Heron Resources : Complete A$240 Million funding Package for Woodlawn Project

Heron Resources Limited ASX/TSX Release

30 June 2017

Level 7, 191 Clarence St, Sydney, NSW, 2000

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ABN: 30 068 263 098

Heron Secures Complete A$240 Million Funding Package for Development of its Woodlawn Zinc-Copper Project1

Highlights

• Heron to be fully funded through construction and ramp-up at Woodlawn

• US$602 million senior secured loan facility, US$16 million silver stream prepayment and A$29 million3 equity investment from Orion Mine Finance

• Strong support from existing shareholder Greenstone Resources, providing a further A$42 million3 equity investment

• Introduction of new strategic investor Castlelake, L.P., providing a further A$33 million3 equity investment

• A$32 million raised from new and existing investors in oversubscribed placement

• Up to A$5 million Share Purchase Plan to allow eligible existing retail shareholder participation

• Transaction is subject to various conditions precedent including Heron shareholder approval and Castlelake FIRB approval

• Heron's Independent Directors unanimously recommend shareholders vote in favour of all resolutions at a planned General Meeting in August

• Heron to commence construction works immediately with first production targeted during late 2018

Heron Resources Limited (ASX:HRR TSX:HER, "Heron" or the "Company") is pleased to announce that it has secured the full A$2403 million funding package required for the construction and ramp-up of its 100% owned Woodlawn Zinc-Copper Project ("Woodlawn"), located in New South Wales, Australia.

The package comprises a loan, equity and stream funding package from subsidiaries of Orion Mine Finance Group ("Orion") for a total of A$129 million3, an equity subscription agreement with a subsidiary of existing shareholder Greenstone Resources LP ("Greenstone") and co-investment parties for A$42 million3, an equity subscription agreement from new cornerstone equity investor, Castlelake, L.P. ("Castlelake") for A$33 million3 (together, the "Cornerstone Investors"), and the receipt of commitments from various sophisticated and professional investors to subscribe for fully paid ordinary shares in the Company ("Shares") to raise approximately A$32 million ("Institutional Placement").

The issue price for all new shares under the total funding package was A$0.07 per share, and represents a 14% discount to the volume weighted average price of Heron shares traded on the ASX during the 10 days up to and including 26 June 2017.

A summary of the key terms of the Institutional Placement and the arrangements with the Cornerstone Investors, including the conditions precedent attaching to each of these commitments, is set out in the Annexures to this announcement.

Heron is also offering eligible existing shareholders the opportunity to participate in a Share Purchase Plan ("SPP") to raise up to a further A$5 million at the same price as the Institutional Placement and the equity component of the funding package with Cornerstone Investors ("Cornerstone Investor Placement").

1 Assumes full take-up of the A$5 million SPP and exchange rate of AUD/USD 0.76

2 Plus interest capitalised during a 15 month period from first drawdown

3 Assumes exchange rate of AUD/USD 0.76

Commenting on the funding package, Heron's Managing Director, Wayne Taylor said:

"We are pleased to have delivered a complete funding package that will enable the timely development of Woodlawn. Our operations team and our EPC lead contractor, Sedgman, are ready to commence construction of the Project immediately upon securing shareholder approval for the transaction, with the aim of commissioning Woodlawn in late 2018 and entering an increasingly supply constrained zinc market.

We welcome Orion to the Company's share register and their nominee Director, Peter Rozenauers, to the Board. We also welcome Castlelake as a new major shareholder, and their nominee Director, Ricardo De Armas, to the Board. And we acknowledge the strong and continued support of our major shareholder, Greenstone, for their ongoing and increasing commitment to the Company's vision at Woodlawn.

The backing of the major equity investors Greenstone and Castlelake provides a very strong endorsement of the potential for our Project. With their commitment and the support of major funder Orion, we look forward to progressing Woodlawn into production in 2018 and developing Heron into a substantial base metals company in the future."

The delivery of this complete funding package follows a number of key approvals and work programs that will allow for immediate commencement of construction works following completion of the Institutional Placement and the Cornerstone Investor Placement, including:

• Execution of the engineering, procurement and construction contract with Sedgman Pty Limited to be undertaken at a guaranteed maximum price of A$107 million (announced 4 May 2017)

• Execution of off-take agreements for all three concentrates with Louis Dreyfus Metals (announced 10 May 2017)

• Execution of the A$12 million earthworks contract with Ertech Pty Ltd (announced 24 May 2017)

• Signing of a new Cooperation Deed with Veolia Environmental Services (announced 29 March 2017)

• Receipt of the New South Wales Environmental Protection Licence (announced 31 March 2017)

• Initiation of the Woodlawn pre-mine entry drill program (announced 11 April 2017)

  Equity Funding

  Equity Investment Structure

  The Cornerstone Investor Placement will be undertaken in two tranches:

• The first tranche will consist of approximately 104 million shares, with approximately 30 million shares allocated to Greenstone, approximately 28 million shares to Orion, and approximately 46 million shares to Castlelake.

• The second tranche will consist of approximately 1,372 million shares, with approximately 571 million shares allocated to Greenstone and its co-investment parties, approximately 380 million shares to Orion, and approximately 421 million shares to Castlelake.

The issue of Shares to Castlelake under the first tranche is scheduled to settle on or about Tuesday, 4 July 2017. The issue of Shares to Greenstone and Orion under the first tranche will occur contemporaneously with completion of the second tranche unless either Greenstone and/or Orion elect to be issued their respective Shares under the first tranche earlier.

The second tranche is scheduled to settle on the same day as completion of the Institutional Placement.

Completion of the Institutional Placement and the second tranche of the Cornerstone Investor Placement is subject to a number of conditions precedent, including the approval of Heron's shareholders at a general meeting to be held in August 2017. Heron expects to release in the coming weeks a Notice of Meeting containing detailed information about the funding package, which will also include an Independent Expert's Report. For a summary of the key terms of the Institutional Placement and the Cornerstone Investor Placement, please refer to Annexures 1 to 5 to this announcement.

Share Purchase Plan

Heron intends to undertake a SPP to allow for the participation of eligible shareholders for an amount up to A$15,000 per shareholder, at a price of A$0.07 per share (the offer price under the Institutional Placement and the Cornerstone Investor Placement). The SPP will raise up to A$5 million. An eligible shareholder is any shareholder recorded on Heron's share register at 5:00pm AEST on Thursday, 29 June 2017 with a registered address in Australia or New Zealand. Shareholder approval is not required for the SPP.

Heron reserves the right to close the SPP early and scale back applications at its absolute and sole discretion should the total demand exceed A$5 million. When determining the amount (if any) by which to scale back an SPP application, Heron may consider a number of factors, including the size of an applicant's shareholding in the Company, the extent to which an applicant has sold or bought additional shares in the Company after the SPP record date, and the date on which an application was made with earlier applications given precedence.

Eligible Shareholders will receive further information in relation to the SPP shortly.

Greenstone Equity Participation

Existing major shareholder, Greenstone, has committed to supporting the Project with a total equity investment of approximately A$42 million4 of which approximately A$28 million4 is being made by Greenstone directly, and a further A$14 million4 via a co-investment from a number of Greenstone's investor funds. Upon completion, Greenstone will continue to retain its existing Heron Board position. A summary of the terms of the subscription by Greenstone is provided in Annexure

2. A summary of the terms of the subscription by Greenstone's investor funds is provided in Annexure 3.

Castlelake Equity Participation

New cornerstone investor Castlelake, on behalf of the funds it manages, has committed to supporting the project with a total equity investment of approximately A$33 million4. Upon completion, Heron and Castlelake have also agreed to the establishment of a strategic alliance (consistent with its existing alliance with Greenstone), whereby Castlelake will have the right to nominate one Director to the Heron Board. A summary of the terms of the subscription by Castlelake is provided in Annexure 4.

Orion Equity Participation

In addition to the Loan and Stream, Orion will also be committing to an equity investment of approximately A$29 million4. Orion will have the right to nominate one Director to the Heron Board. A summary of the terms of the subscription by Orion is provided in Annexure 5.

Indicative Timetable5

Events	Expected Date
T1 shares settlement with Castlelake	Tuesday, 4 July 2017
Notice of Meeting materials (including Independent Experts' Report) despatched to shareholders	Mid July
Opening date of SPP	Mid July
Closing date of SPP	Early August
General Meeting to approve Institutional Placement and Cornerstone Investor Placement	Mid August
Settlement of New Shares issued under the Institutional Placement, Cornerstone Investor Placement and SPP	Late August / Early September

4 Assumes exchange rate of AUD/USD 0.76

5This timetable is indicative only and is subject to change by Heron without notice

Orion Financing

The Orion financing package includes a US$60 million (A$79 million7) USD denominated senior secured loan facility ("Loan"), a US$16 million (A$21 million7) silver stream prepayment and a lead marketing arrangement, as well as the equity subscription. Further details on these arrangements are provided in Annexure 6.

Sources & Uses of Funds

Sources of Funds	A$m
Institutional Placement and Cornerstone Investor Placement6,7 Greenstone and its co-investment parties Castlelake Orion Placement Subtotal	42 33 29 32 135
SPP8	5
Stream deposit7,9	21
Loan facility7,9	86
Cash on hand (31 May 2017)10	14
Total Sources of Funds	261

Uses of Funds	A$m
Construction and development of the Woodlawn Project: Pre-production capex Post-production capex Reserve accounts / contingency for overruns Interest during construction Environmental bond and bank guarantees	156 23 33 7 8
Working capital	6
Sub-total	232
Financing and Offer Costs	7
Corporate: Corporate office Woodlawn land purchase Woodlawn regional exploration (non-SML20)	15 2 5
Total Uses of Funds	261

6 Gross proceeds from A$32 million Placement (excluding raising costs) and A$104 million cornerstone participation

7 Assumes exchange rate of AUD/USD 0.76

8 Assumes full take-up of A$5 million SPP

9 Refer to Annexure 6 for further details on the Loan and Stream; includes ~A$7 million in capitalised interest during construction

10 Unaudited internal accounts as at 31 May 2017