022 November Deferred Management Fees and related deferral fees are fully repaid, the Company proposes to appoint, replace or terminate one or more of its chief executive officer, its chief financial officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, the Company will first consult with, and obtain written consent (such consent shall not be unreasonably withheld) from JDZF prior to effecting such appointment, replacement or termination;

• The Company agreed to comply with all of its obligations under the prior deferral agreements assigned to JDZF; and

• The Company and JDZF agreed that nothing in the 2022 November Deferral Agreement prejudices JDZF’s rights to pursue any of its remedies at any time pursuant to the prior deferral agreements.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

On March 24, 2023, the Company and JDZF entered into the 2023 March Deferral Agreement pursuant to which JDZF agreed to grant the Company a deferral of (i) the cash interest payment of approximately $7.9 million (the “2023 May Cash Interest”) which will be due and payable on May 19, 2023 under the Convertible Debenture; (ii) the cash interest, management fees, and related deferral fees of approximately $8.7 million (the “2022 May Deferred Amounts”) which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated May 13, 2022; (iii) the cash and PIK Interest, and related deferral fees of approximately $13.5 million (the “2021 July Deferred Amounts”) which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated July 30, 2021; and (iv) the cash and PIK Interest, management fees, and related deferral fees of approximately $110.4 million (the “2020 November Deferred Amounts”, and together with the 2023 May Cash Interest, the 2022 May Deferred Amounts and the 2021 July Deferred Amounts, the “2023 March Deferred Amounts”) which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated November 19, 2020.

The effectiveness of the 2023 March Deferral Agreement and the respective covenants, agreements and obligations of each party under the 2023 March Deferral Agreement are subject to the approvals from the TSX and the shareholders of the Company in accordance with the requirements of Section 501(c) of the TSX Company Manual and the HKEX listing rules .

The principal terms of the 2023 March Deferral Agreement are as follows:

• Payment of the 2023 March Deferred Amounts will be deferred until August 31, 2024 (the “Deferral Date”).

• As consideration for the deferral of the 2023 March Deferred Amounts which relate to the payment obligations arising from the Convertible Debenture, the Company agreed to pay JDZF a deferral fee equal to 6.4% per annum on the outstanding balance of such 2023 March Deferred Amounts, commencing on the date on which each such 2023 March Deferred Amounts would otherwise have been due and payable under the Convertible Debenture.

• As consideration for the deferral of the 2023 March Deferred Amounts which relate to payment obligations arising from Amended and Restated Cooperation Agreement, the Company agreed to pay JDZF a deferral fee equal to 1.5% per annum on the outstanding balance of such 2023 March Deferred Amounts commencing on the date on which each such 2023 March Deferred Amounts would otherwise have been due and payable under the Amended and Restated Cooperation Agreement.

• The 2023 March Deferral Agreement does not contemplate a fixed repayment schedule for the 2023 March Deferred Amounts or related deferral fees. Instead, the 2023 March Deferral Agreement requires the Company to use its best efforts to pay the 2023 March Deferred Amounts and related deferral fees due and payable under the 2023 March Deferral Agreement to JDZF. During the period beginning as of the effective date of the 2023 March Deferral Agreement and ending as of the Deferral Date, the Company will provide JDZF with monthly updates of its financial status and business operations, and the Company and JDZF will on a monthly basis discuss and assess in good faith the amount (if any) of the 2023 March Deferred Amounts and related deferral fees that the Company may be able to repay to JDZF, having regard to the working capital requirements of the Company’s operations and business at such time and with the view of ensuring that the Company’s operations and business would not be materially prejudiced as a result of any repayment.

• If at any time before the 2023 March Deferred Amounts and related deferral fees are fully repaid, the Company proposes to appoint, replace or terminate one or more of its chief executive officer, its chief financial officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, the Company will first consult with, and obtain written consent (such consent shall not be unreasonably withheld) from JDZF prior to effecting such appointment, replacement or termination.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

• The Company expects to convene a special meeting of Shareholders in the second quarter of 2023 to seek disinterested shareholder approval of the 2023 March Deferral Agreement.

• Issuance of PIK Interest shares – In November 2022, the Company issued 20,947,603 Common Shares to JDZF in accordance with the terms of the Convertible Debenture at an issuance price of CA$0.185 per Common Share as settlement of $2.9 million in outstanding PIK Interest owing by the Company to JDZF under the Convertible Debenture and related deferral agreements.

• Application for New Listing on the TSX Venture Exchange and Primary Listing on the Hong –

• Kong Stock Exchange On April 20, 2022, the Company announced that it would be making an application (the “Listing Application”) to the TSX-V to list its common shares on the TSX-V. In conjunction with the foregoing, the Company would also apply for voluntary delisting of its common shares from the TSX (the “Delisting”), subject to the Company receiving approval from the TSX-V of the Listing Application. Pursuant to the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange (the “Listing Rules”), the Company announced it intends to submit a written notification to the HKEX stating, among other things, that it will be able to fully comply with the applicable Listing Rules in connection with the approval of the Listing Application and the Listing Application becoming effective, and such that its current secondary listing on the HKEX will be converted to a primary listing.

On July 28, 2022, the Company received an acknowledgment from the HKEX in respect of the Delisting issued pursuant to paragraph 3.34 of the HKEX’s Guidance Letter (HKEX-GL-112-22), which informed the Company that, upon the effective date of the Delisting, the Hong Kong Stock Exchange will regard the Company as having a primary (rather than secondary) listing status on the HKEX pursuant to Rule 19C.13A of the HKEX Listing Rules and the dis-application of the stock marker “S” from the Company’s trading symbol on the HKEX will take effect.

On March 6, 2023, the Company announced that it received a conditional acceptance letter from the TSX-V (the “TSX-V Conditional Approval Letter”) confirming that the TSX-V Listing Application had been approved subject to the satisfaction of certain listing conditions of the TSX-V. The Company is targeting a tentative date for the listing of the Company’s common shares on the TSX-V and the date of Delisting from TSX (i.e., the Effective Date) of April 17, 2023. The Company expects that the listing conditions of the TSX-V can be fulfilled by the Company before the Effective Date.

• Completion of Sale by China Cinda (HK) Asset Management Co., Limited (together with its –

• wholly-owned subsidiaries and affiliates, “CCAM”) of its Interests in the Company The Company announced that, as disclosed in the press releases issued by CCAM and Land Grand International Holding Limited (“Land Grand”) respectively on November 28, 2022, the sale (the “Cinda Sale Transaction”) by CCAM of all of its interests in the Company, including its 46,358,978 common shares of the Company to Land Grand was successfully completed. In connection with the Cinda Sale Transaction, CCAM assigned to Land Grand certain rights in and obligations under the subscription agreement between the Company and Novel Sunrise Investments Limited (“Novel Sunrise”) dated February 24, 2015, including Novel Sunrise's right to nominate a certain number of individual(s) for appointment or election to the board of directors of the Company while its beneficial interests in the Company's issued and outstanding common shares exceed 10%.

• Revolving Credit Facility – On March 2, 2023, an indirect wholly-owned subsidiary of the Company (the “Borrower”) entered into an unsecured revolving credit facility (the “Credit Facility”) with a related party of JDZF, the Company’s largest shareholder, which makes available to the Company up to a maximum principal sum of RMB90 million with a maturity date of three months after the agreement was signed. The Company has obtained the requisite acceptance from the TSX for the Credit Facility in accordance with the requirements of the TSX Company Manual, subject to certain standard conditions.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

The principal terms of the Credit Facility are as follows:

• All obligations under the Credit Facility are due and payable on the maturity date.

• The Credit Facility is a revolving facility, pursuant to which the Borrower will be entitled, but not obligated, to request advances (“Advances”) under the Credit Facility from time to time, provided that the aggregate amount of the outstanding Advances under the Credit Facility does not exceed the maximum loan amount at any time. The Borrower is entitled to repay all or any portion of the outstanding Advances under the Credit Facility from time to time without bonus or penalty.

• Advances under the Credit Facility will not accrue interest if the Borrower repays any Advance in full within fifteen (15) days following the date of drawdown (the "Interest-Free Period"). If the Borrower fails to repay in full the amount of the Advance prior to the end of the Interest-Free Period, then the Borrower will pay to the Lender interest on the outstanding amount of such Advance, beginning on the day immediately following the last day of the Interest-Free Period (the "Interest Trigger Date") and ending on but excluding the day on which such Advance is repaid or satisfied in full. Interest on the outstanding amount of each Advance from the Interest Trigger Date is calculated at a rate per annum equal to 5%, determined daily and calculated and payable on the date on which the relevant Advance is repaid in full.

• The Company intends to use the proceeds of the Credit Facility for general corporate purposes.

• Changes in Management

Mr. Jianmin Bao : Mr. Bao resigned as a non-executive director on August 31, 2022.

Mr. Ben Niu : Mr. Niu resigned as a non-executive director on August 31, 2022.

Mr. Tao Zhang : Mr. Zhang resigned as Vice President of Sales on September 2, 2022.

Mr. Dalanguerban : Mr. Dalanguerban was re-designated from Chief Executive Officer to President on September 8, 2022 and resigned as an executive director on December 6, 2022.

Mr. Dong Wang : Mr. Wang was appointed as Chief Executive Officer and an executive director on September 8, 2022.

Mr. Alan Ho : Mr. Ho was appointed as Chief Financial Officer (formerly, the acting Chief Financial Officer) on September 8, 2022.

Ms. Chonglin Zhu : Ms. Zhu was appointed as Senior Vice President of Finance and an executive director on September 8, 2022.

Mr. Zhiwei Chen : Mr. Chen resigned as a non-executive director on December 6, 2022.

Ms. Ka Lee Ku : Ms. Ku resigned as a non-executive director on December 6, 2022.

Mr. Zhu Gao : Mr. Gao was appointed as a non-executive director on December 6, 2022.

Mr. Gang Li : Mr. Li was appointed as a non-executive director on December 6, 2022.

Mr. Chen Shen : Mr. Shen was appointed as a non-executive director on December 6, 2022 and redesignated to an executive director on February 17, 2023.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

• Going Concern – Several adverse conditions and material uncertainties relating to the Company cast significant doubt upon the going concern assumption which includes the deficiencies in assets and working capital. Refer to Section 6 of this MD&A under the heading entitled “Liquidity and Capital Resources” and Section 14 of this MD&A under the heading entitled “Risk Factors” for details.

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December 31, 2022

Management’s Discussion and Analysis

SouthGobi Resources Ltd.

2. SELECTED ANNUAL INFORMATION

$ in thousands, except per share and per tonne information Revenue Profit from operations Net loss attributable to equity holders of the Company Basic and diluted earnings/(loss) per share Cash from/(used in) operating activities Cash used in investing activities Cash used in financing activities Coal sales volumes_(millions of tonnes)(i) Average realised selling price(per tonne) $ in thousands_ Cash and cash equivalents Total working capital deficiency Total assets Total non-current liabilities	Year ended December 31,	Year ended December 31,
	2022
	73,084 $ 13,572 (30,419) (0.11) $ 26,137 (13,037) (1,427) 1.11 65.69 $
	2022	2021 2020 723 $ 20,121 $ (42,535) (217,607) 206,113 214,632 198,728 6,869
	9,255 $ (184,665) 181,359 91,723

(i) Coal sales volumes are from the Ovoot Tolgoi Mine.

The Chinese-Mongolian border closure in response to the increase in COVID-19 case numbers in Mongolia has had an adverse impact on the Company’s sales and cash flows for 2020. When combined with the impact of the provision for commercial arbitration of $4.6 million recorded in connection with the Company entering into a settlement agreement with First Concept Industrial Group Limited, the Company recorded a net loss of $20.1 million in 2020.

Despite an increase with the average realised selling price as a result of improved market condition in 2021, the financial results for 2021 were impacted by the decreased sales resulting from the export volume limitations as well as the closure of the Ceke Port of Entry experienced by the Company.

Following the reopening of the Ceke Port of Entry in May 2022, the Company experienced increased revenues as compared to 2021, which was achieved by a higher selling price and a higher tonnage, while profit from operations increased to $13.6 million in 2022.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

3. OVERVIEW OF OPERATIONAL DATA AND FINANCIAL RESULTS

Summary of Annual Operational Data

Sales Volumes, Prices and Costs Premium semi-soft coking coal Coal sales_(millions of tonnes) Average realised selling price(per tonne) Standard semi-soft coking coal/ premium thermal coal Coal sales(millions of tonnes) Average realised selling price(per tonne) Processed coal Coal sales(millions of tonnes) Average realised selling price(per tonne) Total Coal sales(millions of tonnes) Average realised selling price(per tonne) Raw coal production(millions of tonnes) Cost of sales of product sold(per tonne) Direct cash costs of product sold(per tonne) (i) Mine administration cash costs of product sold(per tonne) (i) Total cash costs of product sold(per tonne)(i) Other Operational Data Production waste material moved(millions of bank cubic_ meters) Strip ratio_(bank cubic meters of waste material per tonne of_ coal produced) Lost time injury frequency rate_(ii)_

Year ended December 31,

2022 2021 0.27 0.60 73.49 $ 51.80 $ 0.08 0.33 39.85 $ 35.01 $ 0.76 0.01 65.43 $ 48.53 $ 1.11 0.94 65.69 $ 46.02 $ 0.69 1.36 52.04 $ 33.30 $ 34.52 $ 17.81 $ 1.62 $ 1.53 $ 36.14 $ 19.34 $ 3.59 5.94 5.14 4.36 0.00 0.00

(i) A non-IFRS financial measure, refer to Section 4. Cash costs of product sold exclude idled mine asset cash costs.

(ii) Per 200,000 man hours and calculated based on a rolling 12-month average.

Overview of Annual Operational Data

The Company ended 2022 and 2021 without a lost time injury.

The Company experienced an increase in the average selling price of coal from $46.0 per tonne for 2021 to $65.7 per tonne for 2022, as a result of improved market conditions in China. The product mix for 2022 consisted of approximately 25% of premium semi-soft coking coal, 6% of standard semi-soft coking coal/premium thermal coal and 69% of processed coal compared to approximately 64% of premium semisoft coking coal, 34% of standard semi-soft coking coal/premium thermal coal and 2% of processed coal in 2021.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

In response to the increase in the number of COVID-19 cases in Ejinaqi, a region in China’s Inner Mongolia Autonomous Region where the custom and border crossing are located, reported in late October 2021, the local government authorities imposed stringent preventive measures throughout the region, including the temporary closure of the Ceke Port of Entry located at the border of Mongolia and China. Accordingly, the Company’s coal exports into China were suspended from November 2021 to May 2022. Following the reopening of the Ceke Port of Entry for coal export on May 25, 2022, coal sales increased from 0.9 million tonnes in 2021 to 1.1 million tonnes in 2022.

Since May 25, 2022, the number of trucks permitted to cross the Chinese-Mongolian border, as well as the volume of coal exports, have increased. As a result, the Company has gradually resumed mining operations beginning on July 15, 2022, yielding 0.7 million tonnes for 2022 as compared to 1.4 million tonnes for 2021. In response to the market situation, the Company has been mixing some higher ash content product with the semi-soft coking coal product and selling this mixed product to the market as processed coal in 2022.

The Company’s unit cost of sales of product sold increased from $33.3 per tonne in 2021 to $52.0 per tonne in 2022. The increase was mainly driven by (i) the change in the product mix and processed coal having a relatively higher unit cost of sales as compared to the Company’s other coal products; and (ii) the increase in the effective royalty rate.

Summary of Annual Financial Results

$ in thousands, except per share information Revenue_(i) Cost of sales(i)_ Gross profit excluding idled mine asset costs(ii) Gross profit Other operating income/(expenses), net Administration expenses Evaluation and exploration expenses Profit from operations Finance costs Finance income Share of earnings/(loss) of joint ventures Current income tax expenses Net loss attributable to equity holders of the Company Basic and diluted loss per share	Year ended December 31,	Year ended December 31,
	2022	2021
		43,398 $ (31,304) 15,011 12,094 (1,426) (6,068) (223) 4,377 (39,118) 23,165 (159) (2,638) (14,373) (0.05) $
	73,084 $ (57,762) 16,252 15,322 5,316 (6,919) (147) 13,572 (42,219) 2,777 119 (4,668) (30,419) (0.11) $

(i) Revenue and cost of sales related to the Company’s Ovoot Tolgoi Mine within the Coal Division operating segment. Refer to note 4 of the consolidated financial statements for further analysis regarding the Company’s reportable operating segments.

(ii) A non-IFRS financial measure. Refer to "Non-IFRS Financial Measures" section. Idled mine asset costs represents the depreciation expense relates to the Company’s idled plant and equipment.

Overview of Annual Financial Results

The Company recorded a $13.6 million profit from operations in 2022 compared to a $4.4 million profit from operations in 2021. The financial results were impacted by (i) the higher selling price achieved by the Company; and (ii) increased sales experienced by the Company following the reopening of the Ceke Port of Entry during the second quarter of 2022.

Page | 15

December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Revenue was $73.1 million in 2022 compared to $43.4 million in 2021. The Company’s effective royalty rate for 2022, based on the Company’s average realised selling price of $65.7 per tonne, was 19.4% or $12.8 per tonne, compared to 18.7% or $8.6 per tonne in 2021 (based on the average realised selling price of $46.0 per tonne).

Cost of sales was $57.8 million in 2022 compared to $31.3 million in 2021. The increase in cost of sales in 2022 was mainly due to the effect of increased sales volume as well as the change in product mix. Cost of sales consists of operating expenses, share-based compensation expense, equipment depreciation, depletion of mineral properties, royalties and idled mine asset costs. Operating expenses in cost of sales reflect the total cash costs of product sold (a Non-IFRS financial measure, refer to Section 4 of this MD&A for further analysis) during the year.

$ in thousands Operating expenses Share-based compensation expense Depreciation and depletion Royalties	Year ended December 31,
	2022 2021 40,114 $ 18,176 $ 36 52 2,486 2,034 14,196 8,125
Cost of sales from mine operations Cost of sales related to idled mine assets	56,832 28,387 930 2,917
Cost of sales	57,762 $ 31,304 $

Operating expenses in cost of sales were $40.1 million in 2022 compared to $18.2 million in 2021. Cost of sales related to idled mine assets in 2022 included $0.9 million related to depreciation expenses for idled equipment (2021: $2.9 million).

Other operating income was $5.3 million in 2022 (2021: other operating expenses of $1.4 million). A foreign exchange gain of $4.6 million and write-off of other payables of $3.3 million were recorded in 2022, respectively. (2021: foreign exchange loss of $0.3 million and write-off of other payables of $0.7 million).

$ in thousands Management fee Provision/(reversal of provision) for doubtful trade and other receivables Foreign exchange loss/(gain), net Gain on disposal of items of property, plant and equipment, net Impairment on materials and supplies inventories Rental income from short term leases Discount on settlement of trade payables Written off of other payables Gain on contract offsetting arrangement Penalty on late settlement of trade payables Impairment ofprepaid expenses	Year ended December 31,
	2022 2021 1,201 $ 967 $ (784) 191 (4,639) 325 (195) (299) 1,510 2,411 (150) (587) (191) (891) (3,287) (691) (786) - 1,860 - 145 -
Other operating expenses/(income), net	(5,316) $ 1,426 $

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Administration expenses were $6.9 million in 2022 as compared to $6.1 million in 2021, as follows:

$ in thousands Corporate administration Legal and professional fees Salaries and benefits Share-based compensation expense Depreciation	Year ended December 31,
	2022 2021 1,146 $ 1,312 $ 1,830 1,098 3,391 2,847 125 151 427 660
Administration expenses	6,919 $ 6,068 $

Administration expenses were higher for 2022 compared to 2021 primarily due to increase in salaries and benefits incurred during the year following the resumption of mining operations in the third quarter of the year.

The Company continued to minimise evaluation and exploration expenditures in 2022 in order to preserve the Company’s financial resources. Evaluation and exploration activities and expenditures in 2022 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.

Finance costs were $42.2 million and $39.1 million in 2022 and 2021, respectively, which primarily consisted of interest expense on the $250.0 million Convertible Debenture.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Summary of Quarterly Operational Data

	2022	2022	2022		2021	2021	2021	2021
Quarter Ended	31-Dec	30-Sep	30-Jun	31-Mar	31-Dec	30-Sep	30-Jun	31-Mar
Sales Volumes, Prices and Costs Premium semi-soft coking coal Coal sales_(millions of tonnes) Average realized selling price(per tonne) Standard semi-soft coking coal/ premium thermal coal Coal sales(millions of tonnes) Average realized selling price(per tonne) Processed coal Coal sales(millions of tonnes) Average realized selling price(per tonne) Total Coal sales(millions of tonnes) Average realised selling price(per tonne) Raw coal production (millions of tonnes) Cost of sales of product sold(per tonne) Direct cash costs of product sold(per tonne)(i) Mine administration cash costs of product sold(per tonne)(i) Total cash costs of product sold (_per tonne)(i) Other Operational Data Production waste material moved_(millions of bank_ cubic meters) Strip ratio_(bank cubic meters of waste material per tonne of_ coal produced) Lost time injuryfrequencyrate_(ii)_	0.06 65.82 $ 0.01 64.69 $ 0.40 65.94 $ 0.47 65.90 $ 0.57 41.81 $ 25.65 $ 1.86 $ 27.51 $ 2.68 4.67 0.00	0.17 71.01 $ 0.03 43.34 $ 0.35 64.57 $ 0.55 65.37 $ 0.12 58.25 $ 41.44 $ 1.47 $ 42.91 $ 0.91 7.33 0.00	0.04 92.87 $ 0.04 30.41 $ 0.01 79.02 $ 0.09 66.55 $ - 56.32 $ 33.10 $ 1.20 $ 34.30 $ - - 0.00	- - $ - - $ - - $ - - $ -	0.01 69.73 $ 0.01 34.84 $ - - $ 0.02 55.44 $ 0.06 76.95 $ 17.47 $ 1.23 $ 18.70 $ 0.31 5.61 0.00	0.11 64.25 $ 0.06 33.56 $ - - $ 0.17 53.52 $ 0.26 40.39 $ 17.50 $ 1.62 $ 19.12 $ 0.59 2.23 0.00	0.08 52.11 $ 0.03 36.71 $ - - $ 0.11 47.93 $ - 41.38 $ 16.39 $ 4.26 $ 20.65 $ - - 0.00	0.40 47.88 $ 0.23 35.17 $ 0.01 49.62 $ 0.64 43.46 $ 1.04 28.67 $ 18.15 $ 1.04 $ 19.19 $ 5.04 4.83 0.00
				(iii)
				- - 0.00

(i) A non-IFRS financial measure, refer to Section 4. Cash costs of product sold exclude idled mine asset cash costs.

(ii) Per 200,000 man hours and calculated based on a rolling 12-month average.

(iii) Not presented as nil sales was noted for the quarter.

Overview of Quarterly Operational Data

The Company ended the fourth quarter of 2022 without a lost time injury.

The Company experienced an increase in the average selling price of coal from $55.4 per tonne in the fourth quarter of 2021 to $65.9 per tonne in the fourth quarter of 2022, as a result of improved market conditions in China. The product mix for the fourth quarter of 2022 consisted of approximately 13% premium semi-soft coking coal, 1% standard semi-soft coking coal/premium thermal coal and 86% of processed coal compared to approximately 59% premium semi-soft coking coal and 41% standard semi-soft coking coal/premium thermal coal in the fourth quarter of 2021.

The Company sold 0.5 million tonnes for the fourth quarter of 2022, compared to less than 0.1 million tonnes for the fourth quarter of 2021.

The Company’s unit cost of sales of product sold decreased from $77.0 per tonne in the fourth quarter of 2021 to $41.8 per tonne in the fourth quarter of 2022. The decrease was mainly driven by the economies of scale due to increased sales as well as the decrease in the effective royalty rate.

Summary of Quarterly Financial Results

The Company’s annual financial statements are reported under International Financial Reporting Standards (“IFRS”) issued by the IASB. The following table provides highlights, extracted from the Company’s annual and interim financial statements, of quarterly results for the past eight quarters:

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

$ in thousands, except per share information	2022	2022	2022	2022	2021	2021	2021	2021
Quarter Ended	31-Dec	30-Sep	30-Jun	31-Mar	31-Dec	30-Sep	30-Jun	31-Mar
Financial Results Revenue_(i) Cost of sales(i)_ Gross profit/(loss) excluding idled mine asset costs Gross profit/(loss) including idled mine asset costs Other operating income/(expenses), net Administration expenses Evaluation and exploration expenses Profit/(loss) from operations Finance costs Finance income Share of earnings/(loss) of joint ventures Current income tax credit/(expenses) Net profit/(loss) Basic earnings/(loss) per share Diluted earnings/(loss) per share	30,487 $ (19,652) 10,891 10,835 (1,066) (2,111) (26) 7,632 (11,190) 1,589 143 (2,751) (4,577) (0.02) $ (0.02) $	36,807 $ (32,036) 4,982 4,771 546 (1,830) (31) 3,456 (10,800) 69 237 (979) (8,017) (0.03) $ (0.03) $	5,790 $ (5,069) 940 721 3,778 (1,772) (66) 2,661 (10,247) 1,160 (109) (518) (7,053) (0.03) $ (0.03) $	- $ (1,005) (561) (1,005) 2,058 (1,206) (24) (177) (10,036) 13 (152) (420) (10,772) (0.04) $ (0.04) $	848 $ (1,539) (51) (691) (1,078) (1,336) (75) (3,180) (9,702) 3,178 (137) (1,579) (11,420) (0.04) $ (0.04) $	9,295 $ (6,866) 3,269 2,429 100 (1,467) (36) 1,026 (11,457) 2,040 (261) (78) (8,730) (0.03) $ (0.03) $	5,191 $ (4,552) 1,565 639 (113) (1,484) (47) (1,005) (8,870) 2,494 (35) 139 (7,277) (0.03) $ (0.03) $	28,064 $ (18,347) 10,228 9,717 (335) (1,781) (65) 7,536 (14,637) 21,001 274 (1,120) 13,054 0.05 $ 0.02 $

(i) Revenue and cost of sales relate to the Company’s Ovoot Tolgoi Mine within the Mongolian Coal Division operating segment. Refer to note 4 of the consolidated financial statements for further analysis regarding the Company’s reportable operating segments.

Overview of Quarterly Financial Results

The Company recorded a $7.6 million profit from operations in the fourth quarter of 2022 compared to a $3.2 million loss from operations in the fourth quarter of 2021. The financial results for the fourth quarter of 2022 were impacted by (i) the higher selling price achieved by the Company; and (ii) increased sales experienced by the Company following the reopening of the Ceke Port of Entry during the second quarter of 2022.

Revenue was $30.5 million in the fourth quarter of 2022 compared to $0.8 million in the fourth quarter of 2021. The Company’s effective royalty rate for the fourth quarter of 2022, based on the Company’s average realised selling price of $65.9 per tonne, was 18.9% or $12.5 per tonne, compared to 49.4% or $27.4 per tonne in the fourth quarter of 2021 (based on the average realised selling price of $55.4 per tonne).

Cost of sales was $19.7 million in the fourth quarter of 2022 compared to $1.5 million in the fourth quarter of 2021. The increase in cost of sales in the fourth quarter of 2021 was mainly due to the effect of increased sales volume.

Cost of sales consists of operating expenses, share-based compensation expense, equipment depreciation, depletion of mineral properties, royalties and idled mine asset costs. Operating expenses in cost of sales reflect the total cash costs of product sold (a Non-IFRS financial measure, refer to Section 4 of this MD&A for further analysis) during the quarter.

$ in thousands Operating expenses Share-based compensation expense Depreciation and depletion Royalties	Three months ended December 31,
	2022 2021 12,929 $ 374 $ 7 15 794 91 5,866 419
Cost of sales from mine operations Cost of sales related to idled mine assets	19,596 899 56 640
Cost of sales	19,652 $ 1,539 $

Cost of sales related to idled mine assets in the fourth quarter of 2022 included $0.1 million related to depreciation expenses for idled equipment (fourth quarter of 2021: $0.6 million).

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Other operating expenses was $1.1 million in the fourth quarter of 2022 (fourth quarter of 2021: $1.1 million). A foreign exchange gain of $0.5 million and impairment on materials and supplies inventories of $1.5 million were recorded in the fourth quarter of 2022. (fourth quarter of 2021: foreign exchange loss of $0.1 million and impairment on materials and supplies inventories of $2.4 million).

$ in thousands Management fee Reversal of provision for doubtful trade and other receivables Foreign exchange loss/(gain), net Gain on disposal of items of property, plant and equipment, net Impairment on materials and supplies inventories Rental income from short term leases Discount on settlement of trade payables Written off of other payables Gain on contract offsetting arrangement Impairment ofprepaid expenses	Three months ended December 31,
	2022 2021 380 $ 35 $ (166) (13) (545) 141 - (29) 1,520 2,435 (85) (587) (64) (383) - (521) (119) - 145 -
Other operating expenses, net	1,066 $ 1,078 $

Administration expenses increased from $1.3 million in the fourth quarter of 2021 to $2.1 million in the fourth quarter of 2022, primarily due to increase in salaries and benefits incurred during the quarter following the resumption of mining operations in the third quarter of the year.

$ in thousands Corporate administration Legal and professional fees Salaries and benefits Share-based compensation expense Depreciation	Three months ended December 31,
	2022 2021 366 $ 176 $ 295 246 1,315 765 30 18 105 131
Administration expenses	2,111 $ 1,336 $

The Company continued to minimise evaluation and exploration expenditures in the fourth quarter of 2022 in order to preserve the Company’s financial resources. Evaluation and exploration activities and expenditures in the fourth quarter of 2022 were limited to ensuring that the Company met the Mongolian Minerals Law requirements in respect of its mining licenses.

Finance costs were $11.2 million in the fourth quarter of 2022 compared to $9.7 million in the fourth quarter of 2021, which primarily consisted of interest expense on the $250.0 million Convertible Debenture.

4. NON-IFRS FINANCIAL MEASURES

The Company has included the non-IFRS financial measure “cash costs” and “idled mine asset costs” in this MD&A to supplement its consolidated financial statements, which have been prepared in accordance with IFRS. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

The Company believes that this measure, together with measures determined in accordance with IFRS, provides investors with useful information to evaluate the underlying performance of the Company. NonIFRS financial measures do not have a standardised meaning prescribed under IFRS and therefore may not be comparable to similar measures employed by other companies. The non-IFRS financial measure is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Cash Costs

The Company uses cash costs to describe its cash production and associated cash costs incurred in bringing the inventories to their present locations and conditions. Cash costs incorporate all production costs, which include direct and indirect costs of production, with the exception of idled mine asset costs and non-cash expenses which are excluded. Non-cash expenses include share-based compensation expense, impairment of coal stockpile inventories, depreciation and depletion of property, plant and equipment and mineral properties. The Company uses this performance measure to monitor its operating cash costs internally and believes this measure provides investors and analysts with useful information about the Company’s underlying cash costs of operations. The Company believes that conventional measures of performance prepared in accordance with IFRS do not fully illustrate the ability of its mining operations to generate cash flows. The Company reports cash costs on a sales basis. This performance measure is commonly utilised in the mining industry.

The following table provides a reconciliation of the cash costs of product sold disclosed for the three months and year ended December 31, 2022 and December 31, 2021. The cash costs of product sold presented below may differ from cash costs of product produced depending on the timing of coal stockpile inventory turnover and impairment of coal stockpile inventories from prior periods.

==> picture [468 x 216] intentionally omitted <==

----- Start of picture text -----

Three months ended Year ended
December 31, December 31,
$ in thousands, except per tonne information 2022 2021 2022 2021
Cash costs
Cost of sales determined in accordance with IFRS $ 19,652 $ 1,539 $ 57,762 $ 31,304
Less royalties (5,866) (419) (14,196) (8,125)
Less non-cash expenses [(i)] (801) (106) (2,522) (2,086)
Less non-cash idled mine asset costs (56) (640) (930) (2,917)
Total cash costs 12,929 374 40,114 18,176
Less idled mine asset cash costs - - - -
Total cash costs excluding idled mine asset cash costs 12,929 374 40,114 18,176
Coal sales (millions of tonnes) 0.47 0.02 1.11 0.94
Total cash costs of product sold (per tonne) $ 27.51 $ 18.70 $ 36.14 $ 19.34
Three months ended Year ended
December 31, December 31,
$ in thousands, except per tonne information 2022 2021 2022 2021
Cash costs
Direct cash costs of product sold (per tonne) $ 25.65 $ 17.47 $ 34.52 $ 17.81
Mine administration cash costs of product sold (per tonne) 1.86 1.23 1.62 1.53
Total cash costs of product sold (per tonne) $ 27.51 $ 18.70 $ 36.14 $ 19.34
----- End of picture text -----

(i) Non-cash expenses are comprised of depreciation and depletion and share-based compensation expenses.

The cash cost of product sold per tonne was $36.1 for 2022, which has increased from $19.3 per tonne for 2021. The reasons for the increase were primarily related to (i) change in product mix and processed coal having a relatively higher unit cost of product sold as compared to the Company’s other coal products; and

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

(ii) higher logistic costs incurred by the Company in response to the re-opening of the Ceke Port of Entry for coal export in May 2022.

Idle Mine Asset Costs

The Company uses idle mine asset costs to describe the cost incurred during idle mine period. Idle mine asset costs include share-based compensation expense, impairment of coal stockpile inventories, depreciation and depletion of property, plant and equipment and mineral properties. The Company uses this performance measure to monitor its gross profit internally and believes this measure provides investors and analysts with useful information about the Company’s underlying gross profit. The Company believes that conventional measures of performance prepared in accordance with IFRS do not fully illustrate the ability of its mining operations to generate cash flows. This performance measure is commonly utilised in the mining industry.

The following table provides a reconciliation of the gross profit/(loss) disclosed for the three months and year ended December 31, 2022 and December 31, 2021.

$ in thousands, except per tonne information Idled mine asset costs Gross profit/(loss) excluding idled mine asset costs Less non-cash idled mine asset costs	Three months ended December 31,	Three months ended December 31,	Year ended December 31,
	2022	2021	2022 2021
		(51) $ (640) $	16,252 $ 15,011 $ (930) $ (2,917) $
	10,891 $ (56) $
Gross profit/(loss) including idled mine asset costs	10,835 $	(691) $	15,322 $ 12,094 $

5. PROPERTIES

The Company currently holds six mining licenses in Mongolia. The mining licenses pertain to the Ovoot Tolgoi Mine (MV-012726), the Soumber Deposit (MV-016869, MV-020436 and MV-020451) and the Zag Suuj Deposit (MV-020676 and MV-020675).

Operating Mine

Ovoot Tolgoi Mine

The Ovoot Tolgoi Mine is located in the southwest corner of the Umnugobi Aimag (South Gobi Province) of Mongolia. The deposit is within the administrative unit of Gurvantes Soum, 320km southwest of the provincial capital of Dalanzadgad and 950km southwest of the nation’s capital of Ulaanbaatar. Mining operations at the Ovoot Tolgoi Mine have been carried out in two distinct areas, the Sunset pit to the west and the Sunrise pit to the east.

Saleable products from the Ovoot Tolgoi Mine primarily include the Standard and Premium semi-soft coking coal products. Some higher ash content product is being washed and sold as semi-soft coking coal products while some of the unwashed product is sold as a thermal coal product as and when the market allows. The Company intends to continue to develop markets for both its Premium and Standard semi-soft coking coal brands and to pursue long-term supply offtake with end users in China to complement its existing customer base and to gain best value for the Company’s coal in the Chinese market. The Company is committed to further enhancing the quality of its coal products through wet washing and increasing its market penetration in China.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Resources

A resource estimate for the Ovoot Tolgoi deposit is set out in the Ovoot Tolgoi Technical Report, which was prepared by DMCL on behalf of the Company. A copy of the Ovoot Tolgoi Technical Report was filed under the Company’s profile on SEDAR at www.sedar.com on May 15, 2017.

Reserves

A reserve estimate for the Ovoot Tolgoi deposit is set out in the Ovoot Tolgoi Technical Report, which was prepared by DMCL on behalf of the Company. A copy of the Ovoot Tolgoi Technical Report was filed under the Company’s profile on SEDAR at www.sedar.com on May 15, 2017.

Mining Operations

Mining Method

The mining method employed at the Ovoot Tolgoi deposit could be described as open pit terrace mining utilising large scale hydraulic excavators and shovels and trucks. Terrace mining is utilised where coal seams dip steeply and operating machinery on the coal seam roof and floor is not possible, due to the steep seam dips. Terraces, or benches, are excavated along fixed horizontal horizons and these benches intersect both coal and waste. Coal and waste are mined separately on each bench with dozers being used, as needed, to push coal or waste down to the excavator for loading onto trucks. This mining method allows large scale open pit mining to occur productively in steeply dipping coal seam environments. All waste is dumped ex-pit, as the steep dips preclude in-pit dumping.

Mining Equipment

The key elements of the currently commissioned mining fleet include: two Liebherr 996 (33m[3] & 36m[3] ) hydraulic excavators, three Liebherr R9250 (15m[3] ) hydraulic excavators and 19 MT4400AC (218 tonne capacity) haul trucks, together with various pieces of ancillary equipment.

Workforce

As at December 31, 2022, SGS employed 311 employees in Mongolia. Of the 311 employees, 32 are employed in the Ulaanbaatar office and 279 at the Ovoot Tolgoi Mine site. Of the 311 employees based in Mongolia, 310 (99%) are Mongolian nationals and of those, 128 (41%) are residents of the local Gurvantes, Dalanzadgad, Sevrei and Noyon Soums.

Exploration Program

The Company continued to minimise evaluation and exploration expenditures during 2022 in order to preserve the Company’s financial resources. The 2023 exploration program will be limited to ensuring that the Company meets the Mongolian Minerals Law requirements in respect of its mining licenses.

6. LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Capital Management

The Company has in place a planning, budgeting and forecasting process to help determine the funds required to support the Company’s normal operations on an ongoing basis and its expansionary plans.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Costs reimbursable to Turquoise Hill Resources Limited (“Turquoise Hill”)

Prior to the completion of a private placement with Novel Sunrise on April 23, 2015, Rio Tinto plc (“Rio Tinto”) was the Company’s ultimate parent company. In the past, Rio Tinto sought reimbursement from the Company for the salaries and benefits of certain Rio Tinto employees who were assigned by Rio Tinto to work for the Company, as well as certain legal and professional fees incurred by Rio Tinto in relation to the Company’s prior internal investigation and Rio Tinto’s participation in the tripartite committee. Subsequently Rio Tinto transferred and assigned to Turquoise Hill its right to seek reimbursement for these costs and fees from the Company.

On January 20, 2021, the Company and Turquoise Hill entered into a settlement agreement, whereby Turquoise Hill agreed to a repayment schedule in settlement of certain secondment costs in the amount of $2.8 million (representing a portion of the TRQ Reimbursable Amount) pursuant to which the Company agreed to make monthly payments to Turquoise Hill in the amount of $0.1 million per month from January 2021 to June 2022. The Company is contesting the validity of the remaining balance of the TRQ Reimbursable Amount claimed by Turquoise Hill.

As at December 31, 2022, the amount of reimbursable costs and fees claimed by Turquoise Hill (the “TRQ Reimbursable Amount”) amounted to $6.3 million (such amount is included in the trade and other payables).

Revolving Credit Facility

On March 2, 2023, an indirect wholly-owned subsidiary of the Company (the “Borrower”) entered into an unsecured revolving credit facility (the “Credit Facility”) with a related party of JDZF, the Company’s largest shareholder, which makes available to the Company up to a maximum principal sum of RMB 90 million with a maturity date of three months after the agreement was signed. The Company has obtained the requisite acceptance from the TSX for the Credit Facility in accordance with the requirements of the TSX Company Manual, subject to certain standard conditions.

The principal terms of the Credit Facility are as follows:

• All obligations under the Credit Facility are due and payable on the maturity date.

• The Credit Facility is a revolving facility, pursuant to which the Borrower will be entitled, but not obligated, to request advances (“Advances”) under the Credit Facility from time to time, provided that the aggregate amount of the outstanding Advances under the Credit Facility does not exceed the maximum loan amount at any time. The Borrower is entitled to repay all or any portion of the outstanding Advances under the Credit Facility from time to time without bonus or penalty.

• Advances under the Credit Facility will not accrue interest if the Borrower repays any Advance in full within fifteen (15) days following the date of drawdown (the "Interest-Free Period"). If the Borrower fails to repay in full the amount of the Advance prior to the end of the Interest-Free Period, then the Borrower will pay to the Lender interest on the outstanding amount of such Advance, beginning on the day immediately following the last day of the Interest-Free Period (the "Interest Trigger Date") and ending on but excluding the day on which such Advance is repaid or satisfied in full. Interest on the outstanding amount of each Advance from the Interest Trigger Date is calculated at a rate per annum equal to 5%, determined daily and calculated and payable on the date on which the relevant Advance is repaid in full.

• The Company intends to use the proceeds of the Credit Facility for general corporate purposes.

Page | 24

December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Going concern considerations

The Company’s consolidated financial statements have been prepared on a going concern basis which assumes that the Company will continue to operate until at least December 31, 2023 and will be able to realise its assets and discharge its liabilities in the normal course of operations as they come due. However, in order to continue as a going concern, the Company must generate sufficient operating cash flows, secure additional capital or otherwise pursue a strategic restructuring, refinancing or other transactions to provide it with sufficient liquidity.

Several adverse conditions and material uncertainties cast significant doubt upon the Company’s ability to continue as a going concern and the going concern assumption used in the preparation of the Company’s consolidated financial statements. The Company incurred a net loss attributable to equity holders of the Company of $30.4 million for 2022 (compared to a net loss attributable to equity holders of the Company of $14.4 million for 2021), and had a deficiency in assets of $142.5 million as at December 31, 2022 as compared to a deficiency in assets of $90.5 million as at December 31, 2021 while the working capital deficiency (excess current liabilities over current assets) reached $184.7 million as at December 31, 2022 compared to a working capital deficiency of $42.5 million as at December 31, 2021.

Included in the working capital deficiency as at December 31, 2022 are significant obligations, represented by trade and other payables of $59.7 million, which includes $22.5 million in unpaid taxes that are repayable on demand to the Mongolian Tax Authority (“MTA”).

The Company may not be able to settle all trade and other payables on a timely basis, and as a result any continuing postponement in settling of certain trade and other payables owed to suppliers and creditors may result in potential lawsuits and/or bankruptcy proceedings being filed against the Company. Except as disclosed elsewhere in this MD&A, no such lawsuits or proceedings were pending as at March 31, 2023. However, there can be no assurance that no such lawsuits or proceedings will be filed by the Company’s creditors in the future and the Company’s suppliers and contractors will continue to supply and provide services to the Company uninterrupted.

As disclosed in the section “Impact of the COVID-19 pandemic” below, the Chinese-Mongolian border was re-opened for coal export on a trial basis on May 25, 2022 but there can be no guarantee that the Company will be able to continue exporting coal to China, or the Chinese-Mongolian border crossings would not be the subject of additional closure as a result of COVID-19 or any variants thereof in the future. The Company has been proactively adjusting its sales strategy and exploring opportunities to expand its sales. In early 2023, China fully reopened its borders and relaxed the export restrictions associated with COVID-19. The Company anticipates that its revenue, liquidity and profitability will improve following the coal exports volume resuming to normal levels.

There are significant uncertainties as to the outcomes of the above events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. Should the use of the going concern basis in preparation of the consolidated financial statements be determined to be not appropriate, adjustments would have to be made to write down the carrying amounts of the Company’s assets to their realisable values, to provide for any further liabilities which might arise and to reclassify noncurrent assets and non-current liabilities as current assets and current liabilities, respectively. The effects of these adjustments have not been reflected in the consolidated financial statements. If the Company is unable to continue as a going concern, it may be forced to seek relief under applicable bankruptcy and insolvency legislation.

For the purpose of assessing the appropriateness of the use of the going concern basis to prepare the financial statements, management of the Company has prepared a cash flow projection covering a period

Page | 25

December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

of 12 months from December 31, 2022. The cash flow projection has considered the anticipated cash flows to be generated from the Company’s business during the period under projection including cost saving measures. In particular, the Company has taken into account the following measures for improvement of the Company’s liquidity and financial position, which include: (a) entering into the 2023 March Deferral Agreement with JDZF on March 24, 2023 for a deferral of (i) semi-annual cash interest payments of $7.9 million payable to JDZF on May 19, 2023 under the Convertible Debenture; (ii) the cash interest, management fees, and related deferral fees of approximately $8.7 million which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated May 13, 2022; (iii) the cash and PIK Interest, and related deferral fees of approximately $13.5 million which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated July 30, 2021; and (iv) the cash and PIK Interest, management fees, and related deferral fees of approximately $110.4 million which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated November 19, 2020, in each case until August 31, 2024. The Company expects to convene a special meeting of shareholders in the second quarter of 2023 to seek disinterested shareholder approval of the 2023 March Deferral Agreement; (b) communicating with vendors in agreeing repayment plans of the outstanding payable; (c) continuously assessing through communication with MTA its acceptability to a prolonged settlement schedule of the outstanding tax payable and making settlement based on that assessment and the liquidity position of the Company; and (d) obtaining an avenue of financial support from an affiliate of the Company’s major shareholder for a maximum amount of $73.0 million during the period covered in the cash flow projection. Regarding these plans and measures, there is no guarantee that the suppliers and MTA would agree the settlement plan as communicated by the Company, Nevertheless, after considering the above, the directors of the Company believe that there will be sufficient financial resources to continue its operations and to meet its financial obligations as and when they fall due in the next 12 months from December 31, 2022 and therefore are satisfied that it is appropriate to prepare the consolidated financial statements on a going concern basis.

Factors that impact the Company’s liquidity are being closely monitored and include, but are not limited to, the impact of the COVID-19 pandemic, restrictions on the Company’s ability to import its coal products for sale in China, Chinese economic growth, market prices of coal, production levels, operating cash costs, capital costs, exchange rates of currencies of countries where the Company operates and exploration and discretionary expenditures.

Impact of the COVID-19 Pandemic

In response to the increase in the number of COVID-19 cases in Ejinaqi, a region in China’s Inner Mongolia Autonomous Region, reported in late October 2021, the local government authorities imposed stringent preventive measures throughout the region, including the temporary closure of the Ceke Port of Entry located at the border of Mongolia and China. Accordingly, the Company’s coal exports into China were suspended from November 2021 to May 2022.

On May 25, 2022, the Ceke Port of Entry re-opened for coal export on a trial basis, with a limited number of trucks permitted to cross the border during the trial period.

Since May 25, 2022, the number of trucks permitted to cross the Chinese-Mongolian border, as well as the volume of coal exports, have increased. As a result, the Company has gradually resumed mining operations beginning on July 15, 2022.

The Company has been proactively adjusting its sales strategy and exploring opportunities to expand its sales. Although the export of coal from Mongolia to China has resumed as of the date hereof, there can be no guarantee that the Company will be able to continue exporting coal to China, or the Chinese-Mongolian border crossings would not be the subject of additional closure as a result of COVID-19 or any variants thereof in the future.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Convertible Debenture

In November 2009, the Company entered into a financing agreement with CIC for $500 million in the form of a secured, convertible debenture bearing interest at 8.0% (6.4% payable semi-annually in cash and 1.6% payable annually in the Company’s Common Shares) with a maximum term of 30 years. The Convertible Debenture is secured by a first ranking charge over the Company’s assets, including shares of its material subsidiaries. The financing was used primarily to support the accelerated investment program in Mongolia and for working capital, repayment of debts, general and administrative expenses and other general corporate purposes.

On March 29, 2010, the Company exercised its right to call for the conversion of up to $250.0 million of the Convertible Debenture into approximately 21.5 million shares at a conversion price of $11.64 (CA$11.88).

On July 30, 2021, the Company and CIC entered into the 2021 July Deferral Agreement which became effective on that day, pursuant to which CIC agreed to grant the Company a deferral of the 2021 Deferred Amounts payable to CIC on November 19, 2021 under the Convertible Debenture.

The principal terms of the 2021 July Deferral Agreement are as follows:

• Payment of the 2021 Deferred Amounts will be deferred until August 31, 2023.

• As consideration for the deferral of the 2021 Deferred Amounts, the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the 2021 Deferred Amounts payable under the Convertible Debenture, commencing on November 19, 2021.

On May 13, 2022, the Company and CIC entered into the 2022 May Deferral Agreement, pursuant to which CIC agreed to grant the Company a deferral of (i) semi-annual cash interest payments of $7.9 million payable to CIC on May 19, 2022 (the “Deferred Amounts”); and (ii) the management fee which payable to CIC on February 14, 2022 and August 14, 2022 (the “Deferred Management Fee”) under the Amended and Restated Cooperation Agreement (collectively, the “2022 Deferred Amounts”) under the Convertible Debenture.

The principal terms of the 2022 May Deferral Agreement are as follows:

• Payment of the 2022 Deferred Amounts will be deferred until August 31, 2023.

• As consideration for the deferral of the 2022 Deferred Amounts, the Company agreed to pay CIC a deferral fee equal to 6.4% per annum on the Deferred Amounts payable under the Convertible Debenture, commencing on May 19, 2022.

• As consideration for the deferral of the Deferred Management Fees, the Company agreed to pay CIC a deferral fee equal to 2.5% per annum on the outstanding balance of the Deferred Management Fees payable under the Amended and Restated Cooperation Agreement, commencing on the date on which each such 2022 May Deferred Management Fee would otherwise have been due and payable under the Amended and Restated Cooperation Agreement.

• The Company agreed to provide CIC with monthly updates regarding its operational and financial affairs.

• If at any time before the 2022 Deferred Amounts and related deferral fee are fully repaid, the Company proposes to appoint, replace or terminate one or more of its chief executive officer, its chief financial officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, the Company will first consult with, and obtain written consent (such consent shall not be unreasonably withheld) from CIC prior to effecting such appointment, replacement or termination.

• The Company and CIC agreed that nothing in the 2022 May Deferral Agreement prejudices CIC’s rights to pursue any of its remedies at any time pursuant to the prior deferral agreements.

Page | 27

December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Following the completion of the CIC Sale Transaction on August 30, 2022, the respective rights and obligations of CIC under (i) the Convertible Debenture and related security documents; (ii) the Amended and Restated Cooperation Agreement and related documents; (iii) the deferral agreements between CIC, the Company and certain of its subsidiaries in connection with the deferral of interest payments and other outstanding fees under the Convertible Debenture and the Amended and Restated Cooperation Agreement; and (iv) the security holders agreement between the Company, CIC and a former shareholder of the Company, were assigned to JDZF.

On November 11, 2022, the Company and JDZF entered into the 2022 November Deferral Agreement pursuant to which JDZF agreed to grant the Company a deferral of: (i) semi-annual cash interest payments of $7.1 million payable to JDZF on November 19, 2022; (ii) $1.1 million in PIK Interest shares issuable to JDZF on November 19, 2022 under the Convertible Debenture; and (iii) the management fees payable to JDZF on November 15, 2022, February 15, 2023, May 16, 2023 and August 15, 2023 under the Amended and Restated Cooperation Agreement.

The principal terms of the 2022 November Deferral Agreement are as follows:

• Payment of the 2022 November Deferred Interest and the 2022 November Deferred Management Fees will be deferred until November 19, 2023.

• As consideration for the deferral of the 2022 November Deferred Interest, the Company agreed to pay JDZF a deferral fee equal to 6.4% per annum on the 2022 November Deferred Interest payable under the Convertible Debenture, commencing on November 19, 2022.

• As consideration for the deferral of the 2022 November Deferred Management Fees, the Company agreed to pay JDZF a deferral fee equal to 1.5% per annum on the outstanding balance of the 2022 Deferred Management Fees payable under the Amended and Restated Cooperation Agreement, commencing on the date on which each such 2022 November Deferred Management Fees would otherwise have been due and payable under the Amended and Restated Cooperation Agreement.

• If at any time before the 2022 November Deferred Interest and the 2022 November Deferred Management Fees and related deferral fees are fully repaid, the Company proposes to appoint, replace or terminate one or more of its chief executive officer, its chief financial officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, the Company will first consult with, and obtain written consent (such consent shall not be unreasonably withheld) from JDZF prior to effecting such appointment, replacement or termination.

• The Company agreed to comply with all of its obligations under the prior deferral agreements assigned to JDZF.

• The Company and JDZF agreed that nothing in the 2022 November Deferral Agreement prejudices JDZF’s rights to pursue any of its remedies at any time pursuant to the prior deferral agreements.

On March 24, 2023, the Company and JDZF entered into the 2023 March Deferral Agreement pursuant to which JDZF agreed to grant the Company a deferral of (i) the cash interest payment of approximately $7.9 million which will be due and payable on May 19, 2023 under the Convertible Debenture; (ii) the cash interest, management fees, and related deferral fees of approximately $8.7 million which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated May 13, 2022; (iii) the cash and PIK Interest, and related deferral fees of approximately $13.5 million which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated July 30, 2021; and (iv) the cash and PIK Interest, management fees, and related deferral fees of approximately $110.4 million which are due and payable to JDZF on or before August 31, 2023 under the deferral agreement dated November 19, 2020.

The effectiveness of the 2023 March Deferral Agreement and the respective covenants, agreements and obligations of each party under the 2023 March Deferral Agreement are subject to the approvals from the

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

TSX and the shareholders of the Company in accordance with the requirements of Section 501(c) of the TSX Company Manual and the HKEX listing rules.

The principal terms of the 2023 March Deferral Agreement are as follows:

• Payment of the 2023 March Deferred Amounts will be deferred until August 31, 2024.

• As consideration for the deferral of the 2023 March Deferred Amounts which relate to the payment obligations arising from the Convertible Debenture, the Company agreed to pay JDZF: (i) a deferral fee equal to 6.4% per annum on the outstanding balance of such 2023 March Deferred Amounts, commencing on the date on which each such 2023 March Deferred Amounts would otherwise have been due and payable under the Convertible Debenture.

• As consideration for the deferral of the 2023 March Deferred Amounts which relate to payment obligations arising from the Amended and Restated Cooperation Agreement, the Company agreed to pay JDZF a deferral fee equal to 1.5% per annum on the outstanding balance of such 2023 March Deferred Amounts commencing on the date on which each such 2023 March Deferred Amounts would otherwise have been due and payable under the Amended and Restated Cooperation Agreement.

• The 2023 March Deferral Agreement does not contemplate a fixed repayment schedule for the 2023 March Deferred Amounts or related deferral fees. Instead, the 2023 March Deferral Agreement requires the Company to use its best efforts to pay the 2023 March Deferred Amounts and related deferral fees due and payable under the 2023 March Deferral Agreement to JDZF. During the period beginning as of the effective date of the 2023 March Deferral Agreement and ending as of the Deferral Date, the Company will provide JDZF with monthly updates of its financial status and business operations, and the Company and JDZF will on a monthly basis discuss and assess in good faith the amount (if any) of the 2023 March Deferred Amounts and related deferral fees that the Company may be able to repay to JDZF, having regard to the working capital requirements of the Company’s operations and business at such time and with the view of ensuring that the Company’s operations and business would not be materially prejudiced as a result of any repayment.

• If at any time before the 2023 March Deferred Amounts and related deferral fees are fully repaid, the Company proposes to appoint, replace or terminate one or more of its chief executive officer, its chief financial officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, the Company will first consult with, and obtain written consent (such consent shall not be unreasonably withheld) from JDZF prior to effecting such appointment, replacement or termination.

The Company expects to convene a special meeting of Shareholders in the second quarter of 2023 to seek disinterested shareholder approval of the 2023 March Deferral Agreement.

In November 2022, the Company issued 20,947,603 Common Shares to JDZF in accordance with the terms of the Convertible Debenture at an issuance price of CA$0.185 per Common Share as settlement of $2.9 million in outstanding PIK Interest owing by the Company to JDZF under the Convertible Debenture and related deferral agreements.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Cash Flow Highlights

$ in thousands Net cash flows from/(used in) operating activities Cash used in investing activities Cash used in financing activities Effect of foreign exchange rate changes on cash	December 31, Year ended
	2022 2021 26,137 $ (4,329) $ (13,037) (8,637) (1,427) (6,010) (3,141) (422)
Increase/(decrease) in cash for the year Cash balance,beginningofyear	8,532 (19,398) 723 20,121
Cash balance, end of year	9,255 $ 723 $

Cash generated from Operating Activities

The Company generated $26.1 million of cash in operating activities in 2022 compared to an outflow of $4.3 million in 2021. The increase is primarily due to the increase in revenue generated.

Cash used in Investing Activities

The Company used $13.0 million of cash during 2022 in investing activities compared to $8.6 million during 2021. In 2022, expenditures on property, plant and equipment totaled $11.9 million (2021: $10.5 million).

Cash used in Financing Activities

Cash used in financing activities was $1.4 million in 2022 (2021: $6.0 million), which was principally attributable to the interest payment of convertible debenture of $1.0 million (2021: $3.0 million).

Contractual Obligations and Guarantees

Day-to-day mining, expansionary and sustaining capital expenditures as well as administrative operations give rise to commitments for future minimum payments. As at December 31, 2022, the Company’s operating and capital commitments were:

As at December 31, 2022 Capital expenditure commitments Operatingexpenditure commitments	Within 1year	2-3 years	Over 3years Total
	- $ 2,154	- $ 39	- $ - $ 210 2,403
Commitments	2,154 $	39 $	210 $ 2,403 $

Ovoot Tolgoi Mine Impairment Analysis

The Company determined that an indicator of impairment existed for its Ovoot Tolgoi Mine cash generating unit as at December 31, 2022. The impairment indicator was the fact that the Company suffered loss for the year.

Therefore, the Company conducted an impairment test whereby the carrying value of the Company’s Ovoot Tolgoi Mine cash generating unit was compared to the recoverable amount (being the “fair value less costs of disposal”) using a discounted future cash flow valuation model. The Company’s cash flow valuation model takes into consideration the latest available information to the Company, including but not limited to, sales prices, sales volumes, washing production, operating costs and life of mine coal production estimates

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

as at December 31, 2022. The carrying value of the Company’s Ovoot Tolgoi Mine cash generating unit was $119.3 million as at December 31, 2022.

Key estimates and assumptions incorporated in the valuation model included the following:

• Coal resources and reserves as estimated by an independent third party engineering firm;

• Sales price estimates from an independent market consulting firm;

• Forecasted sales volumes in line with production levels as reference to the mine plan;

• Life-of-mine coal production, strip ratio, capital costs and operating costs; and

• A post-tax discount rate of 19% based on an analysis of the market, country and asset specific factors.

Key sensitivities in the valuation model are as follows:

• For each 1% increase/(decrease) in the long term price estimates, the calculated fair value of the cash generating unit increases/(decreases) by approximately $10.6/(10.5) million;

• For each 1% increase/(decrease) in the post-tax discount rate, the calculated fair value of the cash generating unit (decreases)/increases by approximately $(12.9)/13.8 million;

• For each 1% increase/(decrease) in the cash mining cost estimates, the calculated fair value of the cash generating unit (decreases)/increases by approximately $(5.8)/5.9 million; and

• For each 1% increase/(decrease) in Mongolian inflation rate, the calculated fair value of the cash generating unit (decreases)/increases by approximately $(31.2)/27.9 million.

The impairment analysis did not result in the identification of an impairment loss or an impairment reversal and no charge or reversal was required as at December 31, 2022. A decline of 18% (2021:15%) in the longterm price estimates, an increase of more than 26% (2021: 19%) in the post-tax discount rate, an increase of 33% (2021: 27%) in the cash mining cost estimates or an increase of 95% (2021: 62%) in Mongolian inflation rate may trigger an impairment charge on the cash generating unit. The Company believes that the estimates and assumptions incorporated in the impairment analysis are reasonable; however, the estimates and assumptions are subject to significant uncertainties and judgments.

Financial Instruments

The fair value of financial assets and financial liabilities at amortised cost is determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions. The fair value of all the financial instruments of the Company approximates their carrying value because of the demand nature or short-term maturity of these instruments, except for the fair values of trade and other payables, interest bearing borrowings, and convertible debenture below their respective carrying amounts given the current financial condition of the Company as described under Section 6 of this MD&A under the heading entitled “ Liquidity and Capital Management”.

The fair values of the embedded derivatives within the Convertible Debenture are determined using a Monte Carlo simulation. The risks associated with the Convertible Debenture relate to a potential breach of the Company’s obligations under the terms of the Convertible Debenture. The Company mitigates these risks by ensuring its corporate activities comply with all of its contractual obligations under the Convertible Debenture.

Page | 31

December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

==> picture [468 x 217] intentionally omitted <==

----- Start of picture text -----

$ in thousands As at December 31,
Financial assets 2022 2021
Cash $ 9,255 $ 723
Restricted cash 725 1,259
Trade and other receivables 1,199 141
Total financial assets $ 11,179 $ 2,123
$ in thousands As at December 31,
Financial liabilities 2022 2021
Fair value through profit or loss
Convertible debenture - embedded derivatives $ 69 $ 53
Other financial liabilities
Trade and other payables 59,730 67,327
Interest-bearing borrowing - 53
Lease liabilities 502 881
Convertible debenture - debt host and interest payable 224,584 191,573
Total financial liabilities $ 284,885 $ 259,887
----- End of picture text -----

7. REGULATORY ISSUES AND CONTINGENCIES

Class Action Lawsuit

In January 2014, Siskinds LLP, a Canadian law firm, filed a class action (the “Class Action”) against the Company, certain of its former senior officers and directors, and its former auditors (the “Former Auditors”), in the Ontario Court in relation to the Company’s restatement of certain financial statements previously disclosed in the Company’s public fillings (the “Restatement”).

To commence and proceed with the Class Action, the plaintiff was required to seek leave of the Court under the Ontario Securities Act (“Leave Motion”) and certify the action as a class proceeding under the Ontario Class Proceedings Act. The Ontario Court rendered its decision on the Leave Motion on November 5, 2015, dismissing the action against the former senior officers and directors and allowing the action to proceed against the Company in respect of alleged misrepresentation affecting trades in the secondary market for the Company’s securities arising from the Restatement. The action against the Former Auditors was settled by the plaintiff on the eve of the Leave Motion.

Both the plaintiff and the Company appealed the Leave Motion decision to the Ontario Court of Appeal. On September 18, 2017, the Ontario Court of Appeal dismissed the Company’s appeal of the Leave Motion to permit the plaintiff to commence and proceed with the Class Action. Concurrently, the Ontario Court of Appeal granted leave for the plaintiff to proceed with their action against the former senior officers and directors in relation to the Restatement.

The Company filed an application for leave to appeal to the Supreme Court of Canada in November 2017, but the leave to appeal to the Supreme Court of Canada was dismissed in June 2018.

In December 2018, the parties agreed to a consent Certification Order, whereby the action against the former senior officers and directors was withdrawn and the Class Action would only proceed against the Company.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Counsel for the plaintiff and defendants have agreed on and the case management judge has ordered a trial to commence in December 2022 (subject to Court availability). To accomplish all steps necessary for trial preparation, counsels have agreed to the following proposed schedule under the case management of the judge: (i) document production and pleading amendments by October 31, 2021; (ii) oral examinations for discovery ending by December 31, 2022; (iii) expert reports of plaintiff by July 31, 2022 and by defendants, on damages and liability in early May, 2023, respectively; and (iv) pre-trial agreements, filings and motions by September 2023. The Company has urged a trial as early as possible.

The Company firmly believes that it has a strong defense on the merits and will continue to vigorously defend itself against the Class Action through independent Canadian litigation counsel retained by the Company for this purpose. Due to the inherent uncertainties of litigation, it is not possible to predict the final outcome of the Class Action or determine the amount of potential losses, if any. However, the Company has determined that a provision for this matter as at December 31, 2022 and 2021 was not required.

Toll Wash Plant Agreement with Ejin Jinda

In 2011, the Company entered into an agreement with Ejin Jinda, a subsidiary of China Mongolia Coal Co. Ltd., to toll-wash coal from the Ovoot Tolgoi Mine. The agreement had a duration of five years from the commencement of the contract and provided for an annual washing capacity of approximately 3.5 million tonnes of input coal.

Under the agreement with Ejin Jinda, which required the commercial operation of the wet washing facility to commence on October 1, 2011, the additional fees payable by the Company under the wet washing contract would have been $18.5 million. At each reporting date, the Company assesses the agreement with Ejin Jinda and has determined it is not probable that this $18.5 million will be required to be paid. Accordingly, the Company has determined that a provision for this matter as at December 31, 2022 and 2021 was not required.

Special Needs Territory in Umnugobi

On February 13, 2015, the Soumber mining licenses (MV-016869, MV-020436 and MV-020451) (the “License Areas”) were included into a special protected area (to be further referred as Special Needs Territory, the “SNT”) newly set up by the Umnugobi Aimag’s Civil Representatives Khural (the “CRKh”) to establish a strict regime on the protection of natural environment and prohibit mining activities in the territory of the SNT.

On July 8, 2015, SouthGobi Sands LLC, a wholly owned subsidiary of the Company (“SGS”), and the chairman of the CRKh, in his capacity as the respondent’s representative, reached an agreement (the “Amicable Resolution Agreement”) to exclude the License Areas from the territory of the SNT in full, subject to confirmation of the Amicable Resolution Agreement by the session of the CRKh. The parties formally submitted the Amicable Resolution Agreement to the appointed judge of the Administrative Court for her approval and requested a dismissal of the case in accordance with the Law of Mongolia on Administrative Court Procedure. On July 10, 2015, the judge issued her order approving the Amicable Resolution Agreement and dismissing the case, while reaffirming the obligation of CRKh to take necessary actions at its next session to exclude the License Areas from the SNT and register the new map of the SNT with the relevant authorities. Mining activities at the Soumber property cannot proceed unless and until the Company obtains a court order restoring the Soumber mining licenses and until the License Areas are removed from the SNT.

On July 24, 2021, SGS was notified by the Implementing Agency of Mongolian Government that the license area covered by two mining licenses (MV-016869 and MV-020451) are no longer overlapping with the SNT.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

The Company will continue to work with the Mongolian authorities regarding the license area covered by the mining license (MV-020436).

Importing F-Grade Coal into China

As a result of import coal quality standards established by Chinese authorities, the Company has not been able to export its F-grade coal products into China since December 15, 2018 because the F-grade coal products do not meet the quality requirement.

8. ENVIRONMENT

The Company is subject to the Environmental Protection Law of Mongolia (“EPL”) and has the following duties with respect to environmental protection:

• To comply with the EPL and the decisions of the government, local self-governing organisations, local governors and Mongolian state inspectors;

• To comply with environmental standards, limits, legislation and procedures and to supervise their implementation within the organisation;

• To keep records on toxic substances, adverse impacts, and waste discharged into the environment; and

• To report on measures taken to reduce or eliminate toxic chemicals, adverse impacts, and waste.

In addition to those duties imposed on them by the EPL, mining license holders are required to prepare an initial environmental impact assessment analysis before the mine comes into production. The mining license holders must also annually develop and implement an environmental management plan (including reclamation measures) in co-operation with the Ministry of Environment, Green Development and Tourism, which should take into account the results of the environmental impact assessment. The Company received approval of its detailed Environmental Impact Assessment and Environmental Management Plan from the Mongolian Ministry of Environment for the mining operation at the Ovoot Tolgoi Mine in 2007 and renewed in 2016.

The Company has implemented a number of internal policies to embrace responsibility for the impact of its business activities on the environment. By conducting studies, carefully designing mine plans, implementing pollution control recommendations from internal and external sources, monitoring the effects of mining on mining areas and carefully designing mine closure plans, the Company seeks to minimise the impact of its activities on the environment.

The Company established an environmental policy in 2008. The environmental policy affirms the Company’s commitment to environmental protection. The Company monitors its operations to ensure that it complies with all applicable environmental requirements, and takes actions to prevent and correct problems if needed. In accordance with new provisions specified in Mongolian laws and regulations, in 2014 the Company developed a protection strategy jointly with professional organisation. This strategic plan can serve as a policy document directed to protection of biological diversity, ecosystem balance and its preservation, and support species dwelling nearby the Ovoot Tolgoi mine area.

The Board maintains a Health, Environment, Safety and Social Responsibility Committee (the “HESS Committee”), which is composed of independent, non-executive and executive directors and the Vice President of Public Relations. The primary objective of the HESS Committee is to assist the Board of Directors in fulfilling its oversight responsibilities by monitoring and reviewing performance, and recommending for approval policies and management systems, with respect to health, environmental, safety and social responsibility related matters affecting the Company. The HESS Committee also reviews any incidents that may occur and provides guidance on how to prevent any recurrences.

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9. EMOLUMENT POLICY

The emolument policy of the executives of the Company is administered by the Compensation and Benefits Committee on the basis of merit, qualifications and competence and approved by the Board. The emolument policy for the rest of the employees is determined on a department by department basis with the executive in charge of each department determining the emoluments for senior employees and managers in the department and the emoluments for non-senior employees being determined by an appropriately designated manager. The emolument policy for non-executives is administered in conjunction with the human resources department and is done on the basis of merit, qualifications and competence.

The emolument policy for the directors of the Company is administered by the Compensation and Benefits Committee and approved by the Board, having regard to comparable market statistics.

The Company has also adopted an equity incentive plan to incentivise directors and eligible employees. Details of the plan are set out in note 25 of the Company’s consolidated financial statements for the year ended December 31, 2022.

10. OUTSTANDING SHARE DATA

The Company is authorised to issue an unlimited number of Common Shares without par value and an unlimited number of preferred shares without par value. As at March 31, 2023, approximately 295.2 million Common Shares were issued and outstanding. There are also incentive share options outstanding to acquire approximately 5.0 million unissued Common Shares with exercise prices CA$0.13 and HK$1.41. There are no preferred shares outstanding.

As at March 31, 2023, to the best of the Company’s knowledge:

• JDZF holds a total of approximately 85.7 million Common Shares representing approximately 29.0% of the issued and outstanding Common Shares;

• Land Grand holds a total of approximately 46.4 million Common Shares representing approximately 15.7% of the issued and outstanding Common Shares; and

• Voyage Wisdom Limited (“Voyage Wisdom”) holds a total of approximately 25.8 million Common Shares representing approximately 8.7% of the issued and outstanding Common Shares.

11. DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS OVER FINANCIAL REPORTING (“ICFR”)

Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarised and reported within the time periods specified in the securities legislation and include controls and procedures designed to ensure that information required to be disclosed by the Company in its annual filings, interim filings or other reports filed or submitted under securities legislation is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Management, including the Chief Executive Officer and Chief Financial Officer of the Company, has evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. As of December 31, 2022, the Chief Executive Officer and Chief Financial Officer of the Company have each concluded that the Company’s disclosure controls and procedures, as defined in NI

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52-109 - Certification of Disclosure in Issuer’s Annual and Interim Filings , are effective to achieve the purpose for which they have been designed.

Internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS. Management is also responsible for the design of the Company’s internal control over financial reporting in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

The Company’s internal controls over financial reporting include policies and procedures that: pertain to the maintenance of records that, in reasonable detail accurately and fairly reflect the transactions and disposition of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with IFRS and that receipts and expenditures are being made only in accordance with authorisation of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of unauthorised acquisition, use or disposition of assets that could have a material effect on the financial statements.

Because of their inherent limitations, internal controls over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Furthermore, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in law or the degree of compliance with the policies may deteriorate.

Management assessed the effectiveness of internal controls over financial reporting using the Internal Control – Updated Integrated Framework (2013) issued by the Committee of Sponsoring Organisations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal controls over financial reporting were effective as of December 31, 2022.

There has been no significant change in the Company’s internal controls over financial reporting that occurred during the most recently completed quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

12. CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of financial statements in conformity with IFRS requires the Company to establish accounting policies and to make estimates and judgments that affect both the amount and timing of the recording of assets, liabilities, revenues and expenses.

A detailed summary of all of the Company’s significant accounting policies is included in Note 3 to the Company’s consolidated financial statements for the year ended December 31, 2022.

The following new IASB standards were adopted by the Company on January 1, 2022. Refer to Note 2.3 of the Company’s consolidated financial statement of the year ended December 31, 2022 for details.

Annual Improvements Framework Annual Improvements to IFRSs 2018-2020 Amendments to IFRS 3 Business Combination Amendments to IAS 16 Property, Plant and Equipment Amendments to IAS 37 Contingent Liabilities and Contingent Assets Amendments to IFRS 16 Covid-19-Related Rent Concessions beyond 2021 AG 5 (Revised) Revised Accounting Guideline 5 Merger Accounting for Common Control Combinations

Refer to Note 3.23 of the Company’s consolidated financial statements of the year ended December 31, 2022 for information regarding the accounting judgments and estimates.

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13. RECENT ACCOUNTING PRONOUNCEMENTS

The standards that are issued up to the date of issuance of the Company’s financial statements, but were not effective during the year ended December 31, 2022, are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.

IAS 8 Definition of accounting estimates[1 ] IAS 12 Deferred tax related to assets and liabilities arising from a single transaction[1] Amendments to IAS 1 Presentation of Financial Statements and Classification of Liabilities as Current or Non-current[2] Amendments to IAS 1 and IFRS Disclosure of Accounting Policies[1] Practice Statement 2 Amendments to IFRS 16 Lease liabilities in a Sale and Leaseback[2] Amendments to IFRS 17 Insurance Contracts and Initial Application of IFRS 17 and IFRS 9 – Comparative Information[1] Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Int 5 (Revised) Joint Venture[2 ] Interpretation 5 (Revised) Presentation of Financial Statements – Classification by the Borrower of a Term Loan that Contains a Repayment On Demand Clause[2]

1 Effective for annual periods beginning on or after 1 January 2023. 2 Effective for annual periods beginning on or after 1 January 2024.

The Company is not yet in a position to state whether these new pronouncements will result in substantial changes to the Company’s accounting policies and financial statements.

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

14. RISK FACTORS

There are certain risks involved in the Company’s operations, some of which are beyond its control. These risks can be broadly categorised into: (i) risks relating to the Company’s ability to continue as a going concern; (ii) risks relating to the Common Shares; (iii) risks relating to the economic operation of the Company's Ovoot Tolgoi Mine; (iv) risks relating to the Company's other projects in Mongolia; and (v) risks relating to its business and industry. The risk factors identified below could have a material adverse impact on the Company’s business, operations, results of operations, financial condition and future prospects and could cause actual events to differ materially from those described in forward-looking statements relating to the Company. Additional risks and uncertainties not presently known, or not expressed or implied below, or that are presently deemed immaterial, could also harm the Company’s business, operations, results of operations, financial condition and future prospects. Some of the following statements are forward-looking and actual results may differ materially from the results anticipated in these forward-looking statements. Refer to “Forward-Looking Statements”.

Risks Relating to the Company’s Ability to Continue as a Going Concern

Unless the Company acquires additional sources of financing and/or funding in the short term, the ability of the Company to continue as a going concern is threatened

The Company’s consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue operating until at least December 31, 2022 and will be able to realise its assets and discharge its liabilities in the normal course of operations as they come due. However, certain adverse conditions and material uncertainties cast doubt upon the ability of the Company to continue as a going concern. These include:

• the Company has a working capital deficiency (excess current liabilities over current assets) of $184.7 million as at December 31, 2022;

• the Company has an obligation to pay JDZF under the Convertible Debenture and the associated deferral agreements;

• the trade and other payables of the Company remain high due to liquidity constraints. Refer to the Company’s aging profile of the trade and other payables as at December 31, 2022 in Section 6 of this MD&A under the heading entitled “ Liquidity and Capital Resources – Liquidity and Capital Management – Going Concern Considerations ”;

• the Company has other current liabilities which require settlement in the short-term, including the $22.5 million of unpaid taxes payable by SGS to MTA; and

• the current import restrictions on F-grade coal by Chinese authorities will further affect the short term cash inflow and may in turn undermine the execution of the operation plan.

This could result in adjustments to the amounts and classifications of assets and liabilities in the Company’s consolidated financial statements and such adjustments could be material. If the Company is unable to continue as a going concern, it may be forced to seek relief under applicable bankruptcy and insolvency legislation, which may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.

If the Company is unable to continue as a going concern it may be forced to seek relief under applicable bankruptcy and insolvency legislation.

If the Company seeks relief under applicable bankruptcy and insolvency legislation, its business and operations will be subject to certain risks, including but not limited to, the following:

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• An insolvency filing by or against the Company will cause an event of default under the JDZF Convertible Debenture;

• An insolvency filing by or against the Company may adversely affect its business prospects, including its ability to continue to obtain and maintain the contracts necessary to operate its business on competitive terms;

• There can be no assurance as to the Company’s ability to maintain or obtain sufficient financing sources for operations or to fund any reorganisation plan and meet future obligations;

• There can be no assurance that the Company will be able to successfully develop, prosecute, confirm and consummate one or more plans of reorganisation that are acceptable to the applicable courts and its creditors, equity holders and other parties in interest; and

• The value of the Common Shares could be reduced to zero as result of an insolvency filing.

Due to the inherent uncertainties of litigation, it is not possible to predict the final outcome of the Class Action or determine the amount of any potential losses, if any.

The Company is subject to litigation risks. In the normal course of the Company’s business, it may become involved in, named as a party to, or be the subject of, various legal proceedings, including, without limitations, mining laws, environmental laws, labour laws, and anti-corruption and anti-bribery laws in the jurisdictions in which the Company operates. Defense and settlement costs associated with legal claims can be substantial, even with respect to claims that are frivolous or have no merit. Due to the inherent uncertainty of the litigation process, the resolution of any particular legal proceeding to which the Company is or may become subject could have a material adverse impact on its business, operations, results of operations, financial condition and future prospects.

The Company is currently a defendant in the Class Action (as more particularly described in Section 7 “ Regulatory Issues and Contingencies ” of this MD&A). The Company firmly believes that it has a strong defense on the merits and will continue to vigorously defend itself against the Class Action through independent Canadian litigation counsel retained by the Company for this purpose. Due to the inherent uncertainties of litigation, it is not possible to predict the final outcome of the Class Action or determine the amount of potential losses, if any.

In the event the Company incurs any liability in connection with the Class Action, it maintains insurance with respect thereto. While the Company believes that such insurance coverage is in an amount that would be sufficient to cover any amounts the Company may be required or determines to pay with respect thereto, there can be no assurance that such coverage will be adequate to do so, and, if so, any amounts not so covered would be required to be paid by the Company. The Company's ability to continue as a going concern will be impacted to the extent it is required to pay any amounts in connection with the Class Action, which would have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.

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Risks Relating to the Common Shares

Future issuances or sales, or perceived possible issuances or sales, of substantial amounts of Common Shares in the public market could materially and adversely affect the prevailing market price of the Common Shares and the Company’s ability to raise capital in the future.

The market price of the Common Shares could decline as a result of future sales of substantial amounts of the Common Shares or other securities relating to the Common Shares in the public market, including sales by its substantial Shareholders, or the issuance of new Common Shares, or the perception that such sales or issuances may occur. Future sales, or perceived possible sales, of substantial amounts of the Common Shares could also materially and adversely affect the Company’s ability to raise capital in the future at a time and at a price favorable to it, and Shareholders may experience dilution in their holdings upon issuance or sale of additional Common Shares or other securities in the future.

Future stock market conditions may change.

There are risks involved with any equity investment. The market price of the Common Shares may rise or fall depending upon a range of factors and stock market conditions, which are unrelated to the Company’s future financial performance. Movements on international stock markets, local interest rates and exchange rates, domestic and international economic and political conditions, as well as government, taxation and other policy changes may affect the stock market. As the Company is a listed company on the TSX and the HKEX, its Common Share price will also be subject to numerous influences including broad trends in the stock market and the share prices of individual companies or sectors.

Risks Relating to the Economic Operation of the Company's Ovoot Tolgoi Project

There can be no assurance that the mine plan developed for the Ovoot Tolgoi Mine will ultimately be viable or profitable due to the inherent operational risks.

As a result of work performed by DMCL, the Company increased its estimate of total resources at the Ovoot Tolgoi deposit from those described in the 2017 Technical Report, has declared reserves for the Ovoot Tolgoi deposit and prepared a new mine plan. There are no assurances, however, that the Company will execute its mine plan and realise on the estimates for the Ovoot Tolgoi deposit. It is not unusual in the mining industry for mining operations to experience unexpected problems during commercial production, resulting in delays and requiring more capital than anticipated. Actual costs and economic returns may differ materially from the Company’s estimates. Risks associated with the operation of mines include, but are not limited to, the following:

• Unusual or unexpected geological formations;

• Unstable ground conditions that could result in cave-ins or landslides;

• Floods;

• Power outages;

• Restrictions or interruptions in supply of key materials;

• Restrictions or interruptions to coal exports into China;

• Labour disruptions or shortages;

• Social unrest in adjacent areas;

• Equipment failure;

• Fires and explosions;

• Changes to applicable law; and

• Inability to obtain suitable or adequate machinery, equipment, or labour.

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In addition, risks particular to the Company’s mine plan include:

• Transition to contract mining and if the Company is able to negotiate a contract with applicable contractors at rates that justify the transition;

• Ability to generate sufficient sales volumes at economical realised prices;

• Maintaining an adequate water supply to the mine site to permit the continued operations of the wash plant as planned;

• Achieving satisfactory yields from wet washing operations;

• Successful conversion of resources into reserves during the life of mine;

• Continued delays in the custom clearance process at the Ceke border;

• Continued ban on the import of F-grade coal products into China;

• Impact of the COVID-19 pandemic on the Company’s ability to export coal into China; and

• Success in enhancing the operational efficiency and the output throughput of the of the wet wash plant.

Any of the risks noted above could have a material adverse impact on the Company’s financial performance, cash flow and results of operations, which may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.

Risks Relating to the Company’s Projects in Mongolia

The Company does not currently maintain insurance in relation to its ongoing mining operations

For certain aspects of the Company’s business operations, insurance coverage, in particular business interruption insurance, is restricted or prohibitively expensive. As of the date hereof, in consideration of aging profile of the mining equipment and the continuous engagement of third party mining contractors, the Company did not renew the insurance policies relating to the mining property and commercial general liability and will renew any necessary insurance policies at the appropriate time.

Should any liability arise for which is it not insured or insurance coverage is inadequate to cover the entire liability, they could reduce or eliminate the Company’s actual or prospective profitability, result in increasing costs and a decline in the value of the Common Shares and could materially and adversely affect the Company’s business and results of operations.

Legislation in Mongolia may be subject to conflicting interpretations, which may have adverse consequences on the Company’s business.

The Mongolian legal system shares several of the qualitative characteristics typically found in a developing country and many of its laws, particularly with respect to matters of taxation, are still evolving. A transaction or business structure that would likely be regarded under a more established legal system as appropriate and relatively straightforward might be regarded in Mongolia as outside the scope of existing Mongolian law or regulation. As a result, certain business arrangements or structures and certain tax planning mechanisms may carry significant risks. In particular, when business objectives and practicalities dictate the use of arrangements and structures that, while not necessarily contrary to settled Mongolian law, are sufficiently novel within a Mongolian legal context, it is possible that such arrangements may be challenged resulting in their invalidation.

The legal system in Mongolia has inherent uncertainties that could limit the legal protections available to the Company, which include: (i) inconsistencies between laws; (ii) limited judicial and administrative guidance on interpreting Mongolian legislation; (iii) substantial gaps in the regulatory structure due to delay or absence of implementing regulations; (iv) the lack of established interpretations of new principles of Mongolian legislation, particularly those relating to business, corporate and securities laws; (v) a lack of

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judicial independence from political, social and commercial forces; and (vi) bankruptcy procedures that are not well developed and are subject to abuse. The Mongolian judicial system has relatively little experience in enforcing the laws and regulations that currently exist, leading to a degree of uncertainty as to the outcome of any litigation; it may be difficult to obtain swift and equitable enforcement, or to obtain enforcement of a judgment by a court of another jurisdiction.

In addition, while legislation has been enacted to protect private property against expropriation and nationalisation, due to the lack of experience in enforcing these provisions and political factors, these protections may not be enforced in the event of an attempted expropriation or nationalisation. Expropriation or nationalisation of any of the Company’s assets, or portions thereof, potentially without adequate compensation, could materially and adversely affect its business and results of operations.

Application of and amendments to legislation could adversely affect the Company’s mining rights in its projects or make it more difficult or expensive to develop its projects and carry out mining.

The 2006 Minerals Law (as defined under the heading "DEFINITIONS AND OTHER INFORMATION – Defined Terms and Abbreviations" in the Company’s most recently filed Annual Information Form), which preserves to a limited extent some of the substance of the former 1997 minerals legislation, was drafted with the assistance of legal experts in the area of mining legislation and was widely regarded as progressive, internally consistent and effective legislation. However, the 2006 Minerals Law has been subsequently amended and the potential for political interference has increased and the rights and security of title holders of mineral tenures in Mongolia has been weakened. Certain provisions of the 2006 Minerals Law are ambiguous and it is unclear how they will be interpreted and applied in practice. Examples of such provisions include those relating to the designation of a mineral deposit as a Mineral Deposit of Strategic Importance (as defined under the heading "DEFINITIONS AND OTHER INFORMATION – Defined Terms and Abbreviations" in the Company’s most recently filed Annual Information Form). Refer to the risk factor entitled “ The Government of Mongolia could determine that any one or more of the Company’s projects in Mongolia is a Mineral Deposit of Strategic Importance ” below.

In addition, the introduction of new Mongolian laws and regulations and the interpretation of existing ones may be subject to policy changes reflecting domestic political or social changes. For example, on July 16, 2009, the Parliament of Mongolia enacted the Mining Prohibition in Specified Areas Law (the "Specified Areas Law") that prohibits minerals exploration and mining in areas such as headwaters of rivers and lakes, forest areas as defined in the Law of Forests of Mongolia of May 17, 2012, as amended, and areas adjacent to rivers and lakes as defined in the Law of Mongolia on Water enacted on May 17, 2012, as amended.

Pursuant to the Specified Areas Law, the Government of Mongolia has defined the boundaries of certain areas in which exploration and mining is purportedly prohibited. A list of licences has been prepared that overlap with the prohibited areas described in the law based on information submitted by water authority agencies, forest authority agencies and local authorities for submission to the Government of Mongolia.

Portions of the mining licence in respect of the Ovoot Tolgoi Mine and the exploration licence pertaining to the Zag Suuj Deposit are included on the list of specified areas described in the Specified Areas Law.

In regard to the Ovoot Tolgoi Mining Licence, the potential area which may be affected is a relatively small area which represents approximately 3% of the entire area of the mining licence and does not contain any reserves or resources or immovable assets. Accordingly, the loss of the potentially affected area would not materially and adversely affect the existing operations.

Activities historically carried out on the other licences referred to above include drilling, trenching and geological reconnaissance. The Company has no immovable assets located in any of the potentially affected areas of these licences and the loss of any or all of these potentially affected properties would not materially and adversely affect the existing operations.

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The Mining Prohibition in Specified Areas Law has not been adequately enforced to date mainly due to compensation issues due to the licence holders.

In order to address the issues facing its implementation, in February, 2015 the Parliament of Mongolia adopted an amendment to the Law on Implementation of the Mining Prohibition in Specified Areas Law (the “Amended Law on Implementation”). The Amended Law on Implementation provides an opportunity for license holders covered within the scope of application of the Mining Prohibition in Specified Areas Law to continue their mining operations subject to advance placement of funds to cover 100% of the future environmental rehabilitation costs. A model contract and a specific Government regulation on this requirement will be adopted by the Government. The license holders must also apply within 3 months after the amendment to the Law on Implementation comes into effect for permission to MRAM to resume activities. The Company submitted its application with respect to its mining licenses before the deadline set on June 16, 2015 and hasn’t yet received any communication from MRAM on the status of its application.

Pursuant to the Mongolian Law “To prohibit mineral exploration and mining operations at headwaters of rivers, water protection zones and forested areas”, the Government administrative agency has notified the Company that special license area 12726A is partly overlapping with a water reservoir. The Company has inspected the area together with the Cadastral Division of the Mineral Resource Authority as well as through the cadastral registration system of the Ministry of Environment, it is determined that 29 hectares of Sukhait Bulag is partly overlapping with a water reservoir, of which has been partly handed over. (Resolution No.6/7522 issued on September 29, 2015 by the Head of Cadastral Division of the Mineral Resource Authority).

In accordance with Article 22.3 of Law of Mongolia on Water, 5,602.96 hectares of land, including Sukhaityn Bulag, Uvur Zadgai, and Zuun Shand pertaining to exploration license 9443X, which was converted to mining license MV-0125436 in January 2016, is overlapping with a protected area boundary. The overlapping area has been officially handed over to the local administration. (Resolution No.688 issued on September 24, 2015 by the Head of Cadastral Division of the Mineral Resource Authority) In connection with the nullification of Annex 2 of the Government order No.194 “On determining boundary” issued on June 5, 2012, area around the water reservoir located at MV-016869 license area was annulled from the Specified Area Law.

Therefore, mining license 12726A was removed from the list of licenses that overlaps with the prohibited areas described in the law.

There has been limited development of the law during 2016 while two exploration licenses of the Company (13779X and 5267X) were converted to mining licenses (MV-020676 and MV-020675) in November 2016. The Company will continue to monitor the developments and ensure that it follows the necessary steps in the Amended Law on Implementation to secure its operations and licenses and is fully compliant with Mongolian law.

There can be no assurance that future political and economic conditions in Mongolia will not result in the Government of Mongolia adopting different policies in relation to foreign development and ownership of mineral resources. Any such changes in government or policy may result in changes in laws affecting ownership of assets, environmental protection, labour relations, repatriation of income, return of capital, investment agreements, income tax laws, royalty regulation, government incentive and other areas, each of which may materially and adversely affect the Company’s ability to undertake exploration and development activities in the manner currently contemplated. Any restrictions imposed or charges levied or raised (including royalty fees) under Mongolian law for the export of coal could harm the Company’s competitiveness.

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The impact of the COVID-19 pandemic could have a material adverse impact on the Company’s business, results of operations, or financial condition.

On March 12, 2020, the World Health Organisation declared the COVID-19 outbreak as a global pandemic.

Due to the recent increase in the number of COVID-19 cases in Ejinaqi, a region in China’s Inner Mongolia Autonomous Region, the local government authorities imposed stringent preventive measures throughout the region beginning as of the second quarter of 2021, including the temporary closure of the Ceke Port of Entry located at the borders of Mongolia and China. As a result, the Company’s coal exports into China were suspended from November 2021 to May 2022. In order to control the inventory level and preserve the Company’s working capital, the Company decided to temporarily suspend mining operations (including coal mining), beginning as of early November 2021. On May 25, 2022, the Ceke Port of Entry re-opened for coal export on a trial basis, with a limited number of trucks permitted to cross the border during the trial period. The Company will continue to closely monitor the situation at the Ceke Port of Entry, including the number of trucks that are permitted to cross the border and the impact on the operations and financials of the Company, and will evaluate the most suitable time for the full resumption of its mining operation. In the event that the Company’s ability to export coal into the Chinese market continues to be restricted or limited, this is expected to have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.

The Company believes the COVID-19 pandemic in China has negatively affected its business. Furthermore, the economic slowdown and negative business sentiment in the PRC could potentially have a negative impact on the demand for coal generally and our business operations and financial condition may be adversely affected as a result. Given the difficulty involved in determining with any degree of certainty as to how long the COVID-19 pandemic will last, the Company cannot predict if the adverse impact on the Company’s business, financial condition and operations will be short-lived or long-lasting at this time. If the negative impact of the COVID-19 pandemic continues and becomes long-lasting, the Company’s business, financial condition and operations may be materially and adversely affected as a result of any slowdown in economic growth in China, reduce demand for coal or other factors that the Company cannot foresee.

The Company’s ability to carry on business in Mongolia is subject to political risk.

The Company’s ability to efficiently conduct its exploration and development activities is subject to changes in government policy or shifts in political attitudes within Mongolia that are beyond the Company’s control.

Government policy may change to discourage foreign investment, nationalisation of mining industries may occur or other government limitations, restrictions or requirements not currently foreseen may be implemented. There is no assurance that the Company’s assets will not be subject to nationalisation, requisition or confiscation, whether legitimate or not, by any authority or body. The provisions under Mongolian law for compensation and reimbursement of losses to investors under such circumstances may not be effective to restore the value of the Company’s original investment.

In addition, Mongolia may experience political instability. Such instability could have a material adverse effect on economic or social conditions in Mongolia and may result in outbreaks of civil unrest, which could materially and adversely affect the Company’s business and results of operations.

The Government of Mongolia could determine that any one or more of the Company’s projects in Mongolia is a Mineral Deposit of Strategic Importance if it meets legal requirements.

Under the 2006 Minerals Law, the State Great Khural of Mongolia (the "Parliament of Mongolia") has wide discretion to designate mineral deposits to be Mineral Deposits of Strategic Importance. The Government

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

of Mongolia is empowered to participate on an equity basis with the licence holder in the exploitation and/or mining of each Mineral Deposit of Strategic Importance on terms to be negotiated between the Government of Mongolia and such licence holder. Details of any minerals reserves must be filed by the relevant licence holder with the Government of Mongolia, and those deposits on the Strategic Deposits List represent most of the largest and highest profile deposits in Mongolia. In addition to deposits currently on the Strategic Deposits List and the additional Tier 2 Deposits List, the Parliament of Mongolia may at any time designate other deposits not yet currently on such Lists to be Mineral Deposits of Strategic Importance, add such deposits to either the Strategic Deposits List or the Tier 2 Deposits List and, in the former case, commence negotiations with the relevant licence holder with respect to the terms under which the Government of Mongolia will take an interest in such deposit. While the Government of Mongolia is in the process of adding the exact location and coordinates for each Mineral Deposit of Strategic Importance, a number of deposits on the Strategic Deposits List are identified by name only with no indication of the latitude and longitude coordinates for the deposit, and it is therefore not always possible to precisely determine the intended geographic area covered by each designated Mineral Deposit of Strategic Importance or to accurately determine whether or not any given licence area is within, or overlaps, a Mineral Deposit of Strategic Importance. In July 2014, the Mongolian Parliament made an amendment to the Minerals Law and redefined the term of “Mineral Deposit of Strategic Importance”. According to the Minerals Law, the Mineral Deposit of Strategic Importance means “a deposit which can affect national security, national economic and social development or a deposit that can produce more than five percent of Mongolian GDP in a year”.

Under the 2006 Minerals Law, the size of the Government of Mongolia’s participation is determined largely by the level of state funding which has been provided for the exploration and development of any deposit, with the Government of Mongolia entitled to participate up to 50% in the event that there has been state funding of such deposit and up to 34% if there has not. However, the 2006 Minerals Law is very vague as to the details and method by which the Government of Mongolia will take its interest and the final arrangements in respect of the Government of Mongolia’s interest in each Mineral Deposit of Strategic Importance, including the amount of compensation to be paid to the licence holder and the actual form of the Government of Mongolia’s interest are subject to negotiation between the Government of Mongolia and the licence holder. In 2015, the Parliament of Mongolia adopted an amendment to the 2006 Minerals Law providing for the possibility for the Government to collect a special royalty on Mineral Deposits of Strategic Importance in lieu of holding an equity stake in such deposit. It stipulates that the parties can agree to transfer to the licence holder the state's share in the Mineral Deposit of Strategic Importance upon the approval of an authorised Government body, with the licence holder agreeing to pay a special royalty at a percentage (not to exceed 5%) to be approved by the Government.

The 2006 Minerals Law also contains provisions requiring any company which holds a Mineral Deposit of Strategic Importance to list no less than 10% of its shares on the Mongolian Stock Exchange. This particular provision of the 2006 Minerals Law has not yet been enforced and it is not clear how it will work in practice.

In recent years there have been a number of proposed amendments to the 2006 Minerals Law suggested by various parties, many of which have centered on amending the 2006 Minerals Law to increase the Government of Mongolia’s participating interest in excess of 50%. While the 2006 Minerals Law provides that the interest of the Government of Mongolia should take the form of an equity interest, based on past practice, and depending on the results of individual negotiations, the interest may be in the form of production or profit sharing or some other arrangement negotiated between the licence holder and the Government of Mongolia. There can be no assurance that legislation will not be enacted which further strengthens the Government of Mongolia’s right to participate in privately held mineral resources in Mongolia.

None of the deposits covered by the Company’s existing mining licences or exploration licences are currently designated as Mineral Deposits of Strategic Importance. However, there can be no assurance

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

that any one or more of these deposits will not be so designated in the future, in which case the Company’s business and results of operations may be materially and adversely affected.

Risks relating to the Company’s business and industry

Some of the Company’s projects may not be completed as planned; costs may exceed original budgets and may not achieve the intended economic results or commercial viability.

The Company’s business strategy depends largely on expanding its production capacity at the Ovoot Tolgoi Mine and further developing its other coal projects into commercially viable mines. Whether a mineral deposit will be commercially viable depends on a number of factors, including: (i) the particular attributes of the deposit, such as size, grade and proximity to infrastructure; (ii) commodity prices, which are highly cyclical; and (iii) government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of mineral resources and environmental protection.

The Company’s projects are subject to both (i) technical risk in that they may not perform as designed, or (ii) operational redesign or modification as a result of on-going evaluation of the projects. Increased development costs, lower output or higher operating costs may all combine to make a project less profitable than expected at the time of the development decision. This would have a negative impact on the Company’s business and results of operations. No assurance can be given that the Company would be adequately compensated by third party project design and construction companies (if not performed by the Company) in the event that a project did not meet its expected design specification.

The Company’s coal reserves and resources are estimates based on a number of assumptions, and the Company may produce less coal than its current estimates.

The coal reserve and resource estimates are based on a number of assumptions that have been made by the QPs in accordance with NI 43-101. Reserve and resource estimates involve expressions of judgment based on various factors such as knowledge, experience and industry practice, and the accuracy of these estimates may be affected by many factors, including quality of the results of exploration drilling and analysis of coal samples, as well as the procedures adopted by and the experience of the person making the estimates.

The Company notes that, in general, mineral resource and reserve estimates are always subject to change based on new information. Specifically, should the Company encounter mineralisation different from that predicted by past drilling, sampling and similar examination, mineral resource and/or reserve estimates may have to be adjusted downward. In addition, the rank of coal ultimately mined may differ from that indicated by drilling results. There can be no assurance that coal recovered in laboratory tests will be duplicated under on-site conditions or in production-scale operations. In the event that the actual level of impurities is higher than expected or the coal mined is of a lower quality than expected, the demand for, and realisable price of, the Company’s coal may decrease. Short term factors relating to reserves, such as the need for orderly development of coal seams or the processing of new or different quality coals, may also materially and adversely affect the Company’s business and results of operations.

The inclusion of reserve and resource estimates should not be regarded as a representation that all these amounts can be economically exploited and nothing contained herein (including, without limitation, the estimates of mine lives) should be interpreted as assurance of the economic lives of the Company’s coal reserves and resources or the profitability of its future operations.

Mineral resources that are not mineral reserves do not have demonstrated economic viability. Due to the uncertainty that may attach to inferred mineral resources, there is no assurance that mineral resources will be upgraded to proven and probable ore reserves. Inferred mineral resources are considered too

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

speculative geologically to have economic considerations applied to them that would enable them to be categorised as mineral reserves.

The Company’s results of operations are subject, to a significant extent, to economic, political and legal developments in China.

The Company expects that a majority if not all of the coal sales from the Ovoot Tolgoi Mine will be made to customers based in China. Accordingly, the economic, political and social conditions, as well as government policies, of China may affect its business. The Chinese economy differs from the economies of most developed countries in many respects, including: (i) structure; (ii) level of government involvement; (iii) level of development; (iv) growth rate; (v) control of foreign exchange; and (vi) allocation of resources. The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. For the past two decades, the Chinese government has implemented economic reform measures emphasising the utilisation of market forces in the development of the Chinese economy. Changes in the Chinese’s political, economic and social conditions, laws, regulations and policies could materially and adversely affect the Company’s business and results of operations. More recently, the COVID-19 pandemic has resulted in reduced industrial activity in China, with temporary closures of factories and other facilities, as described in the risk factor entitled “ The impact of the COVID-19 pandemic in China could have a material adverse impact on the Company’s business, results of operations, or financial condition ”.

As a result of import restrictions established by the PRC authorities at the Ceke border, the Company has been barred from transporting its F-grade coal products into China for sale since December 15, 2018. The Company, together with other Mongolian coal companies, have been in discussions with the PRC authorities regarding a potential amendment or withdrawal of these import restrictions to allow for the importation of F-grade coal into China; however, there can be no assurance that a favorable outcome will be reached. A protracted or indefinite ban on the import of the Company’s F-grade coal products into China may have a material adverse impact on the Company’s financial performance, cash flow and results of operations, which may negatively affect the price and volatility of the Common Shares and any investment in such shares could suffer a significant decline or total loss in value.

The interests of the Company’s principal stakeholders, JDZF, Land Grand and Voyage Wisdom, may differ from those of the other stakeholders.

As at March 31, 2023, to the best of the Company’s knowledge:

• JDZF holds a total of 85.7 million Common Shares representing approximately 29.0% of the issued and outstanding Common Shares;

• Land Grand holds a total of approximately 46.4 million Common Shares representing approximately 15.7% of the issued and outstanding Common Shares; and

• Voyage Wisdom holds a total of approximately 25.8 million Common Shares representing approximately 8.7% of the issued and outstanding Common Shares.

Accordingly, the Company’s principal stakeholders may have the ability to substantially affect the outcome of matters submitted to Shareholders of the Company for approval, including, without limitation, the election and removal of directors, amendments to our articles of incorporation and bylaws and the approval of any business combination. This may delay or prevent an acquisition of the Company or cause the market price of the Common Shares to decline. The interests of each of these principal stakeholders may conflict with the interests of other Shareholders and there is no assurance that any of these principal stakeholders will vote its Common Shares in a way that benefits minority Shareholders. While no Shareholder has the ability to elect a majority of the Board unilaterally, both JDZF and Land Grand have been granted contractual director appointment rights. In addition, the Company’s principal stakeholders may have an interest in pursuing acquisitions, divestitures and other transactions that, in the judgment of management, could

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

enhance its equity or debt investment, even though such transactions might involve risks to other Shareholders and may negatively affect prevailing market prices of the Common Shares.

Subject to compliance with applicable securities laws, the principal stakeholders may sell some or all of their Common Shares in the future. No prediction can be made as to the effect, if any, such future sales of Common Shares will have on market prices of the Common Shares prevailing from time to time. However, the future sale of a substantial number of Common Shares by our principal stakeholders, or the perception that such sales could occur, could adversely affect prevailing market prices of the Common Shares.

Tax and royalty legislation in Mongolia is subject to varying interpretations and changes which may have a significant impact on the Company's financial position.

Mongolian tax, currency, customs and royalty legislation is subject to varying interpretations and changes, which can occur frequently. The interpretation by the Company's management of such legislation as applied to the transactions and activity of the Company may be challenged by the relevant authorities.

The Mongolian tax authorities may be taking a more assertive position in their interpretation of the legislation and assessments, and it is possible that transactions and activities that have not been challenged in the past may be challenged by tax authorities. As a result, significant additional taxes, penalties, interest or royalties may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for five calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods.

The Mongolian tax legislation does not provide definitive guidance in certain areas, specifically in areas such as value-added tax, withholding tax, corporate income tax, personal income tax, transfer pricing and other areas. From time to time, the Company adopts interpretations of such uncertain areas that reduce the overall tax rate of the Company. As noted above, such tax positions may come under heightened scrutiny as a result of recent developments in administrative and court practices. The impact of any challenge by the tax authorities cannot be reliably estimated; however, it may be significant to the financial position and/or the overall operations of the entity in question.

The royalty regime in Mongolia is evolving and has been subject to change since 2012. On June 23, 2021, the Government of Mongolia issued a new resolution in connection with the royalty regime. From July 1, 2021 onwards, the royalty payable is to be calculated based on the reference price as determined by the Government of Mongolia, and the reference to the contract sales price will be removed.

There can be no assurance, however, that the Government of Mongolia will not disagree with the methodology employed by the Company in determining the calculated sales price and require that the royalty payable be calculated based on the Mongolian government’s reference, which could have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares.

Management believes that its interpretation of the relevant legislation is appropriate and the Company’s positions related to tax, royalty and other legislation will be sustained. Management believes that tax, royalty and legal risks are remote at present. Management performs regular re-assessment of tax risk and its position may change in the future as a result of the change in conditions that cannot be anticipated with sufficient certainty at present.

Licences and permits are subject to renewal and various uncertainties and the Company may only renew its exploration licences a limited number of times for a limited period of time.

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

The Company’s activities are subject to extensive licensing and permitting requirements. The Company strives to obtain all required licenses and permits on a timely basis and to comply with all such licenses and permits at all times. However, there can be no assurance that the Company will obtain and maintain all required licenses and permits or that it will not face delays in obtaining all required licenses and permits, renewals of existing licenses and permits, additional licenses and permits required for existing or future operations or activities, or additional licenses and permits required by new legislation. The Company notes the following with respect to its ability to obtain and maintain applicable licenses and permits:

• Certain provisions of the Law on Land of Mongolia enacted on June 7, 2002, as amended (the “Land Law of Mongolia”) and the 2006 Minerals Law provide for the revocation of previously granted land use rights, MELs or mining licences on the grounds that the affected area of land has been designated as SNT. The Land Law of Mongolia grants the discretion to declare an area of land for special needs purposes to local governing authorities and identifies various broad categories which qualify as special needs. The 2006 Minerals Law requires the local governing authority that designates an area of land as a special needs territory to compensate within one year the licence holder whose rights or licence status are affected. The failure to pay the compensation within the one year period would allow the licence holder to resume its operations. If any of the Company’s land use rights or mining licences in Mongolia are revoked because the underlying land is declared as special needs territory, there is no assurance that the Company will receive adequate compensation and its business and results of operation might be adversely and materially affected.

• On February 13, 2015, the License Areas were included into a special protected area (referred to as a Special Needs Territory or “SNT”) newly set up by the Umnugobi Aimag’s CRKh to establish a strict regime on the protection of natural environment and prohibit mining activities in the territory of the SNT.

• On July 8, 2015, SGS and the Chairman of the CRKh, in his capacity as the respondent’s representative, reached an agreement (the “Amicable Resolution Agreement”) to exclude the License Areas from the territory of the SNT in full, subject to confirmation of the Amicable Resolution Agreement by the session of the CRKh. The parties formally submitted the Amicable Resolution Agreement to the appointed judge of the Administrative Court for her approval and requested a dismissal of the case in accordance with the Law of Mongolia on Administrative Court Procedure. On July 10, 2015, the judge issued her order approving the Amicable Resolution Agreement and dismissing the case, while reaffirming the obligation of CRKh to take necessary actions at its next session to exclude the License Areas from the SNT and register the new map of the SNT with the relevant authorities. Mining activities at the Soumber property cannot proceed until the License Areas are removed from the SNT.

• On July 24, 2021, SGS was notified by the Implementing Agency of Mongolian Government that the license area covered by two mining licenses (MV-016869 and MV-020451) are no longer overlapping with the SNT. The Company will continue to work with the Mongolian authorities regarding the license area covered by the mining license (MV-020436). There is no assurance that the Company will receive adequate compensation and its business and results of operation might be adversely and materially affected.

The inability to obtain or maintain licenses and permits with respect to its mining operations, of any delay with respect to the obtaining of licenses and permits, could have a material adverse impact on the Company’s financial performance, cash flow and results of operations.

Prolonged periods of severe weather conditions could materially and adversely affect the Company’s business and results of operations.

Severe weather conditions may require the Company to evacuate personnel or curtail operations and may cause damages to the project site, equipment or facilities, which could result in the temporary suspension of operations or generally reduce the Company’s productivity. Severe weather conditions have not caused

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

any delay or damages to the Company’s operations to date. However, there can be no assurance that severe weather will not occur. Any damages to the Company’s projects or delays in its operations caused by prolonged periods of severe weather could materially and adversely affect its business and results of operations.

The Company’s business and results of operations are susceptible to the cyclical nature of coal markets and are vulnerable to fluctuations in prices for coal.

The Company expects to derive substantially all of its revenue and cash flow from the sale of coal. Therefore, the market price of the Common Shares, the Company’s ability to raise additional financing and maintain ongoing operations and its financial condition and results of operations will be directly related to the demand for, and price of, coal and coal-related products. Coal demand and price are determined by numerous factors beyond the Company’s control, including the international demand for steel and steel products, the availability of competitive coal supplies, international exchange rates, political and economic conditions in Mongolia, China and elsewhere in the world, milder or more severe than normal weather conditions, production costs in major coal producing regions and, most recently, the impact of the COVID19 pandemic. The Chinese and international coal markets are cyclical and have in the past exhibited significant fluctuations in supply, demand and prices from year to year. There has been significant price volatility on the coal spot market. An oversupply of coal in China or a general downturn in the economies of any significant markets for the Company’s coal and coal-related products could materially and adversely affect its business and results of operations. In addition, the Company’s dependence on Asian markets may result in instability in its operations due to political and economic factors in those Asian jurisdictions which are beyond the Company’s control. The combined effects of any or all of these factors on coal prices or volumes are impossible for the Company to predict.

If realised coal prices are below the full cost of production of any of the Company’s future mining operations and remain at such a level for any sustained period, the Company could experience increased losses and may decide to discontinue operations, which could require the Company to incur closure costs and result in further reduced revenues.

The Company’s coal mining activities are subject to operational risks, including equipment breakdown.

The Company’s coal mining operations are subject to a number of operational risks, some of which are beyond its control, which could delay the production and delivery of coal. These risks include unexpected maintenance or technical problems, periodic interruptions to its mining operations due to inclement or hazardous weather conditions and natural disasters, industrial accidents, power or fuel supply interruptions and critical equipment failure, including malfunction and breakdown of its shovels, upon which its coal mining operations are heavily reliant and which would require considerable time to replace. These risks and hazards may result in personal injury, damage to, or destruction of, properties or production facilities, environmental damage, business interruption and damage to its business reputation. In addition, breakdowns of equipment, difficulties or delays in obtaining replacement shovels and other equipment, natural disasters, industrial accidents or other causes could temporarily disrupt the Company’s operations, which in turn may also materially and adversely affect its business, prospects, financial condition and results of operations.

The Company’s future financial performance depends, in part, on the successful operation of the wash plant at the Ovoot Tolgoi Mine, which is subject to various risks

Because the Company’s current mine plan is predicated, in part, on incorporating a coal washing and process systems, the Company’s future financial performance will depend on the successful operation of the wash plant at the Ovoot Tolgoi mine. The operating performance of the wash plant, and the related

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

cost of operation and maintenance, may be adversely affected by a variety of risk factors, including, but not limited to, the following:

• Maintaining an adequate water supply and power supply to the mine site to permit the continued operations of the wash plant as planned;

• Achieving satisfactory yields from wet washing operations;

• The Company successfully enhancing the operational efficiency and the output throughput of the wet wash plant;

• The Company successfully negotiating an agreement with the wash plant operator regarding the operation of the wash plant;

• Unexpected maintenance and replacement expenditures;

• Shutdowns due to the breakdown or failure of the wash plant’s equipment;

• Labour disputes; and

• Catastrophic events such as fires, explosions, severe storms or similar occurrence affecting the wash plant facility or third parties providing services to the wash plant.

Any of the risks noted above could have a material adverse impact on the operational performance or cost of operations of the wash plant, which in turn could have a material adverse effect on the Company’s financial performance, cash flow and results of operations.

The unavailability or shortage of reliable and sufficient coal transportation capacity that meets Mongolian authority regulations will reduce the Company’s coal revenue by causing it to reduce its production volume or impairing its ability to supply coal to its customers.

The Company anticipates that the majority of its coal production from the projects in Mongolia will be exported to China. Inadequate transportation infrastructure, or restrictions on or delays in coal exports to China, is likely to affect the pricing terms on which it can sell the coal to customers and the willingness and ability of such customers to purchase coal from it. Customers are likely to factor in any delays and the costs and availability of transportation in determining the price they are prepared to pay to purchase the Company’s coal. Therefore, its mining operations are anticipated to be highly dependent on road and rail services in Mongolia and China.

The opening hours of the Shivee Khuren Border Crossing also affect the Company’s ability to expedite the movement of its coal shipments. There can be no assurance that there would be any other cost effective means of transporting the coal to the Company’s primary market in China. As a result, the Company may experience difficulty expediting the movement of its coal shipments and/or significant cost escalation for the transportation services, which could affect its production and reduce its profitability.

Although the Company’s coal exports to China has resumed as of the date hereof, there can be no guarantee that the Company will be able to continue exporting coal to China, or the border crossings would not be the subject of additional closures as a result of COVID-19 in the future. The Company will continue to closely monitor the development of the COVID-19 pandemic and the impact it has on coal exports to China and will react promptly to preserve the working capital of the Company.

In China, rail and road infrastructure and capacity has in the past been affected by extreme weather conditions, earthquakes, delays caused by major rail accidents, the COVID-19 pandemic, the diversion of rolling stock needed to deliver emergency food relief and seasonal congestion during public holidays. There can be no assurance that these problems will not recur or that new problems will not occur. In any of these circumstances, the customers may not be able to take delivery of the Company’s coal, which may lead to delays in payment, or refusal to pay, for the Company’s coal and, as a result, the Company’s business and results of operations could be materially and adversely affected.

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

The Company’s prospects depend on its ability to attract, retain and train key personnel.

Recruiting, retaining and training qualified personnel is critical to the Company’s success. The number of persons skilled in the acquisition, exploration and development of mining properties is limited and competition within the mining industry for such persons is intense, in particular, Mongolian law requires that at least 90% of a mining company’s employees be of Mongolian nationality. This provision of the law, coupled with the large number of active mining projects in Mongolia, further limits the number of available personnel and increases competition for skilled personnel. The reputation and capability to operate continuously over the longer term are key factors in also attracting key personnel to its business. The Company is reinforcing its core values of ethical behavior in dealing with all its stakeholders from senior management down in order to ensure the Company attracts the right people to its business. As the Company’s business activity grows, it will require additional key financial, administrative, mining, marketing and public relations personnel as well as additional operations staff. If the Company is not successful in attracting such key personnel, or retaining existing key personnel, its business and results of operations could be materially and adversely affected.

In addition, the Company’s ability to train operating and maintenance personnel is a key factor for the success of its business activities. If the Company is not successful in recruiting, training and retaining such personnel, its business and results of operations could be materially and adversely affected.

Competition in the coal industry may hinder development plans and adversely affect the Company’s coal sales if it is not able to compete effectively.

Continued growth in mining and mineral exploration activities in Mongolia could create an increasing demand for mining equipment and related services. Shortages of, or higher costs for, equipment and services could restrict the Company’s ability to carry out the exploration, development and production activities, increase its costs of operations and adversely affect its future plans.

The Company intends to sell a majority of the coal it produces in China. Competition in the Chinese coal industry is based on many factors, including, among others, price, production capacity, coal quality and characteristics, transportation capability and costs, blending capability and brand name. The Company’s coal business will most likely compete in China with other large Chinese and international coal mining companies. Due to location, some of the Company’s Chinese competitors may have lower transportation costs than the Company does. The Chinese coal market is highly fragmented and the Company faces price competition from some small local coal producers that produce coal for significantly lower costs than the Company due to various factors, including their lower expenditure on safety and regulatory compliance. Some of the Company’s international competitors, including the Mongolian coal producers, may have greater coal production capacity as well as greater financial, marketing, distribution and other resources than the Company does, and may benefit from more established brand names in international markets. The Company’s future success will depend on its ability to respond in an effective and timely manner to competitive pressure.

There are a number of risks associated with the Company’s operation plan, dependence on a limited number of customers and inability to attract additional customers.

The current operation plan contemplates significant operational funding in the Company’s mining operations as well as equipment maintenance in order to achieve the Company’s revenue and cash flow targets. Such expenditures and other working capital requirements may require the Company to seek additional financing. There is no guarantee that the Company will be able to secure other sources of financing. If the Company is unable to continue as a going concern, it may be forced to seek relief under applicable bankruptcy and insolvency legislation.

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

The Company has been selling its coal products since 2008. The Company had 51 active customers with the largest customer representing approximately 14%, the second largest customer representing approximately 9%, the third largest customer representing approximately 8% and the remaining customers accounting for 69% of the Company’s total sales for the year ended December 31, 2022. In order to mitigate this risk, the Company is attempting to modify its sales strategy in order to expand its existing customer base. With certain of its customers, the Company has accepted payment for coal deliveries in the form of bank instruments, in lieu of cash. There can be no assurance, however, that the Company will be able to satisfy or comply with the funding conditions of such instruments following completion of the coal delivery or the bank that issues the instrument will be capable of paying all or any portion of the proceeds to the Company, which could have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares.

The Company still expects to sell the majority of the coal from its Mongolian mining operations to customers in China. Chinese law requires specific authorisation to be obtained by entities responsible for the import of coal into China. In the event that the Company’s customers, or the agents of such customers who are responsible for importing coal into China on their behalf, fail to obtain and retain the necessary authorisations, their ability to import coal into China may be affected, which could materially and adversely affect the Company’s business and results of operations.

There are significant uncertainties as to the outcomes of the above events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern and, therefore, the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. Should the use of the going concern basis in preparation of the consolidated financial statements be determined to be not appropriate, adjustments would have to be made to write down the carrying amounts of the Company’s assets to their realisable values, to provide for any further liabilities which might arise and to reclassify noncurrent assets and non-current liabilities as current assets and current liabilities, respectively. The effects of these adjustments have not been reflected in the consolidated financial statements.

Failure to maintain an effective system of internal controls may result in material misstatements of the Company’s financial statements or cause the Company to fail to meet its reporting obligations or fail to prevent fraud.

Effective internal controls are necessary for the Company to provide reliable financial reports and prevent fraud. If the Company fails to maintain an effective system of internal controls, the Company may not be able to report its financial results accurately or prevent fraud; and in that case, Shareholders and investors could lose confidence in the Company’s financial reporting, which would harm the Company’s business and could negatively impact the price of the Common Shares.

If the Company suffers any future material weaknesses in its internal controls and procedures or fails to maintain the adequacy of its internal controls and procedures, the Company could be the subject of regulatory scrutiny, penalties or litigation, all of which would harm the Company’s business and could negatively impact the price of the Common Shares.

The Company cannot provide assurances that the Company will not experience potential material weaknesses in its internal controls. Even if the Company concludes that its internal controls over financial reporting provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS, because of their inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by individual acts, by collusion of two or more individuals or by unauthorised override of controls. Failure to implement required new or improved controls, or difficulties encountered in their

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SouthGobi Resources Ltd. Management’s Discussion and Analysis

implementation, could harm the Company’s results of operations or cause the Company to fail to meet its future reporting obligations.

The Company’s operations are exposed to risks in relation to environmental protection and rehabilitation.

The operations of coal mines involve substantial environmental risks and hazards and the Company’s operations are subject to laws and regulations relating to the environment, health and safety and other regulatory matters in Mongolia and China.

The risk of environmental liability is inherent in the operation of the Company’s business. Environmental hazards may occur in connection with the Company’s operations as a result of human negligence, force majeure, or otherwise. Claims may be asserted against the Company arising out of its operations in the normal course of business, including claims relating to land use, safety, health and environmental matters. The Company is not insured against environmental liabilities and there can be no assurance that environmental liabilities would not materially and adversely affect its business and results of operations.

In addition, the Company is subject to reclamation requirements. The Company’s mine will eventually close. The key tasks in relation to the closure of the mines involves (i) long-term management of permanent engineered structures (for example, spillways, roads, waste dumps); (ii) achievement of environmental closure standards; (iii) orderly retrenchment of employees and contractors; and (iv) relinquishment of the site with associated permanent structures and community development infrastructure and programs to new owners. The successful completion of these tasks is dependent on the Company’s ability to successfully implement negotiated agreements with the relevant government, community and employees. The consequences of a difficult closure range from increased closure costs and handover delays to ongoing environmental impacts and corporate reputation damage if desired outcomes cannot be achieved, which could materially and adversely affect the Company’s business and results of operations.

The Company currently does not own a coal storage facility at the Ceke border. As a result of potential stricter requirements for coal storage facilities which may be adopted by the local government in the future, the Company may not be able to secure enough storage space at the Ceke border, which could have a material adverse effect on the business and operations of the Company and may negatively affect the price and volatility of the Common Shares. As part of its focus on capital preservation, the Company has decided to suspend indefinitely all further development activities relating to the previously announced Ceke Logistics Park Project until further notice. The Company may be at risk of becoming subject to litigation proceedings initiated by its investment partner in the Ceke Logistics Park Project for failing to comply with the underlying agreements governing project development. Due to the inherent uncertainty of the litigation process, the resolution of any particular legal proceeding to which the Company may become subject could have a material adverse impact on its business, operations, results of operations, financial condition and future prospects.

Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. The Company may experience increased costs of production arising from compliance with environmental laws and regulations. Should the Company fail to comply with current or future environmental laws and regulations, the Company may be required to pay penalties or take corrective actions, any of which may have a material adverse effect on its results of operations and financial condition.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

Foreign currency fluctuations could affect expenses and any future earnings.

The Company is exposed to foreign exchange fluctuations with respect to the MNT, Chinese Renminbi, Hong Kong, and Canadian dollars. The Company’s financial results are reported in United States dollars. The salaries for local laborers in Mongolia are paid in local currency. Sales of coal into China have been and may continue to be settled in United States dollars and Renminbi. The Company has a subsidiary in Hong Kong where some expenses are incurred in Hong Kong dollars. Since the Company’s headquarters is in Canada, a minor portion of its expenses are in Canadian dollars and the Company holds a portion of its cash in Canadian dollars. As a result, its financial position and results are impacted by the exchange rate fluctuations between the aforementioned currencies and the United States dollar.

Information in this MD&A regarding future plans reflects current intentions and is subject to change.

Whether the Company ultimately implements the business strategies described in this MD&A will depend on a number of factors including, but not limited to: the political situation in Mongolia and China; the availability and cost of capital; current and projected coal prices; coal markets; costs and availability of drilling services, costs and availability of heavy equipment, supplies and personnel; success or failure of activities in similar areas to those in which the Company’s projects are situated; and changes in estimates of project completion costs. The Company will continue to gather information about its projects, and it is possible that additional information will cause it to alter its schedule or determine that a project should not be pursued at all. Accordingly, the Company’s plans and objectives may change from those described in this MD&A.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

15. OUTLOOK

The re-opening of the Ceke Port of Entry in May 2022 and the subsequent gradual increase of coal export volumes into China resulted in significant improvements in the Company’s cash flows for the year ended December 31, 2022. The Company expects that planned investments from multiple coal mining companies in 2023 to enhance the infrastructure and technologies which support cross-border exports at the ChineseMongolian border, will result in export volumes continuing to increase in 2023.

With assistance and support from JDZF, the Company will focus on expanding its market reach and customer base in China to improve the profit margin earned on its coal products.

In 2023, the Company expects to continue to ramp up its mining operations and capacity to capitalise on the anticipated increase in sales volume. The Company will revisit the possibility of resuming coal processing at a later date.

The Company remains cautiously optimistic regarding the Chinese coal market, as coal is still considered to be the primary energy source which China will continue to rely on in the foreseeable future. Coal supply and coal import in China are expected to be limited due to increasingly stringent requirements relating to environmental protection and safety production, which may result in volatile coal prices in China. The Company will continue to monitor and react proactively to the dynamic market.

In the medium term, the Company will continue to adopt various strategies to enhance its product mix in order to maximise revenue, broaden its customer base and sales network, improve logistics, optimise its operational cost structure and, most importantly, operate in a safe and socially responsible manner.

The Company’s objectives for the medium term are as follows:

• Enhance product mix – The Company will focus on improving the product mix by: (i) improving mining operations; (ii) consider resuming the operation of the Company’s wet coal processing plant; (iii) exploring the possibility of a dry coal processing operation; and (iv) trading and blending different types of coal to produce blended coal products that are economical to the Company.

• Expand market reach and customer base – The Company will endeavor to increase sales volume and sales price by: (i) expanding its sales network and diversifying its customer base; (ii) increasing its coal logistics capacity to resolve the bottleneck in the distribution channel; and (iii) setting and adjusting the sales price based on a more market-oriented approach in order to maximise profit while maintaining sustainable long-term business relationships with customers.

• Increase production and optimise cost structure – The Company will aim to increase coal production volume to take advantage of economies of scale. The Company will also focus to reduce its production costs and optimise its cost structure through engaging sizable third-party contract mining companies to enhance its operation efficiency, strengthening procurement management, ongoing training and productivity enhancement.

• Operate in a safe and socially responsible manner – The Company will continue to maintain the highest standards in health, safety and environmental performance and operate in a corporate socially responsible manner.

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December 31, 2022

SouthGobi Resources Ltd. Management’s Discussion and Analysis

In the long term, the Company will continue to focus on creating and maximising shareholders value by leveraging its key competitive strengths, including:

• Strategic location – The Ovoot Tolgoi Mine is located approximately 40km from China, which represents the Company’s main coal market. The Company has an infrastructure advantage, being approximately 50km from a major Chinese coal distribution terminal with rail connections to key coal markets in China.

• A large reserves base – The Ovoot Tolgoi Deposit has mineral reserves of more than 90 million tonnes.

• Several growth options – The Company has several growth options including the Soumber Deposit and Zag Suuj Deposit, located approximately 20km east and approximately 150km east of the Ovoot Tolgoi Mine, respectively

• Bridge between Mongolia and China – The Company is well-positioned to capture the resulting business opportunities between China and Mongolia. The Company will seek assistance and support from its two largest shareholders, which are both experienced coal mining enterprises in China, and have a strong operational record for the past decade in Mongolia.

March 31, 2023

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December 31, 2022