Lemonga Prospect

Geological and mineral work activities and exploration on the Lemonga epithermal vein prospect on the Taliwang property on west Sumbawa Island have for now been put on hold in November 2006 following the completion of the Phase 2 diamond drilling and hand trenching using CSAMT data. Previously, a heli-mag geophysical survey of the complete Taliwang SIPP was carried out in early June 2005 prior to the Phase 1 scout diamond drilling program. The Phase 2 diamond drilling program at Lemonga was completed in July 2006, subsequent to the 16-hole scout drilling program of 2005. A total of 56 holes were drilled and assayed between the two drilling programs, with encouraging gold and silver returns. Trenching was carried out to expose the vein targets and their extents subsequent to the Phase 2 drilling program. Final data from the phase 1 and phase two drilling have been compiled, plotted and analyzed. An interpretation and estimation of a global ore resource will be developed subsequent to further infill drilling. The Lemonga Prospect is currently on a care and maintenance basis.

The Lemonga Prospect is located over a low-sulphidation epithermal quartz vein system over which surface mapping by Southern Arc and previous operators has confirmed hydrothermal argillic alteration within an area approximately 1 km East-West by 1.5 km North-South. Five quartz vein targets, named Amy, Betty, Cici, Dessy and Evi, have been identified within the alteration zone. The best exposed vein, the Amy Vein, has a mapped strike extent of at least 950 meters. In 2005 the company completed eight drill holes along the strike of the Amy Vein, with high grade shoots intersected in the southern portion over a 300+ m strike extent.

Southern Arc's first stage of exploration activities at Lemonga, that is, the scout drilling (Phase 1 drilling), was completed in August 2005. An evaluation of the findings, particularly of drill core assays (see August 15, 2005 news release for results at: click here), suggested there was strong incentive to enter into a second stage of exploration activities, including the Phase 2 infill and deeper drilling to determine in better detail the three-dimensional definition and extent and width of the veins, and other related mineralized areas. The second phase drilling program commenced late in December 2005 and was completed in July 2006.

Phase 2 diamond drilling at Lemonga was carried out with two man-portable rigs, however in late March one of the rigs was moved to the Ramit prospect to drill into that porphyry-style anomaly.

A network of small roads was constructed by Southern Arc personnel in the fairly rugged terrain from the valley floor up into the hills of Lemonga by employing people from the local communities. In many places the new accesses perch along precipitous hillsides and ledges, and yet provide beautiful vistas of the countryside as well as good ways into the drill sites. Typically, the drilling rigs are dismantled and the pieces manhandled from one drill location to the next with large crews made up of hired local villagers (see Moving Man-Portable Drill Rigs page) so that Southern Arc's activities can also provide some economic inputs to the communities surrounding this project.

Trenching

The trenching program at Lemonga was completed up to trench no. T-59 in early November 2006 to check the continuity of the Betty and Cici veins to the north, southern segments of the Cici and Dessy veins, together with middle and northern sections of the Evi Vein. The location of all individual trenches excavated to date is detailed in Figure 060116-03 - Lemonga Phase 2 Trench Locations in the Lemonga Prospect maps page.

Use of topo-corrected CSAMT sections provided excellent control of quartz vein positions as a guide to trench locations. A total of 38 CH samples were collected and submitted for assaying. Overall, the program uncovered lateral extensions to the known vein systems.

Additional trenching 50m south of drill hole LDG-37 exposed a 70-cm quartz vein within an argillic alteration envelope. An initial 100-m long trench, located 50m north of LDG-46 intersected a six-metre wide quartz vein and stockwork zone.

Trenching Geochemical Results

An update of the final assay results for all trenches up to TR-59 is detailed in the Trenching Geochemical Assay Table, which can be found by clicking here. Overall, the program uncovered good lateral extensions to the known vein systems.

Assay results received in November 2006 for trench T-52 reported anomalous assays of 5.0 m @ 0.63 g/t Au/40 g/t Ag from intense argillic altered dacitic host rock, with oxidized stockwork quartz vein and veinlets. Similar material exposed in trenches T-53 and T-54 yielded values of 6.0 m @ 1.75 g/t Au/81 g/t Ag and 2.5 m @ 1.34 g/t Au/28 g/t Ag. Trenches T-55 and T-56 reported only low tenor gold values.

Trench T-47 reported anomalous assays between 0.0-8.2m length of 8.2 m @ 2.77 g/t Au/168 g/t Ag (includes 1.2 m @ 5.47 g/t Au/60 g/t Ag) from intense argillic altered dacitic host rock, with oxidized stockwork quartz vein and veinlets. Trench T-48 reported 4.3 m @ 2.64 g/t Au/16 g/t Ag (0.0-4.3 m) from coarse-crystalline veined dacitic volcanics, whilst similar material in T-49 reported an intersection of 4.0 m @ 2.06 g/t Au/11 g/t Ag. Trenches T-50 and T-51 yielded values of 1.1 m @ 2.38 g/t Au/167 g/t Ag, 0.8 m @ 1.92 g/t Au/101 g/t Ag and 0.7 m @ 2.31 g/t Au/260 g/t Ag from a strongly oxidized, banded chalcedonic quartz veins.

Trench T-40 reported anomalous assays between 58.45m to 68.45m of 10.0m @ 0.81 g/t Au/52 g/t Ag from intense argillic altered andesite host rock, with oxidized quartz vein and veinlets. Trench T-41 reported 5.0m @ 3.65 g/t Au/4 g/t Ag (15.0m to 20.0 m) from an oxidized (hematite) quartz vein displaying vuggy to banded textures, with minor disseminated pyrite and locally clay (illite±kaol) infillings. Trenches T-42 and T-44 yielded values of 0.3m @ 1.49 g/t Au/8 g/t Ag and 2.0m @ 1.58 g/t Au/20 g/t Ag from a strongly oxidized quartz veins with vuggy to comb textures and trace sulfides.

Phase 2 Drill Hole Geochemistry

All drill cores from the Phase 2 drilling program were assayed. Selected re-sampling of ¼ drill core from holes LDG-19 and LDG-21 of quartz vein material, which is visually similar to elevated Au-Ag core sections from nearby drill holes, all returned assay values within acceptable industry tolerances of those originally reported.

Assay highlights are displayed in the following table and in the Significant Lemonga Phase 2 Intersections for Drillholes LDG-17 to LDG-41 map and the Significant Lemonga Phase 2 Intersections for Drillholes LDG-42 to LDG-56 map.

Click here for significant Phase 2 drill hole intercept assay results.

The Phase 2 round of drilling revealed a marked difference in vein distribution and density, as well as consistency of Au:Ag ratios, between upper and lower lithologic units, which host the Amy Vein system. Upper units are predominantly dacitic, whilst lower members are andesitic in nature. It is thought that more widespread silicification in the upper units has lead to an increase in structural permeability, thus allowing a greater volume of late stage auriferous quartz vein material, spanning several generations, to invade as numerous splays, possibly in en-echelon patterns, with several of the veins blind. This was evidenced by results from Southern Arc’s CSAMT survey, along with the infill drilling of the central Amy Vein.

The extensive Baleong hydrothermal breccia zone exhibited better precious metal grades on its western rim than within the central portion. This might be attributed to late-stage auriferous quartz±sulfide veins and veinlets, preferentially occupying the more silica-altered extremes of the breccia. Further surface work, such as trenching within both western and eastern edges of the breccia body, would need to be carried out prior to any further drilling in that area.

Construction of an additional drill core storage facility was completed in December 2005. The new structure is able to store 4,000 to 5,000 m of drill core.

Much care is taken to obtain the most representative samples possible of the underlying geology and mineralization. Hence, and in particular with unusually anomalous gold returns, samples are checked by re-assaying selected pulp and re-splits of bulk samples. This includes quartering residual drill core over two broad intervals, then re-sampling on a tighter geological basis and comparing those results with the originals.

The laboratory re-assays on samples obtained during the exploration actives carried out in 2005 and 2006 have displayed negligible differences from the original samples assayed, although the quartered core results, shown in square brackets in the tables, did return some differences as compared to the original half-core samples. It is believed this can be attributed to the nugget effect and the much smaller sample size.

Geological Mapping

Follow up geological mapping of possible northern and southern extensions of the Lemonga Vein system was initiated in June 2006 and continued during the following month, including topographical corrections to survey grid in and around drilling areas. Findings suggest:

a) There is evidence that mineralized structures might extend ±800m south of drill holes LDG-16 and LDG-37 with the identification of mineralized quartz vein and hypersilicified breccias outcrops and sub crops. In addition, rock chip sampling of sub-parallel narrow veins/breccia stockwork outcrop (partly exposed) 300m north of the hole LDG-12 (Evi Vein) returned assay values to a maximum of 22.40ppm Au.

b) Remapping in the vicinity of hole LDG-16 and LDG-37 suggests that the main 015-degree Amy Vein trend may extend a further 200m southwards, as evidenced by newly mapped vein outcrops/sub crops. The apparent LDG-37 vein splay has been traced a further 150m southwards. Trenching would be required to further verify these findings.

Eight channel samples were collected during July 2006 along Mantil Creek in the far north, where argillized/chloritized, polymict volcanic breccia was exposed. Mantil Creek appears to be controlled by an east-west normal fault, which bounds Lemonga host rock and vein mineralization with younger micritic limestone to the north. Channel samples from Mantil creek reported weakly anomalous assay values to a maximum of 5m @ 0.12 g/t Au/32 g/t Ag.

Geophysics

The ground CSAMT geophysical survey was completed by the third week of December 2005. Seventeen lines totaling 17,770 m were surveyed.

Interpretation of data from the completed CSAMT “resistivity”) ground area was received from Elliott Geophysics International Pty Ltd. Three level plans (RLs -50 to -100m; RLs -100 to -150m; and RLs -750 to -800m) indicate moderate to strongly resistive linear targets more or less corresponding to the position and strike of the known veins and breccia zones, along with possible significant lateral extensions at depth. Additional blind targets masked by talus scree were also interpreted in the northwest section of the prospect area.

2006 Phase 2 Drilling Program Rationale and Observations

The Phase 2 drilling program encompassed the drilling of 40 diamond core holes with a total of 5,655.5 m drilled. A variety of targets were tested in the final holes of the Phase 2 drilling program. These final holes LDG-45 to LDG-56 were drilled mainly to test lateral extensions of high-grade gold-silver shoots intersected in previous drill holes of both this and the earlier scout drilling program in 2005.

Drill hole LDG-55 was drilled into the southern portion of the Evi vein, about 40m south of LDG-51, while hole LDG-56 was drilled beneath LDG-43 to check depth continuity of the north Amy vein segment.

Drill hole LDG-45 targeted a relatively shallow CSAMT anomaly adjacent to silicified hydrothermal breccia sub-crops north of the Amy Vein, whereas drill holes LDG 46 and LDG-47 continued testing the northerly extensions of the Betty and Cici sheeted vein complex, which were recognized in previous drill holes. Extensions of both the Dessy and Evi Veins were explored in drill holes LDG-48, LDG-49, LDG-51, LDG-52, and LDG-54, whereas drill holes LDG-50 and LDG-53 targeted depth extensions of the south and central Amy Vein segments, respectively.

Drill holes LDG-50, LDG-53 and LDG-55 were designed to test continuity of mineralization at depth (190m to 200m below surface) of selected sections along the Amy Vein. Holes LDG-48, LDG-49 and LDG-54 tested both the southern and northern extensions of the Dessy Vein based on CSAMT linear highs and previous drilling results. Holes LDG-51, LDG-52 and LDG-56 tested lateral extensions of Au-Ag intercepts obtained in hole LDG-34.

Drill hole LDG-48 appears to close off the Dessy Vein to the north, although further trenching would be warranted as a confirmation. Drill holes LDG-49 and LDG-54 effectively doubled the known strike length of this vein, which still remains open to the south and at depth. Similarly, drill holes LDG-51 and LDG-52 into the Evi Vein confirmed the lateral extent of previous gold-silver intercepts from drill hole LDG-34 (9.95m @ 3.82 g/t Au & 29 g/t Ag). This vein also remains open at depth and long strike, with further trenching required north of drill hole LDG-12.

Drill hole LDG-50 was drilled beneath the previous wide quartz vein intercept in hole LDG-16, but proved inconclusive in extending the vein to depth. However, a significant width of gold-silver mineralization (1.65 m @ 28.90 g/t Au & 124 g/t Ag) hosted in coarsely crystalline massive sulfides was intersected in the upper portions of the hole, indicating the structural and mineralogical complexity of the Amy/Betty Vein convergence area. Although drill hole LDG-53 intersected an 8.3m wide zone of quartz and peripheral stockworks at the projected target depth, gold and silver grades fell below those expected. Similar to the previous drill hole LDG-02, immediately up dip, the vein zone is partly oxidized and extremely broken, with strong artesian water flows encountered, implying a major structural feature, with possible flushing of gold and silver particles from the zone.

Drill holes LDG-40, LDG-41, and LDG-42 were designed as shallow infill holes to test certain portions of the central segment of the Amy Vein for grade continuity between previously drilled holes. Drill holes LDG-43 and LDG-44 targeted a discrete continuous 100 m length of wide quartz vein outcropping in the central portion of the north Amy Vein segment. The latter two holes were drilled 40m and 80m north of drill hole LDG-24, which intersected 4.0 m @ 3.5 g/t Au and 15 g/t Ag. All holes were drilled at right angles to the strike of the veins at 45º inclinations and intersected significant widths and grades of gold and silver-bearing quartz vein zones.

Drill holes LDG-40 and LDG-41 both demonstrated the presence of higher grade shoots within a broad, structurally complex zone of multi-phase quartz veining. Hole LDG-42, although establishing that this zone narrows towards the NNE beneath subcrop, extends the central segment of the Amy Vein a further 40m in this direction, resulting in a strike length of about 400m.

Intercepts from drill holes LDG-43 and LDG-44 suggest the existence of at least two higher grade shoots which appear to diverge to the north and the north-northeast. Both central and northern segments of the Amy Vein would require testing for depth extensions in future drill holes.

Drill hole LDG-46 is the northernmost hole in the Betty-Cici vein segments, collared about 40m from the north of hole LDG-28. Drill hole LDG-47 infilled the north Betty vein segment and was designed to test the depth extension of the numerous veins intersected in hole LDG-29. Hole LDG-48 tested for any significant northerly extension of the Dessy Vein beyond hole LDG-32.

The LDG-33 and LDG-35 holes were drilled about 66 m south of LDG-16, and from the east to cover any easterly dips, as well as the Betty Vein split at this point. The upper hole (LDG-33) intersected a 5m wide quartz vein from 60 m, the approximate Amy Vein target depth, and a further 2.65 m from 72.6 m, but most of the quartz vein material displayed the fine, even grained featureless texture associated with the low grade material in the wide LDG-16 vein intersection. The lower LDG-35 hole appears to have intersected this vein as a 1.5m wide zone of similar quartz material from 78.65m, indicating an approximate dip of 60 degrees east. Another 2-m wide zone of quartz-sulfide mineralization from 127.5m was intersected.

Drill holes LDG-37 and LDG-38 were drilled on either side of the above section, with zones of quartz veining intersected at about projected target levels for both holes. Drill hole LDG-40 also intersected the Amy Vein at predicted levels.

Drill hole LDG-34 intersected a 1.3 m wide quartz vein from 45.2 m before encountering the main Evi Vein just before the predicted target depth, indicating an 84-degree dip to the east. A 10 m wide quartz vein from 92.1 m translates to a true width of about 7.7 m, 63 m below the substantially narrower, low-grade outcrop.

Hole LDG-36 was drilled beneath the western edge of the Baleong breccia zone, but apart from some narrow quartz veins (about 1m wide) and associated limited argillic/silicic selvedges, the breccia was logged as only pervasively chloritized. Drill hole LDG-39 continued the section further eastward to below the center of the mountain peak.

The four drill holes LDG-23 to LDG-25 and LDG-27 were targeted to test northern extensions of gold-silver intercepts from the central portion of the Amy Vein. In some instances holes were drilled to test the continuity of grade below previous drill intercepts (LDG-04 and LDG-05). Drill hole LDG-24 displayed encouraging results from a location 100 m south of intensely veined outcropping (north Amy Vein) between holes LDG-04 and LDG-05. At least another two drill holes beneath the outcrop north of this hole were considered justified during the phase 2 of drilling. However, drill holes LDG-25 and LDG-27 tended to support the somewhat less encouraging geochemical results from previous holes LDG-04 and LDG-05.

Drill holes LDG-26, LDG-28 and LDG-29 were drilled to test central and northern portions of the Betty and Cici Veins, along with inferred splays of the vein structures . These drill holes displayed many small prospective veins across a width of at least 100 m encompassing the vein splays, or swarms, underlying the north Betty/Cici Vein system. Again, at least two more follow-up drill holes were justified in this area.

Drill hole LDG-30 targeted the extension of the Dessy Vein to a deeper level, approximately 100m below the surface, and 30m south of previous hole LDG-11 (7.9m @ 5.81 g/t Au/37 g/t Ag). LDG-30 returned the most encouraging results from the drilling carried out in March 2006, indicating southern continuity at depth of the auriferous intercept in LDG-11 (7.9 m @ 5.81 g/t Au/37 g/t Ag), along with a zone of comparable width and grade 17 m east, but undetected on the surface. The CSAMT interpretation indicated that this zone, possibly encompassing both veins, continued another 350 m south, again justifying another two drill holes during the phase 2 drilling.

In all eight drill holes significant widths of quartz veining and mineralized wall rock were intersected. Drilling results in the north Amy Vein segment continued to display moderate gold-silver grades in quartz veins of variably steep to moderate dips, suggesting a more complex post-mineral structural regime prevailing in this segment compared with the more southerly portions of the vein.

The area between the central to northern Betty and Cici Veins is cut by a steeply-dipping vein/veinlet swarm over a width of at least 100m. Most of the veins are of moderate widths and grades, but a few high grade intersections required follow-up trenching and drilling.

The holes LDG-31 to LDG-34 were drilled to test lateral extensions of high-grade gold-silver shoots intersected in the 2005 scout drilling program, along with CSAMT (“resistivity”) linear targets interpreted as extensions of known veins and breccia zones.

Drill hole LDG-32 targeted continuity of gold-silver grades from previous hole LDG-11 (7.9m @ 5.81 g/t Au & 37 g/t Ag) a further 30 metres north along the Dessy Vein.

Drill hole LDG-34 was drilled to test central portions of the Evi Vein, along with inferred splays of the vein structures suggested by the CSMAT results.

The southern extension of the Dessy Vein displays significant width and grade accompanied by several narrower and apparently parallel Au-Ag bearing veins on both its eastern and western side. One vein, 17m to the east, is of comparable grade and width of the LDG-11 drill intercept, yet it does not crop out. The Dessy Vein system is interpreted by the results of the CSAMT survey to extend a further 350 m south, although only rare, scattered subcrops were mapped on surface.

The LDG-34 intercept located approximately 120 m south of previous hole LDG-12 was part of a 350m to 400m or more CSMAT linear anomaly with coincident quartz vein outcrops, which again was tested in subsequent drill holes.

Results from the southern extremes of the Amy Vein were somewhat enigmatic, with the main vein dissipating in places to a series of narrow (1.0 m to 2.5 m width) sheet veins with a predominance of amethystic quartz and coarse-grained base metal sulfides which grade <1.0 g/t Au equivalent. In other places the vein coalesces into widths greater than 8 metres, with a significant component of finely-banded sulfide-quartz, which typically grade in excess of 5-6 g/t Au equivalent.

Drill holes LDG-17 through to LDG-23 were located with the intention of intersecting the central segment of the Amy Vein on more or less 40-m spaced sections and at various elevations. All holes were drilled orthogonal to the strike of the vein and at minus 45 degree inclination.

LDG-24 and LDG-25 were drilled on more widely spaced sections within the northern segment of the Amy vein. All drill holes appear to have intersected their targets within the depth ranges predicted. Some degree of caution was applied to the first five drill holes: the holes were drilled to well past the vein targets to explore for any parallel veins in the eastern wall rock zone. Furthermore, initially the entire half-core of each hole, regardless of alteration/mineralization, was sampled. This practice was subsequently changed to sampling only zones of moderate to intense quartz veining, strong quartz+/-illite altered zones, and the immediate peripheries of those zones.

Drill hole LDG-17 was targeted to test continuity of gold-silver grades down-dip (50 m vertically) of drill hole LDG-01 , which intersected 16.05 m @ 5.30 g/t Au/51 g/t Ag (including 3.00 m @ 19.1 g/t Au/228 g/t Ag). LDG-18 and LDG-19 were aimed to test lateral extensions of intercepts from hole LDG-01 at 35 m and 70 m intervals northwards, as part of the infill program towards drill hole LDG-03 (15.40 m @ 6.67 g/t Au/36 g/t Ag including 2.00 m @ 25.67 g/t Au/25 g/t Ag).

In drill holes LDG-20, LDG-21 and LDG-22 significant widths of quartz veining were intersected and again confirmed the near-vertical dip and pinch and swell nature of the veining. An extensive section of variably mineralized wall rock (in the foot wall), immediately west of quartz veining intersected in LDG-21, returned surprisingly elevated gold results of 10.35 m @ 1.32 g/t Au and 29.70 m @ 4.24 g/t Au. These assay results were subsequently checked by re-assaying. The anomalous gold tenure of wall rocks was confirmed, and it will require infill drilling in this vicinity to better understand the nature of this mineralization. LDG-22 confirmed the presence of high-grade gold-silver shoots within the Amy Vein, north of this point, and thus justified the need for the on-going northwards infill program.

All holes were drilled at right angles to the strike of the vein at -45º and -60º inclinations.

Essentially, the lithologies intersected within the first eight holes of the Phase 2 drilling program were similar to those encountered previously within this segment of the Amy Vein zone and comprise fine to coarse porphyritic andesite and lesser andesitic pyroclastics cut/overprinted by diffuse zones of weak to intense hydrothermal brecciation. Breccia clasts often include dark to light grey fine silica altered rock along with variable amounts of the above lithologies. Alteration assemblages were also similar to those previously found, with chlorite-smectite grading through illite to quartz-illite adjacent to vein development. Syn and post-alteration/mineralization structures are prevalent and are often infilled with narrow usually crustiforfm quartz ± pyrite and base metal sulfides (limonite where oxidized). The quartz veins intersected in these holes appeared of variable widths, from 0.7m up to nearly 20m, and often displayed inclusions of wall rock up to 2m wide incorporated in the vein zone. The veins again exhibited at least two silica phases: fine crustiform, banded sulfide (or limonite) rich, mixed with probably later coarse prismatic (often amethystic) quartz. The former hosts the higher grade shoots, particularly where bands and/or clusters of massive, often coarse grained sphalerite occur.

The veins appear to display a fairly consistent steep (74 to 77 degrees) easterly dip, facilitating somewhat the siting of infill drill holes in the central Amy Vein zone.

2005 and Earlier Activities