Heron Resources Limited

Quarterly Report

December 2015

Level 1, 37 Ord Street, West Perth WA 6005 [email protected]

+61 8 6500 9200

ABN: 30 068 263 098

27 January 2016

HIGHLIGHTS

Woodlawn Zinc-Copper Project

• A$11M Feasibility Study (FS) for Woodlawn Zinc-Copper Project progressing to plan, key components include:

  • Feasibility Study drilling programme successfully completed delivering numerous high grade results

  • Mineral Resource estimation is well advanced with preliminary block models provided to SRK engineers for commencement of mine planning

  • Recent metallurgical test work results on underground and tailings samples are encouraging and have confirmed Preliminary Economic Assessment (PEA) concentrate recovery and grade assumptions

  • Project financing discussions continue with prospective senior lenders and other potential funding sources

  • Independent Technical Experts appointed and first pass review completed, recommendations have been incorporated into FS scope

• Significant intercepts received from Kate Lens drilling:

   22m @ 13.0% ZnEq1 from 378m (3.7% Cu, 0.8g/t Au, 16.8g/t Ag), WNDD0071 (Kate Copper)

   6.5m @ 7.8% ZnEq from 405m (4.5% Zn, 0.6% Cu, 0.9% Pb, 0.5g/t Au, 12.5g/t Ag), WNDD0071

   9.1m @ 31.6% ZnEq from 370m (18.3% Zn, 2.3% Cu, 4.6% Pb, 1.1g/t Au, 53.7g/t Ag), WNDD0073

   14.0m @ 5.1% ZnEq from 294m (1.4% Cu, 0.4g/t Au, 5.1g/t Ag), WNDD0075 (Kate Copper)

   18.9m @ 9.3% ZnEq from 351m (2.6% Cu, 0.7g/t Au, 8.3g/t Ag), WNDD0084 (Kate Copper)

• Significant intercepts received from shallow E, G and H Lenses drilling:

   2.8m @ 16.8% ZnEq from 79m (9.7% Zn, 0.2% Cu, 4.7% Pb, 1.5g/t Au, 47.2g/t Ag), WNDD0076 (E)

   4.6m @ 47.2% ZnEq from 55m (24.4% Zn,1.1% Cu, 13.6% Pb, 1.4g/t Au, 241g/t Ag), WNDD0078 (E)

   3.0m @ 58.7% ZnEq from 64m (28.5% Zn, 2.1% Cu, 13.1% Pb, 2.2g/t Au, 372g/t Ag), WNDD0078 (E)

   1.3m @ 33% ZnEq from 283m (8.8% Zn, 4.8% Cu, 3.2% Pb, 1.8g/t Au, 168g/t Ag), WNDD0074 (G)

   1.8m @ 25.0% ZnEq from 106m (1.5% Zn, 4.4% Cu, 3.7% Pb, 2.7g/t Au, 145g/t Ag), WNDD0081 (H)

   2.9m @ 35.4% ZnEq from 96m (12.7% Zn, 2.6% Cu, 8.1% Pb, 2.5g/t Au, 202g/t Ag), WNDD0088 (G)

   1.8m @ 32.3% ZnEq from 116m (6.4% Zn, 3.5% Cu, 3.5% Pb, 2.2g/t Au, 341 g/t Ag), WNDD0089 (G)

   1.8m @ 32.0% ZnEq from 80m (13.8% Zn, 1.3% Cu, 8.6% Pb, 0.8g/t Au, 216g/t Ag), WNDD0093 (E)

   2.5m @ 45.3% ZnEq from 93m (7.1% Cu, 4.5g/t Au, 626g/t Ag) WNDD0103 (H)

• Significant intercepts received from Lisa Lens:

   12.4m @ 20.0% ZnEq from 222m (12% Zn, 1.6% Cu, 2.0% Pb, 0.7g/t Au, 23g/t Ag), WNDD0104

• Veolia agreements extended with discussions targeting new agreements to incorporate Heron's revised operational plans

  
  

  Corporate

• Cash A$23.8M and listed investments A$3.1M at 31 December 2015

• Accepting off market bid for Golden Cross Resources, expected to monetise the Company's investment at $0.0825 per share (A$1.6M)

• Commodity forecasters confirm zinc's strong supply / demand fundamentals for 2016 - 2020

1 Zn equivalents (ZnEq) in this release are based on the formula: Zn (%) + 0.81 x Pb(%) + 3.12 x Cu(%) + 0.86 x Au(g/t) + 0.03 x Ag(g/t). All these metals are expected to be recoverable. Refer to the announcement of 22 April 2015 entitled "Preliminary Economic Assessment Delivers Strong Business Case for the Woodlawn Zinc-Copper Project" for further information.

Heron Resources ("Heron" or the "Company") is pleased to provide its report for the December 2015 quarter. During this reporting period the Company has principally focused on advancing the Woodlawn Project through the progression of the Woodlawn Feasibility Study.

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 and low cost mineral processing operation at Woodlawn that produces base metal concentrates. Heron also holds a portfolio of advanced stage exploration tenements adjacent to the Woodlawn site covering the prospective felsic volcanic units that host the Woodlawn Volcanogenic Massive Sulphide (VMS) deposit.

Drilling results during the quarter have been very encouraging, with an expansion to the Kate Lens in addition to several high grade intercepts being returned from the shallow positions in the E, G and H Lenses. The Lisa Lens also returned a wide, high grade intercept providing further confidence in this new lens discovery.

Figure 1 Woodlawn Project Location Plan

Feasibility Study Progress

Excellent progress has been made on the Woodlawn Feasibility Study (FS) during the quarter. Work continues within a budget of approximately $11M that is fully funded from the Company's existing cash reserves. The FS remains on schedule for completion within the second quarter of 2016.

Key items of FS progress include:

• Phase II drilling program was successfully completed - refer to the following section for further details.

• Mineral Resource estimation is well advanced with preliminary block models provided to SRK engineers for commencement of mine planning.

• Geotechnical and sterilisation drilling was completed during the quarter. Geotechnical work by Beck Engineering now continues on mine design criteria, deformation modelling, ground support, box-cut and portal access designs. This work will be incorporated into the mine design by SRK as will the outcomes of the structural review of the two portal plugs within the Veolia open cut.

• An updated JORC 2012 and NI43-101 Resource statement and an associated mine plan for the tailings resource was completed during the quarter to be incorporated into the FS and the estimation of Mineral Reserves.

• The Water Management Plan was well advanced with plans completed to dewater the existing underground workings. Discussions with Veolia were also advanced regarding details of shared site access to the pit for initial mine dewatering.

• Metallurgical test work to confirm flowsheet design has continued during the quarter. Testing of tailings, underground and blended (underground and tailings) has progressed. Metallurgical test work results received to date are encouraging and have confirmed PEA assumptions.

• GR Engineering Services is ready to commence work for the FS process design next quarter with an initial review of the recent metallurgical work.

• The design of the new tailings storage facility (TSF4) was completed during the quarter by Coffey Mining. A cost estimate will be prepared for inclusion in the FS.

• A concentrate off-take strategy has been delivered and follow-on work is continuing for the FS. This strategy contemplates off-take contracts for the different concentrates, logistics options, credit and revenue management and potential interaction with project financing options.

• A quarterly community consultation committee (CCC) meeting was held on the 16 December 2015 with representatives present from the local community, the Goulburn Mulwaree Council and Veolia.

• Work to finalise statutory requirements has continued with a draft Project Modification Environmental Assessment report being submitted to the Department of Planning & Environment for initial assessment. This report will be finalised and formally submitted in the first quarter. Both the Mine Operations Plan (MOP) and the Annual Environmental Management Report (AEMR) were formally accepted by the Department of Industry, Division of Resources and Energy during the quarter.

• Behre Dolbear Australia Pty Ltd (BDA) were appointed Independent Technical Experts and completed an initial high level review of the project. Feedback from this review has been incorporated into the work scope for the FS.

Phase II Drilling Program

The Phase II drilling program at Woodlawn commenced in April 2015 was completed on 14 November 2015 with 84 holes having been drilled for a total of 18,653 metres, reflecting on-time and on-budget progress. Advance for the December quarter was 25 diamond drill holes for 3,994 metres.

The Phase II program was designed to test shallow mineralised positions which have potential to provide readily accessible production in the early part of the future underground operation, as well as to undertake the in-fill drilling required to upgrade parts of the underground Mineral Resource to Indicated status and close off mineralised positions.

The Phase II program has confirmed the up and down plunge extensions to the Kate Lens through several massive sulphide intercepts (refer to Figures 2). Significant intercepts returned include:

Kate Lens significant intercepts:

• 22m @ 13.0% ZnEq from 378m (3.7% Cu, 0.8g/t Au, 16.8g/t Ag), WNDD0071 (Kate Copper)

  o 6.5m @ 7.8% ZnEq from 405m (4.5% Zn, 0.6% Cu, 0.9% Pb, 0.5g/t Au, 12.5g/t Ag), WNDD0071

  o 9.1m @ 31.6% ZnEq from 370m (18.3% Zn, 2.3% Cu, 4.6% Pb, 1.1g/t Au, 53.7g/t Ag), WNDD0073

• 14.0m @ 5.1% ZnEq from 294m (1.4% Cu, 0.4g/t Au, 5.1g/t Ag), WNDD0075 (Kate Copper)

• 18.9m @ 9.3% ZnEq from 351m (2.6% Cu, 0.7g/t Au, 8.3g/t Ag), WNDD0084 (Kate Copper)

E, G and H Lens significant intercepts:

High grade assays albeit over narrow widths were returned through the drill-out of the shallow E, G and H Lens positions (Figure 3):

o 2.8m @ 16.8% ZnEq from 79m (9.7% Zn, 0.2% Cu, 4.7% Pb, 1.5g/t Au, 47.2g/t Ag), WNDD0076 (E) o 8.2m @ 6.6% ZnEq from 127m (3.2% Zn, 0.8% Cu, 0.3% Pb, 0.3g/t Au, 14.5g/t Ag), WNDD0077 (E) o 3.0m @ 19.7% ZnEq from 22m (10.8% Zn, 0.5% Cu, 3.9% Pb, 1.6g/t Au, 96g/t Ag), WNDD0078 (E) o 4.6m @ 47.2% ZnEq from 55m (24.4% Zn,1.1% Cu, 13.6% Pb, 1.4g/t Au, 241g/t Ag), WNDD0078 (E)

o 3.0m @ 58.7% ZnEq from 64m (28.5% Zn, 2.1% Cu, 13.1% Pb, 2.2g/t Au, 372g/t Ag), WNDD0078 (E)

o 1.3m @ 33% ZnEq from 283m (8.8% Zn, 4.8% Cu, 3.2% Pb, 1.8g/t Au, 168g/t Ag), WNDD0074 (G) o 1.8m @ 25.0% ZnEq from 106m (1.5% Zn, 4.4% Cu, 3.7% Pb, 2.7g/t Au, 145g/t Ag), WNDD0081 (H) o 3.8m @ 11.8% ZnEq from 80m (6.4% Zn, 1.0% Cu, 1.7% Pb, 0.3g/t, 17.7g/t Ag), WNDD0084 (E)

o 2.9m @ 35.4% ZnEq from 96m (12.7% Zn, 2.6% Cu, 8.1% Pb, 2.5g/t Au, 202g/t Ag), WNDD0088 (G) o 1.8m @ 32.3% ZnEq from 116m (6.4% Zn, 3.5% Cu, 3.5% Pb, 2.2g/t Au, 341 g/t Ag), WNDD0089 (G) o 6.1m @ 12.2% ZnEq from 50m (6.9% Zn, 0.5% Cu, 2.2% Pb, 1.0g/t Au, 36g/t Ag) , WNDD0093 (E)

o 1.8m @ 32.0% ZnEq from 80m (13.8% Zn, 1.3% Cu, 8.6% Pb, 0.8g/t Au, 216g/t Ag), WNDD0093 (E)

o 9.3m @ 18.7%ZnEq from 41m (8.2% Zn, 0.7% Cu, 3.2% Pb, 1.6g/t Au, 144g/t Ag), WNDD0098 (G)

o 2.5m @ 45.3% ZnEq from 93m (7.1% Cu, 4.5g/t Au, 626g/t Ag) WNDD0103 (H)

These results show the exceptional grades of these shallow lenses and present potential early stage mine production sources.

Lisa Lens significant intercept:

The final hole of the Phase II program targeted the up-dip position of new Lisa Lens and returned a very encouraging result:

o 12.4m @ 20.0% ZnEq from 222m (12% Zn, 1.6% Cu, 2.0% Pb, 0.7g/t Au, 23g/t Ag), WNDD0104

 Including 9.5m @ 26.0% ZnEq from 223m (16% Zn, 1.7% Cu, 2.7% Pb, 0.68g/t Au, 28g/t Ag)

This result is illustrated in Figure 3 and provides for a further shallow high grade position that could be mined in the early years of the operation.

Conceptual Targets - DHEM Programs

A review of the downhole electromagnetic (DHEM) models for the Kate Lens extension position revealed the presence of a significant conductor with dimensions in order of 150m long and 200m deep. The conductance of the modelled plate, at 12- 35 siemans (S), is less than that for the Kate Lens (50-80S), and this conductive body is off-set into the stratigraphic footwall by about 60m relative to the Kate Lens. A single drill hole (WNDD0091W1) was drilled into the middle, southern part of this plate and intersected some 16m of disseminated, banded and semi-massive pyrite and minor chalcopyrite (grading 16m @ 0.12% Cu from 684m depth) which was associated with moderate to strong silica, chlorite and sericite alteration, indicating proximity to potentially significant mineralisation.