Southern Arc takes on abandoned Indonesia (August 27, 2007)

As junior mining companies across the world gripe about lab delays and equipment shortages caused by the so-called “super-cycle,” Southern Arc Minerals (SA-V, SOACF-O) is a little more relaxed in sunny Indonesia.

Southern Arc president, John Proust, says the turnaround time for assay results takes about seven days while equipment availability is barely a passing thought.

The company may bring in a second drill rig to its West Lombok property on Lombok Island.

“The availability of drill rigs is good,” Proust says. “There’s not as much demand.”

The 1996-1997 edition of the Canadian & American Mines Handbook listed 126 companies operating in Indonesia while the 2006-2007 edition lists only 15.

Stemming from the Bre-X Minerals debacle that sent mining companies running from Indonesia a decade ago, the fallout has stigmatized the country, though the political climate has improved. A democratic government was elected in 2005, but junior companies have been reluctant to return.

That didn’t change the geology, Proust says, and so he got his foot in the door early.

About four years ago, significant investors approached Proust, who was trying to find undervalued assets in the wake of the upturn in the resource cycle. Southern Arc had its initial public offering in June 2005, raising $2 million to explore two projects on the islands of Lombok and Sumbawa.

“One of the most undervalued areas was Indonesia,” Proust says. “It was in a post Bre-X hangover . . . We found Indonesia really stacked up as one of the top three or four places where you could do elephant hunting.”

Newmont Mining (NMC-T, NEM-N), one of the world’s biggest gold miners, has been Southern Arc’s elephant.

Political pressure has forced Newmont to relinquish several properties it has held over the years while it focused on bringing its 45%-owned Batu Hijau copper-gold mine on Sumbawa Island into production. Batu Hijau has a projected mine life from 1990 to 2034 and a reserve of 5 million oz. gold and 4.7 billion lbs. copper.

One of those relinquished properties was the 21-sq.-km Selodong prospect, which Southern Arc tacked on to its West Lombok property next door.

Southern Arc started with six Newmont targets when it acquired Selodong in early 2006. Proust says Newmont spent between US$12 million and $16 million on exploration during the 1990s.

Scooping up Selodong brought West Lombok’s total area to 184 sq. km. Aside from Selodong, there are three complex vein systems known as the Pelangan, Simba and Bising prospects, but for now the focus is Selodong.

The company made a deal with Newmont for all the data on the prospect, including core samples, in exchange for a 2% net smelter return royalty and right of first refusal should Southern Arc ever look for a joint-venture partner.

So far, Southern Arc can count 15 copper-gold porphyry targets that stick out of the ground like fingertips, on Selodong, which is located in the southern end of a northwest-trending structural corridor on the property.

What Proust wants to know is, “Do they coalesce at depth? Are they part of the same system?”

Research done by geophysical consultants points to the potential for an intact system but only drilling at depth will confirm it, Proust says.

In April 2007, Southern Arc began drilling at Selodong.

“Our plan is to put one or more holes into each of those 15 porphyries,” Proust says, noting that it’s “early days” in terms of what the company is hoping to find.

That being said, the first four holes — three on the Montong Botek porphyry target and the fourth on the Blongas II porphyry –returned positive results.

Drilled to a depth of 476 metres, the first hole intersected 385 metres grading 0.3% copper and 0.4 gram gold per tonne, including 105 metres grading 0.6% copper and 1.04 grams gold per tonne.

The second hole was drilled 518 metres deep and intersected 385 metres grading 0.3% copper and 0.4 gram gold per tonne, including 117 metres grading 0.56% copper and 0.8 gram gold per tonne.

The third hole was 644 metres deep with a 363.5-metre intersection grading 0.3% copper and 0.51 gram gold per tonne, including 250 metres of 0.35% copper and 0.64 gram gold and 57 metres grading 0.39% copper and 1 gram gold.

The fourth hole was drilled to a depth of 605 metres. The hole returned a 192-metre intersection grading 0.36% copper and 0.74 gram gold per tonne, including 102 metres grading 0.5% copper and 1.05 grams gold. Deeper intersections were included in a broader zone of mineralization, which graded 0.25% copper and 0.45 gram gold over 407 metres (to a depth of 577 metres).

Results from the fifth hole, also on the Blongas II target should be available soon.

Southern Arc is exploring a total of seven projects on three islands in Indonesia: Lombok, Sumbawa and Flores.

The company raised $2.1 million in April 2007 to fund its current drill program after which time the stock price surged from below 50 apiece, peaking above the $2-mark in June.