PAPUA STRATEGIC ALLIANCE

PAPUA STRATEGIC ALLIANCE

Arc Exploration Limited ("Arc Exploration") has entered into a Strategic Alliance Agreement ("Alliance") with PT Minorco Services Indonesia ("Minorco") of the Anglo American Group ("Anglo") to explore for large copper gold porphyry deposits in the Provinces of Papua and West Irian Jaya (formerly collectively known as Irian Jaya) in Indonesia.

Key elements of the Alliance are summarised as follows:

• Anglo will sole fund exploration expenditure and has an initial 80% interest in projects while Arc Exploration retains a 20% interest;
• Arc Exploration is carried (not free carried) through to a Decision to Mine - with 10% of all predevelopment costs to be repaid by Arc Exploration out of project proceeds (non-recourse to Arc Exploration);
• If following completion of a Feasibility Study, Anglo makes a Decision to Mine then a Joint Venture shall be formed and each of Anglo and Arc Exploration shall participate (and fund capital expenditure) according to their 80/20 project interests. Arc Exploration dilutes if it does not contribute;
• In the event that a resource of less than one million tonnes of contained copper equivalent or 1 million ounces of gold is identified, then Anglo may elect that such project shall either revert to Arc Exploration on an 80/20 basis (with Arc Exploration holding 80%) or that 100% be transferred to Arc Exploration with Anglo retaining a 2% NSR;
• The Alliance is for a initial term of 3 years;
• If interests associated with the Tahija family of Indonesia as major shareholder of Arc Exploration cease to hold a relevant interest in at least 20% of Arc Exploration then Anglo may require Arc Exploration to sell its interest in the Alliance at agreed value or value determined by independent expert;