Company History

Financial Year 2008

Kalgoorlie Nickel Project

Vale Inco elected to proceed to Step 3 of its earn-in to a 60% interest in the Kalgoorlie Nickel Project (KNP) which encompasses the delivery of a pre-feasibility study.

Heron is pleased with the progress Vale Inco has made on the project and Heron is looking forward to bringing this world class asset to fruition with Vale.

Yerilla Project

The Heron development team worked extremely hard in the second half of the reporting period to deliver a positive Scoping Study for its 100% owned Yerilla Project. At a planned production rate in excess of 20,000 tonnes of intermediate nickel product the project is an internationally significant project.

Langey Crossing

The Company has acquired a 100% interest in an advanced phosphate exploration project some 60km from the port of Derby. The Company is working towards obtaining all approvals necessary to commence drilling and looks forward to early results from its initial drilling campaign.

Acquisitions

The Company has developed a strategy for the acquisition of a near term production asset with the appointment of Mr David von Perger to a newly created role of Business Development Manager. Mr von Perger will focus on identification and evaluation of assets capable of acquisition by Heron that are already in production or have the capacity to be in production in the near term.

Exploration

The Heron Exploration Team completed the resource definition of the Yerilla Project plus identification of potential water and calcrete resources in the Yerilla district. In addition, a number of new projects were developed to a drill ready stage, including: Marloo Dam (nickel), Rocky Gully (nickel), Langey Crossing (phosphate) and Gordon Downs (copper). A number of noncore projects have been farmed-out during the year to third parties including: Kanowna South (gold) and Balladonia (mineral sands). Heron continues to manage and develop an extensive tenement portfolio in Western Australia through which several grass-roots projects are being nurtured through to a drill-ready stage.

Corporate

Entry into the Technology and Product Supply Agreement with BHP Billiton in January 2008 allowed Heron to access patented Atmospheric Leach Technology which was a strong contributor to the positive Yerilla Scoping Study.

Financial Year 2007

Kalgoorlie Nickel Project (KNP) (Heron 100%, CVRD-Inco earning 60%)

Heron and Joint Venture partner CVRD-Inco completed Step 1 and Step 2 of the pre-feasibility study (PFS) into the KNP. CVRD-Inco has until 30 November 2007 to determine if they will proceed to Step 3 which encompasses the delivery of PFS by January 2009.

CVRD-Inco as part of Step 2 undertook investigations into specific nickel resources, beneficiation methods and nickel extraction flow sheets, which included pressure acid leach, atmospheric acid leach and heap leach.

Heron is encouraged by the results obtained by the Step 2 work. High pressure and atmospheric leaching test-work have demonstrated low acid consumption, rapid leaching and good recoveries for the ore types suited to each of the processing flow sheets. Heron believes that correct streaming and blending of ore types through the optimal process flow sheets can potentially result in substantially enhanced recovery rates.

The next step, Step 3, requires delivery of the PFS by January 2009 followed by a six month evaluation period. This step will involve a significant drilling component to increase confidence in the resource estimates, metallurgical test-work and engineering. The PFS will be conducted by a third party independent engineering consultancy.

Jump-up Dam

At Heron's 100% owned Jump-up Dam Project, the initial scoping study was successfully completed. Heron has now commenced a PFS into the development of Jump-up Dam as a heap leach project producing a minimum of 10,000 tonnes of nickel in concentrate per annum.

The scoping study resulted in a capital cost in the range of US$300 to US$350 million and cash operating costs in the order of US$3.00 to US$3.25 per pound of production.

Exploration success continued with new resource estimates for Jump-up Dam and Boyce Creek. The Jump-up Dam resource was updated to include 22mt of ore at 1.05% nickel, classified in the indicated category. Heron's total resources stand at 987mt at approximately 0.74% nickel - just short of 1 billion tonnes of ore.

Explorer to Producer

Heron has continued on the path to transforming itself from an explorer to a nickel producer. The Company now spends more time and resources on mine development activities than on exploration activities.

To deliver on the development plans for Jump-up Dam, the Company has assembled a skilled and experienced development team in addition to retaining acknowledged world experts to advise on aspects of metallurgy, heap leaching and engineering.

The Company announced the appointment of Mr Stephen Dennis and Mr Kenneth Hellsten to the Board in December 2006, who both have experience in nickel laterite developments and operations. The management team was further strengthened by the appointment of Mr Kevin Reynolds and Mr Robert Klug to the roles of Project Manager Jump-up Dam and Commercial Manager respectively.

The management team is well supported by a team of engineers, metallurgists and geologists all focused on the development of the Company's projects.

Corporate

Milestones were the divestment of iron ore (Polaris Metals NL), gold and base metals (Rubicon Resources Limited) and uranium assets (Epsilon Energy Limited), permitting the Company to focus on its nickel development portfolio. The vendor considerations in Rubicon Resources Limited and Epsilon Energy Limited were successfully distributed to Heron shareholders. The vendor consideration for the iron ore assets had a mark to market value of over $14.5 million. Heron also retains a substantial exposure to the future potential of the iron ore assets via its Polaris Metals NL shares and vendor options.

The Company raised $6.2 million through a shareholder share purchase plan in November 2006, which was strongly subscribed for, with over half of all shareholders participating. A further $27.8 million was raised by way of a share placement to institutional investors being clients of the Royal Bank of Canada. The placement funds are being used for the completion of the PFS into Jump-up Dam and to commence demonstration mining and heap leach treatment.

The continued support of shareholders is appreciated by the Company, through both the share purchase plan and substantial shareholders such as BHP Billiton and CVRD-Inco who subscribed to placements during the year.

Financial Year 2006

During our first decade since listing in August 1996, the Company has had a total focus on nickel laterite resource acquisition and development, assembling the Kalgoorlie Nickel Project (KNP).

Heron has operated in a counter-cyclical acquisition environment, allowing the Company to gain control of its substantial resource base between 1998 and 2004 during times of historically low nickel prices. The nickel price cycle has now seen a major upturn, with the current high prices due to high levels of demand from Asia.

Heron's nickel laterite resources have now attained considerable strategic value. At current metal prices, the run-of-mine ore (0.74% Ni and 0.05% Co) has an in-ground value of A$300 per tonne. Critically, the metallurgical technology exists to economically treat such ore, both through conventional Pressure Acid Leach with Inco, or the new Heap Leach which Heron is pursuing.

Kalgoorlie Nickel Project - Long Term Production Tier

The nickel laterite strategic targets we set continue to be achieved, with 2006 seeing Inco completing Step 1 and proceeding to Step 2 of the KNP feasibility studies.

The key Inco conclusions at the completion of Step 1 were:

  1. The KNP is a large nickel resource in a politically stable region with good existing infrastructure which has the potential to achieve the resource target of 120 million tonnes at a 1.5% Ni Leach Feed Grade.
  2. KNP is one of the better undeveloped nickel laterite opportunities in the world.
  3. No fatal flaws were detected during Step 1, but the core drilling, interpretations and database interpretation raised geological issues involving short range geological variability previously not recognised that will be addressed during Step 2.

Inco and Heron have adopted an aggressive Program and Budget for Step 2 of the KNP, focussed on metallurgical evaluations, notably Pressure Acid Leach. Although Inco has been under bid from CVRD, the Step 2 commitment is firm, irrespective of future bid outcomes.

Near to Medium Term Production Tier

Having set the Company's Long Term growth strategy in train through the Inco KNP transaction, the Company is now focussing on securing Near and Medium Term cash-flow from its 100%-owned non-KNP resources. That production opportunity is from Heap Leach of nickel laterite. The commercial model for Heron is European Nickel plc, which is commissioning a Heap Leach plant at Caldag in Turkey.

With our 2006 Heap Leach test-work indicating laboratory nickel recoveries of 60-80% in 100 days, and extensive shallow open pit ore being defined in current RC drilling, a clear pathway through to Near Term nickel production is available through Heap Leach.

The intention is to commence trial Heap Leach pads at Jump-up Dam in 2007, and depending upon these trial results, aim for nickel production at a demonstration scale in 2008, and commercial scale in 2009. The Heap Leach target is ultimately 10,000tpa nickel production as intermediate product. Discussions are current in respect of feed-stock supply and product off-take.

Corporate Strategies

In my 2005 Review, I foreshadowed the divestment of non-nickel assets, along the lines of Heron's previous Avoca Resources Limited and Pioneer Nickel Limited demergers. These two previous demergers delivered in specie shares to our then Shareholders, which at current Avoca and Pioneer share prices are valued around A$25 million.

The latest demergers are well advanced. The uranium IPO is Epsilon Energy Limited, and is on track for a late 2006 / early 2007 listing on ASX. Epsilon has an exceptional board led by Chairman Bruce Larson and Managing Director Matt Gauci. Our intention is to provide Epsilon shares as an in specie distribution to our Shareholders at no cost, in the first twelve months after Epsilon's listing.

The copper-gold IPO is Rubicon Resources Limited. Rubicon similarly has an exceptional board led by Chairman John Shipp and Managing Director Peter Eaton. Listing is planned for early 2007. An in specie distribution similarly is planned for our Rubicon shares.

Heron's iron ore assets were sold to Polaris Metals NL. Ian Buchhorn has joined the Polaris board, and we are most optimistic of Heron being the recipient of future dividend streams from Polaris as it develops production from the iron ore assets at Poondano and elsewhere.

With the Heap Leach feasibility program commencing and Inco proceeding to Step 2 of the KNP, the Company established a West Perth management office, which we share with Epsilon and Rubicon. The Jump-up Dam project team also will be based there.

Once again, I acknowledge the redoubtable efforts of our Staff, whose work output and creative intellect are first class.

Financial Year 2005

Without doubt, 2005 has been a great move forward for Heron, the year in which our business plan delivered outstanding growth for Shareholders.

"The objective during 2005 is to form alliances with world majors as potential nickel development partners to assist with the Feasibility Studies required to commission the Kalgoorlie Nickel Project".

I am pleased to report that this objective was achieved, through introducing Inco Limited of Canada as our feasibility, and if warranted, development partner for the Kalgoorlie Nickel Project. A clear pathway through to production is available.

Feasibility Study

Selection of the KNP Partner

This process culminated with Inco executing a binding Letter of Intent on 25 March 2005, and finally a Definitive Agreement on 30 July 2005. The process has been comprehensive, and has required great stamina on the part of the Board to negotiate and document what is by necessity a complex agreement, able to stand as a framework for a A$1.4 billion or greater project with a mine-life to exceed 25 years.

Confirmation of Screen Upgrade to generate 1.5% Nickel Leach Feed Grades

The favourable screen upgrade characteristics of the KNP mineralisation were verified during Heron's 2005 RC drilling. Screening studies to date suggest Run-of-Mine low grade siliceous mineralisation will upgrade through low cost screening to deliver 1.5% Nickel into the plant. The initial focus of Inco in its Feasibility Studies will be to complete the Step 1 wide diameter diamond drilling and use this bulk material to evaluate through independent metallurgist SGS Lakefield Oretest whether plant-scale screen upgrade to 1.5% Nickel is achievable. This is our key milestone for 2006, and if successful, establishes the Kalgoorlie Nickel Project as a world class project.

Corporate

On 8 April 2005, World number 3 nickel company BHP Billiton Limited purchased 15.9 million Heron Shares and is now our third largest Shareholder.

On 15 April 2005, World number 2 nickel company Inco Limited participated in a restricted Share placement of 16.5 million Heron Shares at A$0.75 per Share, raising A$12.4 million, and is now our second largest Shareholder.

We welcome Inco and BHP Billiton to Heron, and would like to think of this as a clear and positive endorsement of the mineral assets held by Heron. As Shareholders, you should be most encouraged by their corporate presence.

Financial Year 2004

Heron has announced a time frame and pathway to fund and commission the KNP. Several milestones have been achieved by the Company during 2004, to move the KNP towards a definitive Feasibility Study and production:

Independent Mineral Resource Estimates

A JORC-compliant independent mineral resource estimate of 891 million tonne grading 0.74% Ni and 0.05% Co was completed by Snowden Mining Industry Consultants (Snowden).

Independent Scoping Study

Heron retained consulting engineers Sinclair Knight Merz (SKM) to conduct an independent Scoping Study for the KNP. It is apparent that the KNP will have the key attributes typical of a major resource project.

Base case financial modelling, assuming real monetary post tax terms and a nickel price of US$3.50 per pound (current Ni price exceeds US$6.00 per pound) indicates the KNP will have:

These financial returns have been estimated over a project life of 25 years and assume the KNP produces 50,000tpa of Ni-in-intermediate product and 3,000tpa Co-in-intermediate product. The order of magnitude capital estimate for the KNP is A$1,400 million.

The Scoping Study indicates that a treatment plant to produce nickel-cobalt precipitate will be economically robust. On this basis, the Board resolved to commence a Pre-feasibility Study (PFS) for the KNP, aiming for completion in late 2005. It is intended that this study then moves seamlessly to a Bankable Feasibility Study (BFS).

Independent Screen Upgrade Study

The next development target is to confirm the screen upgrade characteristics of the KNP mineralisation. Screening studies to date suggest "run-of-mine" low grade siliceous mineralisation will upgrade to deliver better than 1.5% nickel into the plant. Independent metallurgist SGS Lakefield Oretest (Oretest) is currently conducting operating plant-scale screen upgrade studies on bulk samples.

Corporate

The challenge for Heron is to now extract value from its considerable in-ground resources. The next milestone is to form alliances with world majors as potential nickel development partners to assist with the Feasibility Studies required in order to commission the Kalgoorlie Nickel Project.

Financial Year 2003

2003 involved key strategic decisions for Heron.

The commitment to Nickel as the Company's development commodity, through the Kalgoorlie Nickel Project:

Spinning off the nickel sulphide assets into Pioneer Nickel Limited:

Gold Assets

Financial Year 2002

During 2002 the Company has concentrated upon evaluating various production opportunities for the Goongarrie Nickel Project. The main thrust was the possible purchase through a consortium, of the Cawse Nickel Operation from the Receivers and Managers of Centaur Mining & Exploration Limited ("Centaur"), Heron's former Strategic Alliance partner. A purchase was not considered prudent at the time, when considering prevailing metal prices, project scale and cost regime.

Development of Nickel Assets

The nickel laterite sector in Australia was a difficult area in which to operate during 2002, reflecting the performance of the three "First Generation" Nickel Laterite projects.

Avoca Resources Limited, Spin-off of Gold Assets

Heron's gold assets were successfully "spun-off" into a listed company known as Avoca Resources Limited ("Avoca"), which listed on ASX on 15 April 2002. Heron Shareholders, following the 1 for 5 in specie distribution and subscription to the Avoca IPO, owned approximately 50% of Avoca at listing.

Heron retained a significant interest in Avoca through holding 6,000,000 escrowed vendor options. More significantly, Heron retains full nickel rights over some 2,000km² of ultramafic-hosting tenements transferred to Avoca. Avoca is responsible for on-going tenement maintenance, thus preserving future nickel resource targets at no cost to Heron.

Project Generation

Financial Year 2001

The Focus during 2001 was to convert Heron's Nickel Laterite drill targets into an Indicated Mineral Resource.

As at 30 June 2001, the Inferred Mineral Resource above 0.75% Ni cut-off for the Goongarrie-Ghost Rocks-and satellite nickel projects was 180 million tonnes at 1.05% Ni and 0.08% Co.

The inferred mineral resource above 0.50% Ni cut-off for the Goongarrie Rocks-Kalpini and satellite nickel projects was 406 million tonnes at 0.75% Ni and 0.06% Co.

Eighteen months previously, Goongarrie had been no more than an inferred deposit drilled on an 800x80m pattern, and now the Mineral Resource has doubled.

In just 18 months, Heron advanced its technical work such that:

Goongarrie has developed into a deposit with exceptional early cashflow potential:

During 2001, genuine production capability was demonstrated:

Reflecting on-going excellent drilling results during 2001, Heron expended $2.5 million on exploration and continually drilled throughout the year:

Heron developed a key position within the Australian Nickel Laterite industry, particularly in the event of any industry rationalisation, as demanded by the capital-intensive nature of the industry. Goongarrie is a premium product on all counts, including high start-up Ni-Co grades, ability to bulk mine, ability to blend Goethite Ore with lower quality ores, and proximity to rail and road infrastructure.

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