Luna Gold Reports Operational And Financial Results For The Three And Six Months Ended June 30, 2010
(All figures expressed in US dollars, unless otherwise noted)
Vancouver, August 30, 2010 - Luna Gold Corp. (TSXV-LGC) ("Luna" or the "Company") today announces its results for the three and six months ended June 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.
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 operations and gold production commenced from the CIL circuit in July.
- Aurizona gold production for Q2 was approximately 1,200 ounces. Subsequent to quarter end, production for the month of July was approximately 600 ounces of gold and the month of August achieved approximately 1,800 ounces of gold, as commissioning continues and production ramps up.
- The Company achieved its first shipment and sale of gold bullion in Q2.
- Board of Directors approved a large exploration program and budget for the Aurizona Main and Regional projects and commenced a 20,000 metre dill program at Aurizona Main.
OUTLOOK
- Cachoeira NI 43-101 technical report and resource estimate now targeted for release in Q4 2010 due to expanded work programs.
- 69kV power line completed. Expecting Cemar, the State power utility, to commission and energize the line to full operational status by Q4 2010. The commissioning of this power line will allow the Company to significantly reduce its current power costs.
- Aurizona gold production levels targeted to achieve feasibility study level in Q4 2010.
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 construction phase of the Aurizona gold mine was completed during the quarter with the transition from the project team to the operational team. The processing plant is now completing commissioning with gold production being achieved from both the CIL and the gravity circuits.
Mining operations commenced in December 2009 and approximately 648,000 tonnes of ore at an approximate average grade of 1.15 grams of gold per tonne had been mined up to June 30, 2010. The total mined volumes were above plan due to the low amount of precipitation during this past rain season, which resulted in more efficient mining conditions. In July, 2010, SRK Consulting, Denver, carried out an independent check of the ore and waste mined up to that time, which showed a close reconciliation with the resource block model. The average ore grade mined from the ore blocks was 3.5% higher than the average grade in the feasibility study model, for the same tonnage in each case. Insufficient tonnage has been mined so far to warrant the assumption that this higher grade factor will persist in the future.
Gold production from the gravity circuit was achieved during Q2 with approximately 1,200 ounces of gold bullion produced. The CIL circuit was commissioned late in Q2 and the Company began feeding ore to the plant in July. Approximately 600 ounces of gold bullion were produced in July and approximately 1,800 ounces were produced in August. In addition, there was an estimated 2,000 ounces of gold locked up in the plant as at August 27th, in the form of gold on carbon or within the mills. During the last two weeks of August, the plant achieved a daily average milling rate of 5,000 run-of-mine ("ROM") tonnes of ore per day at an average mining grade of 1.24 grams per tonne. This milling rate was approximately 8% above the feasibility study rate. The operational team continues to ramp up gold production during the commissioning phase and has also engaged the services of a mining consulting group to assist in the review of the plant and processes with the goal of optimizing long-term production output.
The 69kV power line is now expected to become operational early in Q4. Construction of the 69kV power line and substation was completed by Aurizona. The Company is now waiting on Cemar, the State power utility, to commission and energize the line.
A summary of the recent milestones at the Aurizona gold mine include:
- The CIL plant and ancillary facilities were completed and transitioned to operations with process commissioning continuing.
- Commissioning of the gold process plant gravity circuit was completed in May.
- Gravity circuit gold production was achieved for the first time in April with approximately 1,200 ounces of gold bullion produced during the quarter.
- CIL circuit gold production was achieved for the first time, subsequent to the quarter end in July.
- The Company's first gold shipment and sale was completed in June resulting in the sale of 739 ounces of gold bullion. The Company sold 613 ounces at an average realized price of $1,210 per ounce and the remaining sales were to Sandstorm Resources at $400 per ounce as per the Sandstorm Gold Purchase Agreement.
Outlook on the Aurizona gold mine include:
- Process commissioning of the CIL circuit expected to be completed with feasibility study gold production levels targeted to be achieved in Q4.
- Full operation of the 69kV power line expected in Q4
There were no significant changes to the total project cost from the previous disclosure in Q1 2010.
Aurizona Main Exploration
The Company's exploration team has made solid progress in defining additional targets within the Aurizona Main area. The program is currently focused on identifying further targets via soil gridding and shallow auger drill.
10 gold targets have been defined by surface geochemical surveys and geologic mapping. All gold targets defined to date are spatially associated with major magnetic lineaments consistent with the orogenic gold deposit model of the Piaba and Tatajuba deposits. Surface geochemical surveys are ongoing in the area and soil samples from the Pirocaua-Micote grid, located to the east of the Piaba deposit and the Mucuna grid, located to the north of the Tatajuba deposit have been collected and are currently at the assay lab. Soil gridding is currently underway at the South Grid.
A detailed auger drill program was completed in the area between the Piaba and Tatajuba deposits, though assay data have not yet been received. Auger drilling has also commenced at the Ferradura target. On completion of this program the auger drill teams will commence drilling at the Concei��o and Tatajuba West targets.
The Aurizona drill contract has been awarded to Geosol, a private Brazilian drilling company. The 20,000 metre drill program commenced at the end of August and will drill extensions of the Piaba deposit in addition to drill programs at the Tatajuba deposit and near mine exploration targets in the Aurizona Main area. Drilling is currently focused on infilling over a 3 kilometre length at the Piaba deposit to further define measured and indicated resources.
The process of converting the Tatajuba exploration licence, which hosts the Tatajuba deposit, is ongoing.
Aurizona Regional
Soil sampling was completed at the Nova Vida target and assay data has been received with encouraging initial results. Regional field crews are currently mapping and sampling the Areal target and this program will be completed in the next quarter. On completion, the teams will initiate evaluation of other priority targets in the Aurizona Regional district.
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. In addition to work programs at the Tucano target, a decision was taken to evaluate the Arara and Coruja targets to determine their suitability for inclusion in the NI 43-101 technical report and resource estimate. Work programs were significantly accelerated in the second quarter of 2010 and as of August 27 the following programs were completed:
Tucano Target
- Completion of a 2,241 meter auger drill program
- Completion of an extensive underground channel sampling program;
- Detailed geologic interpretation
Arara Target
- Completion of a 1,293 meter auger drill program
- Completion of an extensive outcrop channel sampling program
Coruja Target
- Extensive outcrop channel sampling program initiated
- Extensive auger drill program initiated
- Infill surveying completed
Work programs for the coming months include:
- Finalization of the Coruja outcrop channel sampling program
- Finalization of the Coruja auger drill program
- Compilation of three dimensional geologic models and wireframes for the Tucano, Arara and Coruja targets;
- Finalization of NI 43-101 compliant resource and technical report;
- Follow-up on new soil geochemical targets.
The NI 43-101 compliant resource estimate report is expected to be completed in Q4 2010.
At June 30, 2010, the Company had incurred accumulated exploration expenditures of BRL 5.0 million (December 31, 2009 -- BRL 4.2 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 June 30, 2010, the Company had cash and cash equivalents of $26.4 million expressed in US dollars at the June 30 prevailing exchange rates. The Company's cash balance consisted of CA$16.8 million, US$6.9 million and BRL 6.5 million.
On May 25, 2010, the Company announced its intention to proceed with a non-brokered private placement financing. The purpose of the financing was to raise funds to advance the Company's exploration programs at the Aurizona Main and Regional targets, to complete a NI 43-101 compliant resource estimate at the Cachoeira property and to provide additional working capital at the Aurizona gold operation. On June 14, 2010, the Company closed its non-brokered private placement financing for net proceeds of $30.1 million and the receipt for the final prospectus was received shortly after the closing.
In the first quarter, the Company fully drew down both tranches of the project finance facility for net proceeds of approximately $13.5 million (refer to Aurizona Project Debt Facility section). The Company also sold its shares in Sandstorm for approximately $3.0 million to a related party at the prevailing market rate in a transaction on the TSX Venture exchange which was unanimously approved by the Board of Directors.
In the second quarter, the Company spent $8.8 million on the development of the Aurizona gold mine process facility and $3.4 million on inventory with $1.3 million spent on the ore inventory stockpile and $2.1 million on finished gold and work-in-process gold inventory. Operational cash outflows amounted to $1.7 million for the quarter.
For the first six months of the year, the Company has spent a total of $27.4 million on the Aurizona gold mine and process facility and $4.6 million on inventory related items. Operating cash inflows for the year amounted to $0.7 million, but included cash receipts on the sale of the Sandstorm shares.
For the remainder of the year, the Company plans on investing approximately $5.0 million on exploration at the Aurizona Main and Regional targets and $1.0 million on the Cachoeira property.
As at June 30, 2010, the Company had the following contractual obligations outstanding:
At June 30, 2010, the Company had no commitments to purchase equipment for the Aurizona gold mine as the project was substantially completed.
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 $37.4 million at June 30, 2010. The Company's ability to continue as a going concern may be dependent upon raising additional capital or evaluating strategic alternatives.
Actions taken by the Company during the period ended June 30, 2010 were to apply cost-cutting measures and obtain additional financing. During the period ended June 30, 2010, the Company raised $15 million through a project debt facility and $30.1 million 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.
During the quarter, the Company accepted a term sheet for a senior secured short term project debt facility which is an extension to the existing senior secured project debt facility with RMB Resources for an additional tranche up to $10 million to assist in the completion of the Aurizona Project which was available upon closing. Subsequent to the acceptance of this term sheet, the Company decided to pursue a non-brokered private placement and made a decision to not complete this debt facility extension.
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 June 30, 2010, the $15.0 million was fully drawn. Accumulated financing fee paid was $1.5 million.
The Company shall maintain a 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 June 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 June 30, the Company's outstanding balance to the DNMP was BRL 0.6 million (approximately US$0.4 million). The Company expects to have this balance fully repaid within the next 12 months.
SUMMARY OF QUARTERLY RESULTS
The Company completed its first shipment and sale of gold in the current quarter as a result of the gold produced from the gravity circuit. Operating costs consisted of ore and processing costs, mine administration, depletion expense and accretion expense. As the operation is in the commissioning phase, the operating cost per ounce sold was significantly higher than what is expected once production achieves its steady state of production at feasibility study levels.
Interest income decreased significantly from the comparative and previous quarter as the Company depleted its cash resources to develop the Aurizona mine and processing facilities throughout the previous periods. There was also interest expense incurred from suppliers due to postponed payments.
General and administrative expense increased from the comparative quarter in 2009. Excluding the non cash expense of $431.2 of stock based compensation, the general and administrative expense were reasonably consistent with the comparative quarter. There was a slight increase when compared to prior quarters due to a work fee of $75.0 related to the RMB debt financing extension that was obtained and cancelled during the quarter.
Exploration expense increased significantly in the current quarter as the Company's Board of Directors approved 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 due to the Company's comprehensive loss for the year.
As at the date of this report the Company had 418,251,486 shares outstanding, 14,095,000 share purchase options and 29,465,458 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.
As at June 30, 2010, the net proceeds of $30.1 million from this private placement were recorded as contributed surplus until the Special Warrants converted into common shares and common share purchase warrants. Subsequent to the quarter end, 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.
Luna Gold Corp.
Interim Consolidated Statements of Loss and Comprehensive Loss
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(expressed in thousands of U.S. dollars, except where indicated)
Luna Gold Corp.
Interim Consolidated Balance Sheets
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Luna Gold Corp.
Interim Consolidated Statements of Changes in Shareholders' Equity and Deficit
(Unaudited)
(expressed in thousands of U.S. dollars, except where indicated)
Luna Gold Corp.
Interim Consolidated Statements of Cash Flows
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