Heron Resources (ASX:HRR) (TSX:HER) Managing Director and CEO, Wayne Taylor, discusses financing for the company's Woodlawn Copper-Zinc Project ahead of its August General Meeting.
Jessica Amir: Hello I’m Jessica Amir for the Finance News Network. Joining me from Heron Resources Limited (ASX:HRR) (TSX:HER) is Managing Director and CEO, Wayne Taylor. Wayne welcome to Finance News Network.
Wayne Taylor: Thank you Jessica.
Jessica Amir: First up Wayne, can you give us an introduction to Heron Resources?
Wayne Taylor: Heron is a resource company with a project, the Woodlawn project, which is zinc-copper located in New South Wales. The project, high-grade polymetallic project principal commodities are zinc-copper, but also appreciable lead, silver and gold. Current market cap’s around $32 million.
Jessica Amir: You’re seeking a shareholder approval for a $240 million funding package. What does it contain?
Wayne Taylor: It contains both debt and equity. In the debt we have two components, a $USD60 million senior secured loan and a $USD16 million silver pre-payment. On the equity side we have cornerstone investments to the tune of $AUD104 million, a private placement to the tune of $AUD31 million and a $5 million share purchase plan.
Jessica Amir: What does the proposed funding package mean for the project and existing shareholders?
Wayne Taylor: The proposed funding package provides us with full project funding, through construction, through commissioning and through into full production. So this is realising a goal that we’ve set out for ourselves three years ago, when we merged with TriAusMin Limited (ASX:TRO/TSX:TOR). So the shareholders are seeing us bring to fruition what was outlined some years ago.
Jessica Amir: And you’ve already got some private equity providers. So who’s supporting the project?
Wayne Taylor: We have three, Greenstone who’s currently our largest shareholder. Between Greenstone and their partners, they’ll be contributing around $42 million. We have Orion Mine Finance with their debt, silver and equity components, contributing about $130 million. And then we have Castlelake, a more diverse fund and they’ll be contributing around $33 million.
Jessica Amir: And of course, what’s the Board recommending?
Wayne Taylor: The Board is recommending that all shareholders support all resolutions, to give effect to the funding package and allow us to start construction immediately.
Jessica Amir: Now to the Woodlawn project in a little bit more detail. Can you tell us about the timeline, the resource and the economics?
Wayne Taylor: Woodlawn is a project that consists of two production sources. We have the high-grade underground, around 6.5 million tonnes in resources, which through our conversion process, produces about 2.8 million tonnes of reserves. It is what we consider a starter case on the underground, given that all we’ve done is outlined enough to get the project financed, at this point in time. The other production source is the tailings. We have 11 million tonnes in resources there, around about six per cent zinc equivalent, about 9.5 million tonnes reports to reserves. That will be processed through a single process plant to produce zinc, lead and copper concentrates with some precious metal credits.
In terms of the economics, we’ve produced a feasibility study around 12 months ago. That generated 9.3-year mine life on reserves only, over $400 million in post-tax free cash and an IRR post-tax of 32 per cent. A cost base, which should see us in the lower half of the producer cost curve. From a revenue perspective, around 52 per cent of our revenue from zinc, 23 from copper, 15 from lead and around 10 from the precious metals. Looking at the timeline, we expect to be into production at the tail end of 2018/early 2019, which is a good time in terms of delivery of zinc into the marketplace at the moment.
Jessica Amir: A more general question now Wayne. Can you tell us about your outlook for copper and zinc prices and what type of interest you’ve had from offtake partners, say commodity traders?
Wayne Taylor: Zinc is the strongest in terms of supply demand fundamentals in the base metal complex. There is a shortage of supply at the moment and that’s been driven by a lack of investment in zinc mines, for quite a number of years. And for that reason with consumption growing, we’ve got a gap and that is drawing on stocks, and giving good support to the price. We do expect that to continue for the short to medium term and that’s a part of the market that we want to go and enjoy being in.
Copper, probably not quite as strong fundamentally at the moment, but in the medium to long-term it’s still looking very, very good, driven by everything that’s electric. And we see that being a good space to be involved in, as Woodlawn progresses. Offtake, we’ve signed up an agreement with Louis Dreyfus Metals Company after a very competitive process, with quite a number of off takers. And it just showed that there is a shortage of material. The terms we’ve got are very attractive and we’re very pleased with that result.
Jessica Amir: Last question now Wayne. What’s your goal for the next 12 months and what’s your long-term ambition for the company?
Wayne Taylor: Our objectives for the next 12 months are very clear. We’ve got the construction of Woodlawn to see through and get that into production. Beyond that we have a great portfolio of projects or tenements around Woodlawn, where we can see some more organic growth coming from. And once we’ve got Woodlawn bedded down, well then we’re quite happy to look beyond that. Probably of note, we cleaned up our project portfolio earlier this year, through the spinout of our non-Woodlawn assets into Ardea Resources Limited (ASX:ARL), which became an IPO listing in February, so we were able to return, through an in species distribution, shares to our shareholders. That means that we’re now able to fully focus our time and effort on Woodlawn.
Jessica Amir: Wayne Taylor, thanks so much for the update and good luck with the funding proposal.
Wayne Taylor: Thank you Jessica.