Herencia Resources Regulatory News (HER)

31 May 2013

Herencia Resources plc

Herencia Achieves Positive Feasibility Study

 Results at Paguanta Project in Chile

Herencia Resources plc, the Chile-focussed mineral exploration and development company, is pleased to announce the completion of the Feasibility Study for the Paguanta Project ("the Project"), its flagship silver-zinc-lead Project in northern Chile.

Highlights

·; Eight (8) year initial Mine life

·; Three (3) years mining by open pit followed by a minimum five (5) years of underground mining operations

·; Initial project capital cost of US$60M (Herencia's 70% share being US$42M)

·; Base Case pre-tax NPV of US$77.8M and IRR of 20.4%

·; Targeting first mine production in 2015

·; Feasibility identified excellent potential to expand both production rate & mine life

·; Project permitting application scheduled for submission 2H2013

The Feasibility Study, carried out during 2012-13, has been successful in incorporating a three year open pit into the overall mine plan, with underground mining commencing in year three and continuing until at least the end of year eight. Open pit mining will be scheduled at an initial Run of Mine (ROM) production rate of 400,000 tonnes per annum (tpa), at a proposed waste to ore strip ratio of approximately 11.7:1. Throughput will increase to 460,000tpa with the introduction of underground mining in year four.

Graeme Sloan, Managing Director of Herencia Resources commented:

This is an excellent result for the Company. The Paguanta Feasibility Study has returned first class results and its completion is a major milestone for Herencia. The next step is to progress with the lodgement of the Project permitting application, as a pre-cursor to a development decision for the Project with the goal of commencing production in 2015.

I would like to thank everyone involved in the Project for their hard work in helping us to reach this exciting point. The future for Herencia looks very bright and we approach it with confidence and I look forward to updating our shareholders on the progress that we make."

For further information, please contact:

Graeme Sloan, Herencia Resources plc +61 8 9481 4204

Katy Mitchell, WH Ireland Limited +44 161 832 2174

Simon Courtenay/Abigail Genis, Broker Profile +44 207 448 3244

Mine Production

It is proposed that a total of 3.75 million tonnes (Mt) at 3.16% zinc, 78.4g/t silver and 1.22% lead will be mined over an eight year mine life from a combination of open pits and underground mine operations. Mine grades vary by source (open pit and underground) and by individual vein. The average life-of-mine (LOM) grade is scheduled as follows:

§ Open Pit 1.15Mt @ 3.43% zinc, 68g/t silver and 1.16% lead

§ Underground 2.60Mt @ 3.10% zinc, 83g/t silver and 1.24% lead

It is also intended that an additional 300,000 to 400,000 tonnes (t) of silver-rich oxide material (at a grade of approximately 99g/t Ag) will be mined and stockpiled as part of the open pit mining operation, for treatment at a future date.

At this stage it is proposed that two open pits will be mined, one on the Cathedral veins and the other on the Rosada vein. Open pit mine design parameters include bench heights of 20m, with 2.5m - 5.0m mining horizons (flitches), ramp widths of 20m (double lane) and variable slope angles not exceeding 51 degrees. The open pit mining equipment includes conventional 7m³ capacity excavators and 94t off-highway type haul trucks.

The main design parameters for the underground mining operations include 5m x 5m decline access and 4m x 4m production development headings. Stope heights vary but are typically 12-16m. The mining equipment fleet includes 5.4m³ capacity LHD´s (Load-Haul-Dump), and 60t low-profile dump trucks. Underground mining will be by a combination of conventional Avoca and Mechanised Sub-level Stoping mining methods.

The successful inclusion of the open pit phase into the Paguanta mine plan has numerous benefits for the Project, including the de-risking of the early stage of the project from operational, cost and funding viewpoints.

Processing

The processing flow-sheet circuit is industry standard and includes conventional primary crushing, grinding, flotation and concentrate filtration to produce a high-grade zinc concentrate (containing some silver credits) and a high-grade silver-lead concentrate. Metallurgical recoveries achieved to date include up to 90% silver recovery (approximately 70% to the silver-lead concentrate and 20% to the zinc concentrate), 82% zinc recovery and 80% lead recovery. Importantly the majority of the silver is reporting to the silver-lead concentrate, resulting in improved payment terms for silver (up to 95%).

Concentrate Production

It is intended that final concentrate will be transported by truck to the nearby ports of Arica and Iquique for consolidation and shipping to selected customer(s).

Annual average concentrate production in the first two years is estimated as follows:

§ Zinc concentrate - 16,900tpa at 52% zinc grade (contained metal approximately 8,800t zinc per annum)

§ Silver-Lead concentrate - 4,300tpa at a grade of approximately 5,000g/t silver and 55% lead (contained metal approximately 680,000 ounces (oz) silver and 2,400t lead per annum)

Annual average concentrate production will then increase during year three to an estimated average annual production rate of:

§ Zinc concentrate - 22,900tpa at 52% zinc grade (contained metal approximately 11,900tpa zinc)

§ Silver-Lead concentrate - 8,360tpa at a grade of approximately 5,000g/t silver and 55% lead (contained metal approximately 1.08Moz silver & 4,600t lead per annum)

Personnel

It is estimated that the project workforce will total approximately 110 persons on site at any one time (in year's one and two), increasing to approximately 140 persons on site in year three as the underground mining phase commences.

It is anticipated that the Project's entire workforce will be sourced from Chile due to the highly experienced mining personnel readily available in that country.

Project Capital Cost

Initial or start-up capital costs for the Paguanta Project are estimated at US$60 million (M) (excluding contingency), with Herencia's 70% share being US$42M. This includes all major capital items including open pit mine area, processing plant, tailings dam, project access road, camp and administration office.

A breakdown of the Project capital cost is as follows:

Initial Project Centre:

Project capital costs were determined using quotations for key equipment obtained from reputable suppliers and vendors and detailed consultant estimates for all earthwork, civil and structural project requirements.

Ongoing sustaining capital costs (including underground mine development) have been estimated at approximately US$5.3M per annum (Herencia share US$3.75M per annum).

Project Operating Costs

Operating costs and charges have been estimated as follows:

§ Processing US$ 22/t processed

§ Open Pit Mining US$ 1.30/t - US$ 2.45/t material mined

(at a 11.7:1 stripping ratio this is equivalent to approximately US$18.50/t processed)

§ Underground Mining US$ 23.70/t mined (note development costs capitalised)

§ General & Administration US$ 7.70/t processed

§ Contractors/Consultants US$ 7.00/t processed

§ Tailings and Water US$ 1.20/t processed

§ Transport, Port & Shipping US$126.60/t Ag-Pb conc. (equiv. to US$2.13/t processed)

§ Transport, Port & Shipping US$ 114.40/t Zn conc. (equiv. to US$5.60/t processed)

Based on the above, operating costs are estimated as follows:

§ Open Pit US$64.13/t

§ Underground US$69.33/t

Forecast Commodity Prices and Treatment Charges

The commodity price assumptions adopted in the Feasibility Study have been based on average commodity prices forecast by Brook Hunt (a division of Wood Mackenzie), Consensus Economics and Bloomberg. Brook Hunt, who are a leading industry recognised independent commodity analyst group, have forecast an average base case zinc price from 2015 to 2023 at US$1.46 per pound (real). Silver prices and lead prices have been forecast at US$26/ounce and US$1.15/pound respectively. Treatment Charges (TC's) for zinc and silver-lead concentrates have been forecast at US$212/t of concentrate treated (totalling a combined equivalent TC cost of approximately US$14/t processed). Silver refining charges are estimated at US$0.30/oz (equivalent to approximately US$0.70/t processed).

Financial Outcomes

The resulting Base Case pre-tax NPV(@7.5%) for the Paguanta Project is US$77.8M with an Internal Rate of Return (IRR) of 20.4%.

The Base Case post-tax NPV(@7.5%) is US$63M with an IRR of 17.7%.

Potential Upside of the Paguanta Project

The Feasibility Study has also identified a number of potential areas to significantly expand the Mineral Resource at Paguanta, as much of the resource is still open, including:

·; within the existing Resource envelope;

·; below the existing Resource envelope via extensions to the existing veins;

·; above the existing Resource envelope in the silver-oxide zone;

·; to the east of the Resource envelope via extensions to the existing veins (following up high grade mineralisation already confirmed in previous drilling to the east); and

·; to the south of the Resource envelope via parallel veins (similar to Carlos & New Vein).

The Directors are confident that any one of the above areas has the potential to significantly expand the current Resource and hence potentially increase annual production and extend the mine life beyond 10 years. The Company intends to focus exploration in these areas to demonstrate this potential.

Additionally, when combining the Feasibility Study work and the recent interpretation of the IP anomaly (see RNS 23 January 2013), there is potential to extend the proposed Cathedral open pit up to 500m further east. Further drilling would be required to confirm the extent of this potential. A shallow drill program is currently being formulated for possible commencement in the second half of the year.

Future Strategy

The strategy going forward for the Company's Project team is to:

1. Finalise the permitting documentation during 3Q2013 with a view to submitting the Project permitting applications with the Chilean authorities late in the third quarter or early in the fourth quarter 2013.

2. Undertake additional optimisation of the underground mine design using a specialist underground mining consultant to fine tune capital costs and identify stope and grade optimisation opportunities in the underground phase of the Project.

3. Advance potential funding initiatives with selected parties with a view to be in a position to make a Project 'go-ahead' decision once permitting approvals are received, potentially in the second half of 2014.

4. Prioritise targets for Resource expansion, particularly focussing on the potential to expand the Cathedral open pit to the east.

Project Timeline

Based on the results of the Feasibility Study and previous work undertaken by the Company the following timelines have been achieved or are being targeted:

·; Feasibility Study completed and announced to the market Achieved

·; Lodgement of Mine Permit Application (EIS) 3Q/4Q2013

·; Underground Design Optimisation 3Q2013

·; Funding and Concentrate Off-take negotiations 2H2013 to 1H2014

·; Ongoing Engineering/Infrastructure/Supply/Design Works 2H2013 to 2H2014

·; Permitting Approval 2H2014

·; JV & Board Approval for Mine Development (Investment decision) 2H2014

The above timetable is provisional, subject to Board/JV approvals, receipt of permits & achievement of project milestones.

The Project schedule currently targets mine construction potentially commencing in the second half of 2014 with production commencing in 2015. It is forecast that project construction could take between six (6) and nine (9) months depending on whether a modular or fixed design/construction philosophy is adopted.

A set of Figures including Project layout, design, flowsheet and production details can be found at http://www.rns-pdf.londonstockexchange.com/rns/9454F_-2013-5-30.pdf

Herencia's Managing Director, Graeme Sloan, added:

"I am extremely pleased with this result. It sets the Company one step closer to becoming a miner and producer. I would like to thank our dedicated team in Chile for all their hard work and diligence. This includes our consultants and especially those who have been with us from the day we started the Feasibility Study. I would also like to thank our shareholders, many of whom have shown considerable loyalty and faith in our strategy.

Many commodity forecasters have predicted that there may be significant price increases driven by the looming closure of some of the world's largest zinc mines over the next 24 to 36 months. The Company is aware that there are a number of zinc-silver projects in the pipeline. We believe that the Paguanta Project stands out over many of these, as it involves conventional mining techniques and it has a simple metallurgical flow-sheet. It also offers the benefits of low capital costs and is located in a first world mining economy. Most importantly, it could potentially be in production within 12 months of obtaining permitting approval. Our timing could be extremely advantageous to potentially meet what many say may be the start of significant increases in zinc prices.

The Company is also aware of the significant resource upside opportunity at our Paguanta Project. We will look to exploit this potential cost effectively in parallel with the permitting process. This will take place before a project development decision is made potentially in the second half of 2014. From a mining and processing perspective, any expansion to the open pit or underground mine plan could be quickly and cost effectively incorporated into the overall project schedule.

Given the extensive Feasibility Study work completed to date, and the clear resource upside potential of the mineralisation, we believe that the Paguanta Project will evolve quickly into a long life silver-zinc-lead producer for the Company."

About Herencia

Herencia Resources plc, an AIM quoted exploration and development company operating in Chile. The Paguanta Project ("the Project") is 70% owned and managed by Herencia and is focussed on the high grade silver-zinc-lead deposit (named "Patricia") in northern Chile.

Project Location

The Project is located in the north of Chile approximately 120 kilometres north-east of the coastal city of Iquique and 30 kilometres west of the Chile-Bolivia border. The Project is in the Andes, 3,400 to 3,700 metres above sea level, on the north end of the Oligocene Porphyry Copper Belt of Chile that includes the world class deposits of Escondida, Chuquicamata, Collahuasi and Cerro Colorado. Cerro Colorado is a large operating copper mine, operated by BHP Billiton, located approximately 35 kilometres south of Paguanta.

References in this announcement to the Feasibility Study and Exploration potential have been approved for release by Mr Graeme Sloan (BAppSc Mining Engineering WASM) and Mr Antonio Valverde (Bsc Geology Universidad Complutense de Madrid), with more than 25 and 15 years' relevant experience respectively in the field of activity concerned. Mr Sloan is a Member of the Australasian Institute of Mining and Metallurgy. Both Mr Sloan and Mr Valverde have consented to the inclusion of the material in the form and context in which it appears.

References in this announcement to resources relate to the Mineral Resource Estimate published in June 2012 (as per RNS announcement date 22 June 2012).

This document may include forward-looking statements. Forward-looking statements inherently involve subjective judgement and analysis and are subject to a number of risks, uncertainties, contingencies and other factors, many of which are outside the control of, and may be unknown to, Herencia Resources. As such, actual results or performance may vary materially from those expressed or implied by forward-looking statements. The types of factors that could cause such variation in actual results or performance include (without limitation) commodity prices, permitting, operational problems and general economic conditions and no assurance can be given that actual results be consistent with these forward-looking statements. Given these factors, undue reliance should not be placed on forward-looking statements.

Further background details on the Company can be found at www.herenciaresources.com

**ENDS**