Corporate Directory · 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$5.50 per pound) indicates

Corporate Directory

Heron Resources Limited Annual Report 2004

DIRECTORSCraig Leslie Readhead BJuris LLBChairman (Non Executive)

46-50 Kings Park RoadWEST PERTH WA 6005

Ian James Buchhorn BSc (Hons), Dipl Geosci, MAusIMMManaging Director (Executive)

21 Close WayKALGOORLIE WA 6430

Norman Mathew Longworth BSc (Hons), MAusIMMExploration Director (Executive)


Allan Trench PhD, BSc (Hons), MBA (Oxford), MAusIMMDirector (non Executive)


COMPANY SECRETARYRoss James Arancini BBus, ACACompany Secretary

110 Hensman StreetSOUTH PERTH WA 6151

REGISTERED AND PRINCIPAL OFFICE21 Close WayPO Box 1280KALGOORLIE WA 6430

Telephone: +618 9091 9253Facsimile: +618 9091 9256

Email: [email protected]: http://www.heronresources.com.au

AUDITORSButler Settineri Chartered Accountants35-37 Havelock StreetWEST PERTH WA 6005

SOLICITOR TO THE COMPANYPullinger Readhead Lucas46-50 Kings Park RoadWEST PERTH WA 6005

BANKERSChallenge Bank230-236 Hannan StreetKALGOORLIE WA 6430

SHARE REGISTRYSecurity Transfer Registrars Pty Ltd770 Canning HighwayAPPLECROSS WA 6153

Telephone: +618 9315 0933Facsimile: +618 9315 2233Email: [email protected]

ABN30 068 263 098

STOCK EXCHANGEAustralian Stock Exchange Limited2 The EsplanadePERTH WA 6000

ASX CODEHRR

SEAT ABBREVIATIONHeron

HOME BRANCHPerth

INDUSTRY CLASSIFICATIONOther Metals 022 Base Metals

RESEARCH SERVICE INDEX NO.Mining H50

ISINAU000 000 HRR6

Table of Contents1.0 CHAIRMAN’S REVIEW 2

2.0 OPERATIONS REVIEW 4

3.0 CORPORATE PROFILE 18

4.0 DIRECTORS’ REPORT 24

5.0 FINANCIAL STATEMENTS 29

STATEMENTS OF FINANCIAL PERFORMANCE 29

STATEMENTS OF FINANCIAL POSITION 30

STATEMENTS OF CASH FLOW 31

NOTES TO AND FORMING PART OF THE ACCOUNTS 32

DIRECTORS’ DECLARATION 48

6.0 INDEPENDENT AUDIT REPORT 49

7.0 SHAREHOLDER INFORMATION 50

8.0 STATEMENT OF MINERAL RESOURCES 53

9.0 INTEREST IN MINING TENEMENTS 54

10.0 GLOSSARY 63

Highlights

Heron Resources Limited Annual Report 2004 1

2004 HAS SEEN KEY ADVANCEMENT FOR THE HERON NICKEL STRATEGY:

The commitment to commission the Kalgoorlie Nickel Project

➢ Resources: The Independent Resource Estimate for the Kalgoorlie Nickel Project (KNP) is 891 million tonnegrading 0.74% nickel and 0.05% cobalt, which after screening includes a potential leach feed of 120 milliontonne at 1.6% nickel. This is the world’s second largest nickel resource with 6.6 million tonne contained nickel metal.Grades are comparable to existing nickel laterite operations, a proven process technology is available, and mostsignificantly, KNP has an excellent infrastructure and environmental location.

In terms of resource comparison, the BHP Billiton Ravensthorpe nickel project located 440km south of the KNP hasa published resource of 263 million tonne grading 0.65% nickel and 0.03% cobalt for 1.7 million tonne containednickel metal. Ravensthorpe is currently under construction. The BHP Billiton decision in March 2004 to commissionRavensthorpe, a smaller resource than the KNP, provides an endorsement of Heron’s nickel strategy.

The KNP resource risk is minimal.

➢ Processing: The KNP Scoping Study released in July 2004 indicated that the KNP nickel laterite plant will targetproduction of some 50,000 tonnes per annum of nickel in precipitate and 3,000 tonnes per annum of cobalt inprecipitate. The KNP processing flow-sheet was designed to only utilise proven components operating successfullyin established Pressure Acid Leach (PAL) plants.

The KNP processing risk is quantified and is considered minimal.

➢ Location: The KNP has a premium location and a materially unencumbered ownership structure:• The processing plant is to be constructed adjacent to Heron’s Goongarrie resource 80km north of Kalgoorlie.• Excellent regional infrastructure, with road, rail and gas pipeline within the KNP operations area.• Political stability, no sovereign risk.• Stable, skilled mining work force, resident within the operations area.

The KNP sovereign risk is minimal, WA being the prime location for a major resource development.

➢ Environment: The KNP is located in an arid flat terrain, such that tailings disposal is easily managed. The proposedmine operating “footprint” will be minimised through progressive back-fill of pits with mining waste and process planttailings. Additionally the local flora and fauna is not identified as unique.

The KNP environmental risk is minimal, in strong contrast to proposed wet tropical nickel laterite operations.

The Cawse and Ravensthorpe nickel laterite projects provide a “blue print” for developingthe Kalgoorlie Nickel Project

➢ Screen upgrade studies indicate that the siliceous mineralisation which underpins the KNP is well suited to low costbulk mining followed by fine screening to achieve a target 1.6% nickel leach feed grade (LFG). The screeningtechnology is well proven in Cawse operations and in Ravensthorpe feasibility study test work.

➢ Screen upgrade is the project’s strength, with an ability to deliver high LFG into the proposed processing plant overa 25 year mine life. Initial laboratory studies indicate that 0.9% nickel upgrades to 1.6% nickel through screening, a72% upgrade factor. Under the optimised screening conditions of a full-scale plant, there are indications that gradesas low as 0.8% nickel will screen to a 1.6% nickel LFG.

➢ The KNP ore feed is a siliceous goethite oxide laterite identical to that of Cawse nickel operation, so avoiding theprocessing issues of clay-rich silicate laterites such as Murrin Murrin and Bulong.

The ability to upgrade the KNP siliceous mineralisation is a key determinant of the project’s viability.Results so far suggest a nickel screen upgrade target of up to 100%, which is consistent with the screenupgrade performance of the Cawse nickel operation and the proposed Ravensthorpe nickel project.

Heron has commenced the Pre-Feasibility Study to develop the Kalgoorlie Nickel Project.

DIRECTORSCraig Leslie Readhead CHAIRMAN (NON EXECUTIVE)

Ian James Buchhorn MANAGING DIRECTOR (EXECUTIVE)

Norman Mathew Longworth EXPLORATION DIRECTOR (EXECUTIVE)

Allan Trench DIRECTOR (NON EXECUTIVE)

1.0 Chairmans Review


WESTERN AUSTRALIA

Kalgoorlie

Perth

Onslow Iron-Sands

Warburton Copper

Kimberley

Balladonia

Figure 1 EASTERN GOLDFIELDS PROJECT LOCATIONS

3

It is with pleasure that I present the ninth Annual Report of Heron ResourcesLimited (Heron). Heron is focussed on deriving Shareholder value through thedevelopment of the Kalgoorlie Nickel Project (KNP).

As Shareholders, you should know that the Company estimates that with the KNP itnow controls nickel and cobalt metal exceeding A$100 billion in the ground value (referSection 8 of this Annual Report for the value calculation). For perspective, the valuein today’s prices of the approximately 50 million ounces of gold produced over acentury from the other world-famous Kalgoorlie project, the Golden Mile, is some A$30billion. We have in the KNP a truly remarkable world class mineral asset.Independent estimates are that it is the world’s second largest nickel resource.

Technical

Heron has announced a pathway to complete technical studies, fund and commission the KNP. Several key milestoneshave been achieved by the Company during 2004, to move the KNP towards a definitive Feasibility Study andproduction:

➢ Independent Mineral Resource Estimates

A JORC-compliant independent mineral resource estimate of 891 million tonne grading 0.74% Ni and 0.05% Cowas 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 (currentNi price exceeds US$5.50 per pound) indicates the KNP will have:

• Approximate 25% internal rate of return on a geared and unhedged basis. • Estimated A$607 million net present value at a discount rate of 10%.

These financial returns have been estimated over a project life of 25 years and assume the KNP produces 50,000 tonnesper annum of nickel-in-intermediate product and 3,000 tonnes per annum cobalt-in-intermediate product. The order ofmagnitude 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. Onthis basis, the Board resolved to commence a Pre-feasibility Study (PFS) for the KNP. It is intended that this study willmove seamlessly to a Bankable Feasibility Study (BFS).

➢ Independent Screen Upgrade Study

The next development milestone is to confirm the screen upgrade characteristics of the KNP mineralisation. Screeningstudies to date suggest “run-of-mine” low grade siliceous mineralisation will upgrade through screening to1.6% nickel into the plant. Independent metallurgist SGS Lakefield Oretest (Oretest) is currently conducting pilot plantscreen upgrade studies on bulk samples. Results to date have been most encouraging.

Corporate

I welcome new directors Allan Trench and Mat Longworth to Heron. Their appointment to Heron is a part of the evolvingprocess of building up the Board and management skill sets ahead of commissioning the KNP.

I acknowledge the enthusiasm and professionalism of our staff; particularly Managing Director Ian Buchhorn, ExplorationDirector Mat Longworth, Senior Geologist Dave von Perger and Administration Manager Sarah Calvert. With the facilitiesavailable to them, to build up the KNP into the world’s second largest nickel resource is a remarkable effort.

The challenge for Heron is to now extract Shareholder value from its considerable in-ground resources. The objectiveduring 2005 is to form alliances with world majors as potential nickel development partners to assist with the FeasibilityStudies required to commission the Kalgoorlie Nickel Project.

C L ReadheadChairman


2.0 Operations Review


NICKEL LATERITE RESOURCE INVENTORY as at 30 JUNE 2004

Table 1Goongarrie Area total in situ Mineral Resources by Resource Classification

Dominantly Goethite and Siliceous Mineralisation

JORC (1999) Resource Class Tonnage Mt % Ni % CoMeasured 12 0.96 0.079

Indicated 55 0.77 0.062

Inferred 221 0.72 0.054

Total 287 0.74 0.056

Table 2Siberia Area Total in Situ Mineral Resources by Resource Classification

Dominantly Siliceous Mineralisation

JORC (1999) Resource Class Tonnage Mt % Ni % CoMeasured

Indicated

Inferred 247 0.68 0.047

Total 247 0.68 0.047

Table 3Bulong Area Total in Situ Mineral Resources by Resource Classification

Dominantly Siliceous Nontronite/Saprolite Mineralisation


Indicated 99 0.87 0.052

Inferred 165 0.75 0.046

Total 265 0.79 0.048

Table 4Hampton Area Total in Situ Mineral Resources by Resource Classification

Dominantly Siliceous Nontronite/Saprolite Mineralisation


Indicated

Inferred 93 0.77 0.045

Total 93 0.77 0.045

Table 5Kalgoorlie Nickel Project Total in Situ Mineral Resources by Resource Classification

All Ore Types

JORC (1999) Resource Class Tonnage Mt % Ni % CoMeasured 12 0.96 0.079

Indicated 154 0.83 0.055

Inferred 725 0.72 0.048

Total 891 0.74 0.050


HERON OBJECTIVES DURING 2004 AND ONWARDS

Development Strategy and Partnerships

The priority for Heron is to commission a mining and processing operation at the Kalgoorlie Nickel Project. Aclear strategy is in place:

➢ The process flow sheet has been selected and consists of two circuits. A Pressure Acid Leach (PAL) circuit will treatsiliceous goethite oxide laterite ore. The PAL acidic discharge slurry containing Ni-Co in solution will go to a reactionvessel for atmospheric pressure neutralisation and leaching within the Saprolite Acid Leach (SAL) circuit. To minimisethe process complexity and reduce capital costs, the KNP will produce a mixed nickel-cobalt product, rather thanrefined metal. The processing plant will be located at Goongarrie.

➢ Heron intends to retain 100% ownership of the KNP during the Pre-Feasibility Study. The Company has recruited anexperienced technical team to conduct the current PFS drilling and metallurgical programs.

➢ The PFS will be based on a PAL/SAL leach feed of 120mt at 1.6% Ni, the plant feed being dominantly derived fromscreened siliceous ore. This ore feed has a uniform chemistry, as required for large scale chemical engineeringplants.

➢ Heron will introduce a technical/off-take partner to assist with a Bankable Feasibility Study. The partner’s off-takerequirements are likely to determine whether KNP produces a hydroxide or sulphide mixed nickel-cobalt product.

Resource Consolidation

Three acquisitions and various pegging opportunities were completed during 2004, to move towards the current 891million tonne resource base:

➢ Bulong: Heron entered into an agreement for the purchase of all mineral rights for mining tenements in the Bulongproject beneficially owned by Bulong Operations Pty Ltd and Bulong Nickel Pty Ltd (both with Receivers andManagers Appointed and In Liquidation).

The Bulong Inferred Mineral Resource is estimated to be 265 million tonne grading 0.79% Ni and 0.05% Co. Bulongis located 90km SE of Heron’s Goongarrie prospect, and 40km SW of Heron’s Kalpini prospect and as such,represents a key strategic holding adjoining Heron’s existing nickel laterite resource inventory.

The final resource estimate at Bulong may be subject to amendment, due to deeper drilling planned by Heron whichis expected to increase the saprolite resources (previous drilling has often stopped above the saprolite ore horizon),and some loss of available resources due to the impact of mining infrastructure.

Heron’s eastern Kalgoorlie Nickel Project, now represented by Bulong with the Kalpini and Lake Rebecca prospects,is dominantly saprolite and nontronite nickel laterite ore for SAL. The northern Kalgoorlie Nickel Project, representedby the Goongarrie, Siberia, Highway and Ghost Rocks prospects, consists of siliceous and goethite nickel laterite orefor PAL. Bulong is a key strategic asset of the KNP, being a major source of saprolite ore.

➢ Big Four: Heron entered into an agreement for the purchase of all mineral rights for the Big Four prospect ownedby Placer Dome Asia Pacific Pty Limited. The Big Four Inferred Mineral Resource is estimated to be 29 million tonnegrading 0.72% Ni and 0.05% Co.

➢ Siberia: A purchase of the10% minority interest held byDestra Corporation at theSiberia Tank prospect wascompleted. Siberia Tank hasapproximately 23.5 milliontonne grading 0.66% Ni and0.04% Co.

➢ Additional resourcetenements were acquiredduring 2004 at Siberia,Ghost Rocks, Bulong andKalpini as a result of theCompany’s routine tenementpegging.

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Kalgoorlie Nickel ProjectNo. 2

Goro

World Ranking ofNickel Resources

source of data: Intierra

Operations Review Continued


Figure 2 KALGOORLIE NICKEL PROJECT RESOURCE SUMMARY

Heron is the dominant tenement holder on the Walter Williams Formation (WWF), upon whichnickel laterite mineralisation is uniformly developed.

By controlling ownership of the WWF, Heron has semi-continuous mineralisation from GhostRocks in the north, to Highway, to Goongarrie, to Big Four in the south.

The red dots representing economic nickel laterite drill intercepts, indicate excellentcontinuity of mineralisation at a 0.75% Ni cut-off grade. This augurs well for low cost bulkmining.


Flow-Sheet Development

The Company’s independent consultants SKM have generateda proposed flow-sheet for the KNP.

The KNP will utilise the PAL technology for the premium,upgradeable goethite and siliceous ores. It is proposed toinvestigate the leaching of saprolite ores by SAL, as asupplementary leaching and neutralisation stage. The possibleore blend is 65% goethite and 35% saprolite. Conventionallimestone neutralisation rather than saprolite may be used initiallyfor the KNP, to minimise technical risk during commissioning.

Downstream processing proposed for the KNP would producean intermediate precipitate using the proven Cawse styleflowsheet, which is also similar to the proposed Ravensthorpeflowsheet. The envisaged flowsheet will involve partialneutralisation of leach ore slurry, followed by separation of leachresidue from the nickel bearing solution, further impurity removal,and precipitation of mixed nickel and cobalt intermediate product.

Risk Minimisation

The KNP will be a “fourth generation” nickel laterite project, ableto leverage off the knowledge gained from previous WesternAustralia PAL nickel laterite operations, and the soon to beimplemented Ravensthorpe and Goro nickel laterite operations:

➢ The quality and size of the KNP resource base, structuredas it is around siliceous goethite ore, has significantadvantages over the earlier PAL projects in terms of leach feed grade, materials handling and acid consumption. TheKNP plant ore feed will be designed around a consistent bulk tonnage siliceous goethite feed mined at a low cut-offgrade, with high leach feed grades achieved through “selective screening” rather than “selective mining”.

➢ Mechanical equipment design factors will be consistent with known plant reliability. Only components proven inexisting operations at throughput levels comparable to those planned for the KNP will be considered.

➢ KNP technical risk is minimal. The PAL process is robust and proven at the current laterite operations. The newerSAL component will be progressively introduced once PAL commissioning is complete.

➢ De-coupled and multiple train flow-sheets are essential to the maintenance of plant availability. Supply of servicesand utilities should be designed to provide processing flexibility.

➢ The production of an intermediate product for sale minimises capital cost and lowers processing risk. This approachallows the KNP flow-sheet to operate without impediment by refining capacity.

Environmental, Health, Safety and Social (EHSS)

Heron’s EHSS commitments are integral to its mission to create Shareholder value. The KNP will be designed aroundsustainable development principals:

➢ The conceptual mine plans developed to date have in-pit waste and screen reject dumping, to minimise the mine-affected footprint. KNP will be a “zero discharge site” in terms of solids and process water.

➢ The Kalgoorlie Centre for Management of Arid Environments has been consulted in respect of using local species forwaste dump rehabilitation.

During 2004 there have been no Lost Time Injury (LTI) incidents involving the Company or its contractors.

The Company is strongly supportive of the community of Kalgoorlie-Boulder in which it operates, assisting the nowAustralia-wide renown Ngungtju Tjitji Pirni (NTP) infant health care centre, and providing an Education Bursary for thechildren of our local Native Title claimants. The entire community must clearly benefit from developments such as the KNP.

The Company has strict environmental procedures for its field programs, and additionally supports the Kalgoorlie-BoulderUrban Landcare Group in its efforts to maintain the urban environment and the region’s unique woodland.

Whilst Kalgoorlie-Boulder is Heron’s base for the current PFS programs, the time is approaching where a Perth office willalso be required, to facilitate the increasingly sophisticated engineering and financial studies that will be required tocommission a world-class minerals operation such as the KNP.

SaproliteOre Stockpile

GoethiteOre Stockpile

Backfill to Mine Pits

Coarse Rejects

CrushedSaproliteStockpile

CrushedGoethiteStockpile

Primary Crusher

Milling

RejectsRejects

Cyclones Cyclones

SaprolitePrimary Crusher

SaproliteCircuit

Milling

Benefication

Saprolite Thickener Goethite Thickener

SAL Acid Plant

Tailings Storage FacilityTailings Neutralisation

Underflow

Secondary Neutralisation

Nickel/CobaltHydroxide Precipitation

Washing andHydroxide Filtration

Nickel-CobaltHydroxide

SaproliteNeutralisation

Steam Heat

Sulphuric AcidSulphuric Acid

Sulphur

GoethiteCircuit

Autoclaves

CCD Circuit

Kalgoorlie Nickel Project - Flow Sheet



KALGOORLIE NICKEL PROJECT

Ore Type Study

The critical requirement of a nickel laterite operation is a consistent ore feed. Detailed multi-element geochemistry,lithological logging and magnetic susceptibility studies were completed in order to characterise ore types. There are fourwell defined “stratigraphic” mineralisation types developed upon Walter Williams Formation (WWF) ultramafic rock, fromtop to bottom in the laterite profile:

➢ Manganiferous ore is dominantly a goethite-gibbsite mineralogy, and has a manganese oxide over-print. The zonehosts high grade cobalt-nickel mineralisation generally at the top of the mineralised profile.

➢ Ferruginous ore is dominantly a goethite-kaolinite mineralogy and represents siliceous mineralisation which hasundergone water table-related silica leaching, generally within the upper mineralised profile.

➢ Siliceous ore is dominantly a silica-goethite-kaolinite mineralogy and represents the “run-of-mine” KNP ore style forthe PAL circuit. Siliceous ore is the dominant product derived from the intense tropical weathering of the WWF olivine-rich precursor rocks. Siliceous mineralisation typically occurs within the middle mineralised profile immediatelyoverlying a major weathering break where the magnesia content increases sharply with depth to over 10% (termedthe Magnesia Discontinuity).

➢ Saprolite ore is dominantly a silica-magnesite-chlorite-serpentine mineralogy and represents the “run-of-mine” KNPore style for the SAL circuit. Saprolite mineralisation typically occurs within the lower mineralised profile immediatelybelow the Magnesia Discontinuity. Because of its high magnesia, the saprolite consumes acid, so is used forneutralising the acidic autoclave discharge Ni-Co slurry. Acid dissolution of the saprolite releases additional nickel tothe process.

Independent Screen Upgrade Study

The key operating parameter of the KNP is the screen upgrade performance, which converts low grade/bulk tonnagesiliceous mineralisation into a world-competitive high grade leach feed. Previous screening studies by Heron haveconfirmed that finer screen sizes have a marked nickel upgrade improvement.

Screening recognises that siliceous mineralisation is made up of two separate physical components - silica (which assaysat approximately 0.3% Ni and comprises around 60% of the mass) and nickel-bearing goethite (which assays atapproximately of 1.6% Ni and comprises around 40% of the mass). If efficient screen separation occurs, by removing thesilica, mineralisation originally assaying 0.7 - 0.9% Ni can be beneficiated up to 1.6% Ni and better.

The conceptual SKM Scoping Study model for the 50% upgrade factor assumed mining at a 0.75% Ni cut-off grade fora 1.0% Ni head grade screening to a 1.5% Ni screened leach feed grade. At a 0.75% Ni cut-off grade in siliceousmineralisation, there would need to be “selective mining”, to avoid excessive mining dilution when extracting the ore. Theobjective of the current Screen Upgrade Study is to evaluate cut-off grades less than 0.75% Ni, and ascertain the abilityto generate a 1.6% Ni LFG through finer screening.

An internal upgrade study was completedto review historical Heron minus 0.50mmscreen data for the four main ore types fromHighway, Goongarrie Hill and GoongarrieSouth, representing a 50km strike length ofWWF siliceous nickel laterite mineralisation.Importantly, the results of new Heron minus0.18mm comparison screen data fromHighway have been used as a predictor ofoverall KNP siliceous ore upgrade.

Having completed conceptual miningstudies for the KNP, it was consideredpreferable to use “selective screening” asopposed to conventional “selective mining”to achieve the 1.6% Ni LFG target.

An independent Screen Upgrade Study iscurrent at Oretest, Perth, aimed atquantifying the screen upgrade factor to beused in the current PFS.

2.1

The material rejected inscreening is plate-sizedslabs of hard heavydensity silica, easilyremoved from the softlight density goethite bylow-cost screening.The silica reject materialincludes a semi-precious blue-green gemstonecalled chrysoprase. The goethite typicallyassays 1.6% Ni, whilethe rejected silicatypically assays 0.3% Ni.


Heron Bottle Roll Screening Results

Heron’s “Bottle Roll” methodology involves agitating the drill sample in the laboratory through bottle rolling in water and thenwet screening the resultant slurry at minus 0.50mm to separate the mineralised goethitic fine fraction from the barren coarsesiliceous oversize.

The KNP screen data base has 5,549 screen upgrade estimates at minus 0.50mm. The main conclusions are:

➢ Manganiferous ore is not suited to screening, mainly due to cobalt loss (cobalt occurs within coarse “micro-pisolites”of manganese oxide which are lost in screening). The manganiferous mineralisation has high nickel-cobalt headgrades and will be treated through a Grind Circuit and direct fed to the PAL autoclave.

➢ Ferruginous ore is likely to be screened in the PAL circuit for an average upgrade of 13% for nickel and 11% for cobalt(using minus 0.50mm screening, being a conservative estimate).

➢ Siliceous ore can be screened in the PAL circuit for an average upgrade of 53% for nickel and 63% for cobalt (usingminus 0.50mm screening, again being a conservative estimate). This material is the dominant KNP feedstock andis the ore feed around which the KNP plant will be designed.

➢ Saprolite ore can be screened in the SAL circuit for an average upgrade of 28% for nickel and 42% for cobalt (usingminus 0.50mm screening, again being a conservative estimate).

In the KNP operating plant situation, screen sizes will be significantly finer than 0.50mm, so nickel leach feed grades shouldbe correspondingly higher.

Table 6Highway Prospect

Minus 0.50mm Screen Upgrade Results for All Samples (no cut-off)

Ore Type Treatment Method Ave Ni Upgrade % Ave Co Upgrade %Manganiferous PAL Grind 7.2 -23.1

Ferruginous PAL Screen 13.0 11.2

Siliceous PAL Screen 51.0 52.3

Saprolite SAL Screen 20.4 43.7

Table 7Goongarrie Hill Prospect


Ore Type Treatment Method Ave Ni Upgrade % Ave Co Upgrade %Manganiferous PAL Grind 15.6 5.0




Table 8Goongarrie South Prospect


Ore Type Treatment Method Ave Ni Upgrade % Ave Co Upgrade %Manganiferous PAL Grind 2.1 -15.0




The important observation from Tables 6-8 is that the four main ore types have consistent upgrade factors between thethree drilled locations, confirming that the WWF is weathering to a very consistent mineralised profile. It is also confirmedthat the ore characterisation study is generating discrete and repeatable metallurgical units with diagnostic screeningperformance. This is important in terms of being able to deliver a consistent leach feed to the future KNP plant.



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Saprolite ore - 0.81% Ni

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Screened section from Highway demonstratingincreased nickel grade with finer screen size

Figure 3 HIGHWAY PROSPECT SECTION 669 6960N, SCREEN UPGRADE CHARACTERISTICS

Screening UpgradeHighway Prospect Siliceous Mineralisation

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Nickel Laterite Schematic Screening Flow Sheet

+25mm

-25mm

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Scrubber trommel Jaw crush to12.5mm

1mmscreen

rejects

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rejects

Attritioner

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rejects

Cyclone

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Thickener

Highway Prospect, Comparison of Minus 0.18mm and Minus 0.50mm Bottle Roll Results

The Highway Prospect RC drill bottle roll tests aimed at assessing the upgrade comparison of the conventional minus0.50mm and a finer minus 0.18mm screen size, using a 0.75% Ni cut-off grade for the feedstock material.


0.75% Ni Lower Cut-off

Ore Type Head Grade Minus 0.50mm Minus 0.18mmNi % LFG Ni Upgrade % Ni % LFG Ni Upgrade %

Manganiferous 0.99 1.11 12.5 1.15 15.8Ferruginous 0.92 1.02 10.7 1.09 17.4Siliceous 0.95 1.44 50.6 1.64 72.2Saprolite 1.05 1.26 20.9 1.35 29.1

At a 0.75% Ni in situ cut-off grade, there is a strong improvement in siliceous ore upgrade from 51% to 72%, throughdecreasing the screen size from minus 0.50mm to minus 0.18mm. At minus 0.18mm, a 0.95% Ni head gradesiliceous ore screens to a 1.64% Ni LFG. Even with the less-than-ideal minus 0.18mm laboratory screening, theLFG exceeds that of the Scoping Study estimate (being 1.5% Ni).

There is considerable potential through full operating plant-scale screening conditions (being more efficient screening) toeither:

➢ High Grade Option: Further increase the LFG of the 0.75% Ni cut-off mineralisation; or

➢ High Tonnage Option (which is the preferred Option): Achieve a 1.6% Ni LFG at lower in situ cut-off grades (closer to0.5% Ni), thus facilitating increased resource tonnes and more efficient bulk mining and resource exploitation as the miningcut-off grade is lowered.

Coarse silica plates - Goongarrie Hill mineralisation.This silica material is very easily removed by screening, resulting in a significant increase in the nickel leach feed grade.

10cm0



Highway Prospect, Impact of Screening on Mining Practices

The finer screen size at Highway confirmed that by removing silica through a 0.18mm aperture screen, mineralisationoriginally grading 0.9% Ni can be beneficiated to 1.6% Ni or better.

Figure 3 is a plot of Highway Prospect Section 669 6960N showing drill nickel grades as unscreened head grade (top ofpage), LFG at minus 0.50mm (middle page) and LFG at minus 0.18mm (bottom of page). The nickel grade trend asscreen size decreases is remarkable, with average intercepts for siliceous mineralisation progressively increasing from0.6% Ni, to 1.1% Ni to 1.4% Ni.

The data demonstrates that in this particular segment of the KNP, the target 1.6% Ni LFG can be generated through finescreening 0.5% Ni cut-off grade siliceous mineralisation.

Siliceous mineralisation has excellent continuity at low cut-off grades, but requires detailed grade control and “selectivemining” at higher cut-off grades. Essentially, the concept is to mine siliceous mineralisation at a very low cut-off grade,and use a simple fine size screening circuit (ie “selective screening” rather than “selective mining”) to reject sub-gradematerial and so improve the LFG.

The current Highway screen upgrade study indicates that the “natural grade cut-off” of the KNP siliceous mineralisation isbetween a 0.5% and 0.7% Ni cut-off grade. In this grade range, the mineralisation at Highway is continuous over a 6.5kmstrike length, with 200-1,000m width and 8-24m thickness. This will be well suited to low cost bulk mining.

Documented Performance of WA Screen Upgrade Siliceous Ores

The benefits of screening laterite mineralisation to improve the processed nickel grade are exemplified by the plannedRavensthorpe nickel project in Western Australia. Ravensthorpe has a PAL leach feed grade for upgradeable siliceouslaterite mineralisation in the range of 2.5% Ni (Year 1) to 0.9% Ni (Year 20), for an average of approximately 1.4% Ni for thelife-of-project.

From public domain information, the average Ravensthorpe upgrades can be approximated as follows:

➢ PAL, head grade 0.7% Ni screening to 1.4% Ni for a 92% increase.

➢ SAL, head grade 0.7% Ni screening to 1.1% Ni for a 69% increase.

In the case of the Cawse nickel laterite operation, the published upgrade performance for siliceous mineralisation is a 0.8%Ni head grade screening to a 1.6% Ni LFG for a 100% increase.

Based on the Highway Prospect screening results, Heron believes the KNP has the potential to replicate the Ravensthorpeand Cawse nickel screen upgrade performance.

The ability to screen upgrade siliceous mineralisation to a 1.6% Ni leach feed grade is the key to unlockingthe immense value of the Kalgoorlie Nickel Project.

Siliceous goethite at Big Four. The dark yellow appearance is typical ofhigh grade nickel laterite mineralisation within the KNP.

The white siliceous bands in a brown goethite clay matrixis typical of KNP screen upgrade siliceous mineralisation.


Goongarrie Nickel ProspectHeron 100%.Nickel (- gold).

The 1,122km2 project area covering 63 tenements is located 80km NNW of Kalgoorlie along the eastern flank of theGoongarrie Dome. The project straddles the Kalgoorlie to Leonora highway and rail line, and is approximately 20km westof the GGT gas pipeline. Pre-feasibility Studies are current. Bulk samples of representative mineralisation have beensubmitted to Oretest for metallurgical assessment.

Resource

Goongarrie includes a 25km strike length of continuous mineralisation containing 202.4 million tonne grading 0.74% Niand 0.058% Co. The mineralisation can be recovered from a single mining operation located adjacent to the proposedprocessing plant site. Quite clearly, the KNP will be commissioned using Goongarrie ore feed. The exhausted Stage 1Goongarrie pits will be subsequently utilised for mullock dumping, and disposal of processing plant silica screen rejectsand tailings.

Siberia Nickel ProspectHeron 100%.Nickel (- gold).

The 347km2 project area covering 53 tenements is located 80km NW of Kalgoorlie along the western flank of theGoongarrie Dome. The Cawse nickel laterite mine and processing plant is located on the southern boundary of Heron’sproject area, treating the southern extension of Heron’s Siberia ore body.

Resource

Siberia includes a 30km strike length of continuous siliceous mineralisation containing 199.5 million tonne grading 0.68%Ni and 0.048% Co. The mineralisation is located 20km W of the proposed Goongarrie processing plant site.

The most likely mining scenario is wet screening the Siberia ore at Siberia, discarding the silica screen rejects into theSiberia Stage 1 pits, and pumping the ore feed slurry to the Goongarrie processing plant.

Validation re-logging of selected nickel laterite drill holes was completed as part of the KNP Scoping Study. A uniformmine stratigraphy is present, consisting from surface to end-of-hole of transported laterite, brown siliceous mineralisation(for PAL), white-yellow magnesitic footwall and variable green and white magnesitic saprolite (for SAL). Bulk samples ofrepresentative mineralisation have beensubmitted to Oretest for metallurgicalassessment.

At Siberia North, old gold exploration drill holesreveal a strongly developed goethitemineralisation profile in an area where Heronhas not yet drilled. Good potential exists tosignificantly increase the Siberia resourceinventory from this new zone.

Trial MiningA review of the KNP nickel database identifieda zone of shallow high grade mineralisationwithin the Siberia West prospect. This haspotential for ore supply from a pit with low stripratios. The zone has a strike of approximately450m and is currently drilled on 100m spacedsections.

The high grade NW trending zone requires infilldrilling at 50x40m prior to commencement ofany orientation grade control and mining trials.

Heron may be able to supply ore parcels toCawse for cash flow, as well as quantifyingmetallurgical performance under operatingplant conditions.

2.12% Ni

1.72% Ni

3.87% Ni1.52% Ni

2.10% Ni

1.69% Ni

1.69% Ni

1.69% Ni

5m 5m

4m

8m9m

4m

4m

7m

0 200m

Scale

1.69% Ni

5m

Mineralised Drillholes

ore thicknessnickel assay

2.1.1

2.1.2

Figure 4 SIBERIA WEST PROSPECT



2.1.3 Highway and Highway Extended Nickel ProspectsHeron 51%, Helix 49% and diluting during 2004 programs; and Heron 87.5%, LionOre 12.5% and free-carried.Nickel (- gold).

The 19km2 project area covering 9 tenements is located 100km NNW of Kalgoorlie along the eastern flank of theGoongarrie Dome.

A total of 6,822 metres in 180 holes of reverse circulation drilling was completed on a 400x80m pattern over 24 drill lines,covering a 10km strike of Walter Williams Formation ultramafic. Extensive siliceous goethite mineralisation wasencountered. Significant intersections include:


Significant Intersections at 0.75% Ni cut-off grade

Hole North East From To Thick Ni Com m m % %

HWRC005 99750 3799 10 24 14 0.94 0.09HWRC014 99354 4278 16 22 6 1.19 0.02HWRC015 99353 4198 7 14 7 1.20 0.05HWRC025 98963 4439 14 26 12 0.97 0.08HWRC030 98966 4042 14 29 15 0.97 0.2HWRC035 00560 3483 24 28 4 1.10 0.05HWRC054 00151 3884 14 33 19 1.01 0.15HWRC075 97758 4681 29 33 4 1.40 0.08HWRC079 97755 4359 20 28 8 1.14 0.06HWRC080 97758 4200 0 7 7 1.14 0.08HWRC080 97758 4200 16 41 25 0.84 0.07HWRC083 96560 5237 8 20 12 1.07 0.05HWRC096 96954 4117 4 12 8 1.38 0.08HWRC161 98158 4200 8 20 12 1.63 0.06HWRC167 97356 4758 25 32 7 1.27 0.07HWRC184 96160 4841 10 22 12 1.20 0.05HWRC186 96159 4360 23 35 12 1.25 0.04HWRC206 01762 2460 16 28 12 0.94 0.12

Well developed zones of nickel-enriched ferruginous oxide were intersected over the olivine adcumulate ultramafic rocksof the Walter Williams Formation. The ferruginous zone was typically overlain by a barren lateritic duricrust, and underlainby a ferruginous siliceous zone grading down into a zone of white magnesitic saprolite.

In the northern project area, palaeo-channel sediments were encountered below the broad present day drainage system.Typical puggy mottled clays overlie a coarse sandy aquifer unit which terminates against siliceous ultramafic bedrock ataround 40m depth. The palaeo-channel boundaries have been mapped with broader spaced drilling (800m x 320m)before infilling those areas with potential for nickel laterite mineralisation.

The palaeo-channel has been identified as a potential source of process water for the KNP Goongarrie plant. The strategywould be to draw down the aquifer ahead of the Highway laterite mining.

During the RC drilling program, drill samples were routinely assessed by bottle roll at both minus 0.50mm and minus0.18mm, to assess the effect of finer screening to a size that more closely replicates that of a full scale operating nickellaterite screening circuit. The minus 0.18mm bottle roll averages a 72% nickel upgrade.

Resource

Highway is a continuous belt of siliceous mineralisation containing 84.8 million tonne grading 0.72% Ni and 0.051% Co.Screen upgrade programs completed at Oretest, Perth indicate that the Highway mineralisation is able to be screened toa leach feed grade exceeding 1.6% Ni.

As for Siberia, it would be anticipated that the Highway ore feed could be pumped 30km south as a slurry to theGoongarrie processing plant.


Bulong Nickel ProspectHeron 100%.Nickel (- gold).

The 291km2 contiguous project area covering 84 tenements is located 35km E of Kalgoorlie. Heron purchased the Bulongtenements and mineral rights from the Receiver and Manager of the Bulong Companies as a strategic resource of saproliteore for the KNP SAL processing circuit. Bulong is the major 2004 acquisition completed by Heron in assembling the KNP.

Since commissioning in 1999 to its closure in October 2003, Bulong mined and processed some 2 million tonnes grading1.6% Ni. The Bulong saprolite has a significant silica component which resulted in a screen reject mass of approximately25%. With an efficient screening circuit, rejecting this level of barren silica should support a significant nickel upgrade. TheBulong screening plant was not of an optimum design, so the theoretical nickel upgrade was not achieved.

The Bulong site has high grade pits with ore exposed in the mine floor, as well as planned pits ready for pre-strip and oremining. Bulong has complete bitumen road and close rail connection to the proposed Goongarrie plant site.

Validation re-logging of selected nickel laterite drill holes was completed as part of the KNP Scoping Study.

Kalpini Nickel ProspectHeron 100%.Nickel (- gold).

The 1,048km2 contiguous project area covering 31 tenements is located 65km NNE of Kalgoorlie. Infrastructure is good,with Kalpini being 90km ESE of Goongarrie and 45km NE of the Bulong resource. Validation re-logging of selected nickellaterite drill holes was completed as part of the KNP Scoping Study. Farm-out discussions are current in respect of Kalpininickel sulphide rights only.

NICKEL SULPHIDE EVALUATION

Wellington North ProspectHigh grade nickel sulphide mineralisation has beenintersected at the Emu Lake project “Gossan Zone”held by Image Resources NL and Jubilee MinesLimited. Heron has a significant ground holdingimmediately surrounding the Gossan Zone, termedthe Wellington North Prospect, acquired as part ofthe KNP laterite acquisition program.

Heron completed gossan float sampling atWellington North, with peak gossan assays0.57% Ni, 0.09% Cu, 364ppb Pt, and 674ppbPd. This is an unequivocal boxwork gossanderived from the weathering of nickel sulphides.Wellington North reconnaissance soil samplingwas completed, with peak soil assays 939ppmNi, 61ppm Cu and 6ppb Pt, supporting thegossan sampling results.

The Wellington North gossan zone quite clearlydemonstrates a nickel sulphide endowed komatiitesequence, confirming that systematic and blanketground TEM survey is warranted at Kalpini, tolocate nickel sulphide drill targets.

Acra North ProspectA gossan zone was identified at Acra North, with anironstone marker horizon assaying up to 623ppmNi, 224ppm Cu, 74ppm Co, 826ppm Cr and1,030ppm S, with 13ppb Pt and 6ppb Pd.

Wellington North ProspectWellington North Prospect

HRR Targets

HRR Tenements

PIO Tenements

IMA Tenement

IMATenement

IMAGossanzone

HRR Targets

Geochemicalanomalies

Scale

EMconductor

Acra NorthProspectAcra NorthProspect

HRR soilgeochemicalanomalies

2km0

Figure 5 KALPINI NICKEL SULPHIDE TARGETS

2.1.4

2.1.5

2.2

HRR Heron Resources LimitedPIO Pioneer Nickel LimitedIMA Image Resources NL



2.3

2.4

LAVERTON NICKEL PROJECT

Heron 100%.Nickel.

The 453km2 project area covering 11 tenements is located 65km SEof Laverton. Siliceous mineralisation was defined at Mineral PatchHill, with the laterite resource being 7.5 million tonne grading 0.8% Niat a 0.75% Ni cut-off.

As well as nickel laterite, the Mineral Patch Hill Complex is interpretedas a potential Honeymoon Well-Mount Keith style disseminatednickel sulphide system.

Heron stratigraphic drilling at Mineral Patch Hill indicates an olivineadcumulate target size of 7x0.7-1.4km, which is a comparableultramafic area to Honeymoon Well. Most significantly, within thefavourable lateritised adcumulate ultramafic, there occurs anomalousPGMs of up to 246ppb Pt and 111ppb Pd associated with 0.04-0.09% Cu, which association is a strong nickel sulphide pathfinder.

Drill results are summarised below, with Cu and PGM anomalieshighlighted.

Table 11Mineral Patch Hill Prospect

Significant Nickel Sulphide indicators

Hole North East From To Ni Co Cu Pd Ptm m % % % ppb ppb

MPRC002 90800 9260 49 50 0.40 0.03 0.01 49 13MPRC003 90800 8940 63 68 0.84 0.03 0.04 50 246MPRC007 89520 8140 66 70 0.77 0.07 0.01 8 65MPRC008 89520 7820 40 44 0.05 0.03 0.01 8 45MPRC010 90160 9180 67 71 0.76 0.03 0.04 82 177MPRC011 90160 8860 72 76 0.74 0.04 -0.01 111 14MPRC014 91440 9660 65 68 0.38 0.02 0.09 36 78MPRC020 90800 8780 48 52 0.78 0.03 0.04 6 37

Nickel sulphide farm-out discussions are current for Mineral Patch Hill, as the laterite resource is likely to be too far distantfrom Goongarrie to be able to contribute ore feed to the KNP.

BALLADONIA ENERGYWith the oil price exceeding US$50 per barrel during 2004, Heron’s oil shale assets are attracting interest. Resourceestimates are qualitative at best, but from reviewing previous exploration data, there is a stated potential of 2.6 billion tonneat a Fischer Oil Yield of 133 litre per tonne. There is a significant sulphur content in the oil shales, which could be of interestfor future nickel laterite processing.

IAN BUCHHORNMANAGING DIRECTOR

The information is based on, and accurately reflects, information compiled by Ian James Buchhorn, who is aMember of the Australasian Institute of Mining and Metallurgy and has not less than five years relevant experience.

MPRC01

8

MPRC01

9

MPRC01

5

MPRC00

3

MPRC01

6

MPRC01

7

MPRC00

4

MPRC00

5

MPRC00

2

MPRC00

1

MPRC00

9

MPRC01

1

MPRC00

7

MPRC01

3

HERONE38/931

Max Ni in drilling

1.5 to 10,000 (1)1 to 1.5 (3)0.75 to 1 (6)0.5 to 0.75 (3)0.25 to 0.5 (1)0 to 0.25 (6)

Heron tenements

0 1km

Scale

MPRC02

0

MPRC01

4

MPRC01

0

MPRC00

8

MPRC00

6

MPRC01

2

NickelSulphide

TargetCu-Pt-Pdanomaly

Figure 6 MINERAL PATCH HILL NICKEL SULPHIDE TARGETS

Statutory Information


3.0 CORPORATE PROFILE 18

CORPORATE GOVERNANCE STATEMENT 18

4.0 DIRECTORS’ REPORT 24

5.0 FINANCIAL STATEMENTS 29

STATEMENTS OF FINANCIAL PERFORMANCE 29

STATEMENTS OF FINANCIAL POSITION 30

STATEMENTS OF CASH FLOW 31

NOTES TO AND FORMING PART OF THE ACCOUNTS 32

DIRECTORS’ DECLARATION 48

6.0 INDEPENDENT AUDIT REPORT 49

7.0 SHAREHOLDER INFORMATION 50

8.0 STATEMENT OF MINERAL RESOURCES 53

9.0 INTEREST IN MINING TENEMENTS 54

10.0 GLOSSARY 63

3.0 Corporate Profile


HERON RESOURCES LIMITED (“Heron”) is a Kalgoorlie-based exploration and development company. The

corporate aim is to become a profitable mining company through the development of the Kalgoorlie Nickel Project in the

Eastern Goldfields of Western Australia.

The Company undertakes cost-effective resource definition drilling and feasibility studies in relation to the Kalgoorlie Nickel

Project.

The management of the Company is based in Kalgoorlie. Accordingly, the Company has excellent access to tenement

acquisition opportunities and to specialist contractor services. Administrative overheads are also maintained at lower

levels due to the Kalgoorlie base.

The Company is managed and staffed by a team of three professional geoscientists with extensive industry experience.

Specialist consultants are used as required, particularly in disciplines where due diligence may be required. Field

programs such as drill rig access, drill site rehabilitation and hydrological monitoring are implemented under long-term

contracts to experienced operators.

OBJECTIVES

• To convert the Kalgoorlie Nickel Project laterite Mineral Resources into profitable mining operations for the Company;

• To increase the value of the Company through the continued acquisition, exploration and development of nickel

resources;

• To establish mining cash flows that increase the Company's market capitalisation and value to Shareholders;

• To conduct operations in a safe and environmentally responsible manner, to offer employment opportunities to those

who live in the exploration provinces, and to respect and nurture the Indigenous culture of the exploration provinces;

and

• Manage the risk in all exploration, development and corporate endeavours.

STRATEGY

• Acquire the maximum available equity in nickel and associated commodity Mineral Resource projects through

pegging or outright purchase, concentrating within the Eastern Goldfields of Western Australia;

• Focus on cost-effective drill exploration to convert exploration targets into mineral resources;

• Use of best management, technical and financial control techniques; and

• Introduce Nickel Industry Partners where appropriate to spread development and funding risk.

CORPORATE GOVERNANCE STATEMENT

The Board of Heron is committed to achieving and demonstrating the highest standards of Corporate Governance.

The Board is responsible to the Shareholders for the performance of the Company.

The Board is focused on:

• Enhancing the interests of Shareholders and other key stakeholders; and

• Ensuring the Company is properly managed.

The Board believes that sound Corporate Governance practices will assist in the creation of Shareholder wealth and

provide accountability and control systems commensurate with the risks involved.

This Statement outlines the main corporate governance practices in place during the financial year, noting where practices

depart from the ASX Corporate Governance Council Recommendations and the Board's reasons for an alternate

approach. Where the Board supports a recommendation, but is yet to fully implement, a complementary policy or practice

has also been identified.


The following additional information about the Company's Corporate Governance practices is set out on the Company's

website at: www.heronresources.com.au

• Board Charter;

• Summary of policy on securities trading;

• Summary of continuous disclosure policy ;

• Summary of arrangements regarding communication with Shareholders;

• Summary of Company's risk management policy;

• Audit & Finance Committee Charter; and

• Code of Conduct.

EXPLANATIONS FOR DEPARTURES FROM BEST PRACTICE GOVERNANCE RECOMMENDATIONS

Principle 1. Lay Solid Foundations for Management and Oversight

Council Recommendation 1.1: Formalise and disclose the functions reserved to the board and those delegated tomanagement.

The Company complies with this recommendation.

The Company has adopted a formal written Board Charter.

Principle 2. Structure the Board to Add Value

Council Recommendation 2.1: The majority of the board should be independent directors.

The Company does not comply with this recommendation.

Currently one of the four Directors comprising the board is considered independent within ASX Corporate GovernanceGuidelines.

The Company believes that Messrs Readhead, Buchhorn, Trench and Longworth have the skills and experience toproperly and effectively discharge the Board’s duties.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the expenseof appointing additional independent non-executive directors.

Details of the members of the Board, their experience, expertise and qualifications are set out in the Directors’ Report inSection 4 following of the Annual Report.

Council Recommendation 2.2: The chairperson should be an independent director.


The Chairman, Mr Craig Readhead is not independent.

The Board believes that Mr Readhead brings quality and independent judgement to all relevant issues falling within thescope of the role of a Chairman.

The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to necessitate theappointment of an independent non-executive Chairman.

Council Recommendation 2.3: The roles of chairperson and managing director should not be exercised by the sameindividual.


Corporate Profile Continued


Council Recommendation 2.4: The Board should establish a nomination committee.


The Board considers that the Company is not currently of a size to justify the formation of a nomination committee. TheBoard as a whole undertakes the process of reviewing the skill base and experience of existing Directors to enableidentification or attributes required in new Directors. An independent consultant has been engaged to identify newcandidates for the Board.

When Directors have concerns about issues being considered by the Board, they are (by a majority decision of the Board)entitled to seek independent professional advice at the Company’s expense.

The Company’s Constitution specifies that all non-executive Directors must retire from office on a three year rotationalbasis.

Should the Company’s activities increase in size, scope and nature, the appointment of a nomination committee will bereviewed by the Board and implemented if appropriate.

Principle 3. Promote Ethical and Responsible Decision-Making

Council Recommendation 3.1: Establish a code of conduct to guide the directors, the chief executive officer (orequivalent), the chief financial officer (or equivalent) and any other key executives as to:

3.1.1 The practices necessary to maintain confidence in the Company’s integrity; and

3.1.2 The responsibility and accountability of individuals for reporting and investigating reports of unethical practices.


The Company has adopted a Code of Conduct to guide the Directors and Officers.

Prior to the adoption of the formal written Code of Conduct the Board considers that its business practices, as overseenby the Board, were equivalent to the Code of Conduct as formally adopted.

The Code of Conduct requires that all Directors and Officers:

• Actively promote the highest standards of ethics and integrity in carrying out their duties for the Company;

• Disclose any actual or perceived conflicts of interest of a direct or indirect nature of which they become aware andwhich they believe could compromise in any way the reputation or performance of the Company;

• Respect confidentiality of all information of a confidential nature, which is acquired in the course of the Company'sbusiness and not disclose or make improper use of such confidential information to any person unless specificauthorisation is given for disclosure or disclosure is legally mandated;

• Deal with the Company's Shareholders, consultants, suppliers, competitors and each other with the highest level ofhonesty, fairness and integrity and to observe the rule and spirit of the legal and regulatory environment in which theCompany operates; and

• Protect the assets of the Company to ensure availability for legitimate business purposes and ensure all corporateopportunities are enjoyed by the Company and that no property, information or position belonging to the Company oropportunity arising from these are used for personal gain or to compete with the Company.

Council Recommendation 3.2: Disclose the policy concerning trading in company securities by directors, officers andemployees.


The Board has adopted a policy and procedure on dealing in the Company's securities by Directors, Officers andemployees which prohibits dealing in the Company's securities when those persons possess unpublished market pricesensitive information. It also requires Directors to notify the Chairman of the Company when trading in the Companyoccurs. In the case of the Chairman, they must notify a non-executive Director.

Directors must also notify the Company Secretary of any trade in the Company’s securities within two days of such tradeoccurring so that the Company Secretary can comply with ASX Listing Rule 3.19A.2 requirement to notify ASX of anychange in a notifiable interest held by a Director.


Principle 4. Safeguard Integrity in Financial Reporting

Council Recommendation 4.1: Require the chief executive officer (or equivalent) and the chief financial officer (orequivalent) to state in writing to the board that the company’s financial reports present a true and fair view, in all materialrespects, of the company’s financial condition and operational results and are in accordance with relevant accountingstandards.


For years or half years commencing 30 June 2004 onwards the Company’s Managing Director and the CompanySecretary will report in writing to the Board that to the best of their knowledge:

• The financial statements of the Company for each half year and full year present a true and fair view, in all materialaspects, of the Company’s financial condition and operational results and are in accordance with accountingstandards;

• The above statement is founded on a sound system of risk management and internal compliance and control whichimplements the policies adopted by the Board; and

• The Company’s risk management and internal compliance and control framework is operating efficiently andeffectively in all material aspects.

Council Recommendation 4.2: The board should establish an audit committee.


The Board believes that the Company is not of a size, nor are its financial affairs of such complexity to justify the formationof an audit committee. The Board as a whole undertakes the functions normally associated with an audit committee.

Council Recommendation 4.3: Structure the audit committee so that it consists of:

• Only non-executive directors;

• A majority of independent directors;

• An independent chairperson, who is not the chairperson of the board; and

• At least three members.

Refer Council Recommendation 4.2.

Council Recommendation 4.4: The audit committee should have a formal charter.

Refer Council Recommendation 4.2.

Principle 5. Make Timely and Balanced Disclosure

Council Recommendation 5.1: Establish written policies and procedures designed to ensure compliance with ASXListing Rule disclosure requirements and to ensure accountability at a senior management level of that compliance.


The Company has adopted a continuous disclosure policy that requires all Directors, Officers and executives to inform theManaging Director or in their absence the Company Secretary of any potentially material information as soon as practicableafter they become aware of that information.

Information is material if it is likely that the information would influence investors who commonly acquire securities on ASXin deciding whether to buy sell or hold the Company’s securities.

The Managing Director is responsible for interpreting and monitoring the Company’s disclosure policy and wherenecessary informing the Board and Company Secretary.

Prior to the adoption of the continuous disclosure policy there were no written policies and procedures designed to ensurecompliance with ASX Listing Rule disclosure requirements and accountability for compliance, however the policies andprocedures enunciated in the formally adopted policy were applied prior to their adoption in writing.

The Managing Director has been nominated as the person responsible for communications with ASX. This role includesresponsibility for ensuring compliance with the continuous disclosure requirements in ASX Listing Rules and overseeingand coordinating information disclosure to ASX, Shareholders, analysts, brokers, the media and the public. TheManaging Director ensures disclosed information is available through the Company’s website and its links.

Corporate Profile Continued


Principle 6. Respect the Rights of Shareholders

Council Recommendation 6.1: Design and disclose a communications strategy to promote effective communicationwith shareholders and encourage effective participation at general meetings.


The Company’s communication strategy requires communication with Shareholders in an open, regular and timely mannerso that the market has sufficient information to make informed investment decisions on the operations and results of theCompany.

The Company’s website is the main means of Shareholder communication. Those Shareholders who notify the Companyof not having access to the website are provided with hard-copy information.

Meetings of the Company are held in locations with significant Shareholder presence, notably Perth and Kalgoorlie,Western Australia.

Council Recommendation 6.2: Request the external auditor to attend the annual general meeting and be available toanswer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report.


It has since its public listing been the Company’s practice to require the external auditor, Butler Settineri, to attend theAnnual General Meeting of the Company and be available to answer Shareholder questions about the conduct of the auditand the preparation and content of the audit report.

Principle 7. Recognise and Manage Risk

Council Recommendation 7.1: The board or appropriate board committee should establish policies on risk oversightand management.


The Board is responsible for risk management and control and they examine and consider areas of significant businessrisk on an ongoing basis and implement policy to minimise exposure to these risks.

Arrangements put in place by the Board to monitor risk management include:

• Detailed monthly reporting in respect of operations by the Managing Director; and

• Completion of monthly statements of financial performance, financial position and cash flows compared to budget.

The risk management policy of the Company will continue to be developed as its operations and areas of potential riskcontinue to evolve.

Council Recommendation 7.2: The chief executive officer (or equivalent) and the chief financial officer (or equivalent)should state in writing that:

7.2.1 the statement given in accordance with best practice recommendation 4.1 (the integrity of financial statements) isfounded on a sound system of risk management and internal compliance and control which implements the policiesadopted by the board; and

7.2.2 the company’s risk management and internal compliance and control system is operating efficiently and effectivelyin all material respects.


Principle 8. Encourage Enhanced Performance

Council Recommendation 8.1: Disclose the process for performance evaluation of the board, its committees andindividual directors, and key executives.


The Company operates a management review system which it terms “Management by Objective”, which facilitates anannual and open written review of all staff and management performance.

Additionally, the Board has adopted a self-evaluation process to measure its own performance during each financial year.This process includes a review in relation to the composition and skills mix of the Directors of the Company.


Principle 9. Remunerate Fairly and Responsibly

Council Recommendation 9.1: Provide disclosure in relation to the company’s remuneration policies to enableinvestors to understand (i) the costs and benefits of those policies; and (ii) the link between remuneration paid to directorsand key executives and corporate performance.


The Chairman in consultation with independent Directors makes recommendations to the full Board on the remunerationpackages provided for Officers and the Directors themselves.

When appropriate the Board has used the services of external advisers to assist them in this process.

Non-executive Directors receive a fixed fee for providing their services as directors.

Council Recommendation 9.2: The Board should establish a remuneration committee.


The Board considers that based on the Company's stage of development, no benefits or efficiencies are to be gained bydelegating this function to a separate committee.

Council Recommendation 9.3: Clearly distinguish the structure of the non-executive directors’ remuneration from thatof executives.


Council Recommendation 9.4: Ensure that the payment of equity based executive remuneration is made inaccordance with thresholds set in plans approved by Shareholders.


The Company’s Employee Option Plan was approved by Shareholders in general meeting.

Principle 10. Recognise the Legitimate Interests of Stakeholders

Council Recommendation 10.1: Establish and disclose a code of conduct to guide compliance with legal and otherobligations to legitimate stakeholders.


The Board of directors has adopted a Code of Conduct.

The Code of Conduct formalises, in written form, business practices and principles previously adopted by the Board.

4.0 Directors’ Report


The Directors submit their Report on the Company and its controlled entities for the year ended 30 June 2004.

DIRECTORS

The names and details of the Directors of the Company in office at any time during or since the end of the year are:

Director Craig Leslie Readhead - B.Juris. LL.B. Appointed 23 November 2001Position Chairman (Non-Executive)

Craig Readhead is a lawyer with 26 years legal and corporate advisory experience with specialisation in theresources sector, including the implementation of large scale mining projects both in Australia and overseas.Mr Readhead is a former president of the Australian Mining and Petroleum Law Association and is theManaging Partner of specialist mining and corporate law firm Pullinger Readhead Lucas.

Director Ian James Buchhorn - BSc (Hons), Dip Geosci (Min Econ), MAusIMMAppointed 17 February 1995Position Managing Director

Ian Buchhorn is a Mineral Economist and Geologist with 30 years experience. Prior to listing Heron in 1996,Mr Buchhorn worked with Anglo American Corporation in southern Africa, and Comalco, Shell/Billiton andElders Resources in Australia, as well as setting up and managing Australia's first specialist mining gradecontrol consultancy. Mr Buchhorn has worked on feasibility studies, bauxite and industrial mineral miningand exploration, gold and base metal project generation, and in corporate evaluations. For the last 18 yearsMr Buchhorn has acquired and developed mining projects throughout the Eastern Goldfields of WesternAustralia and operated as a Registered Mine Manager. Mr Buchhorn is responsible for the day to daytechnical management of the Company. He is active within the local community, serving as a Councillor forthe City of Kalgoorlie-Boulder.

Director Allan Trench BSc (Hons), PhD, MSc (Min Econ), MBA (Oxon)Appointed 08 December 2003Position Director (Non-Executive)

Allan Trench is a business management consultant, mineral economist and geologist, experienced instrategic planning, market analysis and value-based acquisitions across a range of companies andcommodities including the nickel, cobalt, precious metals and industrial mineral sectors. Mr Trench wasformerly an exploration manager at WMC, specialising in nickel, and a strategic planner for Barrick Gold.

Director Norman Mathew Longworth BSc (Hons), MAusIMM Appointed 03 May 2004Position Exploration Director

Mathew Longworth is a Geologist with 18 years exploration and development experience with majorAustralian and multinational companies. Mr Longworth commenced his career with Shell/ Billiton inQueensland where he was involved in exploration and feasibility studies for gold and base metals. This wasfollowed by secondment as an engineer to Shell Coal in the Hunter Valley. Mr Longworth then worked atShell’s Kalgoorlie office on the Sunrise Dam deposit, and at Union Reefs during the feasibility study. MrLongworth then joined Pancontinental in Kalgoorlie to undertake feasibility studies and exploration. Uponthe takeover of Pancontinental by the Goldfields/ RGC group, Mr Longworth managed exploration in theKalgoorlie District for Goldfields, and subsequently AurionGold after the merger with Delta Gold. Thisincluded the period when Goldfields discovered the Raleigh and Aphrodite gold deposits in addition tonumerous smaller discoveries. Mr Longworth joined Heron as exploration manager in December 2003.

Director Ross James Arancini - B.Bus CAAppointed 7 March 2002 - Resigned 8 December 2003 Position Director (Non-Executive)

COMPANY SECRETARY

The company secretary is Ross James Ararancini B. Bus CA. Mr Arancini who was appointed to the position of companysecretary in 1996 is a Chartered Accountant who has been in private practice for 13 years specialising in providingcorporate, secretarial and taxation advice and services to listed public companies involved in mineral exploration. MrArancini is company secretary of a number of listed public companies.


PRINCIPAL ACTIVITIES

The principal activities of the consolidated entity during the year were:

• Laterite nickel mineral exploration and development; and

• Non-laterite nickel mineral exploration activities, generally implemented through farm-out.

There has been no significant change in the nature of these activities during the year.

OPERATING RESULTS

The loss of the consolidated entity for the 2004 financial year after income tax of nil (2003 : nil) was $365,134 (2003 : $525,954).

DIVIDENDS

No dividends were paid during the year and the Directors do not recommend the payment of a dividend.

OPERATIONS REVIEW

The detailed review of operations of the consolidated entity for the year is contained in Section 2.0 of this Annual Report.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Other than noted below there were no significant changes in the state of affairs of the consolidated entity during the year.

3,900,000 Shares were issued by the Company at $0.14 each on the conversion of convertible notes.

11,230,873 Shares were issued at $0.14 each pursuant to a 1 for 10 non renounceable entitlements issue. A further5,000,000 Shares were also issued at $0.14 each as oversubscriptions. The funds were raised to provide additionalworking capital, fund acquisition of nickel laterite resources in the Siberia-Menzies district and to fund on-going explorationactivities.

400,000 Shares were issued at $0.17 each for the acquisition of mining tenements at Menzies.

The Company entered into an agreement to acquire mining tenements in the Bulong Project which were beneficiallyowned by Bulong Operations Pty Ltd (Receivers and Managers appointed) and Bulong Nickel Pty Ltd (Receivers andManagers appointed). The agreement did not include the plant and infrastructure assets of the Bulong Project but didrequire negotiation in good faith to provide the Company with access to the plant and infrastucture tenements for thepurposes of exploration, mining and development. The total consideration to be paid by the Company for the mineralrights is to be $3,790,000 should all conditions attached to the agreement be satisified.

As approved by the Company’s Shareholders the de-merger of wholly owned subsidiary Pioneer Nickel Limited wascompleted by way of a pro-rata in-specie distribution of 15,000,010 Pioneer Nickel Limited shares to Shareholders on thebasis of approximately one Pioneer Nickel Limited share for every 8.6 ordinary Shares held in the Company.

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR

Other than noted, at the date of this Report there is no matter or circumstance which has arisen since 30 June 2004 thathas significantly affected or may significantly affect:

• The operations, in the financial years subsequent to 30 June 2004, of the consolidated entity;

• The results of those operations; or

• The state of affairs, in the financial years subsequent to 30 June 2004, of the consolidated entity.

In August 2004 4,000,000 Shares were issued at $0.25 each to provide additional working capital for the commencementof the Company’s pre-feasibility study for the Kalgoorlie Nickel Project.

In September 2004 a placement prospectus was issued for up to 8,000,000 Shares at $0.25 each together withoversubscriptions of up to 2,000,000 Shares at $0.25 each to fund drilling at the Company’s Goongarrie, Siberia andMenzies Projects, to fund independent screen upgrade testing and for working capital.

In September 2004 the Company entered into an agreement to acquire the Big Four Prospect from Placer Dome. Theconsideration for the acquisition includes an initial payment of $250,000 to purchase the nickel laterite resource. A secondadditional payment is to be made on the basis of the Indicated Mineral Resource above a 1% Nickel cut-off grade ascalculated by an independent consultant.

Directors’ Report Continued


OPTIONS

The following Options were issued during the year:

Number Issued Expiry Date Exercise Price4,243,172 30 June 2007 $0.252,150,000 16 December 2007 $0.25

No Options were exercised during the year:

The following Options expired/lapsed during the year:

Number Issued Expiry Date Exercise Price100,000 4 February 2004 $0.25350,000 23 April 2006* $0.30

* Issued pursuant to the Company’s Employee Option Plan and lapsed on cessation of employment.

As at 30 June 2004 the Company had the following Options on issue:

Number Issued Expiry Date Exercise Price785,000 19 October 2004 $0.339556785,000 19 October 2004 $0.489556

2,000,000 20 December 2004 $0.35500,000 30 June 2005 $0.339556500,000 30 June 2005 $0.489556

4,243,172 30 June 2007 $0.252,150,000 16 December 2007 $0.25

No Optionholder has any right under the Options to participate in any other Share issue of the Company or of any otherentity.

LIKELY DEVELOPMENTS

The Company will continue its core nickel development activities through sole funded exploration and joint ventures whereappropriate.

The Company is continually assessing commercial opportunities for corporate growth. Because of the unpredictablenature of these opportunities, developments could occur at short notice.

Further information on the likely developments in the operations of the consolidated entity and the expected results ofthose operations have not been included in this Report because the Directors believe it would be likely to result inunreasonable prejudice to the consolidated entity.

DIRECTORS’ SHAREHOLDING IN THE COMPANY

As at the date of this Report the interests of the Directors in the Shares of the Company were:

Director Ordinary Shares Options over Ordinary SharesDirect Indirect Direct Indirect

C L Readhead - 299,325 - 500,000I J Buchhorn 2,447,857 34,918,298 - 3,000,000A Trench 104,500 - - -N M Longworth 32,000 250,000 200,000 -

DIRECTORS MEETINGS

During the year the Company held 12 meetings of Directors. The attendance of the Directors at meetings of the Boardwere:

Director Meetings held Number ofwhile a Director meetings

attended

C L Readhead 12 12

I J Buchhorn 12 12

A Trench (appointed 8 December 2003) 7 7

N M Longworth (appointed 3 May 2004) 3 3

R J Arancini (resigned 8 December 2003) 5 5


DIRECTOR AND SENIOR EXECUTIVE REMUNERATION

The Board seeks independent advice on remuneration policies and practices, involving the remuneration packages andterms of employment of Directors.

Remuneration levels are competitively set to attract the most qualified and experienced directors and senior executiveofficers in the context of prevailing market conditions.

Remuneration level and other terms of employment for Mr Buchhorn and Mr Longworth are formalised in serviceagreements.

The agreement with Mr Buchhorn requires the provision of his services as Managing Director of the Company andcontains the following major provisions:

• No fixed term;

• Current base salary of $200,000 inclusive of superannuation; and

• Termination can be made by either Mr Buchhorn or the Company by giving not less than 6 months notice. Forfeitureor payment of 6 months salary as the case may be may be made or given in lieu of notice.

The agreement with Mr Longworth requires the provision of his services as manager of the Company’s exploration activitiesand contains the following major provisions:

• No fixed term;

• Current base salary of $180,000 inclusive of superannuation and vehicle allowance;

• In the event that the Company terminates Mr Longworth’s employment other than for matters concerning fraud anddishonesty and the like, the Company will pay Mr Longworth the maximum amount payable in accordance with theformula prescribed by section 200G of the Corporations Act.

Non-executive Directors received a fixed fee for their services as directors. Non-executive Directors fees not exceedingan aggregate of $175,000 per annum have been approved by the Company in a general meeting. There is no direct linkbetween non-executive Directors fees and corporate performance. There are no termination or retirement benefitsfor non-executive Directors (other than statutory superannuation).

During the reporting period an evaluation of the remuneration of Directors and senior executives was carried out by the fullBoard. No Director was involved in discussions regarding his own remuneration.

Other than outlined above, since the end of the previous financial year, no Director has received or become entitled toreceive a benefit, other than benefits disclosed in the financial statements as emoluments or the fixed salary of a full-timeemployee of the Company or a related body corporate, by reason of a contract made by the Company with the Directoror with a firm of which he is a member, or with an entity in which he has a substantial financial interest.

Details of the nature and amount of each major element of the remuneration of each Director of the Company are detailedbelow:

Salary Directors’ Non-Cash Super Options Retirement Total Fees Benefits Contributions Benefits

$ $ $ $ $ $ $

DirectorsCL Readhead - 41,468 - 3,732 4,950 - 50,150IJ Buchhorn 134,166 - - 20,000 9,900 - 164,066A Trench - 12,947 - 1,165 - - 14,112(appointed 8 December 2003)NM Longworth 76,079 - 1,667 6,847 - - 84,593(appointed 3 May 2004)RJ Arancini - - - - 2,970 - 2,970(resigned 8 December 2003)Senior ExecutiveD Crook 81,662 - - 15,891 - - 97,553(resigned 31 December 2003)

Mr Crook who resigned on 31 December 2003 was the only employee of the consolidated entity qualifying as a SeniorExecutive.

Directors’ Report Continued


During the year, following Shareholder approval, a total of 1,800,000 options expiring on 16 December 2007 andexercisable at $0.25 each were issued to Mr Readhead (500,000), Mr Buchhorn (1,000,000) and Mr Arancini (300,000)or their nominees pursuant to the Company’s Employee Option Plan. Fair values for the options at grant date, as includedin the above table, were independently determined using Black-Scholes and binomial pricing models that took intoaccount the exercise price of the Option, the term of the Option, the vesting and performance criteria, the non-tradeablenature of the Option, the Share price at grant date and the expected price volatility of the underlying Share and the risk-free interest rate for the term of the Option.

Prior to Mr Longworth becoming a Director of the Company he was issued, pursuant to the Company’s Employee OptionPlan, with 200,000 Options expiring on 16 December 2007 and exercisable at $0.25.

No other Options were issued to Directors or senior executives during the year.

INSURANCE OF OFFICERS

During the financial year the Company has paid an insurance premium in respect of a Directors’ and Officers’ LiabilityInsurance Contract. The insurance premium relates to liabilities that may arise from an Officer’s position, with the exceptionof conduct involving a wilful breach of duty or improper use of information or position to gain personal advantage.

The officers covered by the insurance policies are the Directors and the Company Secretary.

The contract of insurance prohibits the disclosure of the nature of the liabilities and the amount of premium.

CORPORATE GOVERNANCE

The Company has undertaken a thorough review of its Corporate Governance practices and policies in accordance withthe ASX Corporate Governances Best Practices Recommendations. The consolidated entity’s Corporate GovernanceStatement is contained in Section 3.0, the Corporate Profile section of the Annual Report.

ENVIRONMENTAL REGULATION

The consolidated entity is subject to and compliant with all aspects of environmental regulation in respect of its explorationand development activities. The Directors are not aware of any environmental regulation which is not being complied with.

ABORIGINAL CULTURE AND HERITAGE

The consolidated entity is subject to and compliant with all aspects of Aboriginal Heritage regulation in respect of itsexploration and development activities. The Directors are not aware of any regulation which is not being complied with.The Directors are committed to cultural respect and Indigenous Reconciliation.

Signed in accordance with a resolution of Directors

C L READHEAD

Chairman

Perth, 24th September 2004

5.0 Financial Statements


STATEMENTS OF FINANCIAL PERFORMANCE

FOR THE YEAR ENDED 30 JUNE 2004

Consolidated Entity Parent EntityNotes 2004 2003 2004 2003

$ $ $ $

REVENUES FROM ORDINARY ACTIVITIES 2 567,313 56,772 552,192 56,554

Employee benefits expense (31,964) (42,238) (19,193) (33,455)

Depreciation expense 3 (b) (31,481) (35,587) (31,481) (35,587)

Rental expense (75,313) (60,000) (75,313) (60,000)

Cost of tenements and data sold (351,252) - (314,128) -

Other expenses from ordinary activities 3(c) (426,165) (323,266) (370,053) (310,928)

Exploration expenditure written off (77,508) (121,635) (14,400) (64,852)

De-merger of controlled entity 14(b) 61,236 - - -

LOSS FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE (365,134) (525,954) (272,376) (448,268)

INCOME TAX EXPENSE 4 - - - -

LOSS FROM ORDINARY ACTIVITIES AFTER INCOME TAX EXPENSE (365,134) (525,954) (272,376) (448,268)

NET LOSS ATTRIBUTABLE TO MEMBERS OF THE PARENT ENTITY 13 (365,134) (525,954) (272,376) (448,268)

Basic earnings per Share 23 $(0.0030) $(0.0049)

Diluted earnings per Share 23 $(0.0030) $(0.0049)

The accompanying notes form part of these financial statements

Financial Statements Continued


STATEMENTS OF FINANCIAL POSITION

AS AT 30 JUNE 2004


$ $ $ $CURRENT ASSETSCash assets 1,378,243 699,100 1,322,118 623,423Receivables 5 72,397 77,202 72,397 73,145

TOTAL CURRENT ASSETS 1,450,640 776,302 1,394,515 696,568

NON-CURRENT ASSETSReceivables 6 - - 3,257,655 3,340,073Investments 7 - - 20 30Property, plant and equipment 8 54,608 49,407 54,608 49,407Exploration and evaluation costs carried forward 9 16,449,009 14,791,984 13,420,068 11,619,174

TOTAL NON-CURRENT ASSETS 16,503,617 14,841,391 16,732,351 15,008,684

TOTAL ASSETS 17,954,257 15,617,693 18,126,866 15,705,252

CURRENT LIABILITIESPayables 10 482,500 311,090 482,500 311,090Provisions 11 116,284 90,017 116,284 90,017

TOTAL CURRENT LIABILITIES 598,784 401,107 598,784 401,107

TOTAL LIABILITIES 598,784 401,107 598,784 401,107

NET ASSETS 17,355,473 15,216,586 17,528,082 15,304,145

EQUITYContributed equity 12 27,267,189 24,770,876 27,267,189 24,770,876Accumulated losses 13 (9,911,716) (9,554,290) (9,739,107) (9,466,731)

TOTAL EQUITY 17,355,473 15,216,586 17,528,082 15,304,145



STATEMENTS OF CASH FLOW

FOR THE YEAR ENDED 30 JUNE 2004


$ $ $ $

CASH FLOWS FROM OPERATING ACTIVITIESInterest received 77,556 59,580 77,435 59,362Proceeds from sale of data 15,000 - - -Option fees received 15,000 - 15,000 -Administration fees received 105,537 - 105,537 -Goods & Services Tax refunded/paid 9,331 (32,170) 6,985 (28,195)Payments to suppliers (478,453) (411,421) (409,580) (390,300)

NET CASH OUTFLOWS FROM OPERATING ACTIVITIES 14(a) (256,029) (384,011) (204,623) (359,133)

CASH FLOWS FROM INVESTING ACTIVITIESExploration expenditure (1,799,406) (1,771,887) (1,761,837) 926,013Investment in controlled entity - - - -Proceeds from sale of plant & equipment - - - -Acquisition of plant & equipment (36,302) (395) (35,712) (395)Cash outflow on de-merger of controlled entity 14(b) (15,027) - - -

NET CASH (OUTFLOWS) / INFLOWS FROM INVESTING ACTIVITIES (1,850,735) (1,772,282) (1,797,549) 925,618

CASH FLOWS FROM FINANCING ACTIVITIESLoans to controlled entities - - (25,528) (2,740,807)Loan repaid by Avoca Resources Ltd 127 7,264 127 7,264Loan repaid by Pioneer Nickel Ltd 139,457 - 107,945 -Loan from related party 10,000 200,000 10,000 200,000Refundable bonds 20,000 - 20,000 -Proceeds from issue of Shares 2,636,323 521,610 2,608,323 521,600Share issue costs (20,000) - (20,000) -

NET CASH INFLOWS / (OUTFLOWS)FROM FINANCING ACTIVITIES 2,785,907 728,874 2,700,867 (2,011,943)

NET INCREASE / (DECREASE) IN CASH HELD 679,143 (1,427,419) 698,695 (1,445,458)Cash at the beginning of the financial year 699,100 2,126,519 623,423 2,068,881

CASH AT THE END OF THE FINANCIAL YEAR 14(d) 1,378,243 699,100 1,322,118 623,423

Non-cash financing and investing activities 14(c)




NOTES TO AND FORMING PART OF THE ACCOUNTSFOR THE YEAR ENDED 30 JUNE 2004

NOTE 1. STATEMENT OF ACCOUNTING POLICIES

The financial report is a general purpose financial report which has been prepared in accordance with applicableAccounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Urgent IssuesGroup Consensus Views and the Corporations Act 2001. The financial report has been prepared on the basis of historicalcosts and does not take into account changing money values or, except where stated, current valuations of non-currentassets. The accounting policies have been consistently applied, unless otherwise stated.

The following is a summary of the material accounting policies adopted by the Company in the preparation of the financialstatements.

a) Principles of Consolidation

The consolidated accounts comprise the accounts of Heron Resources Limited (“Heron”, the parent entity) and itscontrolled entities. A controlled entity is any entity controlled by Heron. Control exists where Heron has the capacityto dominate the decision making in relation to the financial and operating policies of another entity so that the otherentity operates with Heron to achieve the objectives of Heron. A list of controlled entities is contained in Note 21.

The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, usingconsistent accounting policies.

All inter-company balances and transactions between entities in the consolidated entity, including any unrealisedprofits or losses, have been eliminated on consolidation.

Where controlled entities have entered or left the consolidated entity during the year, their operating results have beenincluded from the date control was obtained or until the date control ceased.

b) Income Tax

The consolidated entity adopts the liability method of tax-effect accounting whereby the income tax expense shownin the statement of financial performance is based on the profit from ordinary activities before income tax adjusted forany permanent differences.

Timing differences which arise due to the different accounting periods in which items of revenue and expense areincluded in the determination of profit from ordinary activities before income tax and taxable income are brought toaccount as either a provision for deferred income tax or an asset described as future income tax benefit at the rateof income tax applicable to the period in which the benefit will be received or the liability will become payable.

Future income tax benefits are not brought to account unless realisation of the asset is assured beyond anyreasonable doubt. Future income tax benefits in relation to tax losses are not brought to account unless there is virtualcertainty of the realisation of the benefit.

The amount of benefits brought to account or which may be realised in the future is based on the assumption thatno adverse change will occur in income tax legislation and the anticipation that the Company will derive sufficientfuture assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposedby the law.

c) Exploration, Evaluation, Development and Restoration Costs

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area ofinterest.

Accumulated costs are only carried forward to the extent that they are expected to be recouped through thesuccessful development of the area, or by its sale, or where the activities in the area have not reached a stage whichpermits a reasonable assessment of the existence of economically recoverable reserves.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decisionto abandon the area is made.

Accumulated costs are not carried forward in respect of any area of interest unless rights to tenure of that area arecurrent.

Restoration costs that are expected to be incurred are provided for as part of the cost of the exploration, evaluationand development phases that give rise to the need for restoration.


d) Investments

Investments are brought to account at cost or at Directors’ valuation. The carrying amount of investments is reviewedannually by Directors to ensure it is not in excess of the recoverable amount of these investments.

e) Property, Plant and Equipment

Plant and equipment is measured at cost.

Depreciation is calculated on a straight line or diminishing value basis to write off the net cost of each item of property,plant and equipment over its expected useful life. Major depreciation periods for plant and equipment are 5 to 15years.

f) Interests in Joint Ventures

The consolidated entity’s share of the assets, liabilities, revenue and expenses of joint ventures is included in theappropriate items of the statements of financial position and performance.

Details of the joint ventures are set out in Note 20.

g) Employee Entitlements

Liabilities for wages and salaries, annual leave and field leave are recognised and are measured as the amount unpaidat the reporting date at current pay rates in respect of employees’ service up to that date.

h) Cash

Cash on hand and in banks and short-term deposits are stated at nominal value.

For the purposes of the statement of cash flows, cash includes cash on hand and in banks, and money marketinvestments readily convertible to cash within two working days, net of outstanding bank overdrafts.

i) Acquisition of Assets

The cost method of accounting is used for all acquisitions of assets regardless of whether shares or other assets areacquired. Cost is determined as the fair value of the assets given up at the date of acquisition plus costs incidentalto the acquisition. Where shares are issued in an acquisition, the value of the shares is determined by reference tothe fair value of the assets acquired, including goodwill where applicable.

Costs relating to the acquisition of new areas of interest are classified as either exploration and evaluation expenditure,development properties or mine properties, based on the stage of development reached at the date of acquisition.Assets acquired may also include mineral reserves, mineral resources and unexplored and unevaluated areas.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted totheir present value as at the date of acquisition. The discount rate used is the rate at which a similar borrowing couldbe obtained under comparable terms and conditions.

A liability for restructuring costs is recognised as at the date of acquisition of an entity or part thereof when there is ademonstrable commitment to a restructuring of the acquired entity and a reliable estimate of the amount of the liabilitycan be made.

j) Recoverable Amount of Non-Current Assets

The recoverable amount of an asset is the net amount expected to be recovered through the net cash inflows arisingfrom its continued use and subsequent disposal.

Where the carrying amount of a non-current asset is greater than its recoverable amount the asset is revalued to itsrecoverable amount. Where the net cash inflows are derived from a group of assets working together, recoverableamount is determined on the basis of the relevant group of assets. To the extent that a revaluation decrementreverses a revaluation increment previously credited to, and still included in the balance of, the asset revaluationreserve, the decrement is debited directly to that reserve. Otherwise the decrement is recognised as an expense inthe statement of financial performance.

The expected net cash flows included in determining recoverable amounts of non-current assets are discounted totheir present values using a market-determined, risk adjusted discount rate.



k) Trade and Other Payables

Liabilities for trade creditors and other amounts are carried at cost which is the fair value of the consideration to bepaid in the future for goods and services received, whether or not billed to the consolidated entity. These amountsare unsecured and are usually paid within 30 days of recognition.

l) Receivables and Revenue Recognition

Sale of Mining TenementsThe gross proceeds of the sale of mining tenements are included as revenue. The profit or loss on disposal is broughtto account at the date an unconditional contract is executed.

InterestInterest is recognised on control of the right to receive the interest payment.

m) Earnings per Share

i) Basic Earnings per Share

Basic earnings per Share is determined by dividing the profit from ordinary activities after related income tax expenseby the weighted average number of ordinary Shares outstanding during the financial year.

ii) Diluted Earnings per Share

Diluted earnings per Share is determined by dividing the profit from ordinary activities after related income tax expenseadjusted for the effect of earnings on potential ordinary Shares, by the weighted average number of ordinary Shares(both issued and potentially dilutive) outstanding during the financial year.

Consolidated Entity Parent Entity2004 2003 2004 2003

$ $ $ $

NOTE 2. REVENUE FROM ORDINARY ACTIVITIES

Revenues from operating activities

Proceeds from sale of tenements and data 375,000 - 360,000 -

Option fee received 15,000 - 15,000 -

Administration fees received 105,537 - 105,537 -

Revenues from non-operating activities

Interest received – other persons/corporations 71,776 56,772 71,655 56,554

Total revenues from ordinary activities 567,313 56,772 552,192 56,554

NOTE 3. LOSS FROM ORDINARY ACTIVITIES

The loss from ordinary activities before income taxexpense has been determined after crediting andcharging the following items:

a) Net Gain

Profit on sale of tenements and data 23,748 - 45,872 -

b) Expenses

Depreciation

Plant & equipment (6,950) (9,201) (6,950) (9,201)

Office equipment & furniture (9,998) (2,648) (9,998) (2,648)

Motor vehicles (14,533) (23,738) (14,533) (23,738)



$ $ $ $

NOTE 3. LOSS FROM ORDINARY ACTIVITIES continued

c) Other Expenses includes the following:

Loan write off – Avoca Resources Limited (31,165) (31,292) (31,165) (31,292)

Accountancy, Corporate & Professional fees (82,867) (71,399) (76,648) (71,399)

Computer software & supplies expense (23,384) (6,604) (23,384) (6,207)

Conferences & seminars expense (11,828) (8,807) (11,078) (8,807)

Directors’ fees (26,065) (6,669) (21,004) (6,669)

Insurance expense (72,014) (57,655) (72,014) (57,655)

Office expenses (20,725) (21,693) (20,397) (20,613)

Stock Exchange expense (30,208) (18,626) (26,198) (16,626)

Travel & accommodation expense (22,189) (1,652) (10,644) (1,652)

NOTE 4. INCOME TAX

Prima facie income tax benefit on operating loss reconciles to the income tax expense as follows:

Loss from ordinary activities (365,134) (525,954) (272,376) (448,268)

Prima facie tax at 30% (109,540) (157,786) (81,713) (134,480)

Non deductible items 10,255 15,089 10,255 14,759

Timing differences and tax losses

not brought to account 99,285 142,697 71,458 119,721

Income tax expense - - - -

The Directors estimate the potential tax losses available to the consolidated entity to be $17,219,661 (2003 :$13,191,629). The future income tax benefit arising from tax losses has not been recognised as an asset becauserecovery is not virtually certain.

The tax benefits will only be obtained if:

a) The consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefitfrom the deductions for the losses to be realised;

b) The consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation; and

c) No changes in tax legislation adversely affect the Company in realising the benefit from the deductions for losses.

NOTE 5. RECEIVABLES (CURRENT)

Accrued interest 4,177 1,687 4,177 1,687

Goods & services tax paid 68,220 44,223 68,220 40,166

Loan – Avoca Resources Limited - 31,292 - 31,292

72,397 77,202 72,397 73,145

NOTE 6. RECEIVABLES (NON CURRENT)

Loans to controlled entities (Note 15) - - 3,257,655 3,340,073

- - 3,257,655 3,340,073




$ $ $ $

NOTE 7. INVESTMENTS IN CONTROLLED ENTITIES

Shares in controlled entities – at cost (Note 21) - - 20 30

- - 20 30

NOTE 8. PROPERTY PLANT AND EQUIPMENT

Plant and equipment at cost 106,541 89,805 106,541 89,805

Accumulated depreciation (89,266) (82,316) (89,266) (82,316)

17,275 7,489 17,275 7,489

Office equipment & furniture at cost 69,958 50,012 69,958 50,012


25,204 15,256 25,204 15,256

Motor vehicles at cost 158,433 158,433 158,433 158,433


12,129 26,662 12,129 26,662

Total property, plant and equipment 54,608 49,407 54,608 49,407

Consolidated Entity Parent Entity2004 2004

$ $

Reconciliation

Plant and equipment:

Carrying amount at 1 July 2003 7,489 7,489

Additions 16,736 16,736

Disposals - -

Depreciation Expense (6,950) (6,950)

Carrying value at 30 June 2004 17,275 17,275

Office equipment and furniture:


Additions 19,946 19,946

Disposals - -



Motor vehicles:


Additions - -

Disposals - -





$ $ $ $

NOTE 9. EXPLORATION AND EVALUATION COSTS CARRIED FORWARD

Balance at beginning of year 14,791,984 13,084,566 11,619,174 12,552,872

Acquisition costs 389,820 554,820 377,570 455,800

De-merger of controlled entity (67,493) - - -

Exploration and evaluation costs incurred during the year 1,763,458 1,274,233 1,698,621 1,019,569

Exploration and evaluation costs of tenements/data disposed of (351,252) - (260,897) -

Exploration and evaluation costs of mining tenements transferred - - - (2,344,215)

Exploration and evaluation costs written off (77,508) (121,635) (14,400) (64,852)

Balance at end of year 16,449,009 14,791,984 13,420,068 11,619,174

The ultimate recoupment of costs carried forward is dependent upon the successful development and/or commercialexploitation or alternatively, sale of respective areas of interest.

NOTE 10. PAYABLES (CURRENT)

Trade creditors and accruals 482,500 111,090 482,500 111,090

Loan from related party (Note 15) - 200,000 - 200,000

482,500 311,090 482,500 311,090

Trade creditors are non-interest bearing and are normally settled on 30 day terms.

NOTE 11. PROVISIONS (CURRENT)

Employee entitlements 116,284 90,017 116,284 90,017

116,284 90,017 116,284 90,017

NOTE 12. CONTRIBUTED EQUITY

Shares

Issued and paid up capital128,939,600 (2003: 108,408,727)

Ordinary Shares fully paid 27,817,509 25,291,196 27,817,509 25,291,196

Less: Capital Raising Expenses (550,320) (520,320) (550,320) (520,320)

27,267,189 24,770,876 27,267,189 24,770,876

Movements in issued and paid up capital of the parent entity during the year are as follows:

2004Number $

Balance at beginning of year 108,408,727 25,291,196

Issued during the year 20,530,873 2,886,323

Capital reduction for in-specie distributionof Pioneer Nickel Limited shares - (360,010)

Balance at end of year 128,939,600 27,817,509



NOTE 12. CONTRIBUTED EQUITY continued

3,900,000 Shares were issued at $0.14 per Share on the conversion of convertible notes.

11,230,000 Shares were issued at $0.14 per Share pursuant to a 1 for 10 non-renounceable entitlements issue.

5,000,000 Shares were issued at $0.14 per Share as additional shares as oversubscriptions to the 1 for 10 non-renounceable entitlements issue.

400,000 Shares were issued at $0.17 per Share as consideration for the acquisition of mining tenements.

Ordinary Shares have the right to receive dividends as declared and, in the event of winding up the Company, toparticipate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up onShares held.

Ordinary Shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

Options

The following Options were issued during the year:

Number Issued Expiry Date Exercise Price4,243,172 30 June 2007 $0.252,150,000 16 December 2007 $0.25

No Options were exercised during the year.

The following Options expired/lapsed during the year:

Number Issued Expiry Date Exercise Price100,000 4 February 2004 $0.25350,000 23 April 2006* $0.30

* Issued pursuant to the Company’s Employee Option Plan and lapsed on cessation of employment.

As at 30 June 2004 the Company had the following Options on issue:

Number Issued Expiry Date Exercise Price785,000 19 October 2004 $0.339556785,000 19 October 2004 $0.489556

2,000,000 20 December 2004 $0.35500,000 30 June 2005 $0.339556500,000 30 June 2005 $0.489556

4,243,172 30 June 2007 $0.252,150,000 16 December 2007 $0.25


$ $ $ $

NOTE 13. ACCUMULATED LOSSES

Balance at the beginning of the year 9,554,290 9,028,336 9,466,731 9,018,463

Less: Accumulated losses on de-merger of controlled entity (7,708) - - -

Net loss 365,134 525,954 272,376 448,268

Balance at end of the year 9,911,716 9,554,290 9,739,107 9,466,731



$ $ $ $

NOTE 14. STATEMENT OF CASH FLOWS

a) Reconciliation of operating loss after income tax to the net cash flows from operations:

Operating loss after income tax (365,134) (525,954) (272,376) (448,268)

Add/(less)

Exploration and evaluation costs written off 77,508 121,635 14,400 64,852

Depreciation 31,480 35,587 31,480 35,587

Provision for non-recovery of loan - 31,292 - 31,292

Loan write off 30,175 - 30,175 -

(Profit)/Loss on sale of tenements/data (8,748) - (45,872) -

(Increase)/decrease in accrued interest (2,490) 2,808 (2,490) 2,808

Increase/(decrease) in creditors, accruals and receivables 42,405 (49,379) 40,060 (45,404)

De-merger of controlled entity (61,225) - - -

(256,029) (384,011) (204,623) (359,133)

b) De-merger of controlled entity

On 15 October 2003 shareholders approved the de-merger of subsidiary Pioneer Nickel Limited. The following is afinancial summary for Pioneer Nickel Limited.

The de-merger was by way of a pro-rata in-specie distribution of 15,010,000 Pioneer Nickel Limited shares held by theCompany to Shareholders on the basis of approximately on Pioneer Nickel Limited share for every 8.6 Shares held inthe Company.

The following is a financial summary for Pioneer Nickel Limited:

Carrying amounts of assets and liabilities as at 28 October 2003

Cash 15,027

Receivables 1,709

Plant and equipment 590

Exploration and evaluation costs carried forward 441,198

Total Assets 458,524

Loan from Heron Resources Limited (139,457)

Total Liabilities (139,457)

Net Assets 319,067

Financial performance information from 1 July 2003 to 28 October 2003

Revenue from ordinary activities 58

Expenses from ordinary activities (61,294)

Loss from ordinary activities before income tax (61,236)

Income tax expense -

Net Loss (61,236)

Cash flow information from 1 July 2003 to 28 October 2003

Net cash outflow from ordinary activities (62,934)

Net cash outflow from investing activities (14,304)

Net cash inflow from financing activities 59,512

Net decrease in cash generated (17,726)



NOTE 14. STATEMENT OF CASH FLOWS continued

(c) During the year the Company:

• issued 400,000 shares at $0.17 per Share as payment for the acquisition of tenements; and

• issued 10 convertible notes as repayment for a loan of $210,000 made to the Company (Note 15).


$ $ $ $

d) Reconciliation of Cash

Cash on hand and at bank 1,378,243 699,100 1,322,118 623,423

Closing cash balance 1,378,243 699,100 1,322,118 623,423

Environmental Bonds of $108,997 (2003 : $59,583) are included in Cash on hand and at bank. This amount is heldas security term deposits and is not available to the Company for ordinary activities.

Escrow Accounts of $286,270 (2003 : Nil) are included on Cash on hand and at bank. These amounts are held in trustaccounts pending the completion of purchase agreements that the Company has entered into and are not available forordinary activities.

NOTE 15. DIRECTOR AND EXECUTIVE DISCLOSURES

The Directors of the Company during the financial year were:

Non-Executive Directors

Craig Leslie Readhead

Allan Trench (appointed 8 December 2003)

Ross James Arancini (resigned 8 December 2003)

Executive Directors

Ian James Buchhorn

Norman Mathew Longworth (appointed 3 May 2004)

Senior Executive

David Crook (resigned 31 December 2003)

The Board seeks independent advice on remuneration policies and practices, involving the remuneration packages andterms of employment of Directors.

Remuneration levels are competitively set to attract the most qualified and experienced Directors and Senior ExecutiveOfficers in the context of prevailing market conditions.

Remuneration level and other terms of employment for Mr Buchhorn and Mr Longworth are formalised in serviceagreements.

The agreement with Mr Buchhorn requires the provision of his services as Managing Director of the Company andcontains the following major provisions:

• No fixed term;

• Current base salary of $200,000 inclusive of superannuation; and

• Termination can be made by either Mr Buchhorn or the Company by giving not less than 6 months notice. Forfeitureor payment of 6 months salary as the case may be may be made or given in lieu of notice.

The agreement with Mr Longworth requires the provision of his services as manager of the Company’s explorationactivities and contains the following major provisions:

• No fixed term;

• Current base salary of $180,000 inclusive of superannuation and vehicle allowance; and

• In the event that the Company terminates Mr Longworth’s employment other than for matters concerning fraud anddishonesty and the like the Company will pay Mr Longworth the maximum amount payable in accordance with theformula prescribed by section 200G of the Corporations Act.


NOTE 15. DIRECTOR AND EXECUTIVE DISCLOSURES continued

Non-executive Directors received a fixed fee for their services as directors. Non-executive Directors fees not exceedingan aggregate of $175,000 per annum have been approved by the Company in a general meeting. There is no direct linkbetween non-executive Directors fees and corporate performance. There are no termination or retirement benefits for non-executive Directors (other than statutory superannuation).

During the reporting period an evaluation of the remuneration of Directors and senior executives was carried out by the fullBoard. No Director was involved in discussions regarding his own remuneration.

Other than outlined above, since the end of the previous financial year, no Director has received or become entitled toreceive a benefit, other than benefits disclosed in the financial statements as emoluments or the fixed salary of a full-timeemployee of the Company or a related body corporate, by reason of a contract made by the Company with the Directoror with a firm of which he is a member, or with an entity in which he has a substantial financial interest.

Salary Directors’ Non-Cash Super Options Retirement Total Fees Benefits Contributions Benefits

$ $ $ $ $ $ $

DirectorsCL Readhead - 41,468 - 3,732 4,950 - 50,150IJ Buchhorn 134,166 - - 20,000 9,900 - 164,066A Trench - 12,947 - 1,165 - - 14,112(appointed 8 December 2003)NM Longworth 76,079 - 1,667 6,847 - - 84,593(appointed 3 May 2004)RJ Arancini - - - - 2,970 - 2,970(resigned 8 December 2003)Senior ExecutiveD Crook 81,662 - - 15,891 - - 97,553(resigned 31 December 2003)

Mr Crook who resigned on 31 December 2003 was the only employee of the consolidated entity qualifying as a SeniorExecutive.

Directors Holdings of Shares and OptionsShares Held at Purchased Sold Held at

1 July 2003 30 June 2004

CL Readhead - 259,325 - 259,325

A Trench - 104,500 - 104,500

IJ Buchhorn 33,011,155 4,305,000 - 37,316,155

NM Longworth - 32,000 - 32,000

Options Expiry Exercise Held at Issued Exercised Held atDate Price 1 July 2003 30 June 2004

CL Readhead 16 December 2007 $0.25 - 500,000 - 500,000

A Trench - - - -

IJ Buchhorn 30 June 2005 $0.339556 500,000 - - 500,00030 June 2005 $0.489556 500,000 - - 500,00030 June 2007 $0.25 - 1,000,000 - 1,000,000

16 December 2007 $0.25 - 1,000,000 - 1,000,000

NM Longworth 16 December 2007 $0.25 - 200,000 - 200,000

During the year, following Shareholder approval, a total of 1,800,000 Options expiring on 16 December 2007 andexercisable at $0.25 each were issued to Mr Readhead (500,000), Mr Buchhorn (1,000,000) and Mr Arancini (300,000)or their nominees pursuant to the Company’s Employee Option Plan. Fair values for the options at grant date, as includedin the above table, were independently determined using Black-Scholes and binomial pricing models that took intoaccount the exercise price of the Option, the term of the Option, the vesting and performance criteria, the non-tradeablenature of the Option, the Share price at grant date and the expected price volatility of the underlying Share and the risk-free interest rate for the term of the Option.



NOTE 15. DIRECTOR AND EXECUTIVE DISCLOSURES continued

Prior to Mr Longworth becoming a Director of the Company he was issued, pursuant to the Company’s Employee OptionPlan, with 200,000 Options expiring on 16 December 2007 and exercisable at $0.25.

No other Options were issued to Directors or Senior Executives during the year.

Other related party transactions during the financial year were:

• payment of $75,316 (2003 : $60,000) to an entity related to Mr I J Buchhorn for the provision of officeaccommodation on normal commercial terms and conditions;

• payment of $500 (2003 : Nil) to parties related to Mr I J Buchhorn for the provision of secretarial services andtemporary staff on normal commercial terms and conditions;

• Interest free loan of $Nil (2003 : $200,000) was made from a party related to Mr I J Buchhorn to the Company. Duringthe year a further $10,000 was loaned to the Company. Repayment of the loan was made during the year by theCompany by issuing ten $21,000 convertible notes with a zero interest rate exercisable at $0.14 per Share ;

• payment of $49,004 (2003 : $56,965) to Mr R J Arancini for the provision of company secretarial, taxation andcorporate services on normal commercial terms and conditions;

• payment of $119,889 (2003 : $71,715) to Pullinger Readhead Lucas of which Mr C L Readhead is a partner for legalservices on normal commercial terms and conditions;

• Interest-free loan of $441,048 (2003 : $433,996) was made by the parent entity to the controlled entity BalladoniaEnergy NL;

• Interest-free loan of $2,816,608 (2003 : $2,798,132) was made by the parent entity to the controlled entity RegentResources Ltd;

• Loan of $Nil (2003 : $107,945) was made by the Company to Pioneer Nickel Limited. During the year a further$57,068 was loaned and $165,013 (2003 : $Nil) was repaid by Pioneer Nickel Limited. Amounts advanced toPioneer Nickel Limited were interest free.

Heron Resources Limited is the ultimate parent entity. Heron Resources Limited is a listed public company incorporatedand domiciled in Australia. Ownership interest in the controlled entities is as set out in Note 21.


NOTE 16. FINANCIAL INSTRUMENTS

a) Terms, conditions and accounting policies

The consolidated entity’s accounting policies, including the terms and conditions of each class of financial asset, financialliability and equity instrument, both recognised and unrecognised at the balance date, are as follows:

Recognised Financial Statement Accounting Policies Terms and ConditionsInstruments of Financial

Position Notes

i) Financial assets11am Call Accounts 11am Call Accounts are carried at cost. The 11am Call Accounts are at call

with an interest rate of 3.90%(2003 : 4.50%).

Environmental Bonds Environmental Bonds are carried at cost. Environmental Bonds are security term deposits with a 6 month term with an interest rate of 3.30%

(2003 : 3.50%).

Escrow Accounts Escrow Accounts are carried at cost. Escrow Accounts are term depositswith an interest rate of 4.00%.

Accrued Interest 5 Recognised on an accruals basis. Interest is credited periodically.

Goods & Services 5 Recognised on an accruals basis. Business Activity Statements are lodgedTax Paid on a quarterly basis.

ii) Financial liabilitiesTrade creditors 10 Liabilities are recognised for amounts Trade liabilities are normally settledand accruals to be paid in the future for goods and on 30 day terms.

services received, whether or not billed to the consolidated entity.

iii) EquityOrdinary Shares 12 Ordinary Share capital is recognised Details of the Shares issued and the

at the fair value of the consideration terms and conditions of the Optionsreceived by the Company. outstanding over ordinary Shares at

balance date are set out in Note 12.b) Interest rate risk

The consolidated entity’s exposure to interest rate risks and the effective interest rates of financial assets and financial liabilities,both recognised and unrecognised at the balance date are as follows:

Financial Instruments Floating Fixed interest Total carrying Weighted average interest rate rate maturing in amount effective

1 year or less interest rate

2004 2003 2004 2003 2004 2003 2004 2003$ $ $ $ $ $ % %

i) Financial assets

Cash at bank 59,871 433,412 - - 59,871 433,412 2.00 3.30

11am Call Accounts 923,105 206,105 - - 923,105 206,105 3.90 4.50

Environmental Bonds 108,997 59,583 - - 108,997 59,583 3.30 3.50

Escrow Accounts 286,270 - - - 286,270 - 4.00 -

Accrued Interest 4,177 1,687 - - 4,177 1,687 - -

Goods & Services Tax 68,220 44,223 - - 68,220 44,223 - -

Total financial assets 1,450,640 745,010 - - 1,450,640 745,010 - -

ii) Financial liabilities

Trade creditors and accruals 482,500 111,090 - - 482,500 111,090 - -

Total financial liabilities 482,500 111,090 - - 482,500 111,090 - -



NOTE 16. FINANCIAL INSTRUMENTS continued

c) Net fair values Total carrying amount Aggregate net fair value2004 2003 2004 2003

$ $ $ $

Financial assets

Cash at bank 59,871 433,412 59,871 433,412

11am Call Accounts 923,105 206,105 923,105 206,105

Environmental Bonds 108,997 59,583 108,997 59,583

Escrow Accounts 286,270 - 286,270 -

Accrued Interest 4,177 1,687 4,177 1,687

Goods & Services Tax 68,220 44,223 68,220 44,223

Total financial assets 1,450,640 745,010 1,450,640 745,010

Financial liabilities

Trade creditors and accruals 482,500 111,090 482,500 111,090

Total financial liabilities 482,500 111,090 482,500 111,090

d) The following methods and assumptions are used to determine the net fair values of financial assets and liabilities.

Recognised financial instruments:

Cash, cash equivalents and short-term investments: The carrying amount approximates fair value because of their short-term maturity.

Receivables and trade creditors: The carrying amount approximates fair value.

NOTE 17. AUDITORS’ REMUNERATION


$ $ $ $

Amounts received or due and receivable by the Auditors for:

- audit services 22,300 12,500 15,800 12,500

- other services - 12,650 - 12,650

NOTE 18. COMMITMENTS FOR EXPENDITURE

Exploration Commitments

In order to maintain current rights of tenure to exploration and mining tenements, the consolidated entity has the followingdiscretionary exploration expenditure requirements up until expiry of leases. These obligations, which are subject torenegotiation upon expiry of the leases, are not provided for in the financial statements and are payable:

Not later than 1 year 1,500,000 1,550,000 1,250,000 1,000,000

Later than 1 year but not later than 5 years 6,000,000 6,200,000 5,000,000 4,000,000

Later than 5 years - - - -

If the consolidated entity decides to relinquish certain leases and/or does not meet these obligations, assets recognised inthe balance sheet may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out ofexploration rights to third parties will reduce or extinguish these obligations. Those amounts detailed above do not includeexpenditure commitments which are the responsibility of joint venture partners (Note 20).


NOTE 19. SEGMENT INFORMATION

The consolidated entity operates in the mineral exploration industry in Australia.

NOTE 20. JOINT VENTURE AGREEMENTS

The consolidated entity has entered into the following joint venture agreements:

Project Operator Right to Farm-inEarn Expenditure

Bungalbin and Mount Jackson Portman Limited 100%* $250,000Perrinvale Mt Burgess Mining NL 70% $500,000King of Creation Bronzewing Gold NL 70% $250,000Gidji Jackson Gold Limited 70% $300,000

TOTAL $1,300,000

* The Company has a royalty based on tonnes of Iron Ore sold by Portman Limited.

NOTE 21. INVESTMENTS IN CONTROLLED ENTITIES

Name of Country of Class of Equity Holding Cost of Parent Entity’sEntity Registration Shares Investment

2004 2003 2004 2003$ $

Balladonia Energy NL Australia Ordinary 100% 100% 10 10Regent Resources Limited Australia Ordinary 100% 100% 10 10Pioneer Nickel Limited Australia Ordinary - 100% - 10

Balladonia Energy NL (“Balladonia”) was registered to evaluate the potential for documented oil shale and mineral sandoccurrences in the Balladonia area to contribute to the generation of the energy, sulphur and lime requirements of Heron’snickel laterite projects. The corporate objective has been to introduce a technical partner with demonstrated oil shaleexpertise, to further advance the oil shale projects. The mineral sand projects are under farm out discussions.

When Heron purchased the Bulong mineral rights in April 2004, the Company elected to use Balladonia as the purchasevehicle. Balladonia’s name and corporate status was changed to Hampton Nickel (Bulong Operations) Pty Ltd on 23September 2004.

Regent Resources Limited (“Regent”) was registered on 10 April 2002 to evaluate gold and base metal opportunitieswhich may arise in the course of the Company’s nickel exploration activities.

Pioneer Nickel Limited (“Pioneer”) which was registered on 17 January 2003 to evaluate and acquire nickel sulphideexploration tenements and projects and was de-merged during the year.

NOTE 22. CONTINGENT LIABILITIES

Native title claims have been made with respect to areas which include tenements in which the consolidated entity hasinterests. The consolidated entity is unable to determine the prospects for success or otherwise of the claims and, in anyevent, whether or not and to what extent the claims may significantly affect the consolidated entity or its projects. Agreementis being reached with native title claimants regarding certain areas in which the consolidated entity has interests.

NOTE 23. EARNINGS PER SHARE2004 2003

$ $

Basic earnings per Share (0.0030) (0.0049)

Weighted average number of ordinary Shares outstanding during the year used in the calculation of basic earnings per Share 123,167,145 106,367,494

Diluted earnings per Share (0.0030) (0.0049)

Weighted average number of ordinary Shares outstanding during theyear used in the calculation of diluted earnings per Share. 123,367,494 106,367,494

Earnings/(loss) used in calculating basic and diluted earnings/(loss) per Share (365,134) (525,954)

Heron has on issue 10,963,172 Options which are not dilutive.



NOTE 24. EMPLOYEE ENTITLEMENTS


$ $ $ $

a) Employee Entitlements

The aggregate employee entitlement is comprised of:

Provisions (Current) 116,284 90,017 116,284 90,017

b) Employee Share Scheme

An Employee Share Option Plan has been established for Heron Resources Limited, where employees, Directors andOfficers of the consolidated entity are issued with Options over ordinary Shares of Heron Resources Limited. The Options,issued for no consideration, are in general exercisable at a fixed price at any time during the period commencing 12 monthsafter the commencement date and ending on the expiry date.

There are currently seven employees, directors and officers eligible for this scheme.

The Options cannot be transferred and will not be quoted on the ASX.

During the year 2,050,000 Options were issued, 450,000 Options lapsed or expired and no Options were exercised underthe scheme. As at 30 June 2004, Options on issue under this scheme were:

Number Expiry Date Exercise Issued Price785,000 19 October 2004 $0.339556785,000 19 October 2004 $0.489556500,000 30 June 2005 $0.339556500,000 30 June 2005 $0.489556

2,050,000 23 April 2006 $0.304,620,000

c) The consolidated entity had 4 employees as at 30 June 2004 (2003 : 4 employees).

NOTE 25. SUBSEQUENT EVENTS

Other than noted below, there is no matter or circumstance which has arisen since 30 June 2004 that has significantlyaffected or may significantly affect:

a) The operations, in the financial years subsequent to 30 June 2004, of the consolidated entity;

b) The results of those operations; or

c) The state of affairs, in the financial years subsequent to 30 June 2004, of the consolidated entity.

During July 2004 the Company placed 4,000,000 shares at $0.25 each to provide additional working capital related to thecommencement of the Company’s pre-feasibility study for the Kalgoorlie Nickel Project.

In September 2004 a placement prospectus was issued for up to 8,000,000 shares at $0.25 each together withoversubscriptions of up to 2,000,000 shares at $0.25 each to fund drilling at the Company’s Goongarrie, Siberia andMenzies Projects, to fund independent screen upgrade testing and for working capital.

In September 2004 the Company entered into an agreement to acquire the Big Four Prospect from Placer Dome. Theconsideration for the acquisition includes an initial payment of $250,000 to purchase the nickel laterite resource. A secondadditional payment is to be made on the basis of the Indicated Mineral Resource above a 1% Nickel cut-off grade ascalculated by an independent consultant.

At a shareholder meeting on 23 September 2004, the name and corporate status of the Company’s wholly owned subsidiaryBalladonia Energy NL was changed to Hampton Nickel (Bulong Operations) Pty Ltd, as part of the Bulong mineral rightsacquisition.


NOTE 26. INTERNATIONAL FINANCIAL REPORTING STANDARDS

The Australian Accounting Standards Board (AASB) is adopting the International Financial Reporting Standards (IFRS) forapplication to reporting periods beginning on or after 1 January 2005.

This financial report has been prepared in accordance with Australian accounting standards and other financial reportingrequirements (Australian GAAP). The differences between Australian GAAP and IFRS identified to date as potentiallyhaving a significant effect on the Company’s financial performance and financial position are summarised below. Thesummary should not be taken as an exhaustive list of all the differences between Australian GAAP and IFRS. No attempthas been made to identify all disclosure, presentation or classification differences that would affect the manner in whichtransactions or events are presented.

The Company has not quantified the effects of the differences discussed below. Accordingly, there can be no assurancesthat the financial performance and financial position as disclosed in this financial report would not be significantly differentif determined in accordance with IFRS.

The key potential implications of the conversion to IFRS on the entity are as follows:

a) Income Tax

Income tax will be calculated on the “balance sheet” approach, which will result in more deferred tax assets andliabilities, as tax effects follow the underlying transaction, some tax effects will be recognised in equity.

b) Equity-based compensation benefits

Equity-based compensation in the form of shares and options will be recognised as expenses in the periods duringwhich the employee provides related services.

c) Comparatives

Changes in accounting policies will be recognised by restating comparatives rather than making current yearadjustments with note disclosure of prior year effects.

d) Exploration Expenditure

The Company is incurring exploration and evaluation costs and carrying costs forward in accordance with its adoptedaccounting policies. Under the new IFRS, the Company may be required to expense exploration costs in the yearincurred.

The above should not be regarded as a complete list of changes in accounting policies that will result from the transition toIFRS, as not all standards have yet been analysed and some decisions have not yet been made where choices ofaccounting policies are available. For these reasons it is not yet possible to quantify the impact of the transition to IFRS onthe Company’s financial position and reported results.

The Company is currently addressing the issues and effects of the impact of IFRS and will endeavour to have in place allchanges in reporting requirements to fully meet the new standards by 31 December 2004.

5.0 Directors’ Declaration


In accordance with a resolution of the Directors of Heron Resources Limited it is declared that:

a) The financial statements and notes comply with Accounting Standards, the Corporations Regulations 2001 and othermandatory professional reporting requirements; and

b) Give a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2004 and of theirperformance, as represented by the results of their operations and their cash flows, for the financial year ended onthat date.

In the Directors’ opinion:

a) The financial statements and notes are in accordance with the Corporations Act 2001; and

b) At the date of this declaration there are reasonable grounds to believe that the Company will be able to pay its debtswhen they become due and payable.

On behalf of the Board

C L READHEADChairman

Perth, 24 September 2004

6.0 Independent Audit Report


To the members of Heron Resources Limited

Scope

We have audited the financial report of Heron Resources Limited (“the Company”) for the financial year ended 30 June2004 as set out in pages 29 to 48. The Directors are responsible for the financial report which includes the financialstatements of the Company and the consolidated financial statements of the consolidated entity comprising the Companyand the entities it controlled at the end of, or during, the financial year. We have conducted an independent audit of thefinancial report in order to express an opinion on it to members of the Company.

Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance as towhether the financial report is free of material misstatement. Our procedures included examination, on a test basis, ofevidence supporting the amounts and other disclosures in the financial report and the evaluation of accounting policiesand significant accounting estimates. These procedures have been undertaken to form an opinion as to whether, in allmaterial respects, the financial report is presented fairly in accordance with Accounting Standards, other mandatoryprofessional reporting requirements and the Corporations Act 2001 in Australia so as to present a view which is consistentwith our understanding of the consolidated entity’s financial position, and performance as represented by the results oftheir operations and their cash flows.

The audit opinion expressed in this report has been formed on the above basis.

Audit Opinion

In our opinion, the financial report of the Company is in accordance with:

a) the Corporations Act 2001, including:

i) giving a true and fair view of the Company’s and consolidated entity’s financial position as at 30 June 2004 andof their performance for the year ended on that date; and

ii) complying with Accounting Standards and the Corporations Regulations 2001; and

b) other mandatory professional reporting requirements.

BUTLER SETTINERI PAUL J CHABRELChartered Accountants Partner

Perth, 24 September 2004

7.0 Shareholder Information


AT 10 SEPTEMBER 2004

1. Issued Shares and Options

a) Distribution of Shareholders:

Size of Holding Number of Holders Shares Held1 - 1,000 14 9,9521,001 - 5,000 275 1,001,2525,001 - 10,000 315 2,588,92010,001 - 100,000 709 22,579,378

100,001 - 120 106,760,0981,433 132,939,600

b) The twenty largest Shareholders hold 62.69% of the issued fully paid capital of the Company.

c) Substantial Shareholders who have notified the Company:

Holder Number of Shares %Kurana Pty Ltd 30,925,000 23.26OMG Cawse Pty Ltd 15,890,310 11.95MBM Corporation Pty Ltd 10,160,000 7.64

d) Distribution of Optionholders:

The following Options were on issue:i) 785,000 exercisable on or before 19 October 2004 payment of $0.339556 per Option exercised;ii) 785,000 exercisable on or before 19 October 2004 payment of $0.489556 per Option exercised;iii) 2,000,000 exercisable on or before 20 December 2005 payment of $0.35 per Option exercise iv) 500,000 exercisable on or before 30 June 2005 payment of $0.339556 per Option exercised;v) 500,000 exercisable on or before 30 June 2005 payment of $0.489556 per Option exercised;vi 1,300,000 exercisable on or before 31 July 2006 payment of $0.33 per Option exercised.vii) 4,243,172 exercisable on or before 30 June 2007 payment of $0.25 per Option exercised;viii) 2,950,000 exercisable on or before 16 December 2007 payment of $0.25 per Option exercised;

Size of Holding Number of Holders Options Held1 - 1,000 0 01,001 - 5,000 0 05,001 - 10,000 3 27,17210,001 - 100,000 7 190,000100,001 - 20 12,846,000

30 13,063,172

e) There were 33 Shareholders who held less than a marketable parcel.

f) No securities have been classified by ASX as restricted.

VOTING RIGHTSIn accordance with the Company’s Constitution, voting rights are on the basis of a show of hands, one vote for every registeredholder and on a poll, one vote for each Share held by registered holders.

Twenty Largest Shareholders as at 10 September 2004Number of Shares %

1 Kurana Pty Ltd 30,925,000 23.262 OMG Cawse Pty Ltd 15,890,310 11.953 MBM Corporation Pty Ltd 10,160,000 7.644 Koltai Holdings Pty Ltd 4,765,679 3.585 Chaos Investments Pty Ltd 4,000,000 3.016 Sheerwater Pty Ltd 2,715,000 2.047 Buchhorn I J 2,447,857 1.848 Manorina Mining Pty Ltd 1,818,300 1.379 Buchhorn P J 1,519,998 1.1410 Williams John Samuel 1,414,900 1.0611 Baracus Pty Ltd 1,190,000 0.90 12 JP Morgan Nominees 1,100,000 0.8313 Alexandrou Kim Elizabeth 1,000,000 0.7514 ANZ Nominees Ltd 900,000 0.6815 Kimlex Investments Pty Ltd 675,000 0.5116 Otway J P 615,000 0.4617 Mulroney T 570,000 0.4318 Corporate Alexander 561,700 0.4219 Goldenstate Holdings Pty Ltd 550,000 0.4120 Hazurn Pty Ltd 550,000 0.41

TOTAL 83,368,744 62.69


Optionholders as at 10 September 2004

Optionholders (Options exercisable on or before 19 October 2004) were:

Number of Options % of Issued OptionsGeary P 150,000 9.55Gobbett S 320,000 20.38Parkway Superannuation Fund 500,000 31.85Rudd A 500,000 31.85Arancini S 100,000 6.37TOTAL 1,570,000 100.00

Optionholders (Options exercisable on or before 20 December 2004) were:

Number of Options % of Issued OptionsResource Capital Fund II L.P. 2,000,000 100.00TOTAL 2,000,000 100.00

Optionholders (Options exercisable on or before 30 June 2005) were:

Number of Options % of Issued OptionsKurana Pty Ltd 1,000,000 100.00TOTAL 1,000,000 100.00

Optionholders (Options exercisable on or before 31 July 2006) were:

Number of Options % of Issued OptionsKimlex Investments Pty Ltd 200,000 15.39MBM Corporation Pty Ltd 1,100,000 84.61TOTAL 1,300,000 100.00

Optionholders (Options exercisable on or before 30 June 2007) were:

Number of Options % of Issued OptionsSJH Enterprises Pty Ltd 9,692 0.22Zedella Pty Ltd 8,000 0.18Wardle B J 15,000 0.35Wardle M P 15,000 0.35Wardle M C 15,000 0.35Donnelly J L 15,000 0.35Donnelly M J 15,000 0.35Donnelly H L 15,000 0.35Wardle D J 155,000 3.65Alexander Corporate Enterprises Pty Ltd 9,480 0.22Kimlex Investments Pty Ltd 300,000 7.07Williams J S & Allwood D A 814,000 19.18Koltai Holdings Pty Ltd 856,000 20.17Ocean Grove Investments Pty Ltd 286,000 6.79Trindal Pty Ltd 143,000 3.37PK Trading (WA) Pty Ltd 572,000 13.48Kurana Pty LTd 1,000,000 23.57TOTAL 4,243,172 100.00

Optionholders (Options exercisable on or before 16 December 2007) were:

Number of Options % of Issued OptionsHengold Pty Ltd 500,000 16.95Red Oaks Pty Ltd 300,000 10.17Kurana Pty Ltd 1,000,000 33.90Kimlex Pty Ltd 100,000 3.39Longworth N M 200,000 6.78Calvert S 50,000 1.69Calvert S 200,000 6.78von Perger D 20,000 0.68von Perger J 80,000 2.72von Perger D 100,000 3.39von Perger J 400,000 13.55

TOTAL 2,950,000 100.00

Shareholder Information Continued


Summary of Optionholders as at 10 September 2004

Number of Options % of Issued Options1. Kurana Pty Ltd 3,000,000 22.962. Resource Capital Fund II L.P. 2,000,000 15.313. MBM Corporation Pty Ltd 1,100,000 8.434. Koltai Holdings Pty Ltd 856,000 6.555. Williams J S & Allwood D A 814,000 6.286. Kimlex Investments Pty Ltd 600,000 4.597. PK Trading (WA) Pty Ltd 572,000 4.388. Hengold Pty Ltd 500,000 3.839. Parkway Superannuation Fund 500,000 3.83

10. Rudd A 500,000 3.8311. von Perger J 480,000 3.6712. Gobbett S 320,000 2.4513. Red Oaks Pty Ltd 300,000 2.3014. Ocean Grove Investments Pty Ltd 286,000 2.1915. Calvert S 250,000 1.9116. Longworth N M 200,000 1.5317. Wardle D J 155,000 1.1818. Geary P 150,000 1.1519. Trindal Pty Ltd 143,000 1.0920. von Perger D 120,000 0.9221. Arancini S 100,000 0.7622. Wardle B J 15,000 0.1123. Wardle M P 15,000 0.1124. Wardle M C 15,000 0.1125. Donnelly J L 15,000 0.1126. Donnelly M J 15,000 0.1127. Donnelly H L 15,000 0.1128. SJH Enterprises Pty Ltd 9,692 0.0729. Alexander Corporate Enterprises Pty Ltd 9,480 0.0730. Zedella Pty Ltd 8,000 0.06

13,063,172 100.00

8.0 Statement of Mineral Resources


Project Prospect million Ni Co Ni Co Cut-off Category Estimationtonnes % % tonnes tonnes %Ni Method

Goongarrie Big Four Heron 32.6 0.77 0.065 251,600 21,200 0.5 Inferred Krige1

Goongarrie Big Four Placer 29.2 0.71 0.049 208,400 14,300 0.5 Inferred Krige1

Goongarrie Goongarrie Hill 50.9 0.67 0.043 342,000 21,700 0.5 Inferred Krige1

Goongarrie Goongarrie South 11.7 0.96 0.079 112,200 9,300 0.5 Measured Krige1

Goongarrie Goongarrie South 54.6 0.77 0.062 420,500 33,800 0.5 Indicated Krige1

Goongarrie Goongarrie South 12.2 0.65 0.058 79,900 7,100 0.5 Inferred Krige1

Goongarrie Highway 84.8 0.72 0.051 611,000 43,500 0.5 Inferred Krige1

Goongarrie Scotia 11.2 0.77 0.080 86,400 9,000 0.5 Inferred Krige1

Sub-Total Goongarrie 287.2 0.74 0.056 2,112,000 159,900

Siberia Siberia South 111.8 0.65 0.035 727,200 38,800 0.5 Inferred Krige1

Siberia Siberia North 67.3 0.71 0.053 475,200 35,500 0.5 Inferred Krige1

Siberia Black Range 20.4 0.75 0.102 152,400 20,800 0.5 Inferred Krige1

Siberia Ghost Rocks 47.3 0.66 0.042 312,900 19,900 0.5 Inferred Krige1

Sub-Total Siberia 246.8 0.68 0.047 1,667,700 115,000

Bulong Bulong 100.0 0.87 0.052 862,000 51,000 0.5 Indicated Krige1

Bulong Bulong 165.0 0.75 0.046 1,244,000 76,000 0.5 Inferred Krige1

Sub-Total Bulong 265.0 0.79 0.048 2,106,000 127,000

Kalpini Kalpini 76.4 0.73 0.044 559,200 33,500 0.5 Inferred Krige1

Rebecca Rebecca 16.2 0.94 0.050 152,300 8,100 0.5 Inferred End Area2

Sub-Total Hampton 92.6 0.77 0.045 711,500 41,600

Kalgoorlie Nickel 891.6 0.74 0.050 6,597,200 443,500Project Total

In-ground value 3/9/04, nickel 6,597,200 tonnes at US$12,505 per tonne, exchange rate A$/US$ = 0.70, gross value A$ 118 billion.cobalt 443,500 tonnes at US$53,243 per tonne, exchange rate A$/US$ = 0.70, gross value A$ 24 billion.Total value A$ 142 billion.

1 Mark Murphy Attribution StatementThe information in this report that relates to Mineral Resources or mineralisation is based on information compiled by MarkMurphy, who is a Member of the Australian Institute of Geoscientists. Mark Murphy has sufficient experience which is relevant to the style of mineralisation and type of deposit under considerationand to the activity which he is undertaking to qualify as a Competent Person as defined in the 1999 Edition of the “AustralasianCode for Reporting of Mineral Resources and Ore Reserves”. Mark Murphy consents to the inclusion in the report of thematters based on their information in the form and context in which it appears.

Mark Murphy is a full-time employee of Snowden Mining Industry Consultants.

2 Mathew Longworth Attribution StatementThe information in this report that relates to Mineral Resources or mineralisation is based on information compiled by NormanMathew Longworth, who is a Member of the Australasian Institute of Mining and Metallurgy. Norman Mathew Longworth has sufficient experience which is relevant to the style of mineralisation and type of deposit underconsideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 1999 Edition of the“Australasian Code for Reporting of Mineral Resources and Ore Reserves”. Norman Mathew Longworth consents to theinclusion in the report of the matters based on their information in the form and context in which it appears.

Norman Mathew Longworth is a full-time employee of Heron Resources Limited, being employed as Exploration Director.

9.0 Interest in Mining Tenements


KALGOORLIE NICKEL PROJECT Goongarrie ProspectGoongarrie West 68km NNW of Kalgoorlie E24/00124 196.00 A 100.0Goongarrie West 45km NW of Kalgoorlie E24/00130 64.40 A 100.0Twin Hills 150km N of Kalgoorlie E29/00490 42.00 A 100.0Ghost Rocks 147km NNW of Kalgoorlie E29/00517 196.00 A 100.0Four Corners Well 187km NW of Kalgoorlie E29/00527 30.80 A 100.0Goongarrie 76km NNW of Kalgoorlie E29/00536 154.00 A 100.0Simpson Bore 187km NW of Kalgoorlie E29/00544 19.60 A 100.0Comet Vale 90km NNW of Kalgoorlie E29/00553 145.60 A 100.0Ghost Rocks South 134km NNW of Kalgoorlie E29/00563 58.80 A 100.0Morleys 144km NW of Kalgoorlie E30/00247 61.60 A 100.0Mt Morely 150km NW of Kalgoorlie E30/00289 28.00 A 100.0Baden Powell 55km NNW of Kalgoorlie M24/00481 1.20 A 100.0Blue Dam 60km NNW of Kalgoorlie M24/00539 6.58 A 100.0Blue Dam 60km NNW of Kalgoorlie M24/00540 4.53 A 100.0Scotia Dam 67km NNW of Kalgoorlie M24/00541 5.12 G 100.0Baden Powell 55km NNW of Kalgoorlie M24/00587 3.24 A 100.0Blue Reef 60km NNW of Kalgoorlie M24/00697 2.00 A 100.0Blue Reef 60km NNW of Kalgoorlie M24/00719 1.28 A 100.0Scotia North 75km NNW of Kalgoorlie M24/00744 0.06 G 100.0Vettersberg 50km NNW of Kalgoorlie M24/00749 9.31 A 100.0Vettersberg 55km NNW of Kalgoorlie M24/00750 4.46 A 100.0Scotia East 68km NNW of Kalgoorlie M24/00798 0.25 G 100.0Scotia 62km NNE of Kalgoorlie M24/00843 4.71 A 100.0Scotia 62km NNE of Kalgoorlie M24/00898 7.10 A 100.0Goongarrie West 87km NNW of Kalgoorlie M29/00167 0.80 G 100.0Goongarrie West 86km NNW of Kalgoorlie M29/00202 5.94 G 100.0Goongarrie South 77km NNW of Kalgoorlie M29/00272 6.03 G 100.0Canegrass 74km NNW of Kalgoorlie M29/00278 8.03 G 100.0Goongarrie Lady 82km NNW of Kalgoorlie M29/00281 3.46 A 100.0Goongarrie South 75km NNW of Kalgoorlie M29/00283 5.90 G 100.0Goongarrie West 84km NNW of Kalgoorlie M29/00292 4.29 A 100.0Goongarrie 82km NNW of Kalgoorlie M29/00320 0.23 A 100.0Vettersberg 62km NNW of Kalgoorlie P24/03672 0.34 G 100.0Vettersberg 62km NNW of Kalgoorlie P24/03695 1.95 A 100.0Vettersberg 62km NNW of Kalgoorlie M24/00691 {1.95} A 100.0Vetters North 62km NNW of Kalgoorlie P24/03734 1.84 G 100.0Windanya 46km NNW of Kalgoorlie P24/03765 2.00 A 100.0Windanya 47km NNW of Kalgoorlie P24/03766 1.99 A 100.0Windanya 48km NNW of Kalgoorlie P24/03767 1.99 A 100.0Windanya 49km NNW of Kalgoorlie P24/03768 1.98 A 100.0Windanya 50km NNW of Kalgoorlie P24/03769 1.94 A 100.0Windanya 51km NNW of Kalgoorlie P24/03770 1.80 A 100.0Windanya 53km NNW of Kalgoorlie P24/03771 2.00 A 100.0Windanya 55km NNW of Kalgoorlie P24/03772 1.99 A 100.0Grafters South 64km NNW of Kalgoorlie P24/03777 1.26 G 100.0Grafters South 63km NNW of Kalgoorlie P24/03778 1.22 G 100.0Grafters South 62km NNW of Kalgoorlie P24/03779 2.00 G 100.0Grafters South 63km NNW of Kalgoorlie P24/03780 1.87 G 100.0Grafters South 65km NNW of Kalgoorlie P24/03781 1.13 G 100.0Windanya 55km NNW of Kalgoorlie P24/03790 1.16 G 100.0Windanya 55km NNW of Kalgoorlie P24/03791 1.35 G 100.0Windanya 55km NNW of Kalgoorlie P24/03792 1.68 G 100.0Windanya 55km NNW of Kalgoorlie P24/03797 1.86 G 100.0Scotia 63km NNW of Kalgoorlie P24/03804 1.32 G 100.0Canegrass 75km NNW of Kalgoorlie P24/03810 0.61 G 100.0Camel Hump 60km NNW of Kalgoorlie P24/03859 1.07 A 100.0Goongarrie 99km NNW of Kalgoorlie P29/01671 0.39 G 100.0Ghost Rocks 134km NNW of Kalgoorlie P29/01681 0.50 G 100.0Ghost Rocks 134km NNW of Kalgoorlie M29/00337 {0.50} A 100.0Ghost Rocks 134km NNW of Kalgoorlie P29/01682 0.75 G 100.0Comet Vale 90km NNW of Kalgoorlie P29/01684 0.06 G 100.0Comet Vale 90km NNW of Kalgoorlie M29/00338 {0.06} A 100.0Yunndaga East 110km NNW of Kalgoorlie P29/01827 1.40 A 100.0Yunndaga East 110km NNW of Kalgoorlie P29/01828 1.88 A 100.0Yunndaga East 110km NNW of Kalgoorlie P29/01829 1.42 A 100.0Yunndaga East 110km NNW of Kalgoorlie P29/01830 1.14 A 100.063 1,122.03

10 September 2004

Prospect Geographic Tenement Area Status InterestLocation Identifier km2 Held


KALGOORLIE NICKEL PROJECT Highway ProspectHighway 100km NNW of Kalgoorlie E29/00139 {59.97} G 51.0 1

Highway 100km NNW of Kalgoorlie M29/00214 9.50 A 51.0 1

1 9.501 Helix Resources NL has a 49% equity and is diluting in the current program and budget. Heron is manager of the joint venture.

KALGOORLIE NICKEL PROJECT Highway Extended ProspectHighway North 105km NNW of Kalgoorlie P29/01362 0.91 G 87.5 2

Highway North 105km NNW of Kalgoorlie P29/01363 0.90 G 87.5 2







Highway North 105km NNW of Kalgoorlie M29/00209 {9.05} A 87.5 2

8 9.052 Dalrymple Resources Limited has a 12.5% equity free carried to BFS. Heron is manager of the joint venture.

KALGOORLIE NICKEL PROJECT Comet Vale ProspectComet Vale 90km NNW of Kalgoorlie M29/00185 0.08 G 70.0 3

Comet Vale 90km NNW of Kalgoorlie M29/00186 1.20 A 70.0 3

2 1.283 Heron has a right to earn 70% from Reed Resources Limited.

KALGOORLIE NICKEL PROJECT Siberia ProspectGoongarrie West 73km NW of Kalgoorlie E24/00116 98.00 G 100.0Wongi Hill 78km NW of Kalgoorlie E29/00535 151.20 A 100.0Siberia North 78km NW of Kalgoorlie M24/00634 1.90 G 100.0Siberia 75km NW of Kalgoorlie M24/00658 3.75 A 100.0Siberia 75km NW of Kalgoorlie M24/00659 8.97 A 100.0Siberia 75km NW of Kalgoorlie M24/00661 1.17 A 100.0Siberia 75km NW of Kalgoorlie M24/00685 3.42 A 100.0Siberia 75km NW of Kalgoorlie M24/00686 2.15 A 100.0Black Range 63km NW of Kalgoorlie M24/00757 5.91 A 100.0Siberia 75km NW of Kalgoorlie P24/03144 0.99 G 100.0Siberia 75km NW of Kalgoorlie P24/03145 1.19 G 100.0Siberia 75km NW of Kalgoorlie P24/03146 0.88 G 100.0Siberia 75km NW of Kalgoorlie M24/00663 {3.06} A 100.0Siberia 75km NW of Kalgoorlie P24/03169 1.30 G 100.0Siberia 75km NW of Kalgoorlie M24/00664 {1.43} A 100.0Siberia Tank 75km NW of Kalgoorlie P24/03179 1.21 G 90.0 4

Siberia Tank 75km NW of Kalgoorlie P24/03180 2.00 G 90.0 4





Siberia Tank 75km NW of Kalgoorlie M24/00665 {8.25} A 90.0 4

Siberia 75km NW of Kalgoorlie P24/03189 1.64 G 100.0Siberia 75km NW of Kalgoorlie M24/00660 {1.74} A 100.0Siberia 75km NW of Kalgoorlie P24/03276 1.31 G 100.0Siberia 75km NW of Kalgoorlie M24/00690 {1.30} A 100.0Camperdown 78km NW of Kalgoorlie P24/03748 1.62 G 100.0Camperdown 78km NW of Kalgoorlie P24/03749 1.87 G 100.0Camperdown 78km NW of Kalgoorlie P24/03750 1.82 G 100.0Siberia North 71km NW of Kalgoorlie P24/03764 1.46 A 100.0Siberia North 78km NW of Kalgoorlie P24/03811 0.70 G 100.0Cave Hill 75km NW of Kalgoorlie P24/03857 1.50 A 100.0Si beria 75km NW of Kalgoorlie P24/03943 0.11 A 100.026 301.604 Impress Technologies has a 10% equity free carried to decision to mine.

KALGOORLIE NICKEL PROJECT SMC Siberia ProspectSiberia North 78km NW of Kalgoorlie E24/00092 8.40 G 100 of Ni onlySiberia North 78km NW of Kalgoorlie M24/00797 {8.06) A 100 of Ni onlySiberia North 78km NW of Kalgoorlie P24/03233 0.56 G 100 of Ni onlySiberia North 78km NW of Kalgoorlie M24/00683 {0.56} A 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03518 1.92 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie M24/00772 {1.98} A 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03540 1.21 G 100 of Ni only


Interest in Mining Tenements Continued


Siberia North 71km NW of Kalgoorlie P24/03541 1.10 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03542 0.90 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03543 1.21 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03544 1.19 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03545 0.86 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03546 1.69 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie M24/00847 {8.12} A 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03547 1.95 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03548 1.83 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03549 1.20 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03550 1.17 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03551 1.95 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie M24/00848 {7.89} A 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03552 1.95 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03553 0.88 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03554 1.63 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03555 1.11 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03556 0.49 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie M24/00846 {6.07} A 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03557 1.52 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03558 1.40 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03559 2.00 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03560 2.00 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie P24/03561 2.00 G 100 of Ni onlySiberia North 71km NW of Kalgoorlie M24/00845 {8.97} A 100 of Ni onlySiberia East 70km NW of Kalgoorlie P24/03827 1.32 A 100 of Ni onlySiberia East 70km NW of Kalgoorlie P24/03828 1.70 A 100 of Ni only27 45.14

Siberia Mining Corporation owns gold rights.

KALGOORLIE NICKEL PROJECT Kalpini Nickel ProspectBinti Binti South 74km NE of Kalgoorlie E27/00168 {47.6} G 100.0Binti Binti South 77km NE of Kalgoorlie M27/00408 8.90 A 100.0Binti Binti South 74km NE of Kalgoorlie M27/00409 5.94 A 100.0Binti Binti South 74km NE of Kalgoorlie M27/00410 8.90 A 100.0Kurnalpi Hill 88km NE of Kalgoorlie E28/01012 53.20 G 100.0Trans East 72km ESE of Kalgoorlie E28/01079 44.80 G 100.0Mooree Hill 75km NE of Kalgoorlie E28/01187 28.00 G 100.0Wellington North 63km NE of Kalgoorlie E28/01224 196.00 A 100.0Wellington North 68km NE of Kalgoorlie M27/00395 {2.61} A 100.0Yowie Hill 86km ENE of Kalgoorlie E28/01295 8.40 G 100.0Cowarna Downs 96km SE of Kalgoorlie E28/01310 67.20 A 100.0Karonie 101km ESE of Kalgoorlie E28/01325 196.00 A 100.0Karonie South 128km SE of Kalgoorlie E28/01341 148.40 G 100.0Jurangie Hill 88km NE of Kalgoorlie E28/01349 22.40 G 100.0Snake Gully Dam 114km NE Kalgoorlie E28/01350 5.60 A 100.0Goat Dam 104km ENE of Kalgoorlie E28/01351 14.00 A 100.0Acra East 75km NE of Kalgoorlie E28/01413 81.20 A 100.0Madoona Downs 119km SE of Kalgoorlie E28/01427 109.20 A 100.0Acra Southeast 70km NE of Kalgoorlie E28/01428 0.05 A 100.0Acra Chrysoprase 62km NE of Kalgoorlie M28/00127 0.32 G 100.0Acra North 65km NE of Kalgoorlie M28/00199 9.76 G 100.0Acra North 65km NE of Kalgoorlie M28/00201 9.63 G 100.0Betsy Bore 66km NE of Kalgoorlie M28/00205 8.50 G 100.0Binti Binti 81km NE of Kalgoorlie M31/00297 8.90 A 100.0Binti Binti 80km NE of Kalgoorlie M31/00305 5.93 A 100.0Wellington North 68km NE of Kalgoorlie P27/01562 0.47 G 100.0Acra North 61km NE of Kalgoorlie P28/00983 0.36 A 100.0Karonie West 102km ESE of Kalgoorlie P28/00990 1.20 A 100.0Acra East 65km NE of Kalgoorlie P28/01000 0.29 A 100.0Acra East 65km NE of Kalgoorlie P28/01001 0.98 A 100.0Kurnalpi West 70km NE of Kalgoorlie P28/01004 0.87 A 100.0Kurnalpi West 70km NE of Kalgoorlie P28/01005 1.58 A 100.0Acra Southeast 70km NE of Kalgoorlie P28/01006 1.17 A 100.031 1,048.16KALGOORLIE NICKEL PROJECT Lake Rebecca ProspectWallbrook Hill 118km NE of Kalgoorlie E31/00586 86.80 G 100 of Ni onlyLake Rebecca 114km NE of Kalgoorlie M31/00318 4.39 A 100.02 91.19



Prospect Geographic Tenement Area Status InterestLocation Identifier km2 HeldNORTH KALGOORLIE NICKEL PROJECT Frances Lesley ProspectCoolgardie West 8km W of Coolgardie E15/00840 47.60 A 100.0Dunnsville 61km NW of Kalgoorlie E16/00181 2.80 G 100.0Carbine 66km NW of Kalgoorlie E16/00195 22.40 G 100.0Dunnsville 62km NW of Kalgoorlie E16/00275 14.00 G 100.0Carbine North 62km NW of Kalgoorlie E16/00276 25.20 A 100 of Ni onlyChadwin 88km NW of Kalgoorlie E16/00277 16.80 A 100 of Ni onlyFrances Lesley 90km NW of Kalgoorlie E16/00278 2.80 A 100 of Ni onlyDunnsville 62km NW of Kalgoorlie E16/00292 22.40 A 100.0Two Gum Dam 60km NW of Kalgoorlie E16/00295 5.60 G 100.0Tindals 3.5km E of Kalgoorlie M15/01465 0.08 A 100.0Gibraltar 20km W of Kalgoorlie P15/04678 0.10 A 100.0Tindals 3.5km E of Coolgardie P15/04686 0.08 A 100.0Saddle Dam 94km NW of Kalgoorlie P16/02123 1.75 G 100.0Saddle Dam 94km NW of Kalgoorlie P16/02124 1.86 G 100.0Saddle Dam 94km NW of Kalgoorlie P16/02125 1.30 G 100.0Chadwin West 79km NW of Kalgoorlie P16/02249 1.84 A 100.0Chadwin East 76km NW of Kalgoorlie P16/02250 1.91 A 100.0Saunders Find North 120km NW of Kalgoorlie P30/00990 0.04 A 100.0Saunders Find East 120km NW of Kalgoorlie P30/00991 0.22 A 100.019 168.77NORTH KALGOORLIE NICKEL PROJECT Frances Lesley Joint Venture Frances Lesley 95km NW of Kalgoorlie E16/00174 2.80 G 100 of Ni onlyFrances Lesley 100km NW of Kalgoorlie E16/00192 86.80 G 100 of Ni onlyFrances Lesley 88km NW of Kalgoorlie E16/00239 36.40 A 100 of Ni onlyFrances Lesley 98km NW of Kalgoorlie M16/00385 2.00 A 100 of Ni only4 128.00LAVERTON PROJECT Laverton Nickel ProspectMineral Patch Hill 75km SE of Laverton E38/00931 98.00 G 100.0Corktree Well W 36km N of Laverton E38/00948 30.80 G 100.0Mount Varden 43km N of Laverton E38/01695 89.60 A 100.0Meralia 51km SE of Laverton E38/01696 131.60 A 100.0Laverton South 43km S of Laverton E38/01726 2.80 A 100.0Burtville 41km S of Laverton E38/01727 22.40 A 100.0Erlistoun-Kurrajong Well 50km N of Laverton E38/01742 30.80 A 100.0Perseverance Well 53km WNW of Laverton E39/00738 19.60 G 100.0Jasper Hills 120km SE of Laverton E39/00907 25.20 A 100.0Murrin Murrin 60km WSW of Laverton P39/04228 1.21 G 100.0Macey Hill 44km ESE of Leonora P39/04348 0.97 A 100.011 452.98

HERON SUBTOTAL 194 3,379.28

SOUTHERN CROSS PROJECT Bungalbin Gold-Iron Ore ProspectMt Dimer 112km NNE of Southern Cross E77/00946 170.80 G 100.0 5

Timberfield 123km NNE of Southern Cross E77/00947 89.60 A 100.0 5

Yeeding Hill 108km N of Southern Cross E77/01071 22.40 A 100.0 5

Bungalbin Hill 97km NNE of Southern Cross E77/01076 123.20 G 100.0 5

Bungalbin Hill 109km NNE of Southern Cross E77/01077 28.00 G 100.0 5

Mt Jackson 103km NNE of Southern Cross E77/01097 134.40 A 100.0 5

Mt Jackson 106km NNE of Southern Cross E77/01099 2.80 A 100.0 5

Mt Dimer 105km NE of Southern Cross E77/01115 196.00 A 100.0 5

Mt Dimer 100km NNE of Southern Cross E77/01129 14.00 A 100.0 5

Dimer South 100km NNE of Southern Cross E77/01130 25.20 G 100.0 5

Mt Jackson 107km NNE of Southern Cross P77/03371 0.21 A 100.0 5

Mt Jackson 106km NNE of Southern Cross P77/03372 0.46 A 100.0 5

12 807.075 Agreement to sell non-Iron Ore rights to Scimitar Resources Limited.

SOUTHERN CROSS PROJECT Mount Elvire ProspectAuriferous Island 242km NNE of Southern Cross E29/00503 16.80 G 100.0 6

Lake Barlee 219km NNE of Southern Cross E30/00267 78.40 G 100.0 6

Elvire Rock 200km NNE of Southern Cross E30/00270 196.00 A 100.0 6

3 291.206 Agreement to sell all mineral rights to Scimitar Resources Limited.




BULONG PROJECT Yindarlgooda ProspectScotia East 44km NNW of Kalgoorlie E24/00133 140.00 A 100.0Mulgarrie 41km NNE of Kalgoorlie E24/00134 28.00 A 100.0Yindarlgooda 46km E of Kalgoorlie E25/00222 58.80 A 100.0Pipeclay Peaks 66km ESE of Kalgoorlie E25/00241 11.20 G 100.0Lake Yindarlgooda 54km ENE of Kalgoorlie E25/00271 14.00 G 100.0Lake Yindarlgooda 58km ENE of Kalgoorlie E25/00272 16.80 A 100.0Queen Lapage 45km ENE of Kalgoorlie E25/00273 184.80 A 100.0Seabrook Hills 73km SE of Kalgoorlie E25/00293 2.80 A 100.0Trans Find 55km ESE of Kalgoorlie E25/00298 190.40 A 100.0Trans Find East 65km E of Kalgoorlie E25/00303 28.00 A 100.0Reef Dam 60km NE of Kalgoorlie E25/00305 22.40 A 100.0Mt Mcleay 50km NE of Kalgoorlie E27/00243 16.80 A 100.0Mayday 53km NE of Kalgoorlie E27/00296 5.60 A 100.0Gindalbie 50km NE of Kalgoorlie E27/00305 47.60 A 100.0Mulgarrie 41km NNE of Kalgoorlie E27/00306 36.40 A 100.0Gindalbie 60km NE of Kalgoorlie E27/00322 11.20 A 100.0TransFind East 70km East of Kalgoorlie E28/01501 28.00 A 100.0Mac's Dam 100km E of Kalgoorlie E28/01503 11.20 A 100.0Kalpini West 50km NE of Kalgoorlie M27/00371 3.37 A 100.0Gindalbie 45km NE of Kalgoorlie M27/00383 3.57 A 100.0Garibaldi 48km NNE of Kalgoorlie M27/00386 0.29 A 100.0Mulgarrie 41km NNE of Kalgoorlie M27/00419 6.11 A 100.0Kanowna Racetrack 17km NE of Kalgoorlie M27/00430 10.00 A 100.0Mt Magnetic 37km ESE of Kalgoorlie P25/01720 1.20 A 100.0Mt Magnetic 37km ESE of Kalgoorlie P25/01721 1.20 A 100.0Mt Magnetic 37km ESE of Kalgoorlie P25/01722 1.04 A 100.0Queen Lapage 51km ENE of Kalgoorlie P25/01777 0.19 G 100.0Trans Find South 1 62km E of Kalgoorlie P25/01814 1.78 A 100.0Trans Find South 2 62km E of Kalgoorlie P25/01815 1.78 A 100.0Trans Find South 3 62km E of Kalgoorlie P25/01817 1.69 A 100.0Trans Find South 4 62km E of Kalgoorlie P25/01818 1.73 A 100.0Kalgoorlie West 5km W of Kalgoorlie P26/03283 0.87 A 100.0Kalgoorlie West 5km W of Kalgoorlie P26/03284 1.83 A 100.0Kalgoorlie West 5km W of Kalgoorlie P26/03285 1.99 A 100.0Garibaldi 48km NE of Kalgoorlie P27/01491 1.34 G 100.0Garibaldi 48km NE of Kalgoorlie M27/00432 {1.34} A 100.0Eldona Dam North 40km NE of Kalgoorlie P27/01517 0.72 G 100.0Our Swamp Dam 43km ENE of Kalgoorlie P27/01575 1.41 G 100.0Our Swamp Dam 44km ENE of Kalgoorlie P27/01576 1.92 G 100.0Kanowna Racetrack 17km NE of Kalgoorlie P27/01649 1.35 A 100.0Kanowna Racetrack 17km NE of Kalgoorlie P27/01650 2.00 A 100.0Kanowna Racetrack 17km NE of Kalgoorlie P27/01651 1.99 A 100.0Kanowna Racetrack 17km NE of Kalgoorlie P27/01652 1.36 A 100.0Kanowna Racetrack 17km NE of Kalgoorlie P27/01653 1.35 A 100.0Kanowna Racetrack 17km NE of Kalgoorlie P27/01654 2.00 A 100.0Garibaldi 46km NE of Kalgoorlie P27/01655 0.10 A 100.0Forestry Dam 40km NE of Kalgoorlie P27/01661 14.20 A 100.047 922.36BULONG PROJECT Bulong South ProspectWidgiemooltha 82km S of Kalgoorlie E15/00856 2.80 A 100.0Eundynie 121km S of Kalgoorlie E15/00861 50.40 A 100.0Clinker Hill 32km SE of Kalgoorlie E25/00250 58.80 A 100.0Mt Monger 50km SE of Kalgoorlie E25/00307 58.80 A 100.0Cutters Luck 32km SSE of Kalgoorlie E26/00110 67.20 A 100.0Cutters Luck 48km SSE of Kalgoorlie M26/00667 2.27 A 100.0Eundynie 121km S of Kalgoorlie P15/04692 1.20 A 100.0Eundynie 121km S of Kalgoorlie P15/04693 1.20 A 100.0Eundynie 121km S of Kalgoorlie P15/04694 1.20 A 100.0Eundynie 121km S of Kalgoorlie P15/04695 1.20 A 100.0Wombola North 42km SE of Kalgoorlie P25/01735 1.18 A 100.0Wombola North 42km SE of Kalgoorlie P25/01736 1.14 G 100.0Cutters Luck 29km SSE of Kalgoorlie P26/02907 1.60 A 100.0Cutters Luck 27km SSE of Kalgoorlie P26/02908 2.00 A 100.0Cutters Luck 44km SSE of Kalgoorlie P26/02909 1.66 A 100.0Wombola North 44km SE of Kalgoorlie P26/03090 1.41 G 100.0Wombola North 44km SE of Kalgoorlie P26/03091 1.08 G 100.0Abattoir South 30km S of Kalgoorlie P26/03286 1.91 A 100.0Abattoir North 10km N of Kalgoorlie P26/03292 1.96 A 100.0Abattoir North 10km N of Kalgoorlie P26/03293 1.96 A 100.020 260.97


Prospect Geographic Tenement Area Status InterestLocation Identifier km2 HeldKEITH KILKENNY PROJECT Yarri ProspectYindi 125km ENE of Kalgoorlie E28/01481 16.80 A 100.0Yarri East 139km NW of Kalgoorlie E31/00312 68.41 G 100.0Deenya Hill 130km NE of Kalgoorlie E31/00582 8.40 A 100.0Jump Up Dam 129km NE of Kalgoorlie E31/00664 22.40 A 100.0Webb Find 136km NE of Kalgoorlie E31/00670 14.00 A 100.0Jungle Dam 143km NE of Kalgoorlie E31/00675 2.80 A 100.0Murphy Well 177km NNE of Kalgoorlie E39/00831 33.60 A 100.0Mt Percy 163km NNE of Kalgoorlie E39/00883 196.00 A 100.0Butcher Well North 191km NE of Kalgoorlie E39/01100 5.60 A 100.0Yilgangi Castle 129km NE of Kalgoorlie M31/00173 0.34 A 100.0Webb Find 153km NE of Kalgoorlie M31/00281 1.20 A 100.0Yilgangi North 131km NE of Kalgoorlie M31/00355 5.19 A 100.0Jump Up Dam 129km NE of Kalgoorlie P31/01669 1.21 G 100.013 375.95KEITH KILKENNY PROJECT Mount Catherine ProspectClaypan Dam 158km NNE of Kalgoorlie E31/00347 2.80 G 100.0Claypan Well 141km NNE of Kalgoorlie E31/00446 8.40 G 100.0McAuliffe Well 150km NNE of Kalgoorlie E31/00518 47.60 G 100.0Mt Catherine 141km NNE of Kalgoorlie E31/00529 2.80 A 100.0Westward Ho Well 140km NNE of Kalgoorlie E31/00576 30.80 A 100.0Mt Catherine 145km NNE of Kalgoorlie E31/00628 28.00 A 100.0Aubils 166km NNE of Kalgoorlie E39/00957 95.20 A 100.0Yarri 137km NE of Kalgoorlie M31/00141 0.20 A 100.0Mt Catherine 142km NNE of Kalgoorlie M31/00249 0.58 A 100.0Boyce Creek 142km NNE of Kalgoorlie M31/00278 0.70 A 100.0Boyce Creek 142km NNE of Kalgoorlie M31/00296 5.80 A 100.0Boyce Creek 142km NNE of Kalgoorlie M31/00300 1.11 A 100.0Banjo Well 141km NE of Kalgoorlie M31/00310 4.70 A 100.0Yarri 136km NE of Kalgoorlie M31/00314 4.40 A 100.0Yerilla 146km NNE of Kalgoorlie M31/00317 9.28 A 100.0Aubils 170km NNE of Kalgoorlie M39/00656 1.48 A 100.0Aubils 168km NNE of Kalgoorlie M39/00657 4.44 A 100.0Aubils 166km NNE of Kalgoorlie M39/00658 1.48 A 100.0Aubils 166km NNE of Kalgoorlie M39/00659 1.48 A 100.0Aubils 170km NNE of Kalgoorlie M39/00660 1.48 A 100.0Aubils 169km NNE of Kalgoorlie M39/00662 2.96 A 100.0Nils Desperandum 135km NE of Kalgoorlie P31/01680 0.05 G 100.022 255.73KEITH KILKENNY PROJECT Kookynie ProspectYerilla 81km SE of Leonora E31/00668 14.00 A 100.0Melita North 20km SE of Leonora E37/00790 39.20 A 100.0Glenorn 30km SSE of Leonora E39/01069 8.40 A 100.0Glenorn 30km SSE of Leonora E39/01070 11.20 A 100.0Mt Kildare 52km SE of Leonora E39/01101 61.60 A 100.0Niagara 57km S of Leonora E40/00195 67.20 A 100.0Two Dees 57km S of Leonora E40/00199 67.20 A 100.0Niagara 57km S of Leonora E40/00200 8.40 A 100.0Tampa 30km SSE of Leonora E40/00202 39.20 A 100.0Desdemona 30km SSE of Leonora E40/00204 19.60 A 100.0Mt Melita 30km SE of Leonora E40/00206 44.80 A 100.0Glenorn Station S 59km SW of Leonora M31/00345 9.86 A 100.0Glenorn Station S 59km SW of Leonora M31/00346 9.81 A 100.0Glenorn Station S 59km SW of Leonora M31/00347 9.81 A 100.0Glenorn Station S 59km SW of Leonora M31/00348 9.36 A 100.0Malcolm East 22km ESE of Leonora M37/00727 4.43 A 100.0Malcolm East 21km ESE of Leonora M37/00728 5.73 A 100.0Malcolm East 23km ESE of Leonora M37/00729 9.74 A 100.0Malcolm East 22km ESE of Leonora M37/00730 8.00 A 100.0Alice Gold Mine 17km ESE of Leonora M37/00953 0.10 A 100.0Leonora East 7.5km East of Leonora P37/06705 1.96 A 100.0Redcastle 60km E of Leonora P39/04341 1.80 A 100.0Redcastle 60km E of Leonora P39/04342 1.88 A 100.023 453.28KEITH KILKENNY PROJECT Wildara North ProspectMount McClure 135km NNW of Leonora E36/00387 16.80 G 100.0Table Hill 102km NNW of Leonora E36/00483 22.40 G 100.0Mount McClure 125km NNW of Leonora E36/00492 42.00 A 100.0McAuley E36/00520 5.60 A 100.0



Prospect Geographic Tenement Area Status InterestLocation Identifier km2 HeldLake Darlot 1 103km NNW of Leonora E37/00753 134.40 A 100.0Darlot North 125km N of Leonora E37/00782 8.40 A 100.0Lake Darlot 2 103km NNW of Leonora E37/00791 22.40 A 100.0Barwidgee 220km N of Leonora E53/01119 11.20 A 100.08 263.20KIMBERLEY PROJECT Kimberley Plateau ProspectRobinson River 100km NE of Derby E04/01387 196.00 A 100.0Alice Hill 40km NE of Halls Creek E80/02890 16.80 G 100.0Drysdale River 262km NW of Kununurra E80/02951 196.00 A 100.0Kalumburu 267km NW of Kununurra E80/02952 196.00 A 100.0King Edward River 266km NW of Kununurra E80/02953 196.00 A 100.0Mt Ramsay 208km SW of Kununurra E80/03145 196.00 A 100.0Bandicoot Range 5km W of Kununarra E80/03367 151.20 A 100.07 1,148.00PILBARA PROJECT Bangemall ProspectOnslow 20km WSW of Onslow E08/01458 196.00 A 100.0Onslow 20km WSW of Onslow E08/01465 196.00 A 100.0Nuninga Spring 120km SSW of Newman E52/01660 196.00 A 100.03 588.00MUSGRAVE PROJECT Warburton Copper ProspectWarburton 710km NE of Kalgoorlie E69/01931 196.00 A 100.0Pussy Cat Hill 730km NE of Kalgoorlie E69/01932 179.20 A 100.0Ainslie Gorge 720km NE of Kalgoorlie E69/01933 196.00 A 100.0Mt Talbot 720km NE of Kalgoorlie E69/01934 196.00 A 100.0Warburton North 740km NE of Kalgoorlie E69/01935 196.00 A 100.05 963.20SOUTHERN CROSS PROJECT Bungalbin Iron Ore Option ProspectBungalbin 102km NNE of Southern Cross E77/00842 112.58 G 100.0 7

Mount Jackson 106km NNE of Southern Cross E77/00896 19.60 G 100.0 7

Mt Jackson 105km NNE of Southern Cross E77/00919 53.20 G 100.0 7

3 185.387 Portman Mining Limited right to acquire Iron Ore Rights through spending $250,000 and providing Heron with a production

royalty. Heron owns other mineral rights.

SOUTHERN CROSS PROJECT Perrinvale Joint Venture ProspectRanford Peak 231km NW of Kalgoorlie E29/00434 50.40 G 100.0 8

Mount Marmion 208km NW of Kalgoorlie E29/00435 47.60 G 100.0 8

Metzkies Find 208km NW of Kalgoorlie E29/00455 156.80 A 100.0 8

Metzke Find 208km NW of Kalgoorlie E29/00564 117.60 A 100.0 8

Lawrence Find 160km NW of Kalgoorlie E30/00203 208.52 A 100.0 8

Lawrence Find North 188km NW of Kalgoorlie E30/00226 98.00 G 100.0 8

Lawrence Find 176km NW of Kalgoorlie E30/00228 30.80 G 100.0 8

Illaara 196km NW of Kalgoorlie E30/00254 126.00 G 100.0 8

8 835.728 Mt Burgess Mining NL right to earn 70% through spending $500,000. Heron owns all Nickel Rights.

BULONG PROJECT Gidgi Joint Venture ProspectGidji Roaster 14km N of Kalgoorlie E24/00111 64.40 A 100.0 9

Five Mill Hill 6km NNE of Kalgoorlie M26/00736 {7.04} A 100.0 9

Kurramia 8km NE of Kalgoorlie M26/00780 1.60 G 100.0 9

Kurramia South 10km NE of Kalgoorlie P26/02977 0.89 G 100.0 9

Kurramia 10km NE of Kalgoorlie P26/02979 0.18 G 100.0 9

Kurramia 10km NE of Kalgoorlie P26/02994 1.40 G 100.0 9

Five Mill Hill 7km NNE of Kalgoorlie P26/03112 1.55 A 100.0 9




9 75.539 Jackson Gold Limited right to earn 70% through spending $300,000. Heron owns all Nickel Rights.

LAVERTON PROJECT King of Creation Joint Venture ProspectDoris Well 60km N of Laverton E38/01368 22.40 A 100.0 10

King of Creation 53km N of Laverton E38/01375 2.80 A 100.0 10

2 25.2010 Bronzewing Gold NL right to earn 70% through spending $250,000.

REGENT SUBTOTAL 185 6,643.72



BALLADONIA ENERGY NLBREMER EUCLA PROJECT Balladonia-Norseman Oil Shale Heartbreak 9 46km NNE of Norseman E15/00656 61.60 G 100.0Heartbreak 1 76km E of Norseman E63/00707 196.00 A 100.0Heartbreak 2 70km NE of Norseman E63/00708 196.00 A 100.0Heartbreak 82km E of Norseman E63/00711 196.00 A 100.0Geordie Rock 87km SSW of Norseman E63/00720 112.00 A 100.0Lake Dundas 34km SSW of Norseman E63/00736 64.40 A 100.0Woodline Hills 77km NE of Norseman E63/00795 162.40 A 100.0Yardina SE 70km NE of Norseman E63/00944 196.00 A 100.0Charlina Rocks 153km ESE of Norseman E69/01473 196.00 A 100.0Balladonia 168km ESE of Norseman E69/01474 196.00 A 100.0Boingaring Rocks 156km ESE of Norseman E69/01475 196.00 A 100.0Afghan Rock 185km ESE of Norseman E69/01476 196.00 A 100.0Balladonia West 153km ESE of Norseman E69/01477 196.00 A 100.0Charlina South 147km ESE of Norseman E69/01478 196.00 A 100.0Charlina West 143km ESE of Norseman E69/01479 196.00 A 100.0Curnadinia Rock 163km ESE of Norseman E69/01480 196.00 A 100.0Yalodinya Rock 159km ESE of Norseman E69/01481 134.40 A 100.0Charlina East 162km ESE of Norseman E69/01482 81.20 A 100.0Chidalinya Rock 193km ESE of Norseman E69/01492 106.40 A 100.0Jerandilla 190km ESE of Norseman E69/01493 196.00 A 100.0Eclipse Hill 189km SE of Norseman E69/01495 196.00 A 100.0Bonnie Hill 178km SE of Norseman E69/01499 196.00 A 100.0Florabell Hill 190km SE of Norseman E69/01500 196.00 A 100.0Balladonia 184km E of Norseman E69/01717 196.00 A 100.0Balladonia Central 169km ESE of Norseman E69/01742 179.20 A 100.0Balladonia Central 166km ESE of Norseman E69/01743 168.00 A 100.0Lort River 110km SSW of Norseman E74/00278 151.20 A 100.0Mount Deans 12km SSW of Norseman M63/00417 9.87 A 100.0Mount Deans 15km SSW of Norseman M63/00418 9.26 A 100.029 4,571.93

BALLADONIA SUBTOTAL 29 4,571.93

AVOCA RESOURCES LIMITED TENEMENTS; HERON RETAIN NICKEL RIGHTSKALGOORLIE PROJECTLake Carnage 70km NW of Kalgoorlie E24/00120 25.20 G 100 of NiBlister Dam 73km NW of Kalgoorlie P16/02149 1.40 G 100 of NiBlister Dam 73km NW of Kalgoorlie P16/02150 1.92 G 100 of NiBlister Dam 73km NW of Kalgoorlie P16/02151 1.77 G 100 of NiBlister Dam 76km NW of Kalgoorlie P24/03773 1.70 G 100 of NiBlister Dam 76km NW of Kalgoorlie P24/03774 1.92 G 100 of NiKanowna 17km ENE of Kalgoorlie P27/01550 1.99 A 100 of NiKanowna 16km ENE of Kalgoorlie P27/01551 1.81 A 100 of NiKanowna 15km ENE of Kalgoorlie P27/01552 1.62 A 100 of NiKanowna 16km ENE of Kalgoorlie P27/01553 1.95 A 100 of NiKanowna 16km ENE of Kalgoorlie P27/01554 1.97 A 100 of NiKanowna 17km ENE of Kalgoorlie P27/01555 1.98 A 100 of NiKanowna 19km ENE of Kalgoorlie P27/01556 1.99 A 100 of NiKanowna 16km ENE of Kalgoorlie P27/01557 1.99 A 100 of NiKanowna 15km ENE of Kalgoorlie P27/01558 1.99 A 100 of NiKanowna 16km ENE of Kalgoorlie P27/01559 1.99 A 100 of NiKanowna 15km ENE of Kalgoorlie P27/01560 1.99 A 100 of NiKanowna 14km ENE of Kalgoorlie P27/01561 1.99 A 100 of NiKurnalpi East 85km NE of Kalgoorlie E28/00886 53.20 G 100 of NiTap Rock Hill 88km NE of Kalgoorlie E28/00927 156.80 G 100 of NiJumungie Hill 82km NE of Kalgoorlie E28/01013 8.40 G 100 of NiKurnalpi Hill 88km NE of Kalgoorlie E28/01108 92.40 G 100 of NiHampton 90km NE of Kalgoorlie E28/01166 5.60 G 100 of NiLake Sloan 96km SE of Kalgoorlie E25/00248 196.00 G 100 of NiHampton 71km E of Kalgoorlie E28/01117 33.60 G 100 of NiHampton 72km ENE of Kalgoorlie E28/01118 5.60 A 100 of NiSawmill Dam 77km ESE of Kalgoorlie E28/01129 19.60 G 100 of NiRound Hill 106km SE of Kalgoorlie E28/01148 196.00 G 100 of NiPineapple Dam 66km E of Kalgoorlie E28/01188 11.20 A 100 of NiLake Yindarlgooda 59km ENE of Kalgoorlie E28/01192 8.40 G 100 of NiAvoca Downs 83km ESE of Kalgoorlie E28/01199 165.20 G 100 of NiAdelaide Dams 78km E of Kalgoorlie E28/01309 47.60 G 100 of NiLow Trap Hills 81km E of Kalgoorlie E28/01225 39.20 G 100 of Ni




Elsie Dam 114km NE Kalgoorlie E28/01226 5.60 G 100 of NiSardine Dam 119km NE Kalgoorlie E28/01227 11.20 G 100 of NiGlenorn Station S 59km SW of Leonora E31/00410 67.20 G 100 of NiLake Rebecca 116km NW of Kalgoorlie E31/00465 2.80 G 100 of NiLake Rebecca 118km NW of Kalgoorlie E31/00479 11.20 G 100 of NiMt Boyce 134km NW of Kalgoorlie E31/00524 176.40 G 100 of NiMt Boyce 134km NW of Kalgoorlie E31/00618 33.60 A 100 of NiYabboo Hill East 155km NW of Kalgoorlie E39/00795 5.60 G 100 of NiEuro 10km S of Laverton M38/00404 2.88 G 100 of NiEuro 10km S of Laverton M38/00405 1.77 G 100 of NiMt Zephyr 79km NE of Leonora E39/00538 50.40 G 100 of NiMt Zephyr 72km NE of Leonora E39/00940 58.80 A 100 of NiJump Up Dam South 130km NE of Kalgoorlie P31/01697 0.60 A 100 of NiJump Up Dam North 130km NE of Kalgoorlie P31/01698 0.70 A 100 of Ni47 1,524.72

HERON NICKEL RIGHTS 47 1,524.72

PIONEER NICKEL LIMITED TENEMENTS; HERON RETAIN NICKEL LATERITE RIGHTSKALGOORLIE PROJECT Sampson 66km NE of Kalgoorlie E27/00273 176.40 A 100 Ni Lat Kalpini 61km NE of Kalgoorlie E27/00278 114.80 A 100 Ni LatAcra 61km NE of Kalgoorlie E28/01223 109.20 G 100 Ni LatJubilee 60km NE of Kalgoorlie P28/00972 1.20 G 100 Ni LatJubilee 60km NE of Kalgoorlie P28/00991 1.29 G 100 Ni LatBoomerang Lake 103km NE of Kalgoorlie E31/00519 156.80 G 100 Ni LatMt Ballona 87km NE of Kalgoorlie E31/00575 67.20 A 100 Ni LatJungle Hill 140km NE of Kalgoorlie E31/00579 81.20 G 100 Ni LatBoomerang North 122km NE of Kalgoorlie E31/00581 78.40 A 100 Ni Lat9 786.49

NICKEL LATERITE RIGHTS 9 786.49

HERON TOTAL 464 17,444.19

Glossary


"Alteration" means rock-forming minerals which have been chemically changed."Ankerite" means Carbonate of Calcium, Iron, Magnesium and Manganese."Anomaly" means a value higher or lower than expected, which outlines a zone of potential exploration interest but not necessarily ofcommercial significance."Antigorite" means a platy green Magnesium Silicate of the serpentine group, derived from the weathering of olivine. At Goongarrie, antigoriteis diagnostic in the lowermost ore profile."Au" means gold."Autoclave" means a reaction vessel in which ore is mixed with high temperature and pressure solutions to enable metals to enter intosolution as a precursor to extraction in metallic form."Breccia" means a broken fragmental rock, usually related to fault zones. Due to the open spaces within a breccia, such rocks are afavourable site for groundwater movement."Chlorite" means a platy green Magnesium Aluminosilicate resembling the mica group, derived from the weathering of antigorite. AtGoongarrie, chlorite is diagnostic in the lower ore profile."Co" means cobalt."Cu" means copper."Dunite" means peridotite where the mafic mineral is olivine."Duricrust" means a hard weathering crust which is typically ferruginous and aluminous."Feasibility Study" means:

A "Pre-feasibility Study" (PFS) s an engineering and cost study of a mining operation, processing plant and plant infrastructure, whichfor the Kalgoorlie Nickel Project includes a flow sheet that covers ore beneficiation, high pressure acid leach, CCD washing, solutionpurification and cobalt and nickel extraction as an intermediate precipitate. Included in the cost estimates will be infrastructure, tailingsdisposal, power supply, and owner's costs. The plant design may change as a result of testwork analysis, optimisation studies andengineering improvements performed during execution of the Pre-feasibility Study. Operating and capital cost estimates are to anaccuracy of ± 25%. In the case of the Kalgoorlie Nickel Project, the drill density would be such that the resource status is IndicatedMineral Resource.A "Bankable Feasibility Study" (BFS) is an engineering and cost study addressing the same issues as a "Pre-feasibility Study", but insuch detail that it contains sufficient information to satisfy a bank, that it can rely on cash flows and earnings from the project to repayany project loan, and that the assets of the project are suitable as collateral for the loan. The bank must feel comfortable that on aworst case scenario the loan will be repaid. Engineering design concepts will have largely been finalised, and operating and capitalcost estimates are to an accuracy of ± 15%. In the case of the Kalgoorlie Nickel Project, the drill density would be such that theresource status is Proved Ore Reserve for the first five years of production.

"Felsic" means light coloured feldspar and silica rich igneous rock."Gabbro" means a dark coloured mafic intrusive rock consisting dominantly of feldspar and pyroxene."Geochemical Survey" means the systematic study of the variation of chemical elements in rocks or soils."Gibbsite" means Aluminium Hydroxide, a principal component of bauxite. At Goongarrie, gibbsite is diagnostic in the uppermost ore profile."Goethite" means Iron Hydroxide, being a yellow, red and brown ochre. At Goongarrie, goethite occurs throughout the total upper ore profile."Goethite Ore" means nickel-cobalt laterite mineralisation consisting mainly of the hydrated iron oxide mineral goethite, with nickel and cobaltoccurring in association with iron and manganese oxide minerals, and total Fe2O3 exceeding 40%. Goethite is an optimal ore type."Gossan" means the weathered oxidised surface expression of a sulphide-bearing deposit, and consists predominantly of hydrated ironoxides with distinctive boxwork cellular textures."g/t" means grams per tonne."km" means kilometres."km2" means square kilometres.“KNP” means Kalgoorlie Nickel Project, a nickel laterite project located through an arc 40-140km north-north west to east of Kalgoorlie."Komatiite" means an ultramafic rock with high magnesium content extruded from a volcano. Textural variations include:

"Orthocumulate" means a rock which exhibits a high proportion of crystallised trapped interstitial ("intercumulus") liquid. The surrounded("cumulus") olivine crystals are subhedral to euhedral in form. This komatiite type is regarded as prospective for nickel sulphidemineralisation (e.g. Silver Swan nickel mine)."Mesocumulate" means a rock with cumulus crystals exhibiting extensive mutual boundary contact, but retaining some recognisableinterstitial material. This komatiite type is regarded as prospective for nickel laterite mineralisation."Adcumulate" means a rock with little or no intercumulus material and characterised dominantly by anhedral crystals. This komatiitetype is prospective for nickel laterite mineralisation.

“LFG” means leach feed grade, the grade of ore being supplied to the processing plant following wet screening of dry mined ore."m" means metres."Maghemite" means a strongly magnetic form of hematite, an Iron Oxide.“Manganiferous Ore” means nickel-cobalt laterite mineralisation consisting mainly of the hydrated iron oxide mineral goethite and gibbsite,with nickel and cobalt occurring in association with iron and manganese oxide minerals."Mineralisation" means, in economic geology, the introduction of valuable elements into a rock body."Ni" means nickel."Nickel Laterite" means nickel and cobalt occurring as an oxidised hydrated iron oxide and ferruginous clay assemblage overlying weatheredultramafic rock."Nickel Sulphide" means nickel and copper occurring as an un-oxidised sulphide assemblage associated with fresh ultramafic rock."Norite" means a form of gabbro where hypersthene is the mafic material."Oil Shale" means a sedimentary rock containing low grade lignite coal and a hydrocarbon material termed kerogen.

Glossary Continued


"Olivine" means a magnesium-iron silicate mineral, often occurring in rocks prospective for nickel."Option" means a Share option to subscribe for fully paid ordinary Shares in Heron."PAL" means Pressure Acid Leach, a Nickel Laterite processing technique in which ore is dissolved in hot high pressure sulphuric acidcontained within a titanium-lined reaction vessel termed an autoclave, to release nickel and cobalt into solution, for precipitation as anintermediate product or electroplating as a pure metal."Pedogenic" means pertaining to soil formation."Peridotite" means an ultramafic rock consisting of olivine and pyroxene, with minimal feldspar."PGM" means Platinum Group Metal, refer “Precious Metals” below."prospect" means a target upon which exploration programs are planned or have commenced."project" means a grouping of prospects within a specific geographic location, often with a common geological setting."province" means a grouping of projects within a geological district defined by a major mineralised crustal structure."ppb" means parts per billion."ppm" means parts per million."Precious Metals" means gold, silver and the Platinum Group Metals, ruthenium, rhodium, palladium, osmium, iridium and platinum. Themetals are chemically inert, malleable, dense and used in jewellery, and are of high unit value."RAB drilling" means the drilling technique in which a sample is returned to surface outside the rod string by compressed air. Sample qualityis poor."RC drilling" means the drilling method employing a rotating or hammering action on a drill bit which returns a sample to the surface insidethe rod string by compressed air. Sample quality is very good, particularly if the drill hole is dry."Resources and Ore Reserves" means:

"Proved Ore Reserve" is the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowancesfor losses which may occur when the material is mined. Appropriate assessments, which may include Feasibility Studies, have beencarried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal,environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction couldreasonably be justified. The term "economic" implies that extraction of the Ore Reserve has been established or analyticallydemonstrated to be viable and justifiable under reasonable investment assumptions. Proved Ore Reserve will require some degree oflateral continuity validation through diamond drilling, wide diameter (900mm) bulk sample drilling, trial mining, exploration winze or mostlikely for Kalgoorlie Nickel Project, 10x10m pattern RC drilling."Measured Mineral Resource" is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, gradeand mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling andtesting information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.The locations are spaced closely enough to confirm geological and/or grade continuity. At the Kalgoorlie Nickel Project, Heron’s leastdense drill RC pattern for Measured Mineral Resource status is 40x20m."Indicated Mineral Resource" is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade andmineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing informationgathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations aretoo widely or inappropriately spaced to confirm geological and / or grade continuity but are spaced closely enough for continuity to beassumed. At the Kalgoorlie Nickel Project, Heron’s least dense RC drill pattern for Indicated Mineral Resource status is 80x80m."Inferred Mineral Resource" is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with alow level of confidence. It is inferred from geological evidence and assumed but not verified geological and / or grade continuity. It isbased on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holeswhich may be limited or of uncertain quality and reliability. At the Kalgoorlie Nickel Project, Heron’s least dense RC drill pattern for InferredMineral Resource status is 400x80m.

"ROM" means run-of-mine ore, referring to the grade and type of ore that is expected to be fed to the processing plant on a day to daybasis."SAL" means Saprolite Acid Leaching, being the process whereby Saprolite Ore has its nickel and cobalt content leached by atmospherepressure sulphuric acid leaching (the acid source being the discharge slurry from a PAL autoclave)."Saprolite Ore" means nickel laterite mineralisation consisting of hydrated magnesium silicate minerals with nickel and cobalt occurring inassociation with the silicate phases. The ore is a weathered clay-rich rock which retains original rock textures, and is significantly morecompetent than Manganiferous, Goethite or Siliceous Ore. "Scoping Study" means a first pass estimate of engineering requirements and costs of a mining operation, processing plant and plantinfrastructure. Included in the cost estimates will be infrastructure, tailings disposal, power supply, and owner's costs. The plant design maychange as a result of testwork analysis, optimisation studies and engineering improvements performed during execution of the follow-upPre-feasibility Study. Operating and capital cost estimates are to an order of magnitude accuracy of ± 30%."Siliceous Ore" means nickel laterite mineralisation consisting of chalcedonic silica and hydrated iron oxide with nickel and cobalt occurringin association with iron and manganese oxide minerals. The ore nickel and cobalt grades may be increased by 50-100% through wetscreening and rejection of low grade siliceous fragments within the ore. Total SiO2 exceeds 40%. "Specific Gravity" or "SG" means the mass per unit volume of material, usually in reference to ore and waste."Waste: Ore ratio" means BCM of waste + BCM of low grade sub-ore divided by BCM of ROM ore."WWF" means Walter Williams Formation, an ultramafic rock consisting dominantly of the magnesium silicate mineral olivine which weathersto form nickel laterite ore. The unit is named in honour of the late 19th Century prospector, Walter Williams, who perished from thirst atGhost Rocks."Ultramafic" means rocks composed almost entirely of mafic minerals which are prospective for nickel mineralisation."Volcaniclastics" means sedimentary rocks derived from fragmental volcanic rocks.

Photo Gallery


NTP Baby CompetitionSeptember 2004Top left: Guiliana with daughter, Taylah GrahamTop right: James Brennan - Well deservedwinner of the 2-3 Year Age Group.

Bottom left: Pam Buchhorn (L) holdingDaniel Buchhorn, with Alexis Hudson (R) andsuperman William Vincent. Pam comperesthe NTP Baby Competition each year, andHeron helps to sponsor.

Barking Gecko...”I might be a little guy, but I don’tback down”.

Designed Reynolds Graphics, Kalgoorlie Printed Vanguard Press, Perth

Funding of the NTP infant health clinicHeron contributed to the setting up of the NTP infant health clinic inKalgoorlie to provide health services to the indigenous people of the EasternGoldfields. Taylah, James, Daniel and William have their vaccinations at NTP,so its probably not always their favourite place to visit. Heron will contributean annuity to NTP upon reaching commercial production at KNP.

Education scholarships in place since 2001Heron has provided education scholarships through the Goldfields EducationBursary to improve educational opportunities for the local indigenouscommunity. To date 40 children have been assisted. Hopefully, thesechildren will be future applicants for skilled positions at the KNP.

Residential workforce where possibleHeron is committed to establishing residential workforces wherever possible.Its good business to have a balanced mix of home and work life.

ENVIRONMENTMinimise foot print of operationThrough careful mine planning and using in-pit waste disposal, the footprint ofenvironmental disturbance will be minimised as mining progresses, followed closely byprogressive rehabilitation. This is good business sense.

Maximise resource utilisationThrough ore screening, resource utilisation will be maximised, one pass mining willmanage the area of disturbance, minimising the need for repeated cut backs andongoing access to the pits. Again, good business sense.

Maximise water recycling The KNP is located in a low rainfall region, every drop of water is precious, the projectwill use technology to maximise water recycling and minimise water usage per unit ofproduction. No process water will leave the site. Yet again, a good sustainableenvironmental policy is good business.

Maximise energy efficiencyWhile the KNP is located adjacent to cost-effective clean gas energy and will begenerating its own energy as part of the process, it makes good business sense tomaximise energy efficiency.

COMMUNITY

21 Close Way, KalgoorliePO Box 1280, Kalgoorlie WA 6430Telephone: +618 9091 9253Facsimile: +618 9091 9256Email: [email protected]: www.heronresources.com.au

Corporate Directory · 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$5.50 per pound) indicates

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