Heron Resources Limited

Quarterly Report

September 2016

Level 7, 191 Clarence Street, Sydney NSW 2000

[email protected]

+61 2 9119 8111

ABN: 30 068 263 098

31 October 2016

HIGHLIGHTS

Woodlawn Zinc-Copper Project

• Key Woodlawn project appointments made - Woodlawn General Manager and Process Manager

• Underground mine plan optimised resulting in increased production rates, refined schedule and improved costs

• Project construction tender process underway

• Award of Front End Engineering Design (FEED) expected in the next month

• Project Financing and off-take discussions both progressing well

  Woodlawn Drilling

• Eight Diamond holes for 2,527m completed testing B Lens extension and shallow portions of G2 Lens. Several outstanding results received:

• High grade results from near surface portion of G2 lens confirm early production potential in this area adjacent to the planned decline:

  ï‚· 9.8m @ 28% ZnEq1 from 107m (8.7% Zn, 0.5% Cu, 5.2% Pb, 4.0g/t Au, 326g/t Ag) in WNDD0110

  (Incl. 3.7m @ 56% ZnEq (18.7% Zn, 1.2% Cu, 10.0% Pb, 6.9g/t Au, 650g/t Ag) in WNDD0110)

• B Lens extension confirmed to the north-west with an Exploration Target2 of approximately 0.6Mt - 1.1Mt with grades of 7.0% ZnEq - 14% ZnEq estimated; results include:

  ï‚· 11m @ 8.43% ZnEq from 569m (3.4% Zn, 0.9% Cu, 1.5% Pb, 0.12g/t Au, 18g/t Ag) WNDD0108

  (Incl. 5.7m @ 14.3% ZnEq from 575m (6.1% Zn, 1.4% Cu, 3.2% Pb, 0.18g/t Au, 35g/t Ag)

  ï‚· 2.5m @ 19.5% ZnEq from 552m (7.7% Zn, 1.3% Cu, 3.9% Pb, 1.8g/t Au, 100g/t Ag) WNDD0108

  Ardea Resources

• On 29 September Heron Shareholders approved the spin-off of non-Woodlawn related exploration and early stage development assets into a new listed entity, Ardea Resources Limited

• Upon listing of Ardea on the ASX (subject to certain conditions precedent), Heron shareholders will be entitled to receive an approximate 1 for 10 in-specie distribution of Ardea shares at no cost

  Corporate

• Cash: Heron held A$19.8M in cash (including A$0.2M in bonds) and A$1.75M in investments as at 30 September 2016

• Commodity market fundamentals continue to strengthen for zinc, with zinc prices hitting a 12 month high in July

1 ZnEq% used in this release refers to the calculated Zn equivalent grade based on the Zn, Cu, Pb, Au and Ag grades, the formula for which is provided at the end of this report.

2 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 release 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.

Heron Resources Ltd ("Heron" or the "Company") is pleased to provide its report for the September 2016 quarter. During this reporting period the Company has principally focused on the advancement of the Woodlawn Zinc-Copper project and the spin-off of Ardea Resources Ltd.

WOODLAWN ZINC-COPPER PROJECT

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 1). It is Heron's aim to create a profitable, long-life, low- cost mining operation producing base metal concentrates.

Heron also holds a portfolio of advanced stage exploration tenements adjacent to and contiguous with the Woodlawn site covering the prospective felsic volcanic units that host the Woodlawn Volcanogenic Massive Sulphide (VMS) deposit.

The last 24 months have seen Heron directing its efforts to developing the Woodlawn Zinc-Copper Project with the successful completion of a Preliminary Economic Assessment (PEA) in 2015 followed by the successful completion of the Feasibility Study (FS) in June 2016. This has been done in a market environment that continues to indicate a strengthening zinc price over the next several years driven by a significant and growing supply shortfall.

Figure 1: Woodlawn Project Location Plan

Woodlawn Project - Development Progress

Following the completion of the FS in June, a number of opportunities were identified to enhance project outcomes. As well a number of tasks were commenced that position the project for development. These include:

• Mine plan - The underground mine plan was reviewed resulting in improvements to the production profile and significant capital and operating cost reductions, mainly through optimising the use of existing development;

• Personnel appointments - On the 4th of October the Company announced the appointment of two senior site management roles. Mr Brian Hearne and Mr Des O'Sullivan will join the team as Woodlawn General Manager and Process Manager commencing in late October. These new roles will add to the owners team in readiness for project construction;

• Project EPC Contract - Submissions for a plant and construction EPC contract were received and are undergoing review in anticipation to award after project financing. Earlier work will commence via a FEED study that will expedite the development schedule. The award of the FEED work program will be made in the next month;

• Water treatment - Water treatment test work is underway to maximise the use of in excess of 2,000ML currently stored in site dams; and

• EPL Licence - An environment protection licence (EPL) application was lodged with the NSW Environment Protection Authority (EPA). This licence is expected to be granted in the next few weeks.

Project Finance - The Company is in advanced discussions with potential debt and equity providers for the project development funding. These discussions are proceeding well and in accordance with the Company's expectations, although it is noted that there can be no certainty that these discussions will be concluded successfully. The Company will provide an update to the market in due course as it is able to do so with the current expectation that the financing process will require a further 2-4 months to reach a point of execution.

Concentrate Offtake - Discussions with off-takers for the zinc, copper and lead concentrates are also proceeding well. Demand for the Woodlawn concentrates was shown to be exceedingly strong when expressions of interest were sought during the FS process, and since that time the Company has continued to progress discussions with a smaller number of parties who are keen to refine and improve upon the detailed terms of the off-take agreements. The Company is progressing these discussions in parallel with the financing process and expects to conclude one or more agreements within a similar timeframe.

Woodlawn Mine Exploration

A program of eight Diamond holes for 2,527m was completed in early September 2016, targeting extensions to the B Lens at depth and a number of positions around the shallow portion of G2 Lens to add to the early mine inventory. Final assay results for this drilling were received in mid-October.

B Lens North Drilling

Two drill holes, for 1,268m, were drilled to test the concept of an extension to the B Lens mineralisation to the north-west (Figure 2). Significant intercepts were returned from both drill holes:

o 4.5m @ 5.8% ZnEq from 538m (2.3% Zn, 0.8% Cu, 0.5% Pb, 0.2g/t Au, 13g/t Ag) WNDD0105

o 11m @ 8.4% ZnEq from 569m (3.4% Zn, 0.9% Cu, 1.5% Pb, 0.12g/t Au, 18g/t Ag) WNDD0108

(Incl 5.7m @ 14.3% ZnEq from 575m (6.1% Zn, 1.4% Cu, 3.2% Pb, 0.18g/t Au, 35g/t Ag)

o 2.5m @ 19.5% ZnEq from 552m (7.7% Zn, 1.3% Cu, 3.9% Pb, 1.8g/t Au, 100g/t Ag) WNDD0108

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 Target2 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.

Figure 2: Oblique long-section (looking east) - northern end of the B Lens position, showing location of WNDD0108, DHEM plates and earlier drilling piercements.

G2 Lens Drilling

The G2 Lens is located to the south of the Kate Lens and adjacent to the planned route of the decline between 100-200m below the surface (Figure 3). Five holes for 1,020m targeted this area to test for possible additions to resources mined early in underground mine production. Key results for this area include the following shallow depth intercepts:

o 11m @ 11% ZnEq from 133m (6.3% Zn, 0.5% Cu, 3.3% Pb, 0.1g/t Au, 10g/t Ag) in WNDD0106

o 9.8m @ 28% ZnEq from 107m (8.7% Zn, 0.5% Cu, 5.2% Pb, 4.0g/t Au, 326g/t Ag) in WNDD0110

(Incl 3.7m @ 56% ZnEq% (18.7% Zn, 1.2% Cu, 10.0% Pb, 6.9g/t Au, 650g/t Ag) in WNDD0110

o 6.0m @ 10% ZnEq from 140m (7.9% Zn, 0.2% Cu, 0.7% Pb, 0.2g/t Au, 13g/t Ag) in WNDD0110

o 2.9m @ 9% ZnEq from 160m (5.1% Zn, 0.3% Cu, 2.8% Pb, 0.5g/t Au, 11g/t Ag) in WNDD0111

The G2 mineralisation typically consists of stringer zinc sulphides (sphalerite) with lesser lead and copper sulphides. However, the high grade up-hole intercept in WNDD0110 above is of more typical high-grade polymetallic sulphides within a broad shallow dipping mineralised envelope which contains the other intercepts.

This represents a new zone of high-grade mineralisation and demonstrates yet again the discovery potential of the Woodlawn system.

Due to the high sphalerite content of the high-grade zones, this material returns a characteristic weak DHEM response (sphalerite has very low conductivity) and so at this stage without further drilling the size of this high-grade zone is poorly constrained and very prospective. This high-grade sphalerite occurrence with weak DHEM response may have implications for other areas of prior work. Interestingly, the intercept has some of the highest gold and silver grades recorded at Woodlawn and is representative of a zone of consistent and distinctive precious metal enrichment at the G2 Lens hanging-wall contact.