Heron Resources Limited ANNUAL REPORT 2006

Pulling the core, Siberia siliceous limonite

Heron Resources Limited 21 Close Way, Kalgoorlie WA 6430 Level 1, 37 Ord Street, West Perth WA 6005 PO Box 1280, Kalgoorlie WA 6433 PO Box 1380, West Perth WA 6872 Phone +61 8 9091 9253 Phone +61 8 9215 4444 Fax +61 8 9091 9256 Fax +61 8 9215 4490 Corporate Directory Photo Gallery Heron in the Community

DIRECTORS REGISTERED AND KALGOORLIE OPERATIONS OFFICE Craig Leslie Readhead BJuris LLB 21 Close Way Chairman (Non Executive) PO Box 1280, Kalgoorlie, WA 6430 46-50 Kings Park Road, West Perth WA 6005 Telephone: +61 8 9091 9253 Ian James Buchhorn BSc (Hons), Dipl Geosci (Min Econ), MAusIMM Facsimile: +61 8 9091 9256 Managing Director (Executive) Email: [email protected] Level 1 37 Ord Street, West Perth WA 6005 Website: http://www.heronresources.com.au Norman Mathew Longworth BSc (Hons), MAusIMM Chief Operating Officer and Director (Executive) PERTH MANAGEMENT OFFICE Level 1 37 Ord Street, West Perth WA 6005 Level 1, 37 Ord Street, West Perth WA 6005 Telephone: +61 8 9215 4444 Allan Trench PhD, BSc (Hons), MBA (Oxford), MSc (Min Econ) WASM, Facsimile: +61 8 9215 4490 MAusIMM Director (Non Executive) AUDITORS Level 1 37 Ord Street, West Perth WA 6005 Butler Settineri (Audit) Pty Limited 35-37 Havelock Street, West Perth WA 6005 COMPANY SECRETARY Ann Forrest, Ian Buchhorn and Mercy O’Loughlin unveiling NTP plaque Jean McKenzie (translator), Mat Longworth, Nerida Glanfield and Esther Sarah Helen Calvert BBus (Acc), ASA SOLICITOR TO THE COMPANY Roadnight from Hannans Rotary, and Barb McGillivray from the WNT Company Secretary Pullinger Readhead Lucas NTP Recognises Heron’s Support Language Centre at the Yilpa book launch Level 1 37 Ord Street, West Perth WA 6005 46-50 Kings Park Road, West Perth WA 6005 Heron Managing Director Ian Buchhorn unveiled a plaque to recognize Wongatha Language Centre supported by Heron ABN BANKERS Heron’s long-term support to Ngunytju Tjitji Pirni (NTP) infant health 30 068 263 098 Westpac Bank clinic. Mat Longworth was invited to attend the official Yilpa book launch which 230-236 Hannan Street, Kalgoorlie WA 6430 NTP is an Aboriginal Corporation set up to address the high rates of Heron helped to publish. SHARE REGISTRY indigenous maternal and infant illness in the Goldfields, and uses The book tells a traditional dreamtime story of “Why the Goanna Security Transfer Registrars Pty Ltd STOCK EXCHANGE culturally appropriate health methods and resources. It provides visits and Lizard are no longer friends today” and has been written in both 770 Canning Highway, Applecross, WA 6153 Australian Stock Exchange Limited and health checks for women in their home environment. Wangkatha and English and includes a spoken CD to help children learn Telephone: +61 8 9315 2333 2 The Esplanade, Perth WA 6000 Long-standing NTP administrator Coral Mencshelyi has left the region, and the Wangkatha language. Facsimile: +61 8 9315 2233 Ann Forrest has stepped up to fill part of Coral’s role. Heron acknowledges This book and CD has been distributed to all schools in the Goldfields Email: [email protected] ASX CODE Coral’s efforts, and wishes Ann the very best in her new role. region and is a unique tool in breaking down the cultural barriers. HRR

SEAT ABBREVIATION Heron

HOME BRANCH Table of Contents Perth

1.0 CHAIRMAN’S REVIEW 2 INDUSTRY CLASSIFICATION Other Metals 022 Base Metals 2.0 OPERATIONS REVIEW 4 RESEARCH SERVICE INDEX NUMBER 3.0 CORPORATE PROFILE 17 Mining H50

4.0 DIRECTORS’ REPORT 24 ISIN AUDIT INDEPENDENCE DECLARATION 31 AU000 000 HRR6 5.0 FINANCIAL STATEMENTS 32 INCOME STATEMENTS 32 BALANCE SHEETS 33 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 34 Daniel Buchhorn on the famous Doug Krepp Walk Trail in Karlkurla Standing from left, Lisa Ellery, Sharon Hume, Esther Roadnight, Steve CASH FLOW STATEMENT 35 Bushland Park. Kalgoorlie-Boulder Mulvaney, Silvano Fasolo and seated in front Tracy Browning, working NOTES TO AND FORMING PART OF THE ACCOUNTS 36 Front Cover photograph collaboratively to produce a calendar for the Wangkanyi Ngurra Tjurta Language Centre DIRECTORS’ DECLARATION 56 Heron’s Boulder Block Pit at Bulong. The mine floor consistently grades Heron supports Urban Landcare 1.6 - 1.9% Ni in previous grade control drilling. The Boulder Block would 6.0 INDEPENDENT AUDIT REPORT 57 Doug Krepp is a supporter of Heron, having had the original idea which be an ore source in the event of future Bulong ore production for the KNP. Heron enlists support from Rotary Clubs lead to the iron ore acquisitions, and later doing Heron’s Goongarrie SHAREHOLDER INFORMATION 58 7.0 The cover photograph is by Graeme Hird from “Scene by Hird”, a hydrological monitoring. Doug is also a great advocate for preserving The Rotary Clubs in Kalgoorlie-Boulder and Heron worked together in the local bush and as Supervisor of a “Work for the Dole” team, helped 2005 to produce a children’s book for the Wangkanyi Ngurra Tjurta 8.0 STATEMENT OF MINERAL RESOURCES 62 photographic artist whose specialty is the Goldfields mining and natural environment. Graeme’s photographs are featured in this report as a design create Karlkurla Bushland Park. Doug was honoured with a Prime Language Centre (WNT) to distribute to schools. Minister’s award as Australia’s best “Work for the Dole” Supervisor in 9.0 INTEREST IN MINING TENEMENTS 63 element at the bottom of the odd-numbered pages. More of Graeme’s This collaboration is set to continue with a 2007 calendar based on 2001, and has a Walk Trail named in his honour. work may be viewed at his website, www.scenebyhird.com. the Wangkatha numerals to be produced, for sale to generate ongoing 10.0 GLOSSARY 82 Doug Krepp with Ian and Daniel Buchhorn have spent many hours funding. Shareholders wishing to purchase WNT’s fabulous work can Design & Artwork Reynolds Graphics, Kalgoorlie & Perth helping to maintain the amenity of Karlkurla Bushland Park. telephone Tracy.

Heron Resources Limited Annual Report 2006 Highlights

Directors Craig Leslie Readhead CHAIRMAN (NON EXECUTIVE) Ian James Buchhorn MANAGING DIRECTOR (EXECUTIVE) Norman Mathew Longworth CHIEF OPERATING OFFICER (EXECUTIVE) Allan Trench DIRECTOR (NON EXECUTIVE)

2006 HAS SEEN WORLD NICKEL MARKETS ATTAIN RECORD DEMAND AND PRICE LEVELS, VALIDATING HERON’S DECADE-LONG STRATEGY OF NICKEL RESOURCE ACQUISITION. The Objective for Heron is to now convert its 903 million tonne Resource Base into sustained cash-flow. Heron’s corporate strategy is one of TOTAL NICKEL FOCUS • Long Term, transition to major nickel laterite producer through the development of the Kalgoorlie Nickel Project in partnership with Inco. The production target is 20,000tpa Ni as Heron’s share of production. • Medium Term, lower capital expenditure nickel laterite and nickel sulphide production opportunities. The initial target is trial heap leaching in 2007 from the 100% Heron-owned Jump-up Dam Project. The full ramp up production target is 10,000tpa Ni, from a 1.2mtpa Heap Leach operation, with potential life of 10-20 years. • Near Term, impact of regional WA exploration success. The Company’s conceptual exploration targets are for multi-commodity, world class targets focussing on nickel-copper-platinum group metals. Kalgoorlie Nickel Project (Inco Earning 60%) • The Inco KNP Farm-in and Joint Venture has reached the first of four milestones, with Step 1 completed. • Inco proceeded to Step 2 of the Pre-feasibility Study on 25 September 2006. • Inco has until 30 September 2007 to complete the Step 2 leaching and beneficiation test-work and determine the appropriate drilling methods and spacings to complete the Step 3 resource drill-out. Jump-up Dam Project Heap Leach Nickel (Heron 100%) Heap leach extraction of nickel involves stacking heaps of nickel-bearing laterite ore on sealed pads and leaching via reticulation of dilute sulphuric acid through the heap. This process has the potential for significantly lower capital costs compared to high pressure acid leach. • Heron has commenced Heap Leach metallurgical test-work from the 100% Heron-owned Jump-up Dam Project, located near Yerilla 150km NE of Kalgoorlie and outside the Inco KNP Joint Venture. Column test leaching results to date indicate Jump-up Dam is amenable to Heap Leach, with 60% metal recovery within 20-100 days. • On the basis of encouraging Heap Leach testing, the Company has commenced resource drill-out and a Scoping Study. • The Jump-up Dam operation is planned to be the first in a series of potential Heap Leach projects outside the KNP, providing Heron with a pipeline of further nickel production opportunities in addition to the KNP. Commercial production target is 2008-2009. Nickel Sulphide Exploration Regional soil geochemistry and surface Electo-Magnetic surveying continued on Heron’s prospective nickel sulphide ultramafic belts. High priority targets were identified and await drill testing at Emu Lake North and Ghost Rocks. Corporate Epsilon Energy Limited – Uranium and Rubicon Resources Limited – Copper-Gold The Epsilon and Rubicon management teams were recruited and tenement packages finalised with both prospectuses nearing completion. Heron intends that the Epsilon and Rubicon vendor shares will be distributed to Heron Shareholders from trust at no cost at a suitable time during the 12 months after listing, representing Near Term value creation. Polaris Metals NL Polaris has purchased Heron’s iron ore assets through the issue of A$5.5 million in shares and options. Heron will retain these vendor securities.

Annual Report 2006 1 2 Figure 1 1 -34 ° -32 ° -30 ° -28 ° .0 LEGEND : T Tenement andOwnership. Locations enement Locations W (sold toPolaris) Iron-ore tenement gold/base-met Proposed RubiconResourcesLt Uranium IPO Proposed Ep Other Herontenement Kalgoorlie NickelProjecttenement Southern Cross Chairmans Perth Port Hedland estern PROJECT IRON ORE PROJECT IRON ORE Mt Phillip Australia silon EnergyLt T Wa al tenement enement rburton IOCG s Uranium s S Poondano Iro S 120 ° 120 ° Kalgoorlie s s KALGOORLIE s KALGOORLIE d n PROJEC PROJEC NICKEL NICKEL d s Coolgardie KALGOORLIE T T Heron Menzies Review

Leonora Resources Limited Resources Kambalda Port Norseman 0 DESDEMONA DESDEMONA PROJEC PROJEC

122 ° Esperance 122 ° Kilometres YINDARLGOODA YINDARLGOODA 50 BALLADONI BALLADONI T T URANIUM URANIUM PROJEC PROJEC Laverton PROJEC PROJEC 100 T T T T A A Main roads Railway Gas pipeline Balladonia

124 ° 124 ° -28 ° -30 ° -32 ° -34 ° IT IS WITH PLEASURE THAT I PRESENT THE ELEVENTH ANNUAL REPORT OF HERON RESOURCES LIMITED. During our first decade since listing in August 1996, the Company has had a total focus on nickel laterite resource acquisition and development, assembling the Kalgoorlie Nickel Project (KNP). Heron has operated in a counter-cyclical acquisition environment, allowing the Company to gain control of its substantial resource base between 1998 and 2004 during times of historically low nickel prices. The nickel price cycle has now seen a major upturn, with the current high prices due to high levels of demand from Asia. Heron’s nickel laterite resources have now attained considerable strategic value. At current metal prices, the run-of-mine ore (0.74% Ni and 0.05% Co) has an in-ground value of A$300 per tonne. Critically, the metallurgical technology exists to economically treat such ore, both through conventional Pressure Acid Leach with Inco, or the new Heap Leach which Heron is pursuing. Kalgoorlie Nickel Project – Long Term Production Tier The nickel laterite strategic targets we set continue to be achieved, with 2006 seeing Inco completing Step 1 and proceeding to Step 2 of the KNP feasibility studies. The key Inco conclusions at the completion of Step 1 were: 1. The KNP is a large nickel resource in a politically stable region with good existing infrastructure which has the potential to achieve the resource target of 120 million tonnes at a 1.5% Ni Leach Feed Grade. 2. KNP is one of the better undeveloped nickel laterite opportunities in the world. 3. No fatal flaws were detected during Step 1, but the core drilling, interpretations and database interpretation raised geological issues involving short range geological variability previously not recognised that will be addressed during Step 2. Inco and Heron have adopted an aggressive Program and Budget for Step 2 of the KNP, focussed on metallurgical evaluations, notably Pressure Acid Leach. Although Inco has been under bid from CVRD, the Step 2 commitment is firm, irrespective of future bid outcomes. Near to Medium Term Production Tier Having set the Company’s Long Term growth strategy in train through the Inco KNP transaction, the Company is now focussing on securing Near and Medium Term cash-flow from its 100%-owned non-KNP resources. That production opportunity is from Heap Leach of nickel laterite. The commercial model for Heron is European Nickel plc, which is commissioning a Heap Leach plant at Caldag in Turkey. With our 2006 Heap Leach test-work indicating laboratory nickel recoveries of 60-80% in 100 days, and extensive shallow open pit ore being defined in current RC drilling, a clear pathway through to Near Term nickel production is available through Heap Leach. The intention is to commence trial Heap Leach pads at Jump-up Dam in 2007, and depending upon these trial results, aim for nickel production at a demonstration scale in 2008, and commercial scale in 2009. The Heap Leach target is ultimately 10,000tpa nickel production as intermediate product. Discussions are current in respect of feed-stock supply and product off-take. Corporate Strategies In my 2005 Review, I foreshadowed the divestment of non-nickel assets, along the lines of Heron’s previous Avoca Resources Limited and Pioneer Nickel Limited demergers. These two previous demergers delivered in specie shares to our then Shareholders, which at current Avoca and Pioneer share prices are valued around A$25 million. The latest demergers are well advanced. The uranium IPO is Epsilon Energy Limited, and is on track for a late 2006 / early 2007 listing on ASX. Epsilon has an exceptional board led by Chairman Bruce Larson and Managing Director Matt Gauci. Our intention is to provide Epsilon shares as an in specie distribution to our Shareholders at no cost, in the first twelve months after Epsilon’s listing. The copper-gold IPO is Rubicon Resources Limited. Rubicon similarly has an exceptional board led by Chairman John Shipp and Managing Director Peter Eaton. Listing is planned for early 2007. An in specie distribution similarly is planned for our Rubicon shares. Heron’s iron ore assets were sold to Polaris Metals NL. Ian Buchhorn has joined the Polaris board, and we are most optimistic of Heron being the recipient of future dividend streams from Polaris as it develops production from the iron ore assets at Poondano and elsewhere. With the Heap Leach feasibility program commencing and Inco proceeding to Step 2 of the KNP, the Company established a West Perth management office, which we share with Epsilon and Rubicon. The Jump-up Dam project team also will be based there. Once again, I acknowledge the redoubtable efforts of our Staff, whose work output and creative intellect are first class.

Craig Readhead, Chairman

Annual Report 2006 3 2.0 Operations Review

STRATEGIES FOR 2006 AND ONWARDS Corporate Advisor and the World Nickel Industry In the current high nickel price regime, the world nickel industry, as Total Nickel Focus would be expected, is undergoing major corporate rationalisation, with strong takeover activity as majors seek to secure long term During 2006, Heron developed its Total Nickel Focus strategy as a nickel resource bases and strategic assets. means to deliver returns to Shareholders through exploration and development of the extensive portfolio of nickel laterite and nickel In recent times, Canico with its Onca Puma nickel laterite project sulphide assets. The strategy involves a three tier development in Brazil was taken over by CVRD, Weda Bay Minerals with its pipeline: namesake nickel laterite project in Indonesia was taken over by Eramet, and WMC with its integrated Western Australia nickel Long Term; development of nickel production through the division fell to BHP Billiton. The activity in 2006 has continued large-scale Kalgoorlie Nickel Project (KNP), using the most with Xstrata taking over Falconbridge, and on-going merger and appropriate technology and targeting 50,000 tonnes of nickel acquisition moves involving Inco with Falconbridge, then Teck production per annum. The project is capital intensive and requires Cominco, then Phelps Dodge and finally CVRD. specialist technology, so Heron sought an industry leader in Inco Limited as its development partner. In this most active of corporate nickel environments, the Company appointed Citigroup Global Markets as Corporate Advisor, Medium Term; development of lower capital expenditure to provide strategic advice to develop and grow the Company, projects from Heron’s non-KNP nickel laterite and nickel inclusive of defence and offence strategies. sulphide assets. The scale and capital cost of these projects is such that Heron can sole develop using existing financial and Corporate opportunities were continuously evaluated during 2006, technical resources. The Jump-up Dam Project is the initial focus but none met the Company’s corporate benchmarks. of this strategy, with scoping of a Heap Acid Leach operation current. Trial leaching is planned to commence in 2007. Potential exists to incrementally expand the Heap Leach projects through progressively bringing on line further operations at Aubils and Ghost Yerilla. The initial target is 10,000 tonnes of nickel production per Rocks annum, being delivered into the current nickel price cycle. Near Term value creation; largely predicated on Heron’s two key assets, its people and its substantial land holdings (almost 900 tenements for 32,000km2): Highwaayy

• Heap Leach trial production, Jump-up Dam. Goongarrie Hill • Exploration success, focussing on nickel-copper-platinum Goongarrie group metals. Aggressive ground acquisition and exploration South of nickel sulphide and nickel laterite projects continues. Heron Siberia North has one or more drill rigs in operation close to continuously. • Divestment of non-core non-nickel assets, being the Siberia Epsilon and Rubicon IPOs, and iron ore asset sale to Polaris. South Kalpini • Mergers and Acquisitions, seeking opportunities where Heron’s existing expertise and comparative advantage creates value for the new entity. The focus is on Near Term nickel production. Bulong

Operations Focus 25km During 2006, the Company’s market capitalisation was typically A$100 to 120 million. On this basis, a partner is clearly required Figure 2: Satellite Photograph – Kalgoorlie Nickel Project. for a A$2 billion Pressure Acid Leach project such as the KNP. However, a Heap Leach or nickel sulphide development is well The KNP is well located, being 30-150km from Kalgoorlie, with excellent within the Company’s corporate and capital threshold. road network, railway line and natural gas pipeline through the centre of the project area, and skilled mining industry population centre with Accordingly, the operations focus during 2006 has been the exceptional life-style facilities at Kalgoorlie-Boulder. The terrain is flat, with Heap Leach test-work and nickel sulphide exploration, with Heron no apparent environmental issues. Tailing disposal is easily managed. expending A$3.7 million on evaluation in 2006. The area north of Kalgoorlie is centred on Goongarrie-Siberia, and is The Long Term KNP was largely sole-funded by Inco, with some dominantly siliceous limonite ore suited to PAL processing. The area east of A$4 million expended by Inco on Step 1 drilling evaluation. Kalgoorlie is centred on Bulong-Kalpini, and is dominantly nontronite ore.

4 Heron Resources Limited Initial Public Offers Once the KNP Joint Venture was executed in July 2005, the strategic plan to divest the non-nickel assets was activated: • The Balladonia Energy Limited uranium assets are being vended in a new Initial Public Offer (IPO), Epsilon Energy Limited. It is proposed to distribute 15 million Epsilon shares to Heron shareholders at no cost as an approximate 1 for 11 distribution. • The Regent Resources Limited copper-gold assets are being vended in a new IPO, Rubicon Resources Limited. It is proposed to distribute 25 million Rubicon shares to Heron shareholders as an approximate 1 for 7 distribution. • The Ochre Resources Limited iron ore assets were vended into Polaris Metals NL. Ochre’s mineral resources at Poondano in the Pilbara Iron Ore Province and Bungalbin in Photo: The Epsilon board, from left to right, is Matt Gauci (Managing the Koolyanobbing Iron Ore Province will be the development Director), Bruce Larson (Chairman), Michael Dentith (Non-executive focus of Polaris. Heron received as vendor consideration 29.7 Director), and Mat Longworth (Non-executive Director). Matt is an MBA million Polaris shares and 14 million options valued at A$5.5 with uranium industry background; Bruce had senior management and million. Heron will hold these securities for the time being. business development roles with Rio Tinto including the Kintyre uranium project; Michael is Professor of Geophysics at UWA with previous research Environmental, Health, Safety and Social (EHSS) projects including uranium geophysics; and Mat is Heron’s Chief Operating Officer. The board is very well credentialed in the uranium sector, as well Heron’s EHSS commitments are integral to its mission to create as having collectively 75 years industry experience. Shareholder value. Heron operations are designed around sustainable Company and community development. The conceptual KNP mine plans have single pass bulk mining followed by in-pit dumping, to minimise the mine-affected footprint. The Company has strict environmental procedures for its field programs, and additionally supports the Kalgoorlie-Boulder Urban Landcare Group in its efforts to maintain the Kalgoorlie- Boulder urban environment and the region’s unique woodland. During 2006 there were no Lost Time Injury (LTI) incidents. The Company is strongly supportive of the community of Kalgoorlie- Boulder in which it operates, assisting the now Australia-wide renown Ngungtju Tjitji Pirni infant health care centre. Heron is strongly supportive of the Wangkanyi Ngurra Tjurta Aboriginal language centre in their efforts to promote and develop Aboriginal culture in the Eastern Goldfields and beyond. Photo: The Rubicon board, from left to right, is Peter Eaton (Managing Heron provides an Education Bursary for the children of our Director), Sam Middlemas (Chief Financial Officer and Company local Native Title claimants. The entire community, both Aboriginal Secretary), John Shipp (Chairman), and Ian Buchhorn (Non-executive and non-Aboriginal, must clearly benefit from Heron’s mining Director). Peter is a geologist and formerly Aditya Birla Minerals Limited developments. General Manager (Geology and Business Development); Sam is a chartered accountant; John was formerly President of Barrick Gold Corporation’s The Company seeks consultation with the KNP regional Australia Africa Business Unit; and Ian is Heron’s Managing Director. The stakeholders, particularly the local Shires as the representatives management team has an exceptional portfolio of corporate, mining, of the local Communities. exploration, project development and mine commissioning experience.

Photo: The Antony Gormley statues on Lake Ballard near Ghost Rocks, are a world-class art tourism attraction within the rural Shire of Menzies, the host Shire to the majority of the KNP. Even at our exploration stage, Heron and the KNP provides 9% of the rate revenue for Menzies, to assist the Shire in servicing its 125,000km2 area of responsibility. Photograph by Reynolds Graphics.

Annual Report 2006 5 2.0 Operations Review

LONG TERM PRODUCTION STRATEGY The following core drilling was completed. KNP Farm-in and Joint Venture (Heron 100%, Inco Table 1: Confirmation Core Drilling earning 60% by mine commissioning) Inco Core Metres Prospect Drill Holes Drilled The Long Term focus of the Company is the Kalgoorlie Nickel Project Farm-in and Joint Venture Agreement (FIJVA) with Inco Siberia North 6 345 Limited. The conceptual target is a project delivering 50,000 Siberia South 7 351 tonnes of nickel metal over a 20 year project life at robust cash Big Four/Scotia Dam 8 464 costs. Heron will have a 40% interest in the final project, with a Goongarrie South 2 89 fully funded pathway through to production through project loans Goongarrie Hill 7 389 from Inco. Heron’s nickel production share will be 20,000tpa. Highway 7 344 Inco notified Heron of the completion of the KNP Step 1 on 25 Kalpini 4 197 September 2006, thus meeting the first of four KNP development Total 41 2,179 milestones. Inco’s Step 1 core drilling program aimed at testing the Assumption that the KNP has the potential for a resource of In addition, 12 metallurgical core holes were drilled for bench- 120 million tonne with a Leach Feed Grade of 1.5% Ni. scale metallurgical testing during Step 2. Simultaneously Inco informed the Company that it intended to Material Types and Volume Estimation proceed to Step 2 of the Pre-Feasibility Study. Step 2 will undertake further beneficiation and leaching studies on the mineralisation Previously completed drill-holes by Heron and others were re- to develop a hydrometallurgical flow-sheet. Additionally, it will logged by Inco, to standardise Material Type identification, for determine the drilling methods and drill densities required during volume and resource estimation. Step 3 to effectively estimate resources, and beneficiation and leaching characteristics. Table 2: Material Classification Re-logging Drill Holes Metres KNP Step 1 Prospect Re-logged Re-logged Drill Evaluation Siberia North 515 23,708 Siberia South 947 26,108 The Inco Step 1 drill program commenced in October 2005 and involved the drilling of 41 PQ diamond drill-holes to obtain sample Big Four/Scotia Dam 233 10,686 material for beneficiation test-work. Inco core holes were co- Goongarrie South 666 35,393 located adjacent previous Heron RC holes, providing a check on Goongarrie Hill 300 11,327 the RC drilling technique, geological variability and assaying. Highway 292 12,880 Kalpini 152 7,441 All analytical work was on 1 metre core intervals which were sawed in half. One half of the drill core was used to determine the Total 3,105 127,543 head assay, to compare with the head assay of the adjacent RC drill-hole. While geological variations were identified, these were Based on Inco’s core drilling, the re-logging of previous non-core not systematic and the assay results are within acceptable limits. drill-holes, and multi-element geochemical interpretations, both wire-frame models and Indicative Kriging models were completed The second half of the drill core was used for beneficiation studies, for volume estimation. No grades were assigned, with the study and consisted of screening the entire half core at 12.5mm, aimed only at identifying relative volumes of Material Types. 0.50mm, 0.15mm and 0.075mm fractions. The core preparation did not involve a crushing stage, which resulted in a significant Table 3: Relative Volumes by Material Type amount of the contained nickel remaining in the plus 12.5mm fraction and not reporting to the potential leach feed. Volume Main Material Prospect million m3 Types Siberia North 110.0 CUS, CLS Siberia Central 123.8 CUS, CLS Siberia South 40.7 CUS, CLS Scotia Dam 7.5 CUS, SAP Big Four 46.3 CUS, CUN Goongarrie South 61.2 CUS, CLS Goongarrie Hill 55.9 CUS, CLS Kalpini 61.8 SAP, CUS Highway 72.3 CUS, CLS Ghost Rocks 71.0 CUS, CLS Total 650.5

Photo: Material types in core, top to bottom CUS, CLN, CLF. The light CUS Clay Upper Siliceous CLS Clay Lower Siliceous coloured fragments are hard and barren, and may be screened out to CUN Clay Upper Nontronite SAP Saprolite facilitate screen upgrade.

6 Heron Resources Limited The dominant mineralisation styles are Upper and Lower Siliceous Discussion of Results (CUS and CLS), which styles are amenable to Pressure Acid Leach The Assumption processing. Subordinate styles were Nontronite and Saprolite (CUN and SAP), which are more amenable to Atmospheric Acid Leach. The results to date indicate that Leach Feed Grades of 1.5% nickel appear likely by screen beneficiation. The potential to obtain The re-logging identified significant instances of drill-holes sufficient tonnage may be achievable, once exploration access to stopping in mineralisation, and sections with open mineralisation. all KNP tenements is secured. There is thus scope to increase future resource estimates. Optimum Drilling Technique Screen upgrade has been the focus for Step 1, with significant screening results from Goongarrie Hill summarised below: It is clear that a combination of drilling techniques is required to effectively establish resources and characterise the KNP Table 4: Goongarrie Hill Screen Upgrade mineralisation. Metre Metre Screened Ore The variation of grade estimates in drilling undertaken during Step Hole ID From Width Ni % Upgrade Type 1 indicates that neither Core drilling nor RC drilling is necessarily 3010001 6 10 1.38 163% CUS the absolute method for evaluation of the KNP nickel laterite 3010001 16 6 1.71 144% CLS mineralisation. 3010001 22 10 1.31 180% CLS Inco undertook an evaluation of Sonic drilling as a way of providing 3010002 14 14 1.63 132% CUN undisturbed sample for metallurgical test-work. This looks to 3010003 6 10 1.23 185% CUS be an encouraging technique and further work will be done to evaluate the results against corresponding Core and RC drilling 3010003 16 12 2.19 176% CLS during Step 2. 3010005 14 4 2.37 237% CUS A very significant quantity of drilling will be required during Step 3 3010005 18 12 1.22 256% CLS to complete the Pre-Feasibility Study. The precise mix of drilling techniques and the level of drilling required to give confidence to KNP Step 2 the resource estimates will be determined by Inco during Step 2. Metallurgical test-work will be done on a batch and semi continuous pilot plant basis. This work will provide information on potential KNP Tenements products and their acceptability in the world nickel market. Considerable effort during the first year of the KNP FIJVA was Further studies involving crushing and attritioning of the core oversize directed by Heron to lifting any encumbrances on KNP tenements. sample will be undertaken to quantify the optimal balance between Included in this process was Heron’s purchase of the 25% of the crushing and the liberation of fine nickel-bearing material. Highway Project which it did not own. Further investigation of the geological controls on material types and On 1 March 2006, Inco finalised its KNP tenement nomination from mineralisation together with related metallurgical characteristics within the KNP Sphere of Influence. Some 30 additional tenements will continue during Step 2. were nominated, which brings the total number of KNP tenements for which Inco is responsible to 370. With Inco having now commenced Step 2 and the Program and Budget being adopted, Step 2 is required to be completed on or before 30 September 2007. Core drill-hole 7010001

KNP Step 3 Screen Clay Upper Upgrade Ore Siliceous Goethite Step 3 must commence by 30 November 2007, and be completed Low MgO Clay Lower by 30 January 2009. The maximum duration is 16 months. This Barren Magnesite Goethite would constitute a tight time frame to complete the feasibility work High MgO Bedrock including resource drill-out as contemplated by Step 3. Accordingly, Heron and Inco will look to scope and initiate the resource drill-out 40m during the second six months of Step 2, when the Step 2 second Siberia South – Geological Interpretation and Wire-frame Volume half Program and Budget is adopted. Figure 3: Model, showing typical mineralised layers.

Photo: Ghost Rocks, typical outcrop of siliceous mineralisation, with white magnesite enrichment. The area is harsh and unforgiving. Prospector Walter Williams perished from thirst at Ghost Rocks in 1895. Heron’s main laterite-hosting unit is the “Walter Williams Formation”.

Annual Report 2006 7 2.0 Operations Review

P31/1697 6714000 mN Intercepts are based 28m @ 1.24% Ni 22m @ 1.53% Ni on a 0.5% Ni cut-off from 4m from surface 16m @ 0.90% Ni from 4m 20m @ 1.15% Ni from 4m 24m @ 1.07% Ni Section 3200N from 10m Eastern Nontronite Zone

Western 0 640 Zone Metres

16m @ 0.89% Ni P31/1669 from 20m Eastern Zone 6712000 mN 22m @ 0.79% Ni Section 1920N from 10m 50m @ 1.07% Ni from surface

54m @ 1.35% Ni from 18m 38m @ 0.76% Ni from 2m 24m @ 0.85% Ni from 13m 44m @ 0.91% Ni from surface

E31/524 E31/664 Legend P31/1698

Heron Tenements (note: E31/524 is an Avoca Resources Ltd 6710000 mN tenement and Heron has full nickel rights) Max Ni % over 2 metres Mineralisation Outline >1.5 1 to 1.5 Drilled RC Drillhole with max Ni 0.75 to 1 E E E 0.5 to 0.75 Current drill program 0.25 to 0.5 -results pending <0.25 Ultramafic Outline 408000 m 410000 m 412000 m

Figure 4: Jump-up Dam Project Drill Intersection Plan.

Western Zone Section 3200N E E 400RL Legend 24m @ 28m @ 22m @ 408320m 408160m 0014 0058 0013 1.07% Ni C 1.24% Ni C 1.53% Ni C R R R JD JD JD Cover

Upper Clay 360RL Upper Clay mineralisation

Lower Clay mineralisation

320RL Lower Clay

Eastern Zone Section 1920N Ultramafic bedrock 3 004 44m @ C 38m @ 0048 R C 50m @ R 0042 0.91% Ni JD 0.76% Ni JD C 400RL 1.07% Ni R JD Zone of mineralisation

22 metres 22m @ at 1.53% 360RL 1.53% Ni Nickel grade E E 409920m 320RL 410080m No vertical exaggeration

Figure 5: Jump-up Dam Project Drill Sections.

8 Heron Resources Limited MEDIUM TERM PRODUCTION STRATEGY Jump-up Dam Heap Leach Project Jump-up Dam is the southern-most of five nontronitic nickel Nickel Laterite Heap Leach (Heron 100%) laterite resources owned 100% by Heron.

Heron has commenced exploration and initial Heap Leach Murrin

121.6 ° Murrin 121.9 ° 122.2 ° metallurgical test-work on nickel laterite samples from the nickel laterite 100%-Heron owned Jump-up Dam Project, which is outside project the KNP FIJVA. The Project is located approximately 150km area north-east of Kalgoorlie and accordingly has good infrastructure. The Jump-up Dam Project is the first in a series of potential 50km projects outside the KNP providing Heron with a pipeline of future -29.2 ° -29.2 ° nickel production opportunities. Mt Remarkable Aubils A Scoping Study contract has been let to complement the current Murphy Well resource and metallurgical studies. Heap Leach extraction of Kookynie nickel has significantly lower capital costs compared to a high Pressure Acid Leach (PAL). Heap leaching is particularly suited to mineralisation which is often not suited to PAL processing, so the processing routes can be complementary. -29.5 ° -29.5 ° Boyce Creek Heap leaching of nickel laterite involves the stacking of nickel- bearing ore in low heaps on sealed pads and leaching by reticulation of dilute sulphuric acid. Once the solution has reached an appropriate nickel concentration it is then treated to precipitate Jump-up Dam a nickel intermediate product prior to being re-dosed with acid and continuing the leaching process. The precipitate is then filtered, -29.8 ° 50km -29.8 ° dried and bagged for sale to refineries. Legend: Heron tenements The recently banked Heap Leach nickel project of European Nickel Ultramafic lithologies plc in Turkey, and the current demonstration Heap Leach project at Kalgoorlie Nickel Laterite 120km resource targets Murrin Murrin, indicate the potential of this technology to deliver 0 10 20 commercial nickel production at reduced capital expenditure. The Kilometres 121.6 ° 121.9 ° 122.2 ° potential upward scalability of this style of project may allow initial production at the Jump-up Dam Project of a smaller scale with Figure 6 – Jump-up Dam Leach project areas. ramp up to a steady state production targeting 10,000 tonne of The Jump-up Dam mineralisation is hosted in an eastern and nickel in intermediate product per annum, over a mine life of 10 western zone comprising of nontronite and siliceous mineralisation to 20 years. respectively, developed in the weathering profile over a significant In line with potential Near Term production, the Company is thickening of the ultramafic body. Drilling demonstrates significant undertaking discussions with suitable acid suppliers, initially grades of mineralisation from shallow depths and includes 54m at for pilot-scale test-work, followed by demonstration plant, and 1.4% Ni from 18m, 8m at 2.8% Ni from 2 metres and 50 metres finally on-going commercial production. Locally available acid at 1.1% Ni from surface. Results are summarised on the opposite supply potentially reduces the project timeframes and capital page drill plan. requirements during the project’s initial stages. The options for The high grade zones contain a distinctive nickel mineral termed additional acid supply and the timing of any future onsite acid plant garnierite, which Heron has not previously identified in its Kalgoorlie will be assessed in the Scoping Study. area exploration. The presence of garnierite probably accounts for The Medium Term Heap Leach target production is 10,000tpa of the excellent leach kinetics of the Jump-up Dam mineralisation, nickel in intermediate product. This will complement Heron’s target in that the nickel is only very loosely bound in the garnierite clay of an additional 20,000tpa of nickel from the Long Term KNP FIJVA, lattice. giving Heron a defined production target of 30,000tpa.

Photo: Edge of Boulder Block pit at Bulong. The mineralisation has a strong siliceous magnesite vein banding. By crushing and then screening out this barren veining, the nickel Leach Feed Grade at Bulong is increased by around 60%, making it a valuable contribution to the KNP.

Annual Report 2006 9 2.0 Operations Review

Jump-up Dam Metallurgy Development Program Metallurgical test-work to date has involved agglomeration and A Scoping Study by the industry-recognised leader has been column leach test-work in 1 metre columns at SGS Oretest Perth. commissioned for Jump-up Dam to identify the issues to be Leaching rates are very encouraging and minor slumping of the addressed during the Pre-Feasibility Study, including the ore column has only been identified in one column. grades and types, water, consumables, and plant site requirements for the project. Capital and projected operating costs will be bench The key to successful heap leaching is the permeability and marked against other nickel leaching projects on a global basis. A leachability of the ore material. Current test-work confirms the review of the most suitable nickel intermediate products will be favourable performance of the Jump-up Dam ore. undertaken to assist Heron’s discussions with refiners. Leaching rates are summarised in the graph following, with all Mining leases were pegged and the statutory mineralisation report samples likely to exceed 60% recoveries. Acid consumption is submitted to the Department of Industry and Resources in support acceptable, along with leaching of non-nickel components of the of the mining lease applications. Detailed heritage and baseline mineralisation. environmental studies have commenced. It is envisaged the Scoping Study will be completed during the December 2006 Quarter. Bulk metallurgical drilling and large scale column leach test-work is scheduled to commence in early 2007. The second round of resource drilling and estimation is scheduled for the March Quarter 2007, followed by trial leaching of pilot-scale heaps. Initial drilling of the Yerilla and Aubils projects will be undertaken in late 2006, with a view to quantifying additional mineralisation to extend the operational life of the project to beyond the current 10 to 20 years at anticipated production rates. A significant economic control of laterite heap leaching is assembling cost-effective feedstock components. Heron has commenced discussions with potential suppliers of acid and technology systems, as well as nickel refiners interested in product purchase. Photo: Four sample columns containing the agglomerated laterite with At a bench-scale, the Heron test-work obtained recoveries of the buckets containing the leachate solution. 60% nickel after 100 days, with two samples demonstrating very fast recoveries of up to 60% within 20 days. This compares very favourably with test results from projects currently in construction where 60% nickel recovery is reached after 300 days of leaching limonite ores. Slow heap leach times are characteristic of limonite ores such as those which make up a majority of the KNP resource base, in contrast to the rapid leaching of the nontronite ores which make up a majority of the Jump-up Dam mineralisation. For effective nickel extraction of KNP mineralisation, PAL will continue to play an important role. The potential outcome is a very efficient regional-scale nickel laterite resource utilisation, Photo: Jump-up Dam Western Zone – Very high grade (to 4% Ni) is apportioned between limonite and nontronite ores. associated with green garnierite and brown chloritic clays. The conclusion: Limonite ores such as Goongarrie-Siberia are best suited to PAL, and nontronite/saprolite ores such as Jump-up Dam are best suited to Heap Leach. Nickel Extraction v Time 80 70 60 50 40 30

Extraction, Ni % 20 Figure 7: Samples leached to date appear to be reaching 60% Ni 10 recovery within 20 to 100 days, depending on mineralogy. The only 0 0 20 40 60 80 100 120 140 160 sample failing to achieve fast leaching is HL03, which is a limonite ore and Time, days not expected to leach quickly. This poorly performed sample is however, HL06 Comp. HL07 Comp. HL03 Comp. HL04 Comp. HL05 Comp. similar in its leach performance to a commercial operation elsewhere.

10 Heron Resources Limited Table 5: Jump-up Dam Drill Intercepts Eastern Zone Western Zone Metre Metre Head Head Hole ID From Width Ni % Co % Metre Metre Head Head Hole ID From Width Ni % Co % JDRC004 4 20 1.15 0.07 including 12 6 1.61 0.09 JDRC013 0 22 1.53 0.04 including 2 8 2.80 0.05 JDRC005 4 16 0.90 0.05 JDRC014 10 24 1.04 0.09 JDRC056 4 24 0.69 0.02 including 20 8 1.30 0.09 JDRC041 10 22 0.60 0.06 JDRC058 4 28 1.24 0.09 JDRC042 0 50 1.07 0.05 including 12 10 1.41 0.14 including 0 14 1.32 0.11 JDRC016 20 16 0.89 0.03 JDRC043 0 44 0.91 0.06 including 28 6 1.47 0.05 including 0 6 1.36 0.11 JDRC017 10 22 0.79 0.05 JDRC047 4 18 0.69 0.04 including 10 4 1.52 0.11 JDRC048 2 38 0.76 0.05 JDRC049 8 28 0.77 0.04 Figure 8: Jump-up Dam Heap Leach Flowsheet JDRC050 4 20 0.92 0.09

Example of Jump-up Dam mineralisation jaw crushed to 25mm (photo on left), which is then agglomerated (photo on right).

Mining

Goldfields Acid supply

ROM Stockpile Agglomeration with acid Crusher Conveyor Barrel Agglomerator Heap stacking conveyor Reticulated solution

Crushed ore stockpile

Fine ore after crushing Agglomerate nodules in heaps n

Calcrete mining Calcrete Dilute acid solution Stage 1 Recycling of process water recirculating Neutralisation with Calcrete

Precipitation Stage Filtering and drying Recirculation of solutio

Acid addition Intermediate Product Bulk Bags

Zero discharge site

Shipping from Esperance

Photo: Ghost Rocks, looking south towards the Highway deposit. The Ghost Rocks mineralisation tends to be boldly outcropping reflecting magnesite cementing. Highway lacks magnesite, and so forms areas of subdued relief.

Annual Report 2006 11 2.0 Operations Review

NEAR TERM EXPLORATION Big Four – NICKEL LATERITE Further infill RC drilling to 80m x 80m at Big Four has been completed with 78 holes for 3,865m. Kalgoorlie Nickel Project - Heron Funded The total drilled this year at Big Four is 168 holes for 7,544m, Projects peripheral to the main KNP resource areas are being pursuant to the April 2005 Inco Subscription Agreement. funded and explored by Heron, using funds raised from the April Screen upgrade test-work is underway. Significant head grade 2005 Inco Subscription Agreement. results are summarised in the table following. Goongarrie Hill North Table 7: Big Four Head Grade Intercepts Heron completed an RC drill program on P29/1849. A total of 35 Metre Metre Head Head Hole ID From Width Ni % Co % RC holes for 1,542m were drilled on a 320m x 80m pattern. GSRC1251 32 14 0.76 0.08 Significant head grade results are tabulated as follows: GSRC1257 28 14 0.84 0.03 GSRC1258 22 6 0.82 0.10 Table 6: Goongarrie Hill North Head Grade Intercepts GSRC1259 24 18 0.73 0.03 Metre Metre Head Head GSRC1262 10 14 0.96 0.05 Hole ID From Width Ni % Co % GSRC1266 18 12 0.64 0.06 GWRC0306 18 22 0.78 0.06 GSRC1269 16 8 0.75 0.03 GWRC0307 14 8 0.66 0.02 GSRC1272 14 16 1.16 0.08 GWRC0314 12 18 0.72 0.04 GSRC1294 20 12 0.78 0.05 GSRC1298 22 24 0.89 0.06 GWRC0315 8 16 0.76 0.03 GSRC1307 28 42 0.90 0.05 GWRC0317 12 20 0.56 0.04 GSRC1310 32 16 0.81 0.03 GWRC0319 30 6 0.66 0.04 GSRC1311 24 22 1.26 0.14 GWRC0322 10 10 0.85 0.08 GSRC1315 36 12 0.84 0.05 GWRC0324 12 10 0.65 0.02 GSRC1316 28 20 1.27 0.16 GWRC0327 10 10 0.91 0.04 GSRC1318 20 12 0.93 0.14 GWRC0328 10 16 1.07 0.05 GSRC1321 32 8 0.79 0.08 GWRC0329 20 4 0.60 0.11 GSRC1322 30 10 0.77 0.09 Mineralisation at Goongarrie Hill North is similar to that at Goongarrie GSRC1325 30 10 0.72 0.05 Hill to the immediate south, being largely of a siliceous nature and GSRC1329 36 12 0.89 0.03 developed around the Magnesia Discontinuity. Potential for screen Bulong beneficiation is good, and test-work is planned. Samples from the 2005 RC drilling completed by Heron at Bulong Under the terms of the Subscription Agreement, the property will be have been submitted for screen beneficiation test-work. offered to Inco, and if added to the KNP FIJVA, Heron’s exploration A review of past work at Bulong indicates that the previous mine expenditure will be refunded by Inco. operator was aware of the screen upgrade potential and was in the process of conducting test-work at the time of the project’s Ghost Rocks receivership. Heron completed 41 RC holes for 2,450m at Ghost Rocks, looking Results from Heron’s screen upgrade testing are tabulated below: to extend the laterite resource potential into the newly granted tenements. With the exception of interesting geological results in Table 8: Bulong Screen Upgrade relation to nickel sulphides, the drilling did not materially extend Metre Metre Head Screened the laterite potential. Hole ID From Width Ni% Ni% Further work is required to evaluate the sulphide potential of the BGRC0001 6 4 0.65 1.13 Ghost Rocks gossan occurrence. As discussed in the following, BGRC0023 4 22 0.66 1.33 EM surveying is planned. BGRC0024 20 6 1.08 1.38 BGRC0025 12 4 0.86 1.15 BGRC0035 14 24 0.91 1.58 BGRC0036 28 6 0.99 1.89 BGRC0037 26 8 1.16 1.84 Averages 0.90 1.47 The average upgrade is 63%. This clearly demonstrates that in certain parts of the Bulong Ultramafic Complex, similar beneficiation upgrade results are expected to those obtained from elsewhere in the KNP. This is a most encouraging outcome in terms of potential ore Photo: Siliceous Ore, typical for Goongarrie Hill and Ghost Rocks. supply from Bulong to a KNP PAL operation.

12 Heron Resources Limited NEAR TERM EXPLORATION Emu Lake North – NICKEL SULPHIDE A moving loop EM survey was completed at Emu Lake North, identifying a subtle conductor on the margin of a strong Heron continues to evaluate the acquisition of nickel sulphide stratigraphic conductor. Heron interprets the strong conductor to projects with Near to Medium Term production potential available, be due to black shales at the contact between the ultramafic and both in Western Australia and elsewhere. To date, Heron’s existing the underlying felsic volcanics. portfolio offers better potential than those offered for sale. The subtle conductor occurs in the same stratigraphic position as Kalgoorlie Nickel Project Tenement Area nickel sulphides intersected to the immediate south by the Jubilee Mines-Image Resources joint venture (previous Jubilee drilling Ghost Rocks includes 2m at 6.2% Ni). Mapped gossan occurs in the Heron Reconnaissance laterite drilling in the Ghost Rocks area identified EM survey area. disseminated primary nickel sulphides in the vicinity of the Ghost A drill program has been designed to test this most exciting nickel Rocks gossan occurrences. While assay results were low at 0.25% sulphide prospect. Ni, the presence of the sulphides demonstrates the fertility of this belt and warrants blanket EM surveying. Copper results up to Non KNP Tenement Area 0.2% confirm the primary nature of the sulphides intersected.

�������������� Cowarna Downs

���������������� As follow up to Heron’s soil geochemical anomalies, a consultant

���������� geophysicist reviewed previously completed EM surveys. A ��������� number of EM targets warranting drill follow up were identified, ���������������� on the basis of a strong coincidence of conductors and anomalous soil Ni-Cu-PGM. Drill testing by Heron intersected massive sulphides associated with a chert horizon at the basal contact of an ultramafic. The sulphides were however barren. Further work is required to identify trap-sites for nickel-bearing sulphides, as the nickel fertility of the ultramafic is established by the presence elsewhere of disseminated nickel sulphides.

Jump-up Dam Heron drilling returned high grades of up to 8m at 2.8% Ni, and surface rock chip sampling returned up to 6,080ppm Ni and 80ppb PGM. The anomaly is located within a distinct “channel- style” thickening in an otherwise thin ultramafic horizon. The prospect was previously explored and mined for chrysoprase, ���� a semi-precious gemstone. The high nickel and elevated PGM content is of interest for nickel sulphide, however, copper is low. Figure 9: Aeromagnetic image showing 1970s IP anomalies and gossan The current RC resource drill-out is designed also to test the nickel locations. sulphide potential. Results are being assessed, with initial drill Photo: disseminated pentlandite assays confirming anomalous PGM backgrounds of up to 100ppb. (Nickel Sulphide) pink grey large Additionally, the Jump-up Dam drilling identified a unique high grains, chalcopyrite (Copper nickel grade mineral termed “garnierite”. This could account Sulphide) fine yellow veins top left for the observed high grade laterite intercepts, independent of a and magnetite dark grey grains primary nickel sulphide source. centre top, from recent drilling at Ghost Rocks, FOV = 0.5mm.

Photo: Goongarrie South, Pamela Jean Deeps, in an area of intense 20 x 20m spaced drilling from 1999 - 2000. With Heron’s rehabilitation methods and the natural resilience of the eromophila – acacia scrub land, the bush appears reasonably pristine.

Annual Report 2006 13 2.0 Operations Review

INITIAL PUBLIC OFFERS In particular, the Chairman Bruce Larson, and Managing Director Matt Gauci, both have extensive experience in the Australian Uranium Industry over the past 15 years. Stefan Gawlinski, EPSILON ENERGY LIMITED an Exploration Geologist with over 25 years experience gained in Heron’s first nickel laterite Scoping Study in 1998 highlighted that Australia, Europe and North Africa, has been appointed Exploration the sulphuric acid feedstock cost is a high sensitivity operating Manager. cost. On that basis, Heron acquired a substantial portfolio of pyritic oil shales in the Balladonia region, as a future supply option for Overview nickel laterite sulphuric acid, energy and limestone. Unknown to With the uranium price increasing from US$10 to over US$55 Heron at the time of pegging, the region has extensive radiometric per pound in the past three years, Epsilon was formed with the anomalism associated with the oil shale environment. Additionally, Australia’s fourth largest uranium deposit at Mulga Rock is located objective of acquiring, exploring and developing uranium resources, to the north in a comparable geological setting. throughout Australia and overseas. With the evolution of Heron’s nickel laterite processing options, Exploration Concepts it became apparent that the optimum source of sulphuric acid is elemental sulphur, rather than pyritic oil shale. Epsilon’s exploration strategy is to focus on known economic uranium provinces and to apply new geological methods and Accordingly, it was felt that the best strategy for generating techniques to discover and develop resources. Shareholder value from the uranium assets is from a uranium IPO, with the in specie shares distributed at no cost to Heron Epsilon’s current projects are spread across four states in Australia Shareholders. Hence was born Heron’s uranium IPO, Epsilon to address both geopolitical certainty and geological variation. Energy Limited (Epsilon). The targeted mineralisation styles include secondary sandstone- The Epsilon board has a combined 75 years of relevant experience hosted and secondary calcrete-hosted uranium. Both styles in the minerals exploration industry, including detailed knowledge are associated with low cost extraction methods and are present of corporate, legal, financial and technical aspects of managing in world-class deposits such as Beverley in South Australia, and exploration and mining companies. Mulga Rock and Yeelirrie in Western Australia.

Jabiluka Ranger Koongarra

Epsilon Uranium Project Locations Oobagooma Maureen Pandanus West

Ben Lomond Mt Denison Bigrlyi Manyingee Kintyre Napperby

Angela Mt Phillips

Lake Way Centipede

Lake Yeelirrie Eyre Mt Gee Kakarook Beverley Ida Valley Mulga Rock Olympic Dam West Frome K a l g o o r l i e Balladonia Honeymoon

P E RT H Goulds Dam

SYDNEY

Uranium occurrence

U3 O 8 deposits relevant to Epsilon Projects

Palaeo channels with undefined resources

Geological regions with:

- up to 1,000 tonnes of U3 O 8 -1,000 to 10,000 tonnes of U O 3 8 0 500km -10,000 to 50,000 tonnes of U3 O 8 -50,000 to 1 million tonnes of U O 3 8 Data sourced from >1 million tonnes of U O 3 8 “Australian Uranium Resources” Geoscience Australia

Figure 10: Epsilon Energy Limited Project Locations and relationship to Major Uranium Occurrences.

14 Heron Resources Limited Balladonia Uranium Project RUBICON RESOURCES LIMITED The Balladonia Uranium Project in the western Eucla Basin, Both ultramafic rocks, the source of nickel laterite, and gold Western Australia, represents a very large conceptual uranium deposits preferentially occur within zones of major crustal exploration target, seeking sediment-hosted uranium sourced structure. Accordingly, there is commonly a broad spatial from the adjoining radiogenic Yilgarn Craton, and deposited within relationship between nickel laterite mineralisation and gold mining lignite-rich layers of the known Balladonia palaeochannels. centres. Thus, in assembling its nickel laterite projects, Heron The project includes the Heartbreak, Balladonia and Malcolm groups, has commonly acquired tenements with a high gold value. Other which were explored by CRA in the 1980s. Exploration included project areas, such as Warburton, were specifically acquired for gamma logging and chemical analysis for uranium mineralisation. their gold and copper potential. The tenements are prospective for sandstone roll-front Heron is totally focussed on developing its nickel laterite assets, deposits, especially associated with the extensive known lignite so it was felt that the optimum strategy for generating Shareholder deposits. The exploration model is Beverley in South Australia and value from these most valuable assets is from a copper-gold the nearby Mulga Rock deposit to the north of Balladonia. IPO, with the in specie shares distributed at no cost to Heron Shareholders. Hence was born Rubicon. The prospective lignite-bearing areas available at Balladonia are very large compared to the target size of an economic deposit. The area The Rubicon management team is in place, for an early 2007 listing. encompassing the lignite-associated Mulga Rock deposit is 190km2, Chairman is mining engineer John Shipp, former President of yet the prospective area of lignites at Balladonia exceeds 1,600km2. Barrick Gold Corporation’s Australia Africa Business Unit, and the The total published resource of the Mulga Rock deposit is a contained Managing Director is Peter Eaton, former Aditya Birla Minerals Limited General Manager (Geology and Business Development). U3O8 of 47,000 tonnes, Australia’s fourth largest uranium deposit. Exploration Manager is Kevin Cassidy, a recognised Yilgarn Figure 11: geology specialist, formerly a Project Leader with Geoscience Heatbreak Prospect Australia and CFO and Company Secretary is Sam Middlemas. within the Western This management team has extensive experience in all aspects of Balladonia Project. exploration, acquisitions, mine management and project feasibility Distribution of down- and development. hole radiometric anomalies and Digital Rubicon’s strategy is to create a well funded and technically skilled Terrain Model. company to discover and develop mining reserves on these projects and acquire additional exploration and development opportunities. Rubicon is targeting gold, copper and volcanogenic massive sulphide (VMS) zinc-copper mineralisation; all commodities that are enjoying near-record high prices. The key projects as shown in Figure 13 following comprise some 10,000 km2 of highly prospective tenure. The Warburton Project comprises some 3,000km2 within the western Musgrave Province of Central Australia. The area has The Heartbreak group is the most advanced in terms of demonstrated potential for large Iron Oxide Copper Gold (IOCG) previous uranium exploration. The favourable features for uranium mineralisation (eg. Olympic Dam, Ernest Henry and Prominent Hill), prospectivity include: and intrusive copper-nickel mineralisation (Babel-Nebo deposits), • Local radio-active “hot” granites, as a source of uranium; with known copper mineralisation and small scale copper mining. • Extensive near surface lignite as a potential host rock; and Previous shallow drilling has included intercepts of 14m at 1.3% • Encouraging suite of previous drill holes with high gamma Cu and 4m at 2.8% Cu. logs to 1000cps. Numerous structural, gravity and magnetic targets have been A substantial program of mapping, geophysics and drilling is planned defined for IOCG mineralisation, of the same style being successfully to further confirm the depth and width of the potential host palaeo- explored for on the Stuart Shelf in South Australia. valleys, and to test previously recorded uranium mineralisation.

Photo: Siberia North ore zone. The main mineralisation at this locality is limonite, lacking silica and magnesite. Hence the gentle typography, being windblown sand with characteristic Spinifex bush.

Annual Report 2006 15 Figure 12: Warburton Project, Geology and Target Locations.

Figure 13: Rubicon Projects.

The Yindarlgooda and Desdemona Projects comprise some 2,800km2 of Goldfields tenements with extensive gold and VMS potential. Yindarlgooda hosts two small non-JORC compliant gold resources at Queen Lapage and Taurus, as well as a significant strike Figure 14: Yindarlgooda Project, Magnetics and Tenements. extent of the Yindarlgooda VMS horizon, with VMS-style alteration, is considered prospective for copper and zinc mineralisation. The Bencubbin Project encompasses the entire Bencubbin Desdemona comprises tenements adjacent to the Kookynie and Greenstone belt and has known gold mineralisation. Boddington other gold deposits and south along strike from the Teutonic Bore South and Canobie are conceptual exploration plays along VMS. regional structures from major deposits.

Ian Buchhorn, Managing Director The information is based on, and accurately reflects, information compiled by Ian James Buchhorn, who is a Member of the Australasian Institute of Mining and Metallurgy (AusIMM) and has 32 years experience as an exploration geologist, 25 years experience as a mineral economist, and 10 years experience in evaluating nickel laterite mineral resources, and has the appropriate relevant qualifications, experience and competence to be considered as a “Competent Person” as defined in the JORC Code.

16 Heron Resources Limited Statutory InformationCorporate Profile 3.0

Heron Resources Limited ABN 30 068 263 098 3.0 CORPORATE PROFILE ...... 18 CORPORATE GOVERNANCE STATEMENT...... 18 4.0 DIRECTORS’ REPORT ...... 24 AUDIT INDEPENDENCE DECLARATION...... 31 5.0 FINANCIAL STATEMENTS ...... 32 INCOME STATEMENTS ...... 32 BALANCE SHEETS ...... 33 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY...... 34 CASH FLOW STATEMENT...... 35 NOTES TO AND FORMING PART OF THE ACCOUNTS...... 36 DIRECTORS’ DECLARATION...... 56 6.0 INDEPENDENT AUDIT REPORT ...... 57 7.0 SHAREHOLDER INFORMATION ...... 58 8.0 STATEMENT OF MINERAL RESOURCES ...... 62 9.0 INTEREST IN MINING TENEMENTS ...... 63 10.0 GLOSSARY ...... 82

HERON’S CORPORATE OBJECTIVE is to create sustainable long-term value for its Shareholders and the Communities in which we operate through the discovery and development of mineral resources.

In striving for our Corporate Objective, we will honour our commitment to Sustainable Development, conducting operations in a safe and environmentally responsible manner, offering employment opportunities to those who live in our areas of operation, and respecting and nurturing the Indigenous culture of the Land in which we operate.

The Business Plan is to operate within a framework of market-driven strategies, but cognisant of prudent risk management strategies.

We will conduct operations at the highest level of Corporate Governance, promoting a culture of personal and corporate integrity and respect. Our sincere belief is that good governance is good business, generating win-win outcomes for the Business.

Our Commodity Focus is Nickel. The Long Term goal is the development of the Kalgoorlie Nickel Project, a world class nickel laterite project located in Western Australia. In the Near to Medium Term, the focus is production from the Company’s suite of nickel laterite Heap Leach and nickel sulphide projects.

Annual Report 2006 17 3.0 Corporate Profile

HERON RESOURCES LIMITED (“Heron”) is a Kalgoorlie and Perth-based mineral exploration and development company. The corporate aim is to become a profitable mining company through the development, in partnership with Inco Limited (“Inco”) of Canada, of the Kalgoorlie Nickel Project (KNP) in the Eastern Goldfields of Western Australia. Additionally, the Company is evaluating a nickel laterite heap leach operation at the 100%-owned Jump-up Dam Project. In terms of the core nickel assets, the Company undertakes resource definition drilling and feasibility studies in relation to the provision of additional nickel laterite resources to the Kalgoorlie Nickel Project partnership, and seeks to generate new nickel sulphide targets. Additionally, the Company is carrying out the corporate programs necessary for the de-merger of non-core non- nickel assets. The management of the Company is based in Kalgoorlie with a corporate office in Perth. Accordingly, the Company has excellent access to tenement acquisition opportunities and to specialist contractor services. The Company is managed and staffed by a team of seven 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 develop nickel cash flow, initially from 100% Heron-owned heap leach projects; • To convert the Kalgoorlie Nickel Project laterite Mineral Resources into profitable Joint Venture 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; • To establish where possible a residential work force, to provide a working environment which also supports a healthy family life, and • Manage the risk in all social, exploration, development and corporate endeavours.

STRATEGY • Acquire the maximum available equity in nickel and associated commodity Mineral Resource projects through tenement 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 the best management, technical and financial control techniques; and • Work with a Nickel Industry Partner, being Inco, to spread development and funding risk for the larger more ambitious KNP.

CORPORATE GOVERNANCE STATEMENT The Board of Heron is committed to achieving and demonstrating the highest standards of Corporate Governance. The Board is responsible to its Shareholders for the performance of the Company, and wherever possible seeks the input of its Shareholders through both formal and informal meetings, distributing Company reports and electronic contacts. 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 it, a complementary policy or practice has also been identified.

18 Heron Resources Limited Corporate Profile Continued 3.0

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; 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 to management. 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 Governance Guidelines. The Company believes that Messrs Readhead, Buchhorn, Trench and Longworth have the skills and experience to properly 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 expense of 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 in Section 4.0 following of the Annual Report. Council Recommendation 2.2: The chairperson should be an independent director. The Company does not comply with this recommendation. The Chairman, Mr Craig Readhead is not independent. The Board believes that Mr Readhead brings quality and independent judgment to all relevant issues falling within the scope 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 the appointment of an independent non-executive Chairman. Council Recommendation 2.3: The roles of chairperson and managing director should not be exercised by the same individual. The Company complies with this recommendation. Council Recommendation 2.4: The Board should establish a nomination committee. The Company does not comply with this recommendation. The Board considers that the Company is not currently of a size to justify the formation of a nomination committee. The Board as a whole undertakes the process of reviewing the skill base and experience of existing Directors to enable identification or attributes required in new Directors. An independent consultant has been engaged to continue to identify new candidates for the Board, and discussions continue at an informal level with persons so identified to gauge their interest and optimal timing, if appropriate, to assume a Board role. 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 rotational basis. Should the Company’s activities increase in size, scope and nature, the appointment of a nomination committee will be reviewed by the Board and implemented if appropriate.

Annual Report 2006 19 3.0 Corporate Profile Continued

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 (or equivalent), 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 complies with this recommendation. 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 overseen by 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 and which they believe could compromise in any way the perceived or actual reputation or performance of the Company; • Respect confidentiality of all information of a confidential nature, which is acquired in the course of the Company's business and not disclose or make improper use of such confidential information to any person unless specific authorisation 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 of honesty, fairness and integrity and to observe the rule and spirit of the legal and regulatory environment in which the Company operates; and • Protect the assets of the Company to ensure availability for legitimate business purposes and ensure all corporate opportunities are enjoyed by the Company and that no property, information or position belonging to the Company or opportunity 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 and employees. The Company complies with this recommendation. The Board has adopted a policy and procedure on dealing in the Company's securities by Directors, Officers and employees which prohibits dealing in the Company's securities when those persons possess unpublished market price sensitive information. It also requires Directors to notify the Chairman of the Company when trading in the Company occurs. 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 trade occurring so that the Company Secretary can comply with the ASX Listing Rule 3.19A.2 requirement to notify ASX of any change 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 (or equivalent) to state in writing to the board that the company’s financial reports present a true and fair view, in all material respects, of the company’s financial condition and operational results and are in accordance with relevant accounting standards. The Company complies with this recommendation. For years or half years commencing 30 June 2004 onwards the Company’s Managing Director and the Company Secretary (or Chairman where so delegated by the Board) have reported 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 material aspects, of the Company’s financial condition and operational results and are in accordance with accounting standards; • The above statement is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the Board; and • The Company’s risk management and internal compliance and control framework is operating efficiently and effectively in all material aspects.

20 Heron Resources Limited Corporate Profile Continued 3.0

Council Recommendation 4.2: The board should establish an audit committee. The Company does not comply with this recommendation. The Board believes that the Company is not of a size, nor are its financial affairs of such complexity to justify the formation of 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 ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level of that compliance. The Company complies with this recommendation. The Company has adopted a continuous disclosure policy that requires all Directors, Officers and Executives to inform the Managing Director or in their absence the Company Secretary of any potentially material information as soon as practicable after they become aware of that information. Information is material if it is likely that the information would influence investors who commonly acquire securities on ASX in 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 where necessary informing the Board and Company Secretary. Prior to the adoption of the continuous disclosure policy there were no written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and accountability for compliance, however the policies and procedures 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, with the Company Secretary delegated in respect of administrative matters and Chief Operating Officer in respect of technical matters. The Managing Director’s role includes responsibility for ensuring compliance with the continuous disclosure requirements in ASX Listing Rules and overseeing and coordinating information disclosure to ASX, shareholders, analysts, brokers, the media and the public. The Managing Director ensures disclosed information is available through the Company’s website and its links. Principle 6. Respect the Rights of Shareholders Council Recommendation 6.1: Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings. The Company complies with this recommendation. The Company’s communication strategy requires communication with Shareholders in an open, regular and timely manner so that the market has sufficient information to make informed investment decisions on the operations and results of the Company. A specialist Company officer is responsible for Shareholder and investor relations. The Company’s website is the main means of Shareholder communication. Those Shareholders who notify the Company of 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. Additionally, executive directors make tours elsewhere in Australia and overseas whenever possible to meet with Shareholders, media, financial institutions and representatives of the sharebroking sector. Such tours generally correspond with occasions on which the Company has been invited to present papers at technical, financial or other conferences.

Annual Report 2006 21 3.0 Corporate Profile Continued

The Company retains a media consultant whose responsibility is to monitor and ensure the Company’s activities are reported in the optimum forums, notably the financial press of Australia, in a fair and reasonable manner so as to provide a commentary on the Company’s activities for both Shareholders and other interested parties. Council Recommendation 6.2: Request the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. The Company complies with this recommendation. It has since its public listing been the Company’s practice to require the external auditor, Butler Settineri (Audit) Pty Ltd, to attend the Annual General Meeting of the Company and be available to answer Shareholder questions about the conduct of the audit and 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 oversight and management. The Company complies with this recommendation. The Board is responsible for risk management and control and they examine and consider areas of significant business risk 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: • Retention of specialist senior legal counsel to advise on matters involving perceived corporate or legal risk; • Detailed strategic plans compiled by the Managing Director which document the business plan and areas of risk to that plan; • 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 Company retains an internationally-based corporate advisor, with responsibility to particularly advise on merger and acquisition opportunities, capital market trends, capital raising opportunities and general market issues. The advisor attends Board meetings by invitation to report on risks (and opportunities). The risk management policy of the Company will continue to be developed as its operations and areas of potential risk continue 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) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board; and 7.2.2 the company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects. The Company complies with this recommendation. Principle 8. Encourage Enhanced Performance Council Recommendation 8.1: Disclose the process for performance evaluation of the board, its committees and individual directors, and key executives. The Company complies with this recommendation. The Company operates a management review system which it terms “Management by Objective”, which facilitates an annual 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 as appropriate in relation to the composition and skills mix of the Directors of the Company. Where felt to be of value, the process in the past has been implemented by the Company’s auditors or corporate advisor, and in more recent years, has been facilitated at informal meetings of directors with assistance from invited experts.

22 Heron Resources Limited Corporate Profile Continued 3.0

Principle 9. Remunerate Fairly and Responsibly Council Recommendation 9.1: Provide disclosure in relation to the company’s remuneration policies to enable investors to understand (i) the costs and benefits of those policies; and (ii) the link between remuneration paid to directors and key executives and corporate performance. The Company complies with this recommendation. The Chairman in consultation with independent Directors makes recommendations to the full Board on the remuneration packages provided for Officers and the Directors themselves. The Board uses the services of external advisers to assist them in this process, and is cognisant of the highly competitive remuneration environment operating in the mining sector. 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 Company does not comply with this recommendation. The Board considers that based on the Company's stage of development, no benefits or efficiencies are to be gained by delegating this function to a separate committee. Council Recommendation 9.3: Clearly distinguish the structure of the non-executive directors’ remuneration from that of executives. The Company complies with this recommendation. Council Recommendation 9.4: Ensure that the payment of equity based executive remuneration is made in accordance with thresholds set in plans approved by Shareholders. The Company complies with this recommendation. 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 other obligations to legitimate stakeholders. The Company complies with this recommendation. 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.

Annual Report 2006 23 4.0 Directors’ Report

The Directors submit their Report on the Company and its controlled entities for the year ended 30 June 2006. 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 2001 Position Chairman (Non-Executive) Craig Readhead is a lawyer with 28 years legal and corporate advisory experience with specialisation in the resources 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 the Managing Partner of specialist mining and corporate law firm Pullinger Readhead Lucas. Other current directorships Chairman of Agincourt Resources Limited since 2003 Non-executive Director of Mount Gibson Iron Limited since 2002 Chairman of Halcyon Group Limited since 2000 Former directorships in last 3 years Chairman of Pioneer Nickel Limited from 2003 to 2005 Chairman of New World Alloys Limited from 2000 to 2003 Director Ian James Buchhorn - BSc (Hons), Dip Geosci (Min Econ), MAusIMM Appointed 17 February 1995 Position Managing Director Ian Buchhorn is a Mineral Economist and Geologist with 32 years experience. Prior to listing Heron in 1996 as founding managing director, Mr Buchhorn worked with Anglo American Corporation in southern Africa, and Comalco, Shell/Billiton and Elders Resources in Australia, as well as setting up and managing Australia's first specialist mining grade control consultancy. Mr Buchhorn has worked on feasibility studies, bauxite and industrial mineral mining and exploration, gold and base metal project generation, and in corporate evaluations. For the last 20 years Mr Buchhorn has acquired and developed mining projects throughout the Eastern Goldfields of Western Australia and operated as a Registered Mine Manager. Other current directorships None Former directorships in last 3 years Non-executive Director of Avoca Resources Limited from 2001 to 2005 Non-executive Director of Pioneer Nickel Limited from 2003 to 2006 Director Allan Trench BSc (Hons), PhD, MSc (Min Econ), MBA (Oxon) Appointed 08 December 2003 Position Director (Non-Executive) Allan Trench is a business management consultant, mineral economist and geologist, experienced in strategic planning, market analysis and value-based acquisitions across a range of companies and commodities including the nickel, cobalt, precious metals, oil & gas and industrial mineral sectors. Dr Trench was formerly an exploration manager at WMC, specialising in nickel, a strategic planner for Barrick Gold and a consultant at McKinsey & Company. Other current directorships Non-executive director of Pioneer Nickel Limited since 2003 Non-executive chairman of Navigator Resources Limited (Chairman since 2006, director since 2005) Former directorships in last 3 years None. Director Norman Mathew Longworth BSc (Hons), MAusIMM Appointed 03 May 2004 Position Chief Operating Officer and Executive Director Mathew Longworth is a Geologist with 20 years exploration and development experience, having commenced his career with Shell/Billiton in Queensland and Shell Coal in the Hunter Valley. Mr Longworth then worked at Shell’s Kalgoorlie office on the Sunrise Dam deposit, and at Union Reefs during the feasibility study. Mr Longworth then joined Pancontinental in Kalgoorlie, and upon the takeover of Pancontinental by the Goldfields/RGC group, he managed exploration in the Kalgoorlie District for Goldfields, and subsequently AurionGold after the merger with Delta Gold. This included the period when Goldfields discovered the Raleigh and Aphrodite gold deposits. Mr Longworth joined Heron as exploration manager in December 2003. Other current directorships None. Former directorships in last 3 years None.

24 Heron Resources Limited Directors’ Report Continued 4.0

COMPANY SECRETARY The company secretary is Sarah Helen Calvert B. Bus (Acc) ASA. Mrs Calvert was appointed to the position of company secretary in 2004, having joined the Company in 2003 as administration manager and accountant. Mrs Calvert has had a career in Australia and overseas in the financial services, exploration and mining industries. Since 1984 Mrs Calvert has held accounting and management positions with various mining companies including Whim Creek Consolidated, New Victoria Resources, Normandy Mining, Newcrest Mining, and Heron. Mrs Calvert is a full-time employee of Heron, and provides company secretarial services exclusively to Heron and its wholly owned subsidiaries.

EXPLORATION MANAGER The Exploration Manager, David von Perger BSc (First Class Hons) MAusIMM was appointed to this position in February 2006. Mr von Perger is a geologist with some 13 years experience in mineral exploration having worked in several locations around Australia, including the southern Lachlan Fold Belt, the Pilbara region, South West Australia and the Eastern Goldfields. Mr von Perger has worked on various styles of mineral deposits including Archaean gold and nickel, and Proterozoic base-metal and iron-ore. He has been involved with a number of mineral discoveries and mine developments, including the Bronzewing and Quarters gold deposits. His experience includes four years as a business analyst for a major mining group involving analysis of mining operations, project development and assessment of new opportunities. Since his appointment with Heron in February 2004, Mr von Perger has been responsible for the identification and acquisition of several new nickel, gold, iron-ore and base-metal projects. In addition, Mr von Perger has been involved with identification and testing of screen beneficiation parameters for the Kalgoorlie Nickel Project prior to Inco Ltd’s involvement.

PRINCIPAL ACTIVITIES The principal activities of the consolidated entity during the year were: • Laterite nickel mineral exploration and development through sole funded and joint venture activities; and • Non-laterite nickel mineral exploration activities, generally in relation to mineral properties intended for divestment. 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 2006 financial year after income tax of nil (2005 : nil) was $1,579,160 (2005 : $807,749).

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. In December 2005, 200,000 shares were issued by the Company to Supersorb NL at $0.255 for the acquisition of mining tenements at Bulong East. In February 2006, 1,541,880 Scimitar Resources Limited shares, held by Heron were transferred to Helix Resources Limited along with cash to acquire mining tenements at Highway. In June 2006, an office was established in West Perth to provide a base for Heron “spin-offs” Rubicon Resources Limited and Epsilon Energy Limited, and for furthering corporate opportunities. The Company is focussing on generating cash-flow from its 100%-owned Yerilla Project nickel laterite heap leach target.

Annual Report 2006 25 4.0 Directors’ Report Continued

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 2006 that has significantly affected or may significantly affect: • The operations, in the financial years subsequent to 30 June 2006, of the consolidated entity; • The results of those operations; or • The state of affairs, in the financial years subsequent to 30 June 2006, of the consolidated entity. By Resolution on 10 July 2006 , the Directors of the Company agreed to sell the Company’s Scimitar Resources Limited shares and purchase up to 900,000 GME Resources Limited rights. The Company currently hold 710,000 GME Resources Limited shares. By Resolution on 13 July 2006, the Directors of the Company accepted an Offer of Firm Allocation in Placement and General Sub- Underwriting of the Share Purchase Plan of Pioneer Nickel Limited. The allocation and underwriting was for 962,800 shares at $0.125 issue price. The Company currently hold 1,006,030 Pioneer Nickel Limited shares. On 14 July 2006 the Company announced that it plans to focus fully on its nickel assets and that it will be divesting it’s gold, base- metal, uranium and iron ore assets. To this end, wholly owned subsidiaries Rubicon Resources Limited and Epsilon Energy Limited are planning to conduct IPOs and list on the ASX in the coming months with the acquisition of the Company’s gold/base-metal and uranium assets respectively. On 17 July 2006 the Company announced that it had entered into an agreement with Polaris Metal NL (Polaris) for Polaris to purchase the Company’s iron ore assets. Consideration for the transaction is to be A$5.5 million worth of Polaris shares at not less than A$0.185 per share plus 15 million Polaris share options exercisable at A$0.30 within five years of the date of issue. Polaris shareholder approval was received on 15 September 2006. By Special Resolution on 20 July 2006 the following wholly owned subsidiary had a name change. • Regent Resources Limited was changed to Rubicon Resources Limited on 2 August 2006. By Special Resolution on 1 August 2006 the following wholly owned subsidiary had a name change. • Balladonia Uranium Limited was changed to Epsilon Energy Limited on 9 August 2006 On 14 September 2006, Heron Resources Limited reached agreement for an out-of-court settlement with Argonaut Capital Limited in regards to litigation commenced by Heron in February 2006, following completion of negotiations with Inco Limited in July 2005 to develop the Kalgoorlie Nickel Project. The settlement terms agreed are: 1. $500,000 payment to Argonaut on execution of the formal deed of settlement; 2. $500,000 payment to Argonaut on Inco’s decision to proceed to Step 2 of the KNP; and 3. Heron to issue 2.75 million options to acquire fully paid ordinary shares in Heron at an exercise price of $1.50 per share exercisable within 12 months of Inco making a decision to mine pursuant to the KNP joint venture agreement. The options are not transferable. The parties have not as yet executed a formal Deed of Settlement. Inco proceeds to Step 2 of the Kalgoorlie Nickel Project Farm-in and Joint Venture On 25 September 2006, Heron Resources Limited received formal advice from Inco Limited in respect of the Kalgoorlie Nickel Project (KNP) and its Farm-in and Joint Venture (FIAJV). 1. Inco has completed Step 1 of the KNP, and having assessed the results, has decided it will continue onto Step 2 pursuant to the KNP FIAJV Agreement; and 2. Inco and the Company will finalise and adopt the Program and Budget for the first six months of Step 2, and based on technical results, will later adopt the Step 2 second six month Program and Budget. The Step 2 program will include: 1. Determine whether, with the information available, there is an economically feasible process and flow-sheet for the KNP by performing batch test work and mini-pilot plant scale tests using the samples collected from the Step 1 drilling and new drilling to be completed in the coming months; 2. Conduct metallurgical investigations in a mini-pilot facility, and evaluate ore blend responses and confirmation of product acceptance; and 3. Investigate drilling methods to yield the necessary information for mineral resource evaluation, and for mining and civil design.

26 Heron Resources Limited Directors’ Report Continued 4.0

Inco will continue to manage the FIAJV, and additionally will assume responsibility for the management and maintenance of all KNP tenements from the commencement of Step 2 through the following twelve months. The completion of Step 1 is the first of four milestones required by the KNP FIAJV leading to the potential development of the KNP. Jump-up Dam Project Nickel Laterite Trial Heap Leach Based on recently received metallurgical and drilling results at Jump Up Dam, the Company intends to conduct trial heap leaching. If the Jump-up Dam test programs are successful, the Company will be in a position to commission its first mining operation. This will impact on the staffing and expenditure levels of the Company.

OPTIONS The following Options were issued to 30 June 2006: Date Options Granted Expiry Date Number Issued Exercise Price 2 December 2005 30 June 2009 450,000 $0.60

Subsequent to 30 June 2006 the following Options were issued:

12 July 2006 1 June 2010 200,000 $0.70 8 August 2006 1 June 2010 150,000 $0.70

The following Options were exercised to 30 June 2006: Date Options Granted Expiry Date Number Issued Exercise Price 4 January 2005 31 December 2005 2,000,000 $0.20 16 August 2004 31 July 2006 1,100,000 $0.33 7 November 2003 30 June 2007 617,000 $0.25 1 July 2004 16 December 2007 200,000 $0.25 4 January 2005 16 December 2007 300,000 $0.25 18 February 2005 16 December 2007 649,000 $0.25 23 February 2005 1 December 2008 50,000 $0.25

Subsequent to 30 June 2006 the following Options were exercised: 7 November 2003 30 June 2007 19,172 $0.25 16 August 2004 31 July 2006 200,000 $0.33

The following Options expired/lapsed during the year: Number Issued Expiry Date Exercise Price Nil

As at 30 June 2006 the Company had the following Options on issue: Date Options Granted Expiry Date Number Issued Exercise Price 16 August 2004 31 July 2006 200,000 $0.33 7 November 2003 30 June 2007 3,626,172 $0.25 12 December 2003 16 December 2007 100,000 $0.25 16 December 2003 16 December 2007 1,500,000 $0.25 4 March 2004 16 December 2007 250,000 $0.25 1 July 2004 16 December 2007 600,000 $0.25 18 February 2005 16 December 2007 300,000 $0.25 20 May 2005 16 December 2007 151,000 $0.25 4 January 2005 31 December 2007 3,000,000 $0.25 23 February 2005 31 December 2008 125,000 $0.25 2 December 2005 30 June 2009 450,000 $0.60

Subsequent to 30 June 2006 the following Options were on issue: Date Options Granted Expiry Date Number Issued Exercise Price 12 July 2006 1 June 2010 200,000 $0.70 8 August 2006 1 June 2010 150,000 $0.70

No Option holder has any right under the Options to participate in any other Share issue of the Company or of any other entity.

Annual Report 2006 27 4.0 Directors’ Report Continued

LIKELY DEVELOPMENTS The Company will continue its core nickel development activities through sole funded exploration and joint ventures where appropriate. The Company is continually assessing commercial opportunities for corporate growth. Because of the unpredictable nature 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 of those operations have not been included in this Report because the Directors believe it would be likely to result in unreasonable prejudice to the consolidated entity.

DIRECTORS’ AND KEY MANAGEMENT PERSONNEL SHAREHOLDING IN THE COMPANY As at the date of this Report the interests of the Directors in the Shares of the Company were: Directors Ordinary Shares Options over Ordinary Shares Direct Indirect Direct Indirect C L Readhead - 329,325 - 750,000 I J Buchhorn 2,447,857 37,963,298 - 4,000,000 A Trench 184,500 310,000 - 200,000 N M Longworth 32,000 250,000 200,000 1,000,000

Key Management Personnel D von Perger 4,000 24,950 120,000 280,000

DIRECTORS MEETINGS During the year the Company held 14 meetings of Directors. The attendance of the Directors at meetings of the Board were: Director Meetings held Number of while a Director meetings attended C L Readhead 14 14 I J Buchhorn 14 14 A Trench 14 14 N M Longworth 14 14

REMUNERATION REPORT The Board seeks independent advice on remuneration policies and practices, involving the remuneration packages and terms of employment of Directors. Remuneration levels are competitively set to attract the most qualified and experienced directors and senior executive officers in the context of prevailing market conditions. There is no direct link between Director and Senior Executive remuneration and corporate performance. Remuneration levels and other terms of employment for Mr Buchhorn, Mr Longworth and Mr von Perger are formalised in service agreements. The agreement with Mr Buchhorn requires the provision of his services as Managing Director of the Company and contains 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. Forfeiture or payment of 6 months salary as the case may be may be made or given in lieu of notice. The Company will pay Mr Buchhorn the maximum amount payable in accordance with the formula prescribed by section 200G of the Corporations Act. Subsequent to the end of the financial year, the Company offered a new remuneration package for Mr Buchhorn. A service agreement is being negotiated.

28 Heron Resources Limited Directors’ Report Continued 4.0

The agreement with Mr Longworth requires the provision of his services as Chief Operating Officer of the Company’s corporate and exploration activities and contains the following major provisions: • No fixed term; • Current base salary of $230,000 and vehicle allowance, exclusive of superannuation; and • In the event that the Company terminates Mr Longworth’s employment other than for matters concerning fraud and dishonesty and the like, the Company will pay Mr Longworth the maximum amount payable in accordance with the formula prescribed by section 200G of the Corporations Act. The length of notice to be given by both parties on termination is two months. The agreement with Mr von Perger requires the provision of his services as Exploration Manager of the Company’s exploration activities and contains the following major provisions: • No fixed term; • Current base salary of $165,000 exclusive of superannuation; and • In the event that the Company terminates Mr von Perger’s employment other than for matters concerning fraud and dishonesty and the like, the Company will pay Mr von Perger the maximum amount payable in accordance with the formula prescribed by section 200G of the Corporations Act. The length of notice to be given by both parties on termination is two months. Non-executive Directors received a fixed fee for their services as directors. Non-executive Directors fees not exceeding an aggregate of $175,000 per annum have been approved by the Company in a general meeting. There is no direct link between 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 full Board. 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 to receive a benefit, other than benefits disclosed in the financial statements as emoluments or the fixed salary of a full-time employee of the Company or a related body corporate, by reason of a contract made by the Company with the Director or 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 and Key Management Personnel of the Company are detailed below: Short-term Post-employment Share-based ------benefits------benefits------payment Cash Salary Cash Non-Cash Super- Retirement Options Total & fees Bonus Benefits annuation Benefits $$$$$$$ Directors CL Readhead 75,000 - - - - 57,725 132,725 IJ Buchhorn 158,851 - - 41,148 - 333,000 532,999 A Trench 22,936 - - 2,064 - 46,180 71,180 NM Longworth 192,977 - 4,288 17,368 - 84,300 298,933 Key Management Personnel D von Perger 143,889 15,000 - 11,600 - - 170,489 Total 593,653 15,000 4,288 72,180 - 521,205 1,206,326

Mr Trench and Mr Readhead’s options were subject to the conditions of Employee Share Option Plan Number 2. Mr Buchhorn and Mr Longworth’s options were subject to any one of the following conditions being met during the year: (i) the Company is admitted to the Alternative Investment Market of London Stock Exchange plc; (ii) the Company raises at least $15,000,000 from issues of equity securities from the date of grant of the options; (iii) the Company secures a major cornerstone investor which subscribes for Shares equal to not less than 10% of the issued Shares in the Company; or (iv) the Company enters into an agreement with a major mining or financial entity which provides for that entity to fund feasibility studies leading to a decision to proceed with the development of the Kalgoorlie Nickel Project.

Annual Report 2006 29 4.0 Directors’ Report Continued

During the year, following Shareholder approval, a total of 450,000 Options, were issued to the following Directors: Mr Readhead 250,000 expiring on 30 June 2009 and exercisable at $0.60 and Mr Trench 200,000 expiring on 30 June 2009 and exercisable at $0.60. Fair values for the options at grant date, as included in the above table, were independently determined using Black and Scholes models that took into account the exercise price of the Option, the term of the Option, the vesting and performance criteria, the non- tradable nature 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.

INSURANCE OF OFFICERS During the financial year the Company has paid an insurance premium in respect of a Directors’ and Officers’ Liability Insurance Contract. The insurance premium relates to liabilities that may arise from an Officer’s position, with the exception of conduct involving a willful 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 with the ASX Corporate Governances Best Practices Recommendations. The consolidated entity’s Corporate Governance Statement 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 exploration and 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 its exploration 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.

NON-AUDIT SERVICES The consolidated entity has employed the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the consolidated entity are important. Details of the amounts paid to the auditor Butler Settineri (Audit) Pty Ltd and their related practices for non-audit services provided during the year are set out below. The Board of Directors has considered the position and is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The Directors are satisfied that the provision of non-audit services by the auditor and their related practices, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001. Non-Audit Services Butler Settineri Chartered Accountants Consolidated 2006 2005 $$ Fringe Benefit Taxation Returns 0 500

Signed in accordance with a resolution of Directors

C L READHEAD Chairman Perth, 29 September 2006

30 Heron Resources Limited Audit Independence Declaration 4.0

As lead auditor for the audit of Heron Resources Limited for the year ended 30 June 2006, I declare that, to the best of my knowledge and belief, there have been: a) No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and b) No contraventions of any applicable code of professional conduct in relation to the audit.

BUTLER SETTINERI (AUDIT) PTY LTD PAUL J CHABREL Registered Company Auditor Number: 289109 Director

Perth Date: 29 September 2006

Annual Report 2006 31 5.0 Financial Statements

INCOME STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Consolidated Entity Parent Entity Notes 2006 2005 2006 2005 $$$ $ REVENUES FROM CONTINUING ACTIVITIES 2 761,052 1,416,191 754,486 1,391,244

Accountancy (11,490) (34,004) (7,340) (34,004) Advertising (627) (29,201) (627) (29,201) Audit (28,158) (19,356) (19,156) (15,356) Computer software and services (17,294) (107,692) (17,294) (107,692) Conferences and seminars (30,724) (26,990) (30,724) (26,990) Consultants (47,950) (930,690) (37,950) (930,690) Depreciation expense 3 (a) (34,856) (38,447) (34,856) (38,447) Directors Fees (75,000) (50,000) (75,000) (50,000) Employee benefits expense (365,702) (93,907) (365,702) (93,907) Insurance (53,626) (48,697) (53,626) (48,697) Legal (358,945) (29,238) (358,945) (25,368) Media & Public Relations (80,093) (67,450) (80,093) (67,450) Recruitment (48,875) - (48,875) - Rental Expenses (60,209) (45,622) (60,209) (45,622) Report/Printing Expenses (57,226) (39,577) (57,226) (39,417) Stamp Duty (34,288) (13,111) (34,243) (13,111) Stock Exchange (47,406) (58,122) (43,409) (55,187) Share based payments (401,825) (230,628) (401,825) (230,628) Travel & Accommodation (28,794) (10,836) (28,728) (10,836) Other expenses from ordinary activities 3(b) (185,121) (129,288) (182,891) (128,174) Exploration expenditure written off (372,003) (221,084) (134,851) (87,875) LOSS FROM ORDINARY ACTIVITIES BEFORE INCOME TAX EXPENSE (1,579,160) (807,749) (1,319,084) (687,408) INCOME TAX EXPENSE 4 - - - - LOSS FROM ORDINARY ACTIVITIES AFTER INCOME TAX EXPENSE (1,579,160) (807,749) (1,319,084) (687,408) NET LOSS ATTRIBUTABLE TO MEMBERS OF THE PARENT ENTITY 13(a) (1,579,160) (807,749) (1,319,084) (687,408)

Basic earnings per Share 23 (0.0096) (0.0041) Diluted earnings per Share 23 (0.0096) (0.0041)

The accompanying notes form part of these financial statements

32 Heron Resources Limited Financial Statements Continued 5.0

BALANCE SHEETS AS AT 30 JUNE 2006 Consolidated Entity Parent Entity Notes 2006 2005 2006 2005 $$$ $ CURRENT ASSETS Cash assets 9,177,924 12,331,660 8,977,411 12,127,055 Receivables 5 529,092 314,175 522,474 315,495 TOTAL CURRENT ASSETS 9,707,016 12,645,835 9,499,885 12,442,550

NON-CURRENT ASSETS Receivables 6 - - 6,597,411 4,881,587 Investments 7 137,436 440,000 137,666 440,130 Property, plant and equipment 8 43,905 51,079 40,770 51,079 Exploration and evaluation costs carried forward 9 24,665,732 20,594,985 18,813,718 16,209,188 TOTAL NON-CURRENT ASSETS 24,847,073 21,086,064 25,589,565 21,581,984 TOTAL ASSETS 34,554,089 33,731,899 35,089,450 34,024,534

CURRENT LIABILITIES Payables 10 850,966 226,650 833,300 226,334 Provisions 11 275,704 174,307 275,704 174,307 TOTAL CURRENT LIABILITIES 1,126,670 400,957 1,109,004 400,641

TOTAL LIABILITIES 1,126,670 400,957 1,109,004 400,641

NET ASSETS 33,427,419 33,330,942 33,980,446 33,623,893

EQUITY Contributed equity 12 45,179,824 43,779,780 45,179,824 43,779,780 Revaluation Reserve 13(c) 45,812 40,000 45,812 40,000 Option Reserve 13(b) 500,409 230,628 500,409 230,628 Accumulated losses 13(a) (12,298,626) (10,719,466) (11,745,599) (10,426,515) TOTAL EQUITY 33,427,419 33,330,942 33,980,446 33,623,893

The accompanying notes form part of these financial statements

Annual Report 2006 33 5.0 Financial Statements Continued

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2006

Notes Issued Retained Revaluation Option Total Capital Earnings Reserve Reserve As at 30 June 2005 43,779,780 (10,719,466) 40,000 230,628 33,330,942

Loss for the year - (1,579,160) - - (1,579,160) Issue of Share Capital 1,268,000 - - - 1,268,000 Revaluation of Investments 13(c) - - 5,812 - 5,812 Option Reserve transfer on exercise 12 132,044 - - (132,044) - Cost of Share Based Payments - - - 401,825 401,825 Share Issue Costs Paid - - - - - As at 30 June 2006 45,179,824 (12,298,626) 45,812 500,409 33,427,419

As at 30 June 2004 27,267,189 (9,911,717) - - 17,355,472

Loss for the year - (807,749) - - (807,749) Issue of Share Capital 12 16,918,555 - - - 16,918,555 Revaluation of Investments 13(c) - - 40,000 - 40,000 Option Reserve transfer on exercise 12 - - - 230,628 230,628 Cost of Share Based Payments - - - - - Share Issue Costs Paid (405,964) - - - (405,964) As at 30 June 2005 43,779,780 (10,719,466) 40,000 230,628 33,330,942

The accompanying notes form part of these financial statements

34 Heron Resources Limited Financial Statements Continued 5.0

CASH FLOW STATEMENTS FOR THE YEAR ENDED 30 JUNE 2006 Consolidated Entity Parent Entity Notes 2006 2005 2006 2005 $$$ $ CASH FLOWS FROM OPERATING ACTIVITIES Interest received 656,696 90,186 650,747 89,785 Proceeds from sale of data and tenements - 80,000 - 60,000 Option fees received - 27,796 - 23,250 Sale of Options - 720,000 - 720,000 Sale of Rights 300 38,500 300 38,500 Payments to suppliers (1,326,444) (1,284,460) (1,289,941) (1,279,234)

NET CASH USED IN OPERATING ACTIVITIES 14(a) (669,448) (327,978) (638,894) (347,699)

CASH FLOWS FROM INVESTING ACTIVITIES Exploration expenditure (3,673,606) (4,262,278) (1,987,279) (2,766,995) Investment in controlled entity - - (100) - Acquisition of plant & equipment (27,682) (34,918) (24,547) (34,918)

NET CASH USED IN INVESTING ACTIVITIES (3,701,288) (4,297,196) (2,011,926) (2,801,913)

CASH FLOWS FROM FINANCING ACTIVITIES Loans to controlled entities - - (1,715,824) (1,624,042) Refundable bonds - (20,000) - (20,000) Proceeds from issue of Shares 1,217,000 16,004,556 1,217,000 16,004,556 Share issue costs - (405,965) - (405,965)

NET CASH PROVIDED BY FINANCING ACTIVITIES 1,217,000 15,578,591 (498,824) 13,954,549

NET INCREASE / (DECREASE) IN CASH HELD (3,153,736) 10,953,417 (3,149,644) 10,804,937 Cash at the beginning of the reporting period 12,331,660 1,378,243 12,127,055 1,322,118 CASH AT THE END OF THE REPORTING PERIOD 14(c) 9,177,924 12,331,660 8,977,411 12,127,055

Non-cash financing and investing activities 14(b)

The accompanying notes form part of these financial statements

Annual Report 2006 35 5.0 Financial Statements Continued

NOTES TO AND FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED 30 JUNE 2006 NOTE 1. STATEMENT OF ACCOUNTING POLICIES The following is a summary of the material accounting policies adopted by Heron Resources Limited and its controlled entities (the Company) in the preparation of the financial statements. a) Basis of preparation This general purpose financial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001. Compliance with IFRS Australian Accounting Standards include AIFRS. Compliance with AIFRS ensures that the consolidated financial statements and notes of the Company comply with International Financial Reporting Standards (IFRS). The parent entity financial statements and notes also comply with IFRS except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure. Application of AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. These financial statements are the Company's first financial statements to be prepared in accordance with AIFRS. AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards has been applied in preparing these financial statements. The financial statements of the Company until 30 June 2005 had been prepared in accordance with previous Australian Generally Accepted Accounting Principles (AGAAP). AGAAP differs in certain respects from AIFRS. When preparing the Company's 2006 financial statements, management has amended certain accounting, valuation and consolidation methods applied in the AGAAP financial statements to comply with AIFRS. With the exception of financial instruments, the comparative figures in respect of 2005 were restated to reflect these adjustments. The Company has taken the exemption available under AASB 1 to only apply AASB 132 and AASB 139 from 1 July 2005. Reconciliations and descriptions of the effect of transition from previous AGAAP to AIFRS on the Company's equity and its net income are given in note 26. These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available- for-sale financial assets, financial assets and liabilities (including derivative instruments) at fair value through profit or loss, certain classes of property, plant and equipment and investment property. b) Basis of Consolidation Subsidiaries Subsidiaries are entities controlled by the Company. Control exists when the Company has power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Investments in subsidiaries are carried at their cost of acquisition in the Company's financial statements. The financial statements of subsidiaries are prepared for the same reporting period as the parent entity, using consistent accounting policies. All inter-company balances and transactions between entities in the Company, including any unrealised profits or losses, have been eliminated on consolidation. c) Income Tax The income tax expense or revenue for the period is the tax payable on the current period's taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

36 Heron Resources Limited Financial Statements Continued 5.0

NOTE 1. STATEMENT OF ACCOUNTING POLICIES continued c) Income Tax continued Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductable and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability at the same time. The resulting deferred tax assets of the Company are currently not recognised and included as an asset because recovery is considered not probable in the next five years. Heron Resources Limited and its wholly owned Australian controlled entities have implemented the tax consolidated legislation as of 1 July 2003. d) Segment Reporting A segment is a distinguishable component of the Company that is engaged in the mineral exploration industry in Western Australia. e) Revenue Recognition Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, duties and taxes paid. The main revenue is interest received, which is recognised on an accrual basis. f) Property, plant and equipment Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses where applicable. Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment. Depreciation and amortisation on assets is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, are as follows: Motor Vehicles 3-5 years Fixtures and Fittings 5-15 years Plant and Equipment 5-15 years Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. g) Exploration, Evaluation, Development and Restoration Costs Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. Accumulated costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area, or by its sale, or where the activities in the area have not reached a stage which permits 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 decision to 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 are current. Restoration costs that are expected to be incurred are provided for as part of the cost of the exploration, evaluation and development phases that give rise to the need for restoration.

Annual Report 2006 37 5.0 Financial Statements Continued

NOTE 1. STATEMENT OF ACCOUNTING POLICIES continued h) Investments Investments held by the Company are classified as being available-for-sale and are stated at fair value, with any resultant gain or loss recognised directly in equity. Where these investments are derecognised, the cumulative gain and loss previously recognised directly in equity is recognised in profit and loss. Where these investments are interest bearing, interest calculated using the effective interest method is recognised in the income statement. Financial instruments classified as held for trading or available-for-sale investments are recognised/derecognised by the Company on the date it commits to purchase/sell the investment. Securities held to maturity are recognised/derecognised on the day they are transferred to/by the Company. i) Trade and other receivables Trade and other receivables are stated at their cost, and are due for settlement no more than 30 days from the date of invoicing. j) Cash and cash equivalents Cash and cash equivalents includes cash on hand, deposits held at call with the banks, other short term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts, if any, are shown within short-term borrowings on the balance sheet. k) Impairment Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units). l) Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis. m) Employee benefits (i) Wages and salaries, annual leave Liabilities for wages and salaries and annual leave are recognised as employee benefits in respect of employee's services up to the reporting date and are measured at the amounts to be paid when the liabilities are settled. (ii) Long service leave The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service and final average salary. (iii) Share-based payment transactions The share option programme allows the Company employees to acquire shares of the company. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a Black-Scholes option pricing model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. n) Provisions Provisions for legal claims and service warranties are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

38 Heron Resources Limited Financial Statements Continued 5.0 o) Trade and other payables Trade and other payables are stated at cost. The amounts are unsecured and are usually paid on 30 days. p) Dividends No dividends have been paid or proposed during or since the end of the year. q) Goods and services tax Revenue, expenses and assets are recognised net of the amount of goods and services tax (GST), except where the amount of GST incurred is not recoverable from the taxation authority. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable from, or payable to the ATO is included as a current asset or liability in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis. The GST components of cash flows arising from investing and financing activities which are recoverable from, or payable to the ATO are classified as operating cash flows. r) Contributed Equity Ordinary shares are classified as equity. Incremental costs directly attributed to the issue of new shares or options are shown in the equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration. (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. s) Critical accounting estimates and assumptions Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 2. REVENUE FROM CONTINUING ACTIVITIES Revenues from operating activities Revenues from continuing activities Profit from sale of tenements and data 300 442,632 300 422,632 Option fee received - 27,796 - 23,250 Profit on Options - 720,000 - 720,000 Profit on Rights - 30,000 - 30,000 Profit on Sale of Shares 151,624 - 151,624 - Interest received – other persons/corporations 609,128 195,763 602,562 195,362 Total revenues from continuing activities 761,052 1,416,191 754,486 1,391,244

Annual Report 2006 39 5.0 Financial Statements Continued

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 3. LOSS FROM CONTINUING ACTIVITIES The loss before income tax expense has been determined after charging the following items: charging the following items: a) Expenses Depreciation Plant & equipment (6,788) (8,252) (6,788) (8,252) Office equipment & furniture (24,756) (26,883) (24,756) (26,883) Motor vehicles (3,312) (3,312) (3,312) (3,312) b) Other Expenses includes the following: Payroll Tax (48,007) - (48,007) - Other professional fees (25,158) (14,118) (11,555) (14,118) Office utilities and expenses (9,838) (10,451) (9,838) (10,451) Office expenses and supplies (55,081) (57,576) (66,734) (56,462) Share Registry (23,150) (27,561) (23,150) (27,561) Telephone & Communication (23,887) (19,582) (23,607) (19,582) (185,121) (129,288) (182,891) (128,174)

NOTE 4. INCOME TAX a) Temporary differences carried forward ---- Current Tax - - - - Deferred tax ------

The Heron Resources Ltd group of companies tax consolidated on 1 July 2003. There are presently no tax sharing and/or tax funding agreements in place. The parent entity and each of the subsidiaries are in tax loss for the year and have substantial tax losses carried forward. The Directors are of the view that there is insufficient probability that the parent entity and its subsidiaries will derive sufficient income in the foreseeable future to justify recognising the tax losses and temporary differences as deferred tax assets and deferred tax liabilities. Heron Resources Limited is the head entity for the group. b) Numerical reconciliation of income tax expense to prima facie tax payable is as follows:

Profit (loss) from operations before income tax expense (1,579,160) (807,749) (1,319,084) (667,408) Tax at Australian tax rates of 30% (2005 also 30%) (473,748) (242,325) (395,725) (200,222) Tax effect of non-temporary differences 108,406 (30,050) 108,406 (31,211) Tax effect of equity raising costs debited to equity (26,158) - (26,158) - Over or underprovision from previous years - - - - Tax effect of tax losses and temporary differences not recognised 391,500 272,375 313,477 231,433

Income tax expense - - - -

40 Heron Resources Limited Financial Statements Continued 5.0

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 4. INCOME TAX continued c) There is no amount of tax benefit recognised in equity as the tax effect of temporary differences has not been booked. d) Tax Losses Unused tax losses for which no deferred tax asset 26,836,466 21,388,861 22,801,003 19,080,307 has been recognised. Potential benefit at 30% 8,050,940 6,416,658 6,840,301 5,724,092 e) Unrecognised temporary differences Exploration costs claimed for tax (7,399,720) (6,175,738) (5,644,115) (4,862,756) Capital raising costs claimable for tax 76,674 102,832 76,674 102,832 Revaluation of available-for-sale assets 13,744 12,000 13,744 12,000 Other temporary differences 65,165 20,970 65,350 20,970

There are no franking credits.

NOTE 5. RECEIVABLES (CURRENT) Prepayment - Insurance 29,713 - 29,713 - Prepayment - Rent 28,209 - 28,209 - R&D Tax Offset 260,418 - 260,418 - Accrued interest 58,487 104,408 57,871 104,408 Goods & services tax paid 152,265 209,767 146,263 211,087 529,092 314,175 522,474 315,495

NOTE 6. RECEIVABLE (NON CURRENT) Loans to controlled entities (Note 15) - - 6,597,411 4,881,587 - - 6,597,411 4,881,587

NOTE 7. INVESTMENTS IN ENTITIES Shares in controlled entities – at cost (Note 21) - - 230 130 Shares in other entities - revalued (Note 21) 137,436 440,000 137,436 440,000 137,436 440,000 137,666 440,130

NOTE 8. PROPERTY PLANT AND EQUIPMENT Plant and equipment at cost 114,022 112,217 114,022 112,217 Accumulated depreciation (104,305) (97,517) (104,305) (97,517) 9,717 14,700 9,717 14,700 Office equipment & furniture at cost 125,077 99,200 121,942 99,200 Accumulated depreciation (96,394) (71,638) (96,394) (71,638) 28,683 27,562 25,548 27,562 Motor vehicles at cost 158,433 158,433 158,433 158,433 Accumulated depreciation (152,928) (149,616) (152,928) (149,616) 5,505 8,817 5,505 8,817 Total property, plant and equipment 43,905 51,079 40,770 51,079

Annual Report 2006 41 5.0 Financial Statements Continued

Consolidated Entity Parent Entity 2006 2006 $ $ NOTE 8. PROPERTY PLANT AND EQUIPMENT continued Reconciliation Plant and equipment: Carrying amount at 1 July 2005 14,700 14,700 Additions 1,805 1,805 Disposals - - Depreciation Expense (6,788) (6,788) Carrying value at 30 June 2006 9,717 9,717 Office equipment and furniture: Carrying amount at 1 July 2005 27,562 27,562 Additions 25,877 22,742 Disposals - - Depreciation Expense (24,756) (24,756) Carrying value at 30 June 2006 28,683 25,548 Motor vehicles: Carrying amount at 1 July 2005 8,817 8,817 Additions - - Disposals - - Depreciation Expense (3,312) (3,312) Carrying value at 30 June 2006 5,505 5,505

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 9. EXPLORATION AND EVALUATION COSTS CARRIED FORWARD Balance at beginning of year 20,594,985 16,449,009 16,209,188 13,420,068 Acquisition costs 1,196,138 1,214,546 955,040 441,301 Exploration and evaluation costs incurred during the year 3,246,612 3,198,381 1,786,926 2,481,562 Exploration and evaluation costs of tenements/data disposed of - (45,868) - (45,868) Exploration and evaluation costs written off (372,003) (221,083) (137,436) (87,875) Balance at end of year 24,665,732 20,594,985 18,813,718 16,209,188

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

NOTE 10. PAYABLES (CURRENT) Trade creditors and accruals - Exploration Activities 639,742 120,872 622,076 120,556 Trade creditors and accruals - Other 211,224 105,778 211,224 105,778 850,966 226,650 833,300 226,334

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

42 Heron Resources Limited Financial Statements Continued 5.0

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 11. PROVISIONS (CURRENT) Employee entitlements 275,704 174,307 275,704 174,307 275,704 174,307 275,704 174,307

NOTE 12. CONTRIBUTED EQUITY Shares Issued and paid up capital 167,315,600 (2005: 162,199,600) Ordinary Shares fully paid 46,004,064 44,736,064 46,004,064 44,736,064 Option Reserve transfer on exercise 132,044 - 132,044 - Less: Capital Raising Expenses (956,284) (956,284) (956,284) (956,284) 45,179,824 43,779,780 45,179,824 43,779,780

Movements in issued and paid up capital of the parent entity during the year are as follows: 2006 Number $ Balance at beginning of year 162,199,600 44,736,064 Issued during the year 5,116,000 1,268,000 Transfer from option reserve - 132,044 Balance at end of year 167,315,600 46,136,108

1,145,000 Shares were issued at $0.25 per Share as exercise of Options. 200,000 Shares were issued at $0.255 per Share as consideration for the acquisition of mining tenements. 2,000,000 Shares were issued at $0.20 per Share as exercise of Options. 4,000 Shares were issued at $0.25 per Share as exercise of Options. 50,000 Shares were issued at $0.25 per Share as exercise of Options. 300,000 Shares were issued at $0.25 per Share as exercise of Options. 72,000 Shares were issued at $0.25 per Share as exercise of Options. 245,000 Shares were issued at $0.25 per Share as exercise of Options. 1,100,000 Shares were issued at $0.33 per Share as exercise of Options. Ordinary Shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on Shares 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 Price 450,000 30-Jun-09 $0.60 The following options were exercised during the year: Number Issued Expiry Date Exercise Price 2,000,000 31-Dec-05 $0.20 1,100,000 31-Jul-06 $0.33 617,000 30-Jun-07 $0.25 1,149,000 16-Dec-07 $0.25 50,000 31-Dec-08 $0.25

Annual Report 2006 43 5.0 Financial Statements Continued

NOTE 12. CONTRIBUTED EQUITY continued The following Options expired/lapsed during the year: Number Issued Expiry Date Exercise Price Nil

As at 30 June 2006 the Company had the following Options on issue: Number Issued Expiry Date Exercise Price 200,000 31-Jul-06 $0.33 3,626,172 30-Jun-07 $0.25 2,901,000 16-Dec-07 $0.25 3,000,000 31-Dec-07 $0.25 125,000 31-Dec-08 $0.25 450,000 30-Jun-09 $0.60

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 13. ACCUMULATED LOSSES AND RESERVES a) Accumulated Losses Balance at the beginning of the year 10,719,466 9,911,717 10,426,515 9,739,107 Net loss 1,579,160 807,749 1,319,084 687,408 Balance at end of the year 12,298,626 10,719,466 11,745,599 10,426,515

The Company has retained a loss at 30 June 2006.

b) Option Reserve Balance at the beginning of the year 230,628 - 230,628 - Cost of share based payments 401,825 230,628 401,825 230,628 Cost transfer on exercise (132,044) - (132,044) - Balance at end of the year 500,409 230,628 500,409 230,628

The option reserve is used to recognise the fair value of options issued and expensed over the vesting period and credited to this reserve. The shares will reverse against the share capital when the underlying shares are exercised.

c) Revaluation Reserve Balance at the beginning of the year 40,000 - 40,000 - Revaluations 157,436 40,000 157,436 40,000 Sale of investments (151,624) - (151,624) - Balance at end of the year 45,812 40,000 45,812 40,000

The revaluation reserve is used to recognise the fair value of financial assets classified as available-for-sale assets. Amounts are recognised in the income statements when the associated assets are sold.

44 Heron Resources Limited Financial Statements Continued 5.0

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 14. CASH FLOW STATEMENTS a) Reconciliation of operating loss after income tax to the net cash flows from operations: Operating loss after income tax (1,579,160) (807,749) (1,319,084) (687,408) Add/(less) Exploration and evaluation costs written off 372,003 221,083 134,851 87,875 Depreciation 34,856 38,447 34,856 38,447 Share based payments 401,825 230,628 401,825 230,628 Profit on sale of shares (151,624) - (151,624) - Non cash sale of tenements - (400,000) - (400,000) Expenses settled by share issues - 804,000 - 804,000 Prepayments/Debtors (57,922) - (57,922) - (Increase)/decrease in accrued interest and GST 103,423 (241,777) 111,360 (243,097) Increase/(decrease) in creditors, accruals and provisions 207,151 (172,610) 206,844 (178,144) (669,448) (327,978) (638,894) (347,699) b) During the year the following non cash transaction occurred in the Company: issued 200,000 shares at $0.255 per Share as payment for the acquisition of tenements. c) Reconciliation of Cash Cash on hand and at bank 9,177,924 12,331,660 8,977,411 12,127,055 Closing cash balance 9,177,924 12,331,660 8,977,411 12,127,055

Environmental Bonds of $261,314 (2005 : $208,997) are included in Cash on hand and at bank. This amount is held as security term deposits and is not available to the Company for ordinary activities. Escrow Accounts of $59,572 (2005 : $134,925) are included in Cash on hand and at bank. These amounts are held in trust accounts pending the completion of purchase agreements that the Company has entered into and are not available for ordinary activities. Property Bonds of $46,545 (2005 : $0) are included in Cash on hand and at bank. This amount is held as a security term deposit and is not available to the Company for ordinary activities.

NOTE 15. DIRECTORS AND KEY MANAGEMENT PERSONNEL COMPENSATION DISCLOSURE

The Directors of the Company during the financial year were: Non-Executive Directors Craig Leslie Readhead Allan Trench Executive Directors Ian James Buchhorn Norman Mathew Longworth

The Key Management Personnel for the financial year were: Exploration Manager David von Perger - since February 2006

Annual Report 2006 45 5.0 Financial Statements Continued

NOTE 15. DIRECTORS AND KEY MANAGEMENT PERSONNEL COMPENSATION DISCLOSURE continued The Board seeks independent advice on remuneration policies and practices, involving the remuneration packages and terms of employment of Directors. Remuneration levels are competitively set to attract the most qualified and experienced Directors and Senior Executive Officers in the context of prevailing market conditions. There is no direct link between Director and Senior Executive remuneration and corporate performance. Remuneration levels and other terms of employment for Mr Buchhorn, Mr Longworth and Mr von Perger are formalised in service agreements. The agreement with Mr Buchhorn requires the provision of his services as Managing Director of the Company and contains 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. Forfeiture or payment of 6 months salary as the case may be may be made or given in lieu of notice. The company will pay Mr Buchhorn the maximum amount payable in accordance with the formula prescribed by section 200G of the Corporations Act. The board is currently negotiating a new service agreement with Mr Buchhorn. The agreement with Mr Longworth requires the provision of his services as Chief Operating Officer of the Company’s corporate and exploration activities and contains the following major provisions: • No fixed term; • Current base salary of $230,000 and vehicle allowance, exclusive of superannuation; and • In the event that the Company terminates Mr Longworth’s employment other than for matters concerning fraud and dishonesty and the like the Company will pay Mr Longworth the maximum amount payable in accordance with the formula prescribed by section 200G of the Corporations Act. The length of notice to be given by both parties on termination is two months. The agreement with Mr von Perger requires the provision of his services as Exploration Manager of the Company and contains the following major provisions: • No fixed term; • Current base salary of $165,000, exclusive of superannuation; and • In the event that the Company terminates Mr von Perger’s employment other than for matters concerning fraud and dishonesty and the like the Company will pay Mr von Perger the maximum amount payable in accordance with the formula prescribed by section 200G of the Corporations Act. The length of notice to be given by both parties on termination is two months.

Non-executive Directors received a fixed fee for their services as directors. Non-executive Directors fees not exceeding an aggregate of $175,000 per annum have been approved by the Company in a general meeting. There is no direct link between 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 full Board, with independent advice from the Company’s human resources consultant. 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 to receive a benefit, other than benefits disclosed in the financial statements as emoluments or the fixed salary of a full-time employee of the Company or a related body corporate, by reason of a contract made by the Company with the Director or with a firm of which he is a member, or with an entity in which he has a substantial financial interest.

46 Heron Resources Limited Financial Statements Continued 5.0

NOTE 15. DIRECTORS AND KEY MANAGEMENT PERSONNEL COMPENSATION DISCLOSURE continued

Short-term Post-employment Share-based ------benefits------benefits------payment Cash Salary Cash Non-Cash Super- Retirement Options Total & fees Bonus Benefits annuation Benefits $$$$$$$ Directors CL Readhead 75,000 - - - - 57,725 132,725 IJ Buchhorn 158,851 - - 41,148 - 333,000 532,999 A Trench 22,936 - - 2,064 - 46,180 71,180 NM Longworth 192,977 - 4,288 17,368 - 84,300 298,933 Key Management Personnel D von Perger 143,889 15,000 - 11,600 - - 170,489 Total 593,653 15,000 4,288 72,180 - 521,205 1,206,326

Directors and Key Management Personnel Holdings of Shares and Options

Shares Held at Purchased Sold Held at 1 July 2005 30 June 2006 Directors CL Readhead 299,325 30,000 - 329,325 A Trench 184,500 310,000 - 494,500 IJ Buchhorn 38,411,155 2,000,000 - 40,411,155 NM Longworth 282,000 - - 282,000 Key Management Personnel D von Perger 18,000 600,000 589,050 28,950

Options Expiry Exercise Held at Issued Exercised Held at Date Price 1 July 2005 30 June 2006 Directors CL Readhead 16-Dec-07 $0.25 500,000 - - 500,000 30-Jun-09 $0.60 - 250,000 - 250,000 A Trench 16-Dec-07 $0.25 300,000 - 300,000 - 30-Jun-09 $0.60 - 200,000 - 200,000 IJ Buchhorn 31-Dec-05 $0.20 2,000,000 - 2,000,000 - 30-Jun-07 $0.25 1,000,000 - - 1,000,000 16-Dec-07 $0.25 1,000,000 - - 1,000,000 31-Dec-07 $0.25 2,000,000 - - 2,000,000 NM Longworth 16-Dec-07 $0.25 200,000 - - 200,000 31-Dec-07 $0.25 1,000,000 - - 1,000,000 Key Management Personnel D von Perger 16-Dec-07 $0.25 1,000,000 - 600,000 400,000

During the year, following Shareholder approval, a total of 450,000 Options were issued to the following Directors: Mr Readhead 250,000 expiring on 30 June 2009 and exercisable at $0.60 and Mr Trench 200,000 expiring on 30 June 2009 and exercisable at $0.60. Fair values for the options at grant date, as included in the above table, were independently determined using Black and Scholes models that took into account the exercise price of the Option, the term of the Option, the vesting and performance criteria, the non- tradeable nature 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.

Annual Report 2006 47 5.0 Financial Statements Continued

NOTE 15. DIRECTORS AND KEY MANAGEMENT PERSONNEL COMPENSATION DISCLOSURE continued During the year the Company Secretary, Mrs Calvert was issued 200,000 Options, expiring 1 June 2010 and exercisable at $0.70. Other related party transactions during the financial year were: • payment of $60,208 (2005 : $49,751) to an entity related to Mr IJ Buchhorn for the provision of office accommodation on normal commercial terms and conditions; • payment of $1,366 (2005 : $0) to parties related to Mr I J Buchhorn for the provision of secretarial services and temporary staff on normal commercial terms and conditions; • payment of $0 (2005 : $23,279) to Mr R J Arancini for the provision of company secretarial, taxation and corporate services on normal commercial terms and conditions; • payment of $198,963 (2005 : $192,198) to Pullinger Readhead Lucas of which Mr C L Readhead is a partner for legal services on normal commercial terms and conditions; • payment of $21,818 (2005 : $0) to an entity related to Mr N M Longworth for the provision of field equipment rental on normal commercial terms and conditions; • Interest-free loan of $692,755 (2005 : $582,386) was made by the parent entity to the controlled entity Balladonia Uranium Limited; • Interest-free loan of $5,284,426 (2005 : $4,075,508) was made by the parent entity to the controlled entity Hampton Nickel Limited; • Interest-free loan of $258,523 (2005 : $154,307) was made by the parent entity to the controlled entity Ochre Resources Limited; • Interest-free loan of $124,701 (2005 : $69,386) was made by the parent entity to the controlled entity Atriplex Limited; • Interest-free loan of $237,005 (2005 : nil) was made by the parent entity to the controlled entity Regent Resources Limited; Heron Resources Limited is the ultimate parent entity. Heron Resources Limited is a listed public company incorporated and 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 the Company’s accounting policies, including the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised at the balance date, are as follows: Recognised Financial Statement Accounting Policies Terms and Conditions Instruments of Financial Position Notes i) Financial assets 11am Call Accounts 11am Call Accounts are carried The 11am Call Accounts are at call at cost. with an interest rate of 5.50% (2005 : 5.30%). Term Deposits Term Deposits are carried at cost. Term Deposits are secured with a 3 month term with an interest rate of 5.95% (2005 : 5.79%) Environmental Bonds Environmental Bonds are carried Environmental Bonds are security at cost. term deposits with a 3 month term with an interest rate of 5.80% (20045 : 4.90%). Property Bonds Property Bonds are carried at cost. Property Bonds are security term deposits with a 3 month term with an interest rate of 5.83%. (2005 : 0%) Escrow Accounts Escrow Accounts are carried at cost. Escrow Accounts are term deposits with an interest rate of 5.50%. (2005 : 4.50%) Accrued Interest 5 Recognised on an accruals basis. Interest is credited periodically. Goods & Services 5 Recognised on an accruals basis. Business Activity Statements are lodged Tax Paid on a monthly basis.

48 Heron Resources Limited Financial Statements Continued 5.0

NOTE 16. FINANCIAL INSTRUMENTS continued ii) Financial liabilities Trade creditors 10 Liabilities are recognised for amounts Trade liabilities are normally settled and accruals to be paid in the future for goods and on 30 day terms. services received, whether or not billed to the Company. iii) Equity Ordinary 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 Options received by the Company. outstanding over ordinary Shares at balance date are set out in Note 12. b) Interest rate risk The the Company’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 2006 2005 2006 2005 2006 2005 2006 2005 $$ $$$ $%% i) Financial assets Cash at bank 354,957 387,784 - - 354,957 387,784 2.1 2.1 11am Call Accounts 4,221,112 2,599,954 - - 4,221,112 2,599,954 5.5 5.3 Term Deposits - - 4,234,425 9,000,000 4,234,425 9,000,000 5.95 5.8 Environmental Bonds 261,314 208,997 - - 261,314 208,997 5.8 4.9 Property Bonds 46,545 - - - 46,545 - 5.83 - Escrow Accounts 59,572 134,925 - - 59,572 134,925 5.5 4.5 Accrued Interest 58,487 104,408 - - 58,487 104,408 - - Goods & Services Tax 152,265 209,766 - - 152,265 209,766 - - Total financial assets 5,154,252 3,645,834 4,234,425 9,000,000 9,388,677 12,645,834 - - ii) Financial liabilities Trade creditors and accruals 846,394 226,650 - - 846,394 226,650 - - Total financial liabilities 846,394 226,650 - - 846,394 226,650 - - c) Net fair values Total carrying amount Aggregate net fair value 2006 2005 2006 2005 $$$$ Financial assets Cash at bank 354,957 387,784 354,957 387,784 11am Call Accounts 4,221,112 2,599,954 4,221,112 2,599,954 Term Deposits 4,234,425 9,000,000 4,234,425 9,000,000 Environmental Bonds 261,314 208,997 261,314 208,997 Property Bonds 46,545 - 46,545 - Escrow Accounts 59,572 134,925 59,572 134,925 Accrued Interest 58,487 104,408 58,487 104,408 Goods & Services Tax 152,265 209,766 152,265 209,766 Total financial assets 9,388,677 12,645,834 9,388,677 12,645,834

Financial liabilities Trade creditors and accruals 846,394 226,650 846,394 226,650 Total financial liabilities 846,394 226,650 846,394 226,650

Annual Report 2006 49 5.0 Financial Statements Continued

NOTE 16. FINANCIAL INSTRUMENTS continued 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.

e) The credit risk of the financial assets of the Company is considered minimal as there is limited exposure. f) Financial risk Management The Company's activities expose it to a variety of financial risks; market risk (fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Company's overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Company. (a) Market risk Price risk The Company is exposed to equity securities price risk. This arises from investments held by the Group and classified on the balance sheet either as available-for-sale or at fair value through profit or loss. The Company is not exposed to commodity price risk. (b) Credit risk The Company has no significant concentrations of credit risk. (c) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close-out market positions. (d) Cash flow and fair value interest rate risk As the Company has interest-bearing assets, the Group's income and operating cash flows are exposed to changes in market interest rates.

NOTE 17. AUDITORS’ REMUNERATION

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ Amounts received or due and receivable for: Butler Settineri (Audit) Pty Ltd - Audit services 28,158 19,356 15,356 15,356 Butler Settineri Chartered Accountants -Other services - 500 - 500

NOTE 18. COMMITMENTS FOR EXPENDITURE (a) Exploration Commitments In order to maintain current rights of tenure to exploration and mining tenements, the Company estimates the following annual discretionary exploration expenditure requirements up until expiry or relinquishment of the mining tenure. These obligations are not provided for in the financial statements and are payable based on granted tenements:

Not later than 1 year 5,202,720 3,240,280 2,750,280 2,885,040 Later than 1 year but not later than 5 years 5,800,000 12,961,120 3,350,000 11,540,160 Later than 5 years 4,800,000 - 3,350,000 -

50 Heron Resources Limited Financial Statements Continued 5.0

NOTE 18. COMMITMENTS FOR EXPENDITURE continued If the Company decides to relinquish certain leases and/or does not meet these obligations, assets recognised in the balance sheet may require review to determine the appropriateness of carrying values. The sale, transfer or farm-out of exploration rights to third parties will reduce or extinguish these obligations. Those amounts detailed above do not include expenditure commitments which are the responsibility of joint venture partners (Note 20). (b) Operating Lease Commitments The the Company has leased two office premises under non-cancellable operating leases that are set for five years with a right of renewal for a further five years at which time all terms are renegotiable. Lease amounts include a base amount, plus variable outgoings and car parking and are subject to an annual rent review by way of the consumer price index at the time of review. Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ Not later than 1 year 188,838 - 188,838 - Later than 1 year but not later than 5 years 755,352 - 755,352 - Later than 5 years - - - -

A portion of the leased premises in Perth are to be sub-let to Rubicon Resources Limited and Epsilon Energy Limited.

(c) Capital Commitments The Company has none at this stage.

NOTE 19. SEGMENT INFORMATION The the Company operates in the mineral exploration industry in Australia.

NOTE 20. JOINT VENTURE AGREEMENTS The the Company has entered into the following joint venture agreements (as at 1 July 2006):

Project Operator Right toFarm-in Earn Expenditure Bungalbin and Mount Jackson Portman Mining Limited 100%1 - King of Creation A1 Minerals Limited2 70% $250,000 Gidji Jackson Gold Limited 70% $300,000 Kanowna South Yilgarn Mining Limited 70% $700,000 Bungalbin Gold Project Scimitar Resources Limited 100%3 - Frances Lesley Leviathan Resources Limited 100%4 - Bandicoot Range JV Mt Anketell Pty Ltd 60% $200,000 Inco Ltd KNP Agreement5 Inco Ltd 60% $86,000,000 TOTAL $87,450,000

1 Heron had a royalty based on tonnes of iron ore sold by Portman Mining Limited, pursuant to an agreement the first five year phase of which expired on 4 July 2005. There is a provision for a two year extension and discussions have commenced with Portman as to the basis on which Portman will be required to advance development of iron ore deposits on those tenements during the period. 2 This was previously with Bronzewing Gold NL. Heron entered into a deed of assignment and assumption dated 8 August 2006 whereby A1 Minerals Limited took on the rights and obligation of the original agreement. 3 Heron owns iron ore rights which are subject to a Sale and Purchase Agreement with Polaris Metals NL. 4 Heron owns nickel rights. 5 Through an agreement dated 30 July 2005, Inco Ltd (through affiliated companies) has the right to earn a 60% interest in the Company's Kalgoorlie Nickel Project by meeting certain milestones on or before 30 July 2011, which will involve an estimated expenditure of approximately $86 million on exploration and feasibility studies.

Annual Report 2006 51 5.0 Financial Statements Continued

NOTE 21(a) INVESTMENTS IN CONTROLLED ENTITIES Name of Country of Class of Cost of Consolidated Cost of Parent Entity Registration Shares Entity’s Investment Entity’s Investment 2006 2005 2006 2005 $$ Balladonia Uranium Limited Australia Ordinary 100% 100% 10 10 Hampton Nickel Limited Australia Ordinary 100% 100% 10 10 Ochre Resources Limited Australia Ordinary 100% 100% 100 100 Atriplex Limited Australia Ordinary 100% 100% 10 10 Regent Resources Limited Australia Ordinary 100% - 100 - Balladonia Energy NL (“Balladonia”) was registered to evaluate the potential of documented uranium, oil-shale and mineral sand occurrences in the Balladonia area and to contribute to the generation of the energy, sulphur and lime requirements of the Company's nickel laterite projects. Balladonia’s name and corporate status was changed to Hampton Nickel (Bulong Operations) Pty Ltd on 23 September 2004. Hampton Nickel (Bulong Operations) Pty Ltd has since changed its name to Balladonia Energy Pty Ltd ("Balladonia") on 19 August 2005 and further changed to Balladonia Uranium Ltd ("Balladonia) on 16 May 2006, and finally to Epsilon Energy Limited on 9 August 2006 for its proposed Initial Public Offer. Regent Resources Limited (“Regent”) was registered on 10 April 2002. Regent Resources Limited name was changed on the 19 August 2005 to Hampton Nickel Limited and is being used by the Company to hold the Bulong nickel properties and to acquire further nickel properties in the Bulong district. Ochre Resources Limited ("Ochre") was registered on 7 February 2005 to seek and acquire iron ore properties in the course of the Company's base metal exploration activities. Atriplex Limited ("Atriplex") was registered on 7 April 2005 to seek and acquire nickel-copper sulphide properties (outside the Eastern Goldfields) in the course of the Company's exploration activities. Regent Resources Limited ("Regent") was registered on 19 August 2005 to seek and acquire gold and base-metal properties in the course of the Company's exploration activities. Regent Resources Limited ("Regent") was changed to Rubicon Resources Limited on 2 August 2006 for its proposed Initial Public Offer.

NOTE 21(b) INVESTMENTS IN OTHER ENTITIES Name of Country of Class of Cost of Cost of Parent Entity’s Entity Registration Shares Consolidated Entity's Investment Investment 2006 2005 2006 2005 $$ $$ Scimitar Resources Australia Ordinary 91,624 400,000 91,624 400,000 Limited at cost Revaluation determined by reference to trading price on close of trade. 45,812 40,000 45,812 40,000

137,436 440,000 137,436 440,000

Scimitar Resources Limited is a listed public exploration company with 25,403,336 fully paid shares on issue. Heron held 458,120 issued fully paid shares at 30 June 2006, however these were sold by 18 July 2006.

NOTE 22. CONTINGENT LIABILITIES Native title claims have been made with respect to areas which include tenements in which the Company has interests. The the Company is unable to determine the prospects for success or otherwise of the claims and, in any event, whether or not and to what extent the claims may significantly affect the Company or its projects. Agreement is being reached with native title claimants regarding certain areas in which the Company has interests.

52 Heron Resources Limited Financial Statements Continued 5.0

NOTE 23. EARNINGS PER SHARE 2006 2005 $$ Basic earnings per Share (0.0096) (0.0041) Weighted average number of ordinary Shares outstanding during the year used in the calculation of basic earnings per Share 164,184,734 142,070,913 Diluted earnings per Share (0.0096) (0.0041) Weighted average number of ordinary Shares outstanding during the year used in the calculation of diluted earnings per Share. 164,184,734 142,070,913 Earnings/(loss) used in calculating basic and diluted earnings/(loss) per Share (1,579,160) (807,749) Heron has on issue 10,433,000 Options which are not dilutive.

Consolidated Entity Parent Entity 2006 2005 2006 2005 $$$ $ NOTE 24. EMPLOYEE BENEFITS a) Employee Entitlements The aggregate employee entitlement is comprised of: Provisions (Current) 275,704 174,307 275,704 174,307 b) Employee Share Scheme An Employee Share Option Plan has been established for Heron Resources Limited, where employees, Directors and Officers of the Company are issued with Options over ordinary Shares of Heron Resources Limited. At the 2004 Annual General Meeting approval by Shareholders for adoption of Employee Share Option Plan No 2 was given. The Options, issued for no consideration, are in general exercisable at a fixed price at commencement date, unless otherwise stated and ending on the expiry date. There are currently thirteen employees, directors and officers eligible for this scheme. The Options cannot be transferred and will not be quoted on the ASX. During the year 450,000 Options were issued, no Options lapsed or expired and 3,349,000 Options were exercised under the Employee Options Plan Number 2. Details of options as at the beginning and end of the reporting date and movements during the year are set out below:

Grant date Expiry Exercise Number of Options Options Options Number Options date price options at the granted Lapsed Exercised of Options Exercisable beginning this year this year this year at the end at the end of the year of the year of the year 2006 Consolidated and parent entity 16-Dec-03 16-Dec-07 $0.25 1,500,000 - - - 1,500,000 1,500,000 4-Mar-04 16-Dec-07 $0.25 250,000 - - - 250,000 250,000 1-Jul-04 16-Dec-07 $0.25 800,000 - - (200,000) 600,000 600,000 25-Nov-04 16-Dec-07 $0.25 300,000 - - (300,000) - - 25-Nov-04 31-Dec-05 $0.20 2,000,000 - - (2,000,000) - - 25-Nov-04 31-Dec-07 $0.25 3,000,000 - - - 3,000,000 3,000,000 11-Feb-05 16-Dec-07 $0.25 1,100,000 - - (800,000) 300,000 300,000 20-May-05 16-Dec-07 $0.25 200,000 - - (49,000) 151,000 151,000 25-Nov-05 30-Jun-09 $0.60 - 450,000 - - 450,000 450,000 9,150,000 450,000 - (3,349,000) 6,251,000 6,251,000 Weighted average exercise price $0.24 $0.60 $0.22 $0.28 $0.28

Annual Report 2006 53 5.0 Financial Statements Continued

NOTE 24. EMPLOYEE BENEFITS continued Grant date Expiry Exercise Number of Options Options Options Number Options date price options at the granted Lapsed Exercised of Options Exercisable beginning this year this year this year at the end at the end of the year of the year of the year 2005 Consolidated and parent entity 16-Dec-03 16-Dec-07 $0.25 1,500,000 - - - 1,500,000 1,500,000 4-Mar-04 16-Dec-07 $0.25 250,000 - - - 250000 250,000 1-Jul-04 16-Dec-07 $0.25 - 800,000 - - 800,000 800,000 25-Nov-04 16-Dec-07 $0.25 - 300,000 - - 300,000 300,000 25-Nov-04 31-Dec-05 $0.20 - 2,000,000 - - 2,000,000 2,000,000 25-Nov-04 31-Dec-07 $0.25 - 3,000,000 - - 3,000,000 3,000,000 11-Feb-05 16-Dec-07 $0.25 - 1,100,000 - - 1,100,000 1,100,000 11-Feb-05 31-Dec-08 $0.25 - 200,000 - (200,000) - - 20-May-05 16-Dec-07 $0.25 - 200,000 - - 200,000 200,000 1,750,000 7,600,000 (200,000) 9,150,000 9,150,000 Weighted average exercise price $0.25 $0.24 $0.25 $0.24 $0.24

The weighted average remaining contractual life of share options outstanding at the end of the period was 1.70 years (2005 - 1.20 years).

c) The the Company had 13 employees as at 30 June 2006 (2005 : 11 employees).

NOTE 25. SUBSEQUENT EVENTS Other than noted below, there is no matter or circumstance which has arisen since 30 June 2006 that has significantly affected or may significantly affect: a) The operations, in the financial years subsequent to 30 June 2006, of the Company; b) The results of those operations; or c) The state of affairs, in the financial years subsequent to 30 June 2006, of the Company. By Resolution on 10 July 2006, the Directors of the Company agreed to sell the Company's Scimitar Resources Limited shares and purchase up to 900,000 GME Resources Limited rights. The Company currently hold 710,000 GME Resources Limited shares.

By Resolution on 13 July 2006, the Directors of the Company accepted an Offer of Firm Allocation in Placement and General Sub- Underwriting of the Share Purchase Plan of Pioneer Nickel Limited. The Allocation and underwriting was for 962,800 shares at $0.125 issue price. The Company currently hold 1,000,030 Pioneer Nickel Limited shares. On the 14 July 2006 the Company announced that it plans to focus fully on its nickel assets and that it will be divesting its gold, base-metal, uranium and iron ore assets. To this end, wholly owned subsidiaries Rubicon Resources Limited and Epsilon Energy Limited are planning to conduct IPOs and list on ASX with the acquisition of the Company's gold/base-metal and uranium assets respectively. On the 17 July 2006 the Company announced that it had entered into an agreement with Polaris Metals NL (Polaris) for Polaris to purchase the Company's iron ore assets. Consideration for the transaction to the Company is to be A$5.5 million worth of Polaris shares at not less than A$ 0.185 per share plus 14 million Polaris share options exercisable at A$0.30 within five years of the date of issue. Polaris shareholder approval was received on 15 September 2006. By Special Resolution on 20 July 2006 the following wholly owned subsidiary had a name change: Regent Resources Limited was changed to Rubicon Resources Limited on the 2nd of August 2006. By Special Resolution on 1 August 2006 the following wholly owned subsidiary had a name change: Balladonia Uranium Limited was changed to Epsilon Energy Limited on 9 August 2006.

54 Heron Resources Limited Financial Statements Continued 5.0

NOTE 25. SUBSEQUENT EVENTS continued Argonaut Settlement On 14 September 2006, Heron Resources Limited reached agreement for an out-of-court settlement with Argonaut Capital Limited in regards to litigation commenced by Heron in February 2006, following completion of negotiations with Inco Limited in July 2005 to develop the Kalgoorlie Nickel Project. The settlement terms agreed are: 1. $500,000 payment to Argonaut on execution of the formal deed of settlement; 2. $500,000 payment to Argonaut on Inco’s decision to proceed to Step 2 of the KNP; and 3. Heron to issue 2.75 million options to acquire fully paid ordinary shares in Heron at an exercise price of $1.50 per share exercisable within 12 months of Inco making a decision to mine pursuant to the KNP joint venture agreement. The options are not transferable. The parties have not as yet executed a formal Deed of Settlement.

Inco proceeds to Step 2 of the Kalgoorlie Nickel Project Farm-in and Joint Venture On 25 September 2006, Heron Resources Limited received formal advice from Inco Limited in respect of the Kalgoorlie Nickel Project (KNP) and its Farm-in and Joint Venture (FIAJV). 1. Inco has completed Step 1 of the KNP, and having assessed the results, has decided it will continue onto Step 2 pursuant to the KNP FIAJV Agreement; and 2. Inco and the Company will finalise and adopt the Program and Budget for the first six months of Step 2, and based on technical results, will later adopt the Step 2 second six month Program and Budget. The Step 2 program will include: 1. Determine whether, with the information available, there is an economically feasible process and flow-sheet for the KNP by performing batch test work and mini-pilot plant scale tests using the samples collected from the Step 1 drilling and new drilling to be completed in the coming months; 2. Conduct metallurgical investigations in a mini-pilot facility, and evaluate ore blend responses and confirmation of product acceptance; and 3. Investigate drilling methods to yield the necessary information for mineral resource evaluation, and for mining and civil design. Inco will continue to manage the FIAJV, and additionally will assume responsibility for the management and maintenance of all KNP tenements from the commencement of Step 2 through the following twelve months. The completion of Step 1 is the first of four milestones required by the KNP FIAJV leading to the potential development of the KNP.

Jump-up Dam Project Nickel Laterite Trial Heap Leach Based on recently received metallurgical and drilling results at Jump Up Dam, the Company intends to conduct trial heap leaching. If the Jump-up Dam test programs are successful, the Company will be in a position to commission its first mining operation. This will impact on the staffing and expenditure levels of the Company.

The financial report was approved and authorised for issue by the Directors on 29 September 2006.

Annual Report 2006 55 5.0 Financial Statements Continued

NOTE 26. TRANSITION TO AUSTRALIAN EQUIVALENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS The company changed its accounting policies on 1 July 2005 to comply with Australian equivalents to International Financial Reporting Standards (‘AIFRS’). The transition from previous Australian Generally Accepted Accounting Principles (“AGAAP”) to AIFRS is accounted for in accordance with Accounting Standard AASB 1 ‘First-time Adoption of Australian Equivalents to International Financial Reporting Standards’, with 1 July 2004 as the date of transition. An explanation of how the transition from AGAAP to AIFRS has affected the company’s financial position and financial performance is set out in the following tables and the notes that accompany the tables. There was no impact on the cash flows reported. Effect of AIFRS on the Balance Sheet at the date of transition being 1 July 2004 There was no impact on the balance sheet as at 1 July 2004 as a result of adopting AIFRS. Effect of AIFRS on the Balance Sheet as at 1 July 2005 Note Previously Effect of Restated reported Transition AIFRS AGAAP to AIFRS

NET ASSETS 33,330,942 - 33,330,942

EQUITY Contributed equity 43,779,780 - 43,779,780 Revaluation reserve 40,000 - 40,000 Option Reserve (i) - 230,628 230,628 Accumulated losses (10,488,838) (230,628) (10,719,466) TOTAL EQUITY 33,330,942 - 33,330,942

Effect of AIFRS on Income Statement for the Year Ended 30 June 2005 Revenue (ii) 1,462,059 (45,868) 1,416,191

Cost of tenements and data sold (ii) (45,868) 45,868 - Share based payments (i) - (230,628) (230,628) Other expenses (1,993,312) - (1,993,312) (577,121) (230,628) (807,749) Tax expense - - - Net loss attributable to members (577,121) (230,628) (807,749)

(i) Adoption of AASB 2 “Share Based Payments” The standard requires that the Company recognise the fair value of options issued to directors and executives as part of their remuneration and reflect this fair value as an expense over the period from the grant of the option to the date the individual becomes entitled to exercise the options (“the vesting period”). For the financial period ended 30 June 2005 an amount of $230,628 has been included as a share based payment expense in the income statement. (ii) Adoption of AASB 116 “Property, Plant and Equipment” The standard requires that the Company recognise the net gain or loss on the disposal of items of property, plant or equipment within the income statement while under AGAAP it was the gross sale proceeds which were included as revenue. For the financial period ended 30 June 2005 an amount of $45,868 related to the cost of tenements and data sold for which the gross sales proceeds had been reflected as revenue in the income statement.

56 Heron Resources Limited Directors’ Declaration 5.0

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 other mandatory professional reporting requirements; and b) Give a true and fair view of the Company’s and the Company’s financial position as at 30 June 2006 and of their performance, as represented by the results of their operations and their cash flows, for the financial year ended on that 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 debts when they become due and payable; and c) The Directors have been given the declarations by the Chief Financial Officer required by section 295A of the Corporations Act 2001.

On behalf of the Board

C L READHEAD Chairman

Perth, 29 September 2006

Annual Report 2006 57 6.0 Independent Audit Report

TO THE MEMBERS OF HERON RESOURCES LIMITED

Scope We have audited the attached financial report, being a general purpose financial report of Heron Resources Limited for the financial year ended 30 June 2006 as set out on pages 32 to 58 comprising the company and the entity it controlled at the year’s end or from time to time during the financial year.

Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility also includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001.

Auditor’s Opinion In our opinion, the financial report of Heron Resources Limited is in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the company’s and the consolidated entity’s financial position as at 30 June 2006 and of their performance for the year ended on that date; and b) complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001.

BUTLER SETTINERI (AUDIT) PTY LTD PAUL J CHABREL Registered Company Auditor Number: 289109 Director

Perth Date: 29 September 2006

58 Heron Resources Limited Shareholder Information 7.0

AT 25 AUGUST 2006 1. Issued Shares and Options a) Distribution of Shareholders: Size of Holding Number of Holders Shares Held 1 - 1,000 128 105,967 1,001 - 5,000 799 2,638,119 5,001 - 10,000 632 5,283,169 10,001 - 100,000 870 26,339,596 100,001 - 117 133,167,921 2,546 167,534,772 b) The twenty largest Shareholders hold 65.33% of the issued fully paid capital of the Company. c) Substantial Shareholders who have notified the Company: Holder Number of Shares % Kurana Pty Ltd 32,075,000 19.15 Inco Australia Pty Ltd 16,500,000 9.85 BHP Minerals Holdings Pty Ltd 15,890,310 9.48 MBM Corporation Pty Ltd 12,000,000 7.16 Chaos Investments Pty Ltd & Assoc 7,763,400 4.63 Note: MBM Corporation Pty Ltd and Chaos Investments Pty Ltd are related parties and their combined holding is 19,763,400 Shares (11.79%) d) Distribution of Optionholders: The following Options were on issue: i) 3,607,000 exercisable on or before 30 June 2007 payment of $0.25 per Option exercised; ii) 2,901,000 exercisable on or before 16 December 2007 payment of $0.25 per Option exercised; iii) 3,000,000 exercisable on or before 31 December 2007 payment of $0.25 per Option exercised; iv) 125,000 exercisable on or before 31 December 2008 payment of $0.25 per Option exercised; v) 450,000 exercisable on or before 30 June 2009 payment of $0.60 per Option exercised; vi) 350,000 exercisable on or before 1 June 2010 payment of $0.70 per Option exercised. Size of Holding Number of Holders Options Held 1 - 1,000 - - 1,001 - 5,000 1 8,000 5,001 - 10,000 - - 10,001 - 100,000 6 275,000 100,001 - 16 10,150,000 23 10,433,000 e) There were 31 Shareholders who held less than a marketable parcel. f) No securities have been classified by ASX as restricted. VOTING RIGHTS In accordance with the Company’s Constitution, voting rights are on the basis of a show of hands, one vote for every registered holder and on a poll, one vote for each Share held by registered holders.

Annual Report 2006 59 7.0 Shareholder Information Continued

Twenty Largest Shareholders as at 25 August 2006 Number of Shares % 1 Kurana P/L 32,075,000 19.15 2 Inco Aust Holdings P/L 16,500,000 9.85 3 BHP Minerals Holdings P/L 15,890,310 9.48 4 MBM Corporation P/L 12,000,000 7.16 5 Koltai Holdings P/L 4,765,679 2.84 6 Chaos Investments P/L 4,550,000 2.72 7 Owvimar Investments P/L 2,600,000 1.55 8 Buchhorn Ian James 2,447,857 1.46 9 Williams John Samuel 2,356,400 1.41 10 Citicorp Nominees P/L 2,093,365 1.21 11 Hazurn P/L 2,000,000 1.19 12 Manorina Mining P/L 1,818,300 1.09 13 Sheerwater P/L 1,550,000 0.93 14 Buchhorn Pamela Jean 1,519,998 0.91 15 Baracus P/L 1,390,000 0.83 16 Kimlex Investments P/L 1,350,000 0.81 17 National Nominees Ltd 1,256,110 0.75 18 Corporate Alexander 1,230,000 0.73 19 Heraghty Stephen Joseph 1,040,700 0.62 20 Alexandrou Kim Elizabeth 1,000,000 0.60 TOTAL 109,433,719 65.33 Optionholders (Options exercisable on or before 30 June 2007) were: Number of Options % of Issued Options Zedella Pty Ltd 8,000 0.22 Kimlex Investments Pty Ltd 300,000 8.32 Williams J S & Allwood D A 814,000 22.57 Koltai Holdings Pty Ltd 856,000 23.73 Ocean Grove Investments Pty Ltd 286,000 7.93 Trindal Pty Ltd 143,000 3.97 PK Trading (WA) Pty Ltd 200,000 5.54 Kurana Pty Ltd 1,000,000 27.72 TOTAL 3,607,000 100.00 Optionholders (Options exercisable on or before 16 December 2007) were: Number of Options % of Issued Options Hengolo Pty Ltd 500,000 17.24 Kurana Pty Ltd 1,000,000 34.47 Kimlex Pty Ltd 100,000 3.45 Longworth N M 200,000 6.89 Calvert S 50,000 1.72 Calvert S 200,000 6.89 Calvert S 300,000 10.34 von Perger D 20,000 0.69 von Perger J 80,000 2.76 von Perger D 100,000 3.45 von Perger J 200,000 6.90 Taylor P 151,000 5.20 TOTAL 2,901,000 100.00

60 Heron Resources Limited Shareholder Information Continued 7.0

Optionholders (Options exercisable on or before 31 December 2007) were: Number of Options % of Issued Options Mat Mining Pty Ltd 1,000,000 33.33 Hazurn Pty Ltd 2,000,000 66.67 TOTAL 3,000,000 100.00 Optionholders (Options exercisable on or before 31 December 2008) were: Number of Options % of Issued Options Maithilee Shirgaonkar 25,000 20.0 Hui Kei Man 50,000 40.0 Le Shay Chong 50,000 40.0 TOTAL 125,000 100.00 Optionholders (Options exercisable on or before 30 June 2009) were: Number of Options % of Issued Options Hengolo Pty Ltd 250,000 55.56 Trench S 200,000 44.44 TOTAL 450,000 100.00 Optionholders (Options exercisable on or before 1 June 2010) were: Number of Options % of Issued Options Calvert S 200,000 57.15 Browning T 100,000 28.57 Purcell V 25,000 7.14 Purcell P 25,000 7.14 TOTAL 350,000 100.00 Summary of Optionholders as at 25 August 2006 Number of Options % of Issued Options 1. Hazurn Pty Ltd 2,000,000 19.17 2. Kurana Pty Ltd. 2,000,000 19.17 3. Mat Mining Pty Ltd 1,000,000 9.58 4 Koltai Holdings Pty Ltd 856,000 8.20 5 Williams JS & Allwood DA 814,000 7.80 6. Calvert S 750,000 7.19 7. Hengolo Pty Ltd 750,000 7.19 8. Kimlex Investments Pty Ltd 400,000 3.83 9. Ocean Grove Investments 286,000 2.74 10. von Perger J 280,000 2.68 11. P K Trading (WA) Pty Ltd 200,000 1.92 12. Trench S 200,000 1.92 13. Longworth N M 200,000 1.92 14. Taylor P 151,000 1.45 15. Trindal Pty Ltd 143,000 1.37 16. von Perger D 120,000 1.15 17. Browning T 100,000 0.96 18. Le Shay Chong 50,000 0.48 19. Hui Kei Man 50,000 0.48 20. Maithilee Shirgaonkar 25,000 0.24 21. Purcell V 25,000 0.24 22. Purcell P 25,000 0.24 23. Zedella Pty Ltd 8,000 0.08 TOTAL 10,433,000 100.00

Annual Report 2006 61 8.0 Statement of Mineral Resources

Project Prospect million Ni Co Ni Co Cut-offCategory Estimation tonnes % % 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 Placer3 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 Highway4 96.2 0.74 0.054 707,600 51,700 0.5 Inferred Krige1 Goongarrie Scotia 11.2 0.77 0.080 86,400 9,000 0.5 Inferred Krige1

Sub-Total Goongarrie 298.6 0.74 0.056 2,208,600 168,100

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 Bulong5 100.0 0.87 0.052 862,000 51,000 0.5 Indicated Krige1 Bulong Bulong5 165.0 0.75 0.046 1,244,000 76,000 0.5 Inferred Krige1

Sub-Total Bulong 265.0 0.80 0.048 2,106,000 127,000

Hampton Kalpini 76.4 0.73 0.044 559,200 33,500 0.5 Inferred Krige1 Hampton 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 Project Total 903.0 0.74 0.050 6,693,800 451,700

1 Mark Murphy Attribution Statement The information in this report that relates to Mineral Resources or mineralisation is based on information compiled by Mark Murphy, 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 consideration 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”. Mark Murphy consents to the inclusion in the report of the matters 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 Statement The information in this report that relates to Mineral Resources or mineralisation is based on information compiled by Norman Mathew 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 under consideration 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 the inclusion 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 Chief Operating Officer.

3 Resource acquired pursuant to an agreement dated 7 February 2006 between Heron and Paddington Gold Pty Ltd, Placer Dome Australia Ltd and Kundana Gold Ltd.

4 Heron acquired 100% rights to the Highway mineral resources from Helix Resources NL pursuant to a sale agreement dated the 23 November 2005.

5 Resource ownership pursuant to a letter agreement dated 8 April 2004 whereby Heron entered into an agreement for the purchase of all mineral rights for mining tenements in the Bulong Project beneficially owned by Bulong Operations Pty Ltd and Bulong Nickel Pty Ltd (both with Receivers and Managers Appointed and In Liquidation). In respect of the Bulong Tranche 2 Tenements where LionOre (Avalon) Pty Ltd is the registered tenement holder, LionOre has not yet agreed to a means by which Heron can gain access for exploration purposes, although both parties have separately agreed with the previous tenement holder (and vendor of the rights to both Heron and LionOre) to negotiate exploration access rights for Heron. Negotiations for exploration access rights are proceeding in good faith.

62 Heron Resources Limited Interest in Mining Tenements 9.0 As at 29 September 2006

Prospect Geographic Geographic Locationlocation Tenement ID Heron Heron InterestInterestArea Areakm2 km2 Status Ten status Note Note KALGOORLE NICKEL PROJECT INCO KNP FARM-IN AND JOINT VENTURE NORTH KALGOORLIE NICKEL Goongarrie Project Goongarrie West 68km NNW of Kalgoorlie E24/00124 100.0% 165.2 Live 1 Goongarrie West 45km NW of Kalgoorlie E24/00130 100.0% 64.4 Pending 1 Comet Vale 90km NNW of Kalgoorlie E29/00462 100.0% 75.6 Live 1 Comet Vale 96km NNW of Kalgoorlie E29/00508 100.0% 8.4 Pending 1 Ghost Rocks 147km NNW of Kalgoorlie E29/00517 100.0% 196.0 Live 1 Ghost Rocks 145km NNW of Kalgoorlie M29/00291 100.0% {9.0} Pending 1 Four Corners Well 187km NW of Kalgoorlie E29/00527 100.0% 30.8 Live 1 Goongarrie 76km NNW of Kalgoorlie E29/00536 100.0% 137.2 Live 1 Simpson Bore 187km NW of Kalgoorlie E29/00544 100.0% 19.6 Live 1 Comet Vale 90km NNW of Kalgoorlie E29/00553 100.0% 145.6 Pending 1 Ghost Rocks South 134km NNW of Kalgoorlie E29/00563 100.0% 56.0 Live 1 Baden Powell 55km NNW of Kalgoorlie M24/00481 100.0% 1.2 Pending 1 Blue Dam 60km NNW of Kalgoorlie M24/00539 100.0% 6.6 Pending 1 Blue Dam 60km NNW of Kalgoorlie M24/00540 100.0% 4.5 Pending 1 Scotia Dam 67km NNW of Kalgoorlie M24/00541 100.0% 5.2 Live 1 Baden Powell 55km NNW of Kalgoorlie M24/00587 100.0% 3.2 Pending 1 Blue Reef 60km NNW of Kalgoorlie M24/00697 100.0% 2.0 Pending 1 Blue Reef 60km NNW of Kalgoorlie M24/00719 100.0% 1.3 Pending 1 Scotia North 75km NNW of Kalgoorlie M24/00744 100.0% 0.1 Live 1 Vettersberg 50km NNW of Kalgoorlie M24/00749 100.0% 9.3 Pending 1 Vettersberg 55km NNW of Kalgoorlie M24/00750 100.0% 4.5 Pending 1 Scotia East 68km NNW of Kalgoorlie M24/00798 100.0% 0.2 Live 1 Scotia 62km NNE of Kalgoorlie M24/00843 100.0% 4.7 Pending 1 Scotia 62km NNE of Kalgoorlie M24/00898 100.0% 7.1 Pending 1 Goongarrie West 87km NNW of Kalgoorlie M29/00167 100.0% 0.8 Live 1 GoongarrieWest 86km NNW of Kalgoorlie M29/00202 100.0% 5.9 Live 1 Goongarrie South 77km NNW of Kalgoorlie M29/00272 100.0% 6.0 Live 1 Canegrass 74km NNW of Kalgoorlie M29/00278 100.0% 8.0 Live 1 Goongarrie Lady 82km NNW of Kalgoorlie M29/00281 100.0% 3.5 Pending 1 Goongarrie South 75km NNW of Kalgoorlie M29/00283 100.0% 5.5 Live 1 Goongarrie West 84km NNW of Kalgoorlie M29/00292 100.0% 4.3 Pending 1 Goongarrie 82km NNW of Kalgoorlie M29/00320 100.0% 0.2 Pending 1 Menzies South 109km NNW of Kalgoorlie M29/00323 100.0% 0.8 Pending 1 Goongarrie Hill North 100km NNW of Kalgoorlie M29/00388 100.0% {2.4} Pending 1 Goongarrie Hill North 100km NNW of Kalgoorlie P29/01849 100.0% 2.0 Live 1 Vettersberg 62km NNW of Kalgoorlie P24/03672 100.0% 0.3 Live 1 Vettersberg 62km NNW of Kalgoorlie P24/03695 100.0% 2.0 Live 1 Vettersberg 62km NNW of Kalgoorlie M24/00933 100.0% 2.0 Pending 1 Vetters North 62km NNW of Kalgoorlie P24/03734 100.0% 1.8 Live 1 Vetters North 62km NNW of Kalgoorlie M24/00921 100.0% {2.1} Pending 1 Windanya 46km NNW of Kalgoorlie P24/03765 100.0% 2.0 Pending 1 Windanya 47km NNW of Kalgoorlie P24/03766 100.0% 2.0 Pending 1 Windanya 48km NNW of Kalgoorlie P24/03767 100.0% 2.0 Pending 1 Windanya 49km NNW of Kalgoorlie P24/03768 100.0% 2.0 Pending 1 Windanya 50km NNW of Kalgoorlie P24/03769 100.0% 1.9 Pending 1 Windanya 51km NNW of Kalgoorlie P24/03770 100.0% 1.8 Pending 1 Windanya 53km NNW of Kalgoorlie P24/03771 100.0% 2.0 Pending 1 Windanya 55km NNW of Kalgoorlie P24/03772 100.0% 2.0 Live 1 Grafters South 64km NNW of Kalgoorlie P24/03777 100.0% 1.3 Live 1 Grafters South 63km NNW of Kalgoorlie P24/03778 100.0% 1.2 Live 1 Grafters South 62km NNW of Kalgoorlie P24/03779 100.0% 2.0 Live 1 Grafters South 63km NNW of Kalgoorlie P24/03780 100.0% 1.9 Live 1 Grafters South 65km NNW of Kalgoorlie P24/03781 100.0% 1.1 Live 1 Scotia Dam South 63km NNW of Kalgoorlie M24/00919 100.0% {1.1} Pending 1 Windanya 55km NNW of Kalgoorlie P24/03790 100.0% 1.2 Live 1 Windanya 55km NNW of Kalgoorlie P24/03791 100.0% 1.4 Live 1 Windanya 55km NNW of Kalgoorlie P24/03792 100.0% 1.7 Live 1

Annual Report 2006 63 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Goongarrie Project continued Windanya 55km NNW of Kalgoorlie P24/03797 100.0% 1.9 Live 1 Windanya 55km NNW of Kalgoorlie M24/00920 100.0% {4.4} Pending 1 Scotia 63km NNW of Kalgoorlie P24/03804 100.0% 1.3 Live 1 Scotia Siding 63km NNW of Kalgoorlie M24/00918 100.0% {1.3} Pending 1 Canegrass 75km NNW of Kalgoorlie P24/03810 100.0% 0.6 Live 1 Goongarrie Hill North 99km NNW of Kalgoorlie P29/01671 100.0% 0.4 Live 1 Ghost Rocks 134km NNW of Kalgoorlie P29/01681 100.0% 0.5 Live 1 Ghost Rocks 134km NNW of Kalgoorlie M29/00337 100.0% {0.5} Pending 1 Ghost Rocks 134km NNW of Kalgoorlie P29/01682 100.0% 0.8 Live 1 Ghost Rocks 134km NNW of Kalgoorlie M29/00396 100.0% 0.7 Pending 1 Comet Vale 90km NNW of Kalgoorlie P29/01684 100.0% 0.1 Live 1 Comet Vale 90km NNW of Kalgoorlie M29/00338 100.0% {0.1} Pending 1 Highway North 110km NNW of Kalgoorlie P29/01850 100.0% 1.8 Live 1 Highway North 110km NNW of Kalgoorlie P29/01851 100.0% 1.9 Live 1 Highway North 110km NNW of Kalgoorlie P29/01852 100.0% 2.0 Live 1 Highway North 110km NNW of Kalgoorlie P29/01853 100.0% 2.0 Live 1 Highway North 110km NNW of Kalgoorlie M29/00395 100.0% {7.7} Pending 1 74 1,047.7 NORTH KALGOORLIE NICKEL Highway Project Highway 100km NNW of Kalgoorlie E29/00139 100.0% {60.0} Live 1 Highway 100km NNW of Kalgoorlie M29/00214 100.0% 9.5 Pending 1 2 9.5 NORTH KALGOORLIE NICKEL Highway Extended Project Highway North 105km NNW of Kalgoorlie P29/01362 87.5% 0.9 Live 1, 2 Highway North 105km NNW of Kalgoorlie P29/01363 87.5% 0.9 Live 1, 2 Highway North 105km NNW of Kalgoorlie P29/01364 87.5% 1.2 Live 1, 2 Highway North 105km NNW of Kalgoorlie P29/01365 87.5% 1.2 Live 1, 2 Highway North 105km NNW of Kalgoorlie P29/01366 87.5% 1.2 Live 1, 2 Highway North 105km NNW of Kalgoorlie P29/01367 87.5% 1.2 Live 1, 2 Highway North 105km NNW of Kalgoorlie P29/01368 87.5% 1.2 Live 1, 2 Highway North 105km NNW of Kalgoorlie P29/01369 87.5% 1.2 Live 1, 2 Highway North 110km NNW of Kalgoorlie M29/00209 87.5% {9.1} Pending 1, 2 9 9.1 NORTH KALGOORLIE NICKEL Comet Vale Joint Venture Project Comet Vale 90km NNW of Kalgoorlie M29/00185 earning 70% 0.1 Live 1, 3 Comet Vale 90km NNW of Kalgoorlie M29/00186 earning 70% 2.9 Pending 1, 3 2 2.9 NORTH KALGOORLIE NICKEL Placer Big Four Project Placer Big Four 70km NNW of Kalgoorlie E24/00074 100% of Ni {22.4} Live 1,4 Placer Big Four 70km NNW of Kalgoorlie E29/00412 100% of Ni 16.8 Live 1,4 Placer Big Four 70km NNW of Kalgoorlie E29/00421 100% of Ni 11.2 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M24/00648 100% of Ni 0.7 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M24/00731 100% of Ni 6 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M24/00732 100% of Ni 5.1 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M24/00778 100% of Ni 8.9 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M24/00780 100% of Ni 1.8 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M24/00781 100% of Ni 0.8 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M24/00783 100% of Ni 0.7 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M29/00169 100% of Ni 9.7 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie M29/00268 100% of Ni 3.9 Pending 1,4 Placer Big Four 70km NNW of Kalgoorlie P24/03642 100% of Ni 1.1 Live 1,4 13 66.8

64 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note

NORTH KALGOORLIE NICKEL Siberia Project Goongarrie West 73km NW of Kalgoorlie E24/00116 100.0% 98.0 Live 1 Wongi Bore 78km NW of Kalgoorlie E29/00531 100.0% 5.6 Pending 1 Wongi Hill 78km NW of Kalgoorlie E29/00535 100.0% 145.6 Live 1 Wongi Hill 78km NW of Kalgoorlie E29/00569 100.0% 5.6 Pending 1 Siberia North 78km NW of Kalgoorlie M24/00634 100% of Ni 1.9 Live 1 Siberia 75km NW of Kalgoorlie M24/00658 100.0% 3.8 Pending 1 Siberia 75km NW of Kalgoorlie M24/00659 100.0% 9.0 Pending 1 Siberia 75km NW of Kalgoorlie M24/00661 100.0% 1.2 Pending 1 Siberia 75km NW of Kalgoorlie M24/00685 100.0% 3.4 Pending 1 Siberia 75km NW of Kalgoorlie M24/00686 100.0% 2.2 Pending 1 Black Range 63km NW of Kalgoorlie M24/00757 100% of Ni 5.9 Pending 1 Black Range 63km NW of Kalgoorlie M24/00912 100.0% 2.8 Pending 1 Siberia 78km NW of Kalgoorlie M29/00312 100.0% 4.8 Pending 1 Siberia 75km NW of Kalgoorlie P24/03144 100.0% 1.0 Live 1 Siberia 75km NW of Kalgoorlie P24/03145 100.0% 1.2 Live 1 Siberia 75km NW of Kalgoorlie P24/03146 100.0% 0.9 Live 1 Siberia 75km NW of Kalgoorlie M24/00663 100.0% {3.1} Pending 1 Siberia 75km NW of Kalgoorlie P24/03169 100.0% 1.3 Live 1 Siberia 75km NW of Kalgoorlie M24/00664 100.0% {1.4} Pending 1 Siberia 75km NW of Kalgoorlie P24/03189 100.0% 1.6 Live 1 Siberia 75km NW of Kalgoorlie M24/00660 100.0% {1.7} Pending 1 Siberia 75km NW of Kalgoorlie P24/03276 100.0% 1.3 Live 1 Siberia 75km NW of Kalgoorlie M24/00690 100.0% {1.3} Pending 1 Camperdown 78km NW of Kalgoorlie P24/03748 100% of Ni 1.6 Live 1 Camperdown 78km NW of Kalgoorlie P24/03749 100.0% 1.9 Live 1 Camperdown 78km NW of Kalgoorlie P24/03750 100.0% 1.8 Live 1 Camperdown 78km NW of Kalgoorlie M24/00916 100.0% {5.4} Pending 1 Bardoc West 71km NW of Kalgoorlie P24/03764 100% of Ni 1.5 Live 1 Siberia North 78km NW of Kalgoorlie P24/03811 100.0% 0.7 Live 1 Siberia North 78km NW of Kalgoorlie M24/00915 100.0% {0.7} Pending 1 Cave Hill 75km NW of Kalgoorlie P24/03857 100.0% 1.5 Live 1 Cave Hill 75km NW of Kalgoorlie M24/00917 100.0% {1.5} Pending 1 Linger and Die 70km NW of Kalgoorlie P24/03952 100.0% 0.1 Live 1 Linger and Die 70km NW of Kalgoorlie P24/03953 100.0% 0.0 Live 1 Linger and Die 70km NW of Kalgoorlie P24/03954 100.0% 0.0 Live 1 Siberia 75km NW of Kalgoorlie P24/03943 100.0% 0.1 Live 1 Siberia 75km NW of Kalgoorlie M24/00927 100.0% {0.1} Pending 1 37 295.9 Siberia Tank Project Siberia Tank 75km NW of Kalgoorlie P24/03179 90.0% 1.2 Live 1,11 Siberia Tank 75km NW of Kalgoorlie P24/03180 90.0% 2.0 Live 1,11 Siberia Tank 75km NW of Kalgoorlie P24/03181 90.0% 2.0 Live 1,11 Siberia Tank 75km NW of Kalgoorlie P24/03182 90.0% 1.2 Live 1,11 Siberia Tank 75km NW of Kalgoorlie P24/03183 90.0% 1.2 Live 1,11 Siberia Tank 75km NW of Kalgoorlie P24/03184 90.0% 1.2 Live 1,11 Siberia Tank 75km NW of Kalgoorlie M24/00665 90.0% {8.3} Pending 1,11 7 8.7 NORTH KALGOORLIE NICKEL SMC Siberia Project Siberia North 78km NW of Kalgoorlie E24/00092 100.0% 8.4 Live 1 Siberia North 78km NW of Kalgoorlie M24/00797 100.0% {8.1) Pending 1 Siberia South 71km NW of Kalgoorlie M24/00845 100% of Ni 9.0 Live 1,10 Siberia South 71km NW of Kalgoorlie M24/00846 100% of Ni 6.1 Live 1,10 Siberia South 71km NW of Kalgoorlie M24/00847 100% of Ni 8.1 Live 1,10 Siberia South 71km NW of Kalgoorlie M24/00848 100% of Ni 7.9 Live 1,10 Siberia North 78km NW of Kalgoorlie P24/03233 100.0% 0.6 Live 1

Annual Report 2006 65 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note SMC Siberia Project continued Siberia North 78km NW of Kalgoorlie M24/00683 100.0% {0.6} Pending 1 Siberia North 71km NW of Kalgoorlie P24/03518 100.0% 1.9 Live 1 Siberia North 71km NW of Kalgoorlie M24/00772 100.0% {2.0} Pending 1 Siberia East 70km NW of Kalgoorlie P24/03827 100.0% 1.3 Live 1 Siberia East 70km NW of Kalgoorlie P24/03828 100.0% 1.7 Live 1 Siberia East 70km NW of Kalgoorlie M24/00937 100.0% 3.0 Pending 1 13 45.0 NORTH KALGOORLIE NICKEL Coolgardie Nickel Project Carbine North 62km NW of Kalgoorlie E16/00276 100% of Ni 25.2 Pending 1,10 Carbine North 62km NW of Kalgoorlie E16/00332 100.0% 2.8 Pending 1 Dunnsville 62km NW of Kalgoorlie E16/00292 100.0% 22.4 Live 1 Saddle Dam 94km NW of Kalgoorlie P16/02124 100.0% 1.9 Live 1 Chadwin West 79km NW of Kalgoorlie P16/02249 100.0% {1.8} Live 1 Blue Dam 79km NW of Kalgoorlie M16/00515 100.0% 1.8 Pending 1 Chadwin East 76km NW of Kalgoorlie P16/02250 100.0% 1.9 Live 1 Rundle Dam 76km NW of Kalgoorlie M16/00514 100.0% {1.9} Pending 1 8 57.0 NORTH KALGOORLIE NICKEL Frances Lesley Project Frances Lesley 95km NW of Kalgoorlie E16/00174 100% of Ni 2.8 Live 1,6 Frances Lesley 88km NW of Kalgoorlie E16/00239 100% of Ni 33.6 Live 1,6 Frances Lesley 98km NW of Kalgoorlie M16/00385 100% of Ni 2.0 Pending 1,6 3 38.4 NORTH KALGOORLIE NICKEL Blister Dam Project Lake Carnage 70km NW of Kalgoorlie E24/00120 100.0% 14.0 Live 1 Turkey Flat Dam 70km NW of Kalgoorlie M16/00513 100.0% {4.1} Pending 1 Blister Dam 73km NW of Kalgoorlie P16/02149 100.0% 1.4 Live 1 Blister Dam 73km NW of Kalgoorlie P16/02150 100.0% 1.9 Live 1 Blister Dam 73km NW of Kalgoorlie P16/02151 100.0% 1.8 Live 1 Blister Dam 76km NW of Kalgoorlie P24/03773 100.0% 1.7 Live 1 Blister Dam 76km NW of Kalgoorlie P24/03774 100.0% 1.9 Live 1 Blister Dam 76km NW of Kalgoorlie M16/00516 100.0% {8.6} Pending 1 8 31.3 HAMPTON NICKEL Bulong Main Project Bulong 40km E of Kalgoorlie M25/00160 100.0% 5.4 Pending 1 Bulong 40km E of Kalgoorlie M27/00275 100.0% 5.0 Pending 1 Bulong 40km E of Kalgoorlie M27/00276 100.0% 8.0 Pending 1 Bulong 40km E of Kalgoorlie E27/00094 100.0% 47.6 Live 1 Bulong 40km E of Kalgoorlie M27/00341 100.0% {7.5} Pending 1 Bulong 40km E of Kalgoorlie M27/00342 100.0% {8.7} Pending 1 Bulong 40km E of Kalgoorlie M27/00343 100.0% {8.7} Pending 1 Bulong 40km E of Kalgoorlie M25/00111 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00127 100.0% 5.8 Live 1 Bulong 40km E of Kalgoorlie M25/00128 100.0% 5.6 Live 1 Bulong 40km E of Kalgoorlie M25/00134 100.0% 8.2 Live 1 Bulong 40km E of Kalgoorlie M25/00145 100.0% 1.7 Live 1 Bulong 40km E of Kalgoorlie M25/00187 100.0% 0.5 Live 1 Bulong 40km E of Kalgoorlie M25/00263 100.0% 1.2 Pending 1 Bulong 40km E of Kalgoorlie M25/00161 100.0% 6.4 Live 1 Bulong 40km E of Kalgoorlie P25/01049 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01050 100.0% 1.2 Live 1

66 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Bulong Main Project continued Bulong 40km E of Kalgoorlie P25/01051 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00162 100.0% {3.7} Pending 1 Bulong 40km E of Kalgoorlie P25/01058 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01061 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01062 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01063 100.0% 0.9 Live 1 Bulong 40km E of Kalgoorlie M25/00165 100.0% {4.5} Pending 1 Bulong 40km E of Kalgoorlie P25/01071 100.0% 1.0 Live 1 Bulong 40km E of Kalgoorlie M25/00171 100.0% {1.0} Pending 1 Bulong 40km E of Kalgoorlie M25/00175 100.0% {2.2} Pending 1 Bulong 40km E of Kalgoorlie P25/01853 100.0% 0.2 Pending 1 Bulong 40km E of Kalgoorlie P25/01193 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01194 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00206 100.0% {2.1} Pending 1 Bulong 40km E of Kalgoorlie P25/01196 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01197 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01198 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01199 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01200 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01201 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01202 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01203 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00210 100.0% {9.6} Pending 1 Bulong 40km E of Kalgoorlie P25/01204 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01205 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01206 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01207 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01208 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01209 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01210 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01211 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00209 100.0% {9.6} Pending 1 Bulong 40km E of Kalgoorlie P25/01212 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00208 100.0% {1.2} Pending 1 Bulong 40km E of Kalgoorlie P25/01213 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00220 100.0% {1.2} Pending 1 Bulong 40km E of Kalgoorlie P25/01214 100.0% 1.8 Live 1 Bulong 40km E of Kalgoorlie M25/00207 100.0% {1.8} Pending 1 Bulong 40km E of Kalgoorlie M25/00231 100.0% {0.02} Pending 1 Bulong 40km E of Kalgoorlie P25/01235 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01236 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01237 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01238 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01239 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie M25/00234 100.0% {6.1} Pending 1 Bulong 40km E of Kalgoorlie P25/01422 100.0% 0.1 Live 1 Bulong 40km E of Kalgoorlie M25/00260 100.0% {0.04} Pending 1 Bulong 40km E of Kalgoorlie P25/01724 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01725 100.0% 1.2 Live 1 Bulong 40km E of Kalgoorlie P25/01726 100.0% 0.1 Live 1 Bulong 40km E of Kalgoorlie M27/00294 100.0% {1.8} Pending 1 Bulong 40km E of Kalgoorlie M27/00291 100.0% {2.0} Pending 1 Bulong 40km E of Kalgoorlie L27/00067 100.0% 9.4 Live 1 Bulong 40km E of Kalgoorlie L27/00072 100.0% 3.4 Live 1 Bulong 40km E of Kalgoorlie L27/00073 100.0% 6.1 Live 1 Bulong 40km E of Kalgoorlie M25/00341 100.0% 0.1 Pending 1 73 144.2

Annual Report 2006 67 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note HAMPTON NICKEL Bulong Central Project Bulong 40km E of Kalgoorlie M25/00075 Right to 100% of minerals 6.4 Live 1,12 Bulong 40km E of Kalgoorlie M25/00076 Right to 100% of minerals 9.8 Live 1,12 Bulong 40km E of Kalgoorlie M25/00077 Right to 100% of minerals 9.9 Live 1,12 Bulong 40km E of Kalgoorlie M25/00078 Right to 100% of minerals 10.0 Live 1,12 Bulong 40km E of Kalgoorlie M27/00189 Right to 100% of minerals 7.3 Live 1,12 5 43.4 HAMPTON NICKEL Bulong East Project Gumbulgera Hill 34km East of Kalgoorlie M25/00059 100.0% 0.8 Live 1 Bulong 34km East of Kalgoorlie P25/01175 100.0% 1.2 Live 1 Bulong 34km East of Kalgoorlie P25/01176 100.0% 1.7 Live 1 Bulong 34km East of Kalgoorlie P25/01177 100.0% 0.8 Live 1 Bulong 34km East of Kalgoorlie M25/00191 100.0% {3.6} Pending 1 Bulong 34km East of Kalgoorlie P25/01179 100.0% 1.2 Live 1 Bulong Townsite 34km East of Kalgoorlie M25/00226 100.0% {1.2} Pending 1 7 5.7 HAMPTON NICKEL Bulong South Project Clinker Hill 32km ESE of Kalgoorlie E25/00250 100.0% 30.8 Live 1 Yindarlgooda 37km E of Kalgoorlie P25/01839 100.0% 1.1 Live 1 Yindarlgooda 37km E of Kalgoorlie P25/01840 100.0% 1.0 Live 1 Wombola North 44km SE of Kalgoorlie P26/03090 100.0% 1.4 Live 1 Wombola North 44km SE of Kalgoorlie P26/03091 100.0% 1.1 Live 1 Simplex Hill East 40km SE of Kalgoorlie P26/03300 100.0% 1.2 Live 1 6 36.6 HAMPTON NICKEL Kalpini Project Binti Binti South 74km NE of Kalgoorlie E27/00168 - {47.6} Live 1 Binti Binti South 77km NE of Kalgoorlie M27/00408 100.0% 8.9 Pending 1 Binti Binti South 74km NE of Kalgoorlie M27/00409 100.0% 5.9 Pending 1 Binti Binti South 74km NE of Kalgoorlie M27/00410 100.0% 8.9 Pending 1 Kurnalpi Hill 88km NE of Kalgoorlie E28/01108 100.0% 33.6 Live 1 Kurnalpi Hill 88km NE of Kalgoorlie M28/00348 100.0% {9.9} Pending 1 Kurnalpi Hill 88km NE of Kalgoorlie M28/00349 100.0% {9.8} Pending 1 Yowie Hill 86km ENE of Kalgoorlie E28/01606 100.0% 64.4 Pending 1 Mooree Hill 75km NE of Kalgoorlie E28/01187 100.0% 19.6 Live 1 Wellington North 63km NE of Kalgoorlie E28/01224 100.0% 184.8 Live 1 Wellington North 68km NE of Kalgoorlie M27/00395 100.0% {2.6} Pending 1 Yowie Hill 86km ENE of Kalgoorlie E28/01295 100.0% 8.4 Live 1 Yowie Hill 86km ENE of Kalgoorlie M28/00362 100.0% 8.9 Pending 1 Acra East 75km NE of Kalgoorlie E28/01413 100.0% 78.4 Live 1 Acra Southeast 70km NE of Kalgoorlie E28/01428 100.0% 14.0 Live 1 Arcoona 72Km NE of Kalgoorlie E28/01607 100.0% 109.2 Pending 1 Jumungie Hill 82km NE of Kalgoorlie E28/01013 100.0% 8.4 Live 1 Kurnalpi Hill 82km NE of Kalgoorlie M28/00340 100.0% {7.4} Pending 1 Acra Chrysoprase 62km NE of Kalgoorlie M28/00127 100.0% 0.3 Live 1 Acra North 65km NE of Kalgoorlie M28/00199 100.0% 9.8 Live 1 Acra North 65km NE of Kalgoorlie M28/00201 100.0% 9.6 Live 1 Betsy Bore 66km NE of Kalgoorlie M28/00205 100.0% 8.5 Live 1 Binti Binti 81km NE of Kalgoorlie M31/00297 100.0% 8.9 Pending 1 Binti Binti 80km NE of Kalgoorlie M31/00305 100.0% 5.9 Pending 1 Wellington North 68km NE of Kalgoorlie P27/01562 100.0% 0.5 Live 1 Acra North 61km NE of Kalgoorlie P28/00983 100.0% 0.4 Live 1 Acra East 65km NE of Kalgoorlie P28/01000 100.0% 0.3 Live 1 Acra East 65km NE of Kalgoorlie M28/00350 100.0% {0.3} Pending 1

68 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Kalpini Project continued Acra East 65km NE of Kalgoorlie P28/01001 100.0% 1.0 Live 1 Acra Southeast 70km NE of Kalgoorlie P28/01006 100.0% 1.2 Live 1 30 619.7 HAMPTON NICKEL Lake Rebecca Project Mulgabbie 112km NE of Kalgoorlie E28/00823 100.0% 8.4 Pending 1 Wallbrook Hill 118km NE of Kalgoorlie E31/00586 100% of Ni 86.8 Live 1 Lake Rebecca 114km NE of Kalgoorlie M31/00318 100.0% 4.4 Pending 1 Yilgangi South 125km NE of Kalgoorlie P31/01710 100.0% 2.0 Live 1 Yilgangi South 125km NE of Kalgoorlie P31/01711 100.0% 2.0 Live 1 Yilgangi South 125km NE of Kalgoorlie P31/01712 100.0% 2.0 Live 1 Yilgangi South 125km NE of Kalgoorlie P31/01713 100.0% 2.0 Live 1 7 107.5 HERON WHOLLY-OWNED NICKEL RIGHTS BOORARA NICKEL Kanowna South Joint Venture Project Kanowna 17km ENE of Kalgoorlie P27/01550 100.0% 2.0 Live 5 Kanowna 16km ENE of Kalgoorlie P27/01551 100.0% 1.8 Live 5 Kanowna 15km ENE of Kalgoorlie P27/01552 100.0% 1.7 Live 5 Kanowna 16km ENE of Kalgoorlie P27/01553 100.0% 2.0 Live 5 Kanowna 16km ENE of Kalgoorlie P27/01554 100.0% 2.0 Live 5 Kanowna 17km ENE of Kalgoorlie P27/01555 100.0% 2.0 Live 5 Kanowna 19km ENE of Kalgoorlie P27/01556 100.0% 2.0 Live 5 Kanowna 16km ENE of Kalgoorlie P27/01557 100.0% 2.0 Live 5 Kanowna 15km ENE of Kalgoorlie P27/01558 100.0% 2.0 Live 5 Kanowna 16km ENE of Kalgoorlie P27/01559 100.0% 2.0 Live 5 Kanowna 15km ENE of Kalgoorlie P27/01560 100.0% 2.0 Live 5 Kanowna 14km ENE of Kalgoorlie P27/01561 100.0% 2.0 Live 5 12 23.3 LAVERTON NICKEL Laverton Project Mineral Patch Hill 75km SE of Laverton E38/00931 100% of Ni 36.4 Live 6 Mineral Patch Hill 75km SE of Laverton M38/01239 100% of Ni 6.0 Pending 6 Mineral Patch Hill 75km SE of Laverton M38/01240 100% of Ni 9.7 Pending 6 Mineral Patch Hill 75km SE of Laverton M39/01008 100% of Ni 9.0 Pending 6 Mineral Patch Hill 75km SE of Laverton M39/01009 100% of Ni 9.0 Pending 6 Corktree Well West 36km N of Laverton E38/00948 100.0% 30.8 Live R3 Gum Well 50km N of Laverton E38/01911 100.0% 28.0 Pending R3 Pudin Soak 142km NNW of Laverton E38/01926 100.0% 196.0 Pending Mount Varden 43km N of Laverton E38/01695 100.0% 89.6 Pending R3 Merolia 51km SE of Laverton E38/01696 100.0% 128.8 Live Erlistoun 60km N of Laverton E38/01724 100.0% 61.6 Live R3 Laverton South 43km S of Laverton E38/01726 100.0% 2.8 Pending Burtville 51km S of Laverton E38/01727 100.0% 19.6 Live Wilga Hill East 65km S of Laverton E38/01244 100.0% 16.8 Pending Jubilee Hill South 41km S of Laverton E38/01894 100.0% 11.2 Pending Erlistoun-Kurrajong Well 50km N of Laverton E38/01742 100.0% 30.8 Live R3 Perseverance Well 53km WNW of Laverton M39/00928 100.0% 3.0 Pending Perseverance Well 53km WNW of Laverton E39/01254 100.0% 44.8 Pending Jasper Hills 120km SE of Laverton E39/00907 100.0% 22.4 Live Mount Carlon 130km ESE of Laverton E38/01859 100.0% 140.0 Pending Stella Range 120km SE of Laverton E39/01076 100.0% 196.0 Pending Stella Range 126km SE of Laverton E39/01124 100.0% 11.2 Live Macey Hill 50km ESE of Leonora E39/01233 100.0% 2.8 Pending Murrin Murrin 50km ESE of Laverton P39/04228 100.0% 1.2 Live Mt Morgan West 75km E of Leonora P39/04557 100.0% 1.8 Pending Mt Morgan West 75km E of Leonora P39/04558 100.0% 1.8 Pending

Annual Report 2006 69 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Laverton Project continued Mt Morgan West 75km E of Leonora P39/04559 100.0% 1.8 Pending Murrin Murrin 50 ESE of Leonora P39/04409 100.0% 1.2 Live Murrin Murrin 50 ESE of Leonora P39/04410 100.0% 1.2 Live Murrin Murrin 50 ESE of Leonora P39/04411 100.0% 1.2 Live Macey Hill 44km ESE of Leonora P39/04348 100.0% 1.0 Live 31 1,114.5 JUMP-UP DAM NICKEL Jump-up Dam Project Mt Remarkable 166km NNE of Kalgoorlie E39/01139 100.0% 134.4 Pending R3 Yerilla 160km NNE of Kalgoorlie E31/00720 100.0% 86.8 Pending R3 Yerilla SE 140km NNE of Kalgoorlie E31/00684 100.0% 53.2 Pending R3 Kilmore Hill 170km NNE of Kalgoorlie E39/01120 100.0% 58.8 Pending R3 Aubils North 170km NNE of Kalgoorlie E39/01228 100.0% 14.0 Pending R3 Murphy Well 177km NNE of Kalgoorlie E39/00831 100.0% 33.6 Pending R3 Boyce Creek 142km NNE of Kalgoorlie M31/00278 100.0% 0.7 Pending R3 Boyce Creek 142km NNE of Kalgoorlie M31/00296 100.0% 5.8 Pending R3 Boyce Creek 142km NNE of Kalgoorlie M31/00300 100.0% 1.1 Pending R3 Yerilla 146km NNE of Kalgoorlie M31/00317 100.0% 9.3 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01752 100.0% 1.2 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01753 100.0% 1.2 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01754 100.0% 1.2 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01755 100.0% 1.2 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01756 100.0% 1.2 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01757 100.0% 1.2 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01758 100.0% 1.1 Pending R3 Yerilla 146km NNE of Kalgoorlie P31/01759 100.0% 0.9 Pending R3 Yerilla South 129km NE of Kalgoorlie E31/00713 100.0% 42.0 Pending Jump Up Dam 129km NE of Kalgoorlie E31/00664 100.0% 22.4 Live Jump Up Dam 129km NE of Kalgoorlie P31/01669 100.0% 1.2 Live Jump Up Dam 129km NE of Kalgoorlie M31/00475 100.0% 1.2 Pending Jump Up Dam South 130km NE of Kalgoorlie P31/01697 100.0% 0.6 Live Jump Up Dam North 130km NE of Kalgoorlie P31/01698 100.0% 0.7 Live 24 474.8

HERON NICKEL PROJECTS TOTAL 372 4,183.6 km2

GOLD AND BASE-METALS PROJECTS SELECTED TENEMENT AND NON-NICKEL RIGHT SALE TO RUBICON RESOURCES LIMITED KALGOORLIE GOLD Projects within KNP Sphere of Influence Twin Hills 150km N of Kalgoorlie E29/00490 100.0% 30.8 Live Snake Hill 170km NW of Kalgoorlie E29/00586 100.0% 56.0 Live Riverina 190km NW of Kalgoorlie E29/00575 100.0% 2.8 Live Riverina 170km NW of Kalgoorlie E29/00610 100.0% 5.6 Pending Morleys 144km NW of Kalgoorlie E30/00247 100.0% 61.6 Live Mt Morely 150km NW of Kalgoorlie E30/00289 100.0% 28.0 Live Camel Hump 60km NNW of Kalgoorlie P24/03859 100.0% 1.1 Live Mt Ida North 212km NNW of Kalgoorlie E29/00613 100.0% 2.8 Pending Goongarrie Hill 95km NNW of Kalgoorlie P29/01875 100.0% 0.1 Pending Yunndaga East 110km NNW of Kalgoorlie P29/01827 100.0% 1.4 Live Yunndaga East 110km NNW of Kalgoorlie P29/01828 100.0% 1.9 Live Yunndaga East 110km NNW of Kalgoorlie P29/01829 100.0% 1.4 Live Yunndaga East 110km NNW of Kalgoorlie P29/01830 100.0% 1.1 Live Highway East 110km NNW of Kalgoorlie M29/00215 100.0% 9.7 Pending Highway East 110km NNW of Kalgoorlie M29/00216 100.0% 8.8 Pending Highway East 110km NNW of Kalgoorlie M29/00217 100.0% 9.0 Pending

70 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Projects within KNP Sphere of Influence continued Highway East 110km NNW of Kalgoorlie M29/00218 100.0% 9.4 Pending Highway East 110km NNW of Kalgoorlie M29/00219 100.0% 9.6 Pending Highway East 110km NNW of Kalgoorlie M29/00220 100.0% 6.5 Pending Highway East 110km NNW of Kalgoorlie M29/00171 100.0% 0.5 Pending Highway East 110km NNW of Kalgoorlie M29/00173 100.0% 8.6 Pending Highway East 110km NNW of Kalgoorlie M29/00226 100.0% 6.0 Pending Highway East 110km NNW of Kalgoorlie M29/00227 100.0% 6.0 Pending Highway East 110km NNW of Kalgoorlie P29/01870 100.0% 2.0 Pending Highway East 110km NNW of Kalgoorlie P29/01871 100.0% 2.0 Pending Highway East 110km NNW of Kalgoorlie P29/01872 100.0% 2.0 Pending Highway East 110km NNW of Kalgoorlie P29/01873 100.0% 2.0 Pending Highway East 110km NNW of Kalgoorlie P29/01874 100.0% 0.4 Pending Placer Big Four 70km NNW of Kalgoorlie M29/00168 100.0% 9.2 Pending 4 Placer Big Four 70km NNW of Kalgoorlie E29/00407 100.0% 11.2 Live 4 Placer Big Four 70km NNW of Kalgoorlie E29/00419 100.0% 11.2 Pending 4 Siberia 80km NW of Kalgoorlie P24/04000 100.0% 1.9 Pending Siberia 80km NW of Kalgoorlie P24/04001 100.0% 2.0 Pending Alex's Find 42km NW of Kalgoorlie P24/04016 100.0% 0.8 Pending Linger and Die 70km NW of Kalgoorlie P24/04009 100.0% 1.2 Pending Coolgardie West 8km W of Coolgardie E15/00899 100.0% 30.8 Live Coolgardie North 22 km N of Coolgardie P15/04782 100.0% 0.7 Pending Credo 43km WNW of Kalgoorlie P16/02324 100.0% 1.5 Pending Kununalling 48km WNW of Kalgoorlie P16/02335 100.0% 1.2 Pending Black Flag 38km WNW of Kalgoorlie P16/02329 100.0% 1.9 Pending Black Flag 38km WNW of Kalgoorlie P16/02330 100.0% 2.0 Pending Black Flag 38km WNW of Kalgoorlie P16/02331 100.0% 2.0 Pending Black Flag 38km WNW of Kalgoorlie P16/02332 100.0% 1.6 Pending Black Flag 38km WNW of Kalgoorlie P16/02333 100.0% 1.2 Pending Black Flag 38km WNW of Kalgoorlie P16/02334 100.0% 2.0 Pending Breakaway Dam 54km NW of Kalgoorlie P16/02336 100.0% 1.7 Pending Breakaway Dam 54km NW of Kalgoorlie P16/02337 100.0% 1.8 Pending Breakaway Dam 54km NW of Kalgoorlie P16/02338 100.0% 1.7 Pending Breakaway Dam 54km NW of Kalgoorlie P16/02339 100.0% 1.9 Pending Masterton 55km NW of Kalgoorlie E15/00920 100.0% 5.6 Pending Kintore North West 55kn NW of Kalgoorlie P16/02312 100.0% 0.2 Pending Rundle Dam 70km NW of Kalgoorlie P16/02310 100.0% 1.1 Pending Two Gum Dam 60km NW of Kalgoorlie E16/00295 100.0% 5.6 Live Lady Jane West 55km NW of Kalgoorlie E16/00328 100.0% 11.2 Pending Lady Ida North 72km NW of Coolgardie E16/00322 100.0% 2.8 Pending Credo Station 76km NW of Coolgardie P16/02308 100.0% 0.1 Live Tindals 4km E of Kalgoorlie M15/01465 100.0% 0.1 Pending Gibraltar 60km W of Kalgoorlie P15/04678 100.0% 0.1 Live Gibraltar 60km W of Kalgoorlie P15/04820 100.0% 1.9 Pending Pamela 60km W of Kalgoorlie P15/04728 100.0% 0.2 Live Tindals 4km ESE of Coolgardie P15/04734 100.0% 0.1 Live Bullabulling North 60km W of Kalgoorlie P15/04760 100.0% 1.8 Pending Gibraltar 60km W of Kalgoorlie P15/04733 100.0% 1.8 Live Mungari 25km E of Kalgoorlie P15/04739 100.0% 0.4 Live Easter Dam 90km NW of Kalgoorlie E16/00334 100.0% 100.8 Pending Riches Find 77km NW of Kalgoorlie P24/03956 100.0% 0.4 Live Saunders Find North 120km NW of Kalgoorlie P30/00990 100.0% 0.0 Live Saunders Find East 120km NW of Kalgoorlie P30/00991 100.0% 0.2 Live Turkey Flat Dam North 70km NW of Kalgoorlie P16/02309 100.0% 0.3 Pending Blister Dam 76km NW of Kalgoorlie P24/3776 100.0% 0.2 Live Bulong 40km E of Kalgoorlie M25/00196 100.0% 5.2 Pending Bulong 40km E of Kalgoorlie M25/00197 100.0% 4.0 Pending Bulong 40km E of Kalgoorlie M27/00344 100.0% 2.2 Pending Bulong 40km E of Kalgoorlie M27/00345 100.0% 8.9 Pending Bulong 40km E of Kalgoorlie E27/00291 100.0% 22.4 Live Bulong 40km E of Kalgoorlie M27/00295 100.0% {5.9} Pending Bulong 40km E of Kalgoorlie M25/00123 100.0% 9.9 Live Bulong 40km E of Kalgoorlie M25/00149 100.0% 4.0 Live

Annual Report 2006 71 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Projects within KNP Sphere of Influence continued Bulong 40km E of Kalgoorlie M25/00300 100.0% 0.4 Pending Bulong 40km E of Kalgoorlie M25/00184 100.0% 0.9 Pending Bulong 40km E of Kalgoorlie M25/00245 100.0% 2.0 Pending Bulong 40km E of Kalgoorlie P27/01578 100.0% 0.2 Live Bulong 40km E of Kalgoorlie P27/01579 100.0% 0.2 Pending Bulong 40km E of Kalgoorlie L27/00065 100.0% 35.5 Live Bulong 40km E of Kalgoorlie L27/00066 100.0% 3.2 Live L Yindarlgooda-Bennet Dam 34km E of Kalgoorlie L25/00007 100.0% 0.0 Live Gumbulger Hill 34km E of Kalgoorlie M25/00019 100.0% 1.1 Live Gumbulger Hill 34km E of Kalgoorlie M25/00032 100.0% 1.9 Live Bulong 34km E of Kalgoorlie M25/00036 100.0% 1.2 Live Lake Yindarlgooda 34km E of Kalgoorlie M25/00058 100.0% 1.2 Live Bulong 34km E of Kalgoorlie M25/00064 100.0% 1.0 Live Bennet Dam 34km E of Kalgoorlie M25/00081 100.0% 1.4 Live Bennet Dam 34km E of Kalgoorlie M25/00082 100.0% 1.0 Live Mt Mcleay 50km NE of Kalgoorlie E27/00243 100.0% 11.2 Live Boorara Hill East 25km ESE of Kalgoorlie E25/00321 100.0% 2.8 Live R3 North Dam 28kn ENE of Kalgoorlie E27/00330 100.0% 30.8 Pending R3 Bodgie Dam 35km ESE of Kalgoorlie E25/00324 100.0% 16.8 Pending R3 Queen Lapage 45km ENE of Kalgoorlie E25/00273 100.0% 165.2 Live Olly Swamp 50km NE of Kalgoorlie E25/00335 100.0% 19.6 Pending Queen Lapage North 50km NE of Kalgoorlie E27/00337 100.0% 14.0 Pending Gindalbie 50km NE of Kalgoorlie E27/00305 100.0% 47.6 Pending Leaky Dam 50km NE of Kalgoorlie P27/01675 100.0% 2.0 Live Gindalbie 60km NE of Kalgoorlie E27/00322 100.0% 11.2 Pending Kalpini West 50km NE of Kalgoorlie M27/00371 100.0% 3.4 Pending Kalpini West 53km NE of Kalgoorlie M27/00372 100.0% 1.6 Pending Gindalbie 45km NE of Kalgoorlie M27/00383 100.0% 3.6 Pending Garibaldi 48km NNE of Kalgoorlie M27/00386 100.0% 0.3 Pending Wombola North 42km SE of Kalgoorlie P25/01735 100.0% 1.2 Live Wombola North 42km SE of Kalgoorlie P25/01736 100.0% 1.1 Live Garibaldi 48km NE of Kalgoorlie P27/01491 100.0% 1.3 Live Garibaldi 48km NE of Kalgoorlie M27/00432 100.0% {1.3} Pending Yindarlgooda 37km E of Kalgoorlie P25/01841 100.0% 1.2 Live Eldona Dam North 40km NE of Kalgoorlie P27/01517 100.0% 0.7 Live Our Swamp Dam 43km ENE of Kalgoorlie P27/01575 100.0% 1.4 Live Our Swamp Dam 44km ENE of Kalgoorlie P27/01576 100.0% 1.9 Live Our Swamp Dam 44km ENE of Kalgoorlie M27/00466 100.0% {3.3} Pending Bulong East 42km E of Kalgoorlie P25/01827 100.0% 1.7 Live R1 Bulong East 42km E of Kalgoorlie P25/01828 100.0% 1.8 Live R1 Bulong East 42km E of Kalgoorlie P25/01829 100.0% 1.7 Live R1 Bulong East 42km E of Kalgoorlie P25/01830 100.0% 1.7 Live R1 Bulong East 42km E of Kalgoorlie P25/01831 100.0% 1.7 Live R1 Bulong 38km E of Kalgoorlie P25/01004 100.0% 1.2 Live Bulong 38km E of Kalgoorlie P25/01005 100.0% 1.2 Live Bulong 38km E of Kalgoorlie P25/01006 100.0% 1.2 Live Bulong 38km E of Kalgoorlie M25/00151 100.0% {3.7} Pending Forestry Dam 40km NE of Kalgoorlie P27/01661 100.0% 1.4 Live Kurnalpi West 80km ENE of Kalgoorlie P28/01050 100.0% 1.4 Live Kurnalpi West 80km ENE of Kalgoorlie P28/01051 100.0% 1.5 Live Kurnalpi West 80km ENE of Kalgoorlie P28/01052 100.0% 0.3 Live Lake Yindarlgooda 61km ENE of Kalgoorlie E28/01522 100.0% 2.8 Live Kurnalpi West 70km NE of Kalgoorlie P28/01004 100.0% 0.9 Live Kurnalpi West 70km NE of Kalgoorlie P28/01005 100.0% 1.6 Live Mulgabbie 112km NE of Kalgoorlie E28/01650 100.0% 11.2 Pending Mac's Dam 100km E of Kalgoorlie E28/01503 100.0% 11.2 Live Gilgarna 110km E of Kalgoorlie E28/01600 100.0% 47.6 Pending 135 1,022.3

72 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note BULONG PROVINCE Yindarlgooda Project Carr Boyd 67km N of Kalgoorlie E31/00729 100.0% 33.6 Pending Paddington Rifle Range 32km NNW of Kalgoorlie P24/04004 100.0% 0.1 Pending Mulgarrie 41km NNE of Kalgoorlie E24/00134 100.0% 28.0 Pending Gimlet Dam 50km NNE of Kalgoorlie E24/00149 100.0% 156.8 Pending Yindarlgooda 46km E of Kalgoorlie E25/00222 100.0% 50.4 Live R1 Pipeclay Peaks 66km ESE of Kalgoorlie E25/00241 100.0% 11.2 Live R2 Lake Yindarlgooda 54km ENE of Kalgoorlie E25/00271 100.0% 14.0 Live R2 Seabrook Hills 73km SE of Kalgoorlie E25/00293 100.0% 2.8 Live R2 Trans Find 55km ESE of Kalgoorlie E25/00298 100.0% 159.6 Live R2 Trans Find East 65km E of Kalgoorlie E25/00303 100.0% 22.4 Live R2 Wattle Dam 55km E of Kalgoorlie E25/00319 100.0% 61.6 Live R2 Reef Dam 60km NE of Kalgoorlie E25/00305 100.0% 22.4 Live R1 Lake Yindarlgooda 45km E of Kalgoorlie E25/00316 100.0% 22.4 Live R1 Mulgarrie 41km NNE of Kalgoorlie E27/00306 100.0% 36.4 Pending Trans East 72km ESE of Kalgoorlie E28/01079 100.0% 44.8 Live R3 Trans East 80km ESE of Kalgoorlie E28/01660 100.0% 2.8 Pending Hampton Plains 80km ESE of Kalgoorlie E28/01639 100.0% 28.0 Pending R3 Cowarna Downs 96km SE of Kalgoorlie E28/01310 100.0% 67.2 Live R3 Karonie South 128km SE of Kalgoorlie E28/01341 100.0% 148.4 Live R3 Madoonia 125km SE of Kalgoorlie E28/01563 100.0% 72.8 Live Jimberlana 80km ENE of Norseman E63/01061 100.0% 50.4 Pending Madoona Downs 119km SE of Kalgoorlie E28/01427 100.0% 109.2 Live R3 Fraser Range 205km ESE of Kalgoorlie E28/01654 100.0% 299.6 Pending Mulgarrie 41km NNE of Kalgoorlie M27/00419 100.0% 6.1 Pending Queen Lapage 51km ENE of Kalgoorlie P25/01777 100.0% 0.2 Live R1 Queen Lapage 51km ENE of Kalgoorlie M25/00344 100.0% {0.2} Pending R1 Trans Find South 1 62km E of Kalgoorlie P25/01814 100.0% 1.8 Live R1 Trans Find South 2 62km E of Kalgoorlie P25/01815 100.0% 1.8 Live R1 Trans Find South 3 62km E of Kalgoorlie P25/01817 100.0% 1.7 Live R1 Trans Find South 4 62km E of Kalgoorlie P25/01818 100.0% 1.7 Live R1 Lake Yindarlgooda 59km ENE of Kalgoorlie E28/01192 100.0% 5.6 Live R3 Lake Yindarlgooda 59km ENE of Kalgoorlie M28/00341 100.0% {6.9} Pending R3 Kalgoorlie West 5km W of Kalgoorlie P26/03283 100.0% 0.9 Pending Kalgoorlie West 5km W of Kalgoorlie P26/03284 100.0% 1.8 Pending Kalgoorlie West 5km W of Kalgoorlie P26/03285 100.0% 2.0 Pending Kalgoorlie West 5km W of Kalgoorlie P26/03320 100.0% 0.8 Pending Kalgoorlie Within Kalgoorlie P26/03308 100.0% 2.0 Live Kalgoorlie Within Kalgoorlie P26/03309 100.0% 1.1 Live Kanowna Racetrack 17km NE of Kalgoorlie P27/01650 100.0% 2.0 Live R1 Kanowna Racetrack 17km NE of Kalgoorlie P27/01651 100.0% 2.0 Live R1 Kanowna Racetrack 17km NE of Kalgoorlie P27/01652 100.0% 1.4 Live R1 Kanowna Racetrack 17km NE of Kalgoorlie P27/01653 100.0% 1.4 Live R1 Kanowna Racetrack 17km NE of Kalgoorlie P27/01654 100.0% 2.0 Live R1 Garibaldi 46km NE of Kalgoorlie P27/01655 100.0% 0.1 Live R1 44 1,506.6 BULONG PROVINCE Boorara Project Peter Dam 75km SE of Kalgoorlie E15/00869 100.0% 103.6 Live R2 Yalla Burra 92km SE of Kalgoorlie E15/00918 100.0% 50.4 Pending R1 Mt Monger 50km SE of Kalgoorlie E25/00307 100.0% 47.6 Live R2 Mt Monger 50km SE of Kalgoorlie E25/00313 100.0% 11.2 Live R1 Cutters Luck 32km SSE of Kalgoorlie E26/00110 100.0% 47.6 Live R2 Lake Lefroy 55km SE of Kalgoorlie E26/00121 100.0% 8.4 Pending R1 Lake Lefroy 68km SE of Kalgoorlie E15/00926 100.0% 16.8 Pending Lake Lefroy 68km SE of Kalgoorlie E15/00927 100.0% 5.6 Pending Lake Lefroy 68km SE of Kalgoorlie E15/00928 100.0% 11.2 Pending R1 Lake Lefroy 68km SE of Kalgoorlie E15/00929 100.0% 5.6 Pending R1 Cutters Luck 48km SSE of Kalgoorlie E26/00115 100.0% 25.2 Pending R2

Annual Report 2006 73 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Boorara Project continued Cutters Luck 48km SSE of Kalgoorlie M26/00667 100.0% 2.3 Pending R2 Cutters Luck 44km SSE of Kalgoorlie P26/02909 100.0% 1.7 Pending R2 Abattoir South 30km S of Kalgoorlie P26/03286 100.0% 1.9 Live Abattoir North 10km S of Kalgoorlie P26/03292 100.0% 2.0 Live Abattoir North 10km S of Kalgoorlie P26/03293 100.0% 2.0 Live Mount Monger 55km SE of Kalgoorlie P26/03331 100.0% 0.7 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03332 100.0% 1.6 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03333 100.0% 1.6 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03334 100.0% 2.0 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03335 100.0% 2.0 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03336 100.0% 1.9 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03338 100.0% 1.9 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03339 100.0% 2.0 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03340 100.0% 1.7 Pending R1 Mount Monger 55km SE of Kalgoorlie P26/03341 100.0% 1.2 Pending R2 Mount Monger 55km SE of Kalgoorlie P26/03342 100.0% 1.2 Pending R2 Mount Monger 55km SE of Kalgoorlie P26/03343 100.0% 2.0 Pending R2 Mount Monger 55km SE of Kalgoorlie P25/01842 100.0% 1.9 Pending R1 Mount Monger 55km SE of Kalgoorlie P25/01843 100.0% 2.0 Pending R1 Mount Monger 55km SE of Kalgoorlie P25/01844 100.0% 1.2 Pending R2 Mount Monger 55km SE of Kalgoorlie P25/01845 100.0% 1.2 Pending R2 Wombola 46km SE of Kalgoorlie P26/03298 100.0% 1.3 Live R3 Wombola 46km SE of Kalgoorlie P26/03299 100.0% 0.9 Live R3 Square Dam 100km SSE of Kalgoorlie E15/00906 100.0% 5.6 Pending Cowan Hill North 100km SSE of Kalgoorlie E15/00907 100.0% 56.0 Pending 36 432.7 KEITH KILKENNY PROVINCE Yarri Project Yerilla Ck Dam 155km NNE of Kalgoorlie E31/00348 100.0% 11.2 Pending Mt Catherine East 143km NNE of Kalgoorlie E31/00372 100.0% 5.6 Pending Mt Catherine East 138km NNE of Kalgoorlie E31/00373 100.0% 2.8 Pending Claypan Well 141km NNE of Kalgoorlie E31/00446 100.0% 8.4 Live McAuliffe Well 150km NNE of Kalgoorlie E31/00518 100.0% 47.6 Live R1 Mt Catherine 141km NNE of Kalgoorlie E31/00529 100.0% 2.8 Live Westward Ho Well 140km NNE of Kalgoorlie E31/00576 100.0% 30.8 Pending Mt Catherine 145km NNE of Kalgoorlie E31/00628 100.0% 28.0 Pending R2 Webb Find 136km NE of Kalgoorlie E31/00670 100.0% 8.4 Live Jungle Dam 143km NE of Kalgoorlie E31/00675 100.0% 2.8 Live Round Hill 135km ENE of Kalgoorlie E28/01605 100.0% 5.6 Pending Wild Dog Dam 130km ENE of Kalgoorlie E28/01651 100.0% 72.8 Pending Boyce Creek 150km NNE of Kalgoorlie E31/00715 100.0% 98.0 Pending R2 Hobble Gap 170km NE of Kalgoorlie E31/00694 100.0% 56.0 Pending Mt Howe 170km NE of Kalgoorlie E39/01132 100.0% 8.4 Pending R1 Mt Milicent 160km NE of Kalgoorlie E39/01182 100.0% 53.2 Pending R1 Mt Percy 163km NNE of Kalgoorlie E39/00883 100.0% 196.0 Pending R3 Mt Percy 160km NNE of Kalgoorlie E39/01179 100.0% 36.4 Pending R1 Apollo Hill West 160km NNE of Kalgoorlie E31/00725 100.0% 25.2 Pending R1 Butcher Well North 191km NE of Kalgoorlie E39/01100 100.0% 5.6 Live Mt Remarkable 157km NNE of Kalgoorlie E39/01111 100.0% 196.0 Pending R2 Yilgangi North 131km NE of Kalgoorlie E31/00721 100.0% 2.8 Pending R1 Yarri 137km NE of Kalgoorlie M31/00141 100.0% 0.2 Pending Yilgangi Castle 129km NE of Kalgoorlie M31/00173 100.0% 0.3 Pending R1 Mt Catherine 142km NNE of Kalgoorlie M31/00249 100.0% 0.6 Pending R1 Webb Find 153km NE of Kalgoorlie M31/00281 100.0% 1.2 Pending Banjo Well 141km NE of Kalgoorlie M31/00310 100.0% 4.7 Pending Yarri 136km NE of Kalgoorlie M31/00314 100.0% 4.4 Pending Yilgangi North 131km NE of Kalgoorlie M31/00355 100.0% 5.2 Pending R1 Nils Desperandum 135km NE of Kalgoorlie P31/01680 100.0% 0.1 Live Yilgangi South 125km NE of Kalgoorlie P31/01709 100.0% 1.6 Live

74 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Yarri Project continued Yilgangi South 125km NE of Kalgoorlie P31/01714 100.0% 1.8 Live Yilgangi South 125km NE of Kalgoorlie P31/01715 100.0% 1.8 Live 33 926.3 KEITH KILKENNY PROVINCE Kookynie Project Melita North 20km SE of Leonora E37/00790 100.0% 28.0 Live R1 Glenorn 30km SSE of Leonora E39/01146 100.0% 8.4 Live R1 Glenorn 30km SSE of Leonora E39/01147 100.0% 11.2 Live R1 Mt Kildare 52km SE of Leonora E39/01101 100.0% 61.6 Live R1 Desdemona North 21km SSE of Leonora E40/00122 100.0% 2.8 Pending Mt Melita 30km SE of Leonora E40/00186 100.0% 58.8 Pending Niagara 57km S of Leonora E40/00195 100.0% 58.8 Live R1 Two Dees 57km S of Leonora E40/00199 100.0% 67.2 Pending R1 Niagara 57km S of Leonora E40/00200 100.0% 8.4 Live R1 Tampa 30km SSE of Leonora E40/00202 100.0% 39.2 Pending R1 Hawks Well West 30km SSE of Leonora E40/00211 100.0% 5.6 Pending R1 Hawks Well East 35km SSE of Leonora E40/00209 100.0% 50.4 Live R1 Kookynie South 65km SE of Leonora E31/00706 100.0% 56.0 Pending R1 Desdemona 30km SSE of Leonora E40/00204 100.0% 19.6 Pending R1 Mt Melita 30km SE of Leonora E40/00206 100.0% 42.0 Live R1 Malcolm East 22km ESE of Leonora M37/00727 100.0% 4.4 Pending R1 Malcolm East 21km ESE of Leonora M37/00728 100.0% 5.7 Pending R2 Malcolm East 23km ESE of Leonora M37/00729 100.0% 9.7 Pending R1 Malcolm East 22km ESE of Leonora M37/00730 100.0% 8.0 Pending R2 Alice Gold Mine 17km ESE of Leonora M37/00953 100.0% 0.1 Pending R1 Leonora East 7.5km E of Leonora P37/06705 100.0% 2.0 Live R1 Rufus Hill 70km NE of Leonora E37/00842 100.0% 114.8 Pending Mt Stewart 23km E of Leonora P37/06876 100.0% 1.0 Live R1 Mt Stewart 23km E of Leonora P37/06877 100.0% 1.1 Live R1 Mt Stewart 23km E of Leonora P37/06878 100.0% 1.1 Live R1 Mt Stewart 23km E of Leonora P37/06879 100.0% 1.1 Live R1 Mt Stewart 23km E of Leonora P37/06880 100.0% 1.2 Live R1 Mt Stewart 23km E of Leonora P37/06881 100.0% 1.1 Live R1 Mt Stewart 23km E of Leonora P37/06882 100.0% 1.2 Live R1 Mt Stewart 23km E of Leonora P37/06883 100.0% 1.2 Live R1 Mt Stewart 23km E of Leonora P37/06884 100.0% 1.8 Live R1 Mt Stewart 23km E of Leonora P37/06885 100.0% 1.7 Live R1 Mt Stewart 23km E of Leonora P37/06886 100.0% 2.0 Live R1 Mt Stewart 23km E of Leonora P37/06887 100.0% 2.0 Live R1 Malcolm 25km E of Leonora P37/06774 100.0% 1.9 Live R2 Malcolm 25km E of Leonora P37/06775 100.0% 1.2 Live R1 Malcolm 25km E of Leonora P37/06776 100.0% 1.2 Live R1 Malcolm 25km E of Leonora P37/06777 100.0% 1.2 Live R1 Malcolm 25km E of Leonora P37/06778 100.0% 1.0 Live R1 Redcastle 60km E of Leonora P39/04357 100.0% 2.0 Live Prospector Pool 80km SE of Leonora E31/00708 100.0% 25.2 Pending R3 Teutonic Bore 50km NNW of Leonora E37/00829 100.0% 2.8 Pending R1 42 715.7 KEITH KILKENNY PROVINCE Wildara North Project Mount McClure 135km NNW of Leonora E36/00387 100.0% 16.8 Live Mount McClure North 170km NNW of Leonora E36/00576 100.0% 22.4 Pending Table Hill 102km NNW of Leonora E36/00483 100.0% 22.4 Live Mount McClure 125km NNW of Leonora E36/00492 100.0% 42.0 Live Warrida Well 135km NNW of Leonora E36/00554 100.0% 39.2 Pending Lawlers 120km NW of Leonora P36/01525 100.0% 0.1 Live Lake Darlot 1 103km NNW of Leonora E37/00753 100.0% 131.6 Live Lake Darlot 2 103km NNW of Leonora E37/00791 100.0% 22.4 Live

Annual Report 2006 75 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Wildara North Project continued Barwidgee 220km N of Leonora E53/01119 100.0% 11.2 Live Mt Keith North 218km NNW of Leonora P53/01229 100.0% 1.7 Pending Mt Keith North 218km NNW of Leonora P53/01230 100.0% 1.9 Pending Mt Keith North 218km NNW of Leonora P53/01231 100.0% 2.0 Pending Mt Keith North 218km NNW of Leonora P53/01232 100.0% 1.9 Pending 13 315.6 KIMBERLEY PROVINCE Kimberley Plateau Project Robinson River 100km NE of Derby E04/01387 100.0% 196.0 Pending R1 Carson River 250km NW of Kununarra E80/03508 100.0% 196.0 Pending Gordon Downs 40km NE of Halls Creek E80/03531 100.0% 187.6 Pending Cape Londonderry 285km NW of Kununarra E80/03592 100.0% 196.0 Pending Carson River 260km NW of Kununarra E80/03717 100.0% 249.2 Pending Macintosh Hills 45km N of Halls Creek E80/03637 100.0% 75.6 Pending 6 1,100.4 PILBARA PROVINCE Bangemall Project Marrila 225km NNE of Carnarvon E08/01581 100.0% 70.0 Live R1 Nuninga Spring 120km SSW of Newman E52/01660 100.0% 196.0 Live R1 2 266.0 MUSGRAVE PROVINCE Warburton IOCG Project Pussy Cat Hill 730km NE of Kalgoorlie E69/01932 100.00% 179.2 Pending R1 Neale 460km ENE of Kalgoorlie E69/02120 100.00% 196 Pending Gibson Desert 830km NE of Kalgoorlie E69/02127 100.00% 117.6 Pending R1 Welcome Creek 850km N of Kalgoorlie E69/02128 100.00% 100.8 Pending R1 Gunbarrel 4 750km NE of Kalgoorlie E69/02129 100.00% 196 Pending R1 Gunbarrel 3 750km NE of Kalgoorlie E69/02130 100.00% 196 Pending R1 Gunbarrel 2 750km NE of Kalgoorlie E69/02131 100.00% 196 Pending R1 Gunbarrel 1 750km NE of Kalgoorlie E69/02132 100.00% 176.4 Pending R1 Ainslie Gorge 730km NE of Kalgoorlie E69/02192 100.00% 196 Pending R1 Warburton Range 730km NE of Kalgoorlie E69/02193 100.00% 196 Pending R1 Mount Harvest 730km NE of Kalgoorlie E69/02194 100.00% 196 Pending R1 Gibson Desert 720km NE of Kalgoorlie E69/02203 100.00% 560 Pending R1 Mount Herbert 800km NE of Kalgoorlie E69/02252 100.00% 341.6 Pending R1 Ceasar Hill 8400km NE of Kalgoorlie E69/02253 100.00% 201.6 Pending R1 14 3,049.2 BOORARA PROVINCE Gidgi Joint Venture Project Gidji Roaster 14km N of Kalgoorlie E24/00111 100.0% 61.6 Live 7 Five Mill Hill 6km NNE of Kalgoorlie M26/00736 100.0% 7.0 Pending 7 Kurramia 8km NE of Kalgoorlie M26/00780 100.0% 1.6 Pending 7 Kurramia South 10km NE of Kalgoorlie P26/02977 100.0% 0.9 Live 7 Kurramia 10km NE of Kalgoorlie P26/02979 100.0% 0.2 Live 7 Kurramia 10km NE of Kalgoorlie P26/02994 100.0% 1.4 Live 7 Five Mill Hill 7km NNE of Kalgoorlie P26/03112 100.0% 1.6 Pending 7 Five Mill Hill 5km NNE of Kalgoorlie P26/03113 100.0% 1.5 Pending 7 Five Mill Hill 5km NNE of Kalgoorlie P26/03114 100.0% 2.0 Pending 7 Five Mill Hill 6km NNE of Kalgoorlie P26/03115 100.0% 2.0 Pending 7 Five Mill Hill 6km NNE of Kalgoorlie P26/03360 100.0% 0.9 Pending 7 Five Mill Hill 6km NNE of Kalgoorlie P26/03361 100.0% 0.2 Pending 7 Five Mill Hill 6km NNE of Kalgoorlie P26/03362 100.0% 1.4 Pending 7 13 75.2

76 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note LAVERTON PROVINCE King of Creation JV Project Doris Well 60km N of Laverton E38/01368 100.0% 22.4 Live 8 King of Creation 53km N of Laverton E38/01375 100.0% 2.8 Live 8 2 25.2 WHEATBELT PROVINCE Wheatbelt Projects Trayning 65km NW of Merredin E70/02942 Option for 100% 11.2 Pending R1,9 Trayning 65km NW of Merredin P70/01480 Option for 100% 1.4 Live R1,9 Trayning 65km NW of Merredin M70/01080 Option for 100% 1.4 Live R1,9 Trayning 65km NW of Merredin M70/01081 Option for 100% 0.6 Live R1,9 Bencubbin South 65km NW of Merredin E70/02767 100.0% 123.2 Live R1 Mukinbudin 65km NE of Merredin E70/03010 100.0% 156.8 Pending R1 Bencubbin 80km NWof Merredin E70/02851 100.0% 117.6 Pending R1 Kunnunoppin 70km NW of Merredin E70/03004 100.0% 431.2 Pending R1 Roundtop/Jimberlana 126km W of Norseman E63/00958 100.0% 33.6 Pending Roundtop Hill West 126km W of Norseman E63/00986 100.0% 16.8 Pending Bronzite Ridge 50km W of Norseman E63/01040 100.0% 92.4 Pending Martup Hills 200km SE of Perth E70/03008 100.0% 546.0 Pending R1 Jingalup 250km SE of Perth E70/03009 100.0% 291.2 Pending R1 Mt Barker 70km NW of Albany E70/03000 100.0% 560.0 Pending Rocky Gully West 105km NW of Albany E70/03001 100.0% 484.4 Pending Rocky Gully 85km NW of Albany E70/02801 100.0% 128.8 Pending 16 2,996.6 QUEENSLAND COPPER/GOLD Canobie Project Wombool Yards 200km North of Cloncurry EPM15714 100.0% 200.0 Pending R1 Wurung 200km North of Cloncurry EPM15719 100.0% 200.0 Pending R1 Wurung South 200km North of Cloncurry EPM15720 100.0% 200.0 Pending R1 Alcala South 200km North of Cloncurry EPM15721 100.0% 200.0 Pending R1 Canobie West 200km North of Cloncurry EPM15722 100.0% 200.0 Pending R1 5 1,000.0 NORTHERN TERRITORY

Dulcie Range 225km NE of Alice Springs 24638 100.0% 481.6 Pending 1 481.6

GOLD & BASE-METALS PROJECTS 363 13,913.3km2

IRON ORE PROJECTS SALE TO POLARIS METALS NL

SOUTHERN CROSS PROVINCE Bungalbin Iron Ore Option Project Bungalbin 102km NNE of Southern Cross E77/00842 100.0% 106.4 Live P1,P2 Bungalbin 102km NNE of Southern Cross M77/01095 100.0% {10.0} Pending P1,P2 Bungalbin 102km NNE of Southern Cross M77/01096 100.0% {10.0} Pending P1,P2 Bungalbin 102km NNE of Southern Cross M77/01097 100.0% {10.0} Pending P1,P2 Mount Jackson 106km NNE of Southern Cross E77/00896 100.0% 11.2 Live P1,P2 Mount Jackson 106km NNE of Southern Cross M77/01109 100.0% {3.0} Pending P1,P2 Mount Jackson 106km NNE of Southern Cross M77/01110 100.0% {7.1} Pending P1,P2 Mt Jackson 105km NNE of Southern Cross E77/00919 100.0% 53.2 Live P1,P2 Mt Jackson 105km NNE of Southern Cross M77/01242 100.0% {3.5} Pending P1,P2 Mt Jackson 105km NNE of Southern Cross M77/01243 100.0% {10.0} Pending P1,P2 10 170.8

Annual Report 2006 77 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note SOUTHERN CROSS PROVINCE Bungalbin Aurora Iron Ore Project Mt Dimer 112km NNE of Southern Cross E77/00946 100% of Iron ore 86.8 Live P1,P3 Mt Dimer 112km NNE of Southern Cross M77/01112 100% of Iron ore {8.9} Pending P1,P3 Mt Dimer 112km NNE of Southern Cross M77/01113 100% of Iron ore {8.9} Pending P1,P3 Mt Dimer 112km NNE of Southern Cross M77/01114 100% of Iron ore {8.9} Pending P1,P3 Mt Dimer 112km NNE of Southern Cross M77/01115 100% of Iron ore {8.9} Pending P1,P3 Mt Dimer 112km NNE of Southern Cross M77/01119 100% of Iron ore {9.1} Pending P1,P3 Mt Dimer 112km NNE of Southern Cross M77/01165 100% of Iron ore {5.4} Pending P1,P3 Timberfield 123km NNE of Southern Cross E77/00947 100% of Iron ore 89.6 Pending P1,P3 Yeeding Hill 108km N of Southern Cross E77/01071 100% of Iron ore 22.4 Pending P1,P3 Bungalbin Hill 97km NNE of Southern Cross E77/01076 100% of Iron ore 61.6 Live P1,P3 Bungalbin Hill 109km NNE of Southern Cross E77/01077 100% of Iron ore 14.0 Live P1,P3 Mt Jackson 103km NNE of Southern Cross E77/01097 100% of Iron ore 134.4 Pending P1,P3 Mt Jackson 106km NNE of Southern Cross E77/01099 100% of Iron ore 2.8 Pending P1,P3 Mt Dimer 105km NE of Southern Cross E77/01115 100% of Iron ore 196.0 Pending P1,P3 Mt Dimer 100km NNE of Southern Cross E77/01129 100% of Iron ore 14.0 Pending P1,P3 Dimer South 100km NNE of Southern Cross E77/01130 100% of Iron ore 25.2 Live P1,P3 Dimer South 100km NNE of Southern Cross M77/01116 100% of Iron ore {9.6} Pending P1,P3 Dimer South 100km NNE of Southern Cross M77/01117 100% of Iron ore {9.7} Pending P1,P3 Dimer South 100km NNE of Southern Cross M77/01118 100% of Iron ore {9.3} Pending P1,P3 Mt Jackson 107km NNE of Southern Cross P77/03371 100% of Iron ore 0.2 Pending P1,P3 Mt Jackson 106km NNE of Southern Cross P77/03372 100% of Iron ore 0.5 Pending P1,P3 21 676.0 SOUTHERN CROSS PROVINCE Southern Cross Project Ranford Peak 231km NW of Kalgoorlie E29/00434 100.00% 14 Live P1 Mount Marmion 208km NW of Kalgoorlie E29/00435 100.00% 8.4 Live P1 Metzke Find 208km NW of Kalgoorlie E29/00564 100.00% 117.6 Live P1 Metzke South 190km NW of Kalgoorlie E29/00593 100.00% 5.6 Pending P1 Perrinvale 200km NW of Kalgoorlie M29/00402 100.00% 9 Pending P1 Perrinvale 200km NW of Kalgoorlie M29/00403 100.00% 6 Pending P1 Perrinvale 200km NW of Kalgoorlie M29/00404 100.00% 9 Pending P1 Perrinvale 200km NW of Kalgoorlie M29/00405 100.00% 9 Pending P1 Perrinvale 200km NW of Kalgoorlie M29/00406 100.00% 9 Pending P1 Perrinvale 200km NW of Kalgoorlie M29/00407 100.00% 9 Pending P1 Lawrence Find 160km NW of Kalgoorlie E30/00203 100.00% 196 Pending P1 Lawrence Find North 188km NW of Kalgoorlie E30/00226 100.00% 30.8 Live P1 Illaara 196km NW of Kalgoorlie E30/00254 100.00% 64.4 Live P1 Perrinvale 200km NW of Kalgoorlie M30/00242 100.00% 9 Pending P1 Clackline 60km E of Perth E70/02782 100.00% 112 Pending P1 Northam 85km E of Perth E70/02783 100.00% 168 Pending P1 Chittering 110km NE of Perth E70/02784 100.00% 140 Pending P1 Evanston 175km N of Southern Cross E77/01268 100.00% 84 Pending P1 Koolyanobbing South 40km NE of Southern Cross E77/01272 100.00% 75.6 Pending P1 Jilbadji 65km SE of Southern Cross E77/01314 100.00% 42 Pending P1 Jackson North 123km N of Southern Cross E77/01315 100.00% 42 Pending P1 Windarling Peak 130km N of Southern Cross E77/01353 100.00% 33.6 Pending P1 22 1,193.9 PILBARA PROVINCE Pilbara Project Onslow 20km WSW of Onslow E08/01458 100.0% 179.2 Live P1 Onslow 20km WSW of Onslow E08/01465 100.0% 151.2 Live P1 Peedamulla 15km ENE of Onslow E08/01524 100.0% 193.2 Live P1 Turee Creek 310 km SSE of Karratha E08/01511 100.0% 196.0 Live P1 Seven Mile Creek 290 km SSE of Karratha E08/01512 100.0% 140.0 Live P1 Mininer Creek 320 km SSE of Karratha E08/01513 100.0% 196.0 Live P1 Poondano Waterhole 30km E of Port Hedland E45/02723 100.0% 196.0 Live P1 De Grey 50km E of Port Hedland E45/02736 100.0% 196.0 Live P1 Pannawonica East 120km S of Karratha E47/01525 100.0% 64.4 Pending P1

78 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note Pilbara Project continued Pannawonica South 110km S of Karratha E47/01526 100.0% 8.4 Pending P1 Woollawoorah Hill 110km S of Karratha E47/01527 100.0% 30.8 Pending P1 Paraburdoo South 300km SSE of Karratha E47/01528 100.0% 72.8 Pending P1 Mt Bruce 210km SSE of Port Hedland E47/01557 100.0% 112.0 Pending P1 Caliwinga Creek 230km SSE of Port Hedland E47/01558 100.0% 50.4 Pending P1 Mt Delphine North 150km S of Karatha E47/01606 100.0% 98.0 Pending P1 15 1,884.4 KIMBERLEY & OTHER Other Projects Gibbings Island 130km N of Derby E04/01553 100.0% 50.4 Pending P1 Milly Milly 190km WNW of Meekatharra E09/01277 100.0% 173.6 Pending P1 Jamieson Range 830km NE of Kalgoorlie E69/02032 100.0% 196.0 Pending P1 Lee Steere Range 230km NE of Wiluna E69/02126 100.0% 131.6 Pending P1 Bandicoot Range 5km W of Kununarra E80/03367 100.0% 151.2 Pending P1,P2,P4 5 702.8 IRON ORE PROJECTS TOTAL 73 4,627.9km2

OIL SHALE PROJECTS, URANIUM SALE TO EPSILON ENERGY LIMITED BREMER EUCLA PROVINCE Balladonia Project Heartbreak 9 46km NNE of Norseman E15/00656 100.0% 61.6 Live E2 Kakarook 250km NE of Kalgoorlie E39/01178 100.0% 196.0 Pending E2 Heartbreak 1 76km E of Norseman E63/00707 100.0% 196.0 Pending E2 Heartbreak 2 70km NE of Norseman E63/00708 100.0% 196.0 Pending E2 Heartbreak 82km E of Norseman E63/00711 100.0% 156.8 Live E2 Geordie Rock 87km SSW of Norseman E63/00720 100.0% 112.0 Live E2 Lake Dundas 34km SSW of Norseman E63/00736 100.0% 64.4 Live E2 Yardina SE 70km NE of Norseman E63/00944 100.0% 196.0 Pending E2 Jeffreys West 40km NE of Norseman E63/00968 100.0% 47.6 Ballot 2nd E2 Walgorina Rock East 73km ENE of Norseman E63/01016 100.0% 159.6 Pending E2 Charlina Rocks 153km ESE of Norseman E69/01473 100.0% 196.0 Pending E2 Balladonia 168km ESE of Norseman E69/01474 100.0% 196.0 Pending E2 Boingaring Rocks 156km ESE of Norseman E69/01475 100.0% 196.0 Pending E2 Afghan Rock 185km ESE of Norseman E69/01476 100.0% 196.0 Pending E2 Balladonia West 153km ESE of Norseman E69/01477 100.0% 196.0 Pending E2 Charlina South 147km ESE of Norseman E69/01478 100.0% 196.0 Pending E2 Charlina West 143km ESE of Norseman E69/01479 100.0% 196.0 Pending E2 Curnadinia Rock 163km ESE of Norseman E69/01480 100.0% 196.0 Pending E2 Yalodinya Rock 159km ESE of Norseman E69/01481 100.0% 134.4 Pending E2 Charlina East 162km ESE of Norseman E69/01482 100.0% 81.2 Pending E2 Chidalinya Rock 193km ESE of Norseman E69/01492 100.0% 106.4 Pending E2 Jerandilla 190km ESE of Norseman E69/01493 100.0% 196.0 Pending E2 Eclipse Hill 189km SE of Norseman E69/01495 100.0% 196.0 Pending E2 Bonnie Hill 178km SE of Norseman E69/01499 100.0% 196.0 Pending E2 Florabell Hill 190km SE of Norseman E69/01500 100.0% 196.0 Pending E2 Balladonia 184km E of Norseman E69/01717 100.0% 196.0 Pending E2 Balladonia Central 169km ESE of Norseman E69/01742 100.0% 179.2 Pending E2 Balladonia Central 166km ESE of Norseman E69/01743 100.0% 168.0 Pending E2 Condabina South 180km ESE of Noreseman E69/02075 100.0% 196.0 Live E2 Namerlonia Rock 180km SE of Norseman E69/02076 100.0% 196.0 Pending E2 Yalodinya Rock 2 165km ESE of Norseman E69/02077 100.0% 196.0 Live E2 Brooks Soak 190km E of Norseman E69/02078 100.0% 95.2 Live E2 Balladonia Rock 190km E of Norseman E69/02079 100.0% 120.4 Live E2 Yalodinya Rock North 165km ESE of Norseman E69/02080 100.0% 42.0 Pending E2 Lort River 110km SSW of Norseman E74/00278 100.0% 151.2 Live E2 Mount Deans 12km SSW of Norseman M63/00417 100.0% 9.9 Pending E2 Mount Deans 15km SSW of Norseman M63/00418 100.0% 9.3 Pending E2 37 5,619.1

Annual Report 2006 79 9.0 Interest in Mining Tenements Continued

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note WEST AUSTRALIA URANIUM Gascoyne River 260km E of Carnarvon E09/01195 100.0% 196.0 Live E1 Mt James Creek 260km E of Carnarvon E09/01196 100.0% 196.0 Live E1 Ida Valley 245km NW of Kalgoorlie E29/00582 100.0% 92.4 Live E1 Leonora West 245km NW of Kalgoorlie E29/00618 100.0% 33.6 Pending E1 Wagerup 110km S of Perth E70/03044 100.0% 33.6 Pending E1 Worsely 140km S of Perth E70/03052 100.0% 56.0 Pending E1 6 607.6 QUEENSLAND URANIUM Pandanus West 235km W of Townsville EPM15041 100.0% 280.0 Pending E1 1 280.0 SOUTH AUSTRALIA URANIUM Maggie Hill 100km SSE of Leigh Creek E383/06 100.0% 674.0 Pending E1 Mt Frome 90km SE of Leigh Creek E384/06 100.0% 256.0 Pending E1 2 930.0 NORTHERN TERRITORY URANIUM Mt Denison 240km NW of Alice Springs 24622 100.0% 364.0 Pending E1 1 364.0 OIL SHALE URANIUM PROJECTS TOTAL 47 7,800.7km2

PIONEER RESOURCES LIMITED TENEMENTS

HERON RETAINS NICKEL LATERITE Sampson 66km NE of Kalgoorlie E27/00273 100% of Ni laterite 176.4 Live 1 Kalpini 61km NE of Kalgoorlie E27/00278 100% of Ni laterite 109.2 Live 1 Acra 61km NE of Kalgoorlie E28/01223 100% of Ni laterite 106.4 Live 1 Jubilee 60km NE of Kalgoorlie P28/00972 100% of Ni laterite 1.2 Live 1 Jubilee 60km NE of Kalgoorlie P28/00991 100% of Ni laterite 1.3 Live 1 Boomerang Lake 103km NE of Kalgoorlie E31/00519 100% of Ni laterite 156.8 Live 1 Mt Ballona 87km NE of Kalgoorlie E31/00575 100% of Ni laterite 67.2 Live 1 Jungle Hill 140km NE of Kalgoorlie E31/00579 100% of Ni laterite 81.2 Live 1 Boomerang North 122km NE of Kalgoorlie E31/00581 100% of Ni laterite 78.4 Live 1 9 778.1 HERON RETAINS PRE-EMPTIVE RIGHT TO NICKEL LATERITE Wattle Dam 65km S of Kalgoorlie E15/00718 Preemptive Ni laterite 50.4 Live Wattle Dam 65km S of Kalgoorlie M15/01101 Preemptive Ni laterite 5.2 Live Wattle Dam 65km S of Kalgoorlie M15/01264 Preemptive Ni laterite 0.9 Live Wattle Dam 65km S of Kalgoorlie M15/01263 Preemptive Ni laterite 2.2 Live Wattle Dam 65km S of Kalgoorlie P15/03767 Preemptive Ni laterite 0.6 Live Wattle Dam 65km S of Kalgoorlie M15/01323 Preemptive Ni laterite {0.5} Pending Wattle Dam 65km S of Kalgoorlie P15/03873 Preemptive Ni laterite 0.8 Live Wattle Dam 65km S of Kalgoorlie M15/01338 Preemptive Ni laterite {0.9) Pending Wattle Dam 65km S of Kalgoorlie P15/04479 Preemptive Ni laterite 1.4 Live Scotia East 60km N of Kalgoorlie M24/00799 Preemptive Ni laterite 9.5 Pending Mt Jewell 48km N of Kalgoorlie E27/00300 Preemptive Ni laterite 19.6 Live Carr Boyd 70km ENE of Kalgoorlie E31/00617 Preemptive Ni laterite 2.8 Live Silver Swan North 46km NNE of Kalgoorlie M27/00388 Preemptive Ni laterite 5.5 Pending 13 95.9 PIONEER TOTAL 22 874.0km2

80 Heron Resources Limited Interest in Mining Tenements Continued 9.0

Prospect Geographic Location Tenement Heron Interest Area km2 Status Note AVOCA RESOURCES LIMITED TENEMENTS - HERON RETAINS NICKEL RIGHTS Kalgoorlie Province Tap Rock Hill 88km NE of Kalgoorlie E28/00927 100% of Ni 78.4 Live 1 Hampton 71km E of Kalgoorlie E28/01117 100% of Ni 16.8 Live Sawmill Dam 77km ESE of Kalgoorlie E28/01129 100% of Ni 19.6 Live Pineapple Dam 66km E of Kalgoorlie E28/01188 100% of Ni 8.4 Live Avoca Downs 83km ESE of Kalgoorlie E28/01199 100% of Ni 165.2 Live Low Trap Hills 81km E of Kalgoorlie E28/01225 100% of Ni 28.0 Live Adelaide Dams 78km E of Kalgoorlie E28/01309 100% of Ni 44.8 Live Mt Boyce 134km NW of Kalgoorlie E31/00524 100% of Ni 112.0 Live Mt Boyce 134km NW of Kalgoorlie E31/00618 100% of Ni 33.6 Pending Mt Zephyr 79km NE of Leonora E39/00538 100% of Ni 14.0 Live Mt Zephyr 72km NE of Leonora E39/00940 100% of Ni 58.8 Live 11 579.6 AVOCA TOTAL 11 579.6km2

TOTAL TENEMENTS 888 31,979km2

Notes 1 Inco Limited, Kalgoorlie Nickel Project Farm-in and Joint Venture, Inco responsible for tenement maintenance. 2 Dalrymple Resources Limited has 12.5% equity free carried to BFS. Heron is manager of the joint venture. 3 Heron has the right to earn a 70% equity in nickel rights from Reed Resources Limited. Heron is manager of the joint venture. 4 Heron is acquiring the tenements 100% from Placer Dome Australia Limited. Placer retains certain gold rights. 5 Yilgarn Mining Limited has has a right to earn a 70% interest through expenditure of $700,000 prior to 17 January 2007. 6 Heron has nickel rights, Leviathan Resources Limited retains gold and silver rights. 7 Jackson Gold Limited earning a 70% interest, Heron retains all nickel rights. 8 A1 Minerals Limited earning a 70% interest. 9 Heron has a 2 year option to acquire the tenements 100%. 10 Siberia Mining Corporation Limited has gold rights. 11 Impress Ventures Limited has a 10% equity free-carried to a decision to mine. 12 Heron has the right to explore, mine and develop minerals in the tenements, subject to completing access agreement

R1 Nominated for 100% transfer to Rubicon. R2 Nominated for 100% transfer to Rubicon with Heron retaining Nickel Rights. R3 Nominated for 100% retention by Heron with Rubicon having Non-Nickel Rights.

E1 Nominated for 100% transfer to Epsilon E2 Nominated for 100% transfer to Epsilon with Heron retaining all Non-Uranium Rights.

P1 Tenements and Heron's associated rights sold to Polaris Metals NL P2 Portman Mining Limited has an option to explore for and mine iron-ore. Two year extension to the Portman option expires 4 July 2007. P3 Scimitar Resources Limited owns non iron-ore rights P4 Dampier Mining Pty Ltd has a right to earn a 60% interest.

Annual Report 2006 81 10.0 Glossary

"Acid Leaching" means: "AAL" means Atmospheric Acid Leaching, being the hydro-metallurgical process whereby Nontronite Ore and Saprolite Ore has its nickel and cobalt content leached by atmosphere pressure sulphuric acid leaching. "HAL" means Heap Acid Leaching, being the hydro-metallurgical process whereby the nickel-bearing Nontronite Ore and Saprolite Ore is stacked in heaps on sealed pads and leached via reticulation of dilute sulphuric acid through the heap. "PAL" means Pressure Acid Leach, a Nickel Laterite hydro-metallurgical processing technique in which Goethite Ore and Nontronite Ore are dissolved in hot high pressure sulphuric acid contained within a titanium-lined reaction vessel termed an autoclave, to release nickel and cobalt into solution, for precipitation as an intermediate product or electroplating as a pure metal. "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 of commercial significance. "Antigorite" means a platy green Magnesium Silicate of the serpentine group, derived from the weathering of olivine. At Goongarrie, antigorite is 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 into solution 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 a favourable site for groundwater movement. "Chlorite" means a platy green Magnesium Aluminosilicate resembling the mica group, derived from the weathering of antigorite. At Goongarrie, 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" has three progressively more detailed stages, and means: "Scoping Study" means a first pass estimate of engineering requirements and costs of a mining operation, processing plant and plant infrastructure. Included in the cost estimates will be infrastructure, tailings disposal, power supply, and owner's costs. The plant design may change as a result of testwork analysis, optimisation studies and engineering improvements performed during execution of the follow-up Pre-feasibility Study. Operating and capital cost estimates are to an order of magnitude accuracy of ± 35%. A "Pre-feasibility Study" (PFS) is an engineering and cost study of a mining operation, processing plant and plant infrastructure, which for the Kalgoorlie Nickel Project includes a flow sheet that covers ore beneficiation, high pressure acid leach, CCD washing, solution purification and cobalt and nickel extraction as an intermediate precipitate. Included in the cost estimates will be infrastructure, tailings disposal, power supply, and owner's costs. The plant design may change as a result of testwork analysis, optimisation studies and engineering improvements performed during execution of the Pre-feasibility Study. Operating and capital cost estimates are to an accuracy of ± 25%. In the case of the Kalgoorlie Nickel Project, the drill density would be such that the resource status is Indicated Mineral Resource. A "Bankable Feasibility Study" (BFS) is an engineering and cost study addressing the same issues as a "Pre-feasibility Study", but in such detail that it contains sufficient information to satisfy a bank, that it can rely on cash flows and earnings from the project to repay any project loan, and that the assets of the project are suitable as collateral for the loan. The bank must feel comfortable that on a worst case scenario the loan will be repaid. Engineering design concepts will have largely been finalised, and operating and capital cost estimates are to an accuracy of ± 15%. In the case of the Kalgoorlie Nickel Project, the drill density would be such that the resource 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.

82 Heron Resources Limited Glossary Continued 10.0

"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 cobalt occurring in association with iron and manganese oxide minerals, and total Fe2O3 exceeding 40%. Goethite is an optimal PAL ore type. "Gossan" means the weathered oxidised surface expression of a sulphide-bearing deposit, and consists predominantly of hydrated iron oxides 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 30-150km 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 sulphide mineralisation (e.g. Silver Swan nickel mine). "Mesocumulate" means a rock with cumulus crystals exhibiting extensive mutual boundary contact, but retaining some recognisable interstitial 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 komatiite type 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, ferruginous clay, smectite clay, chlorite and serpentine assemblage overlying weathered ultramafic rock. "Nickel Sulphide" means nickel and copper occurring as an un-oxidised sulphide assemblage associated with fresh ultramafic rock. "Nontronite Ore" means nickel laterite mineralisation consisting of hydrated magnesium-iron-aluminium phyllosilicate swelling clays termed smectites. "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. "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. "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. The metals are chemically inert, malleable, dense and used in jewellery, and are of high unit value.

Annual Report 2006 83 10.0 Glossary Continued

"RAB drilling" means the drilling technique in which a sample is returned to surface outside the rod string by compressed air. Sample quality is poor. "RC drilling" means the drilling method employing a rotating or hammering action on a drill bit which returns a sample to the surface inside the 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 allowances for losses which may occur when the material is mined. Appropriate assessments, which may include Feasibility Studies, have been carried 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 could reasonably be justified. The term "economic" implies that extraction of the Ore Reserve has been established or analytically demonstrated to be viable and justifiable under reasonable investment assumptions. Proved Ore Reserve will require some degree of lateral continuity validation through diamond drilling, wide diameter (900mm) bulk sample drilling, trial mining, exploration winze or most likely 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, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing 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 least dense 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 and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and / or grade continuity but are spaced closely enough for continuity to be assumed. At the Kalgoorlie Nickel Project, Heron’s least dense RC drill pattern for Indicated Mineral Resource status is 80x40m. "Inferred Mineral Resource" is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and / or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability. At the Kalgoorlie Nickel Project, Heron’s least dense RC drill pattern for Inferred Mineral 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 day basis. "Saprolite Ore" means nickel laterite mineralisation consisting of hydrated magnesium silicate minerals with nickel and cobalt occurring in association with the silicate phases. The ore is a weathered clay-rich rock which retains original rock textures, and is significantly more competent than Nontronite, Manganiferous, Goethite or Siliceous Ore. "Siliceous Ore" means nickel laterite mineralisation consisting of chalcedonic silica and hydrated iron oxide with nickel and cobalt occurring in association with iron and manganese oxide minerals. The ore nickel and cobalt grades may be increased by 50-100% through wet screening 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 weathers to form nickel laterite ore. The unit is named in honour of the late 19th Century prospector, Walter Williams, who perished from thirst at Ghost 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.

84 Heron Resources Limited Corporate Directory Photo Gallery Heron in the Community

DIRECTORS REGISTERED AND KALGOORLIE OPERATIONS OFFICE Craig Leslie Readhead BJuris LLB 21 Close Way Chairman (Non Executive) PO Box 1280, Kalgoorlie, WA 6430 46-50 Kings Park Road, West Perth WA 6005 Telephone: +61 8 9091 9253 Ian James Buchhorn BSc (Hons), Dipl Geosci (Min Econ), MAusIMM Facsimile: +61 8 9091 9256 Managing Director (Executive) Email: [email protected] Level 1 37 Ord Street, West Perth WA 6005 Website: http://www.heronresources.com.au Norman Mathew Longworth BSc (Hons), MAusIMM Chief Operating Officer and Director (Executive) PERTH MANAGEMENT OFFICE Level 1 37 Ord Street, West Perth WA 6005 Level 1, 37 Ord Street, West Perth WA 6005 Telephone: +61 8 9215 4444 Allan Trench PhD, BSc (Hons), MBA (Oxford), MSc (Min Econ) WASM, Facsimile: +61 8 9215 4490 MAusIMM Director (Non Executive) AUDITORS Level 1 37 Ord Street, West Perth WA 6005 Butler Settineri (Audit) Pty Limited 35-37 Havelock Street, West Perth WA 6005 COMPANY SECRETARY Ann Forrest, Ian Buchhorn and Mercy O’Loughlin unveiling NTP plaque Jean McKenzie (translator), Mat Longworth, Nerida Glanfield and Esther Sarah Helen Calvert BBus (Acc), ASA SOLICITOR TO THE COMPANY Roadnight from Hannans Rotary, and Barb McGillivray from the WNT Company Secretary Pullinger Readhead Lucas NTP Recognises Heron’s Support Language Centre at the Yilpa book launch Level 1 37 Ord Street, West Perth WA 6005 46-50 Kings Park Road, West Perth WA 6005 Heron Managing Director Ian Buchhorn unveiled a plaque to recognize Wongatha Language Centre supported by Heron ABN BANKERS Heron’s long-term support to Ngunytju Tjitji Pirni (NTP) infant health 30 068 263 098 Westpac Bank clinic. Mat Longworth was invited to attend the official Yilpa book launch which 230-236 Hannan Street, Kalgoorlie WA 6430 NTP is an Aboriginal Corporation set up to address the high rates of Heron helped to publish. SHARE REGISTRY indigenous maternal and infant illness in the Goldfields, and uses The book tells a traditional dreamtime story of “Why the Goanna Security Transfer Registrars Pty Ltd STOCK EXCHANGE culturally appropriate health methods and resources. It provides visits and Lizard are no longer friends today” and has been written in both 770 Canning Highway, Applecross, WA 6153 Australian Stock Exchange Limited and health checks for women in their home environment. Wangkatha and English and includes a spoken CD to help children learn Telephone: +61 8 9315 2333 2 The Esplanade, Perth WA 6000 Long-standing NTP administrator Coral Mencshelyi has left the region, and the Wangkatha language. Facsimile: +61 8 9315 2233 Ann Forrest has stepped up to fill part of Coral’s role. Heron acknowledges This book and CD has been distributed to all schools in the Goldfields Email: [email protected] ASX CODE Coral’s efforts, and wishes Ann the very best in her new role. region and is a unique tool in breaking down the cultural barriers. HRR

SEAT ABBREVIATION Heron

HOME BRANCH Table of Contents Perth

1.0 CHAIRMAN’S REVIEW 2 INDUSTRY CLASSIFICATION Other Metals 022 Base Metals 2.0 OPERATIONS REVIEW 4 RESEARCH SERVICE INDEX NUMBER 3.0 CORPORATE PROFILE 17 Mining H50

4.0 DIRECTORS’ REPORT 24 ISIN AUDIT INDEPENDENCE DECLARATION 31 AU000 000 HRR6 5.0 FINANCIAL STATEMENTS 32 INCOME STATEMENTS 32 BALANCE SHEETS 33 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 34 Daniel Buchhorn on the famous Doug Krepp Walk Trail in Karlkurla Standing from left, Lisa Ellery, Sharon Hume, Esther Roadnight, Steve CASH FLOW STATEMENT 35 Bushland Park. Kalgoorlie-Boulder Mulvaney, Silvano Fasolo and seated in front Tracy Browning, working NOTES TO AND FORMING PART OF THE ACCOUNTS 36 Front Cover photograph collaboratively to produce a calendar for the Wangkanyi Ngurra Tjurta Language Centre DIRECTORS’ DECLARATION 56 Heron’s Boulder Block Pit at Bulong. The mine floor consistently grades Heron supports Urban Landcare 1.6 - 1.9% Ni in previous grade control drilling. The Boulder Block would 6.0 INDEPENDENT AUDIT REPORT 57 Doug Krepp is a supporter of Heron, having had the original idea which be an ore source in the event of future Bulong ore production for the KNP. Heron enlists support from Rotary Clubs lead to the iron ore acquisitions, and later doing Heron’s Goongarrie SHAREHOLDER INFORMATION 58 7.0 The cover photograph is by Graeme Hird from “Scene by Hird”, a hydrological monitoring. Doug is also a great advocate for preserving The Rotary Clubs in Kalgoorlie-Boulder and Heron worked together in the local bush and as Supervisor of a “Work for the Dole” team, helped 2005 to produce a children’s book for the Wangkanyi Ngurra Tjurta 8.0 STATEMENT OF MINERAL RESOURCES 62 photographic artist whose specialty is the Goldfields mining and natural environment. Graeme’s photographs are featured in this report as a design create Karlkurla Bushland Park. Doug was honoured with a Prime Language Centre (WNT) to distribute to schools. Minister’s award as Australia’s best “Work for the Dole” Supervisor in 9.0 INTEREST IN MINING TENEMENTS 63 element at the bottom of the odd-numbered pages. More of Graeme’s This collaboration is set to continue with a 2007 calendar based on 2001, and has a Walk Trail named in his honour. work may be viewed at his website, www.scenebyhird.com. the Wangkatha numerals to be produced, for sale to generate ongoing 10.0 GLOSSARY 82 Doug Krepp with Ian and Daniel Buchhorn have spent many hours funding. Shareholders wishing to purchase WNT’s fabulous work can Design & Artwork Reynolds Graphics, Kalgoorlie & Perth helping to maintain the amenity of Karlkurla Bushland Park. telephone Tracy.

Heron Resources Limited Annual Report 2006 Heron Resources Limited ANNUAL REPORT 2006

Pulling the core, Siberia siliceous limonite

Heron Resources Limited 21 Close Way, Kalgoorlie WA 6430 Level 1, 37 Ord Street, West Perth WA 6005 PO Box 1280, Kalgoorlie WA 6433 PO Box 1380, West Perth WA 6872 Phone +61 8 9091 9253 Phone +61 8 9215 4444 Fax +61 8 9091 9256 Fax +61 8 9215 4490