Heron Resources Reports 46 Percent IRR in Woodlawn PEA

On Thursday, dual-listed Heron Resources (TSX:HER,ASX:HRR) released a preliminary economic assessment (PEA) for its Woodlawn zinc-copper project in New South Wales, Australia, and the results are positive to say the least.

According to the report, the Woodlawn mine is anticipated to require initial capital costs of AU$140 million for a post-tax NPV of $300 million with an 8.3-percent discount. Investors can expect a post-tax IRR of 46 percent and a payback period of two years.

The study considers an underground mine with an 11-year life, and life-of-mine production is anticipated to come in at 353,000 tons of zinc, 77,000 tons of copper, 112,000 tons of lead, 8.9 million ounces of silver and 59,000 ounces of gold. Zinc makes up about 47 percent of the total payable metal value of the project, meaning that Woodlawn offers significant leverage to the zinc price.

“This PEA study confirms not only the economic viability of the Woodlawn Project, which has the potential to deliver a long term supply of zinc into a supply constrained market, but also the quality of this asset with a very competitive cost of production within the current market,” said Heron Chairman Craig Readhead in Thursday’s release. “The project is underpinned by a revised, high quality Mineral Resource, including the discovery of 2.8 million tonnes from recent drilling and has achieved its aim of establishing a robust resource base on which to build a new operation.”

Joe Gallucci of Dundee Securities seems to agree with that statement. In a note put out on Thursday, he states that Dundee has increased the NAV for the project from $0.34 to $0.38 per share based on the new production and cost estimates provided. The firm makes a case for Heron as a zinc vehicle, noting that the company trades below its peers and offers good leverage to strong zinc fundamentals. “Zinc-levered equities are scarce on the TSX,” it adds.

Dundee also points out that Woodlawn is fully permitted, with existing infrastructure in place and low capital requirements for development given that it is located at a former mine site.

While the firm does admit that Heron is still very early stage in terms of financing and developing Woodlawn, it also calls the PEA “a major de-risking event for the company.”

“Overall we are pleased with the results and support HER’s decision to advance to the feasibility study stage,” Dundee’s note reads. The firm has given Heron Resources a “buy” rating and a target share price of $0.25.

In terms of what’s next for Heron, the company’s board has already decided to commence a feasibility study for Woodlawn, and is aiming to complete that study by mid-2016. It estimates that production could begin at the project as early as 2018.

At close of day Thursday, shares of Heron were up 4.76 percent, trading at $0.11 on the TSX. During Friday trading hours in Australia, shares of the company gained 8 percent to trade at $0.13 on the ASX.

Securities Disclosure: I, Teresa Matich, hold no direct investment interest in any company mentioned in this article.