QUARTERLY REPORT

June 2008 Quarter Activities Report

This Report is also available as a PDF File (568K)

CIBALIUNG GOLD PROJECT - INDONESIA (95%)

The Cibaliung Gold Project is operated by PT. Cibaliung Sumberdaya, a joint venture company established between the Company and PT. Antam Tbk ("Antam"). The Company reached agreement with PT Antam Tbk during the quarter for the Company’s interest in the Cibaliung Gold Project to increase from 89.75% to 95.0%.

Cibaliung is located in Banten Province near the western tip of the island of Java, 150km south west of Jakarta.

Key development and production parameters for the Cibaliung Gold Project are:

• Two shoot epithermal vein-gold deposit;
• Logistically well located within a 4 hour drive from Jakarta;
• Mine life of 6 years with a production rate of ~260,000 tonnes per annum with recovery of gold and silver by a conventional CIL processing plant;
• Mining by conventional underground cut and fill stoping with decline access;
• Annual production of approximately 70,000 ozs gold equivalent;

The Company anticipates that first gold pour will occur within the first half of 2009 subject to funding, satisfactory underground development and progress in terms of construction of the gold processing plant and development of mine infrastructure.

Expenditure

Expenditure in relation to development of the Cibaliung Gold Project totalled A$8.4 million during the quarter.

Base Case Financial Model

A further revised Base Case Financial Model (BCFM) is in the process of being finalised to reflect development delays due to funding constraints and a more accurate mining schedule and costs based on underground mining experience to date. The latest estimate for life of mine cash operating costs (by-product method) stands at US$366/ounce. This estimate is also under further review.

Decline Development

Ground conditions in the decline continued to be very poor throughout the quarter. Remedial work continued where required on both the Cikoneng Decline and the Cikoneng Vent Shaft Access.

Total decline development at 30 June 2008 stood at 976 metres (including muck bays and other underground development). The remaining distance to the ore body is less than 20 metres on the first cross-cut. The Company now expects to commence stockpiling ore in August 2008.

Gold Processing Plant

Civil, structural and mechanical installation work was undertaken during the early part of the quarter however this work was halted in June in order to conserve financial resources. The processing plant is now on limited care and maintenance while planning for recommencement of construction is being undertaken. Work will recommence when the Company has put in place funding to complete the Project. Other infrastructure works on site have also been scaled back to conserve financial resources in the near term.

Cibaliung Gold Processing Plant

Funding Strategy

The Company advanced negotiations during the quarter with a number of potential farm-in partners to fund the major portion of the remaining development expenditure through to positive cash flow in exchange for a significant equity interest in the project. Farm-out negotiations were completed with one party and a Heads of Agreement was signed in May. However this party withdrew from the proposed transaction in early June 2008. The Company continues to seek suitable joint venture partners.

ANZ Bank agreed to allow the Company to draw on a US$5M Cost Overrun Facility to enable the Company to continue development at Cibaliung through to the end of August. These funds are primarily being applied to advance the main Cikoneng decline, vent access and cross-cuts to ore in the Cikoneng ore shoot with the objective of reaching the ore body and commencing the stockpiling of ore.

The Company will shortly require further funding to continue the development of the Cibaliung Gold Project if a farm-in partner is not identified. If such funding is not obtained in a timely manner the Company will need to review all operations.

Cibaliung Exploration

The exploration team continued providing technical support to the mine development. This work included underground geological and geotechnical mapping.

Assay results were received for the last three holes of an eight-hole (AC-135, AC-139 to AC-145) infill diamond drilling program completed at the top of the Cikoneng ore-shoot in the last quarter. Drill-hole details and best mineralised intercepts for AC-143, AC-144 and AC-145, are presented below. The results of the infill drilling have generally confirmed the predicted position of contacts, expected grades and thickness of the ore at the top of the Cikoneng ore-shoot.

Expenditure in relation to Cibaliung Exploration totalled A$14,000.

Table 1: Cibaliung Project - Infill Drilling on Cikoneng Ore-shoot
Summary of Drill-hole Details

Table 2: Cibaliung Project - Infill Drilling on Cikoneng Ore-shoot
Summary of Best Mineralised Intercepts

PROJECT GENERATION - INDONESIA

Java

The Company is exploring for high-grade epithermal gold-vein deposits on the island of Java, which lies on the highly prospective Sunda-Banda volcanic arc. The geological settings of the Company’s Cibaliung, Trenggalek and Pekalongan projects on Java show strong similarities to world-class gold deposits lying on or close to the same volcanic arc (Pongkor & Gosowong).

Total Expenditure for exploration completed on the Trenggalek and Pekalongan projects totalled A$56,000 during the quarter.

Trenggalek Project, East Java (ARX - 95%)

The Trenggalek KP exploration area in East Java covers 30,044 ha. Surface mapping and rock chip sampling were continued over an extensive area of hydrothermal eruption breccias and high-level silica cappings found at the Gregah Prospect, located on the eastern side of the KP. Assay results are awaited.

Pekalongan Project, Central Java (ARX - 95%)

The Pekalongan KP exploration area in Central Java covers 5,618 ha. An application for an extension to this KP tenement, which expired in May 2008, is still pending a decision by the regency government.

Papua

Aisasjur Project - Anglo Strategic Alliance (ARX - 20%)

The Company has a strategic alliance with the Anglo American Group (Anglo) to explore for large copper and gold deposits in West Papua and Papua provinces. The Company has a 20% joint venture interest in the Aisasjur Project while Anglo has the obligation to fund all exploration activities pursuant to the terms of the strategic alliance.

The Aisasjur KP tenement in the Kepala Burung area of West Papua Province covers 9,486 ha. Geologically, the project area lies within one of Indonesia’s young volcano-plutonic arcs and is prospective for large porphyry copper-gold and epithermal gold-silver deposits. Mineralised intrusive rocks intersected in previous drilling completed under the project alliance show a similarity in age, geological setting and geochemistry to the Grasberg Igneous Complex, located about 500 km to the east-southeast along the New Guinea Fold Belt.

No field activity was completed during the quarter. The project alliance is awaiting a proposed change in designation of forestry area covering the KP, which will allow further diamond drilling of deep porphyry copper-gold targets identified on the Aisasjur Prospect detailed exploration in surrounding areas to be undertaken.

West Nusa Tenggara

Bima Project - East Sumbawa (ARX - 95%)

The Bima Project tenement was granted under a Kuasa Pertambangan ("KP") during the quarter. The KP is held by P.T. Sumber Mineral Nusantara with whom ARX has a joint venture relationship on the Pekalongan and Trenggalek projects on Java.

The new KP covers an area of 24,980 ha in East Sumbawa of West Nusa Tenggara Province.  The Bima KP lies on a segment of the highly prospective Sunda-Banda magmatic arc, which is host to the giant Batu Hijau porphyry copper-gold deposit, located in West Sumbawa.  The new KP area is prospective for high-grade epithermal gold-silver and bulk tonnage porphyry-style gold-base metal deposits.

The Company will undertake regional mapping and drainage sampling in the first twelve-months of the KP permit to identify prospects for detailed exploration and evaluation.

The information in this report that relates to Exploration Results is based on information compiled by Mr. Brad Wake, who is a member of the Australian Institute of Geoscientists. Mr. Wake has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves.’ Mr. Wake consents to the inclusion in this report of the matters based on his information in the form and context in which it appears.

CORPORATE

At the Company’s Annual General Meeting held on 20 May 2008 shareholders approved a 50 to 1 consolidation of capital and a change of name to Arc Exploration Limited. This restructuring is part of a strategy to build on the Company’s demonstrated exploration strengths in Indonesia.

Subject to resolving a farm-out or suitable funding for the Cibaliung Gold Project the Company proposes to:

• Continue mine development at Cibaliung while also pursuing alternatives to secure the necessary funding to complete the project;
• Pursue other exploration opportunities in Indonesia, including the Trenggalek and Pekalongan KPs in Java and the Bima KP in Sumbawa;
• Maintain its strategic alliance with Anglo American Group to explore for large copper/gold porphyry deposits in the Province of West Papua in Indonesia.
• Seek to generate new project opportunities and strategic relationships in Indonesia.

This report is dated 31 July 2008. For further information please contact:

Andrew J. Cooke
Company Secretary
Tel: + 61 2 9419 8044
Email: andrewcooke@arx.net.au

Download 30 June, 2008 Appendix 5B (208K)

In order to read this file it is necessary to have the Adobe Acrobat Reader installed on your computer. To download it click on the "Get Acrobat Reader" icon below.