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Southern Arc releases year-end financials; writes down West Lombok

Published: 01:40 30 Oct 2013 AEDT

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Southern Arc Minerals (CVE:SA) (OTCQX: SOACF) on Tuesday provided financial results for its fiscal year that ended June 30, along with an update on its portfolio of projects in Indonesia as well as its investment in Eagle Hill Exploration (CVE:EAG), which is the owner of the Windfall Lake gold deposit in Quebec. 

Despite seeing notable progress at its flagship West Lombok project in 2013, including publishing the first resource estimate for the Indonesian project, the company booked a write down for the property in the fourth quarter, reflecting challenging market conditions that have significantly devalued exploration-stage properties. The resource estimate for West Lombok totalled 1.49 million ounces of gold, 1.82 million ounces of silver and 397.3 million pounds of copper, all in the inferred category.

"Despite completing a National Instrument 43-101 compliant inferred resource estimate for the West Lombok project, Southern Arc's market capitalization, like many of its peers, was not impacted," CEO and chairman John Proust said.

"With the backdrop of a challenging market for junior mining companies, Southern Arc's management has determined that it is prudent to write down the West Lombok project at this time. Management continues to believe that both its West Lombok and East Elang projects hold great potential; the write down of West Lombok reflects management's interpretation of IFRS as it relates to impairing assets in a timely fashion."

He further said that the company believes it can more effectively build shareholder value by redirecting its funds to solid projects in stable mining jurisdictions. In August of this year, the company, as part of its plan to pursue new gold-focused opportunities following a strategic review at the end of 2012, invested $7.3 million to acquire just over a 26% interest in Eagle Hill, whose Windfall Lake gold deposit is considered one of the highest-grade development stage gold projects in the world. 

The recent $12 million private placement in Eagle Hill, with $7.3 million contributed by Southern Arc and $4.7 million contributed by Dundee Corporation, has funded an aggressive drill program at Windfall Lake, according to Southern Arc's statement, with three rigs starting drilling last month. The aim is to drill 25,000 metres by the end of this year.

Eagle Hill is planning to expand the existing resource by drilling to the west of the main zone, at depth and laterally along strike, with an updated resource estimate due out in early 2014. Currently, the property holds 538,000 ounces at 10.05 g/t gold in the indicated category, and 822,000 ounces at 8.76 g/t gold in the inferred category.

During the latest fiscal year, Southern Arc also renegotiated an agreement for the sale of its Taliwang project in Indonesia -- also a decision made as part of its strategic review -- to $3.5 million all cash, and rebooked the project to assets held for sale.

The company booked a $35 million write-down against the West Lombok project, based on management's assessment of IFRS requirements to impair assets, leading to a net loss of $41.9 million for the year, or 38 cents per share. Working capital amounted to just over $8 million, with total assets of $18.2 million. 

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