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. The company is 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 has planned to produce 543 million to 590 million pounds of copper and 743,000 oz to 810,000 oz of gold in 2010. The Batu Hijau mine provides jobs for around 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 2006, the Grasberg Mine was estimated to have 2.8 billion tonnes of reserves graded at: 1.09% copper, 0.98 grams/ton gold and 3.87 grams/ton silver. The Grasberg Mine is expected to produce about 1.2 billion pounds of copper and 1.7 million ounces of gold in 2010, compared with 1.4 billion pounds of copper and 2.5 million ounces of gold in 2009. The owner of the Grasberg Mine, Freeport-McMoRan Copper & Gold Inc., is transitioning to a lower grade section of the Grasberg pit in 2010.
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 2009 the mine sold 557,000 oz of gold and 504 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 18,485-ha area of western Lombok Island. West Lombok hosts a major NW-SE trending structural corridor of mineralization and alteration extending approximately 13 km long by 7 km wide. Three main prospects have been targeted for porphyry intrusions and related mineral systems, including porphyry copper-gold, high-sulfidation gold-copper and mesothermal to epithermal precious metal-base metal deposits.
Southern Arc Status Regarding IUPs and Indonesia's New Mining Law
Southern Arc had 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. Subsequently, 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, provincial and regency governments on all CoW terms, and 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.
However, 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 (mining business licenses.
Subsequently, the government started issuing significant implementing regulations, which are being drafted with input from all concerned industry parties. Most of these regulations had been drafted by March 2010. See New Mining Law Government Implementing Regulations.
Owing to these regulatory changes, Southern Arc subsequently started the process to transition from the CoW application to the new permit licensing system of IUPs. 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 and Provincial Spatial Plan
With respect to the West Nusa Tenggara provincial land utilization regulation No. 11/2006 (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 with the National Spatial Planning body of the Department of the Public Works and assisted by the Department of Home Affairs as part of the exercise to create a provincial spatial plan (RAPERDA). The development of a spatial plan, required of all the regions pursuant to central government directive, allocates the different areas of the province to specific socio-economic activities, including mining. The new RAPERDA replaces the Perda No. 11/2006.
On January 11, 2010, the provincial legislature voted on and ratified the new provincial spatial plan as the RAPERDA No.3/2010. Subsequent to the ratification, the Department of Home Affairs evaluated the RAPERDA to certify that it was in harmony with the national laws and regulations, a process that took only a single day. An evaluation report was prepared for the Home Affairs' legal department to use to draft an endorsement letter to the Nusa Tenggara Barat provincial governor. The Minister of Home Affairs endorsed the RAPERDA on March 8, 2010, and it was subsequently sent back down to Mataram for enactment into law by the provincial governor.
Endorsed by the provincial governor on March 18 and made effective on March 20, the RAPERDA No. 3/2010 was proclaimed as law in a signing ceremony held in Mataram, the provincial capital, on July 1, 2010. (see news release) This new regulation has cleared the path for Southern Arc to be issued an IUP for its West Lombok property, as all prior restrictions to mining activities on the property have been effectively removed. The West Lombok regency is now free to respond to the company's application for the IUP.
IUPs Awarded
Southern Arc has already been awarded five IUPs. The company received its first two IUPs for its East Elang Property and Sabalong Property on Sumbawa Island in the middle of December 2009. Subsequently, the company was awarded two more IUPs, one each for its Wonogiri properties, Karangtengah and Tirtomoyo, both in Central Java Province, in January 2010. The IUP for the Taliwang property was granted in early July 2010.
These IUPs comprise two stages: an exploration stage and a production stage, each with possible extensions. Over a period of six years, the exploration stage of the IUP 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, which permits the undertaking to carry out commercial production on these properties for a minimum of 20 years, with the possibility for subsequent two 10-year extensions.
Since late 2008, Southern Arc had 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 were put on care and maintenance, with only minimal logistical and security personnel. However, with the regulatory hurdles related to the RAPERDA resolved, the company re-opened the Selodong field camp in late February 2010, after purchasing the land on which it is situated, and initiated the process to resume exploration and drilling programs on the West Lombok property.
2010 Field Work Plans
Field work is anticipated to resume on the West Lombok property upon award of the IUP. This is to include approximately 3,000 m of Phase 2 diamond drilling on the Pelangan propect. Plans include more than 2,500 m of Phase 1 (scout) drilling at Mencanggah. At Selodong, Southern Arc plans to carry out IP/EM surveys and spectral analysis studies.
Financing
Southern Arc continues to be well funded for its current objectives. As at early July 2010, the Company’s cash position stood at about CAD$1,000,000.
