SouthGobi Resources Announces First Quarter 2010 Financial and Operating Results

SouthGobi Resources Ltd. (TSX:SGQ)(PINK SHEETS:SGQRF)(SEHK:1878) (the "Company"
or "SouthGobi") today announced its financial results for the quarter ended
March 31, 2010. All figures are in US dollars unless otherwise stated. 


Highlights for the quarter: 



--  Total shipments for the quarter ended March 31, 2010 were 426,000
    tonnes. 
--  Average realized selling price was $36 per tonne, approximately 24%
    higher than Q1 2009 average realized selling price. 
--  Significant focus on realignment of Ovoot Tolgoi open-pit. 
--  In January 2010, SouthGobi completed a global equity offering of 27
    million common shares at a price of Cdn$17.00 per share for gross
    proceeds of Cdn$459 million. The shares commenced trading on the Main
    Board of the Hong Kong Stock Exchange on January 29, 2010, under stock
    code "1878". 
--  On March 29, 2010 the Company completed the conversion of $250 million
    of the $500 million convertible debenture issued to China Investment
    Corporation ("CIC") into 21,471,045 common shares of the Company.
    Following the conversion CIC, through its indirect wholly owned
    subsidiary, owns approximately 13% of the Company. 



Ovoot Tolgoi Complex

The Company continues to ramp up production at the Ovoot Tolgoi Mine. The
additional equipment for the second mining fleet including the larger Liebherr
996 shovel, four 218 tonne Terex haul trucks and various auxiliary equipment has
been delivered throughout the fourth quarter of 2009 and early 2010 and is being
progressively commissioned. The Company expects that the third mining fleet,
already ordered, will be commissioned in late 2010.


To further enhance the value of the Company's products, the Company has approved
the construction of a basic coal handling facility for Ovoot Tolgoi coals. The
initial design has been completed and engineering details for the major
components are well advanced. 


Soumber Deposit

In March 2010, drilling re-commenced at the Soumber deposit to expand and better
define the resource. Preparatory work for a formal mining license application
continues.


Review of Quarterly Results 

In the three months ended March 31, 2010, 0.22 million tonnes of coal was
produced with a strip ratio of 6.79 compared to 0.16 million tonnes produced in
the three months ended March 31, 2009 with a strip ratio of 2.19. In 2010,
production was impacted by an initiative to realign the open-pit at Ovoot Tolgoi
Mine which began in December 2009 and this is reflected in the higher strip
ratio. 


The Company incurred a net loss for the three months ended March 31, 2010 of
$168.3 million compared to a net loss of $10.0 million for the three months
ended March 31, 2009. The increase in the loss is due primarily to, the loss on
partial conversion of the CIC convertible debenture, the interest expense on the
CIC convertible debenture and the fair value change of the embedded derivatives
in the CIC convertible debenture, which together contributed $162.3 million. 


Revenue and cost of sales relate to the Company's operations in Mongolia. In the
three months ended March 31, 2010, the Company shipped approximately 0.43
million tonnes of coal at an average realized selling price of approximately $36
per tonne. This compares to 0.13 million tonnes of coal shipped in the three
months ended March 31, 2009 at an average realized selling price of $29 per
tonne. Revenues increased to $13.9 million in the first quarter of 2010 from
$3.5 million in the first quarter in 2009. 


The Company incurred an operating loss from continuing operations for the three
months ended March 31, 2010 of $6.5 million compared to a $6.6 million loss in
the same period in 2009. The operating loss is impacted by the factors discussed
below.


Cost of sales was $12.7 million in the three months ended March 31, 2010,
compared to $3.2 million for the three months ended March 31, 2009. The increase
in cost of sales relates to the higher sales volume and higher costs in 2010.
During the quarter ended March 31, 2010, the Company continued to realign the
open-pit resulting in higher costs. Additional mobile equipment also resulted in
higher depreciation in the quarter ended March 31, 2010. Cost of sales is
comprised of three main components, direct cash costs, mine administration cost
and non-cash items. Non-cash items include depreciation, depletion and
stock-based compensation. Cost of sales will vary depending on sales volume,
production and unit costs which directly affects income from mine operations.


Direct cash costs were $22.25 per tonne in the three months ended March 31, 2010
compared to $14.29 for the same period in 2009. The increase in direct cash
costs is primarily due to the realignment of the open-pit in the first quarter
of 2010, which resulted in a higher ratio of waste removal per tonne of coal
produced. In December 2009 the Company commenced realigning the open-pit for a
north-south entry. Waste removal at Ovoot Tolgoi was originally along the seam's
strike-length, ie east-west. This allowed for better cost controls when
financing was more constrained by reducing the strip ratio and waste movements
and allowing customer trucks to enter directly in the shallow pit for loading.
However, such alignment is not beneficial for the longer-term because it becomes
less efficient as the pit depth increases. Realigning for a north-south entry is
expected to provide the following long-term benefits:




--  allow for longer mining faces to be exposed for larger shovels (eg 996)
    to access; 
--  enable mining of the thinner 8, 9 and 10 seams 'face on' as opposed to
    'along strike' enabling cleaner mining and a lower ash higher value
    product; and 
--  allow more efficient access for haul trucks as the pit deepens. 



Realigning the pit has impacted operations because the process requires
substantial above-trend waste removal. The open-pit realignment is the primary
cause of the strip ratio increase to 6.79 in the first quarter of 2010 and the
resulting increase in direct cash costs of production and a constrained
availability of coal. The Company expects the open-pit realignment to be
completed late in the second quarter of 2010. Once the open-pit realignment is
complete, coal production levels are expected to be higher with improved control
of product quality.


Mine administration costs per tonne decreased to $1.07 per tonne for the three
months ended March 31, 2010, compared to $4.22 per tonne for the three months
ended March 31, 2009. The decrease per tonne is due to the higher sales volume
in 2010.


Exploration expenses for the three months ended March 31, 2010, were $0.9
million higher than the three months ended March 31, 2009. Increased exploration
expense in 2010 relates to increased drilling at the Soumber deposit.
Substantive physical exploration for 2010 commenced in March. As at the end of
April, $3.5 million has been spent, including 19.8m3 of trenching and over
29,000 meters of drilling (both core and reverse circulation). Key targets so
far have been the fields surrounding the Soumber Deposit and a target
approximately six kilometers to the south-west of Ovoot Tolgoi Complex known as
the SW target.


Administration expenses for the three months ended March 31, 2010 were $6.0
million compared to $6.1 million for the three months ended March 31, 2009.
Administration expenses for the three months ended March 31, 2010, includes
approximately $2.5 million of stock-based compensation compared to approximately
$3.3 million for the three months ended March 31, 2009.


Finance costs for the three months ended March 31, 2010 were $163.0 million
compared to $0.06 million in the first quarter of 2009. The significant increase
in finance costs in the first quarter of 2010 is due to the loss on partial
conversion of the CIC convertible debenture. 


Financial Position and Liquidity

The Company's total assets at March 31, 2010 were $974.4 million compared with
$560.7 million at December 31, 2009. At March 31, 2010, the Company had $723.4
million in cash and $86.4 million in long term investments compared to cash of
$357.3 million, short term investments of $15.0 million and long term
investments of $57.1 million at December 31, 2009. The long term investments
include money market investments and the Company's investment of $9.2 million in
Kangaroo Resources Ltd. The increase in cash and money market investments relate
to the global equity financing completed in the March 2010 quarter. The increase
in total assets relates to the global equity financing and the continuing
development of the Mongolian Coal Division.


The Company's long term liabilities as at March 31, 2010 were $348.4 million
compared with $543.1 million as at December 31, 2009. The decrease in long term
liabilities relates to the conversion of $250 million of the CIC convertible
debenture.


Outlook

The Company expects demand for its coal from China will increase. It is
difficult to reliably forecast commodity prices and customer demand for the
Company's products; however the Company's sales and marketing efforts are
providing positive results. Anecdotal evidence suggests Mongolia will set a new
record for coal shipments to China in 2010 and become a significant supplier of
China's coal needs. During the year the market has continued to advance. 


For the month of April 2010, the Company sold in excess of 200,000 tonnes of
coal at approximately $44 per tonne (22% higher than first quarter 2010
pricing).


From an operating perspective, the Company expects the open-pit realignment
process to continue through the second quarter of 2010 and impact costs for that
quarter. Furthermore, fuel costs continue to be approximately 18% above those
costs estimated in the Norwest Study.


Five additional Terex MT4400 (218 tonne) haul trucks have been delivered on site
as the first components of the third mining fleet and will be constructed to
meet the timing of delivery, of the second Liebherr 996 shovel for commissioning
by the end of 2010.


The success to date and potential for future growth can be attributed to a
combination of the Company's competitive strengths, including the following:




--  Projects are strategically located close to China, especially to the
    fast growing Gansu and Inner Mongolia regions; 
--  Substantial and growing resources and reserves; 
--  Produce premium quality coals; 
--  Low cost structure due to favorable geographic and geological
    conditions; 
--  Strong financial profile after the financings in late 2009 and early
    2010; 
--  Established production with strong growth potential through future
    expansion of existing mine capacity and development of the Company's
    priority assets; and 
--  Experienced management team with strong skills in mining, exploration
    and marketing are able to leverage the expertise, experience and
    relationships of its principal shareholder, Ivanhoe.



Consolidated Financial Statements
Condensed Consolidated Interim Statement of Comprehensive Income
(Unaudited)
(Expressed in thousands of U.S. Dollars, except for share and per share
 amounts)

                                                        Three months ended 
                                                             March 31, 
                                                ---------------------------
                                                        2010           2009
                                                ---------------------------
CONTINUING OPERATIONS                                                      
                                                                           
Revenue                                          $    13,917    $     3,541 
Cost of sales                                        (12,730)        (3,213)
---------------------------------------------------------------------------
Income from mine operations                            1,187            328
                                                                           
Administration expenses                               (6,034)        (6,119)
Evaluation and exploration expenses                   (1,651)          (768)
---------------------------------------------------------------------------
Operating loss from continuing operations             (6,498)        (6,559)
                                                                           
Finance costs                                       (163,009)           (62)
Finance income                                           575              5 
---------------------------------------------------------------------------
Loss before tax                                     (168,932)        (6,616)
Current income tax expense                               (10)             - 
Deferred income tax recovery                             671              - 
---------------------------------------------------------------------------
Loss from continuing operations                     (168,271)        (6,616)
Loss from discontinued operations                          -         (3,344)
---------------------------------------------------------------------------
Net loss and comprehensive loss attributable                               
  to equity holders of the Company               $  (168,271)   $    (9,960)
---------------------------------------------------------------------------
                                                                           
BASIC AND DILUTED LOSS PER SHARE FROM:                                     
Continuing operations                                  (1.09)         (0.05)
Discontinued operations                                    -          (0.03)
---------------------------------------------------------------------------
Continuing and discontinued operations                 (1.09)         (0.08)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
Weighted average number of basic and                                       
  diluted shares outstanding ('000s)                 153,968        133,263 
---------------------------------------------------------------------------
---------------------------------------------------------------------------



Condensed Consolidated Interim Statement of Financial Position
(Unaudited)
(Expressed in thousands of U.S. Dollars)

                                                                      As at
                                             ------------------------------
                                                    March 31,   December 31,
                                                        2010           2009
                                             ------------------------------
ASSETS                                                                     
                                                                           
Current assets                                                             
Cash and cash equivalents                         $  723,415     $  357,342 
Trade and other receivables                           18,210         12,328 
Short term investments                                     -         14,999 
Inventories                                           18,297         16,384 
Prepaid expenses and deposits                          6,679          8,119 
---------------------------------------------------------------------------
Total current assets                                 766,601        409,172 
                                                                           
Non-current assets                                                         
Property, plant and equipment                        113,512         82,705 
Deferred listing costs                                     -          4,565 
Deferred income tax assets                             7,618          6,947 
Long term investments                                 86,384         57,070 
Other receivables                                        238            225 
---------------------------------------------------------------------------
Total non-current assets                             207,752        151,512 
---------------------------------------------------------------------------
Total assets                                      $  974,353     $  560,684 
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
EQUITY AND LIABILITIES                                                     
                                                                           
Current liabilities                                                        
Trade and other payables                          $   13,279     $   12,669 
Amounts due under line of credit facility              3,010          3,009 
Current portion of convertible debenture              13,030          4,712 
---------------------------------------------------------------------------
Total current liabilities                             29,319         20,390 
                                                                           
Non-current liabilities                                                    
Convertible debenture                                347,460        542,351 
Asset retirement obligation                              940            735 
---------------------------------------------------------------------------
Total non-current liabilities                        348,400        543,086 
---------------------------------------------------------------------------
Total liabilities                                    377,719        563,476 
                                                                           
Shareholders' equity/(deficiency)                                          
Common shares                                      1,062,279        296,419 
Share option reserve                                  24,137         22,300 
Accumulated deficit                                 (489,782)      (321,511)
---------------------------------------------------------------------------
Total shareholders' equity/(deficiency)              596,634         (2,792)

---------------------------------------------------------------------------
Total shareholders' equity and liabilities        $  974,353     $  560,684 
---------------------------------------------------------------------------
---------------------------------------------------------------------------
                                                                           
Net current assets                                $  737,282     $  388,782 
Total assets less current liabilities             $  945,034     $  540,294 



Operating Statistics

                                                        Three months ended
                                                             March 31,
                                                ---------------------------
                                                        2010           2009
                                                ---------------------------
Volumes, Prices and Costs                                                  
Coal production (millions of tonnes)                    0.22           0.16 
Coal sales (millions of tonnes)                         0.43           0.13 
Average realized sales price (per tonne)          $    35.52     $    29.26 
Total cash costs of product sold (per tonne)      $    23.32     $    18.51 
Direct cash costs of product sold (per tonne)     $    22.25     $    14.29 
                                                                           
Operating Statistics                                                       
Total waste material moved (millions of bank                               
  cubic metres)                                         1.50           0.34 
Strip ratio (bank cubic metres of waste rock                               
  per tonne of clean coal produced)                     6.79           2.19 



Disclosures of a scientific or technical nature in this release and the
Company's MD&A in respect of each of SouthGobi's mineral resource properties
were prepared by, or under the supervision of, Stephen Torr, P. Geo, a qualified
person as defined in NI 43-101.


SouthGobi's results for the quarter ended March 31, 2010, are contained in the
unaudited Condensed Consolidated Interim Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations,
available on the SEDAR website at www.sedar.com and SouthGobi Resources website
at www.southgobi.com. 


About SouthGobi Resources

SouthGobi Resources is focused on exploration and development of its Permian-age
metallurgical and thermal coal deposits in Mongolia's South Gobi Region. The
Company's flagship coal mine, Ovoot Tolgoi, is producing and selling coal to
customers in China. The Company plans to supply a wide range of coal products to
markets in Asia.


Forward-Looking Statements: This document includes forward-looking statements.
Forward-looking statements include, but are not limited to, Plans to grow the
Ovoot Tolgoi mine, plans to improve infrastructure, plans to construct a coal
handling/processing facility, Plans to supply a wide range of coal products to
markets in Asia; and other statements that are not historical facts. When used
in this document, the words such as "plan", "estimate", "expect", "intend",
"may", and similar expressions are forward-looking statements. Although
SouthGobi believes that the expectations reflected in these forward-looking
statements are reasonable, such statements involve risks and uncertainties and
no assurance can be given that actual results will be consistent with these
forward-looking statements. Important factors that could cause actual results to
differ from these forward-looking statements are disclosed under the heading
"Risk Factors" in SouthGobi's Management Discussion and Analysis of Financial
Condition and Results of Operations for the year ended Dec. 31, 2009, and
quarter ended March 31, 2010 which are available at www.sedar.com.