Arc Exploration : Quarterly Activities Report - Dec 2016 Qtr

December 2016 Quarter Activities Report

ABOUT ARC EXPLORATION LIMITED

Arc Exploration Limited (ASX Code: ARX) is an Australian-listed company focused on gold and base metal exploration in Indonesia and Australia.

The Company has a joint venture interest with PT Sumber Mineral Nusantara on the Trenggalek Project in East Java. The project lies on the highly prospective Sunda-Banda magmatic arc, which is host to several known high-grade epithermal gold and porphyry copper-gold deposits.

The Company also has an interest in Australia. It is farming-in on a gold-base metal property located in the Mount Garnet mineral district of northeast Queensland. The project contains a drill- delineated gold resource at Triple Crown and has potential for expansion through further exploration.

INDONESIA Trenggalek Project, East Java

• Ground Magnetic survey completed at Singgahan to define drill targets. Results currently being interpreted.

• Further ground works including soil sampling and mapping undertaken in area of porphyry style mineralisation exposed at surface in Singgahan.

• Preparations for Stage 2 Exploration work program including community and local government consultation.

• Independent geologist engaged to undertake project review.

• Work undertaken to help local communities following landslides due to heavy rains.

  AUSTRALIA Mount Garnet Project, Queensland

  • No field activity to report for the Quarter. Project review initiated.

Arc Exploration Limited ABN 48 002 678 640

Level 8, 65 York Street

Sydney NSW 2000

T + 61 2 8076 6004

F + 61 2 8215 1600

Email: [e-mail]

www.arcexploration.com.au

CORPORATE

• Placement of 950,000 shares at a price of $0.60 per share completed raising $570,000.

• Board and Management changes effected following completion of the Placement as the first step in a strategy to re-establish Arc Exploration as a regional explorer.

INDONESIA

ARX is exploring for gold and base metal deposits along Indonesia's highly prospective magmatic arcs and associated geological terranes (See Figure 1). The primary exploration targets are high-grade epithermal gold- silver veins and porphyry-related copper-gold deposits.

Figure 1. Trenggalek Project location & major gold and base metal deposits in Indonesia

Trenggalek Project, East Java (farming out up to 80%)

ARX operates a joint venture in respect of the Trenggalek Exploration IUP tenement, located in the Southern Mountains of East Java (See Figure 1). The Southern Mountains is composed of an older segment of the Sunda- Banda magmatic arc, which hosts several known large porphyry copper-gold deposits; Tumpangpitu located about 200 kilometres to the east of Trenggalek, and Batu Hijau and Elang located on Sumbawa. Trenggalek contains a similar package of rocks to those hosting these three major porphyry deposits.

The Trenggalek Exploration IUP tenement is held by ARX's Indonesian partner, PT Sumber Mineral Nusantara ("SMN"). The tenement, covering an area of 29,969 ha or about 300 km2, is now valid until November 2018.

PT Danusa Tambang Nusantara (Danusa), a subsidiary of one of the largest contract miners in Indonesia, is currently managing and funding exploration work at Trenggalek.

A total of 2,745 metres in a 20 hole diamond drilling program was completed in the first half of 2016. These holes have tested for mineralised extensions within the large Sentul and Buluroto epithermal gold veins (See Figure 2), which were previously tested with scout diamond drilling by ARX in 2010/11.

Danusa has agreed to continue with Stage 2 Exploration with a budget of US$ 1 million to be spent in the first half of 2017.

Gold results from the drilling in 2016 were reported in April 2016 (See ASX announcement Update on Drilling at Trenggalek, Indonesia dated 18 April 2016), in the June 2016 quarterly activities report (See ASX announcement June 2016 Quarter Activities Report dated 29 July 2016) and in September 2016 (See ASX announcement Update on Drilling at Trenggalek, Indonesia dated 1 September 2016).

Review and interpretation of these results in conjunction which historic data was undertaken during the quarter.

Singgahan Prospect

Scout diamond drilling on the Singgahan Prospect located in the southeast corner of the Trenggalek Exploration IUP tenement (See Figure 2) was conducted in 2014 (see ARX announcement of 12th May 2014 and 21st July 2014). The four inclined diamond holes (1,541m) drilled at Singgahan completed a fence of holes across part of an extensive copper-gold-molybdenum soil anomaly and coincident magnetic-high anomaly. The source of the soil geochemical anomaly is interpreted to be a weakly mineralised intrusion breccia cropping out at surface. The source of the magnetic high is a small mineralised diorite intrusion that appears to be rootless as modelled by a 3D magnetics inversion analysis. The high-magnetic signature of the diorite is attributed to abundant secondary

magnetite occurring as disseminations in porphyry-style quartz-anhydrite veins and potassic-propylitic alteration. Porphyry-style mineralisation was intersected in these holes which returned multiple low grade copper-gold- molybdenum intercepts.

Previous petrological studies on selected core samples taken from these holes has confirmed the occurrence of porphyry-style veining and alteration, with copper and molybdenum minerals and recent mapping in the area has identified porphyry style mineralisation at the surface. A Ground Magnetic survey consisting of 25.5 line km covering an area 1.5km x 1.6km was completed during the quarter. These results combined with existing aeromagnetic data and detailed geological mapping will be used to define drill targets at Singgahan for the next phase of exploration to be undertaken at Trenggalek by Danusa in the first half of 2017 after consultation with the local community.

Figure 2. Trenggalek Exploration IUP

Exploration expenditure at Trenggalek for the quarter totalled US$ 229,248.

Figure 3: Buluroto & Sentul Prospects - Drillhole Location Plan (Note: The TRDD hole ID's are previous ARX holes drilled in 2010/11)

Figure 4: Sentul Prospect - Drillhole Location Plan

(Note: The TRDD hole ID's are previous ARX holes drilled in 2010/11)