Luna Gold Corp. Reports Operational And Financial Results For The
Three Months And Year Ended December 31, 2010
- Luna Gold Corp. (TSXV-LGC) ("Luna" or the
"Company") today announces its results for the three months
and year ended December 31, 2010. The complete financial statements and
management discussions and analysis are available for review at www.lunagold.com and should be read in conjunction with this news release.
OVERVIEW
The Company is actively engaged in the operation, exploration,
acquisition and development of gold properties in Brazil. The Company
currently has one gold mining operation, one development project and one
large greenfield exploration project located in northeast Brazil.
The Aurizona gold mining operation ("Aurizona") consists of an
open pit mine and gold process plant. Aurizona consists of the Piaba and
Tatajuba deposits and over 10 near mine exploration targets which are
being actively explored by the Company. It covers approximately 20,000
hectares of land and includes a mining license and three exploration
permits.
The Cachoeira gold project ("Cachoeira") is a development gold
project consisting of multiple mineralized zones, which include isolated
quartz vein systems, hydrothermally altered host rocks and stockworks
within a north-south trending shear zone. The Company recently issued a
NI 43-101 compliant resource estimate for Cachoeira.
The Maranhao Greenfields exploration property ("Maranhao Greenfields")
is located next to Aurizona and consists of an extensive landholding of
exploration licenses totalling 170,000 hectares. This historically
unexplored land holding is highly prospective due to its location in the
southern extension of the Guyana Shield and displays strong geologic and
structural similarities to West African gold deposits. The area contains
over 100 artisanal gold workings that require further exploration.
The Company's
near term focus is to:
- Significantly increase the size of the Aurizona
resource and release an updated NI 43-101 resource estimate for the
Piaba and Tatajuba gold deposits and certain near mine exploration
targets;
- Increase the Aurizona gold production above
current feasibility study levels through plant optimization and
plant expansion;
- Complete a scoping study on the Cachoeira
resource and advance the project to feasibility study; and
- Advance the exploration activity at
Maranhao Greenfields to define drill targets for the 2012
exploration program.
The Company's longer
term focus is to:
- Increase Aurizona gold production to
100,000 ounces per annum;
- Continue to invest in brownfield
exploration activities to increase the resource at Aurizona to
replace production and provide a longer mine life;
- Develop Cachoeira as an organic growth
pipeline project for the Company; and
- Identify new gold resources through the
exploration of the 170,000 hectare Maranhao Greenfields property and
through business development programs.
HIGHLIGHTS
- The Aurizona gold mine announced commercial
gold production in February 2011;
- Aurizona gold production was approximately
9,800 ounces for Q4 and approximately 15,800 ounces for the year;
- In Q4, the Company achieved its first
positive cash operating quarter before expenditures on exploration,
corporate, interest and working capital movements;
- The Company released an initial NI 43-101
mineral resource estimate for Cachoeira with an indicated mineral
resource of 12.5 million tonnes at 1.11 grams per tonne gold, or
446,000 ounces gold, and an inferred resource of 5.4 million tonnes
at 1.27 grams per tonne gold, or 221,300 ounces gold;
- The Company raised net proceeds of $41.1
million through a non-brokered private placement financing and
warrant incentive program;
- The Company was granted 105,000 hectares of
new exploration licences which tripled the size of the Maranhao
Greenfields project to 170,000 hectares;
- The Board of Directors approved a large
exploration program and budget for Aurizona and Maranhao Greenfields
and the Company commenced a 20,000 metre drill program at Aurizona
and mobilized four exploration crews to Maranhao Greenfields;
- The Company defined new near mine
exploration targets at Aurizona. All targets defined to date are
located within a 5 kilometre radius of the Aurizona gold process
plant. They are being advanced to drill stage with the objective of
delineating additional gold resources within trucking distance of
the plant;
- The LT 69kV power line was completed when
Cemar, the State power utility, energized the line to operational
status. The commissioning of this power line will allow the Company
to significantly reduce power costs;
- The DNPM granted eight new exploration
licenses resulting in a total of over 170,000 hectares of
prospective exploration land that is 100% owned by the Company's
Brazilian subsidiary; and
- Appointment of an experienced operational
President and Chief Executive Officer ("CEO") on September
24, 2010. The new CEO, John Blake, brings significant gold mining
operational experience to the Company in the transition from a
developing company to an operational gold producing company.
OUTLOOK
- Aurizona gold production guidance is 8,500
to 10,000 ounces in Q1 2011 and between 55,000 and 60,000 ounces for
the 2011 year at a targeted cash cost of between $610 and $620 per
ounce;
- The Company is targeting to complete the
approved Aurizona 20,000 metre exploration drill program and release
an updated NI 43-101 compliant resource in Q4 2011; and
- Cachoeira scoping study to be completed and
the results released in Q4 2011.
AURIZONA GOLD
MINE - MARANHAO STATE, BRAZIL
The Aurizona gold mine is wholly owned by the Company and is situated in
the municipality of Godofredo Viana in Maranh�o State, Brazil, near the
coast of the Atlantic Ocean. Aurizona contains the Piaba and Tatajuba
deposits and over 10 near mine exploration targets. The area is covered
by a mining licence and three exploration permits. The Tatajuba deposit
is located within an exploration permit which is in the process of being
converted to a mine license.
Development of the
Aurizona gold mine
The commissioning of Aurizona continued to improve in Q4 after
constraints were identified in Q3. Aurizona gold production continued to
improve with December production totalling 4,440 ounces of gold producing
an aggregate of 9,767 ounces of gold for the quarter. This was a good
result considering that the mechanical changes addressed in the Q3
MD&A will not be implemented until early 2011. The work plan and
schedule to address the mining, processing and mechanical start-up
impediments to deliver feasibility level production by Q2 2011 remain on
target.
On December 29, 2010, heavily armed thieves broke into the gold room at
Aurizona taking approximately 1,500 ounces of gold valued at
approximately $2.1 million. No Company employees were injured and the
Company implemented a thorough review of security and procedures. Police
have not recovered the gold or apprehended the thieves and are concluding
their investigation. The Company has insurance for such an event and
lodged a claim to recover the cost of the stolen gold,
The Company collected the amount in full in March 2011.
The Company's priority in Q1 2011 is to install the reduction gear box in
the SAG mill, install the pinion in ball mill #4 and upgrade the trash
screens. These components are expected to be completed in late Q1 with
feasibility study levels of production ramping up in April 2011 allowing
the guidance of 55,000 ounces production to be achieved for the 2011
year.
From
Q2 2011 onwards, the Company will be providing data on quarterly
production and cash costs of production with guidance on the target cost
for full year production.
Also from Q2 2011 onwards, Aurizona will test the productive capacity of
the operation and commence a scoping study on increasing gold production
capacity to 100,000 ounces per annum.
Table of production
Mining production
Ore mined for Q4 was 457,873 tonnes at an average head grade of 1.07
grams per tonne and a waste strip ratio of 1.3. The gold grade mined was
lower than the targeted feasibility grade, however, the Company revised
the ore mining process with a focus on grade control and the introduction
of surface trench sampling and reverse circulation drilling to improve
grade estimation, identification and dilution control. The effects of
these improvements began to be realized in January 2011 as the average
grade mined for the month improved to 1.33 grams per tonne. Ore
production was increased to accommodate the increased mill production
during the ramp up phase and to stockpile ore to be processed during the
wet season. Planned stripping activities also increased as mining
activities began to advance deeper into the starter pit and the mining
team focused on increasing waste stripping to achieve a steady strip
ratio over the life of the mine.
This was the first year of mine production for the Company. The overall
ore grade mined was slightly lower than feasibility target of 1.24 grams
per tonne for the initial year of mining. The lower ore grade mined was a
result of dilution. Due to improved grade modelling and ore / waste
identification and control measures this has been rectified and continued
to improve production for 2011.
Mill Processing
The mill processed 328,735 tonnes of ore in Q4 at an average head grade
of 1.22 grams per tonne producing 9,767 ounces of gold bullion. The
average recovery rate was 77% for the quarter. The mill continued to
demonstrate feasibility levels of production with ore throughput
increasing over the previous quarters. Higher grade stockpiled ore was
blended with the lower grade ore mined during the quarter to increase the
overall grade of the ore milled resulting in the increased production.
Improvements in both grade processed and recovery were made in each
consecutive month during Q4. The negative variance in the recovery rate
against the Feasibility Study provides a good opportunity to improve
process controls with resulting higher gold production.
Gold production for the year amounted to 15,759 ounces of gold bullion.
First gold production was achieved in April of this year and the Company
has made production improvements in each consecutive month since this
achievement.
AURIZONA EXPLORATION
The Company's exploration teams significantly advanced exploration at
Aurizona the quarter as summarized below. Diamond drilling is on schedule
for completion of the Phase 1 20,000 metres program in July 2011. The
Company's exploration strategy of surface exploration techniques combined
with magnetic geophysical surveys is proving highly successful in
defining the principal mineralized structures at the near mine targets.
Diamond Drilling
The Company embarked on a 20,000 metre drill program at Aurizona in
August 2010 and currently has seven drill rigs in operation at the Piaba
deposit. Assays from 15 holes have been received and samples from 7
additional holes are at the assay lab. Drilling is currently focused on
infilling over the 3 kilometre strike length of the Piaba deposit to
increase measured and indicated resources. Holes are being drilled on 100
metre spaced sections to a maximum depth of minus 300 metres RL. On
completion of the Piaba drill program the rigs will be sited at the
Tatajuba deposit and the Boa Esperan�a near mine exploration target which
is drill ready following a successful trenching program. Significant
drill intercepts (not true widths) from the ongoing program are listed below.
- 15.00
metres @ 2.66 g/t Au including 4.00 metres @ 7.49 g/t Au in BRAZD278
- 30.00
metres @ 1.32 g/t Au including 1.00 metres @ 7.37 g/t Au and 3.00
metres @ 5.06 g/t Au in BRAZD279A
- 32.00
metres @ 3.20 g/t Au including 1.00 metres @ 60.60 g/t Au and 16.00
metres @ 2.13 g/t Au including 4.00 metres @ 6.57 g/t Au and 6.00
metres @ 2.87 g/t Au in BRAZD282
- 5.00
metres @ 4.45 g/t Au and 7.00 metres @ 2.01 g/t Au including 1.00
metres @ 9.74 g/t Au in BRAZD283
Soil Surveys
Soil surveying at Aurizona was completed for areas close to the mine
site. Assays have been received for the majority of these samples and the
data will be released when the remaining assays have been received. Soil
surveying commenced in the unexplored western portion of the Aurizona
project (LDW Grid) in November targeting new gold mineralization within
extensions to the west-southwest trending structures that host the gold
mineralization in the main Aurizona area. This surveying is ongoing.
Trenching
A trenching program totalling 1,007 metres in 7 individual trenches was
completed at the Boa Esperan�a target. Six trenches intersected
mineralization and collectively define two mineralized zones, called Boa
Esperan�a East (BEE) and Boa Esperan�a West (BEW) that are coincident
with mineralized Luna auger drill holes. Mineralization strike length at
BEE is 400 metres. Mineralization at BEW is lower grade and has been
defined for 250 metres strike length and is open to the west. The width
of mineralization intersected in the trenches should not be considered to
represent sub-cropping fresh rock mineralization widths, due to the
dispersal effect of supergene surface enrichment processes. However,
mineralization intersected was associated with an increase in quartz
veining and hydrothermal alteration. Geologic modeling of Boa Esperan�a
was being finalized ahead of a diamond drill program which is expected to
define new gold resources close to the Aurizona gold process plant.
Mineralized intervals are tabulated below:
A trenching program was completed at the Ferradura target in March where
gold anomalies were associated with Banded Iron Formations, a
mineralization style previously undocumented in the district. These
trench samples are currently at the assay laboratory. Trenching is
expected to commence shortly at the Conceicao target and will continue
throughout 2011 to advance the near mine targets to drill stage.
Permitting
The process of converting the Tatajuba exploration licence, which hosts
the Tatajuba deposit, is ongoing and the process is at the DNPM offices
in Brasilia.
Auger Drilling
Assay data was received for the auger drill program at the Ferradura,
Conceicao and Tatajuba West near mine targets. All surveys identified
narrow zones of gold mineralization associated with magnetic lineaments
and in some cases zones of magnetic destruction. Ground magnetic surveys
were completed at all targets and trenching programs were finalized at
Ferradura.
Auger drilling is currently focused at the Micote near mine target and
these samples will be shipped to the assay laboratory at the end of
March.
CACHOEIRA DEVELOPMENT PROJECT
The Cachoeira Project is located in northern Brazil in the Gurupi
Greenstone Belt, approximately 220 kilometres southeast of the Par� State
capital of Bel�m and about 270 km northwest of the port city of S�o Luis,
Maranh�o State. Cachoeira comprises one contiguous block consisting of
two mining and two exploration licenses covering approximately 3,826
hectares and an application for an exploration license covering
approximately 916 hectares.
On October 9, 2007, Luna Gold announced that it had finalized an option
agreement whereby it could earn a 100% interest in the property from a
consortium of vendors. According to the terms of the agreement the
Company can earn its interest by making a one-time
cash payment and by incurring work expenditures over a 50 month period.
As at December 31, 2010, the Company had incurred accumulated exploration
expenditures of approximately $4.2 million as part of the commitment to
incur expenditures of approximately $5.6 million. The Company's interest
in the property would be subject to a 4.0% net profits royalty with a
provision for a partial buy-out of this royalty.
The major asset associated with the Cachoeira is a series of shear zone
hosted gold deposits consisting of quartz veins, stockworks and wall rock
alteration. Three deposits, Tucano, Arara and Coruja, have been defined
to date within the north-south trending Cachoeira Shear Zone. In
December, the Company released a maiden NI 43-101 compliant mineral
resource estimate at Cachoeira and filed the technical report on February
7th, 2011 on SEDAR. The mineral resource estimate comprises drilling
results from the Tucano, Arara and Coruja deposits and is shown below:
Notes:
1.
CIM definition standards were followed
for Mineral Resources.
2.
The Qualified Person for this
Mineral Resource estimate is Patti Nakai-Lajoie, P.Geo.
3.
Mineral Resources are estimated at
a pit discard cut-off grade of 0.3 g/t Au. Preliminary open pit shells
were used to constrain the resources.
4.
The Tucano database consists of 86
diamond holes (DH), 78 reverse circulation (RC) holes, 6 combined RC/DH
holes and 221 auger drill holes in addition to 70 surface channels and 32
underground channels.
5.
The Arara database consists of 64
diamond drill holes, 101 auger drill holes, and 8 surface channels.
6.
The Coruja database consists of 33
diamond drill holes, 14 RC holes, 2 combined RC/DH holes, 166 auger drill
holes, and 86 surface channels.
7.
High assays were capped at 30 g/t
Au at Tucano and 10 g/t Au at Arara and Coruja.
8.
Tucano, Arara and Coruja block
dimensions: 10 m E x 10 m N x 5 m high.
9.
Mineral Resources are estimated
using a gold price of US$1,238 per ounce.
10.
Bulk densities used were 2.70 t/m3
to 2.75 t/m3 in rock, 2.17 t/m3 to 2.40 t/m3 in the
transition zone, and 1.72 t/m3 to 1.89 t/m3 in saprolite.
11.
Numbers may not add due to
rounding.
12.
Mineral Resource estimates may be
materially affected by environmental, permitting, legal, title, taxation,
socio-political, marketing or other factors.
Whittle pit
shells were used to constrain all mineral resources and significant
mineralization extends beyond the pit constraints, particularly at Arara
where 50% of mineralization lies outside the Whittle pit shell, and
Coruja where 68% of mineralization lies outside the Whittle pit shell. At
Tucano, 13% of mineralization is located outside of the Whittle pit
shell. While this mineralization cannot currently be considered a
resource, it demonstrates that strong potential exists to increase the
Cachoeira mineral resources.
Cachoeira Regional
The Company is currently auger drill testing several new gold-in-soil
anomalies in the northern part of the Cachoeira Shear Zone which are
located outside the main gold deposits defined to date.
Auger drilling at the northern Sovi target did not intersect significant
gold mineralization and this target has been downgraded.
Auger drilling was completed at the Bavete Target and samples are
currently at the assay lab. Drilling is currently underway at the Arara
North target.
MARANHAO GREENFIELDS EXPLORATION PROPERTY - MARANHAO STATE, BRAZIL
The Maranhao Greenfields exploration property is located to the southwest
and southeast of Aurizona and contains multiple shear zones and over 100
historic artisanal gold workings (garimpos). It consists of over 170,000
hectares of contiguous exploration licenses and is located within the S�o
Luis Craton, southeast of the Guiana shield, which hosts several major
gold deposits including Rosebel and Las Cristinas. Geologic
reconstruction of the South American and African continents places the
S�o Luis Craton in close proximity to the Birimian Gold Belt of West
Africa. Strong geologic and structural similarities exist between the S�o
Luis Craton, the Guiana shield and the West African Craton. The area is
characterized by low relief and an extensive sedimentary cover sequence
with deep weathering profiles. Historic exploration in the district was
limited to soil and rock sampling, auger drilling, geophysical surveys
and some shallow reconnaissance drill holes.
The Company currently has exploration crews working four targets
simultaneously the Maranhao Greenfields project area. The Company
continues its exploration programs throughout the wet season although at
reduced rates.
Areal Grid
Soil sampling and regolith mapping was completed at the Areal Grid in
November. Areal is located in the north central part of the Maranhao
Greenfields area and contains several inactive garimpo (artesan) pits
including Areal, Leite, Novo Destino and Iricuri. Partial soil assay
results have been received and the final data will be released when all
assays have been delivered. Continuous channel sampling was conducted
along all accessible pit walls. Channel samples are at the assay
laboratory.
JST Grid
Soil sampling and regolith mapping was completed at the JST Grid in
February. JST is located in the south east portion of the Maranhao
Greenfields area and contains three small inactive garimpo (artesan) pits
called Jiboia, Santarem and Tatu. Continuous channel sampling was
conducted along all accessible pit walls. Soil and channel samples were
at the assay laboratory.
PC and BML Grids
Soil sampling and regolith mapping continued at the PC grid in the
quarter which hosts the Portuguesa and Cearazinho garimpo workings. Line
cutting commenced at the new BML target area (eastern area) in January
and work is progressing well. A new field base was established to support
the eastern Maranhao Greenfields program. Both grids will be completed
within 3 months at which time new grids will be initiated. The Company is
aggressively exploring its extensive and prospective landholding at
Maranh�o Greenfields.
SUMMARY OF OPERATING RESULTS
2010's revenue and operating expense was related to the production of
13,340 ounces of gold. The high operating cost per ounce of production
for the year was consistent with start-up expectations due to the low
amount of gold production and the costs related to commissioning and
transitioning to operations during the ramp up phase. The operating
results in 2010 were significantly different than the comparable periods
as the Company was in the development and exploration phase during the
past two fiscal years.
(1)General and administration consists of general and
administrative expenses, professional fees and stock based compensation
expense.
The Company sold 9,594 ounces of gold bullion in Q4 compared to 1,462
ounces in the previous quarter. Of the total gold bullion sold, 7,964
ounces was sold at an average realized gold price of $1,371 per ounce and
1,631 ounces were delivered to Sandstorm Gold Ltd. at $400 per ounce as
per the Sandstorm Gold Purchase Agreement. Revenue also included
insurance proceeds of $2.1 million related to the theft of 1,545 ounces
of gold from Aurizona on December 29th, 2010. Total gold bullion ounces
sold for the year was 11,795 ounces, of which 9,790 ounces was sold at an
average realized gold price of $1,311 and 2,005 ounces were delivered to
Sandstorm Gold Ltd. at $400 per ounce.
Q4 operating expense related to the production of 11,139 ounces of gold
at an average cost of $1,221 per ounce. The cost per ounce of production
was higher than the targeted feasibility study due to low production
output, transition from development to operations, and various
commissioning costs. Aurizona has a high fixed cost component to its
operations related to employee and camp operating costs. Therefore, the
low gold production output negatively impacts the cost of production per
ounce of gold. With the transition to operations, additional costs such
as training, initial health and safety measures, employee retrenchment
costs, and other various commissioning costs were incurred. In addition,
the strengthening of the Brazilian Real against the US dollar resulted in
higher operating costs over the targeted feasibility production cost.
The full year's operating expense was related to the production of 13,340
ounces of gold.
Q4 general and administrative expense increased from the comparative
quarter in 2009 due to a significant increase in non-cash stock based
compensation expense and costs associated with the recruitment and
replacement of the President and Chief Executive Officer of the Company.
Non-cash stock based compensation accounted for $0.6 million during the
quarter. Full year general and administration expense was higher than the
comparative year due to the increase in corporate activities related to
development and commissioning of the Aurizona operation.
Net interest expense was due to the interest charges on the RMB debt
facility. The increase in net interest expense over the comparative
quarter and year was due to the decrease in the outstanding cash balance,
which earned interest income in the comparative periods, and the drawdown
of the RMB debt facility during the current year.
Exploration expense decreased from the comparative quarter and year due
the Company's policy to capitalize the brownfield exploration costs
related to the Aurizona drill and exploration program. The Aurizona
exploration program is intended to define further resources within the
Aurizona mineral deposit boundaries that can be economically mined and
processed with the target of releasing an updated NI 43-101 compliant
resource estimate in Q4 2011. These costs are capitalized to mineral
properties. However, actual cash expenditure related to exploration
activities of $2.2 million in Q4 and $5.4 million for the full year
increased over the comparative periods, respectively, due to the
commencement of the exploration programs at Aurizona, Cachoeira and
Maranhao Greenfields during the year. For the full year, the Company
spent $2.6 million at Aurizona, $2.0 million at Cachoeira and $0.8
million at Maranhao Greenfields. Exploration activities in 2009 were
limited as all resources were concentrated on the development of the
Aurizona processing plant and facilities.
Foreign exchange gain was the result of positive currency movements for
the Company on its funds held in foreign currencies.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2010, the Company had cash and cash equivalents of $10.7
million and finished gold bullion inventory of approximately 2,664
ounces. The Company's cash balance was denominated in various currencies
(CA$6.7 million, US$2.4 million and BRL 2.6 million).
In Q4, the Company achieved its first positive cash operating quarter
before expenditures on exploration, corporate, interest and working
capital movements. Operations at Aurizona generated $0.6 million of cash
inflow before spending approximately $0.7 million on exploration, $1.4
million on corporate activities and interest. This achievement was the
result of the increased production during the ramp up stage and the
increased gold price. Financing activities included $11.2 million
received on the incentive warrant program as discussed below in the
shareholder's equity section and a payment of $1.7 million on the
Aurizona Project Debt facility. Investing cash flows of $3.7 million were
related to the completion of the Aurizona processing plant and $1.5
million was spent on resource definition and brownfield exploration
activities at Aurizona and capitalized to mineral properties. The
development costs associated with the Aurizona processing plant have
decreased from the comparative quarter as the plant was substantially
completed.
For the year, operating activities included $2.8 million on exploration
activities, $10.1 million on working capital items and $3.8 million on
corporate and interest payments. Working capital outflow was higher than
the previous year due to the transition from development to operations
during the current year resulting in the build-up of inventories and
increase in receivables. Total capital costs spent for the year was
approximately $36.6 million, which consisted of $34.0 million related to
the development of the Aurizona mine and process facility and $2.6 million
on resource definition and brownfield exploration costs at Aurizona.
These expenditures were funded by the drawdown of the $15 million
Aurizona Project Debt Facility, cash balances carried over from the prior
year and partially from the special warrant financing of $30.1 million.
As at December 31, 2010, the Company had the following contractual
obligations outstanding:
At December 31, 2010, the Company had committed to purchase equipment in
the amount of $1.2 million for the Aurizona gold mine.
Aurizona Project
Debt Facility
In December 2009, the Company entered into a senior secured, project debt
facility (the "Facility") in the amount of up to $15.0 million
with RMB Resources Inc. to assist in the completion of the Aurizona
processing plant. The facility is comprised of two tranches in the amount
of $7.5 million each, that each bear interest at LIBOR plus 7.5% and are
to be fully repaid by December 31, 2012. The facility is secured by a
first fixed floating charge over Aurizona, a first mortgage over the
shares of Mineracao Aurizona S.A. ("MASA") and the rights, titles
and licenses associated with Aurizona and a general security agreement
between Luna Gold Corp. and RMB Resources Inc.
The Company shall maintain a Loan Life Net Present Value Cover Ratio
("LLNPVCR") greater than 1.5 over the life of the loan. The LLNPVCR
is defined as the net present value of the project cash flow from the
calculation date to the final repayment date, as determined from the cash
flow model that is agreed upon by the Company and RMB.
Commitment from
Acquisition of Aurizona Goldfields Corporation
In January 2007, the Company acquired the Aurizona property from Brascan
Brasil ("Brascan") and Eldorado Gold Corporation
("Eldorado") in exchange for a series of staged payments (the
"Purchase Agreement"), some of which are conditional upon the
project reaching commercial production, as defined in the Purchase
Agreement. The Company has repaid all outstanding amounts in relation to
this agreement but remained liable for payments of $1.0 million payable
to each party on the first, second and third anniversary of the
commencement of commercial production of Aurizona. As defined under the
terms of the Purchase Agreement, the Company achieved commercial
production on December 2, 2010 resulting in the first payment becoming
due and payable on December 2, 2011.
Gold Purchase
Agreement with Sandstorm Gold Ltd.
In May 2009, the Company entered into a definitive agreement (the
"Sandstorm Gold Purchase Agreement") with Sandstorm Gold Ltd.
("Sandstorm") under which the Company agreed to sell 17% of
future gold production from Aurizona to Sandstorm in exchange for an
upfront cash payment of $17.8 million to fund the construction of the
Aurizona open pit mine and production facility. Additionally, Sandstorm
makes ongoing per-ounce payments equal to the lesser of $400 and the
prevailing spot gold market price. The per ounce price of $400 is subject
to an increase of 1% per annum beginning on the third anniversary of the
date that the Aurizona operation begins commercial production. The
upfront payment of $17.8 million was recorded as deferred revenue, as the
Company designated the Sandstorm Gold Purchase Agreement as an "own
use" or "normal sales" contract.
Sandstorm guaranteed its obligations under the Sandstorm Gold Purchase
Agreement and issued 5,500,000 of common shares to the Company in
consideration for the Company's guarantee of Aurizona's obligations under
the Sandstorm Gold Purchase Agreement. The fair market value of the
shares at the date received was $1,901,680 and was recorded as a deferred
gain.
The Company has provided a completion guarantee under which Sandstorm may
require the return of a portion of the upfront payment if, within 30
months (April 16, 2012) from the date that the upfront payment is
released from escrow, the Aurizona operation has not produced a minimum
of 12,500 ounces of gold over any three consecutive month periods.
If at the end of the Sandstorm Gold Purchase Agreement's term of 40 years
the Company has not delivered enough gold to Sandstorm such that the
upfront payment balance is reduced to nil, the Company will refund
Sandstorm the remainder of the upfront payment balance at that time.
If the Company decides to further develop an underground mine at
Aurizona, Sandstorm will have the right to purchase 17% of the gold from
the underground mine at a per-ounce price equal to the lesser of $500 and
the prevailing market price, subject to an increase of 1% per annum
beginning on the third anniversary from the date that the underground
mine begins commercial production. In exchange, Sandstorm will pay for
17% of the capital expenditures incurred to determine the economic
viability and to construct the underground mine.
Sandstorm has been granted a charge on the assets and undertakings of
MASA under the Sandstorm Gold Purchase Agreement and guarantee. Sandstorm
agreed to subordinate this charge to RMB Resources for project debt
financing (note 10) to assist in the completion of the Aurizona
processing facility.
Commitment with the
Departamento Nacional de Produ��o
In August 2006, an agreement was reached with the DNPM to pay
approximately BRL 2.6 million (approximately US$1.3 million) in mineral
fees owing on exploration licences, which have since expired. Under the
terms of the agreement the fees are to be paid in 59 monthly instalments
and will be adjusted monthly for inflation. The monthly payments include
the principal payment plus simple interest of 1% per month. As at
December 31, the Company's outstanding balance to the DNMP was BRL 0.1
million (approximately US$ 0.1 million). The Company expects to have this
balance fully repaid within the next 6 months.
SHAREHOLDERS' EQUITY
Shareholders' equity increased over the prior year due to the Company's
equity financing activities during the year, which was partially offset
by an increase in the deficit.
As at the date of this report the Company had 436,189,431 shares
outstanding, 16,934,999 share purchase options and 22,606,223 common
share warrants outstanding.
The following is a summary of stock options outstanding as at the date of
this report:
The following is a summary of warrants outstanding as at the date of this
report:
In June 2010, the Company completed a private placement of 58,930,915
special warrants of the Company (the "Special Warrants") for
gross proceeds of $31.3 million. Each Special Warrant was sold at a price
of CA$0.56 per Special Warrant and entitled the holder thereof to receive
one common share of the Company and one-half of one common share purchase
warrant once exercised. In July 2010, the special warrants were converted
resulting in an increase of 58,930,915 common shares of the Company and
29,465,458 common share warrants of the Company. Each common share
warrant entitles the holder thereof to purchase one common share of the
Company at a price of CA$0.80 until June 14, 2011, subject to adjustment
in certain events.
In December 2010, the warrant holders resulted from the June 2010 private
placement exercised 13,718,448 warrants to common shares at a price of
CA$0.80 per common share through an early exercise Warrant Incentive
Program ("Warrant Program"). For each CA$0.80 warrant exercised
in this Warrant Program, the holder of the exercised warrant received one
common share of the Company and one-half of one common share purchase
warrant ("Incentive Warrant"). Each common share warrant
entitles the holder thereof to purchase one common share of the Company
at a price of CA$1.00 until June 2012, subject to adjustment in certain
events. As the result of this transaction, 6,859,221 new Incentive
Warrants were issued.
OUTLOOK AND STRATEGY
Aurizona Gold Mine
The Company expects its 2011 production to be between 55,000 ounces and
60,000 ounces of gold at an estimated cash cost between $610 and $620 per
ounce of production. This is expected to be achieved by completing the
capital upgrades to rectify the identified production constraints in Q1
and then producing gold at feasibility study levels beginning in Q2
onwards.
Cash costs are targeted at levels higher than the feasibility study due
to the strengthening of the Brazilian Real against the US dollar and due
to additional costs associated with the transition from development to
operations in the earlier part of the year. The majority of production
costs at Aurizona are paid in Brazilian Reais.
The Company plans on spending approximately $10.5 million on capital
projects and upgrades at the Aurizona mine in 2011. These items include
$4.4 million to complete the mine construction and $6.1 in sustaining
capital, including $2.5 million allocated for surface rights acquisition.
The Company also expects to increase the resource base at Aurizona
through the Board approved exploration and drill program which is planned
to be completed in Q3 with an updated NI 43-101 resource estimate planned
for release in Q4. The additional drill rigs that were assigned to the
project in Q1 will significantly increase productivity to achieve these
expected targets.
Cachoeira Gold
Property
The Company plans on completing a scoping study (the "Scoping
Study") in Q2 2011 that will deliver the path forward to developing
Cachoeira into a mining project feasibility study. It is planned to
complete the Scoping Study and release the results by Q3 2011.
Maranhao
Greenfields Property
The Company is aggressively exploring the extensive Maranhao Greenfields
property to discover new gold deposits and will maintain exploration
crews working four targets simultaneously throughout 2011. Regional scale
exploration is underway designed to generate large gold-in-soil anomalies
consistent with the Aurizona mineralization style. Through these programs
the Company intends to define between six and eight new target areas
several of which will be brought to drill stage in 2012.
Consolidated Statements of Loss and Comprehensive Income (Loss)
For the years ended December 31,
(expressed in thousands of U.S. dollars, except where indicated)
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Balance Sheets
As at December 31,
(expressed in thousands of U.S. dollars, except where indicated)
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Changes in Shareholders' Equity and Deficit
As at December 31,
(expressed in thousands of U.S. dollars, except where indicated)
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31,
(expressed in thousands of U.S. dollars, except where indicated)
The accompanying notes are an integral part of these consolidated
financial statements.
On behalf of the Board of Directors
LUNA GOLD CORP.
John Blake - President and CEO
Website: www.lunagold.com
For further information contact Investor Relations at (604) 689-7317 or
toll free at 1-866-689-7317.
NEITHER TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS
THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS
RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
Forward Looking Statements
This MD&A includes certain statements that constitute
"forward-looking statements", and "forward-looking
information" within the meaning of applicable securities laws
("forward-looking statements" and "forward-looking
information" are collectively referred to as "forward-looking
statements", unless otherwise stated). These statements appear in a
number of places in this MD&A and include statements regarding our
intent, or the beliefs or current expectations of our officers and
directors. Such forward-looking statements involve known and unknown
risks and uncertainties that may cause our actual results, performance or
achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. When used in this MD&A, words such as "believe",
"anticipate", "estimate", "project",
"intend", "expect", "may",
"will", "plan", "should",
"would", "contemplate", "possible",
"attempts", "seeks" and similar expressions are
intended to identify these forward-looking statements. Forward-looking
statements may relate to the Company's future outlook and anticipated
events or results and may include statements regarding the Company's
future financial position, business strategy, budgets, litigation,
projected costs, financial results, taxes, plans and objectives. We have
based these forward-looking statements largely on our current
expectations and projections about future events and financial trends
affecting the financial condition of our business. These forward-looking
statements were derived utilizing numerous assumptions regarding expected
growth, results of operations, performance and business prospects and
opportunities that could cause our actual results to differ materially
from those in the forward-looking statements. While the Company considers
these assumptions to be reasonable, based on information currently
available, they may prove to be incorrect. Accordingly, you are cautioned
not to put undue reliance on these forward-looking statements.
Forward-looking statements should not be read as a guarantee of future
performance or results. To the extent any forward-looking statements
constitute future-oriented financial information or financial outlooks,
as those terms are defined under applicable Canadian securities laws,
such statements are being provided to describe the current anticipated
potential of the Company and readers are cautioned that these statements
may not be appropriate for any other purpose, including investment
decisions. Forward-looking statements are based on information available
at the time those statements are made and/or management's good faith
belief as of that time with respect to future events, and are subject to
risks and uncertainties that could cause actual performance or results to
differ materially from those expressed in or suggested by the
forward-looking statements. To the extent any forward-looking statements
constitute future-oriented financial information or financial outlooks,
as those terms are defined under applicable Canadian securities laws,
such statements are being provided to describe the current anticipated
potential of the Company and readers are cautioned that these statements
may not be appropriate for any other purpose, including investment
decisions. Forward-looking statements speak only as of the date those statements
are made. Except as required by applicable law, we assume no obligation
to update or to publicly announce the results of any change to any
forward-looking statement contained or incorporated by reference herein
to reflect actual results, future events or developments, changes in
assumptions or changes in other factors affecting the forward-looking
statements. If we update any one or more forward-looking statements, no
inference should be drawn that we will make additional updates with
respect to those or other forward-looking statements. You should not
place undue importance on forward-looking statements and should not rely
upon these statements as of any other date. All forward-looking
statements contained in this MD&A are expressly qualified in their
entirety by this cautionary statement.
Other Technical Information
Titus Haggan Ph.D., EurGeol Certified Professional Geologist #746,,
Luna's VP of Exploration, is the Qualified Person as defined under
National Instrument 43-101 responsible for the scientific and technical
work on the exploration t programs and has reviewed the corresponding
technical disclosure throughout this MD&A. John Blake Ph.D.,
Certified Mining Engineer, Luna's President and CEO is the Qualified
Person as defined under National Instrument 43-101 responsible for the
scientific and technical work on the development programs and has
reviewed the corresponding technical disclosure throughout this MD&A.
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