Kalgoorlie Nickel Project

Heron 100%

Kalgoorlie Nickel Project - location and deposits

The Kalgoorlie Nickel Project (KNP) is owned and managed 100% by Heron.

Previous partner Vale Inco withdrew from the KNP in July 2009, having spent $34.5 million on feasibility studies.

Since then, new mineral resource estimates were completed for five nickel laterite deposits that form part of Heron's Kalgoorlie Nickel Project (KNP) in Western Australia. These resources are all located in the Kalgoorlie West portion of the project. Subsequent to balance date, litigation over Bulong in the Kalgoorlie East portion of the project was settled which resulted in a reduction of the attributed resources. The total combined resource base of the KNP is an estimate of 744.0 million tonne grading approximately 0.73% nickel and 0.044% cobalt.

The estimates have been classified as Measured, Indicated and Inferred Mineral Resources in accordance with the JORC Code (JORC2004) and detailed in Section 8. The new resource estimates for the Highway, Goongarrie Hill, Goongarrie South and the Big Four prospects were prepared in-house by Heron's Resource Specialist, while the estimate for the Siberia North prospect has been prepared by Snowden Mining Industry Consultants (Snowden) with technical input from Heron.

The estimation methodology is designed to better reflect the recoverable nickel grades based on selective mining units. These resources form the basis of ongoing mining engineering studies which will optimise each deposit and the schedule for extraction of the ore, based on screen upgrade beneficiation of the resources.

The estimation methodology is identical to that used by Heron for the Yerilla Nickel Cobalt Project, which methodology has been validated against Heron's trial mining.

The estimates for the Goongarrie Hill, Goongarrie South, Siberia North and Highway prospects incorporate additional RC drilling undertaken in 2007 and 2008 for which assay results were unavailable prior to the Vale PFS resource estimation, and RC drilling at the Big Four prospect completed in 2006 for which no formal updated resource estimate has been generated.

Nickel and cobalt resources were initially estimated by ordinary kriging into parent blocks with dimensions selected based on the drill hole spacing and analysis of mineralisation continuity at each of the prospect areas (parent block dimensions noted in resource tabulations below). Kriged MgO, FeO, Al₂O₃, SiO₂, CaO, Mn, and Cr estimates were also completed and used to assign geochemical material type coding into the resource models and calculate ore processing parameters. This data was a key input into an updated mine optimisation study of the KNP.

A second resource estimate for nickel was generated by uniform conditioning using selective mining unit (SMU) dimensions of 10mE by 10mN by 4mRL in order to produce an estimate of the tonnage and grade recoverable by selective mining once close spaced drilling (grade control) is carried out during future mining. The uniform conditioning estimate for nickel and ordinary kriged estimates for the other elements form the basis of the updated mine optimisation study.

The Company completed the review and revision of the Vale Inco pre-feasibility study (PFS) for the KNP. The revision has resulted in a larger project with lower operating costs and lower capital intensity per pound of nickel production, better resource utilisation and a more even production profile.

Heron completed further metallurgical studies and a detailed mining study. The mining study looked at optimising individual pits and mining sequence. This study evaluated the project performance over three production rate scenarios of 2.5Mt (Vale Base Case), 3.75Mt and 5Mt per annum of leach feed. The 3.75Mtpa leach feed scale is preferred as it provides the best project performance.

Metallurgical studies looked at better estimations of the material types based on geochemical criteria developed by Heron, but still applying the Vale test work to these new material type classifications. Test work was used to estimate key operating parameters including beneficiation up-grade, mass of ore reporting to leach feed and acid consumption. Small incremental improvements in confidence levels of the estimation of these parameters were observed, resulting in more robust overall estimates. Further extensive metallurgical test work is required during the next stage of the feasibility study to provide further confidence in the estimates of these important parameters.

The mining study produced optimised pits for each of the five resource areas based on estimates of metallurgical performance and costs for each resource block. Dynamic lower cut off grades were evaluated and used for this optimisation and cut off grades from beneficiation to direct feed ore were developed to optimise project value. The study value ranked pit shells and then developed a mining sequence to maximise cash flow and return from the operation. This results in cycling between the five pits to maximise return (commonly used by other miners in multi-pit operations, sometimes known as pit phasing). This study resulted in superior resource utilisation and stable nickel production resulting in superior utilisation of process plant.

Capital estimates for the three production rates were scaled from the Vale estimate using industry standard factors. It should be noted that the base data for capital and operating cost estimation is now 18 months old. A closer estimate of capital costs will be provided by a future feasibility study. As the scale of the operation increases the operating cost reduces and the capital intensity decreases. Construction is estimated to take approximately 3 years and project ramp up to full production is assumed to be 3 years.

The project is a substantial long term source of nickel in a stable jurisdiction near to established infrastructure.

Product physical parameters are set out in the table below.

The Company completed a partner search aimed at introducing a development partner to the KNP. No proposals acceptable to Heron were received. The Company will maintain its 100% ownership of the project, and will keep the project under constant review as the nickel price continues to improve and technical developments for Nickel Laterite projects continue to evolve.

The KNP has the advantage of being a large, high quality resource and the Project has many other favourable characteristics including good local Infrastructure, low sovereign risk, access to a skilled labour pool, low environmental risk for tailings disposal, and supportive government, environment agencies and Community. Heron has restructured the KNP tenement holding to retain key resource tenements, with tenements considered prospective for mineralisation other than nickel, such as gold, now divested. Heron retains the nickel rights on a number of these tenements.