Broker Reports

	Column 1	Column 2	Column 3	Column 4	Column 5
0	Column 1 0 Heron Resources Ltd (HRR $0.14) Speculative Buy Column 1 0 Analyst	Date	Price Target Jon Bishop/Andrew Clayton	29/6/16	$0.30/sh

Woodlawn Feasibility Study Investment CaseHRR has delivered a robust feasibility with an post tax NP_V10 of >$200m and IRR of 32% based on a zinc price of US$1.01/lb. We view this very much as a starter project with excellent potential to extend/maintain steady state production of ~40kt of Zn, 10kt of Cu and 12kt of Pb pa as a lot of the deeper, higher grade mineralisation has been excluded from the study. Once in steady state production we forecast Woodlawn can generate EBITDA and NPAT of >$80m and >$35m respectively. This is very cheap against a current EV of $25 and fully developed EV of <$200m. We retain our $0.30/sh PT. Key Points · Woodlawn DFS shows a robust project capable of producing (at steady state) ~40kt of Zn, 10kt of Cu and 12kt of Pb pa at a C1 cost of –US$0.06/lb and a C3 cost of US$0.34/lb. · Average LOM production rates are 31kt of Zn, 7.3kt of Cu and 9.4kt of Pb which includes the underground ramp up and treatment of tailings only for the last 3 yrs. · We are very confident additional underground ore will be defined and believe the higher steady state production rate is achievable for the long term. · Initial capital is estimated at A$144m with peak negative cashflow of A$163m (incl working capital, underground development and tailings dam first life). · Mine life is estimated at 9.3yrs and based on a underground reserve of 2.8mt @ 14% ZnEq and reclaimed tailings of 9.5mt @ 6% Zn Eq.· Forecast operating costs should put HRR within the lowest quartile of producers. · The plant is designed to treat up to 1mt pa from underground and up to 1.5mtpa from reclaimed tailings processed through a standard single-sulphide flotation facility.· HRR estimate a total development time of 15 months from commencement of construction until completion of wet commissioning. · HRR calculated a post tax NPV₁₀ of $207m and IRR of 32%. It estimates payback of 2.3yrs and net cashflow post tax of $402m· The comparison with the PFS is outlined in the table below.· Key differences are · Zn production is ~10kt (-22%) lower in DFS· Assumed mine life is lower at 9.3yr vs 11yr in PFS· Higher Zn recoveries for the U/G but lower Cu recoveries for Underground.· Total capital 16% higher to incorporate working capital etc· NPV and IRR 30% lower. · This type of movement in key variables from a PFS to DFS are not unusual and despite the assumed lower production and more gradual ramp up, an NPV₁₀ of >$200m compared to current market capitalisation and Enterprise Value of $54m and $27m makes HRR cheap.· It should be noted that feasibility only extend the depth of the current mine by 80m below previous workings (650m) despite deeper drilling showing mineralisation continues.· We expect additional mine life will be defined in the deeper parts of the ore system with high grade mineralised identified in the Lisa and Kate lenses and Deeps. · We expect the project to be financeable and assume 60% project finance is achievable at competitive rates in the current market. The balance in equity is likely to be largely accounted for via the Greenstone cornerstone shareholder transaction which can contribute nearly $30m in new equity if required.Analysis HRR has delivered a robust feasibility study showing a long life zinc project of meaningful scale and size and a capital hurdle that is ‘do able’ for a small company.We view this feasibility study as very much a starter project with excellent potential to extend life and/or maintain steady state production rates of ~40kt of Zn pa.Negative C1 operating costs and All in Sustaining Cost of We expect to make some minor modifications to our model which are more than likely to be offset by our reduced risk adjustment (currently 75%) now the DFS has been delivered. At steady state production we forecast HRR can generate EBITDA and NPAT of $>$80m and >$35m respectively. At an EV of $25m HRR is cheap and offers exposure to a high quality, near term development story with strong macro behind it. We maintain our Speculative Buy and $0.30/sh price target. |

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7	Column 8	Column 9	Column 10	Column 11	Column 12	Column 13	Column 14	Column 15	Column 16	Column 17	Column 18	Column 19	Column 20	Column 21	Column 22	Column 23	Column 24	Column 25	Column 26	Column 27	Column 28	Column 29	Column 30	Column 31	Column 32	Column 33	Column 34	Column 35	Column 36	Column 37	Column 38	Column 39	Column 40	Column 41	Column 42	Column 43	Column 44	Column 45	Column 46	Column 47	Column 48	Column 49	Column 50	Column 51	Column 52	Column 53	Column 54	Column 55	Column 56	Column 57	Column 58	Column 59	Column 60	Column 61	Column 62	Column 63	Column 64	Column 65	Column 66	Column 67	Column 68	Column 69	Column 70	Column 71	Column 72	Column 73	Column 74	Column 75	Column 76	Column 77	Column 78	Column 79	Column 80	Column 81	Column 82	Column 83	Column 84	Column 85	Column 86	Column 87	Column 88	Column 89	Column 90	Column 91	Column 92	Column 93	Column 94	Column 95	Column 96	Column 97	Column 98	Column 99	Column 100	Column 101	Column 102	Column 103	Column 104	Column 105	Column 106	Column 107	Column 108	Column 109	Column 110	Column 111	Column 112	Column 113	Column 114	Column 115	Column 116	Column 117	Column 118	Column 119	Column 120	Column 121	Column 122	Column 123	Column 124	Column 125	Column 126	Column 127	Column 128	Column 129	Column 130	Column 131	Column 132	Column 133	Column 134	Column 135	Column 136	Column 137	Column 138	Column 139
0	Heron Resources Ltd	Year end 30 June​ Share Price	0.14​	A$/sh​ Price Target	0.30​	A$/sh​ Valuation	0.37​	A$/sh​	​	​	​	​ Shares on issue	415​	m, diluted * ​ Market Capitalisation	58​	A$m ​ Enterprise Value	31​	A$m ​ Debt	0​	A$m ​ Cash	27​	A$m ​ Largest Shareholder	​	Greenstone Res'c - 13.0%​	​	Production F'cast	2017f​	2018f​	2019f​ Zn Prod'n (t)	-​	10800​	44000​ Cu Prod'n (t)	-​	2200​	9000​ Pb Prod'n (t)	-​	5194​	16126​	​	​	​ Assumptions	2017f​	2018f​	2019f​ Zn Price (US$/lb)	1.03​	1.23​	1.25​ Cu Price (US$/lb)	2.40​	2.80​	2.95​ FX Rate (A$1=US$)	0.75​	0.76​	0.77​	​	​	​ Key Financials	2017f​	2018f​	2019f​ Revenue (A$m)	2​	53​	210​ EBITDA (A$m)	235​	153​	210​ NPAT (A$m)	-7​	7​	66​ Cashflow (A$m)	-126​	4​	76​			CFPS (Ac)	-30​	1​	18​ P/CFPS (x)	na​	13​	1​			EPS (Ac)	-2​	2​	16​ EPS growth (%)	na​	na​	9​ PER (x)	na​	9​	1​			EV:EBITDA (x)	na​	6​	0​ EV:EBIT (x)	na​	9​	1​			DPS (Ac)	0​	0​	0​ Dividend Yield (%)	0​	0​	0​			ND:Net Debt+Equity (%)	0​	0​	na​ Interest Cover (x)	na​	3​	21​	​	​	​																	Share Price Chart

[/table]

	Column 1
0	Column 1 0

[/table][/table]