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| News Release |
Tuesday, November 09, 2010 |
Luna Gold Reports Operational And Financial Results For The Three And Nine Months Ended September 30, 2010
(All figures expressed in US dollars, unless otherwise noted)
Vancouver, November 9, 2010 - Luna Gold Corp. (TSXV-LGC) ("Luna" or the "Company") today announces its results for the three and nine months ended September 30, 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
Luna Gold Corp. (the "Company") is a publicly listed company on the TSX Venture Exchange trading under the symbol LGC. The Company is actively engaged in the operation, exploration, acquisition and development of gold properties in Brazil. The Company currently has two gold properties located in northeast Brazil.
The Company's material gold property, Aurizona, is located in the state of Maranhao and totals approximately 80,000 hectares of land divided into two main areas, Aurizona Main and Aurizona Regional.
Aurizona Main ("Aurizona Main") contains the Piaba and Tatajuba deposits and over 10 other near mine exploration targets, which collectively form a gold camp. It covers approximately 20,000 hectares of land and includes a mining license and exploration permit. The Aurizona Operation consists of an open pit mine operation (Piaba deposit) and gold process plant, which is currently being commissioned.
Aurizona Regional ("Aurizona Regional") represents the Company's extensive regional landholdings, which consists of over 60,000 hectares of exploration licenses surrounding the Aurizona Main area. There are over 50 hard rock (primary) gold garimpos located within the Aurizona Regional permits.
The Company's other gold property, Cachoeira ("Cachoeira"), is located in the state of Para and is an advanced gold exploration project. Cachoeira consists of a multiple of mineralized zones, which include isolated quartz vein systems, hydrothermally altered host rocks and stockworks within a north-south trending shear zone.
The Company's near term focus is to:
- Complete commissioning of the Aurizona Operation and ramp up gold production to feasibility study levels;
- Invest into Aurizona exploration programs with the goal of delivering a significant increase in the Company's resource base at the Piaba and Tatajuba gold deposits and test the near mine exploration targets with the objective of defining resources close to the Aurizona gold process plant;
- Finalize a maiden NI 43-101 resource and technical report on the Cachoeira gold property.
The Company's longer term focus is to:
- Increase the Aurizona gold production output at the Piaba plant above feasibility study levels through plant expansion, identification of additional or new mineable ore reserves near the plant to replace production and sustain a long term mine life at higher production levels;
- Identify new gold resources through the exploration of the Aurizona Regional project and through business development programs;
- Develop Cachoeira as an organic growth pipeline project in Luna Gold.
2010 YEAR TO DATE HIGHLIGHTS
- The Company raised net proceeds of $30.1 million through a non-brokered private placement financing in Q2.
- Gravity gold circuit commissioning completed and gold production commenced in Q2.
- Carbon-in-leach ("CIL") plant transitioned from construction to wet commissioning with limited gold production from the CIL circuit in July and onwards.
- Aurizona gold production for Q3 was approximately 4,800 ounces.
- The Company entered an agreement with JDS Mining and Energy in August to identify and improve processing and mechanical component issues at the Aurizona Gold mine to achieve feasibility production levels.
- The Board of Directors approved a large exploration program and budget for the Aurizona Main and Regional projects and commenced a 20,000 metre drill program at Aurizona Main.
- On September 2nd, the Company defined 10 exploration targets at Aurizona Main. All targets defined to date are located within 5 kilometers radius of the Aurizona gold process plant. They will all be advanced to drill stage with the objective of delineating additional gold resources within trucking distance of the plant.
- On October 27th, the Company reported high-grade gold intersections from auger drilling and channel sampling at Cachoeira.
- On October 30th, 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 its current power costs.
- Appointment of an experienced operational President and Chief Executive Officer on September 24, 2010. The new CEO, John Blake brings significant Gold Mining operational experience to Luna Gold in the transition from a developing company to an operational gold producing company. On November 24th, Jim Bahan will resign from the Company's Board of Directors.
OUTLOOK
- Cachoeira NI 43-101 technical report and resource estimate is targeted for release in December 2010.
- Drilling results from exploration program are expected in Q4 relating to both Cachoeira and Aurizona Main.
- Aurizona gold production targeted to declare commercial production at feasibility production levels in Q1 2011.
AURIZONA GOLD MINE - MARANHAO STATE, BRAZIL
The Aurizona gold mine ("Aurizona") 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. The Aurizona Main Operation (the "Operation") area contains the Piaba and Tatajuba deposits and over 10 other targets, which collectively form a gold camp. The area is covered by a mining licence and one exploration permit on the Tatajuba deposit. A positive exploration report has been submitted to the mines department for the exploration permit as part of the process to obtain a mining licence for that area.
Development of the Aurizona gold mine
The commissioning phase of the Aurizona gold mine continued in the quarter with typical start productivity issues compounded by mechanical challenges. As previously advised in the Q2 results the Company engaged a consulting engineering company to complete a review of the mine and processing plant. This is complete and the engineering company has identified all impediments to delivering feasibility production and delivered a work plan schedule to address the mining, processing and mechanical start-up impediments to deliver feasibility level production in Q1 2011.
Company focus for Q4 2010 are SAG and Ball rotation speed changes that currently reduce capacity to achieve optimum grind size and solution densities, with resulting low Gold recoveries. In addition installation of a carbon column and carbon reactivation kiln and other minor process changes that will add significant processing improvements. Deliveries of mechanical parts for the plant have been delayed by competition with other mining projects in Brazil for mechanical services and equipment extending delivery times.
Our operational team assisted by JDS Mining and Energy has made significant progress during the quarter to address these issues and position the company to declare commercial production in Q1 2011 providing future growth potential to the Company.
The total expected cash cost of the Aurizona project is now forecasted at approximately $67 million.
Table of production
Mining production
Ore mined for the quarter was 363,323 tonnes at an average head grade of 1.07 g/t and a waste strip ratio of 0.8. Gold grade and waste production are lower than the targeted feasibility levels. With the lack of rain during the wet season, mining operations concentrated on increasing the ore inventory stockpile in anticipation of the upcoming rain season that begins at the end of the year.
Since the end of the quarter, the Company has revised the ore mining process and has increased the focus on grade control with the introduction of surface trench sampling in addition to the Reverse Circulation (RC) drilling to improve grade estimation, identification and dilution control. Run of mine (ROM) stockpiles will be progressively sampled and recalculated to complete a grade reconciliation of mined and stockpiles ore.
Mill Processing
The mill processed 279,654 tonnes of ore during the quarter at an average head grade of 0.90 g/t producing 4,774 ounces of gold realizing an average recovery rate of 60%. The mill has demonstrated feasibility levels of production exceeding tonnages in mill throughput, however grade and recoveries are below the plant design and feasibility levels. The SAG and Ball mill and other processing issues discussed above contributed to the lower than anticipated recoveries.
The variance in recoveries against the feasibility study rate would contribute approximately 2,400 ounces of production and the variance in mill head grade against the feasibility study rate would contribute approximately 3,400 ounces. The Company's management team are focused on these issues in Q4 with the target to deliver feasibility production levels in Q1 2011.
Aurizona Main Exploration
The Company's exploration teams significantly advanced exploration in the Aurizona Main area in the quarter as summarized below.
Soil Surveys
Completion of the Pirocaua-Micote soil grid and field mapping programs resulting in the definition of several new contiguous gold-in-soil anomalies located to the east of the Piaba deposit along the Aurizona Shear Zone.
Completion of the Mucuna soil grid and field mapping programs located to the north of the Tatajuba deposit. This program did not identify significant gold mineralization in this area.
Significant progress was made at the South Grid which is designed to identify sub-parallel gold mineralized trends to the south of the main area of gold mineralization at Aurizona Main. This grid will be completed in the third week of November.
Line cutting commenced at the LDW target located in the extreme western portion of the Aurizona Main area. Soil sampling will commence in this area in November. Program objectives are to identify new zones of mineralization within the far western extension of the Aurizona Shear Zone which hosts the Piaba and Tatajuba deposits.
Auger Drilling
Assay data were received for the auger drill program at the Boa Esperan�a target. This program defined a continuous zone of gold mineralization exceeding 500 metres in strike and 100 metres in width. Significant results are shown in Table 1.
Table 1. Top 10 mineralized intervals, Boa Esperan�a target. All holes are vertical. True widths to be established.
Assay data were also received for the area between the Piaba and Tatajuba deposits. Weak zones of mineralization were intersected and these data are being evaluated.
Auger drill programs were completed at the Ferradura and Concei��o exploration targets and samples are currently at the assay lab. Auger drill teams are currently drilling gold-in-soil anomalies located to the west of the Tatajuba deposit (Tatajuba West) along the Aurizona Shear Zone.
Trenching
Mechanized trenching commenced at the Boa Esperan�a target. A total of eight trenches have been sited orthogonal to the Boa Esperan�a mineralized trend. Five trenches have been opened and sampling and mapping has commenced. This is the final exploration program at Boa Esperan�a prior to Diamond drilling.
Ground Geophysics
The Company purchased three ground magnetometer units and set-up an in house geophysical team in the quarter. Geophysical surveys have been completed at the Boa Esperan�a target and teams are currently collecting data from the Concei��o and Ferradura targets. These programs are providing excellent quality geophysical data at low cost which is being used in drill planning.
Diamond Drilling
Diamond drilling commenced at the end of August and the Company currently has four Diamond drills operating at the Piaba deposit. Seven drill holes have been completed and samples are currently en route to the assay lab. A fifth rig is scheduled to arrive in the third week of November to accelerate the program. Drilling is presently focused on infilling over a 3 kilometre length at the Piaba deposit to further define measured and indicated resources.
Permitting
The process of converting the Tatajuba exploration licence, which hosts the Tatajuba deposit, is ongoing.
Aurizona Regional
Soil Surveys
Soil sampling and field mapping continued at the Areal target, which is 70% complete, will be finalized by the end November. Soil sampling commenced at the JST and PC grids, both designed to identify new zones of gold mineralization associated with favourable magnetic lineaments and historic gold workings. The Company is aggressively exploring in the Aurizona Regional project areas to collect as much field data prior to the onset of the wet season.
CACHOEIRA GOLD PROPERTY - PARA STATE, BRAZIL
The Cachoeira property is located in Para State in north eastern Brazil. The project is located approximately 80 kilometres from the Atlantic coast and 100 kilometres southwest of the Aurizona gold project.
The property is made up of three mining permits and two exploration permits. Cachoeira consists of tens of mineralized zones, which include isolated quartz vein systems, hydrothermally altered host rocks, and stockworks distributed along an area of approximately 3.5 kilometres by 1.5 kilometres. Drilling to date has intersected high-grade, mineralized structures and wider zones of lower-grade gold mineralization.
The Company has made solid progress at Cachoeira during the quarter and all field programs required for the NI 43-101 resource estimate and technical report were finalized. Work completed in the quarter includes:
Tucano Target
Assay data received for a 2,241 meter auger drill program which defined significant surface oxide mineralization including the following drill holes:
- 15.00 meters @ 5.91 g/t Au in auger hole TX0094
- 15.00 meters @ 3.37 g/t Au in auger hole TX0154
- 15.00 meters @ 2.53 g/t Au in auger hole TX0134
Assay data received for a 1,077 meter outcrop channel sampling program which defined wide zones of gold mineralization including:
- 15.03 meters @ 3.53 g/t Au including 4.01 meters @ 6.40 g/t Au in channel OC-29
- 10.98 meters @ 3.11 g/t Au in channel OC-29A
- 18.02 meters @ 2.80 g/t Au including 9.00 meters @ 4.98 g/t Au in channel OC-35
Assay data received for a 360 meter underground channel sampling program which defined high-grade quartz vein sets including:
- 6.85 meters @ 63.62 g/t Au in channel B L-50_4
- 16.59 meters @ 31.06 g/t Au in channel B L-60_2
- 15.70 meters @ 31.44 g/t Au in channel B L-69_2
Arara Target
Partial assay data were received for a 1,293 meter auger drill program and partial assay data received for an outcrop channel sampling program. Data is under interpretation.
Coruja Target
An extensive outcrop channel sampling program exceeding 800 meters was completed on all available outcrops and partial assay data were received. An extensive auger drill program was completed and partial assay data received.
Cachoeira Regional
An auger drill grid commenced in September to test a new regional target called Sovi. Sovi is a gold-in-soil anomaly measuring 700X200 meters and averaging 0.182 g/t Au. The auger drill program will determine the existence of near surface gold mineralization at this target.
The NI 43-101 compliant resource estimate report is expected to be completed in December, 2010.
At September 30, 2010, the Company had incurred accumulated exploration expenditures of BRL 6.24 million (September, 2009 - BRL 4.07 million) as part of the Company's agreement with the vendors to incur exploration expenditures of BRL 9.5 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2010, the Company had cash and cash equivalents of $7.6 million and finished gold bullion inventory of approximately 3,800 ounces. The Company's cash balance was denominated in various currencies (CA$4.5 million, US$1.0 million and BRL 3.4 million).
During the quarter, the Company spent approximately $15.1 million on operating activities, including approximately $2.0 million on exploration activities. This was the first quarter of production since achieving the commissioning phase of the Aurizona gold mine resulting in a significant increase in operating cash expenditure compared to previous quarters. The Company also spent approximately $3.7 million on capital costs related to the Aurizona processing facility.
For the nine month period, the Company spent approximately $22.0 million on operating activities including $3.2 million on exploration activities. Total capital costs spent for this period was approximately $30.4 million all related to the Aurizona mine and process facility. 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 $29.8 million, net received during the period.
The Company expects to generate adequate cash inflow from the production and sale of gold bullion to cover its near term operational commitments. In addition, the Company is currently assessing an offer of a short term prepaid gold facility from RMB Resources Inc. if the Company shall choose to accept it.
For the remainder of the year, the Company plans on spending approximately $5.0 million on further capital improvements to the Aurizona mine and $3.0 million on exploration. The Company's first debt repayment on the Aurizona Project Debt Facility is due on December 31, 2010 in the amount of $1.9 million.
As at September 30, 2010, the Company had the following contractual obligations outstanding:
At September 30, 2010, the Company had committed to purchase equipment in the amount of $0.4 million for the Aurizona gold mine.
Going concern
These interim consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern which assumes that the Company will be able to continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business.
Several adverse conditions cast significant doubt on the validity of this assumption. The Company has incurred significant operating losses over the past several fiscal years, is currently unable to self-finance operations and has a deficit of $45.5 million at September 30, 2010. The Company's ability to continue as a going concern may be dependent upon raising additional capital or evaluating strategic alternatives. The Company has no assurance that such actions will be successful or that financing will be available or be available on favourable terms.
Actions taken by the Company during the nine month period ended September 30, 2010 were to initiate plant improvements to increase gold production, apply cost-cutting measures and obtain additional financing. During the period ended September 30, 2010, the Company raised $15 million through a project debt facility and $29.8 million, net through a non-brokered equity financing. These interim financial statements do not reflect adjustments that would be necessary if the going concern assumption were not appropriate. If the going concern assumption were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used. Such adjustments could be material.
Aurizona Project Debt Facility
In December 2009, the Company entered into a two-tranche, 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 development of the Aurizona Project. Both tranches are in the amount of $7.5 million, bear interest at LIBOR plus 7.5% and are to be fully repaid by December 31, 2012. Both tranches were fully drawn down during the quarter.
The facility is secured by a first fixed floating charge over the Aurizona Project, a first mortgage over the shares of Mineracao Aurizona S.A. ("MASA") and of the right's, titles and licenses associated with the project and a general security agreement by Luna Gold Corp. in favour of RMB Resources Inc.
As at September 30, 2010, the $15.0 million was fully drawn. Accumulated financing fee paid was $1.5 million.
The Company shall maintain a Loan Life Net Present Value Cover Ratio ("LLNPVCR") which is greater than 1.5. 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.
The ratio will be calculated for each quarterly period beginning with the quarter ending on the date of the first scheduled principal payment (December 31, 2010) under the facility.
Commitment from Acquisition of Aurizona Goldfields Corporation
In January 2007, the Company acquired the Aurizona Main property from Brascan Brasil ("Brascan") and Eldorado Gold Corporation ("Eldorado") in exchange for a series of staged payments, some of which are conditional upon the project reaching commercial production. The Company has repaid all outstanding amounts in relation to this agreement but remained liable for contingent payments of $1.0 million payable to each party on the first, second and third anniversary of the commencement of commercial production of Aurizona. The Company believes it is more likely than not that commercial production will be achieved; therefore, it has recorded these payments as outstanding debt as at September 30, 2010.
Commitment with the Departamento Nacional de Produ��o ("DNPM")
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 September 30, the Company's outstanding balance to the DNMP was BRL 0.3 million (approximately US$0.2 million). The Company expects to have this balance fully repaid within the next 12 months.
Sandstorm Resources Gold Purchase Agreement
In May 2009, the Company entered into a definitive agreement with Sandstorm Resources Ltd. ("Sandstorm") under which the Company agreed to sell 17% of future gold production from the Aurizona Project to Sandstorm in exchange for an upfront cash payment of $17.8 million. Additionally, Sandstorm will make 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 Project begins commercial production.
SUMMARY OF QUARTERLY RESULTS
(1) General and administration consists of general and administrative expenses, professional fees and stock based compensation expense.
The Company sold 1,462 ounces of gold bullion during the quarter compared to 739 ounces in the prior quarter. Of the 1,462 ounces of gold bullion sold, 1,205 ounces was sold at an average realized gold price of $1,228 per ounce and 257 ounces were delivered to Sandstorm Resources at $400 per ounce as per the Sandstorm Gold Purchase Agreement.
Operating costs represent the production costs associated with the gold ounces sold during the quarter. Overall, production costs remained higher than the target per the updated NI 43-101 Compliant Technical Report, which was released on September 3, 2010, as the Company remained in the commissioning phase and was still completing the 69kV power line. This resulted in higher power costs associated with the reliance on diesel generators and higher payroll and camp costs due to the transition from construction to operations. In addition, the low gold production rate related to the operational ramp up resulted in a much higher cost per ounce produced. Included in operating expense was a re-evaluation of finished gold inventory of $1.9 million to value this inventory at the lower of cost or market price.
Interest income decreased from the comparative and previous quarter as the Company due to a lower average cash balance in the quarter as funds were used to develop the Aurizona mine and processing facilities.
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 executive management changes, which was also a contributing factor in the increase over the prior quarter.
Exploration expense increased in the current quarter as the Company began a new exploration program on the Aurizona Main, Aurizona Regional and Cachoeira Project's resulting in the increased expenditure.
Foreign exchange gain was insignificant in the current quarter as the Brazilian, Canadian and United States currency remained consistent between the current and previous quarter.
SHAREHOLDERS' EQUITY
Shareholders' equity decreased from the previous quarter due to the Company's comprehensive loss for the year.
As at the date of this report the Company had 418,504,314 shares outstanding, 20,601,669 share purchase options and 29,465,450 share purchase warrants outstanding. The following is a summary of stock options outstanding as at the date of this report:
On June 14, 2010, the Company completed a non-brokered 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. Each common share purchase warrant entitled 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.
During the quarter, the Company obtained the receipt of the final prospectus and 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.
You can also view this News Release on our website at:
http://www.lunagold.com/s/NewsReleases.asp?ReportID=427421
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