Overview: Heron Resources Ltd (“Heron”, “the Company”) is an Australian minerals company with operations in NSW and WA. Its most advanced asset is the Woodlawn Zinc-Copper Project (“Woodlawn”), 50km NE Canberra. Previously mined between 1978-1998, Heron has completed a Preliminary Economic Assessment (“PEA”) of a renewed mining operation. Woodlawn hosts a Measured and Indicated tailings resource of 9.8Mt @ 6.2% Zn eq and an underground Indicated and Inferred resource of 3.1Mt @ Zn eq grade exceeding 15%.
Catalysts: Last year’s 15-year mining lease renewal over Woodland allows Heron to rapidly advance into production as zinc markets tighten and technical studies progress. Heron is funded through a Decision to Mine following its August 2015 placement to Greenstone Resources LP. Its Feasibility Study into an 11-year tailings retreatment and underground mining operation are due H2 2016. The 2015 PEA estimated the project to generate a Net Present Value between $192million and $300million.
Hurdles: There is no guarantee existing resources at Woodlawn can be converted into reserves. The polymetallic nature of the resource may incur processing and metallurgical challenges. Heron is reliant on external capital and there is no guarantee it can procure the funds necessary to develop a mining operation at Woodlawn. The PEA was based on metal prices higher than prevailing spot markets and there is no guarantee prices can recover.
Investment View: Heron offers speculative exposure to the zinc mining industry. We are attracted to the Company’s licensing and funding position, the high-grade nature of Woodland’s resources, and the asset’s ability to be rapidly taken into production. Whilst endurance of existing metal prices and project finance are principal risks, major zinc mine closures are laying foundations for a price recovery. With Heron positioned as the only licensed independent developer, we initiate coverage with a ‘speculative buy‘.
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