Events

On 12 March 2019, Heron Resources (ASX:HRR) announced an update for its Woodlawn Zn-Cu Project.

·          First underground development ore delivered to the ROM pad

·          Underground development advance exceeding plan

·          Hydraulic mining commissioning well advanced

·          Overall process plant completion at 98% as at end of February

·          Process plant commissioning at 63% as at end February

·          First concentrate production now scheduled for early in the June 2019 quarter

State One comment

Maiden production at Woodlawn has slipped from an initial target in the March 2019 quarter to early in the June 2019 quarter. On 4 February the EPC contractor Sedgman lodged a claim for A$49.9m in progress fees above and beyond its A$109m Guaranteed Maximum Price (GMP) contract. While this claim was rejected by the Contract Superintendent on 18 February, the contractor has followed up with an increased claim of A$53m; this is currently being assessed by the Contract Superintendent. While we note management’s comments in its 4 February announcement that the progress claim dispute was not influencing construction, commissioning or production activities, we suspect the protracted nature of the dispute has had (or is having) some impact on the principal/contractor working relationship.

On a more positive note, we see that Zn and Cu prices have recovered from their January 2019 lows – this is a positive development as the two metals in aggregate account for 75% of our forecast Woodland Project LOM revenues. The current (LME) Zn price of US$2,888/t is some 11% above our base-case forecast Zn price of US$2,600/t (real); the current (LME) Cu price of US$6,500/t is some 5% above our base-case forecast Cu price of US$6,175/t (real).  Thus, near-term revenues could be higher than forecast, and mitigate against the slippage in first concentrate production.