A unique window of opportunity
Following the 10-year exodus of junior mining companies from Indonesia after the 1997 Asian economic crisis, Southern Arc management saw a unique window of opportunity. Acting quickly with a regionally-experienced team, Southern Arc became the first Canadian junior exploration company since 1997 and has established as a pre-eminent competitive exploration presence in Indonesia with an outstanding exploration portfolio on Java, Lombok and Sumbawa islands. We are now advancing several key projects, all overseen by top technical management, in a region with proven world-class mineral endowment.
Exceptional expertise for a proven mineral environment
The mining sector has made a very significant contribution to the Indonesian economy over the past several decades and will continue to do so for decades to come. Indonesia is the seventh largest producer of both gold and coal in the world, with productions of 169 Mt in 2006 and 120 Mt in 2007. The overall contribution of the Indonesian mining industry to the country's GDP in 2006 was about 56 trillion rupiah, or 3 percent of the total national GDP.
Indonesia has numerous large mineral deposits which include the Batu Hijau mine on Sumbawa Island and the Grasberg Mine in Papua, the world’s largest gold mine and the third largest copper mine. Newmont plans to produce 455 million pounds of copper and 485,530 oz of gold in 2009. The Batu Hijau mine provides jobs for 8,000 people who work directly for the mine or for contractors retained by Newmont to operate at the mine site, and thus is a significant contributor to the local and national economy in Indonesia worth a total of about 7.66 trillion rupiah in addition to taxes and royalties worth about 2.65 trillion rupiah that it paid to the local and central governments in March 2009.
In 2004, the Grasberg Mine was estimated to have reserves of 46 million ounces of gold. During the first quarter 2009, the Grasberg Mine produced about 404,000,000 pounds of copper and 570,000 oz of gold. The owner of the Grasberg Mine, Freeport-McMoRan Copper & Gold Inc., expects Indonesia sales of 1.3 billion pounds of copper and 2.2 million ounces of gold for the year 2009.
With combined decades of experience in Indonesian exploration and mining, Southern Arc’s management and directors provide an outstanding blend of experience and expertise for the company’s objectives. Our management and directors bring to the company a long record of achievements in international exploration, development, mining, engineering, finance, acquisitions and administration. The company's management has a proven record from finance to discovery to development, and it has assembled a team of people with solid, broadly-based technical expertise.
Strategy and objectives
Our key exploration region is the renowned Sunda-Banda mineral arc stretching across the islands of southern Indonesia (see Magmatic Arc Map). Employing a systematic approach to the evaluation of mineral targets, particularly on the islands of Sumatra, Java, Lombok, and Sumbawa, our goal is to become the premier mineral exploration and development company in Indonesia. The company's goals include continue drill-testing its projects with the aim of defining resources, utilize competitive advantages to aggressively target and acquire additional gold and precious metal assets, create continued, additional shareholder value by delivering strong exploration results and sound, regionally-grounded business practices.
Southern Arc remains committed to growth through well-conceived and well-executed exploration and project advancement programs and acquisition strategies.
Project overview
Southern Arc has currently assembled a portfolio of six projects on the islands of Java, Lombok and Sumbawa. Sumbawa Island hosts Newmont Mining's world-class Batu Hijau mine, which adjoins Southern Arc's Taliwang property immediately to its north. The Batu Hijau Mine has a reported reserve of 1 billion tons containing 0.49% copper and 0.39 g/ton gold. In 2008 the mine produced 269,000 oz of gold and 284 million pounds of copper. Much of Southern Arc's ground was previously explored by Newmont until it was obliged to relinquish assets to focus on development of the Batu Hijau Mine. The company has identified new gold prospects and increased the potential size and grade of known prospects by diamond drilling, trench sampling and mapping.
Key project: West Lombok
The Company’s current focus is on the West Lombok property, which is a high-grade, gold-rich copper porphyry and epithermal vein complex within a 18,483-ha area of western Lombok Island. West Lombok hosts a major NW-SE trending structural feature extending approximately 13 km long by 7 km wide. This zone hosts copper-gold porphyry mineralization in the southeast, high-grade epithermal gold mineralization in the northwest, and transitional mineralization in between.
Contract of Work Negotiations, IUPs and Indonesia's New Mining Law
Southern Arc started negotiations with the Indonesian government for its first Contract of Work (CoW) for the Taliwang property. The first meeting was held between the joint government team and the company in the administrative city of Taliwang on April 28, 2008. See News Release No. 08-07 for more details. Since then three other meetings were held in Jakarta, Mataram, Surabaya and Bali to iron out the terms presented in the draft CoW document that had been submitted previously by the company. An agreement was reached in principle between the Company and the central, provinical and regency governments on all CoW terms. The CoW negotiations regarding Southern Arc's Taliwang property had reached a stage where the CoW manuscripts had been finalized and initialled by both negotiating team leaders.
Subsequently, on January 12, 2009 Indonesia enacted a new mining law. This effectively put an end to the Contract of Work regime pursuant to which Southern Arc had been operating since 2004. The enactment of the new mining law ended this process and replaced it with a permit licensing system consisting of IUPs.
In order for the law to take effect, the government will issue significant implementing regulations, which will be drafted with input from all concerned industry parties. Both the Department of Energy & Mineral Resources (ESDM) minister and department senior staff have indicated that these regulations should be drafted by March 2010.
Southern Arc subsequently started the process to transition from the CoW application to the new permit licensing system. The company obtained letters (Statements of Facts) from the West Nusa Tenggara governor (for the West Lombok property) and the West Sumbawa regent (for the Taliwang property). The company submitted the statements of fact along with the initialled Taliwang CoW manuscript to the ESDM in order to obtain confirmation from the ESDM that the company's projects including West Lombok, Taliwang and the other KPs would be transitioned automatically into new mining business licenses (IUPs). Normally, under the terms of the new mining law all new projects must go to public tender to obtain an IUP, however Southern Arc's CoW applications and the East Elang, Sumbawa and Wonogiri KPs would be automatically transitioned into IUPs.
The Perda
With respect to the West Nusa Tenggara provincial land utilization regulation No. 11 (the Perda), which had disrupted the CoW application process for the Lombok property, the regulation was revised during 2009 by the provincial government working together by the National Spatial Planning body of the Department of the Public Works and assisted by the Department of Home Affairs. On January 11, 2010, the provincial legislature voted on and ratified the revised Perda. Subsequent to the ratification, the Department of Home Affairs evaluated the Perda to ensure it was harmonized with the national laws and regulations, a process that took only a single day. An evaluation report is being prepared for the Home Affairs legal department to use to draft an endorsement letter to the Nusa Tenggara Barat provinical governor. The Perda will subsequently be sent back down to Mataram for signing into law by the governor. When the revised by-law No. 11 is signed into law, Southern Arc believes that the provincial government will be required to issue retroactive permits for an in-principle CoW approval, along with SIPP (Preliminary General Survey Permit) license extensions to cover the 2006 to 2008 period. An IUP for the West Lombok property is expected to be granted to the company only after the Perda is signed into law.
IUPs Awarded
Southern Arc received its first IUPs for its East Elang Property and Sabalong Property on Sumbawa Island in the middle of December 2009. These IUPs comprise two stages, each with possible extensions. Subsequently, the company was awarded two more IUPs, one each for its Wonogiri properties, Karangtengah and Tirtomoyo, both in Central Java Province.
Over a period of six years, the exploration stage permits the company to pursue exploration activities through to the conclusion of a feasibility study. Upon conclusion of the exploration stage, the IUPs automatically transition into a second stage, permitting the company to carry out commercial production on these properties for a minimum of 20 years, with the possibility for two further 10-year extensions.
Since late 2008, Southern Arc has reduced its exploration team to core members, with the main focus since then being on resolving permitting issues, along with interpretation and numerical modeling of geological data-bases. Field camps are on care and maintenance, with only minimal logistical and security personnel.
Financing
Southern Arc continues to be well funded for its current objectives. As at the end of January 2010, the Company’s cash position stood at CAD$1,200,000.
