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2019 ReportCorporate Directory ABN 30 068 263 098 DIRECTORS Chairman (Non-Executive) Stephen Dennis BCom, LL.B., GDipAppFin (Finsia), CFTP Managing Director (Executive) Wayne Taylor BE (Min.), MBA, MAusIMM Director (Non-Executive) Borden Putnam III MSc, RPG Director (Non-Executive) Fiona Robertson MA (Oxon), MAusIMM, FAICD Director (Non-Executive) Mark Sawyer LL.B. Director (Non-Executive) Ricardo De Armas B.S. M.B.A (Harvard) (appointed 22 September 2017) Director (Non-Executive) Peter Rozenauers BME (Hons I), MAppFin, MAusIMM (appointed 22 September 2017) COMPANY SECRETARY Simon Smith B.Bus, CA REGISTERED OFFICE (head office) and Address for Correspondence Level 7, 191 Clarence Street Sydney 2000 New South Wales Telephone: +61 2 9119 8111 Perth Office Level 1, 7 Havelock St WEST PERTH 6005 Western Australia Telephone: +61 8 6500 9200 Woodlawn Site Office 619 Collector Road, Tarago 2580 New South Wales Email: Website: heron@heronresources.com.au www.heronresources.com.au AUDITOR Ernst & Young 200 George St SYDNEY 2000 New South Wales BANKERS Westpac Bank 230-236 Hannan Street Kalgoorlie 6430 Western Australia SHARE REGISTRY Security Transfer Australia Pty Ltd 770 Canning Highway Applecross 6153 Western Australia Telephone: +61 8 9315 2333 Facsimile: +61 8 9315 2233 Email: TSX Trust Transfer Services Inc. 100 Adelaide St. W, Suite 301 Toronto, Ontario M5H 4H1 Canada Tel: (416) 361-0152 Email: info@tmx.com registrar@securitytransfer.com.au SOLICITORS TO THE COMPANY Allion Legal Pty Ltd 50 Kings Park Road, West Perth 6005 Western Australia Resources Legal Pty Ltd 1A Rosemead Rd, Hornsby 2077 New South Wales Peterson McVicar LLP 390 Bay Street, Suite 806, Toronto, Ontario M5H 2Y2 STOCK EXCHANGE Australian Securities Exchange Limited 2 The Esplanade, Perth 6000 Western Australia ASX CODE HRR Toronto Stock Exchange TMX Group Ltd The Exchange Tower, 130 King Street West Toronto, Ontario M5X 1J2 TSX CODE HER INDUSTRY CLASSIFICATION GICS classification code is 15104020 Diversified Metals and Mining ISIN AU000 000 HRR6 Highlights for FY2017 (cid:129) Woodlawn A$240m finance package - fully funded to production (cid:129) Commencement of construction activities at Woodlawn, 15 months to first production (cid:129) Successful spin-out of Ardea Resources and an in-specie distribution to Heron shareholders (cid:129) Awarding of significant project contracts/agreements - Concentrate Offtake to Louis Dreyfus - New Veolia Cooperation agreement - Engineering, Procurement and Construction contract to Sedgman (cid:129) Continued exploration success at Woodlawn and regional tenements Front cover: Top - Ground breaking ceremony Woodlawn Zinc Copper Project Bottom - Mineralisation This page: Construction activities commenced at Woodlawn Heron Resources Limited - Annual Report 2017 - Page 1 Forward Looking Statements This report contains forward-looking statements and forward-looking information within the meaning of applicable Canadian securities laws, which are based on expectations, estimates and projections as of the date of this report. This forward-looking information includes, or may be based upon, without limitation, estimates, forecasts and statements as to management’s expectations with respect to, among other things, the timing and amount of funding required to execute the Company’s exploration, development and business plans, capital and exploration expenditures, the effect on the Company of any changes to existing legislation or policy, government regulation of mining operations, the length of time required to obtain permits, certifications and approvals, the success of exploration, development and mining activities, the geology of the Company’s properties, environmental risks, the availability of labour, the focus of the Company in the future, demand and market outlook for precious metals and the prices thereof, progress in development of mineral properties, the Company’s ability to raise funding privately or on a public market in the future, the Company’s future growth, results of operations, performance, and business prospects and opportunities. Wherever possible, words such as “anticipate”, “believe”, “expect”, “intend”, “may” and similar expressions have been used to identify such forward-looking information. Forward-looking information is based on the opinions and estimates of management at the date the information is given, and on information available to management at such time. Forward-looking information involves significant risks, uncertainties, assumptions and other factors that could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking information. These factors, including, but not limited to, fluctuations in currency markets, fluctuations in commodity prices, the ability of the Company to access sufficient capital on favourable terms or at all, changes in national and local government legislation, taxation, controls, regulations, political or economic developments in Canada, Australia or other countries in which the Company does business or may carry on business in the future, operational or technical difficulties in connection with exploration or development activities, employee relations, the speculative nature of mineral exploration and development, obtaining necessary licenses and permits, diminishing quantities and grades of mineral reserves, contests over title to properties, especially title to undeveloped properties, the inherent risks involved in the exploration and development of mineral properties, the uncertainties involved in interpreting drill results and other geological data, environmental hazards, industrial accidents, unusual or unexpected formations, pressures, cave-ins and flooding, limitations of insurance coverage and the possibility of project cost overruns or unanticipated costs and expenses, and should be considered carefully. Many of these uncertainties and contingencies can affect the Company’s actual results and could cause actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Prospective investors should not place undue reliance on any forward-looking information. Although the forward-looking information contained in this report is based upon what management believes, or believed at the time, to be reasonable assumptions, the Company cannot assure prospective purchasers that actual results will be consistent with such forward-looking information, as there may be other factors that cause results not to be as anticipated, estimated or intended, and neither the Company nor any other person assumes responsibility for the accuracy and completeness of any such forward-looking information. The Company does not undertake, and assumes no obligation, to update or revise any such forwardlooking statements or forward-looking information contained herein to reflect new events or circumstances, except as may be required by law. Page 2 - Heron Resources Limited - Annual Report 2017 Heron Resources Limited ABN 30 068 263 098 Annual Report 30 June 2017 1.1 CHAIRMAN’S LETTER................................................................................................4 1.2 DIRECTORS ................................................................................................................6 1.3 MANAGEMENT .........................................................................................................8 1.3 MANAGING DIRECTOR’S REPORT ..........................................................................10 2.0 3.0 OPERATIONS REPORT..............................................................................................12 CORPORATE PROFILE ...............................................................................................28 CORPORATE GOVERNANCE STATEMENT...............................................................29 4.0 DIRECTORS’ REPORT ...............................................................................................30 AUDIT INDEPENDENCE DECLARATION ..................................................................39 5.0 CONSOLIDATED FINANCIAL STATEMENTS............................................................40 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME................................................................40 CONSOLIDATED STATEMENT OF FINANCIAL POSITION........................................41 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY ........................................42 CONSOLIDATED STATEMENT OF CASHFLOWS......................................................43 NOTES TO AND FORMING PART OF THE ACCOUNTS ...........................................44 DIRECTORS’ DECLARATION ....................................................................................63 6.0 7.0 8.0 INDEPENDENT AUDIT REPORT ...............................................................................64 SHAREHOLDER INFORMATION ...............................................................................70 Appendix 1 – UNAUDITED QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS .......................................................................................72 9.0 Appendix 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS.............................76 10.0 STATEMENT OF MINERAL RESOURCES & RESERVES ...........................................85 11.0 INTEREST IN MINING TENEMENTS .......................................................................87 12.0 GLOSSARY ...............................................................................................................88 Heron Resources Limited - Annual Report 2017 - Page 3 “Now that we have secured sufficient funding, Heron’s objective from here is quite straightforward. It is to complete the construction of Woodlawn both on time and on budget, so that towards the end of 2018 we can look to start commissioning of a new mine. It is pleasing to see that the price outlook for the metals we will produce, particularly zinc, remains positive.” Stephen Dennis, Chairman Page 4 - Heron Resources Limited - Annual Report 2017 1.1 Chairman’s Letter Dear Shareholders, At last years Annual General Meeting, I indicated that by the time we held our next AGM I had hoped that we would have witnessed the start of construction at our Woodlawn project. I am pleased to be able say that we have achieved this important milestone, with construction of the processing plant and associated infrastructure well underway at Woodlawn following the completion of Project financing in September. We began 2017 with Heron’s sole focus being to secure a full financing package for Woodlawn. Whilst the financing process has taken longer than we initially expected, in June we announced that we had secured a fully funded financing package for Woodlawn, thereby enabling construction to get underway. There are some images of early construction activities at Woodlawn in our Annual Report. With the financing of Woodlawn, we are also very pleased to welcome two new cornerstone investors, Orion and Castlelake, to Heron’s share register and into the Board room. They, along with Greenstone, have provided the large majority of the project finance, and we look forward to working with them as we bring Woodlawn into production. In February 2017, we were very pleased to complete the spin - out of Ardea Resources. Since listing, Ardea has become a tremendous success for all the Heron shareholders who participated in the in- specie share distribution. It is pleasing to see these projects and assets which had become stranded in Heron, gain new life and prospects under the ownership and management of Ardea. Recently, Heron’s founder, Ian Buchhorn, stepped down as an executive director of Heron to join Ardea, and on behalf of the Board I would like to thank Ian for his many years of service and to wish both he and Ardea every success for the future. I would also like to thank the other members of the Board who have provided excellent guidance and counsel to me and to the Management Team during the year. Thanks must also go Wayne Taylor, and his management team, in whom the Board has placed their confidence to provide the leadership and drive to make Woodlawn a success. Finally, thank you to all of our shareholders who continue to support us, both in North America through our Canadian TSX listing and in Australia. Now that we have secured sufficient funding, Heron’s objective from here is quite straightforward. It is to complete the construction of Woodlawn both on time and on budget, so that towards the end of 2018 we can look to start commissioning of a new mine. It is pleasing to see that the price outlook for the metals we will produce, particularly zinc, remains positive. The Board and Management team are committed to seeing Heron bring Woodlawn into production, and I look forward to bringing you further reports of our progress during this exciting period. Sincerely Stephen Dennis Chairman Heron Resources Limited - Annual Report 2017 - Page 5 1.2 Directors STEPHEN DENNIS BCom, LL.B., GDipAppFin (Finsia), CFTP CHAIRMAN (NON-EXECUTIVE) Mr Dennis has been actively involved in the mining industry for over 30 years. He has held senior management positions at CBH Resources Limited, MIM Holdings Limited, Minara Resources Limited, and Brambles Australia Limited. WAYNE TAYLOR B.Eng (Mining), MBA, MAusIMM MANAGING DIRECTOR (EXECUTIVE) Mr Taylor is a mining engineer with over 30 years’ experience in the mining industry. He holds a Bachelor of Engineering (Mining) degree from the University of New South Wales and a Masters of Business Administration from the University of New England. Mr Taylor has held senior operational management roles with Western Mining Corporation and Glencore International’s Australian operations. For the six years prior to joining TriAusMin he managed Glencore’s base metal business development based out of Australia which involved assessing mining projects throughout the world. Mr. Taylor was the Managing Director and CEO of TriAusMin for the last 3 years prior to the merger. BORDEN PUTNAM III MSc, RPG DIRECTOR (NON-EXECUTIVE) Mr Putnam is a professional geologist with over 41 years of experience in the mineral industry, with focus on exploration and asset evaluations in the mineral investment business. From 1976-1991 he worked as a Project Geologist and a District Manager for AMAX Exploration and Newmont Exploration Limited respectively. He served as Vice-President and Chief Geologist for MRDI (now AMEC) an internationally recognized mining consultancy firm from 1991-1996. Mr. Putnam was Vice-President and Principal with Robertson Stephens Investment Management from 1996-2001, and from 2001-2009 was Managing Director of Eastbourne Capital Management; both firms which were engaged in mineral investment management principally as private hedge funds. In 2009, Mr Putnam, established his independent mining industry consultancy business providing technical evaluations, due diligence audits and investment advice to clients in the mineral resource industry. FIONA ROBERTSON MA (Oxon), MAusIMM, FAICD DIRECTOR (NON-EXECUTIVE) Ms Robertson is a finance professional and practicing non-executive director and audit/risk committee chair with a background of more than 20 years as a chief financial officer in the emerging and mid-tier resources sector and 14 years as a corporate banker working in Sydney, New York and London with Chase Manhattan Bank. Ms Robertson’s executive experience includes CFO roles with Petsec Energy Ltd; Climax Mining Ltd and Delta Gold Ltd; as well as various corporate banking roles with Chase Manhattan Bank. Page 6 - Heron Resources Limited - Annual Report 2017 1.2 DIRECTORS CONTINUED MARK SAWYER LL.B. DIRECTOR (NON-EXECUTIVE) Mr Sawyer co-founded Greenstone Resources in 2013 after a 16 year career in the mining sector. Prior to establishing Greenstone, Mr Sawyer was GM and Co-Head Group Business Development at Xstrata plc where he was responsible for originating, evaluating and negotiating new business development opportunities for Xstrata. Prior to Xstrata Mr Sawyer held senior roles at Cutfield Freeman & Co (a boutique corporate advisory firm in the mining industry) and at Rio Tinto plc. Mr Sawyer is a solicitor and a resident of the United Kingdom. RICARDO DE ARMAS B.S. M.B.A (Harvard) DIRECTOR (NON-EXECUTIVE) Mr De Armas is an investment professional at Castlelake, where he focuses on emerging market investments. Mr. De Armas has more than 10 years of experience in investment and corporate finance, including roles as vice president at De Jong Capital, principal at Zaff Capital, associate at Citigroup’s investment banking division, and financial analyst at Procter & Gamble. His expertise includes value investments, restructuring and financial advisory. Mr. De Armas received his M.B.A. from Harvard Business School and a B.S. from Universidad Metropolitana in Business Administration. PETER ROZENAUERS BME (Hons I), MAppFin, MAusIMM DIRECTOR (NON-EXECUTIVE) Mr Rozenauers is a Portfolio Manager with Orion Mine Finance and has over 25 years of experience in the natural resources and finance industry. He earned a BEng (Honors I) in Mining from the University of NSW, a Master in Applied Finance from the University of Technology Sydney and is a member of the Australasian Institute of Mining and Metallurgy. Prior to Orion, Mr Rozenauers was a Senior Investment Manager for a predecessor business of Orion, and prior to that was Managing Director and Head of Asian Commodities Distribution for Barclays Capital in Singapore, a leading global investment bank. Mr Rozenauers spent over 13 years working in senior banking roles in Singapore, New York and London. Mr Rozenauers is a Non-Executive Director of MacPhersons Resources Ltd (ASX) and Chairman of Lynx Resources, a private company. “The Board and Management team are committed to seeing Heron bring Woodlawn into production, and I look forward to bringing you further reports of our progress during this exciting period.” Stephen Dennis, Chairman Heron Resources Limited - Annual Report 2017 - Page 7 Earthworks construction at Hickorys Paddock Page 8 - Heron Resources Limited - Annual Report 2017 1.3 Management SIMON SMITH B.Bus, CA. GENERAL MANAGER FINANCE AND COMPANY SECRETARY Mr Smith has been a Chief Financial Officer of both private and public companies in Australia and the USA. He brings 20 years’ experience in the business world as a Chartered Accountant and holds a Bachelor’s Degree in Business from the University of Technology Sydney. Mr. Smith was the CFO and Company Secretary for TriAusMin prior to the merger with Heron Resources. ANDREW LAWRY BAppSc (Metallurgy), FAusIMM, GAICD CHIEF OPERATING OFFICER Mr Lawry brings more than 28 years’ experience in project management, engineering, construction, commissioning and operations, both in Australia and overseas. He has worked for several leading resource companies including Polymetals, Newcrest and engineering firms Bateman, Normet and Q-Proc. Notably, Mr Lawry managed, from construction through to operation, the successful retreatment of the Hellyer base metal tailings project in 2006 in western Tasmania. With this experience he is well qualified to lead the successful development of the Woodlawn Project which comprises the retreatment of tailings in combination with the development of an underground mine. DAVID VON PERGER BSc (Hons) MAusIMM (CP Geo) GENERAL MANAGER EXPLORATION David von Perger was appointed in 2004. Mr von Perger is a geologist with some 20 years’ experience in mineral exploration having worked in several locations around Australia. Mr von Perger has worked on various styles of mineral deposits including Archaean gold and nickel, and Proterozoic base-metals and iron-ore. His experience includes four years as a business analyst for a major mining group involving analysis of mining operations, project development and assessment of new opportunities. Since his appointment with Heron in February 2004, Mr von Perger has been responsible for the identification and acquisition of several new nickel, gold, iron-ore and base-metal projects. CHARLIE KEMPSON MEng (Oxon) MBA GAICD GENERAL MANAGER STRATEGY & BUSINESS DEVELOPMENT Charlie Kempson is a senior corporate finance executive who was most recently an equity partner and Director of Azure Capital Limited, a mining focused leading independent Perth-based corporate advisor, where he worked for nine years advising boards and senior executives across a range of industries including mining, oil & gas and related services on business development, corporate strategy, finance, and mergers and acquisitions. Prior to his arrival in Australia in 2002 Mr Kempson spent five years with investment banks Commerzbank AG and Barclays Capital in London and Germany, and four years working in technical roles for Logica (now part of CGI Group). BRIAN HEARNE BAppSc (Metallurgy) GENERAL MANAGER - WOODLAWN MINE Mr Hearne is a qualified mining professional and holds a degree in metallurgy (BAppSc). Mr. Hearne has extensive base-metals previously having had a 16-year tenure at Woodlawn, starting in 1978, with a further 2 years at the Benambra Mine in Victoria. He then joined MIM at McArthur River (MRM) as the Metallurgical Manager, and following a number of General Manager roles within MIM / Xstrata both in Australia and overseas and was appointed COO of Xstrata Zinc Australia. The major achievements at all the operations he was involved in was improved safety statistics and lower operations costs. Heron Resources Limited - Annual Report 2017 - Page 9 1.4 Managing Director’s Report I am extremely pleased to be able to say that the Company is now fully funded through to production and that construction has commenced at our Woodlawn Project. The start of activities on site is a particularly exciting milestone given the hard work of the Heron team and the patience and support of our investors over the last few years as we move closer to our objective of developing Woodlawn into long term, profitable base metal producer. We have faced a number of hurdles to reach this point and I would like to recognise the contribution of our employees, management team and the Board which has enabled us to successfully navigate these. A major positive of the development schedule we are committed to is the expected timing of first production into a zinc market underpinned by very strong fundamentals. Securing development funding for base metal resource projects remains a challenge within the current marketplace and despite concerted efforts to complete the transaction sooner, it took us considerably longer to finalise than initially contemplated. Instrumental to achieving project finance was the strong support received from our three cornerstone investors, Greenstone, Orion and Castlelake, who together have contributed the majority of the development funds. During the financing process we had the opportunity to work closely with all three groups and it is pleasing they have arrived at similar conclusions around the compelling business case that Woodlawn presents. As part of their financial commitment we welcome a Board and project steering committee representative from each party and we look forward to their valuable contribution as project development advances. The health, safety and welfare of our employees and contractors is of paramount importance to the Company and I am pleased to report that we completed the year without any significant injuries or incidents. We will face a more challenging environment in the next 12 months with considerably more activity on site associated with the plant and infrastructure construction. On this front we have been actively working to ensure systems are in place and that the highest standards are met to support a safe working environment. Following completion of the Woodlawn Feasibility Study in mid-2016, numerous activities were undertaken in order to secure project finance and these have greatly assisted in reducing the risks faced by the Company through its transition from explorer / developer to producer. Notable activities over the year have included: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) The Environmental Protection Licence was issued ensuring there were no regulatory barriers to starting development; An offtake agreement was signed with Louis Dreyfus Company Metals to quantify the revenue terms and confirm marketability of the concentrate products; The Cooperation agreement with Veolia was updated covering the shared use of the Woodlawn site; The earthworks contract with Ertech was signed providing schedule and cost certainty over this scope of work; and A guaranteed maximum price Engineering Procurement and Construction contract was executed with Sedgman providing certainty around the construction time and cost to deliver our processing facility and associated infrastructure. In addition, we commenced the process of appointing key site management personnel welcoming on-board Mr Brian Hearne as the site General Manager, Mr Des OSullivan as the Processing Manager and Mr Simon Fitzgerald as the Mine Manager. Over the next year we will be looking to grow the site workforce to an operational total of approximately 156 people including mine contract employees. Page 10 - Heron Resources Limited - Annual Report 2017 1.4 MANAGING DIRECTOR’S REPORT CONTINUED On the exploration front we have been busy, announcing strong in-mine and regional drilling results which underpin the exciting exploration potential this area offers. In-mine exploration focused on defining the shallow G2 and G2HW lenses which comprise the first mineralisation to be encountered by the underground development and which presently are not included in the mine plan. The drilling returned some exceptionally high gold and silver grades associated with base metal sulphides. Resource modelling is currently underway and this area is expected to provide a boost to production early in the ramp-up of the underground mine. These lenses remain open for depth extensions with the ability to add to the mine plan. Regionally, exploration activity during the year focused on the Currawang prospect located 10km to the north and adjacent to Woodlawn, and which remains our highest priority target. Additional work progresses the Kangiara tenements 90km to the northwest of Woodlawn. In addition, the Company extended its tenement holding through the pegging of further ground at Peelwood, located 100km north of Woodlawn covering felsic volcanic and related sedimentary rocks of the Silurian Campbells Group, a favourable host to analogous Woodlawn VMS systems. While Woodlawn remained our focus for the year, the Company took the opportunity to realise the value of its extensive portfolio of non- Woodlawn assets through the listing of a new company, Ardea Resources. As communicated at the time, the key drivers for the spin-out were the little-to-no recognition by the market of the value of these assets, the ongoing cost to maintain these projects and our limited resources dedicated to advancing these projects in parallel with Woodlawn. Ardea successfully listed on the ASX on 9 February 2017 and on the back of the cobalt potential in the former Kalgoorlie Nickel Project, has traded well beyond its listing price. The in-specie distribution of Ardea shares to Heron shareholders was a way of passing on this value directly to our shareholders while the Company retains 10 million options in Ardea (escrowed until Feb 2019) to cover the costs of the spin-out process. The zinc market has seen a continued drawdown on available stocks to meet global metal demand. The shortage of metal is now being reflected in the price with 10 year highs achieved in the year. For those that have watched the zinc market for some time, the price move hasn’t been a surprise and commodities analysts forecast that we will continue to see supportive fundamentals in 2018 and 2019, ideally positioning Heron to capitalise on the delivery of its first production into the market place. Although we have seen this uptick in zinc pricing we are still to see a significant shift in the availability of project development funding for new projects and this places Woodlawn as one of only a small number of new projects with the capacity to contribute supply to the market in the short to medium term. In addition to the strong pricing environment for zinc, both copper and lead (our second and third revenue contributors at Woodlawn) have also seen significant improvements in their prices over the last year, although, the strengthening of the Australian dollar has meant we will not see all of the benefits from these commodity price gains. The start of construction at Woodlawn will ensure we have a busy period ahead of us with this being front and centre of our activities. It is an exciting time to finally be underway and I, along with the Board and management team, are extremely motivated to deliver our project on time and below budget. I look forward to providing updates to our Shareholders as we hit development milestones at Woodlawn through 2018. Heron Resources Limited - Annual Report 2017 - Page 11 Heron Projects Figure 1: Heron Resources - Project locations (cid:6)(cid:24)(cid:29)(cid:16)(cid:17)5(cid:28)(cid:20)(cid:15) (cid:11)(cid:8)(cid:12)(cid:3)(cid:4) (cid:2)(cid:16)(cid:17)* (cid:30)(cid:18)(cid:19)(cid:12)(cid:28)33(cid:31) (cid:3)5(cid:28)(cid:25)(cid:17)(cid:19) (cid:17)(cid:24)* (cid:10)(cid:23)(cid:15)(cid:23)(cid:22)(cid:17)+4(cid:28)(cid:24)(cid:16) (cid:15)(cid:23)(cid:18)(cid:18)(cid:28)(cid:24) (cid:2)(cid:3)(cid:4)(cid:3)(cid:5)(cid:6)(cid:7)(cid:8)(cid:9)(cid:10)(cid:11) (cid:9)"(cid:9)(cid:10)(cid:3)(cid:9) (cid:9)(cid:31)+(cid:17)’(cid:16)(cid:16) (cid:17)(cid:18)(cid:11)(cid:4)(cid:19)(cid:5)(cid:9)(cid:14) ,(cid:28)(cid:24)(cid:17)&(cid:23)(cid:24)(cid:18)(cid:17) (cid:28)(cid:18)(cid:18)(cid:16)(cid:24)(cid:26)(cid:17)+ (cid:28)(cid:13)(cid:5)(cid:9)(cid:10)(cid:25) (cid:10)(cid:15)(cid:16)(cid:17)(cid:18)(cid:19)(cid:3)(cid:20)(cid:21)(cid:18)(cid:15)(cid:17)(cid:22)(cid:23)(cid:17)(cid:24) (cid:12)(cid:17)(cid:21)(cid:23)(cid:24) (cid:10)%(cid:14)(cid:10)(cid:3)(cid:9)#(cid:4)(cid:3) #(cid:13)(cid:12)(cid:12)(cid:8) (cid:15)(cid:17)(cid:17)(cid:29)(cid:30)(cid:31)(cid:15) (cid:9)(cid:16)& (cid:6)(cid:24)’(cid:22)(cid:17)(cid:24)(cid:29) (cid:27)(cid:28)(cid:22)(cid:29) (cid:12)(cid:16)(cid:22)(cid:18) (cid:30)(cid:23)(cid:24)(cid:16)(cid:15)(cid:17)(cid:22)(cid:19)!(cid:23)(cid:22)(cid:22) (cid:20)(cid:11)(cid:5)(cid:5)(cid:9)(cid:14)(cid:21)(cid:22)(cid:9)(cid:13)(cid:10)(cid:23)(cid:6)(cid:3)(cid:10) (cid:28)+(cid:23)(cid:24)’(cid:22)(cid:16)(cid:31) (cid:2)(cid:16)(cid:17)*(cid:19)!(cid:23)(cid:22)(cid:22) (cid:9)(cid:28)(cid:15)(cid:18)(cid:26)3(cid:17)(cid:15)*(cid:16)(cid:21) (cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:7) (cid:11)(cid:28)33(cid:16)(cid:15)(cid:19)!(cid:23)(cid:22)(cid:22) (cid:7)(cid:31)(cid:29)(cid:24)(cid:16)(cid:31) (cid:19)(cid:12)(cid:17)(cid:21)(cid:23)(cid:24) (cid:30)(cid:13)#(cid:10)(cid:6)(cid:6) (cid:14)(cid:3)(cid:5)(cid:6)(cid:19)(cid:11)(cid:3)(cid:4)(cid:10)(cid:6)(cid:14)(cid:14)%(cid:10)(cid:8) (cid:8)(cid:4)(cid:3)(cid:9)(cid:10)(cid:6) (cid:11)(cid:17)(cid:29)(cid:23)(cid:17)(cid:19)(cid:4)(cid:23)(cid:29)’(cid:16)&(cid:17)(cid:31) (cid:30)(cid:25)(cid:2)(cid:26)(cid:23)(cid:22)(cid:22)(cid:17)+(cid:31)(cid:21) (cid:12)(cid:3) !(cid:13)(cid:4)(cid:7) (cid:10)(cid:13)(cid:9)#(cid:3)(cid:10)(cid:3)% (cid:11)(cid:28)&(cid:17)(cid:22) (cid:12)(cid:13)(cid:4)(cid:9)(cid:14) ,(cid:6)(cid:7) (cid:19),"(cid:3)(cid:14)(cid:8)(cid:9)(cid:10) (cid:14)(cid:17)(cid:25)(cid:26)(cid:22)(cid:17)(cid:24)(cid:19)(cid:27)(cid:28)(cid:22)(cid:29)(cid:19)(cid:12)(cid:16)(cid:22)(cid:18) (cid:11)(cid:8),(cid:4)(cid:3) "(cid:8)(cid:13)(cid:9)(cid:10) (cid:24)(cid:6)(cid:10)(cid:25)(cid:3)(cid:6)(cid:4)(cid:6) (cid:16)+(cid:28)(cid:15)(cid:17) (cid:12)(cid:8)(cid:8)(cid:4)(cid:8),(cid:3) "(cid:3)(cid:7)(cid:7) ,(cid:3)(cid:10)(cid:10)(cid:3)(cid:19),(cid:3)(cid:10)(cid:10)(cid:3) (cid:10)(cid:13)(cid:9)#(cid:3)(cid:10)(cid:3)% (cid:3)(cid:29)(cid:16)(cid:22)(cid:28)(cid:24)’ (cid:11)(cid:3)(cid:9)(cid:12)(cid:6)(cid:4)(cid:4)(cid:3) (cid:30)(cid:20)(cid:15)(cid:15)(cid:17)(cid:31) (cid:12)(cid:17)(cid:21)(cid:23)(cid:24) (cid:7)"#(cid:9)(cid:6)" (cid:26)(cid:11)(cid:11)(cid:5)(cid:14)(cid:9)(cid:9)(cid:16) (cid:27)(cid:13)(cid:5)(cid:5)(cid:6)(cid:4)(cid:3)(cid:10) (cid:10)(cid:8)(cid:13)(cid:14)(cid:12)(cid:13)(cid:4)(cid:9) (cid:15)(cid:9)(cid:9)(cid:16)(cid:5)(cid:6)(cid:14)(cid:10) (cid:14)(cid:6)(cid:10)(cid:6)(cid:9)# !(cid:16)(cid:15)(cid:28)(cid:24)(cid:19)0))1 (cid:16)(cid:24)(cid:16)+(cid:16)(cid:24)(cid:18)(cid:21) !(cid:16)(cid:15)(cid:28)(cid:24)(cid:19).(cid:19)(cid:3)(cid:22)(cid:25)(cid:26)(cid:16)+(cid:31) /$(cid:19) (cid:16)(cid:24)(cid:16)+(cid:16)(cid:24)(cid:18)(cid:21) (cid:9)(cid:7), (cid:3)(cid:14)(cid:12)(cid:13)(cid:4)" $%(cid:11) (cid:8)(cid:4)%(cid:3) (cid:7)(cid:23)’(cid:24)(cid:23)-(cid:23)(cid:25)(cid:17)(cid:24)(cid:18) +(cid:23)(cid:24)(cid:16)(cid:15)(cid:17)(cid:22)(cid:19)(cid:28)(cid:25)(cid:25)(cid:20)(cid:15)(cid:15)(cid:16)(cid:24)(cid:25)(cid:16)(cid:21) (cid:2)(cid:3)(cid:4)(cid:5)(cid:6)(cid:3)(cid:7)(cid:8)(cid:9)(cid:10)(cid:11)(cid:12)(cid:13)(cid:8)(cid:3)(cid:7)(cid:8)(cid:14)(cid:15)(cid:13)(cid:4)(cid:16)(cid:7)(cid:8)(cid:3)(cid:16)(cid:17) (cid:18)(cid:6)(cid:19)(cid:13)(cid:12)(cid:3)(cid:16)(cid:3)(cid:7)(cid:8)(cid:14)(cid:15)(cid:13)(cid:4)(cid:16)(cid:7)(cid:8)(cid:3)(cid:16)(cid:17) Page 12 - Heron Resources Limited - Annual Report 2017 (cid:11)(cid:8)(cid:8)(cid:30)(cid:3) ()*+ 2.0 Operations Report HEALTH, SAFETY, ENVIRONMENT AND COMMUNITY (HSEC) Heron continues to demonstrate its commitment to “Zero Harm” to the Company’s employees, contractors, the communities in which Heron works and to the environment. HEALTH AND SAFETY Heron had no Lost Time Injuries (LTI’s) during 2017 as was also the case in 2016. The LTI gauge of performance demonstrates an outstanding result for Heron and reinforces the employees’ and contractors’ commitment to the highest level of safety standards. The result also re-affirms that the systems implemented throughout the Company are effective and that exploration and site activities are being undertaken safely. With the dramatic increase in site activity associated with the construction of the Woodlawn Project, continuing vigilance is required to maintain this focus. ENVIRONMENT Heron’s HSEC Management System has continued to demonstrate its value in assisting staff to identify environmental impacts, not only meeting our commitment to minimising environmental impacts, but also ensuring that business activities remain within regulatory compliance. Our activities continue to be reviewed by internal audits and checks and have also been subject to external audits by government regulators. Heron’s robust environmental management systems ensured compliance with statutory requirements during the year. COMMUNITY AND STAKEHOLDER ENGAGEMENT Heron continues to increase its involvement and interaction with the local community in parallel with the ramp-up in site activity. The Company aims to enhance the communities in which we operate through support to local initiatives by partnering with organisations and not- for-profit groups to provide better service and improve the livability of the region. In 2015, the Company established a Community Consultation Committee comprising members of the local community, representatives from the Goulburn-Mulwaree Council and also Veolia Environmental Services, the operators of the landfill located at the Woodlawn site. This group met 4 times during the past year and the meetings provide an effective conduit to discuss matters of interest along with considering the areas by which Heron can best provide a constructive influence in the local area. The Company undertook a ‘Ground Breaking’ event at Woodlawn to signify the start to Woodlawn development activities, which was attended by local Federal MP Mr Angus Taylor, the Mayor of Goulburn-Mulwaree Council, Mr Bob Kirk, Councillors and local members of the Tarago community. The Company continues to receive strong support for its activities from the local community. Below, Brian Hearne, General Manager–Woodlawn, presenting sports equipment donated by Heron to the Windellama Public School Heron supports local community Heron Resources Limited - Annual Report 2017 - Page 13 2.0 OPERATIONS REPORT CONTINUED WOODLAWN PROJECT Woodlawn Project – Project Financing In June 2017 The Company announced that it had secured the full A$240 million funding package1 required for the construction and ramp- up of the Woodlawn Project. The financing comprised: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) A$129 million funding package comprising Heron equity, Woodlawn loan facility and a silver streaming agreement from Orion Mine Finance Group; A$42 million Heron equity subscription agreement with a subsidiary of existing shareholder Greenstone Resources L.P. and co-investment parties; A$33 million equity subscription agreement from new cornerstone equity investor, Castlelake L.P.; A$32 million from various sophisticated and professional investors; and A$5 million share purchase plan At a General Meeting of shareholders held on Thursday 17 August, 2017 approval was given to the Woodlawn financing. Approval of the Proposed Funding Package delivered a complete financing solution for Woodlawn and that enabled Heron to immediately commence construction. With commissioning of the project expected in late 2018, it is anticipated that first production will be delivering zinc into a market which is becoming increasingly constrained from a shortage of mine supply. The Woodlawn Project remains one of only a few new zinc projects that has secured development funding and Heron’s transition to becoming a significant producer of zinc and other metals will be a major milestone for the Company. 1 Assumes exchange rate of AUD/USD 0.76 Construction commenced at Woodlawn Page 14 - Heron Resources Limited - Annual Report 2017 2.0 OPERATIONS REPORT CONTINUED Woodlawn Project – Development Progress The process to coplete the project funding rquired the advancement of a number of work streams that enabled the commencement of construction immediately following the closing of project finance arrangements. The main work activity areas included: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Veolia Cooperation Agreement – The original Cooperation Deed with Veolia Environmental Services Australia Pty Ltd (“Veolia”) was entered into in 2008 and reflected the project as it was understood at that time. The project studies since this time resulted in a number of technical changes to the profile of the project and these factors, along with Veolia’s continued development of their activities on site, meant a detailed review and update of the previously agreed Cooperation Deed was required to ensure that it remained relevant and complete. The new agreement deals with the respective Heron and Veolia areas, rights and responsibilities associated with the joint use of the site. Specifically the agreement covers: o o o o o o o Delineation of Heron and Veolia area of operations; Establishment of a committee comprising Heron and Veolia representatives to consider site interaction aspects; Heron’s right to purchase the freehold lands covering its area of operation; Division of site rehabilitation obligations and provision of compost material from Veolia for mine-site rehabilitation; Working offset distances and controls to minimise impact on operations; Management of site water with an overall principle of maintaining a zero discharge site; and Commercial terms including insurance coverage, environmental bond and the provision of a bank guarantee. Environment Protection Licence – On 29 March 2017 the Company was issued its Environment Protection Licence (No. 20841) (EPL) from the NSW Environment Protection Authority (EPA) covering proposed construction, mining and processing activities at the Woodlawn Project site. This was the final licensing requirement prior to the commencement of construction activities at Woodlawn. In relation to the Woodlawn Project the EPL covers: o o o o o the permitted activities; management of site activities and their impact on the environment; the setting of limits for water, noise, blasting, hours of operation and odour; monitoring and recording requirements; and reporting obligations to the EPA. Concentrate Offtake – On 10 May 2017 Louis Dreyfus Company Metals (“LDC Metals”) was awarded the base metal concentrate off- take from the Woodlawn Project from commencement of production through to the end of 2021, a period of approximately three and a quarter years. The off-take contract covers 100% of the zinc, copper and lead concentrates to be produced over this period. Once at steady state, the Woodlawn Project is expected to produce approximately 70,000dmt (dry metric tonnes) of zinc concentrates, 30,000dmt of copper concentrates, and 25,000dmt of lead concentrates annually from the processing of a combination of underground ore and reclaimed tailings ore. In addition to revenue being provided from the primary metal in each of the concentrates (zinc, copper and lead), by-product revenue will be generated by the gold and silver content in the lead and copper concentrates. The off-take contemplates the shipment of Woodlawn concentrates from either Port Kembla or Port Botany in lot sizes that will allow the Company to manage working capital requirements as well as securing bulk shipping freight rates. It is anticipated that the Woodlawn concentrates will be destined for further processing to final metal in major Asian markets. EPC Contract – On 4 May 2017 Sedgman were awarded the Engineering, Procurement and Construction (“EPC”) contract for the Woodlawn Project. The EPC contract followed a front-end engineering design program that commenced in October 2016 after completion of the Feasibility Study. The scope of the EPC contract is for a 1.5 million tonne per annum mineral processing plant to enable the processing of both underground and tailings ore to produce zinc, copper and lead concentrates. The design also includes a paste backfill plant and supporting infrastructure at the project site. The EPC contract is in a form of a guaranteed maximum price (“GMP”) of $107m with cost under-run and performance incentives to support early completion and under budget result. Earthworks Contract – On 24 May 2017 the Company entered into an earthworks contract (A$12m) for Woodlawn with Ertech Pty Ltd (“Ertech”). The earthworks scope of work covers the construction of the main road access from the sealed Collector Road, process plant site levelling and foundation preparation, haulage road construction from the plant site to the underground box cut, excavation of the box cut for the underground access, and construction of Tailings Storage Facility 4. Extensional Drilling – the diamond drill program targeting the G2 Lens system was undertaken to define a resource position around the first mineralisation to be accessed by the new underground mine. The results of the program are currently being compiled. Heron Resources Limited - Annual Report 2017 - Page 15 Success at G2 Woodlawn Project – Extensional Drilling G2 Lens Drilling: During the year the Company undertook drilling of the G2 Lens at Woodlawn. The drilling program of 22 diamond core holes for 4,246m was focused on an expansion of the shallow resource at the newly identified G2 Lens. Several significant results have been received that will provide the basis of a new resource in this area of the mine. The G2 Lens is located to the south of the Kate Lens, and is adjacent to the planned route of the decline, 100-200m below the surface. Recent drilling has targeted this area for its ability to add to the early mine inventory. Two key mineralised horizons have been identified, namely G2 Main and G2 Hanging-wall (G2HW). The G2 Main zone was the primary target of the drilling campaign and consists of a zone of 5-10cm zinc sulphide rich stringers cross-cutting the beds of coarse grained volcanic breccia. Figure 2: Part of the high grade zone of mineralisation intersected in WNDD0114 within the main G2 Hanging-wall Lens (G2HW). Up-hole direction is to the left in the tray. Zinc equivalent calculation - The zinc equivalent (ZnEq) calculation takes into account, mining costs, milling costs, recoveries, payability (including transport and refining charges) and metal prices in generating a Zinc equivalent value for Au, Ag, Cu, Pb and Zn. ZnEq = Zn%+Cu%*3.12+Pb%*0.81+*Au g/t*0.86+Ag g/t*0.03. Metal prices used in the calculation are: Zn US$2,300/t, Pb US$ 2,050/t, Cu US$6,600/t, Au US$1,250/oz and Ag US$18/oz. These metal prices are based on Heron’s long term view on average metal prices. It is Heron’s view that all the metals within this formula are expected to be recovered and sold. Metallurgical metal recoveries used for the formula are: 88% Zn, 70% Pb, 70% Cu, 33% Au and 82% Ag; these are based on historical recoveries at Woodlawn and supported by metallurgical testwork undertaken during the 2015-16 feasibility study. Commodity prices and metallurgical recoveries are factored into the zinc equivalent calculation using a standard metal equivalent formula. Page 16 - Heron Resources Limited - Annual Report 2017 2.0 OPERATIONS REPORT CONTINUED The G2 HW lens was discovered during the follow-up program and consists of very high-grade massive and stringer sulphides occurring approximately 30 to 40m stratigraphically above the G2 Main zone (see Figures 3-5 for G2 Main and G2HW) The significant intercepts from this program and specific to the G2 Main zone are: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 14.0m at 12.4% ZnEq from 146.0m (7.5% Zn, 1.0% Cu, 1.7% Pb, 0.1g/t Au, 9g/t Ag) WNDD0114 Including: 6.9m at 21.6% ZnEq from 150.6m (13.0% Zn, 1.9% Cu, 2.8% Pb, 0.1g/t Au, 22g/t Ag) 6.8m @ 7.9% ZnEq from 113.8m (5.3% Zn, 0.3% Cu, 1.6% Pb, 0.1g/t Au, 8g/t Ag) WNDD0118 10.7m @ 5.3% ZnEq from 124.5m (3.7% Zn, 0.5% Cu, 0.2% Pb, 0.1g/t Au, 2g/t Ag) WNDD0118 5.6m @ 18.3% ZnEq from 90.7m (2.5% Zn, 0.1% Cu, 1.7% Pb, 1.8g/t Au, 418g/t Ag) WNDD0120 7.6m @ 10.0% ZnEq from 100.0m (2.4% Zn, 0.1% Cu, 1.5% Pb, 2.6g/t Au, 124g/t Ag) WNDD0121 5.0m @ 6.1% ZnEq from 116.0m (3.6% Zn, 0.1% Cu, 2.0% Pb, 0.1g/t Au, 9g/t Ag) WNDD0121 5.3m @ 6.9% ZnEq from 185.2m (1.8% Zn, 1.4% Cu, 0.4% Pb, 0.3g/t Au, 8g/t Ag) WNDD0123 5.8m @ 14.3% ZnEq from 209.7m (0.1% Zn, 4.4% Cu, 0.2g/t Au, 12g/t Ag) WNDD0123 3.7m @ 4.0% ZnEq from 214.3m (0.1% Zn, 1.0% Cu, 0.6g/t Au, 10g/t Ag) WNDD0129 7.5m @ 5.5% ZnEq from 221.0m (0.2% Zn, 1.6% Cu, 0.2g/t Au, 5g/t Ag) WNDD0129 4.0m @ 6.0% ZnEq from 206.0m (0.2% Zn, 1.8% Cu, 0.1g/t Au, 6g/t Ag) WNDD0131 5.0m @ 10.5% ZnEq from 136.0m (5.0% Zn, 0.2% Cu, 3.7% Pb, 0.4g/t Au, 54g/t Ag) WNDD0132 5.0m @ 9.2% ZnEq from 141.2m (4.8% Zn, 0.5% Cu, 2.9% Pb, 0.1g/t Au, 14g/t Ag) WNDD0133 These G2 Main results are in line with expectations and demonstrate moderate grade stringer mineralisation over mineable widths. Of note are a number of significant higher grade results (WNDD0114 and WNDD0120) which auger well for lifting the overall grades of material mined from this area. ,(cid:28)(cid:28)(cid:29)(cid:22)(cid:17)&(cid:24)(cid:19)(cid:2)(cid:22)(cid:17)(cid:24)(cid:19)$(cid:23)(cid:16)& Figure 3: Woodlawn Long Section - G2 Main Lens Looking East (cid:10)6(cid:19)(cid:30)(cid:3)%(cid:9) ,(cid:9)##))99 (cid:10)6 (cid:30)(cid:3)%(cid:9) ,(cid:9)##))99 (cid:6)(cid:14) # (cid:8) =< ,(cid:9)##))6; ,(cid:9)##)):( <6 ,(cid:9)##))(: 6: 6( ,(cid:9)##)06; ,(cid:9)##)00= ,(cid:9)##)06) ,(cid:9)##)0)) (cid:14)(cid:23)+(cid:23)(cid:18)(cid:19)(cid:28)-(cid:19)6))+(cid:19)3(cid:23)(cid:18) (cid:14)(cid:23)+(cid:23)(cid:18)(cid:19)(cid:28)-(cid:19)6))+(cid:19)3(cid:23)(cid:18) (cid:28)--7(cid:21)(cid:16)(cid:18)(cid:19)8(cid:28)(cid:24)(cid:16) (cid:28)--7(cid:21)(cid:16)(cid:18)(cid:19)8(cid:28)(cid:24)(cid:16) ,(cid:9)##)06)?(cid:19)0(@>9+(cid:19)(cid:17)(cid:18)(cid:19)>@;1(cid:19)A(cid:24)(cid:6)B(cid:19)-(cid:15)(cid:28)+(cid:19)=)@> C6@):1(cid:19)A(cid:24)D(cid:19))@);1(cid:19)(cid:11)(cid:20)D(cid:19)0@601(cid:19)(cid:2)4D(cid:19))@><’.(cid:18)(cid:19)(cid:3)(cid:20)D 06;@9’.(cid:18)(cid:19)(cid:3)’E 066 :; A(cid:23)(cid:24)(cid:25)(cid:19)(cid:21)(cid:18)(cid:15)(cid:23)(cid:24)’(cid:16)(cid:15)(cid:19)8(cid:28)(cid:24)(cid:16) ,(cid:9)##)06> :6 ,(cid:9)##)069 0: ,(cid:9)##)0)> : ,(cid:9)##)00; 90 ,(cid:9)##)060 (; ,(cid:9)##)0)9 =9 (cid:20)(cid:29)(cid:27)(cid:31) ,(cid:9)##)0<6 :6 ,(cid:9)##)0<< <> ,(cid:9)##)0)9?(cid:19)0)@;=+(cid:19)(cid:17)(cid:18)(cid:19)001(cid:19)A(cid:24)(cid:6)B(cid:19)-(cid:15)(cid:28)+(cid:19)0<6@> C9@<1(cid:19)A(cid:24)D(cid:19)<@6=1(cid:19)(cid:11)(cid:20)D(cid:19))@(1(cid:19)(cid:2)4D(cid:19))@0’.(cid:18)(cid:19)(cid:3)(cid:20)D(cid:19)0)@:’.(cid:18)(cid:19)(cid:3)’E (cid:20)(cid:29)(cid:27)(cid:28) (cid:2)(cid:4)(cid:8)(cid:2)(cid:8)(cid:7)(cid:6)#(cid:19)#(cid:6)(cid:11)(cid:14)%(cid:9)(cid:6)(cid:19)(cid:2)(cid:8)(cid:7)% %(cid:8)(cid:9)(cid:19)(cid:2)(cid:4)(cid:8)/(cid:6)(cid:11) (cid:6)# ,(cid:9)##))6< 0> (cid:6)(cid:19)(cid:30) $ (cid:4) (cid:6) (cid:7) (cid:6) 6)09(cid:19)(cid:4) (cid:25)(cid:26)(cid:21)(cid:22) (9 (cid:25)(cid:27)(cid:22)(cid:28) :( (cid:20)(cid:21)(cid:22)(cid:23) (: (cid:20)(cid:21)(cid:22)(cid:24) >< (cid:10)0(cid:19)(cid:14)(cid:6)(cid:9)(cid:7) (cid:14) (cid:13) (cid:3) (cid:27) (cid:25)(cid:26)(cid:29)(cid:21) >; (cid:25)(cid:27)(cid:22)(cid:30) (cid:20)(cid:21)(cid:28)(cid:31)2 0)> (cid:27)(cid:28)(cid:21)(cid:21) 01 ,(cid:9)##)0<0?(cid:19)(@)+(cid:19)(cid:17)(cid:18)(cid:19)(@<1(cid:19)A(cid:24)(cid:6)B(cid:19)-(cid:15)(cid:28)+(cid:19)6)(@) C0@91(cid:19)(cid:11)(cid:20)D(cid:19):@;’.(cid:18)(cid:19)(cid:3)’E ,(cid:9)##)06@(1(cid:19)A(cid:24)D(cid:19)0@)1(cid:19)(cid:11)(cid:20)D(cid:19)0@>1(cid:19)(cid:2)4D(cid:19))@0’.(cid:18)(cid:19)(cid:3)(cid:20)D(cid:19);@>’.(cid:18)(cid:19)(cid:3)’E %(cid:24)(cid:25)(cid:22)(cid:19)9@=+(cid:19)(cid:17)(cid:18)(cid:19)60@91(cid:19)A(cid:24)(cid:6)B(cid:19)-(cid:15)(cid:28)+(cid:19)0()@9+(cid:19)C0<@)1(cid:19)A(cid:24)D 0@=1(cid:19)(cid:11)(cid:20)D(cid:19)6@;1(cid:19)(cid:2)4D(cid:19))@0’.(cid:18)(cid:19)(cid:3)(cid:20)D(cid:19)60@>’.(cid:18)(cid:19)(cid:3)’E (cid:14)(cid:8),(cid:6)(cid:4)(cid:19)(cid:4)!"(cid:8)(cid:14)% (cid:6) (cid:2)(cid:3),(cid:8)(cid:3)-(cid:3)(cid:16)(cid:7)(cid:8)’(cid:14) (cid:3)(cid:8)(cid:11)(cid:6)(cid:7)(cid:4)(cid:3)(cid:17)(cid:11)(cid:19)(cid:14)(cid:3)(cid:8)’(cid:11)(cid:6)(cid:16)(cid:11)+’ ((cid:13)++(cid:11)(cid:6)(cid:14)/(cid:13)(cid:8)(cid:11)(cid:14)(cid:3)(cid:8)’(cid:11)(cid:6)(cid:16)(cid:11)+’ !(cid:13)(cid:14)(cid:17)(cid:3),(cid:8)(cid:3)-(cid:3)(cid:16)(cid:7)(cid:8)’(cid:14)(cid:7)(cid:17)(cid:17)(cid:7). "(cid:8)#$(cid:14)%(cid:14)&(cid:11)’(cid:6)(cid:11)(cid:17)(cid:14)((cid:13)(cid:8)’(cid:13)(cid:5)(cid:6)(cid:17)) *(cid:22)(cid:23) (cid:24)(cid:21)(cid:14)(cid:9)(cid:14)(cid:22)(cid:24) (cid:29)(cid:23)(cid:14)(cid:9)(cid:14)(cid:26)(cid:22) ((cid:13)++(cid:11)(cid:6)(cid:14)"(cid:13)(cid:8)(cid:11) The significant intercepts from the G2 Hanging-wall (G2HW) zone are: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 9.8m @ 28.0% ZnEq from 107m (8.7% Zn, 0.5% Cu, 5.2% Pb, 4.0g/t Au, 326g/t Ag) WNDD0110 Including 3.7m @ 56.0% ZnEq from 110m (18.7% Zn, 1.2% Cu, 10.0% Pb, 6.9g/t Au, 650g/t Ag) 4.9m @ 7.6% ZnEq from 117.6m (3.8% Zn, 0.2% Cu, 2.4% Pb, 0.4g/t Au, 28g/t Ag) WNDD0112 4.7m at 53.0% ZnEq from 107.2m (10.8% Zn, 0.7% Cu, 8.6% Pb, 10.4g/t Au, 802g/t Ag) WNDD0114 Including 2.7m at 87.2% ZnEq from 107.2m (18.4% Zn, 1.2% Cu, 14.4% Pb, 16.9g/t Au, 1299g/t Ag) 3.1m @ 15.8% ZnEq from 111.4m ( 3.4% Zn, 0.25% Cu, 1.2% Pb, 1.0g/t Au, 326g/t Ag) WNDD0115 2.4m 15.9% ZnEq from 108.1m (8.1% Zn, 0.41% Cu, 2.8% Pb, 0.8g/t Au, 119 g/t Ag) WNDD0116 1.3m @ 67.2% ZnEq from 89.3m (1.2% Zn, 0.0% Cu, 0.9% Pb, 1.8g/t Au, 2118g/t Ag) WNDD0118 Heron Resources Limited - Annual Report 2017 - Page 17 2.0 OPERATIONS REPORT CONTINUED Figure 4: Woodlawn Long Section G2 Hanging Wall (G2HW) Lens Looking East (cid:27)(cid:28)(cid:27)(cid:23) 01 ,(cid:9)##)06> 6(+ ,(cid:9)##)00; ;( ,(cid:9)##)060 ,(cid:9)##)00:?(cid:19):@>+(cid:19)(cid:17)(cid:18)(cid:19)(<@)1(cid:19)A(cid:24)(cid:6)B(cid:19)-(cid:15)(cid:28)+(cid:19)0)>@6+ C0)@;1(cid:19)A(cid:24)D(cid:19))@>1(cid:19)(cid:11)(cid:20)D(cid:19);@91(cid:19)(cid:2)4D(cid:19)0)@:’.(cid:18)(cid:19)(cid:3)(cid:20)D(cid:19);)6’.(cid:18)(cid:19)(cid:3)’E (cid:10)6!, ,(cid:9)##)069 ,(cid:9)##)0)9 (cid:27)(cid:28)(cid:21)(cid:21) 01 ,(cid:9)##)00)?(cid:19)=@;+(cid:19)(cid:17)(cid:18)(cid:19)6>@>1(cid:19)A(cid:24)(cid:6)B(cid:19)-(cid:15)(cid:28)+(cid:19)0)>@0= C;@>1(cid:19)A(cid:24)D(cid:19)(@0=1(cid:19)(cid:11)(cid:20)D(cid:19))@(1(cid:19)(cid:2)4D(cid:19):’.(cid:18)(cid:19)(cid:3)(cid:20)D(cid:19)<69’.(cid:18)(cid:19)(cid:3)’E ,(cid:9)##)0)> ,0>> ,(cid:9)##)000 ,(cid:9)##)0<0 ,(cid:9)##)0<) (cid:27)(cid:31)(cid:28)(cid:23) 01 ,(cid:9)##)06) ,(cid:9)##)06< 6: (cid:30)(cid:13)#(cid:7) (cid:8)(cid:9)(cid:6) (cid:29) (cid:22) (cid:27) (cid:23) (cid:21) ! ,(cid:9)##)00> (cid:29) (cid:22) (cid:27) (cid:27) (cid:23) ! ,(cid:9)##)00: 6:: ,(cid:9)##)0<6 ,(cid:9)##)00< 00 ,(cid:9)##)006 >: ,(cid:9)##)009 ,(cid:9)##)00) <; 6>0 ,(cid:9)##)00( := (cid:2) (cid:4) (cid:8) (cid:2) (cid:8) (cid:7) (cid:6) # (cid:19) # (cid:6) (cid:11) (cid:14) % (cid:9) (cid:6) (cid:2) (cid:8) (cid:7) % % (cid:8) (cid:9) (cid:19) (cid:2) (cid:4) (cid:8) / (cid:6) (cid:11) (cid:6) # ,(cid:9)##)009?(cid:19)6@:+(cid:19)(cid:17)(cid:18)(cid:19)091(cid:19)A(cid:24)(cid:6)B(cid:19)-(cid:15)(cid:28)+(cid:19)0);@0 C;@01(cid:19)A(cid:24)D(cid:19))@:1(cid:19)(cid:11)(cid:20)D(cid:19)6@;1(cid:19)(cid:2)4D(cid:19))@;’.(cid:18)(cid:19)(cid:3)(cid:20)D(cid:19)00=’.(cid:18)(cid:19)(cid:3)’E ,(cid:9)##)0)= (cid:2)(cid:3),(cid:8)(cid:3)-(cid:3)(cid:16)(cid:7)(cid:8)’(cid:14) (cid:3)(cid:8)(cid:11)(cid:6)(cid:7)(cid:4)(cid:3)(cid:17)(cid:11)(cid:19)(cid:14)3(cid:20)(cid:14)(cid:3)(cid:8)’(cid:11)(cid:6)(cid:16)(cid:11)+’ !(cid:13)(cid:14)(cid:17)(cid:3),(cid:8)(cid:3)-(cid:3)(cid:16)(cid:7)(cid:8)’(cid:14)3(cid:20)(cid:14)(cid:7)(cid:17)(cid:17)(cid:7). "(cid:8)#$(cid:14)%(cid:14)&(cid:11)’(cid:6)(cid:11)(cid:17)(cid:14)((cid:13)(cid:8)’(cid:13)(cid:5)(cid:6)(cid:17)) (cid:29) (cid:22) (cid:27) (cid:21) (cid:21) ! *(cid:22)(cid:23) (cid:29) (cid:29)(cid:29)(cid:14)(cid:9)(cid:14)(cid:22)(cid:23) (cid:22) (cid:29) (cid:28) (cid:23) (cid:14)(cid:8),(cid:6)(cid:4)(cid:19)(cid:4)!"(cid:8)(cid:14)% (cid:6) ! The G2 Hanging Wall zone is a zone of high-grade mineralisation that has been discovered in the last year. Whilst the position is relatively small, its high- grade means it will be a valuable addition to the early mine inventory. It is also thought that similar zones of high-grade mineralisation are likely to be present in the western Woodlawn lens system, but have been missed by the existing drill spacing creating an opportunity to delineate additional material. , Also of note is the newly defined copper mineralisation in the down plunge and footwall position to the G2 Main zinc stringer mineralisation (see Figure 3). This copper mineralisation occurs as copper stringers in chlorite matrix plus zones of massive copper and pyrite sulphides. 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Significant intercepts were returned from both drill holes: (cid:129) (cid:129) 4.5m @ 5.8% ZnEq from 538m (2.3% Zn, 0.8% Cu, 0.5% Pb, 0.2g/t Au, 13g/t Ag) WNDD0105 11m @ 8.4% ZnEq from 569m (3.4% Zn, 0.9% Cu, 1.5% Pb, 0.12g/t Au, 18g/t Ag) WNDD0108 Including 5.7m @ 14.3% ZnEq from 575m (6.1% Zn, 1.4% Cu, 3.2% Pb, 0.18g/t Au, 35g/t Ag) 2.5m @ 19.5% ZnEq from 552m (7.7% Zn, 1.3% Cu, 3.9% Pb, 1.8g/t Au, 100g/t Ag) WNDD0108 (cid:129) Figure 6: Woodlawn Long Section B Lens - Oblique View Looking East Heron Resources Limited - Annual Report 2017 - Page 19 2.0 OPERATIONS REPORT CONTINUED The drill holes were surveyed with down hole electro-magnetics (DHEM) and the modelled responses of the results (“plates”) indicate potential for a mineralised zone of dimensions 250m x 150m and extending out to the mineralisation limits as identified in hole WNDD0105. Based on these DHEM plates and the existing intercepts an Exploration Target1 can be defined of approximately 0.6Mt to 1.1Mt with grades of 7.0% ZnEq – 14% ZnEq. These latest results confirm the north western extension to the B Lens system at Woodlawn with new high-grade mineralisation that has the potential to substantially add to the mining inventory. Underground access to this new zone would utilise the same development infrastructure as the main B Lens, enhancing the economics and timing of Woodlawn mining. Cowley Hills: The Cowley Hills prospect is located 2.5km north of Woodlawn and consists of a Woodlawn-style VMS deposit that was partially mined from underground in 1990 (approximately 35,000t extracted). A single historical hole drilled in 1985, W158, was surveyed as part of the current program with high powered DHEM and resulted in the modelling of a 60m x 80m sized plate located in the down-dip position of the known mineralisation. A single hole was drilled to test this lower zone of mineralisation and provide a sample for metallurgical test work. A zone of massive and semi-massive sulphides was intersected close to the plane of the DHEM plate (Figure 7). The assays for the intercept are: (cid:129) 5.2m @ 5.5% ZnEq from 200m (2.0% Zn, 0.5% Cu, 0.6% Pb, 0.6g/t Au, 29g/t Ag) in CHDD0001 This intercept indicates the continuation of the sulphide lens at depth, albeit at a lower grade than what was previously mined. Further drilling is warranted to better define the mineralisation, focussing on the zones both above the CHDD001 intercept where grades are expected to improve, and to the south down-plunge. 1 An Exploration Target is a term used within the JORC2012 Code for an estimate of the exploration potential of a mineral deposit. As used in this report the stated exploration target is based upon the parameters described in the text, however the potential quantity and grade is conceptual in nature and there is insufficient information to estimate a Mineral Resource and it remains uncertain if further exploration will result in the estimation of a Mineral Resource in this area of recent drilling. Figure 7: Cowley Hills Prospect, long-section looking east showing existing mine workings, drilling and modelled DHEM plate. Page 20 - Heron Resources Limited - Annual Report 2017 2.0 OPERATIONS REPORT CONTINUED WOODLAWN REGIONAL PROSPECTS Heron continues to maintain and explore a strategic, 974km2 tenement package over the prospective Silurian volcanic rocks around the Woodlawn Mine (Figures 1 and 8). The exploration strategy is to focus on known mineralisation with comparable grade and metallurgy to Woodlawn and within proximal trucking distance of the proposed Woodlawn concentrator. A number of excellent targets exist, which are described in more detail below. 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(cid:23)(cid:19)(cid:27)(cid:25)(cid:19)(cid:27)(cid:26)(cid:27)(cid:18)(cid:28) (cid:17)(cid:18)(cid:9)(cid:4)(cid:18)(cid:9)(cid:14)(cid:19)(cid:20)(cid:21) (cid:17)(cid:18)(cid:9)(cid:4)(cid:18)(cid:9)(cid:14)(cid:19)(cid:20)(cid:22) (cid:17)(cid:18)(cid:9)(cid:4)(cid:18)(cid:9)(cid:14)(cid:19)(cid:20)(cid:23) (cid:17)(cid:18)(cid:9)(cid:4)(cid:18)(cid:9)(cid:14)(cid:19)(cid:20)(cid:24) (cid:17)(cid:18)(cid:9)(cid:4)(cid:18)(cid:9)(cid:14)(cid:19)(cid:20)(cid:25) Near Mine Projects Currawang Prospect The Currawang Prospect, wholly owned by Heron, is located 10km north west of the Woodlawn mine (Figure 8) and produced approximately 0.5Mt of high-grade polymetallic ore from an underground operation in the early 1990s that was processed at Woodlawn. Heron believes drilling at Currawang has the potential to delineate mineralisation which could provide additional feed to the Woodlawn mill. Heron has completed 5 holes for 2,994m at Currawang as part of the New Frontiers Cooperative Drilling Funding program. The program targets extensions to the existing lenses, as well as, the broader testing of the structural environment associated with high-grade volcanic massive sulphide (VMS) mineralisation that was previously mined (approximately 0.5Mt) in the mid-1990’s. This represents the first drilling program at Currawang since 1996. The first hole (CWDD0001) targeted the along-strike extension to the north of the main Currawang Lens (Figure 10) in an area of limited historic drilling. This hole intersected a broad interval (38m, from 341m down-hole) of moderate to intense sericite, silica, pyrite, and chlorite alteration within a strongly foliated, and in-part, brecciated basalt (the Currawang Basalt). Within this interval is 16m of intense alteration and minor stringers of zinc sulphides with lesser lead and copper sulphides. These stringer sulphides are analogous to, and represent, the mine horizon and the intensity of the alteration indicates potential proximity to high-grade mineralisation. Heron Resources Limited - Annual Report 2017 - Page 21 2.0 OPERATIONS REPORT CONTINUED Figure 9: Photo of the zinc sulphide (sphalerite stringers) in CWDD0002 from 486m. NQ2 (46.7mm) core within the core tray with each length approximately 1m long. Drill core detail showing massive zinc sulphides. The red-brown mineral is sphalerite (zinc sulphide) and shows a hydrothermal, replacement style of formation with clots of dark green chlorite being original basalt fragments entrained within the sphalerite. The white mineral is quartz and indicates the vein-style of formation of this zone. Figure 10: Currawang long section (looking east) showing area of deposit previously mined, and the five drill holes in this campaign. Page 22 - Heron Resources Limited - Annual Report 2017 2.0 OPERATIONS REPORT CONTINUED The second drill hole (CWDD0002) targeted the down-plunge extension to the main Currawang Lens intersected 6.4m of 5-10cm stringers and semi-massive zinc sulphide mineralisation (Figures 9) from 485m within a broad zone of alteration hosted by the basalt sequence. Copper sulphides within this zone are probably responsible for the weak, historic DHEM anomaly measured in this area. This hanging-wall zone of mineralisation represents a potential new zone, or lens, of mineralisation at Currawang. The hole (CWDD0002) continued to a depth of 640m and passed through a broad (50m+) zone of intense chlorite alteration with copper-sulphide stringers (Figure 10 & 11). Such chlorite zones are typically associated with the feeder zones which lead into, and feed, the main VMS lenses. Assay results have been received and returned two significant intercepts from these two zones: (cid:129) (cid:129) 6.4m @ 14.6% ZnEq from 485m (11.7% Zn, 0.6% Cu, 0.7% Pb, 0.1g/t Au, 16g/t Ag) CWDD0002 2.9m @ 13.5% ZnEq from 567m (3.4% Zn, 3.0% Cu, 0.2% Pb, - g/t Au, 16g/t Ag) CWDD0002 Both results are highly encouraging. The last hole of the program (CWDD0005) was drilled below and down plunge from these intercepts and intersected a broad zone (17.4m) of weak zinc sulphides stringers from 428m depth. Other holes in the program (CWDD0001 and 03) targeted the Currawang structural setting along-strike to the north of the main Currawang Lens (Figure 10) in an area of limited historic drilling. CWDD0001 intersected a broad interval (38m, from 341m down-hole) of moderate to intense sericite, silica, pyrite, and chlorite alteration within a strongly foliated, and in-part, brecciated basalt (the Currawang Basalt). Within this interval is 16m of intense alteration and minor stringers of zinc sulphides with lesser lead and copper sulphides. CWDD0003 also intersected a broad zone of moderate to strong silica, chlorite, biotite alteration between 381 and 433m with some stringers of base-metal sulphides. CWDD0004 was drilled to a depth of 675m testing the southern extent of the mineralisation. It intersected a weak zone of silica, chlorite, pyrite alteration towards the end of the hole which was less significant than the other intercepts to the north. The broadly spaced drill holes provide the platform for a program of down hole electromagnetic surveys (DHEM) to be conducted later in 2017 to test for potential off-hole conductors. Overall, the program of 5 holes was successful, with high grade intercepts being returned in a new position and the other holes intersecting significant zones of alteration. The program is part of the NSW Government’s Cooperative Drilling Program with 50% of the direct drilling costs being reimbursable to Heron for the first 4 holes. Figure 11: Cross Section (looking north) through the plane of CWDD002 showing the location the area historically mined-out, and the location of the new hanging wall stringer-style sphalerite mineralisation, and the deeper chlorite alteration zone Heron Resources Limited - Annual Report 2017 - Page 23 2.0 OPERATIONS REPORT CONTINUED Montrose Prospect: 6km west north west of Woodlawn, where broad zones of intense pyrite-sericite alteration in Woodlawn Volcanics are present. Limited drilling in the 1980s and 1990s intercepted zones of modest-grade mineralisation which received little follow-up work. Remodelling of the numerous historic EM geophysical anomalies has provided clear targets for follow-up. Other Woodlawn Prospects: The Allianoyonyiga and Kalua Prospects are both grassroots prospects defined by pre-Heron moving loop EM surveys, situated along strike, west and east respectively from the Cowley Hills deposit. Moderate silica/pyrite alteration in rhyolitic volcanic rocks has been mapped at Kalua along strike from the EM anomalies, whereas the Allianoyonyiga Prospect is wholly covered by alluvium of the Allianoyonyiga Creek and will require drilling to test further. East Lachlan Regional Projects The Company retains a significant portfolio of tenements in the East Lachlan area of New South Wales within hauling distance of Woodlawn. The key project areas include Cullarin, Kangiara and Peelwood (recent application) (see Figure 8). Kangiara (EL8400, EL8573, 100% Heron) The Kangiara Project is located 90km NW of Woodlawn and 26km NNW of the town of Yass, and is a historical copper mine where previous explorers (to 2014) have delineated a small, low-grade, gold, silver, copper, lead, zinc deposit (non JORC). The geology comprises felsic volcanic and related sedimentary rocks of the Silurian Douro Group. At the Crosby Prospect (named after the nearby survey point) 5km to the NE of the Kangiara mine, previous explorers outlined a strong gold anomaly (up to 2.3g/t Au in rock chips and 0.17g/t Au in soils) within a 2.5km NW-trending zone of anomalous geochemistry (Au, As, Zn, Pb, Cu, Bi, Mo, Sb). Heron conducted check sampling which confirmed the soil geochemistry, with levels above 150ppb Au being returned and rock-chips up to 4g/t Au from an area northwest of the soil anomaly. The geological setting is similar to the McPhillamys gold deposit (approximately 2.2Moz Au as reported by Regis Resources Ltd) located 130km to the NNE. A program of 33 rotary air-blast (RAB) holes for 743m was completed in May 2017 providing a first pass test of the soil geochemical anomalies. The drill holes encountered a thin residual regolith cover before penetrating the Silurian sequence of dacitic intrusive rocks with lesser intercalated breccias and shales. Pervasive sericite alteration and fine-grained disseminated pyrite (phyllic alteration) was observed in many of the intercepts, with lesser biotite and some fine-grained base metal sulphides. Where alteration was strong, the drill rig was able to penetrate deeper; the deepest intercept was in strong alteration from surface to a depth of 64m (CRRB024) which was close to the capacity of the rig. Drilling at Crosby Page 24 - Heron Resources Limited - Annual Report 2017 2.0 OPERATIONS REPORT CONTINUED Samples were collected on 4m, 2m or 1m intervals depending on the degree of alteration, and assayed using an aqua-regia digest and ICP finish for gold and other elements. The drill logs and assays confirmed a broad zone of phyllic alteration within the Silurian sequence at both the Crosby Main and Central areas. Better results include: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) 10m @ 0.11g/t Au, from 30m to end of hole (CRRB007) 3m @ 0.77 g/t Au, from 33m depth to end of hole (CRRB008) 4m @ 0.96% Zn, 0.36% Pb and 0.07g/t Au, from 54m (CRRB024) 42m @ 0.20 g/t Au and 0.26% Cu from 4m to end of hole (CRRB027) 4m @ 0.25% Cu from 24m to end of hole (CRRB029) The results from the Crosby Main area (CRRB007, CRRB008 and CRRB024) are associated with strong sericite and fine grained disseminated pyrite alteration and elevated zinc and lead similar to the McPhillamys style of mineralisation. The results from the very limited drilling in the Crosby Central area (CRRB027 and CRRB029) are consistent with an intrusive-related or porphyry style of mineralisation, and the thick intercept in CRRB0027 suggests the potential for the presence of a significant mineralising system. Strongly anomalous silver (Ag), molybdenum (Mo), arsenic (As) levels associated with these copper/gold results is encouraging and supports an intrusive-related model for the mineralisation. This first-pass reconnaissance drilling program has successfully identified the potential for a significant, intrusive-related copper/gold mineralised system. The fine disseminated nature of the sulphides in the dacitic rocks can be mapped with IP geophysical methods to help target future drilling programs. Cullarin Project (EL7954, EL7468, 100% Heron) The Cullarin Project is located 20km north west of Woodlawn and 30km west of Goulburn (Figure 8) and covers the prospective Silurian-aged Wet Lagoon Volcanics – a sequence of rhyolite and dacitic volcanic and volcaniclastic rocks with potential for VMS, skarn and shear-related gold and base-metal deposits. A previous compilation of historic drilling (1970 Astley Consolidated Holding P/L) identified significant Cu results at B2: (cid:129) (cid:129) (cid:129) (cid:129) B2-01: 12.8m @ 1.15% Cu from 73m B2-02: 5.7m @ 0.25% Cu from 103m incl. 0.4M @ 2.0% Cu B2-03: 2.7m @ 3.3% Cu from 102.8m and 2.0m @ 1.1% Cu from 113.7m B2-04: 1.6m @ 8.0% Cu from 168.4m Little drilling has been completed at this prospect since the 1970s and there is good potential for skarn-style magnetite/copper mineralisation to be delineated through further drilling in this area. In addition, a broad weaker magnetic high to the north of the B2 prospect represents a first-rate porphyry copper target under shallow alluvial cover – that again has not been drill tested. No field work was undertaken during the Quarter, with statutory annual reporting being completed. Peelwood Project (ELA5473, 100% Heron) The Peelwood Project is located 100km north of Woodlawn (Figure 8) and covers felsic volcanic and related sedimentary rocks of the Silurian Campbells Group. The Peelwood Mine is a VMS system that was a historic copper, lead, zinc and silver producer. The Company has applied for ground directly to the south of the historical mining area and will assess the position for high-grade zones of mineralisation. Only very limited exploration has been conducted in the area covered by the ELA in recent years, however a number of good drill intercepts have been reported. The central part of the project area contains a cluster of five north west striking mineralised gossans over a strike length of about 6 km. Historic soil sampling has delineated an anomalous lead-zinc mineralised zone. A significant exploration target for follow up is south of the main Black Springs prospect where previous drilling has returned intersections including 4m at 9.7% Zn, 3.6% Pb and 29g/t Ag from 111.2m (BSJ-7) and 2.5m at 0.2% Zn, 11.8% Pb and 130ppm Ag from 26m (BSDH7). Mineralisation is associated with foliated interbedded, porphyritic tuffs and fine grained sediments. Structural setting is excellent, being on the Godolphin Fault which hosts the McPhillamys and Lewis Ponds polymetallic resources located some 70km north along structure. Heron will assess the historical data and look to generate new targets with modern, high-powered electro-magnetic surveys. Heron Resources Limited - Annual Report 2017 - Page 25 2.0 OPERATIONS REPORT CONTINUED Exploration at Cullarin Page 26 - Heron Resources Limited - Annual Report 2017 2.0 OPERATIONS REPORT CONTINUED EXPLORATION JOINT VENTURE PROJECTS Heron retains a high quality tenement holding in the Lachlan Fold Belt of NSW and the Eastern Goldfields of Western Australia. This tenure is held through farm-in and joint ventures interests and includes several other free-carried residual or royalty interests which results in minimal costs to Heron. The key joint venture projects are described below. Alchemy Farm-In and JV (Overflow, Girilambone, Eurow and Yellow Mountain) Heron entered into a Farm-In Agreement with Alchemy Resources Limited (Alchemy) (ASX:ALY) covering a portfolio of Heron’s NSW exploration tenements (see Figure 1) in May 2016. The Farm-In Agreement covers 674 km2 of the central Lachlan Orogen in NSW, including the following exploration tenements: EL5878 Overflow, EL7941 Overflow, EL8267 Overflow, EL8192 Eurow, EL8318 Girilambone and EL8356 Yellow Mountain. During the previous Quarter a 361m diamond core hole was completed with two significant intersections (refer ASX:ALY release dated 29th March 2017): (cid:129) (cid:129) 18m @ 2.1g/t Au, 111g/t Ag from 245m (OFDD001) including 11m @ 3.0g/t Au, 141g/t Ag from 253m 3m @ 7.3g/t Au, 43g/t Ag from 286m (OFDD001) These results are considered to be significant and represent an extension to the known zones of mineralisation. A ground EM program is being planned to follow up the strong VTEM (airborne EM) anomaly at in this area, prior to further drilling being conducted. In addition, a significant EM anomaly identified in both 2011 VTEM and 2008 ground EM surveys at the Black Range Tank Prospect and is being targeted for follow-up RC drilling. Bulong Gold JV (Heron 20%, Southern Gold Ltd 80%; Heron 100% nickel laterite rights Bulong East) The Bulong Gold Project is located 30km east of Kalgoorlie with Southern Gold (ASX:SAU) managing the joint venture as part of their exploration efforts around the producing Cannon Gold Mine. Work completed by SAU during the year included: (cid:129) (cid:129) (cid:129) A hyperspectral survey (HyMapper) has identified several targets across the JV tenement package associated with mineral signatures of the both the Cannon and Glandore gold mineralisation. A further project is being considered targeting the Glandore style of mineralisation in more detail. Ongoing investigation of geochemical anomalies on P25/2062, M25/134 and M25/209 was conducted with field mapping and sampling (33 rock chip samples). A trial hand auger sampling program was conducted on P25/2062 to test if detailed infill sampling would resolve geochemical anomalies more clearly. ARDEA RESOURCES LIMITED Following the positive Woodlawn Project Feasibility Study in June 2016, Heron’s primary focus has been to bring the Woodlawn Project into development. This resulted in limited funding being available for allocation to Heron’s extensive portfolio of non-Woodlawn development and exploration projects. These assets were considered of sufficient high quality to warrant further activity and funding in their own right. Accordingly, Heron decided to spin-off the non-Woodlawn assets into the new company Ardea Resources Limited, with the objective of ensuring that the underlying value of these assets was realised by Ardea to the benefit of existing and new shareholders. On 29 September 2016 Heron Shareholders overwhelmingly approved the proposed spin-off of Ardea and to raise up to A$6 million through the issue of up to 30 million new shares under a Public Offer. The IPO closed on 20 January 2017, with A$5.1 million subscribed. Ardea listed on the ASX on 9 February 2017 and currently trades at a significant premium to the listing price of A$0.20. Ardea’s development focus is the Kalgoorlie Nickel Project Cobalt Zones and chrysoprase gemstone in WA and the Lewis Ponds Gold-Zinc Project in central NSW. Ardea has a 100% interest in all of its projects. Heron currently holds 10 million A$0.25 options in Ardea (escrowed for 24 months from 9 February 2017) and in addition holds 3.33 million A$0.77 Loyalty Options. Ardea have a separate board of directors and management team. One Heron employee transferred to Ardea to provide continuity of tenement, prospect and exploration knowledge for Ardea assets. Heron Resources Limited - Annual Report 2017 - Page 27 3.0 Corporate Profile HERON RESOURCES LIMITED (“Heron” or “the Company”) is engaged in the exploration and development of base and precious metal deposits in Australia. The Company is focused on the development of the high grade Woodlawn Project located 250km southwest of Sydney in New South Wales. Section 3 through 9 of this Annual Report remain as lodged on ASX on 30 August 2017. WOODLAWN ZINC-COPPER PROJECT Figure 12: Woodlawn Project Location Plan Heron holds a direct 100% ownership of the mineral rights at the Woodlawn Mine site situated 40km south of Goulburn and 250km south-west of Sydney, in southern NSW, Australia (Figure 12). It is Heron’s aim to create a profitable, long life and low cost mineral processing operation at Woodlawn that produces base and precious metal concentrates. Heron also holds a portfolio of advanced stage exploration tenements adjacent to the Woodlawn site covering the prospective felsic volcanic units the Woodlawn Volcanogenic Massive Sulphide (VMS) deposit. that host The former Woodlawn Mine operated from 1978 to 1998 and processed 13.8 million tonnes of ore from the Woodlawn open pit, underground and satellite deposits grading 9.1% zinc, 1.6% copper; 3.6% lead, 0.5g/t gold and 74g/t silver. The mine was closed in March 1998 due to prevailing low metal prices and external corporate issues. Post mine closure the mineral the Woodlawn Mining Licence SML20 were purchased by TriAusMin Ltd. Since that time, work has focused on evaluating the potential to re- process tailings from previous mining operations, and to re-develop the underground mine. Regional exploration has also been undertaken in the vicinity of Woodlawn with the objective of discovering new, high grade satellite deposits. rights contained within Woodlawn Funding On 30 June 2017 the Company announced that it had secured (subject to conditions) the full A$240 million (1) funding package required for the construction and ramp-up of the Woodlawn Project. The financing comprises: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) A$129 million (1) funding package comprising Heron equity, Woodlawn loan facility and a silver streaming agreement from Orion Mine Finance Group (“Orion”); A$42 million (1) Heron equity subscription agreement with a subsidiary of existing shareholder Greenstone Resources L.P. (“Greenstone”) and co-investment parties; A$33 million (1) equity subscription agreement from new cornerstone equity investor, Castlelake L.P. (“Castlelake”); and The receipt of commitments to raise approximately A$32 million from various sophisticated and professional investors that subscribed for fully paid ordinary shares in the Company (“Institutional Placement”). A$5m Share Purchase Plan - The issue price for all new shares under the total funding package was A$0.07 per share, and represented a 14% discount to the volume weighted average price of Heron shares traded on the ASX during the 10 days up to and including 26 June 2017 (the last trading day before the transaction announcement). A General Meeting of shareholders was held on Thursday 17 August, 2017 at which Shareholders approved the Woodlawn financing. Funds from the financing will be received on or around September 6th with construction on site commencing shortly thereafter. (1) Assumes exchange rate AUD/USD 0.76 Page 28 - Heron Resources Limited - Annual Report 2017 3.0 CORPORATE PROFILE CONTINUED CORPORATE GOVERNANCE STATEMENT The Board of Heron is committed to achieving and demonstrating the highest standards of Corporate Governance. The Board is responsible to its Shareholders for the performance of the Company and seeks to communicate extensively with Shareholders. The Board believes that sound Corporate Governance practices will assist in the creation of Shareholder wealth and provide accountability. In accordance with Listing Rule 4.10.3, the Company has elected to disclose its Corporate Governance policies and its compliance with them on its website, rather than in the Annual Report. Accordingly the following information about the Company's Corporate Governance practices is set out on the Company's website at www.heronresources.com.au: (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) (cid:129) Board Charter; Audit & Governance Committee Charter; Remuneration & Nomination Committee Charter Policy on securities trading; Policy on continuous disclosure; Policy regarding communication with Shareholders; Policy on the Company’s risk management; Policy on Employee Diversity; Policy on HSEC; Policy on Whistleblowers; and Code of Conduct. Heron Resources Limited - Annual Report 2017 - Page 29 4.0 Directors’ Report The Directors submit their Report on the Company and its controlled entities for the year ended 30 June 2017. DIRECTORS The names and details of the Directors of the Company in office at any time during or since the end of the year are: Director Appointed Position Stephen Dennis - BCom BLLB GDipAppFin(Finsia) CFTP. 05 December 2006 Chairman (Non-Executive) of the Board, Member of Audit and Corporate Governance Committee, Chairman of Remuneration and Nomination Committee. Stephen Dennis has been actively involved in the mining industry for 30 years. He has held senior management positions at Toho Zinc, MIM Holdings Limited, Minara Resources Limited, and Brambles Australia Limited. Other current directorships Non-executive Chairman of EHR Resources Limited, Non-executive Chairman of Rox Resources Limited, Non-executive Chairman of Graphex Mining Limited Former directorships in last 3 years Managing Director of CBH Resources Limited. Non-executive Chairman of Cott Oil and Gas Limited. Director Appointed Position Wayne Taylor - BEng (Mining), MBA 11 August 2014 Managing Director and CEO Mr. Taylor is a mining engineer with over 30 years’ experience in the mining industry. He holds a Bachelor of Engineering (Mining) degree from the University of New South Wales and a Masters of Business Administration from the University of New England. Mr Taylor has held senior operational management roles with Western Mining Corporation and Glencore International’s Australian operations. For the six years prior to joining TriAusMin he managed Glencore’s base metal business development based out of Australia which involved assessing mining projects throughout the world. Mr. Taylor was the Managing Director and CEO of TriAusMin for the last 3 years prior to the merger. Other current directorships None. Former directorships in last 3 years Managing Director and CEO of TriAusMin Ltd until August 2014. Director Appointed Position Ian Buchhorn - BSc (Hons), Dip Geosci (Min Econ), MAusIMM. 17 February 1995 (resigned on 2 June 2017) Executive Director Ian Buchhorn is a Mineral Economist and Geologist with over 35 years’ experience. Prior to listing Heron in 1996 as founding managing director, Mr Buchhorn worked with Anglo American Corporation in southern Africa, and Comalco, Shell/Billiton and Elders Resources in Australia, as well as setting up and managing Australia's first specialist mining grade control consultancy. Mr Buchhorn has worked on feasibility studies, bauxite and industrial mineral mining and exploration, gold and base metal project generation, and in corporate evaluations. For the last 25 years Mr Buchhorn has acquired and developed mining projects throughout the Eastern Goldfields of Western Australia and operated as a Registered Mine Manager. Other current directorships Non-executive Director of Rubicon Resources Limited since August 2005, Non-executive Director of Ardea Resources Ltd since February 2017 Former directorships in last 3 years Non-executive Director of Golden Cross Resources Limited. Page 30 - Heron Resources Limited - Annual Report 2017 4.0 DIRECTORS’ REPORT CONTINUED Director Appointed Position Borden Putnam III - MSc, RPG 12 December 2014 Director (Non-Executive), Member of Audit & Governance Committee, Member of Remuneration and Nomination Committee Mr. Putnam is a professional geologist with over 41 years of experience in the mineral industry, with focus on exploration and asset evaluations in the mineral investment business. From 1976-1991 he worked as a Project Geologist and a District Manager for AMAX Exploration and Newmont Exploration Limited respectively. He served as Vice-President and Chief Geologist for MRDI (now AMEC) an internationally recognized mining consultancy firm from 1991-1996. Mr. Putnam was Vice- President and Principal with Robertson Stephens Investment Management from 1996-2001, and from 2001-2009 was Managing Director of Eastbourne Capital Management; both firms which were engaged in mineral investment management principally as private hedge funds. In 2009, Mr Putnam, established his independent mining industry consultancy business providing technical evaluations, due diligence audits and investment advice to clients in the mineral resource industry. Other current directorships Non-executive Director of Mirasol Resources Ltd. Former directorships in last 3 years None. Director Appointed Position Fiona Robertson - MA (Oxon) (Geology), M AusIMM, FAICD 9 April 2015 Director (Non-Executive), Chairman of Audit & Governance Committee, Member of Remuneration Committee and Nomination Committee Ms Robertson is a finance professional and practicing non-executive director and audit/risk committee chair with a background of more than 20 years as a chief financial officer in the emerging and mid-tier resources sector and 14 years as a corporate banker working in Sydney, New York and London with Chase Manhattan Bank. Ms Robertson’s executive experience includes CFO roles with Petsec Energy Ltd; Climax Mining Ltd and Delta Gold Ltd; as well as various corporate banking roles with Chase Manhattan Bank. Other current directorships Non-executive Chairman of One Asia Resources Ltd; and member WIMnet national committee and WIMnet NSW committee (AusIMM’s Women in Mining Network). Former directorships in last 3 years Non-executive Director and Chair of the Audit & Risk Committee of Drillsearch Energy Ltd Director Appointed Position Mark Sawyer - LL.B. 19 August 2015 Director (Non-Executive) Mr Sawyer co-founded Greenstone Resources in 2013 after a 16 year career in the mining sector. Prior to establishing Greenstone, Mr Sawyer was GM and Co-Head Group Business Development at Xstrata plc where he was responsible for originating, evaluating and negotiating new business development opportunities for Xstrata. Prior to Xstrata Mr Sawyer held senior roles at Cutfield Freeman & Co (a boutique corporate advisory firm in the mining industry) and at Rio Tinto plc. Mr Sawyer is a solicitor and a resident of the United Kingdom. Other current directorships Non-executive Director of Metro Mining Limited. Former directorships in last 3 years Non-executive Director of North River Resources Plc. Heron Resources Limited - Annual Report 2017 - Page 31 4.0 DIRECTORS’ REPORT CONTINUED SENIOR EXECUTIVE OFFICERS Chief Operating Officer The Chief Operating Officer (COO) is Andrew Lawry B App Sc (Metallurgy). Mr Lawry brings more than 28 years’ experience in project management, engineering, construction, commissioning and operations, both in Australia and overseas. He has worked for several leading resource companies including Polymetals, Newcrest and engineering firms Bateman, Normet and Q-Proc. Notably, Mr Lawry managed, from construction through to operation, the successful retreatment of the Hellyer base metal tailings project in 2006 in western Tasmania. With this experience he is well qualified to lead the successful development of the Woodlawn Project which comprises the retreatment of tailings in combination with the development of an underground mine. General Manager – Finance and Administration and Company Secretary The GM - Finance and Company Secretary is Simon Smith B.Bus CA. Mr. Smith has been a Chief Financial Officer of both private and public companies in Australia and the USA. He brings 20 years’ experience in the business world as a Chartered Accountant and holds a Bachelor’s Degree in Business from the University of Technology Sydney. Mr. Smith was the CFO and Company Secretary for TriAusMin prior to the merger with Heron Resources. General Manager - Exploration and Geology The Exploration Manager, David von Perger BSc (Hons) MAusIMM was appointed to this position in February 2006. Mr von Perger is a geologist with some 20 years’ experience in mineral exploration having worked in several locations around Australia. Mr von Perger has worked on various styles of mineral deposits including Archaean gold and nickel, and Proterozoic base-metals and iron-ore. His experience includes four years as a business analyst for a major mining group involving analysis of mining operations, project development and assessment of new opportunities. Since his appointment with Heron in February 2004, Mr von Perger has been responsible for the identification and acquisition of several new nickel, gold, iron-ore and base-metal projects. General Manager - Strategy & Business Development Charlie Kempson MEng (Oxon), MBA, GAICD is a senior corporate finance executive who was most recently an equity partner and Director of Azure Capital Limited, a mining focused leading independent Perth-based corporate advisor, where he worked for nine years advising boards and senior executives across a range of industries including mining, oil & gas and related services on business development, corporate strategy, finance, and mergers and acquisitions. Prior to his arrival in Australia in 2002 Mr Kempson spent five years with investment banks Commerzbank AG and Barclays Capital in London and Germany, and four years working in technical roles for Logica (now part of CGI Group). General Manager – Woodlawn Brian Hearne is the General Manager of Woodlawn Mine. Mr. Hearne is a qualified mining professional and holds a degree in metallurgy (BAppSc) . Mr. Hearne has extensive base-metals previously having had a 16-year tenure at Woodlawn, starting in 1978, with a further 2 years at the Benambra Mine in Victoria. He then joined MIM at McArthur River (MRM) as the Metallurgical Manager, and following a number of General Manager roles within MIM / Xstrata both in Australia and overseas and was appointed COO of Xstrata Zinc Australia. PRINCIPAL ACTIVITIES The principal activities of the Consolidated Entity during the year were base and precious metal mineral exploration and development through sole funded and joint venture activities. The company’s principal focus during the 2016/17 financial year was seeking project finance for the Woodlawn Project. OPERATING RESULTS The loss of the consolidated entity for the 2017 financial year after income tax of nil (2016: nil) was $2,856,542 (2016: $4,246,438). DIVIDENDS No dividends were paid during the year and the Directors do not recommend the payment of a dividend. OPERATIONS REVIEW The detailed review of operations of the Consolidated Entity for the year is contained in Section 2.0 of the final printed Annual Report. Management’s discussion and analysis for the three and twelve month period ending 30 June 2017 can be found in Appendix 2 of this report. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS On February 9 2017, the spin-out of the Company’s non-Woodlawn assets into Ardea Resources Limited ("Ardea") resulted in the successful ASX listing of Ardea on 9 February 2017. Heron shareholders received a 1 for 10 in specie distribution of Ardea shares. There were no significant changes in the state of affairs of the Consolidated Entity during the year. Page 32 - Heron Resources Limited - Annual Report 2017 4.0 DIRECTORS’ REPORT CONTINUED MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR On 4 July, 2017 Castlelake were issued with 45.85 million shares to raise $3.21 million, being the initial subscription under the equity subscription agreement with Castlelake. A General Meeting of shareholders was held on 17 August, 2017 at which Shareholders approved the Woodlawn financing. Funds from the financing will be received on or around 6 September 2017 with construction on site commencing shortly thereafter. Other than noted at the date of this Report there is no matter or circumstance which has arisen since 30 June 2017 that has significantly affected or may significantly affect: (cid:129) (cid:129) (cid:129) The operations, in the financial years subsequent to 30 June 2017, of the Consolidated Entity; The results of those operations; or The state of affairs, in the financial years subsequent to 30 June 2017, of the Consolidated Entity. OPTIONS Options issued during the year are noted below and were issued under the Employee Share Ownership Plan (ESOP) approved by Shareholders at the 2015 AGM. There were no options exercised during the year Number Issued 400,000 2,650,000 Expiry Date 1-Sep-21 1-Feb-22 Exercise Price $0.134 $0.11 The following Options expired during the year: Number Issued 5,000,000 400,000 1,000,000 21,459 333,334 6,754,793 Expiry Date 7-Sep-16 27-June-16 05-Mar-17 04-Feb-17 16-Jan-17 Exercise Price $0.6864 $0.092 $0.27 $0.27 $0.31 As at the date of this report the Company had the following options on issue: Date Options Granted 3 April 2013 5 August 2014 5 August 2014 5 December 2015 1 September 2016 1 February 2017 Expiry Date 5-Mar-18 23-Oct-17 20-Nov-18 4-Dec-20 1-Sep-21 1-Feb-22 TOTAL Number Issued 1,000,000 21,459 858,369 19,900,000 400,000 2,650,000 24,829,828 Exercise Price $0.29 $0.12 $0.07 $0.072 $0.134 $0.11 No option holder has any right under the options to participate in any other share issue of the Company or of any other entity. LIKELY DEVELOPMENTS Further information on the likely developments in the operations of the Consolidated Entity and the expected results of those operations have not been included in this Report because the Directors believe it would be likely to result in unreasonable prejudice to the Consolidated Entity. Heron Resources Limited - Annual Report 2017 - Page 33 4.0 DIRECTORS’ REPORT CONTINUED DIRECTORS AND KEY MANAGEMENT PERSONNEL SHAREHOLDINGS IN THE COMPANY As at the date of this Report the interests of the Directors in the Shares of the Company were: Directors I J Buchhorn S B Dennis W Taylor B Putnam F Robertson M Sawyer Key Management Personnel A Lawry D von Perger S Smith C Kempson Brian Hearne DIRECTORS MEETINGS Ordinary Shares Option over Ordinary Shares Direct 2,518,241 - 268,618 - - - - 478,136 72,961 - - Indirect 44,272,718 1,350,000 1,595,905 - 500,000 - 170,000 130,000 200,000 3,208,474 - Direct 3,000,000 1,000,000 4,858,369 1,000,000 1,000,000 1,000,000 1,650,000 1,650,000 1,650,000 2,650,000 1,650,000 Indirect - - - - - - - - - - - During the year the Company held 11 meetings of Directors. The attendance of the Directors at meetings of the Board were: Director Meetings held while a director S Dennis I Buchhorn (resigned 2 June 2017) W Taylor B Putnam F Robertson M Sawyer 11 10 11 11 11 11 REMUNERATION REPORT (AUDITED) Number of meetings attended Audit Committee Meetings held & attended Remuneration and Nomination Committee meetings held & attended 11 10 11 10 10 10 4 - - 4 4 - 1 - - 1 1 - The Board seeks independent advice on remuneration policies and practices, involving the remuneration packages and terms of employment of Directors. Remuneration levels are competitively set to attract the most qualified and experienced Directors and Senior Executive Officers in the context of prevailing market conditions. There is no direct link between Director and Senior Executive remuneration and corporate performance, other than the performance conditions attaching to options. Remuneration levels and other terms of employment for Mr Taylor, Mr Smith, Mr Buchhorn, Mr Lawry, Mr Kempson, Mr von Perger and Mr Hearne are formalised in service agreements/work contracts. The base salary amounts below reflect their current salary, not the amounts paid to them during the 16/17 financial year. The agreement with Mr Taylor requires the provision of his services as Managing Director and CEO of the Company and contains the following major provisions: (cid:129) (cid:129) (cid:129) No fixed term; Current base salary of $400,000 exclusive of 15% superannuation; and In the event that the Company terminates Mr Taylor’s employment other than for matters concerning fraud and dishonesty and the like the Company will pay Mr Taylor the maximum amount payable in accordance with the formula prescribed by section 200G of the Corporations Act. The length of notice to be given by both parties on termination is six months. The agreement with Mr Buchhorn requires the provision of his services as Executive Director of the Company and contains the following major provisions: (cid:129) (cid:129) (cid:129) No fixed term; Current base salary of $321,000 exclusive of superannuation; and As announced by the Company, Mr. Buchhorn stepped down as a Heron Director on 2 June 2017. Mr. Buchhorn's employment will be terminated by the Company following the successful completion of the Woodlawn project finance on or around 6 September 2017. Under Mr. Buchhorn's Executive Service Agreement, he is entitled to a termination payment of $2,291,105, of which $1,384,519 was paid into an escrow account prior to 30 June 2017 and the remaining portion will be remitted to the ATO following financial close. Page 34 - Heron Resources Limited - Annual Report 2017 4.0 DIRECTORS’ REPORT CONTINUED The agreement with Mr Smith requires the provision of his services as General Manager – Finance and Administration and Company Secretary of the Company and contains the following major provisions: (cid:129) (cid:129) (cid:129) No fixed term; Current base salary of $292,500 exclusive of superannuation; and Termination can be made by either Mr Smith or the Company by giving not less than three months’ notice. The agreement with Mr Lawry requires the provision of his services as Chief Operating Officer of the Company and contains the following major provisions: (cid:129) (cid:129) (cid:129) No fixed term; Current base salary of $340,000 exclusive of superannuation; and Termination can be made by either Mr Lawry or the Company by giving not less than three months’ notice. The agreement with Mr von Perger requires the provision of his services as Exploration Manager of the Company and contains the following major provisions: (cid:129) (cid:129) (cid:129) No fixed term; Current base salary of $280,000 exclusive of superannuation plus car; and Termination can be made by either Mr Von Perger or the Company by giving not less than three months’ notice. The agreement with Mr Kempson requires the provision of his services as General Manager Strategy and Business Development of the Company and contains the following major provisions: (cid:129) (cid:129) (cid:129) No fixed term; Current base salary of $292,500 exclusive of superannuation; and Termination can be made by either Mr Kempson or the Company by giving not less than three months’ notice. The agreement with Mr Hearne requires the provision of his services as General Manager - Woodlawn of the Company and contains the following major provisions: No fixed term; (cid:129) Current base salary of $280,000 exclusive of superannuation; and (cid:129) Termination can be made by either Mr Hearne or the Company by giving not less than three months’ notice. (cid:129) Non-executive Directors, Stephen Dennis, Borden Putnam, Fiona Robertson and Mark Sawyer, received a fixed fee for their services as directors. Non-executive Directors fees not exceeding an aggregate of $500,000 per annum have been approved by the Company in a general meeting on the 5 June 2007. There is no direct link between non-executive Directors fees and corporate performance. There are no termination or retirement benefits for non-executive Directors (other than statutory superannuation). In August 2017 year-end bonuses were approved by the remuneration committee for W Taylor ($60,000), D Von Perger ($27,500), A Lawry ($45,000), S Smith ($40,000), C Kempson ($50,000) and, B Hearne ($7,500). These were granted based on an assessment of their performance in the year in achieving key milestones and deliverables as part of the Company's Short Term Incentive (STI) program. Awards made under the STI program are entirely discretionary. They are disclosed as ‘Short Term Incentives” in the table below. In August 2017 Mr Dennis received a "one- off" payment of $30,000 in recognition for his significant additional services in his role as Chairman in 2017 in connection with Woodlawn financing and related matters. Other than outlined above, since the end of the previous financial year, no Director has received or become entitled to receive a benefit, other than benefits disclosed in the financial statements. 2017 Short-term -----------------benefits------------------ Cash salary Non-cash Short Term Incentive $ & fees $ $ Post-employment --------benefits------- Retirement Super- annuation $ $ 321,101 97,500 367,000 76,650 70,000 76,650 Directors I J Buchhorn S B Dennis W Taylor B Putnam F Robertson M Sawyer Key Management Personnel (“KMP”) D von Perger A Lawry C Kempson S Smith B Hearne 261,468 310,000 261,468 261,000 163,958 Total 2,266,795 - - - - - - 6,148 - - - - 6,148 - 30,000 60,000 - - - 27,500 45,000 50,000 40,000 7,500 30,505 12,113 64,050 - 6,650 - 27,452 33,250 29,589 29,070 16,288 260,000 248,967 - - - - - - - - - - - - Termination payments $ 2,291,105 - - - - - - - - - - Share- based payment Total $ 74,240 24,786 98,987 24,786 24,786 24,786 40,832 40,832 40,832 40,832 22,086 $ 2,716,951 164,399 590,037 101,436 101,436 101,436 363,400 429,082 381,889 370,902 209,832 2,291,105 457,785 5,530,800 Heron Resources Limited - Annual Report 2017 - Page 35 4.0 DIRECTORS’ REPORT CONTINUED 2016 Short-term -----------------benefits------------------ Cash salary Non-cash Short Term Incentive $ & fees $ $ Post-employment --------benefits------- Super- Retirement annuation $ $ 321,000 90,000 367,000 76,650 70,000 70,262 Directors I J Buchhorn S B Dennis W Taylor B Putnam F Robertson M Sawyer Key Management Personnel (“KMP”) D von Perger A Lawry C Kempson S Smith 261,468 310,000 261,468 261,000 2,266 - - - - - 10,041 - - - - - 55,000 - - - 40,000 40,000 40,000 40,000 30,495 8,550 63,300 - 6,650 - 28,639 33,250 28,639 28,595 Total 2,088,848 12,307 215,000 228,118 - - - - - - - - - - - Termination payments $ - - - - - - - - - - - Share- based payment Total $ 61,664 20,554 104,318 20,554 20,554 20,554 33,915 33,915 51,650 33,915 $ 415,425 119,104 589,618 97,204 97,204 90,816 374,063 417,165 381,757 363,510 401,593 2,945,866 Fair values for the options at grant date, as included in the previous table, were determined using Black and Scholes that took into account the exercise price of the Option, the term of the Option, the vesting and performance criteria, the non-tradable nature of the Option, the Share price at grant date and the expected price volatility of the underlying Share and the risk-free interest rate for the term of the Option. Under the Plan, the options vest upon the successful achievement of a number of key milestones at Woodlawn, being the successful draw down of Project finance debt, completion of construction of the processing plant and 1Mt processed through the plant. Shares Directors I Buchhorn S Dennis W Taylor B Putnam F Robertson M Sawyer Key Management Personnel A Lawry D von Perger C Kempson S Smith B Hearne Held at Purchased on market 1 July 2016 Sold Held at 30 June 2017 46,790,959 1,350,000 1,864,523 - 500,000 - 170,000 608,136 3,508,474 132,961 - - - - - - - - - - - - - - - - 140,000 - - - (300,000) - - 46,790,959 1,350,000 1,864,523 - 500,000 - 170,000 608,136 3,208,474 272,961 - Page 36 - Heron Resources Limited - Annual Report 2017 Options Directors I Buchhorn W Taylor S Dennis F Robertson B Putnam M Sawyer Key Management Personnel D von Perger C Kempson A Lawry S Smith B Hearne 4.0 DIRECTORS’ REPORT CONTINUED Expiry Date Exercise Price Held at 1 July 2016 Issued Expired /lapsed 7 Sept 2016 4 December 2020 20 November 2018 4 December 2020 4 December 2020 4 December 2020 4 December 2020 4 December 2020 4 December 2020 5 March 2017 5 March 2018 4 December 2020 4 December 2020 4 December 2020 1 February 2022 $0.68 $0.072 $0.07 $0.072 $0.072 $0.072 $0.072 $0.072 $0.072 $0.25 $0.29 $0.072 $0.072 $0.072 $0.11 5,000,000 3,000,000 858,369 4,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,650,000 1,000,000 1,000,000 1,650,000 1,650,000 1,650,000 - 25,458,369 - - - - - - - - - - - - - - 1,650,000 1,650,000 (5,000,000) - - - - - - - (1,000,000) - - - - - Held at 30 June 2017 - 3,000,000 858,369 4,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,650,000 - 1,000,000 1,650,000 1,650,000 1,650,000 1,650,000 (6,000,000) 21,108,369 EMPLOYEE DIVERSITY Women currently represent 38% of employees in the Company as a whole. There is currently one woman on the Board. INDEMNITY AND INSURANCE OF OFFICERS During the financial year, the company paid a premium in respect of a contract to insure the directors and executives of the company against a liability to the extent permitted by the Corporations Act 2001. The insurance premium relates to liabilities that may arise from an officers position within the Company, with the exception of conduct involving a willful breach of duty or improper use of information or position to gain personal advantage. The officers covered by the insurance policies are the Directors and Officers of the Company. The contract of insurance prohibits the disclosure of the nature of the liabilities and the amount of premium. The company has indemnified the directors and executives of the company for costs incurred, in their capacity as a director or executive, for which they may be held personally liable, except where there is a lack of good faith. CORPORATE GOVERNANCE The Company has undertaken a thorough review of its Corporate Governance practices and policies in accordance with both the TSX and ASX Corporate Governances Best Practices Recommendations. Following guidance from the ASX the Corporate Governance policy can be found on our website in line with Listing Rule 4.10.3. ENVIRONMENTAL REGULATION The Consolidated Entity is subject to and compliant with all aspects of environmental regulation in respect of its exploration and development activities. The Directors are not aware of any environmental regulation which is not being complied with. ABORIGINAL CULTURE AND HERITAGE The Consolidated Entity is subject to and compliant with all aspects of Aboriginal Heritage regulation in respect of its exploration and development activities. The Directors are not aware of any regulation which is not being complied with. The Directors are committed to cultural respect in undertaking business activities of the Company. Heron Resources Limited - Annual Report 2017 - Page 37 4.0 DIRECTORS’ REPORT CONTINUED NON-AUDIT SERVICES The Consolidated Entity has not employed the auditor on any assignments additional to their statutory audit duties. INDEMNIFICATION OF AUDITORS To the extent permitted by law, the Company has agreed to indemnify its auditors, Ernst & Young Australia, as part of the terms of its audit engagement agreement against claims by third parties arising from the audit (for an unspecified amount). No payment has been made to indemnify Ernst & Young during or since the financial year. ROUNDING OFF The Company is of a kind referred to in Corporations Instruments and in accordance with that Corporations Instruments, amounts in the financial report and directors' report have been rounded off to the nearest thousand dollars, unless otherwise stated. AUDITOR’S INDEPENDENCE DECLARATION A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on the following page. Signed in accordance with a resolution of Directors S Dennis Chairman Sydney, 29 August 2017 Page 38 - Heron Resources Limited - Annual Report 2017 Heron Resources Limited - Annual Report 2017 - Page 39 5.0 Consolidated Financial Statements CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2017 OTHER INCOME Accountancy fees Audit fees Depreciation expense Directors fees Employee benefits expense Termination – severance payment (1) Insurance expense Legal fees Equity settled share based payments Rental Expenses Other expenses from ordinary activities Exploration expenditure expensed as incurred Exploration expenditure written off Investment gain/(loss) (LOSS) FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE INCOME TAX EXPENSE (LOSS) FROM ORDINARY ACTIVITIES AFTER INCOME TAX EXPENSE (LOSS) ATTRIBUTABLE TO MEMBERS OF THE PARENT ENTITY OTHER COMPREHENSIVE INCOME Changes in market value of financial assets TOTAL COMPREHENSIVE LOSS FOR THE YEAR Basic earnings per Share Diluted earnings per Share Notes 2 3(a) 16(b) 3(b) 10 10 7 4 23 23 Consolidated Entity 2016 $'000 2017 $'000 422 (96) (87) (60) (320) (998) (2,291) (94) (99) (554) (137) (1,213) (1,341) - 4,011 (2,857) - (2,857) (2,857) - (2,857) $ (0.006) (0.006) 1,081 (11) (18) (57) (310) (1,034) - (75) (166) (457) (340) (892) (1,714) (1,181) 921 (4,253) - (4,253) (4,253) - (4,253) $ (0.0104) (0.0104) (1) Please refer to Remuneration Report (page 36) for further information on the termination payment to former Heron Director, Mr Ian Buchhorn. The accompanying notes form part of these financial statements Page 40 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2017 CURRENT ASSETS Cash and cash equivalents Trade and other receivables TOTAL CURRENT ASSETS NON-CURRENT ASSETS Other Assets - deferred costs Trade and other receivables Investments Property, plant and equipment Exploration and evaluation costs carried forward TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables Provisions TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Provisions TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Option reserve Accumulated losses TOTAL EQUITY Notes 17(c) 5 6 8 7 9 10 11 12 13 14 16(b) 16(a) Consolidated Entity 2016 $'000 2017 $'000 11,690 717 12,407 2,481 35 5,775 40 26,434 34,765 47,172 2,461 564 3,025 137 3,162 22,891 522 23,413 - 35 1,907 436 31,068 33,446 56,859 893 840 1,733 42 1,775 44,010 55,084 129,638 1,489 (87,117) 44,010 138,409 935 (84,260) 55,084 The accompanying notes form part of these financial statements Heron Resources Limited - Annual Report 2017 - Page 41 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2017 Notes Issued Capital $’000 Accumulated Losses $’000 Option Reserve $’000 As at 30 June 2016 Total comprehensive income for the year 138,409 - (84,260) (2,857) Return of Capital - Spin-out Ardea Resources Ltd Option reserve write back Cost of share based payments 14 16(a) &(b) 16(b) (8,771) - - - - 935 - - (7) 561 Total $’000 55,084 (2,857) (8,771) (7) 561 As at 30 June 2017 129,638 (87,117) 1,489 44,010 As at 30 June 2015 Total comprehensive income for the year Issue of share capital Option reserve write back Cost of share based payments 14 16(a) & (b) 16(b) 131,680 - 6,729 - - (80,051) (4,253) - 44 - As at 30 June 2016 138,409 (84,260) 522 - - (44) 457 935 52,151 (4,253) 6,729 - 457 55,084 The accompanying notes form part of these financial statements Page 42 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE YEAR ENDED 30 JUNE 2017 CASH FLOWS FROM OPERATING ACTIVITIES Interest received & other income Expenses re-imbursed from Ardea Resources Ltd Payments to suppliers and employees NET CASH USED IN OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Exploration expenditure R&D Refund Proceeds from Sale of Tenements Sale of investments Sale of options Acquisition of plant and equipment Proceeds from sale of plant and equipment NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Cost of share issue Costs incurred for the Woodlawn Project Finance NET CASH PROVIDED BY FINANCING ACTIVITIES NET INCREASE / (DECREASE) IN CASH HELD Cash at the beginning of the reporting period CASH AT THE END OF THE REPORTING PERIOD Notes 17(a) 7 17(c) Consolidated Entity 2016 $'000 2017 $'000 322 226 (6,890) (6,342) (6,105) 3,171 100 334 131 (9) - 717 - (2,765) (2,048) (9,758) 2,302 - 1,656 - (18) 12 (2,378) (5,806) - - (2,481) (2,481) (11,201) 22,891 11,690 6,821 (91) - 6,730 (1,124) 24,015 22,891 The accompanying notes form part of these financial statements Heron Resources Limited - Annual Report 2017 - Page 43 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTES TO AND FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2017 NOTE 1. STATEMENT OF ACCOUNTING POLICIES The Company is a public company limited by shares. The Company was incorporated in Western Australia. The Company is a for profit entity for the purpose of preparing the financial statements. The following is a summary of the material accounting policies adopted by Heron Resources Limited and its controlled entities (the Company) in the preparation of the financial statements. a) Basis of preparation The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (AASB's) (including Australian interpretations) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). The financial report also complies International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) In the application of AIFRS, management is required to make judgments, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and various factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgment. Actual results may differ from these estimates. These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit and loss, certain classes of property, plant and equipment and investment property. The consolidated financial statements are presented in Australian Dollars which is the consolidated entity's functional and presentation currency. The Company is of a kind referred to in ASIC Corporations Instrument 2016/191 and in accordance with that Corporations Instrument, amounts in the financial report and directors' report have been rounded off to the nearest thousand dollars, unless otherwise stated. b) Basis of consolidation Subsidiaries are entities controlled by the Company. Control exists when the Company has power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Investments in subsidiaries are carried at their cost of acquisition in the Company's financial statements. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. All inter-company balances and transactions between entities in the Company, including any unrealised profits or losses, have been eliminated on consolidation. c) Income tax The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the notional income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability at the same time. The resulting deferred tax assets of the Company are currently not recognised and included as an asset because recovery is considered not probable in the next five years. Heron Resources Limited and its wholly owned Australian controlled entities have implemented the tax consolidated legislation as of 1 July 2003. Page 44 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 1. STATEMENT OF ACCOUNTING POLICIES CONTINUED d) Segment reporting A segment is a distinguishable component of the Company that is engaged in the minerals industry in Australia. The Company's activities are divided into five main categories and this information is presented on the same basis as the internal reports provided to the Chief Operating Decision Makers (‘CODM’). The CODM is responsible for the allocation of resources to operating segments and assessing their performance. The CODM reviews segmental information on a monthly basis vs budget. The accounting policies adopted for internal reporting are consistent with those adopted in the financial statements. Woodlawn – Tenements related to the Woodlawn Underground Project (WUP) and Woodlawn Retreatment Project (WRP) Exploration - Tenements not KNP, Lewis Ponds or Woodlawn related. Corporate – Corporate activity. On the 7th February 2017 Ardea was successfully spun out of Heron. KNP and Lewis Ponds are now owned by Ardea Resources. e) Revenue recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, duties and taxes paid. The main revenue is interest received, which is recognised on an accrual basis using the effective interest rate method. f) Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses where applicable. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation and amortisation on assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, are as follows: Motor Vehicles 3-5 years Fixtures and Fittings Plant and Equipment Land and Buildings 5-15 years 5-15 years 15-25 years Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of profit or loss and other comprehensive income during the financial period in which they are incurred. g) Exploration, evaluation, development and restoration costs Exploration, evaluation and development expenditure incurred is expensed at the end of the reporting period unless it relates to a specific project in which case it is carried forward to the extent that it is expected to be recouped through the successful development of the area, or by its sale. During 2017 all expenses capitalised relate to the Woodlawn project. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made. Accumulated costs are not carried forward in respect of any area of interest unless rights to tenure of that area are current. Restoration costs that are expected to be incurred are provided for as part of the cost of the exploration, evaluation and development phases that give rise to the need for restoration. h) Investments Initial recognition and measurement Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss, loans and receivables, held- to-maturity investments. All financial assets are recognised initially at fair value plus, in the case of financial assets not recorded at fair value through profit or loss, transaction costs that are attributable to the acquisition of the financial asset. Purchase or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, ie the date that the Group commits to purchase or sell the asset. Heron Resources Limited - Annual Report 2017 - Page 45 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 1. STATEMENT OF ACCOUNTING POLICIES CONTINUED Subsequent measurement For purposes of subsequent measurement, financial assets are classified in four categories: (cid:129) (cid:129) (cid:129) (cid:129) Financial assets at fair value through profit or loss Loans and receivables Held-to-maturity investments AFS financial assets Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments as defined by AASB 139. Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with net changes in fair value presented as finance costs (negative net changes in fair value) or finance income (positive net changes in fair value) in the statement of profit or loss. The fair value of financial assets at fair value through profit and loss is determined under level 1 of the fair value hierarchy, being quoted prices on the ASX. Trade and other receivables Trade and other receivables are stated at their cost and are due for settlement no more than 30 days from the date of invoicing. Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with the banks, other short term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts, if any, are shown within short-term borrowings on the statement of financial position. i) j) k) Impairment Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). l) Employee benefits (i) Wages and salaries, annual leave Liabilities for wages and salaries and annual leave are recognised as employee benefits in respect of employee's services up to the reporting date and are measured at the amounts to be paid when the liabilities are settled. The company has a policy of employees using their Annual Leave every year and as a result Annual Leave is not discounted to a present value. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service and final average salary. m) Share-based payment transactions The Company provides benefits to the Directors and employees of the Company in the form of share based payment transactions, whereby services are rendered in exchange for shares or rights over shares ("Equity-settled transactions"). An Employee Share Option Plan ("ESOP") provides benefits to Directors, employees and consultants. The cost of these equity-settled transactions is measured by reference to fair value at the date at which they are granted. The fair value is determined by using the Black-Scholes model. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of Heron Resources Limited ("market conditions"). The cost of equity-settled securities is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant individual becomes fully entitled to the award ("vesting date"). Where the Company acquires some form of interest in an exploration tenement or an exploration area of interest and the consideration comprises share-based payment transactions, the fair value of the equity instruments granted is measured at grant date. The cost of equity securities is recognised within capitalised mineral exploration and evaluation expenditure, together with a corresponding increase in equity. Page 46 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 1. STATEMENT OF ACCOUNTING POLICIES CONTINUED n) Provisions Provisions for legal claims and service warranties are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. o) Trade and other payables Trade and other payables are stated at cost. The amounts are unsecured and are usually paid on 30 days. p) Dividends No dividends have been paid or proposed during or since the end of the year. q) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to the ATO are classified as operating cash flows. r) Contributed equity Incremental costs directly attributed to the issue of new shares or options are shown in the equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. s) Critical accounting estimates and assumptions Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. t) Significant accounting judgments, estimates and assumptions The carrying amounts of certain assets and liabilities are often determined based on estimates and assumptions of future events. The key estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of certain assets and liabilities within the next annual reporting period are: Capitalisation of exploration and evaluation expenditure Under AASB 6 Exploration for and Evaluation of Mineral Resources the Group has the option to either expense exploration and evaluation expenditure as incurred or to capitalise such expenditure provided that certain conditions are satisfied. The Group's policy is closer to the former as outlined in note 1 (g). The Company's policy is capitalise all expenditure related to the Woodlawn project as there is sufficient evidence to conclude that Woodlawn will become an operating mine in the foreseeable future. Impairment of property, plant and equipment Property, plant and equipment is reviewed for impairment if there is any indication that the carrying amount may not be recoverable. Where a review for impairment is conducted, the recoverable amount is assessed by reference to the higher of 'value in use' (being net present value of expected future cash flows of the relevant cash generating unit) and 'fair value less costs to sell'. Share based payment transactions The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using either the Black-Scholes or Binomial methodology. Options in Ardea Resources Ltd During the year, the Company received 10,000,000 options with an exercise price of $0.25 cents in Ardea Resources as consideration for the costs incurred by Heron in the Ardea IPO. The fair value is determined by using either the Black-Scholes. New, revised or amending Accounting Standards and Interpretations adopted Heron Resources has adopted the following new and amended accounting standards from 1 July 2017: AASB 2015-2 Disclosure Initiative Amendment to AASB 101 - This Standard amends AASB 101 Presentation of Financial Statements to clarify existing presentation and disclosure requirements and to ensure entities are able to use judgement when applying the Standard in determining what information to disclose, where and in what order information is presented in their financial statements. Heron Resources Limited - Annual Report 2017 - Page 47 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 1. STATEMENT OF ACCOUNTING POLICIES CONTINUED AASB 2014-4 Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of Depreciation and Amortisation. The amendments clarify the principle in AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. Adoption of these standards did not have any material effect on the Statement of Financial Performance, Statement of Comprehensive Income and Statement of Financial Position of the Group. Accounting standards issued but not yet effective Australian Accounting Standards and Interpretations that have been issued or amended but are not yet effective have not been adopted by the Consolidated Entity for the year ended 30 June 2017. At this time the following standards and interpretations may have an impact, but the extent of this is not expected to be material: AASB 2016-1 Recognition of Deferred Tax Assets for Unrealised Losses - The amendments to AASB 112 Income Taxes clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. Effective for annual periods beginning on or after 1 January 2017. (Company 1 July 2017). ASB 2016-2 Disclosure Initiative - The amendments to AASB 107 Statement of Cash Flows require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). AASB 9 Financial Instruments - A new Principal standard which replaces AASB 139. This new Principal version includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. Effective for annual periods beginning on or after 1 January 2018. (Company 1 July 2018). AASB 15 Revenue from Contracts with Customers. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Effective for annual periods beginning on or after 1 January 2018. (Company 1 July 2018). As the group is not generating revenue, there is no impact on current reporting. AASB 16 Leases. AASB 16 requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases. Effective for annual periods beginning on or after 1 January 2019. (Company 1 July 2019). At this time the following interpretation may have an impact, but the extent of this has not been determined: Interpretation 23 Uncertainty over Income Tax Treatments. The Interpretation clarifies the application of the recognition and measurement criteria in AASB 112 Income Taxes when there is uncertainty over income tax treatments. Effective for annual periods beginning on or after 1 January 2019. (Company 1 July 2019). u) Capital risk management The Group's and the parent entity's objectives when managing capital are to safeguard their ability to continue as a going concern, so that they can continue to fund exploration activities and develop or secure access to a cash producing asset. Consistent with others in the industry, the Group and the parent entity monitor capital on the basis of working capital requirements. During 2017 the Group's strategy, which was unchanged from 2016, was to maintain a current account balance sufficient to meet the Company's day to day expenses with the balance held in term deposits. v) Business combinations The acquisition method of accounting is used to account for business combinations regardless of whether equity instruments or other assets are acquired. The consideration transferred is the sum of the acquisition-date fair values of the assets transferred, equity instruments issued or liabilities incurred by the acquirer to former owners of the acquiree and the amount of any non-controlling interest in the acquiree. For each business combination, the non-controlling interest in the acquiree is measured at either fair value or at the proportionate share of the acquiree's identifiable net assets. All acquisition costs are expensed as incurred to profit or loss. On the acquisition of a business, the consolidated entity assesses the financial assets acquired and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the consolidated entity's operating or accounting policies and other pertinent conditions in existence at the acquisition-date. Business combinations are initially accounted for on a provisional basis. The acquirer retrospectively adjusts the provisional amounts recognised and also recognises additional assets or liabilities during the measurement period, based on new information obtained about the facts and circumstances that existed at the acquisition-date. The measurement period ends on either the earlier of (i) 12 months from the date of the acquisition or (ii) when the acquirer receives all the information possible to determine fair value. Page 48 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 1. STATEMENT OF ACCOUNTING POLICIES CONTINUED w) Fair Value AIFRS accounting principles require that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made at the balance sheet date based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The carrying values for short-term investment, sundry receivables and prepaid expenses, subscription receivable, and accounts payable and accrued liabilities on the balance sheet approximate fair value because of the limited term of these instruments. The Company has designated its cash as held-for-trading, which is measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities, which are measured at amortized cost. Consolidated Entity 2016 $'000 2017 $'000 NOTE 2. OTHER INCOME Revenues from continuing activities Gain / (Loss) of fixed assets Gain / (Loss) on sale of investments Interest received - other persons/corporations Proceeds from disposal of interest in Rocky Gully Proceeds from disposal of interest in Overflow Proceeds from disposal of interest in Siberia tenement Sundry Income Total revenues from continuing activities - - 282 - - 100 40 422 NOTE 3. OPERATING EXPENSES The profit / (loss) before income tax expense has been determined after charging a number of items including the following: a) Depreciation expense Plant & equipment Office equipment & furniture Motor vehicles b) Other expenses includes the following: Stock exchange (ASX and TSX) Travel & accommodation Office expenses and supplies Computer support services Report expenses and printing Conferences and seminars Investor Relations Miscellaneous expenses Total other expenses (13) (41) (6) (60) (63) (200) (105) (189) (55) (18) (328) (255) (1,213) (6) 35 717 288 26 - 21 1,081 (7) (46) (4) (57) (94) (122) (106) (88) (67) (22) (284) (109) (892) Heron Resources Limited - Annual Report 2017 - Page 49 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Consolidated Entity 2016 $'000 2017 $'000 - - - - - - NOTE 4. a) INCOME TAX Temporary differences carried forward Current Tax Deferred tax The Heron Resources Limited group of companies was tax consolidated on 1 July 2003 and during the year the Company entered into a tax sharing and/or tax funding agreements with its members. The parent entity made a tax loss and on consolidation the group made a tax loss. The parent and the subsidiaries have substantial tax losses carried forward. The Directors are of the view that there is insufficient probability that the parent entity and its subsidiaries will derive sufficient income in the foreseeable future to justify recognising the tax losses and temporary differences as deferred tax assets and deferred tax liabilities. Heron Resources Limited is the head entity for the group. Numerical reconciliation of income tax expense to prima facie tax payable is as follows: Profit (loss) from operations before income tax expense Tax at Australian tax rates of 27.5% (2016 28.5%) Tax effect of non-temporary differences Tax effect of equity raising costs debited to equity Over or under provision from previous years Tax effect of tax losses and temporary differences not recognised Income tax expense (2,857) (787) (964) (5) - 1,756 - There is no amount of tax benefit recognised in equity as the tax effect of temporary differences has not been booked b) c) d) e) Tax Losses - Revenue Unused tax losses for which no tax loss has been booked as a DTA adjusted for non temporary differences Potential tax benefit at 27.5% (2016 28.5%) Unrecognised temporary differences Non deductible amounts as temporary differences Accelerated deductions for book compared to tax Total at 100% Potential effect on future tax expense for temporary differences at 27.5% (2016 28.5%) f) There are no franking credits available for future years NOTE 5. TRADE AND OTHER RECEIVABLES – CURRENT Prepayments Accrued interest Goods & services tax paid Ardea Resources Ltd - expense reimbursement Sundry Debtors Page 50 - Heron Resources Limited - Annual Report 2017 (4,253) (1,212) (119) (6) - 1,337 - 90,664 25,839 881 (1,002) (121) (35) 75 56 82 - 309 522 95,758 26,333 736 (8,633) (7,897) (2,171) 155 2 166 238 156 717 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Consolidated Entity 2016 $'000 2017 $'000 NOTE 6. OTHER ASSETS - DEFERRED COSTS - NON CURRENT Costs for Woodlawn Project Finance 2,481 - Costs for Woodlawn Project finance include external legal, broker, financial advisory costs and independent experts that are directly related to the Woodlawn project funding process. Once financial close occurs on or around 6 September 2017, these costs will be allocated to either cost of equity raised or cost of debt raised. NOTE 7 . INVESTMENTS IN ENTITIES - NON CURRENT Centennial Mining Ltd (CTL ,formerly A1 Consolidated) is an Australian listed public exploration company with 705,444,920 fully paid ordinary shares on issue. Heron holds 23,000,000 fully paid shares at 30 June 2017, which have been valued at the closing price of $0.02 on that day. Metalicity Limited (MCT) is an Australian listed public exploration company with 470,402,987 fully paid ordinary shares on issue. Heron holds 13,375,000 fully paid shares at 30 June 2017, which have been valued at the closing price of $0.04 on that day. During the year, the company sold 1,000,000 shares in Metalicity at an average price of $0.086 per share Alchemy Resources Ltd (ALY) is an Australian listed public exploration company with 342,335,585 shares on issue. In the prior year, the Company entered into a Farm out agreement with Alchemy Resources Ltd over its Overflow and Girilambone projects. In consideration, Heron received 2,000,000 shares in Alchemy which were escrowed for 1 year and 2,500,000 options with a 3 year term and an exercise price of $0.10 (nil value ascribed). The Alchemy shares are valued at closing price of $0.02 as at 30 June 2017. Ardea Resources Ltd (ARL) is an Australian listed public exploration company that was successfully spun out of Heron in February 2017. To compensate Heron for the costs it incurred during the IPO, Heron was issued 10,000,000 options in Ardea with an exercise price of $0.25 cents. The company has valued the options using the Black Scholes option pricing methodology using the following assumptions. The option are escrowed until February 2019. 10,000,000 Black Scholes 90 1.97% 9 February 2020 $0.25 $0.64 $0.474 Number of options Method adopted Average volatility (%) Average risk free interest rate (%) Expiry Date Exercise price Ardea Share price Value per option Investments in other entities at fair value Centennial Mining Metalicity Limited Newamu Pty Ltd Alchemy Resources Ltd Ardea Resources 30 June 2017 $'000 30 June 2016 $'000 460 535 - 40 4,740 5,775 673 1,006 178 50 - 1,907 Heron Resources Limited - Annual Report 2017 - Page 51 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 7. INVESTMENTS IN ENTITIES - NON CURRENTS CONTINUED Movement in investments Centennial Mining Opening carrying value 30 June 2016 (shares and options) Sold on market - Shares Sold on market – Options Mark to market – Options Mark to market - Shares Closing carrying value 30 June 2017 Metalicity Limited Opening carrying value 30 June 2016 Proceeds from issue of shares for Rocky Gully Sold on market - Shares Mark to market - Shares Closing carrying value 30 June 2017 Newamu Pty Ltd Opening carrying value 30 June 2016 Sold to Ardea Closing carrying value 30 June 2017 Alchemy Resources Limited Opening carrying value 30 June 2016 Proceeds from issue of shares for Overflow Farm In Mark to market - Shares Closing carrying value 30 June 2017 Ardea Resources Ascribed value of 10m Options as at date of IPO Mark to market – Options Closing carrying value 30 June 2017 Summary Opening carrying value 30 June 2016 Proceeds from sale of tenements/Farm-ins Sold to Ardea - Newamu Value of 10m Options Ardea Sold on market – Shares Sold on market – options Mark to market - Shares Mark to market – options - Ardea Closing carrying value 30 June 2017 Page 52 - Heron Resources Limited - Annual Report 2017 2017 $'000 673 (248) (131) - 166 460 1,006 - (86) (385) 535 178 (178) - 50 - (10) 40 - 500 4,240 4,740 2017 $'000 1,907 - (178) 500 (334) (131) (229) 4,240 5,775 2016 $'000 1,122 (47) - (98) (304) 673 75 288 (38) 681 1,006 178 - 178 - 26 24 50 - - - - 2016 $'000 2,328 314 - - (1,656) 921 - 1,907 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 8. TRADE AND OTHER RECEIVABLES - NON CURRENT Employee share option plan – non-recourse loan NOTE 9. PROPERTY, PLANT AND EQUIPMENT Plant and equipment at cost Accumulated depreciation Office equipment & furniture at cost Accumulated depreciation Motor vehicles at cost Accumulated depreciation Land and buildings at cost Transferred to Ardea Accumulated depreciation Total property, plant and equipment Reconciliation Plant and equipment: Carrying amount at 1 July 2016 Additions Disposals Depreciation Expense Carrying value at 30 June 2017 Office equipment and furniture: Carrying amount at 1 July 2016 Additions Disposals Depreciation Expense Carrying value at 30 June 2017 Motor vehicles: Carrying amount at 1 July 2016 Additions Disposals Depreciation Expense Carrying value at 30 June 2017 (1) Land and buildings: Carrying amount at 1 July 2016 Additions Assets transferred to Ardea Depreciation Expense Carrying value at 30 June 2017 Consolidated Entity 2016 $'000 2017 $'000 35 35 333 (325) 8 921 (904) 18 229 (216) 13 325 (325) - - 40 22 9 (9) (14) 8 70 - (12) (40) 18 19 - - (6) 13 325 - (325) - - 35 35 333 (311) 22 911 (841) 70 229 (210) 19 325 - - 325 436 22 7 - (7) 22 106 9 (2) (43) 70 24 - - (4) 19 341 2 (18) - 325 (1) Minor rounding required within reconciliation Heron Resources Limited - Annual Report 2017 - Page 53 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 10. EXPLORATION, EVALUATION AND DEVELOPMENT COSTS CARRIED FORWARD Balance brought forward Exploration and evaluation costs incurred - Woodlawn Ardea Spin-out (1) Exploration and evaluation costs incurred – other projects Exploration and evaluation expensed as incurred Exploration and evaluation impairment (1) R&D Tax incentive received Balance carried forward (1) 30 June 2017 $'000 30 June 2016 $'000 31,068 6,837 (8,300) 1,341 (1,341) - (3,171) 26,434 27,119 7,432 - 1,714 (1,714) (1,181) (2,302) 31,068 (1) On 10 August 2016, the Company announced the spin-out of the non Woodlawn assets into a separate company called Ardea. The capitalised exploration assets that were spun-out of the Company into the Ardea IPO were Lewis Ponds and KNP. The value of the Ardea assets immediately prior to the IPO capital raise was $8.3M. This value was estimated with reference to the number of Ardea shares that existing Heron shareholders received under the 1 for 10 “in specie distribution” being 41.5M shares multiplied by the IPO price of $0.20 cents per share and other market information. Accordingly the KNP asset was impaired by $1.181M in the 2016 financial year, thereby giving a valuation of $8.3M when combined with the carrying value of Lewis Ponds. The ultimate recoupment of costs carried forward is dependent upon the successful development and/or commercial exploitation or alternatively, sale of respective areas of interest. Balance brought forward Exploration expenditure Ardea – Value of Asset spin-out to Ardea Capitalised exploration expenditure Exploration and evaluation expensed as incurred Exploration and evaluation impairment R&D refund received Balance carried forward Woodlawn $'000 22,768 - - 6,837 - - (3,171) 26,434 Lewis Ponds $'000 4,903 - (4,903) - - - - - KNP Exploration Total $'000 3,397 371 (3,397) - (371) - - - $'000 - 970 - - (970) - - - $'000 31,068 1,341 (8,300) 6,837 (1,341) - (3,171) 26,434 NOTE 11. TRADE AND OTHER PAYABLES – CURRENT Trade creditors and accruals - Woodlawn Trade creditors and accruals – Other Trade creditors are non-interest bearing and are normally settled on 30 day terms. NOTE 12. PROVISIONS – CURRENT Employee entitlements Annual Leave LSL Leave NOTE 13. PROVISIONS – NON CURRENT Employee entitlements LSL Leave Provision for rehabilitation Page 54 - Heron Resources Limited - Annual Report 2017 Consolidated Entity 2016 $'000 2017 $'000 733 1,728 2,461 421 143 564 107 30 137 329 564 893 426 384 840 42 30 42 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 14. CONTRIBUTED EQUITY Ordinary shares are fully paid and have no par value. They entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote. Issue of ordinary shares Opening balance Issue of shares Return of capital – Ardea Spin-out Closing balance NOTE 15. SEGMENT REPORTING 30 June 2017 Shares 30 June 2016 Shares 415,009,381 360,877,723 - - 54,131,658 - 415,009,381 415,009,381 30 June 2017 $’000 30 June 2016 $’000 138,409 - (8,771) 129,638 131,680 6,729 - 138,409 Geographic location of Segments are as follows - Corporate - Sydney and Perth office. Woodlawn - Tarago, NSW. Exploration - Lachlan Fold Belt in NSW. Segmental information for consolidated statement of comprehensive income: Year ended June 2017 Corporate Woodlawn Lewis Ponds Sale of fixed assets (loss) Sale of investments Interest received - other persons/corporations Sundry Income Total revenues Depreciation Exploration expenditure expensed as incurred Termination – severance Other expenses Profit / (loss) $'000 - 100 282 40 422 (33) - (2,291) 413 (1,489) $'000 - - - - - (27) - - - (27) $'000 - - - - - - - - - - Year ended June 2016 Corporate Woodlawn Lewis Ponds Sale of fixed assets (loss) Sale of investments Interest received - other persons/corporations Proceeds from Rocky Gully Proceeds from disposal Sundry Income Total revenues Depreciation Exploration expenditure expensed as incurred Impairment of exploration expenditure Other expenses Profit / (loss) $'000 - 35 717 288 26 21 1,087 (40) - - (2,382) (1,335) $'000 (6) - - - - - (6) (17) - - - (23) $'000 - - - - - - - - (169) - - (169) KNP $'000 - - - - - - (372) - - (372) KNP $'000 - - - - - - - - (927) (1,181) - (2,108) Exploration $'000 - - - - - - (970) - - (970) Exploration $'000 - - - - - - - - (618) - - (618) Total $'000 - 100 282 40 422 (60) (1,341) (2,291) 413 (2,857) Total $'000 (6) 35 717 288 26 21 1,081 (57) (1,714) (1,181) (2,382) (4,253) Heron Resources Limited - Annual Report 2017 - Page 55 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 15. SEGMENT REPORTING CONTINUED Segmental information for consolidated statement of comprehensive income: Balance at June 2017 Corporate Woodlawn Lewis Ponds Total current assets Property, plant and equipment Exploration and evaluation costs carried forward Investment Other non-current assets Total non-current assets Total assets Total liabilities $'000 12,407 40 - 5,775 2,516 8,331 $'000 - - 26,434 - - 26,434 20,738 26,434 1,783 1,349 $'000 - - - - - - - - Balance at June 2016 Corporate Woodlawn Lewis Ponds Total current assets Property, plant and equipment Exploration and evaluation costs carried forward Investments Other non-current assets Total non-current assets $'000 23,413 26 - 1,907 35 1,968 $'000 - 56 22,768 - - 22,824 $'000 - 325 4,903 - - 5,228 - - - - - - - KNP $'000 - - 3,397 - - 3,397 KNP $'000 - Exploration $'000 - Total $'000 12,407 - - - - - - 40 26,434 5,775 2,516 34,765 47,172 30 3,162 Exploration $'000 - Total $'000 23,413 29 - - - 29 29 436 31,068 1,907 35 33,446 56,859 Total assets Total liabilities NOTE 16. ACCUMULATED LOSSES AND RESERVES a) Accumulated Losses Balance at the beginning of the year Write back of expense for expired/lapsed options Net profit/(loss) Balance at end of the year The Company has retained a loss as at 30 June 2017. b) Option Reserve Balance at the beginning of the year Cost of share based payments Write back lapsed options expense Balance at end of the year 25,381 22,824 5,228 3,397 1,248 246 - - 281 1,775 Consolidated Entity 2016 $'000 2017 $'000 (84,259) (7) (2,857) (87,117) 935 561 (7) 1,489 (80,051) 44 (4,252) (84,260) 522 457 (44) 935 The option reserve is used to recognise the fair value of options issued and expensed over the vesting period and credited to this reserve. The shares will reverse against the share capital when the underlying options are exercised. Page 56 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 17. CASH FLOW STATEMENTS Reconciliation of operating loss after income tax to the net cash flows from operations: Operating loss after income tax Add/(less) Exploration and evaluation costs written off Depreciation Impairment of exploration expenses Share based payments Non-cash proceeds from disposal of Rocky Gully & Overflow (Profit)/loss on sale of shares (Profit)/loss on sale of fixed assets Investment (gain) Increase in prepayments and debtors (Increase)/decrease in accrued interest and GST receivable (Increases) in creditors, accruals and provisions a) b) c) Consolidated Entity 2016 $'000 2017 $'000 (2,857) 1,341 60 - 554 - - - (4,011) (229) 187 (1,387) (6,342) (4,252) 1,714 57 1,181 457 (314) (35) 6 (921) 204 (43) (101) (2,048) During the year there were no non cash transactions other than other than the 1 for 10 In Specie distribution that Heron shareholders received in the form of new Ardea Resources shares. Reconciliation of Cash Cash on hand and at bank Closing cash balance 11,690 11,690 22,891 22,891 Cash security for tenement & environmental bonds of $155,000 (2016 : $114,000) is included in Trade and Other Receivables on the Balance Sheet. This is not available to the Company for ordinary activities. Property bonds of $35,711 (2016: $48,865) are included in cash on hand and at bank. This amount is held as a security term deposit and is not available to the Company for ordinary activities. Heron Resources Limited - Annual Report 2017 - Page 57 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 18. RELATED PARTY TRANSACTIONS The Directors of the Company during the financial year were: Non-Executive Directors Stephen Dennis Fiona Robertson Borden Putnam III Mark Sawyer Executive Directors Wayne Taylor Ian Buchhorn (resigned on 2 June 2017) The Key Management Personnel other than Executive Directors for the financial year were (for full year unless stated): Chief Operating Officer Andrew Lawry General Manager - Finance and Company Secretary Simon Smith General Manager - Exploration Manager David von Perger General Manager - Strategy and Business Development Charlie Kempson General Manager - Woodlawn Brian Hearne Detailed remuneration disclosures are provided in the remuneration report on pages 34-37 of the Directors report. NOTE 19. FINANCIAL INSTRUMENTS a) b) The carrying value of financial assets and liabilities approximates fair value. Financial risk management The Company's activities expose it to a variety of financial risks; market risk (fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company. (i) Market risk Price risk The Company is exposed to equity securities price risk. This arises from investments held by the Group and classified on the statement of financial position at fair value through profit or loss. The Company is not directly exposed to commodity price risk although the potential economics of projects it is exploring and evaluating are affected by commodity prices. (ii) Foreign exchange risk The Company has a limited number of suppliers that invoice in foreign currencies and therefore foreign exchange risk is minimal. (iii) Credit risk The maximum credit risk is total current assets of which the vast majority is cash which is all A1+ rated. The largest part of trade and other receivables is interest. (iv) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. (v) Cash flow and fair value interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Currently the Company has no interest-bearing liabilities and therefore the Group's cash out flows are not exposed to changes in market interest rates. The Group maintains a current account balance sufficient to meet day to day expenses with the balance held in A1+ rated commercial paper investments or term deposits. Page 58 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 20. AUDITORS' REMUNERATION Amounts received or due and receivable for: Ernst & Young – Audit services NOTE 21. COMMITMENTS FOR EXPENDITURE a) Exploration Commitments Consolidated Entity 2016 $'000 2017 $'000 56 49 In order to maintain current rights of tenure to exploration and mining tenements, the Company estimates the following annual discretionary exploration expenditure requirements up until expiry or relinquishment of the mining tenure. Due to the Company's operation in exploring and evaluating areas of interest, exploration expenditure beyond twelve months cannot be reliably determined. These obligations are not provided for in the financial statements and are payable based on granted tenements: Not later than 1 year 527 2,435 If the Company decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the statement of financial position may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations. Those amounts detailed above include expenditure commitments which are the responsibility of earn-in / joint venture partners. If those joint venture partners continue to meet the expenditure commitments under respective joint venture / earn-in agreements, the estimates detailed above will reduce. The JV's the Company currently has with Alchemy Resources, Southern Gold and Metalicity do not require it to contribute to expenditure to keep the tenements in good standing. b) Operating Lease Commitments The Company has leased two office premises under non-cancellable operating leases for periods of five years and one year. Lease amounts include a base amount, plus variable outgoings and car parking and are subject to an annual rent review by way of the consumer price index at the time of review. Not later than 1 year Later than 1 year but not later than 5 years Later than 5 years c) Capital Commitments The Company has no capital commitments at 30 June 2017. 67 84 - 13 0 - Heron Resources Limited - Annual Report 2017 - Page 59 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 22. INVESTMENTS IN CONTROLLED ENTITIES Name of Entity Country of Registration Class of Shares Consolidated Entity’s Investment 2016 2017 Tarago Operations Pty Ltd Tri Origin Mining Pty Ltd Woodlawn Mine Holdings Pty Ltd Hampton Nickel Pty Limited Ochre Resources Pty Limited Entities sold to Ardea during the year Atriplex Pty Limited Yerilla Nickel Pty Limited Ardea Resources Pty Limited Woods Point Gold Mines Pty Limited TriAusMin Pty Ltd Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary Ordinary 100% 100% 100% 100% 100% 0% 0% 0% 0% 0% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Cost of Parent Entity’s Investment 2017 $ 100 100 10 10 100 2016 $ 100 100 10 10 100 - - - - - 10 100 100 100 15,644,000 Regent Resources Pty Limited (“Regent”) was registered on 10 April 2002. Regent Resources Limited name was changed on the 19 August 2005 to Hampton Nickel Limited and is being used by the Company to hold the Bulong nickel properties and to acquire further nickel properties in the Bulong district. Ochre Resources Pty Limited ("Ochre") was registered on 7 February 2005 to seek and acquire iron ore properties in the course of the Company's base metal exploration activities. Atriplex Pty Limited ("Atriplex") was registered on 7 April 2005 to seek and acquire nickel-copper sulphide properties (outside the Eastern Goldfields) in the course of the Company's exploration activities. Atriplex was sold to Ardea on 8 February 2017. Yerilla Nickel Pty Limited ("Yerilla") was registered on 22 December 2006 as a potential holding company for the Jump-up Dam heap leach Project north east of Kalgoorlie. Yerilla has been sold to Ardea Resources on 8th February 2017. Kalgoorlie Nickel Project Pty Limited ("KNP") was registered on 24 June 2009 as a holding company for the KNP properties. – KNP was sold to Ardea on 8 February 2017. Woods Point Gold Mines Pty Limited (“WPG”) was registered on 24 June 2009 as a holding company for the Woods Point Gold Mine. WPG was sold to Ardea on 8 February 2017. TriAusMin Pty Ltd was acquired on 5 August 2014 as part of the merger with TriAusMin Ltd. TriAusMin Pty Ltd was sold to Ardea on 8 February 2017. Woodlawn Mine Holdings Pty Ltd was incorporated on 27 May 2016 to act as a holding company for Tarago Operations Pty Ltd, the principal owner of the Woodlawn mine assets. NOTE 23. EARNINGS PER SHARE Basic earnings per Share Weighted average number of ordinary shares outstanding during the year used in the calculation of basic earnings per share Diluted earnings per Share Weighted average number of ordinary shares outstanding during the year used in the calculation of diluted earnings per share. Consolidated Entity 2016 $ 2017 $ (0.006) (0.0104) 415,009,381 407,890,207 (0.006) (0.0104) 415,009,381 407,890,207 Earnings profit/(loss) used in calculating basic and diluted earnings profit/(loss) per share (2,856,542) (4,252,525) The 24,829,828 (2016: 28,534,621) options outstanding as at 30 June 2017 are not considered to be dilutive when calculating earning per share as the Company is in a loss per share position. Page 60 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 24. EMPLOYEE ENTITLEMENTS a) Employee Entitlements The aggregate employee entitlement is comprised of: Provisions Annual Leave Provisions Long Service Leave - Current Long Service Leave – Non Current b) Employee Share Scheme Consolidated Entity 2016 $ 2017 $ 421 143 107 426 384 42 An Employee Share Option Plan (ESOP) has been established for Heron Resources Limited, where employees, Directors and Officers of the Company are issued with options over ordinary shares of Heron Resources Limited. At the General Meeting on 17 November 2015, shareholders approved a new ESOP. Under the Plan, the options vest upon the successful achievement of a number of key milestones at Woodlawn, being the successful draw down of Project finance debt, completion of construction of the processing plant and 1Mt processed through the plant. The Options cannot be transferred and will not be quoted on the ASX. During the year 1,754,793 options expired under the Employee Options Plan. Details of options as at the beginning and end of the reporting date and movements during the year are set out in the table below: Grant date Expiry date 2017 Consolidated and parent entity 05-Oct-12 03-Apr-13 03-Apr-13 5-Aug-14 5-Aug-14 5-Aug-14 5-Dec-15 1-Sep-16 1-Feb-17 16-Jan-17 05-Mar-17 05-Mar-18 04-Feb-17 23-Oct-17 20-Nov-18 4-Dec-15 1-Sep-21 1-Feb-22 Weighted average exercise price price Exercise Number of Options at the beginning of the year Options expired / lapsed this year $0.29 $0.25 $0.29 $0.25 $0.12 $0.07 $0.072 $0.134 $0.11 333,334 1,000,000 1,000,000 21,459 21,459 858,369 20,300,000 - - 23,534,621 0.112 (333,334) (1,000,000) - (21,459) - - (400,000) - - 1,754,793 0.285 Options issued in the year - - - - - - - 400,000 2,650,000 3,050,000 0.12 Number of Options at the end of the year Options exercisable at the end of the year - - 1,000,000 - 21,459 858,369 19,900,000 400,000 2,650,000 24,829,828 0.075 - - 1,000,000 - 21,459 858,369 - - - 1,879,828 0.238 The Black Scholes valuation methodology has been used to value the options issued during the reporting period. The following table lists the inputs used to value the options issued for the period ended 30 June 2017. Number of options Method adopted Average volatility (%) Average risk free interest rate (%) Average expected life of option (years) Average exercise price Average deemed share price at grant date Average value per option NOTE 25. SUBSEQUENT EVENTS 3,050,000 Black Scholes 61 1.87 5 $0.113 $0.113 $0.059 Other than those noted below there is no matter or circumstance which has arisen since 30 June 2017 that has significantly affected or may significantly affect: a) b) The operations, in the financial years subsequent to 30 June 2017, of the Company; The results of those operations; or On 17 August 2017, the Heron shareholders voted in favour of all resolutions at the General Meeting for the $240M Woodlawn Project Financing. The Woodlawn project finance is expected to close on or around 6 September 2017 with construction at Woodlawn to begin shortly thereafter. Heron Resources Limited - Annual Report 2017 - Page 61 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED NOTE 26. CONTINGENT LIABILITIES a) Performance bonds and rental bond commitment The Company has provided cash backed performance bonds with the NSW Dept of Resources and Energy of $120,000 (30 June 2016: $153,000) and a rental bond commitment ($17,187) over its office in Sydney. The Company also has a rental bond commitment ($15,623) over its Perth office. b) Agreement with Veolia Environmental Services (Australia) Pty Ltd (“Veolia”) In 2011, the Company and Tarago Operations Pty Ltd (“TOP”), a wholly owned subsidiary of the Company, entered into an agreement with Veolia. This agreement was further updated during 2017, under which the Company agreed: (i) (ii) (iii) To assume the environmental liabilities associated with the Woodlawn site, excluding Veolia’s area of operation. The Company will be required to provide a performance bond with the NSW Division of Resources and Energy (DRE) as surety against completion of environmental rehabilitation once mining on the site is complete. The amount of the bond is $3,577,000 and will be lodged with the DRE immediately prior to commencement of operations on or around 7th September 2017. Subject to certain approvals being received by Veolia and the Company, the Company will receive “free-on-board” compost from Veolia to be utilised in the rehabilitation of the site. To fully indemnify Veolia for all direct and or consequential loss and damage suffered by Veolia as a result of or caused by or contributed to by any act or omission or default of the Company, or TOP, connected with its operations at the Woodlawn site. (iv) To provide staged bank guarantees in favour of Veolia up to $10M of which $1M has been provided as at 30 June 2017. c) Other contingent liabilities Native title claims have been made with respect to areas which include tenements in which the Company has interests. No native title claims are over areas within the Woodlawn Project The Company is unable to determine the prospects for success or otherwise of the claims and, in any event, whether or not and to what extent the claims may significantly affect the consolidated entity or its projects. The environmental bond that the Company is required to lodge with the DRE is subject to ongoing review by the DRE and may change over the life of the Woodlawn Project. None of these contingent liabilities has been provided for in the financial report. NOTE 27. PARENT ENTITY INFORMATION The following information relates to the parent entity, Heron Resources Limited, at 30 June 2017. The information presented here has been prepared using accounting policies consistent with those presented in Note 1. 2017 $’000 12,417 17,927 30,344 1,933 107 2,040 113,993 1,489 (84,528) 30,954 (2,652) (2,652) 2016 $’000 24,411 16,047 40,458 1,243 42 1,285 122,765 935 (84,527) 39,173 (3,490) (3,490) a) Financial Position Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Contributed equity Option reserve Accumulated losses Total equity Loss for the year Total comprehensive loss for the year Guarantees entered into by the Parent b) c) d) Heron Resources Limited has not entered into a deed of cross guarantee with its wholly owned subsidiaries. Contingent liabilities of the Parent Heron Resources Limited’s contingent liabilities are disclosed in note 26. Capital commitments of the Parent Heron Resources Limited’s capital commitments are nil as disclosed in note 21c. Page 62 - Heron Resources Limited - Annual Report 2017 5.0 CONSOLIDATED FINANCIAL STATEMENTS CONTINUED Directors’ Declaration In accordance with a resolution of the Directors of Heron Resources Limited it is declared that: a) b) The financial statements and notes comply with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and Give a true and fair view of the Company's and the Consolidated Entity's financial position as at 30 June 2017 and of their performance, as represented by the results of their operations, for the financial year ended on that date. In the Directors' opinion: a) b) c) The financial statements and notes are in accordance with the Corporations Act 2001; and At the date of this declaration there are reasonable grounds to believe that the Company will be able to pay its debts when they become due and payable; and The Directors have been given the declarations by the Chief Financial Officer and Chief Executive Officer required by section 295A of the Corporations Act 2001. On behalf of the Board S Dennis Chairman Sydney, 29 August 2017 Heron Resources Limited - Annual Report 2017 - Page 63 Page 64 - Heron Resources Limited - Annual Report 2017 Heron Resources Limited - Annual Report 2017 - Page 65 Page 66 - Heron Resources Limited - Annual Report 2017 Heron Resources Limited - Annual Report 2017 - Page 67 Page 68 - Heron Resources Limited - Annual Report 2017 This page has been left intentionally blank Heron Resources Limited - Annual Report 2017 - Page 69 7.0 Shareholder Information AT 22 AUGUST 2017 1. a) Issued Shares and Options Distribution of Shareholders: Size of Holding 1 1,001 5,001 10,001 100,001 - - - - - 1,000 5,000 10,000 100,000 Number of Holders 308 764 529 1,130 305 3,036 Shares Held 166,453 2,386,055 4,225,190 41,478,630 412,609,169 460,865,497 b) c) d) e) The twenty largest shareholders hold 64.01% of the issued fully paid capital of the Company. Substantial Shareholders including related parties who have notified the Company: Holder Greenstone Management (Delaware) LLC I Buchhorn & related parties Castlelake (III & IV) LP Number of Shares 54,131,658 46,790,959 45,856,116 % 11.75% 10.15% 9.95% There were 1,185 shareholders who held less than a marketable parcel. No securities have been classified by ASX as restricted. VOTING RIGHTS In accordance with the Company's constitution, voting rights are on the basis of a show of hands, one vote for every registered holder and on a poll, one vote for each share held by registered holders. Twenty largest shareholders as at 22 August 2017 GREENSTONE MGNT DELAWARE CANADIAN REGISTER CITICORP NOM PL CASTLELAKE IV LP CASTLELAKE III LP HAZURN PL KURANA PL COPPER INV PL MBM CORP PL HSBC CUSTODY NOM AUST LTD ZERO NOM PL CHAOS INV PL FREMONT CAT PL BUCHHORN IAN JAMES DUPUY OLIVIER + JULIE KEMPSON TRUDI ANN B & J O'SHANNASSY MGNT PL DPS CAP PL 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 WARDLE DAVID JAMES + J L 20 TOTAL HSBC CUSTODY NOM AUST LTD Number of Shares 54,131,658 50,043,375 30,775,321 22,928,058 22,928,058 21,296,200 16,576,556 13,363,195 12,500,000 8,514,437 6,567,737 5,357,692 5,205,476 4,860,916 4,750,000 3,208,474 3,158,051 3,137,344 3,070,000 2,562,098 294,934,646 % 11.75% 10.86% 6.68% 4.97% 4.97% 4.62% 3.60% 2.90% 2.71% 1.85% 1.43% 1.16% 1.13% 1.05% 1.03% 0.70% 0.69% 0.68% 0.67% 0.56% 64.01% Page 70 - Heron Resources Limited - Annual Report 2017 7.0 SHAREHOLDER INFORMATION CONTINUED f) 1 2 3 4 5 6 Distribution of Option holders 20,300,000 exercisable on of before 4 December 2020 for a payment of $0.022 per option 1,000,000 exercisable on or before 5 March 2018 for a payment of $0.29 per option 21,459 exercisable on or before 23 October 2017 for a payment of $0.12 per option 858,369 exercisable on or before 20 November 2018 for a payment of $0.07 per option 400,000 Exercisable on or before 1 September 2021 for a payment of $0.134 per option 2,650,000 Exercisable on or before 1 February 2022 for a payment of $0.11 per option Size of Holding 1 1,001 5,001 10,001 100,001 - - - - - 1,000 5,000 10,000 100,000 Number of Holders - - - 1 5 6 Options Held - - - 21,459 25,208,369 25,229,828 Summary of option holders as at 22 August 2017 1 Employees & directors TOTAL Number of Options 24,829,828 24,829,828 % of Issued Options 100% 100% Heron Resources Limited - Annual Report 2017 - Page 71 8.0 Appendix 1 UNAUDITED QUARTERLY FINANCIAL STATEMENTS FOR THE 3 MONTH PERIOD ENDED 30 JUNE 2017 Management Comments on Unaudited Consolidated Financial Statements 29 August 2017 To the Shareholders of Heron Resources Limited, The accompanying unaudited Financial Statements of Heron Resources Limited for the 3 month period ended 30 June 2017 have been prepared by management and have been approved by the Board of Directors of the Company as an appendix to the Financial Report for the year ended 30 June 2017. The attached appendix relates to the 3 months ended 30 June 2017 and the corresponding comparative period ended 30 June 2016. The financial statements relating to the year ended 30 June 2017 and the comparative period have been subject to Audit by Ernst & Young. The financial statements for the 3 month period ended 30 June 2017 and the comparative period have been approved by the Board of Directors of the Company and have not been subject to Audit or Audit Review and no opinion has been provided on those statements. For further commentary on the operations of Heron during the quarter ended 30 June 2017, please refer to the Management Discussion and Analysis report and to the Quarterly Activities report lodged on the ASX and TSX on 29 July 2017 and posted on the Heron website at www.heronresources.com.au. S Dennis Chairman F Robertson Chairman- Audit Committee Page 72 - Heron Resources Limited - Annual Report 2017 8.0 APPENDIX 1 – UNAUDITED QUARTERLY FINANCIAL STATEMENTS FOR THE 3 MONTH PERIOD ENDED 30 JUNE 2017 CONTINUED UNAUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED 30 JUNE 2017 All amounts shown are expressed in Australian dollars Three Months ended 30 June Continuing operations Revenue from Continuing Activities Accounting & Audit Fees Depreciation expense Directors Fees Employee benefits expense Termination – severance Insurance expense Legal fees Equity share based payments Rental Expenses Other expenses from ordinary activities Exploration expenditure expensed as incurred Exploration expenditure written off (Impairment)/gain of investment Loss from ordinary activities before income tax expense Income tax expense Loss from ordinary activities after income tax expense for the period Other comprehensive income Changes in market value of financial assets Total comprehensive loss for the period attributable to members Loss per share attributable to the ordinary equity of the company (on a weighted average equity basis) Basic loss per share (in dollars) Diluted loss per share (in dollars) 2017 $'000 140 (35) (8) (85) (163) (2,291) 24 (24) (199) (33) (542) (423) - 1,026 (2,614) - (2,614) - (2,614) $ (0.0063) (0.0063) 2016 $'000 164 (1) (15) (85) (467) - (13) (34) (294) (85) (242) (1,016) (1,181) (332) (3,601) - (3,601) - (3,601) $ (0.0086) (0.0086) Heron Resources Limited - Annual Report 2017 - Page 73 8.0 APPENDIX 1 – UNAUDITED QUARTERLY FINANCIAL STATEMENTS FOR THE 3 MONTH PERIOD ENDED 30 JUNE 2017 CONTINUED UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED 30 JUNE 2017 All amounts shown are expressed in Australian dollars Balance at 1 April 2017 Option reserve write back Cost of share based payments Total comprehensive loss for the quarter Balance at 30 June 2017 Contributed Equity $’000 129,638 - - - 129,638 Option Reserve $’000 1,290 - 199 - 1,489 Accumulated Losses $’000 (84,503) - - (2,614) (87,117) Total Equity $’000 46,425 199 - (2,614) 44,010 Page 74 - Heron Resources Limited - Annual Report 2017 8.0 APPENDIX 1 – UNAUDITED QUARTERLY FINANCIAL STATEMENTS FOR THE 3 MONTH PERIOD ENDED 30 JUNE 2017 CONTINUED UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED 30 JUNE 2017 All amounts shown are expressed in Australian dollars CASH FLOWS FROM OPERATING ACTIVITIES Payments to suppliers and employees Expenses re-imbursed by Ardea Interest received Net cash used in operating activities CASH FLOWS FROM INVESTING ACTIVITIES Exploration and development expenditure Sale of Siberia tenements Purchase of plant and equipment Three Months ended 30 June 2017 $'000 (1,803) 80 60 (1,663) (1,690) 100 (9) 2016 $'000 (471) - 143 (328) (2,112) - - Net cash used in investing activities (1,599) (2,112) CASH FLOWS FROM FINANCING ACTIVITIES Financing costs related to Woodlawn project finance Net cash provided by financing activities Net increase/(decrease) in cash & cash equivalents held Cash & cash equivalents at the beginning of the reporting period Cash & cash equivalents at the end of the reporting period (1,387) (1,387) (4,649) 16,339 11,690 - - (2,440) 25,331 22,891 Heron Resources Limited - Annual Report 2017 - Page 75 9.0 Appendix 2 MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 INTRODUCTION The following is management’s discussion and analysis of the financial condition and the results of operations of Heron Resources Limited, (“Heron” or the “Company”) for the three month period and year ended 30 June, 2017, and its financial position as at 30 June, 2017 and should be read in conjunction with the Company’s audited financial statements as at 30 June, 2017 and half yearly financial statements as at 31 December, 2016 which have been subject to audit review, including the accompanying notes thereto. The Company’s audited Financial Statements and Notes to the Financial Statements have been prepared in accordance with Australian Accounting Standards, as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Additional information relating to the Company, including press releases, has been filed electronically with the Australian Securities Exchange (“ASX”) and through the System for Electronic Document Analysis and Retrieval (“SEDAR”) and is available online at www.sedar.com. The date of this management’s discussion and analysis is 29 August, 2017. Unless otherwise indicated all amounts discussed herein are denominated in Australian dollars. The relevant exchange rates applicable to the three and twelve month periods ended 30 June, 2017 are as follows. AUD/CDN $ Closing Rate Average Rate Three Months ended Year ended 30 June 2017 30 June 2017 .9996 .9902 .9970 .9902 The Company’s common shares trade on the Australian Stock Exchange (the “ASX”) under the trading symbol “HRR”, and on the Toronto Stock Exchange (the “TSX”) under the trading symbol “HER”. Cautionary Note Regarding Forward-Looking Information Certain information included in this management’s discussion and analysis may constitute forward-looking information within the meaning of securities laws. In some cases, forward-looking information can be identified by the use of terms such as “may”, “will”, “should”, “expect”, “believe”, “plan”, “scheduled”, “intend”, “estimate”, “forecast”, “predict”, “potential”, “continue”, “anticipate” or other similar expressions concerning matters that are not historical facts. Forward-looking information may relate to management’s future outlook and anticipated events or results, and may include statements or information regarding the future plans or prospects of the Company. Without limitation, statements about the Company’s planned activities related to exploration or development activities carried out in Australia, constitute forward- looking information. Actual results may vary. See “Risk Factors and Uncertainties”. Forward-looking information is based on certain factors and assumptions regarding, among other things, the estimation of mineral reserves and resources, the realization of mineral reserve and resource estimates, metal prices, the timing and amount of future exploration expenditures, the estimation of initial and sustaining capital requirements, the estimation of labour and operating costs, the availability of necessary financing and materials, including financing to conduct any future drilling program and the other activities necessary to continue to explore and develop the Company’s properties in the short and long term, the receipt of necessary regulatory approvals, and assumptions with respect to environmental risks, title disputes or claims, weather conditions, climate change and other similar matters. While the Company considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Without limitation, in estimating expenditures the Company has assumed, among other things, that metal prices will not change materially from the prices used in its current financial forecasts or those of its affiliate, that it will obtain in a timely fashion all of the financing, regulatory approvals and other authorizations required to enable the continued exploration and development of its properties, and that such activities will proceed in the ordinary course without undue disruption. See “Risk Factors and Uncertainties”. Forward-looking information is subject to certain factors, including risks and uncertainties, which could cause actual results to differ materially from what management currently expects. These factors include risks inherent in the exploration and development of mineral deposits, risks relating to changes in metal prices and the worldwide demand for and supply of metal, uncertainties inherent in the estimation of mineral reserves and resources, risks relating to the remoteness of the Company’s properties including access and supply risks, reliance on key Page 76 - Heron Resources Limited - Annual Report 2017 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED personnel, construction and operational risks inherent in the conduct of mining activities, including the risk of increases in capital and operating costs and the risk of delays or increased costs that might be encountered during the construction and development process, the risk of fluctuations in the Canadian/Australian and U.S./Australian dollar exchange rates, regulatory risks, including risks relating to the acquisition of the necessary licences and permits, financing, capitalization and liquidity risks, including the risk that the financing necessary to fund the exploration and development activities of the Company may not be available on satisfactory terms, or at all, environmental risks, including risks relating to climate change and the potential impact of global warming on project timelines and on construction and operating costs, and insurance risks. See “Risk Factors and Uncertainties”. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While the Company may elect to, the Company is under no obligation and does not undertake to update this information at any particular time, except as required by law. Disclosure Controls and Procedures and Internal Controls over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting and disclosure controls. Any system of internal control over financial reporting, no matter how well designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management has completed an evaluation of the design effectiveness of the Company’s internal control over financial reporting. Based on this assessment, management has concluded that as at 30 June 2017, the Company’s design for internal control over financial reporting was effective. Management has also evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of 30 June 2017. Based on this evaluation, management has concluded that the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed in reports filed or submitted by the Company under Australian and Canadian securities legislation is recorded, processed, summarized and reported within the time periods specified in those rules. Changes in Internal Control over Financial Reporting There have been no changes in the Company’s internal control over financial reporting during the three month period ended 30 June 2017 that has materially affected or is reasonably likely to materially affect, its internal control over financial reporting. OVERVIEW HERON RESOURCES LIMITED (“Heron” or “the Company”) is engaged in the exploration and development of base and precious metal deposits in Australia. The Company is focused on the development of the high grade Woodlawn Project located 250km southwest of Sydney in New South Wales. Selected Annual Financial Information Set forth below is certain selected financial information expressed in Australian dollars in respect of the eight most recently completed financial years of the Company. This audited data is derived from the Company’s full year financial statements which are prepared in accordance with Australian Accounting Standards, as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. All numbers below are in ‘000s except for the number of shares outstanding and Net Loss per share information. Financial Year Ended: Working Capital (1) Total Shareholders Assets (2) Equity June 30, 2017 June 30, 2016 June 30, 2015 June 30, 2014 June 30, 2013 June 30, 2012 June 30, 2011 June 30, 2010 11,690 22,891 24,015 32,915 39,597 43,171 46,973 56,663 47,172 56,859 54,352 42,603 48,506 57,910 61,292 75,123 44,010 55,084 52,151 41,762 47,702 56,863 60,162 72,730 Common Shares Outstanding 415,009,831 415,009,381 360,877,723 252,985,787 252,985,787 252,985,787 252,985,787 252,985,787 Net Gain (Loss) (2,857) (4,252) (5,674) (6,389) (10,483) (5,356) (14,056) (7,442) Net Gain (Loss) per Common Share (in dollars) (0.006) (0.010) (0.016) (0.025) (0.039) (0.022) (0.055) (0.029) (1) (2) See Capital Resources and Liquidity for a further discussion of working capital equals cash on hand. See Critical Accounting Policies and Estimates. Heron Resources Limited - Annual Report 2017 - Page 77 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED Quarterly Financial Information Set forth below is certain selected financial information expressed in Australian dollars in respect of the most recently completed quarter and previous seven quarters of the Company. This unaudited data is derived from the Company’s interim financial statements which are prepared in accordance with Australian Accounting Standards, as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. All numbers below are in ‘000s except for the number of shares outstanding and Net Loss per share information. Quarter Ended: Working Capital (1) Total Shareholders Assets (2) Equity June 30, 2017 March 31, 2017 December 31, 2016 September 30, 2016 June 30, 2016 March 31, 2016 December 31, 2015 September 30, 2015 11,690 16,339 16,552 19,811 22,891 25,175 23,634 27,177 47,172 48,031 54,788 55,725 56,859 59,725 59,385 60,713 44,010 46,425 53,042 54,235 55,084 58,393 57,882 58,711 Common Shares Outstanding 415,009,381 415,009,381 415,009,381 415,009,381 415,009,381 415,009,381 415,009,381 415,009,381 Net Gain (Loss) (2,614) 2,156 (1,548) (851) (3,601) (37) (444) (170) Net Gain (Loss) per Common Share (in dollars) (0.0063) 0.0052 (0.0037) (0.0021) (0.0086) (0.0001) (0.0011) (0.0004) (1) (2) See Capital Resources and Liquidity for a further discussion of working capital. See Critical Accounting Policies and Estimates. RESULTS OF OPERATIONS FOR THE THREE AND TWELVE MONTH PERIODS ENDED 30 JUNE 2017 (all financial numbers in ‘000s) The Company is principally involved in the exploration and evaluation of mineral properties. It had no revenues from operations in either the last quarter or twelve month period to 30 June, 2017. Exploration expenditures on mineral properties are expensed as incurred in the Income Statement, unless there is a reasonable probability that the mineral property may become a productive mine, in which case the expenditure is capitalised onto the Balance Sheet, for example Woodlawn. During the three month period the Company incurred $2,119 in exploration expenditure of which $1,696 was capitalised onto the Balance Sheet. All of the capitalised expenditure was incurred on the Woodlawn property. Corporate and administrative expenses are charged to the Income Statement as incurred. Interest income consists of interest on short-term invested funds. The Company reported a loss from operations in the three month period and year ended 30 June, 2017. Retained earnings are in a deficit position. The Company has not paid any dividends since inception. The Company recorded a loss for the year ended 30 June 2017 of $2,857 ($0.0069 per share) compared to a net loss of $4,253 ($0.0104 per share) for the corresponding year ended 30 June 2016. The Company recorded a loss for the three months ended 30 June 2017 of $2,614 ($0.0063 per share) compared to a net loss of $3,601 ($0.0086 per share) for the corresponding period ended 30 June, 2016. During the year ended 30 June 2017, the Company‘s focus was on completing the Woodlawn project financing and it incurred $2,481 in financing costs such as legal and external professional advisors during the year. The Woodlawn project financing will be completed on or around 6 September 2017. Additional costs were incurred at Woodlawn during the year end 30 June 2017 in project optimisation such as water treatment and further drilling on the G2 lens. During year the Company was also successful at spinning out Ardea Resources Ltd. Cash at the beginning of the year was $22,891 and at the end of the year was $11,690. The Company’s general and administration expenses (including share based payments, but excluding exploration expenditure and investment gain/impairment) of $5,949 in the year to 30 June 2017 compared with the $3,360 in the year to 30 June 2016. The Company recorded an unrealised gain on its listed investments of $1,026 in the three months to 30 June 2017 (impairment loss $332 in the corresponding three months to 30 June 2016) and a gain of $4,011 for the year ended 30 June 2017 ($921 for the corresponding year to 30 June 2016). These gains and impairments are due to fluctuations of the underlying share price of the listed investments. Page 78 - Heron Resources Limited - Annual Report 2017 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED EXPLORATION EXPENDITURES (all financial numbers in ‘000s) Expenditures on exploration and evaluation in the three month period ended 30 June 2017 of $2,119 (of which $1,696 was capitalised) was higher when compared to expenditures in the three month period ended 30 June 2016 of $1,836. This increase was due G2 Lens drilling at Woodlawn in the quarter ended 30 June 2017. Exploration expenditure requirements to maintain all the Companies exploration licences in good standing total $536 per annum. Below is a summary table of the exploration expenditures by tenement group for the three months ended 30 June 2017 (all numbers in ‘000s). Quarter ended 30 June 2017 Woodlawn (SML20) KNP Project (2) Lewis Ponds (2) Other WA (1) Other NSW (1) $472 $1,224 $1,696 - - - - - - - - - - $423 $423 Drilling Other exploration TOTAL (1) (2) Expenditure expensed as incurred Sold to Ardea in Feb 2017 Exploration Properties in Australia Total $472 $1,647 $2,119 The Company’s main exploration properties are located in the Lachlan Fold belt of NSW and are considered possible Woodlawn satellite projects. The projects on these land holdings are more fully described in the Company’s Annual Report which is available from the Company on request or which may be accessed from the Company’s website, www.heronresouces.com.au. CAPITAL STOCK AND DEFICIT (all financial numbers in ‘000s) The authorised capital of the Company consists of an unlimited number of common shares without par value. At 30 June 2017 the Company had 415,009,381 issued and outstanding common shares (30 June 2016: 415,009,381). As at 30 June 2017 there were 24,829,828 stock options outstanding (30 June 2016: 28,534,621), bringing the fully diluted share position of the Company to 439,839,209. The Company’s accumulated deficit at 30 June 2017 is $87,117 compared to $84,260 at 30 June 2016. See “Results of Operations”. FINANCIAL CONDITION (all financial numbers in ‘000s) The Company’s total assets at 30 June 2017 decreased to $47,172 from $56,859 at 30 June 2016. Assets at 30 June 2017 include cash and cash equivalents of $11,690 (30 June 2016: $22,891). Cash not on account at a bank has been invested in bank guaranteed, term deposits. Cash of $1,690 was spent on exploration and evaluation during the three month period ended 30 June 2017 compared to $2,112 during the corresponding period ended 30 June 2016. This decreased outflow was due to the Woodlawn Feasibility Study which was completed in the June 2016 quarter. The Company had current liabilities including trade payables and employee provisions of $3,025 at 30 June 2017 ($1,733 at 30 June 2016). The Company has no off balance sheet financing arrangements or material contingent liabilities or contractual obligations other than that disclosed in the financial statements for the year ended 30 June 2017. Heron Resources Limited - Annual Report 2017 - Page 79 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED CAPITAL RESOURCES AND LIQUIDITY The Company’s mineral properties are at the exploration and pre-development stage. At this time the Company has no operating revenue and does not anticipate earning any operating profits until the Company is able to place a project into production, or acquire a mining asset with operating cash flow. Until such time, the Company will be required to raise funds through equity financing, possibly supplemented by the exercise of options and warrants, or by other means in order to continue its exploration and development activities. In the past, the Company has successfully raised capital through issuance of equity or sale of assets. There can be no assurance that the Company will be able to raise more capital or obtain adequate financing in the future or that the terms of such financing will be favourable. Failure to raise capital or obtain financing could result in the postponement of further exploration or project development activities. Any additional financing or capital raised by the Company could result in substantial dilution to the shareholders of the Company. See “Risk Factors and Uncertainties”. TRENDS (all numbers in ‘000s) Due to the nature of its projects, the Company has a history of incurring operating losses. These losses will continue until a profitable project is developed and operating or a cash generating operating asset is acquired. The net loss in the three month period ended 30 June, 2017, of $2,614 was lower than the loss incurred in the three month period ended 30 June, 2016 of $3,601, primarily due to a significant investment unrealised gain of $1,026 in 2017. The Company’s current staff headcount is 21 compared to 23 at the beginning of the financial year. CAPITAL MANAGEMENT The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of properties for minerals. The properties in which the Company currently has an interest are at the exploration stage and as such the Company is dependent on external financing to fund its activities. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. In some circumstances, the Company may enter into farm in /joint venture agreements whereby a third party earns an interest in a specific property by incurring an agreed amount of exploration expenditures. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geological or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that given the relative size of the Company this approach is reasonable. COMMITMENTS The Company is required to undertake expenditures of $536,000 per year to keep exploration properties in good standing in the normal course of business. These obligations are subject to renegotiation when application for a mining lease is made and at other times. The Company is contracted to non-cancellable operating leases in relation to its office premises at Level 1, 7 Havelock St, West Perth and at Suite 702, 191 Clarence Street, Sydney. The lease in Perth is currently on a month-to-month basis and the lease in Sydney expires in September 2019. A performance bond of $15,623 and $17,187 for the Perth and Sydney offices respectively has been lodged as surety against performance of the leases, as at 30 June 2017. RELATED PARTY TRANSACTIONS Transactions between related parties are on normal commercial terms and conditions unless otherwise stated. Page 80 - Heron Resources Limited - Annual Report 2017 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED CRITICAL ACCOUNTING POLICIES AND ESTIMATES New, revised or amending Accounting Standards and Interpretations adopted Heron Resources has adopted the following new and amended accounting standards from 1 July 2017: AASB 2015-2 Disclosure Initiative Amendment to AASB 101 - This Standard amends AASB 101 Presentation of Financial Statements to clarify existing presentation and disclosure requirements and to ensure entities are able to use judgement when applying the Standard in determining what information to disclose, where and in what order information is presented in their financial statements AASB 2014-4 Amendments to Australian Accounting Standards - Clarification of Acceptable Methods of Depreciation and Amortisation. The amendments clarify the principle in AASB 116 Property, Plant and Equipment and AASB 138 Intangible Assets that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. Adoption of these standards did not have any material effect on the Statement of Financial Performance, Statement of Comprehensive Income and Statement of Financial Position of the Group. Accounting standards issued but not yet effective Australian Accounting Standards and Interpretations that have been issued or amended but are not yet effective have not been adopted by the Consolidated Entity for the year ended 30 June 2017. At this time the following standards and interpretations may have an impact, but the extent of this is not expected to be material: AASB 2016-1 Recognition of Deferred Tax Assets for Unrealised Losses - The amendments to AASB 12 Income Taxes clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. Effective for annual periods beginning on or after 1 January 2017. (Company 1 July 2017). ASB 2016-2 Disclosure Initiative - The amendments to AASB 107 Statement of Cash Flows require entities to provide disclosures about changes in their liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes (such as foreign exchange gains or losses). AASB 9 Financial Instruments - A new Principal standard which replaces AASB 139. This new Principal version includes a model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially-reformed approach to hedge accounting. Effective for annual periods beginning on or after 1 January 2018. (Company 1 July 2018). AASB 15 Revenue from Contracts with Customers. The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Effective for annual periods beginning on or after 1 January 2018. (Company 1 July 2018). AASB 16 Leases. AASB 16 requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases. Effective for annual periods beginning on or after 1 January 2019. (Company 1 July 2019). At this time the following interpretation may have an impact, but the extent of this has not been determined: IFRIC 23 Uncertainty over Income Tax Treatments. The Interpretation clarifies the application of the recognition and measurement criteria in IAS 12 Income Taxes when there is uncertainty over income tax treatments. Effective for annual periods beginning on or after 1 January 2019. (Company 1 July 2019).New Accounting Policies and Accounting Standards and Interpretations issued, but some not yet applicable at 30 June, 2015. Future Accounting Changes Other than those noted above, the Company is unaware at this time of any future changes to accounting standards that are contemplated by the Australian Accounting Standards Board and are relevant to the Company and which might impact future accounting reporting periods. Summary of Significant Accounting Policies The following is a summary of significant accounting policies used by the Company in the preparation of its financial statements. For a complete description of the significant accounting policies used by the Company in the preparation of its financial statements, please review the notes to the June 30, 2017 audited financial statements included in the Company’s Annual Report. This Management’s Discussion and Analysis should also be read in conjunction with the Company’s quarterly financial statements and the notes thereto. Going concern basis of accounting (all numbers in ‘000s) The interim financial statements for the three month period ended 30 June 2017 have been prepared on the basis of a Going Concern, notwithstanding the fact that the Company incurred a loss for the 3 month period. The Company incurred a loss for the 3 month period after tax of $2,614 (2016: $3,601) and a net cash out flow from operating and investing activities for the year of $3,262 (2016: out flow $2,440). Heron Resources Limited - Annual Report 2017 - Page 81 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED The Financial Report has been prepared on the basis of a going concern, as the Directors believe that the Company has adequate funding to pay its debts as and when they become due for a period of twelve months from the date of approving this report. Remuneration of Directors and Key Management Personnel Including Share Based Payments The cost to the Company of share options granted to Directors and Key Management Personnel is included at fair value as part of the Directors’ and Key Management Personnel’s aggregate remuneration in the financial year the options are granted. The fair value of the share option is calculated using the Black Scholes option pricing model, which takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the current price and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option. The cost of these options is expensed in the Income Statement on a pro rata basis to the vesting dates. Unvested options are cancelled upon termination of service with the Company. Income tax The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date. Deferred tax is accounted for using the balance sheet method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognized from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realized or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognized to the extent that there is convincing evidence that it is probable that future tax profits will be available against which deductible temporary differences can be utilized. The amount of benefits brought to account or which may be realized in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realized and comply with the conditions of deductibility imposed by the law. Earnings per share Basic earnings per share are determined by dividing the operating loss after income tax by the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share adjusts the figures used in determining earnings per share by taking into account non anti-dilutive options outstanding during the quarter. The diluted earnings per share are capped at the basic earnings per share in circumstances of losses and anti- dilutive options. Exploration expenditure and mineral leases Exploration expenditures on mineral properties are expensed as incurred in the Income Statement, unless there is a reasonable probability that the mineral property may become a productive mine, in which case the expenditure is capitalised onto the Balance Sheet These capitalised costs are only carried forward if the rights to the area of interest are current and to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage that permits reasonable assessment of the existence of economically recoverable reserves, and active and significant operations in, or in relation to, the area of interest are continuing. Accumulated costs in relation to an abandoned area are written off in full against the results in the year in which the decision to abandon the area is made. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Restoration, rehabilitation and environmental expenditure Restoration, rehabilitation and environmental expenditure to be incurred during the production phase of operations is accrued when the need for such expenditure is established, and then written off as part of the costs of production of the mine property concerned. Significant restoration, rehabilitation and environmental expenditures to be incurred subsequent to the cessation of production at each mine property are accrued, in proportion to production, when its extent can be reasonably estimated. Business undertakings – joint ventures The Company has certain exploration activities conducted through joint ventures with other parties. Where relevant, the Company’s interest in these joint ventures is shown in the notes to the financial statements under the appropriate heading. Page 82 - Heron Resources Limited - Annual Report 2017 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED RISK FACTORS AFFECTING FINANCIAL INSTRUMENTS The Company’s major mineral property is the Woodlawn Project in NSW (the "Properties"). Unless the Company acquires or develops additional material properties, the Company will be mainly dependent upon its existing Property. If no additional major mineral properties are acquired by the Company, any adverse development affecting the Company's Properties would have a material adverse effect on the Company’s financial condition and results of operations. Other risk factors and the impact on the Company's financial instruments are summarized below: Credit risk Credit risk is the risk of loss associated with counterparty’s inability to fulfil its payment obligations. The Company's credit risk is primarily attributable to cash and accounts receivable. Cash consists of cash on hand with reputable financial institutions. Financial instruments included in accounts receivable consist of sales tax receivable from government authorities in Australia and deposits held with vendors. Management believes that credit risk with respect to financial instruments included in cash and accounts receivable is low. Liquidity risk (all financial numbers in ‘000s) The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due. As at 30 June 2017, the Company had cash of $11,690 (30 June 2016: $22,891) to settle current liabilities of $3,025 (30 June 2016: $1,733). Apart from provision for employee entitlements (e.g. Annual Leave), most of the Company's financial liabilities have contractual maturities of less than 30 days and are subject to normal trade terms. Market risk Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity prices. The Company continues to monitor the long term assets and assesses the value of the asset on a regular basis. Interest rate risk The Company has cash balances. The Company's current policy is to invest excess cash in term deposits with banks. Foreign currency risk The Company's functional reporting currency is the Australian dollar and major purchases are transacted in Australian dollars. The Company funds its exploration and administrative expenses using Australian dollars. In addition, management believes the foreign currency risk derived from currency conversions related to its operations is negligible and therefore does not hedge its foreign exchange risk. Commodity price risk The Company is exposed to price risk with respect to commodity prices. Commodity price risk is defined as the potential adverse impact on earnings and economic value due to commodity price movements and volatilities. The Company closely monitors commodity prices as it relates to valuable minerals to determine the appropriate course of action to be taken by the Company. The ability of the Company to develop its properties and the future profitability of the Company is directly related to the market price of nickel, zinc, lead and copper and certain other metals. Fair value AIFRS accounting principles require that the Company disclose information about the fair value of its financial assets and liabilities. Fair value estimates are made at the balance sheet date based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties in significant matters of judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect these estimates. The carrying values for short-term investment, sundry receivables and prepaid expenses, subscription receivable, and accounts payable and accrued liabilities on the balance sheet approximate fair value because of the limited term of these instruments. The Company has designated its cash as held-for-trading, which is measured at fair value. Accounts receivable are classified as loans and receivables, which are measured at amortized cost. Accounts payable and accrued liabilities are classified as other financial liabilities, which are measured at amortized cost. Heron Resources Limited - Annual Report 2017 - Page 83 9.0 APPENDIX 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS FOR THE THREE MONTH PERIOD AND YEAR ENDED 30 JUNE 2017 CONTINUED Sensitivity analysis Based on management's knowledge and experience of the financial markets, the Company believes the following movements are "reasonably possible" over the next year: (i) (ii) (iii) Interest rate risk is immaterial. The Company holds all of its cash in low risk, secure Australian dollar term deposits at Australian banks. Foreign exchange risk related to required payments is perceived as negligible. Commodity price risk could adversely affect the Company. In particular, the Company’s future profitability and viability from mineral exploration depends upon the world market price of valuable minerals. Commodity prices have fluctuated significantly in recent years. There is no assurance that, even as commercial quantities of valuable minerals may be produced in the future, a profitable market will exist for them. As of 30 June 2017, the Company is not a producer of valuable minerals. As a result, commodity price risk may affect the completion of future equity transactions such as equity offerings and the exercise of stock options and warrants. This may also affect the Company's liquidity and its ability to meet its ongoing obligations. RISK FACTORS AND UNCERTAINTIES The Company is in the business of acquiring, exploring and developing mineral properties and is exposed to a number of risks and uncertainties that are common to other exploration companies in the same business. The industry is capital intensive at all stages and must rely on equity financing to fund exploration and development activities. The ability of the Company to realize and profit from a property development is dependent upon its ability to define and delineate an ore body, to finance development costs, adhere to government and environmental regulations, and/or be able to realize the costs incurred on disposition of a property. The future prospects of the Company are subject to a variety of risks that may cause actual results to differ materially from projected outcomes. Factors that could cause such differences include: world commodities markets, foreign exchange markets, equity markets, access to sufficient working capital, the ability to attract mining partners, the loss of or inability to hire key personnel, as well as government and environmental restrictions. Most of these factors are beyond the control of the Company which consequently cannot guarantee future results, levels of activity or ensure that a mineral discovery can be developed into a profitable mining operation. In addition, prices for the commodities contained in the Company’s mineral resources at its exploration properties have fluctuated significantly over the last few years and may continue to do so. Such volatility may affect the timing and magnitude of funds which the Company may seek to raise to support further exploration and development. The Company has taken steps to verify the title to its mineral properties, in accordance with industry standards for the current stage of exploration of such properties but these procedures do not guarantee the Company’s title. Property title may be subject to unregistered prior agreements or transfers and title may be affected by undetected defects. ADDITIONAL INFORMATION Additional information relating to the Company can be found at www.heronresources.com.au or on the SEDAR website at www.sedar.com, or on the website of the ASX, www.asx.com.au. APPROVAL The Board of Directors of Heron Resources Limited has approved the disclosure contained in this Management Discussion and Analysis dated 29 August 2017. Page 84 - Heron Resources Limited - Annual Report 2017 10.0 Statement of Mineral Resources & Mineral Reserves 10.1 Woodlawn Underground Mineral Resource Estimate 2016 Reported at a 7% ZnEq lower cut-off grade Type Polymetallic Polymetallic Polymetallic Copper Copper All Total All Total Resource Category Measured Indicated Inferred Indicated Inferred Mea+Ind Inferred Quantity (Mt) ZnEq (%) 0.4 2.2 2.0 1.5 0.5 4.1 2.5 23 21 17 10 10 18 15 Zn (%) 13.0 10.0 7.3 0.8 0.8 7.2 5.9 Cu (%) 1.3 1.5 1.5 2.8 2.8 2.0 1.8 Pb (%) 4.4 3.9 2.9 0.2 0.2 2.6 2.3 Au (g/t) 0.21 0.78 0.75 0.23 0.09 0.52 0.61 Ag (g/t) 72 80 56 15 14 55 47 Notes: 1) Please refer to the end of this section for Qualified Persons statements; 2) ZnEq(%) refers to a calculated Zn equivalent grade the formula for which is stated in 10.5; 3) Polymetallic Type refers to polymetallic massive sulphide mineralisation with high-grade Zn and Pb; Copper Type refers to Cu dominated massive and stringer sulphide mineralisation; 4) Some rounding related discrepancies may occur in the totals; 5) the Mineral Resource is reported in accordance with the the JORC Code (2012) and NI 43-101 guidelines; 6) This Mineral Resource was first reported to the ASX/TSX within the release dated the 29th June 2016. 10.2 Woodlawn Reclaimed Tailings Mineral Resource Estimate 2015 Reported with no cut-off grade applied Type All Dams All Dams All Dams All Dams Resource Category Measured Indicated Mea+Ind Inferred Quantity (Mt) ZnEq (%) 6.6 3.2 9.8 1.1 6.1 6.3 6.2 5.8 Zn (%) 2.3 2.2 2.3 2.3 Cu (%) 0.49 0.56 0.51 0.47 Pb (%) 1.3 1.4 1.3 1.2 Au (g/t) 0.30 0.33 0.31 0.25 Ag (g/t) 32 33 32 27 Notes: 1) The Mineral Resource estimate, originally published on Heron’s website and SEDAR under the NI43-101 guidelines, is entitled Woodlawn Retreatment Project Mineral Resources Technical Report (NI43-101) with an effective date of 30th November 2015 and authored by Mr Robin Rankin (MAusIMM CP Geology) of independent consulting firm GeoRes Geological Resources. Heron confirms that it is not aware of any new information or data that materially affects the information included in this report and that the form and context in which the Mr Rankin’s findings are presented have not been materially modified 2) ZnEq (%) refers to a calculated Zn equivalent grade the formula for which is stated in 10.5; 3) some rounding related discrepancies may occur in the totals. 10.3 Woodlawn Underground Mineral Reserve Estimate 2016 Type Polymetallic Polymetallic Copper Copper Total Reserve Category Quantity (Mt) ZnEq (%) Zn (%) Proven Probable Proven Probable Probable 0 1.80 0 0.96 2.80 16.0 8.10 8.8 14.0 0.61 5.50 Cu (%) 1.2 2.4 1.6 Pb (%) Au (g/t) Ag (g/t) 2.90 0.56 0.13 1.90 0.23 0.45 57 14 42 Notes: 1) Please refer to the end of this section for Qualified Persons statements; 2) Reported at cut-off grades determined by economic and metallurgical factors; 3) This estimate has been prepared in accordance with the JORC Code (2012) and the NI43-101 guidelines. 4) Some discrepancies in totals may occur due to rounding of numbers; 5) ZnEq(%) refers to a calculated Zn equivalent grade the formula for which is provided in 10.5. 6) This Mineral Resource was first reported to the ASX/TSX within the release dated the 29th June 2016. Heron Resources Limited - Annual Report 2017 - Page 85 10.0 STATEMENT OF MINERAL RESOURCES CONTINUED 10.4 Woodlawn Tailings Mineral Reserve Estimate 2016 Reported with no cut-off grade applied Reserve Category Proven Probable Total (Proven + Probable) Quantity (Mt) ZnEq (%) 6.4 3.2 9.5 6.0 6.0 6.0 Zn (%) 2.2 2.1 2.2 Cu (%) 0.5 0.5 0.5 Pb (%) 1.3 1.3 1.3 Au (g/t) 0.29 0.33 0.31 Ag (g/t) 31 32 31 Notes: 1) Combined tailings estimate for the North, South and West Tailings Dams; 2) This estimate has been prepared in accordance with the JORC Code (2012) and the NI43-101 guidelines. Please refer to the end of this section for Qualified Persons statements; 3) ZnEq% refers to a calculated Zn equivalent grade the formula for which is provided in 10.5. 4) Reported at cut-off grades determined by economic and metallurgical factors. 5) Some discrepancies in totals may occur due to rounding of numbers. 6) This Mineral Reserve was first reported to the ASX/TSX within the release dated the 29th June 2016. 10.5 Zinc equivalent calculation for the Woodlawn Mineral Resources and Mineral Reserves The zinc equivalent ZnEq calculation takes into account, mining costs, milling costs, recoveries, payability (including transport and refining charges) and metal prices in generating a Zinc equivalent value for Au, Ag, Cu, Pb and Zn. ZnEq = Zn%+Cu%*3.12+Pb%*0.81+*Au g/t*0.86+Ag g/t*0.03. Metal prices used in the calculation are: Zn US$2,300/t, Pb US$ 2,050/t, Cu US$6,600/t, Au US$1,250/oz and Ag US$18/oz. These metal prices are based on Heron's long term view on average metal prices. It is Heron's view that all the metals within this formula are expected to be recovered and sold. Metallurgical metal recoveries used for the formula are: 88% Zn, 70% Pb, 70% Cu, 33% Au and 82% Ag; these are based on historical recoveries at Woodlawn and supported by metallurgical testwork undertaken during the 2015-16 feasibility study. Commodity prices and metallurgical recoveries are factored into the zinc equivalent calculation using a standard metal equivalent formula. 10.6 Competent Persons Statements - Declaration and JORC (2012) and NI 43-101 Compliance 1. 2. 3. 4. 5. The information in this report that relates to Mineral Resources for the Woodlawn Underground Project has been reviewed, and verified by Mr Rodney Brown who is a full time employee of SRK Consulting (Australasia). Mr Brown, who is a member of the AIG, takes responsibility for the integrity of Data that have been used to prepare the resource estimates, and for the Geological Model. Mr Brown has sufficient experience that is relevant to the style of mineralisation and type of deposit under consideration and to the resource estimation activity that he is undertaking to qualify as a Competent Person as defined in the 2012 edition of the JORC Code: Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves and a Qualified Person as this term is defined in Canadian National Instrument 43-101. Mr Brown consents to the inclusion in this report of the matters based on his information in the form and context that it appears. The Woodlawn Project Mineral Reserve, mine design, production schedule and FS results have been produced or reviewed by SRK Consulting (Australasia) Pty Ltd (SRK) under the direction of Ms Anne-Marie Ebbels, Principal Consultant (Mining), an Independent Qualified Person as defined by Canadian National Instrument 43-101 and a Competent Person as defined in the 2012 edition of the JORC Code: Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves. Ms Ebbels consents to the inclusion in this report of the matters based on her information in the form and context that it appears. The Woodlawn Project plant and metallurgy designs and costings have been produced or reviewed by GR Engineering Services Limited (GRES) under the direction of Mr Peter Allen, Manager – Process & Technical Services, who is a Member of the Australasian Institute of Mining and Metallurgy and accredited by the AusIMM as a Chartered Professional (CP) in the metallurgy discipline, and an Independent Qualified Person as defined by Canadian National Instrument 43-101. Mr Allen consents to the inclusion in this report of the matters based on his information in the form and context that it appears. The information relating to the Woodlawn Tailings Mineral Resource contained in this report has been reviewed and is based on information compiled by Mr Robin Rankin, a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy (AusIMM) and accredited by the AusIMM since 2000 as a Chartered Professional (CP) in the geology discipline. Mr Rankin consults to Heron (and previously TriAusMin Ltd) as Principal Consulting Geologist of independent geological consultancy GeoRes. He 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 JORC Code (2012 edition) and “qualified person” as this term is defined in Canadian National Instrument 43- 101. Mr Rankin consents to the inclusion in this release of the matters based on his information in the form and context in which it appears. The technical information in this report relating to the exploration results and forward programs based on information compiled or reviewed by Mr David von Perger, who is a Member of the Australian Institute of Mining and Metallurgy (Chartered Professional – Geology). Mr von Perger is a full time employee of Heron Resources Limited and 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 JORC Code (2012 edition) and “qualified person” as this term is defined in Canadian National Instrument 43-101 (“NI 43-101”). Mr von Perger has reviewed this press release and consents to the inclusion in this news release of the information in the form and context in which it appears. Page 86 - Heron Resources Limited - Annual Report 2017 11.0 Interest in Mining Tenements Tenement Location Heron Interest Status Note Tenement Location Heron Interest Status Note New South Wales Projects Woodlawn Project EL7257 EL7469 EL8325 S(C&PL)L20 EL8573 40km SSW of Goulburn 15km E of Bungendore 60km ENE of Canberra 40km SSW of Goulburn 30km NNW of Yass Nyngan Project EL8631 10km NW of Nyngan (%) 100 100 100 100 100 Live Live Live Live Live EL7468 EL7954 EL8353 EL8400 EL8623 5km E of Collector 25km W of Goulburn 7.5km SE of Woodlawn 27km NNE of Yass 90km north of Woodlawn (%) 100 100 100 100 100 Live Live Live Live Live 100 Live Alchemy Farm in & JV Tenements Girilambone Project EL8318 27km NW of Nyngan Overflow/Eurow/Parkes EL5878 EL8267 EL8192 100km NW of Condobolin 70km SE of Cobar 23km SE of Parkes 100 Live 100 100 100 Live Live Live 1 1 1 1 Western Australia Projects – Joint Ventures EL7941 EL8356 100km NW of Condobolin 59km WSW of Tottenham 100 100 Live Live Southern Gold Farm In Project – Southern Gold Ltd 80%, HRR 20% 2 M25/00134 M25/00059 2 M25/00161 M25/00145 2 M25/00209 M25/00171 P25/02257 2 P25/02256 2 P25/02258 34km East of Kalgoorlie 40km E of Kalgoorlie 40km E of Kalgoorlie 40km E of Kalgoorlie 40km E of Kalgoorlie Live Live Live Live Live 20 20 20 20 20 40km E of Kalgoorlie 40km E of Kalgoorlie 40km E of Kalgoorlie 40km E of Kalgoorlie 20 20 20 20 Live Live Live Live 1 1 2 2 2 2 Notes: 1 2. Alchemy: Subject to Farm-in and Joint Venture between Alchemy Resources Ltd and Heron where Alchemy earning 51% by spending $3M over 3 years Southern Gold: Subject to Farm In agreement with Southern Gold Ltd (who have earned an 80% interest). Heron retains 100% of nickel laterite. Heron Resources Limited - Annual Report 2017 - Page 87 12.0 Glossary 12.1 Corporate / General Definitions ASIC means Australian Securities and Investments Commission ASX means ASX Limited (ABN 98 008 624 691) or the Australian Securities Exchange, as appropriate Australian Registry means Security Transfer Registrars Pty Ltd of 770 Canning Highway, Applecross WA Canadian Registry means TMX Trust Transfer Services Inc. of 100 Adelaide St. W, Suite 301, Toronto ON M5H 4H1 CIM Standards means Canadian Institute of Mining, Metallurgy and Petroleum (CIM) Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council on 20 August 2000 Heron or HRR means Heron Resources Limited (ABN 30 068 263 098) HRR : ASX is the Heron code on ASX HER : TSX is the Heron code on TSX IFRS means International Financial Reporting Standards OSC means Ontario Securities Commission SML 20 Transaction Documents means (a) (b) (c) Deed to Assign Special Mining Lease dated 30 November 2011 made between Veolia Environmental Services (Australia) Pty Ltd (ACN 051 316 584) (Veolia), Tarago Operations Pty Ltd (ACN 127 810 413) (Tarago) and TriAusMin; Deed of Option dated 30 November 2011 made between Veolia and Tarago; and Co-operation Deed dated 30 November 2011 made between Veolia, Tri Origin Mining Pty Ltd (ACN 115 529 112), Tarago and TriAusMin Subsidiary has the meaning given to that term in section 9 of the Corporations Act TriAusMin or TRO means TriAusMin Limited (ABN 22 062 002 475) TSX means the Toronto Stock Exchange VWAP means Volume weighted average price WEP means Woodlawn Exploration Project WRP Woodlawn Retreatment Project WUP Woodlawn Underground Project 12.2 Technical Definitions Ag means Silver Au means Gold Anomaly means a value higher or lower than expected, which outlines a zone of potential exploration interest but not necessarily of commercial significance. Cu means Copper Decline means a declined tunnel accessing an ore body Feasibility Study means a study with three progressively more detailed stages: Scoping Study is an Australian term and means a first pass estimate of engineering requirements and costs of a mining operation, processing plant and plant infrastructure. Included in the cost estimates will be infrastructure, tailings disposal, power supply, and owner's costs. The plant design may change as a result of test-work analysis, optimisation studies and engineering improvements performed during execution of the follow-up Pre-feasibility Study. Operating and capital cost estimates are to an order of magnitude accuracy of ± 30%. PEA means Preliminary Economic Assessment, and is a Canadian term for a TSX-based mineral project evaluation which has two key elements that distinguish it from other studies, firstly, it cannot be a PFS or FS, and secondly, a PEA can only demonstrate the potential viability of mineral resources. PFS and FS are more comprehensive studies and, therefore, are sufficient to demonstrate the technical and economic viability of a mineral project (section 2.3(1)(b) of NI 43-101 does not allow issuers to include inferred mineral resources in a PFS-level economic analysis, whereas section 2.3(3) of NI 43-101 allows issuers to include inferred mineral resources in a PEA). PEA is more advanced than an ASX “Scoping Study”. Pre-feasibility Study (PFS) is an Australian term and means an engineering and cost study of a mining operation, processing plant and plant infrastructure. Included in the cost estimates will be infrastructure, tailings disposal, power supply, and owner's costs. The plant design may change as a result of test-work analysis, optimisation studies and engineering improvements performed during execution of the Pre-feasibility Study. Operating and capital cost estimates are to an accuracy of ± 25%. Feasibility Study (FS) is an Australian term and means a feasibility study undertaken to a high degree of accuracy which may be used as a basis for raising finance for the construction of a project. Typically operating and capital cost estimates are to an accuracy of +/- 15-20%. A FS is the standard of report required by primary debt funders to demonstrate the technical and commercial viability of a project. Level means Horizontal series of developments all at the same distance measured from the surface m means metre and km means kilometres Mt means million tonnes Mineralisation means in economic geology, the introduction of valuable elements into a rock body Page 88 - Heron Resources Limited - Annual Report 2017 12.0 GLOSSARY CONTINUED Pb means lead Project means a grouping of prospects within a specific geographic location, often with a common geological setting Prospect means a target upon which exploration programs are planned or have commenced Province means a grouping of projects within a geological district defined by a major mineralised crustal structure RAB means Rotary Air Blast drilling technique in which a sample is returned to surface outside the rod string by compressed air. Sample quality is poor RC means Reverse Circulation drilling method employing a rotating or hammering action on a drill bit which returns a sample to the surface inside the rod string by compressed air. Sample quality is very good, particularly if the drill hole is dry Reserves or Ore Reserves or Mineral Reserves as defined by JORC Code, NI43-101 or CIM Standards. Proven or Proved Ore Reserve means the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments, which may include Feasibility Studies, have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. The term "economic" implies that extraction of the Ore Reserve has been established or analytically demonstrated to be viable and justifiable under reasonable investment assumptions. Probable Ore Reserve is the economically mineable part of an Indicated Mineral Resource. Resource or Mineral Resource means a Mineral Resource as defined by JORC Code, NI43-101 or CIM Standards and is a concentration or occurrence of material of intrinsic economic interest in or on the earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. Mineral Resources are further sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories. Measured Resource means a ‘Measured Mineral Resource’ is that part of a Mineral Resource for which quantity, grade (or quality), densities, shape and physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes, and is sufficient to confirm geological and grade (or quality) continuity between points of observation where data and samples are gathered. A Measured Mineral Resource has a higher level of confidence than that applying to either an Indicated Mineral Resource or an Inferred Mineral Resource. It may be converted to a Proved Ore Reserve or under certain circumstances to a Probable Ore Reserve Indicated Resource means an ‘Indicated Mineral Resource’ is that part of a Mineral Resource for which quantity, grade (or quality), densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes, and is sufficient to assume geological and grade (or quality) continuity between points of observation where data and samples are gathered. An Indicated Mineral Resource has a lower level of confidence than that applying to a Measured Mineral Resource and may only be converted to a Probable Ore Reserve. Inferred Resource means an ‘Inferred Mineral Resource’ is that part of a Mineral Resource for which quantity and grade (or quality) are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade (or quality) continuity. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to an Ore Reserve. It is reasonably expected that the majority of Inferred Mineral Resources could be upgraded to Indicated Mineral Resources with continue exploration. Resource Categories: JORC (2012 edition) means the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves and is a professional code of practice that sets minimum standards for Public Reporting of minerals Exploration Results, Mineral Resources and Ore Reserves. The JORC Code provides a mandatory system for the classification of minerals Exploration Results, Mineral Resources and Ore Reserves according to the levels of confidence in geological knowledge and technical and economic considerations in Public Reports. NI 43-101 means National Instrument 43-101 and is a national instrument for the Standards of Disclosure for Mineral Projects within Canada. The Instrument is a codified set of rules and guidelines for reporting and displaying information related to mineral properties owned by, or explored by, companies which report these results on stock exchanges within Canada. This includes foreign-owned mining entities who trade on stock exchanges overseen by the Canadian Securities Administrators, even if they only trade on Over The Counter (OTC) derivatives or other instrumented securities. Zn means zinc Zneq means zinc equivalent calculation: The zinc equivalent ZnEq calculation takes into account, mining costs, milling costs, recoveries, payability (including transport and refining charges) and metal prices in generating a Zinc equivalent value for Au, Ag, Cu, Pb and Zn. ZnEq = Zn%+Cu%*3.12+Pb%*0.81+*Au g/t*0.86+Ag g/t*0.03. Metal prices used in the calculation are: Zn US$2,300/t, Pb US$ 2,050/t, Cu US$6,600/t, Au US$1,250/oz and Ag US$18/oz. These metal prices are based on Heron's long term view on average metal prices. It is Heron's view that all the metals within this formula are expected to be recovered and sold. Metallurgical metal recoveries used for the formula are: 88% Zn, 70% Pb, 70% Cu, 33% Au and 82% Ag; these are based on historical recoveries at Woodlawn and supported by metallurgical testwork undertaken during the 2015-16 feasibility study. Commodity prices and metallurgical recoveries are factored into the zinc equivalent calculation using a standard metal equivalent formula. Heron Resources Limited - Annual Report 2017 - Page 89 ASX:HRR (cid:129) TSX:HER www.heronresources.com.au
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