Luna Gold Corp. Reports Operational And Financial Results For The Three Months And Year Ended December 31, 2010
23.03.2011 | CNW
(expressed in United States dollars, unless otherwise noted)VANCOUVER, March 23 /CNW/ - 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 Maranhão 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
Q1 Q2 Q3 Oct Nov Dec Total
Mined Waste - 110,269 278,670 299,396 121,840 220,403 236,769 1,453,762
tonnes
Mined Ore - 347,946 276,011 371,931 145,784 160,480 151,609 1,267,347
tonnes
Grade - g/t 1.25 0.97 1.13 1.25 1.10 1.10 1.14
Milled tonnes - 138,960 279,654 100,225 107,082 121,428 747,349
Mill Head - 1.58 0.90 0.90 1.26 1.36 1.15
Grade - g/t
Recovery % - 17 60 69 77 84 59
Gold - 1,218 4,774 1,990 3,337 4,440 15,759
Production
(oz)
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 Esperança 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 Esperança target. Six trenches intersected mineralization and collectively define two mineralized zones, called Boa Esperança East (BEE) and Boa Esperança 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 Esperança 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:
AU (G/T)
SECTION TRENCH ID AZI LENGTH (M) FROM (M) TO (M) INT (M) UNCAPPED
200E BE-TR-200E 157 155.01 67.83 77.83 10.00 0.49
100E BE-TR-100E 157 186.60 60.88 126.70 65.82 1.15
INCLUDING 87.91 89.91 2.00 3.07
INCLUDING 105.85 109.75 3.90 3.30
000 BE-TR-000 157 164.88 61.16 142.66 81.50 1.18
INCLUDING 65.24 67.25 2.01 7.61
73.20 75.24 2.04 9.15
87.26 92.36 5.10 3.15
100W BE-TR-100W 157 114.16 58.90 89.04 30.14 0.78
91.92 103.17 11.25 0.56
105.97 114.16 8.19 0.40
NO
SIGNIFICANT
200W BE-TR-200W 157 76.61 INTERCEPTS
400W BE-TR-400W 157 149.02 23.00 41.02 18.02 0.99
INCLUDING 32.02 33.01 0.99 5.46
600W BE-TR-600W 157 160.24 20.13 21.14 1.01 6.78
30.04 99.38 69.35 0.74
INCLUDING 63.13 67.14 4.01 1.52
INCLUDING 79.15 83.18 4.03 2.58
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 Pará State capital of Belém and about 270 km northwest of the port city of São Luis, Maranhão 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:
Cachoeira Mineral Resources - December 22, 2010
Classification Location Tonnes (000\'s) Grade (g/t) Au) Ounces (000\'s)
Indicated Tucano 10,077 1.14 371
Arara 2,104 0.92 62
Coruja 352 1.16 13
Total Indicated 12,533 1.11 446
Inferred Tucano 5,344 1.28 219.1
Arara 38 0.72 0.9
Coruja 47 0.90 1.3
Total Inferred 5,429 1.27 221.3
Notes:
- CIM definition standards were followed for Mineral Resources.
- The Qualified Person for this Mineral Resource estimate is Patti Nakai-Lajoie, P.Geo.
- 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.
- 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.
- The Arara database consists of 64 diamond drill holes, 101 auger drill holes, and 8 surface channels.
- 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.
- High assays were capped at 30 g/t Au at Tucano and 10 g/t Au at Arara and Coruja.
- Tucano, Arara and Coruja block dimensions: 10 m E x 10 m N x 5 m high.
- Mineral Resources are estimated using a gold price of US$1,238 per ounce.
- 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.
- Numbers may not add due to rounding.
- 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 São 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 São Luis Craton in close proximity to the Birimian Gold Belt of West Africa. Strong geologic and structural similarities exist between the São 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 Maranhão Greenfields.
SUMMARY OF OPERATING RESULTS
(tabled amounts are expressed in 2010 2009 2008
thousands of US dollars)
$ $ $
Revenue 16,106.5 - -
Operating expense (21,891.9) - -
Depreciation, amortization and (2,322.2) - -
accretion
(8,107.6) - -
General & administration (1) (5,154.1) (2,631.6) (3,030.0)
Exploration expense (2,788.8) (3,234.7) (12,358.4)
Interest, net (677.9) 1,593.8 138.3
Foreign exchange gains and other 847.6 2,155.6 (1,025.6)
Net (loss) income (15,880.8) (2,116.9) (16,275.7)
Basic (loss) income per share (0.04) (0.01) (0.26)
Diluted (loss) income per share (0.04) (0.01) (0.26)
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.
(tabled amounts are expressed in thousands of US dollars)
Q4 2010 Q3 2010 Q2 2010 Q1 2010
Revenue 13,656.7 1,620.3 829.5 -
Operating expense (13,922.3) (5.576.2) (2,393.4) -
Depreciation, amortization and (1,832.0) (351.4) (92.9) (45.9)
accretion
(2,097.6) (4,307.3) (1,656.8) (45.9)
General & administration (1) (1,497.2) (1,563.1) (1,076.5) (999.6)
Exploration expense (665.4) (1,334.5) (725.7) (63.2)
Interest, net (442.2) (279.8) (32.6) 76.7
Foreign exchange and other 537.4 (9) 296.9 4.6
Net loss (4,165.0) (7,493.7) (3,194.7) (1,027.4)
Basic loss income per share (0.02) (0.02) (0.01) (0.00)
Diluted loss income per share (0.02) (0.02) (0.01) (0.00)
(tabled amounts are expressed in thousands of US dollars)
Q4 2009 Q3 2009 Q2 2009 Q1 2009
Revenue - - - -
Operating expense - - - -
Depreciation, amortization and - - - -
accretion
- - - -
General & administration (1) (813.4) (704.1) (722.8) (391.1)
Exploration expense (576.1) (1,249.5) (684.9) (724.2)
Interest, net 977.4 277.6 201.7 33.2
Foreign exchange and other (891.2) 1,593.0 1,634.8 (77.2)
Net loss (1,303.3) (83.0) 428.8 (1,159.3)
Basic loss income per share (0.00) (0.00) 0.00 (0.01)
Diluted loss income per share (0.00) (0.00) 0.00 (0.01)
(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
(tabled amounts are expressed Three months ended, Year ended,
in thousands of US dollars) December 31 December 31
2010 2009 2010 2009
Cash flows from operating
activities
- Before working (2,576.1) (55.4) (12,307.7) (3,318.5)
capital
- After working capital (1,532.6) (1,427.2) (22,403.9) (6,437.2)
Cash flows from financing 9,514.6 2,707.9 53,546.3 45,568.6
activities
Cash flows from investing (5,156.4) 404.3 (33,647.7) (30,654.7)
activities
Effect of exchange rates on 310.8 (317.0) 643.4 3,732.9
cash
Net cash flows 2,825.6 1,312.6 (2,505.3) 8,746.7
Cash balance 10,703.6 12,565.5 10,703.6 12,565.5
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:
(tabled Total Less than 1 - 2 2 - 3 3 - 4 4 - 5 Thereafter
amounts are 1 year years years years years
expressed in
thousands of
US dollars)
Long term 20,482.4 9,559.1 8,923.3 2,000.0 - - -
debt
Accounts 3,542.2 3,542.2 - - - - -
payables
Asset 7,872.7 - - - - - 7,872.7
retirement
obligation
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 Produção
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:
Number of shares Vested (\'000s) Price per share CA$ Expiry Date
(\'000s)
25 25 0.22 31-Mar-11
120 120 0.85 13-May-11
275 275 0.30 15-May-11
2,000 2,000 0.58 31-Dec-11
100 100 0.85 14-Mar-12
245 245 0.85 8-Aug-12
210 210 1.05 16-Jan-13
165 165 1.05 2-May-13
250 250 0.42 20-Jun-13
6,325 6,325 0.42 24-Jul-14
750 750 0.63 29-Jul-14
100 67 0.63 4-Jan-15
1,370 457 0.63 5-Jul-15
5,000 500 0.58 24-Sep-15
16,935 11,489
The following is a summary of warrants outstanding as at the date of this report:
Number of warrants (\'000s) Price per share CA$ Expiry Date
15,747 0.80 14-Jun-11
6,859 1.00 20-Jun-12
22,606
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)
2010 2009
Revenue
Gold sales 16 $ $
14,028.5 -
Other 16 2,078.0 -
16,106.5 -
Operating expenses
Cost of goods sold (21,891.9) -
Depletion and (2,133.7) -
amortization
Accretion of asset 11 (188.5) -
retirement
obligation
(8,107.6) -
Other (expenses)
income, net
Exploration (2,788.8) (3,234.7)
General and 17 (2,622.1) (1,191.0)
administrative
Professional fees (312.0) (635.9)
Foreign exchange 847.6 1,516.8
gain
Stock-based 14 (2,202.3) (804.7)
compensation
Interest expense - (904.1) (103.9)
long term
Interest income 226.2 1,593.8
Other (expense) 18 (17.7) 742.7
income
Net loss for the year (15,880.8) (2,116.9)
Other comprehensive
income
Unrealized income on - 5,488.6
translation from
measurement to
reporting currency
(Loss) Net income and $ $ 3,371.7
comprehensive (loss) (15,880.8)
income for the year
Loss per common share
Basic and diluted (0.04) (0.01)
Weighted average
shares outstanding
(000\'s)
Basic 387,402 307,627
Diluted 387,402 307,627
Total shares issued 434,539 358,837
and outstanding
(000\'s)
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)
Note 2010 2009
Assets
Current assets
Cash and cash $ $ 12,565.5
equivalents 10,703.6
Accounts receivable 3,647.9 743.7
and prepaid expenses
Inventory 7 6,325.5 393.6
Held for trading 6 - 2,942.9
investments
20,677.0 16,645.7
Property, plant and 8 88,717.4 54,867.6
equipment
Other assets 1,089.5 408.1
Total assets $ $ 71,921.4
110,483.9
Liabilities
Current liabilities
Accounts payable and $ $
accrued liabilities 3,524.2 5,364.6
Current portion of 9 8,118.3 301.6
debt instruments
Current portion of 10 1,748.2 1,787.2
unearned revenue
13,390.7 7,453.4
Debt instruments 9 9,383.2 4,989.2
Unearned revenue 10 19,917.9 20,308.8
Asset retirement 11 2,922.2 2,108.5
obligation
Total liabilities 45,614.0 34,859.9
Shareholders\' equity
Share capital 13 108,987.6 65,298.4
Deficit (48,550.1) (32,669.3)
Accumulated other 4,432.4 4,432.4
comprehensive income
Total shareholders\' 64,869.9 37,061.5
equity
Total shareholders\' $ $ 71,921.4
equity and 110,483.9
liabilities
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)
Attributable to equity holders of the Company
Notes Shares Share Contributed Other Retained Total
capital surplus reserves earnings
Total equity 86,924 31,802.3 $ 4,827.5
at January 1, 4,633.8 (1,056.2) (30,552.4)
2009
Net loss for - - - - (2,116.9) (2,116.9)
the year
Other - - - 5,488.6 - 5,488.6
comprehensive
gain
Stock options 775 371.1 (159.2) - - 211.9
exercised
Warrants 12,734 3,144.0 (219.9) - - 2,924.1
exercised
Stock based - - 980.5 - - 980.5
compensation
expense
Issue of 13(a) 258,404 24,745.8 - - - 24,745.8
share
capital, net
Balance at 358,837 60,063.2 5,235.2 4,432.4 (32,669.3) 37,061.5
December 31,
2009
Net loss for - - - - (15,880.8) (15,880.8)
the year
Escrow shares 13(e) (214) (35.7) 35.7 - - -
returned to
treasury and
cancelled
Stock options 3,267 1,183.2 (405.6) - - 777.6
exercised
Stock based - - 2,344.9 - - 2,344.9
compensation
expense
Issue of 13(b) 72,649 38,701.6 1,865.1 - - 40,566.7
share (c)
capital, net
Balance at 434,539 $99,912.3 $ $4,432.4 $ $64,869.9
December 31, 9,075.3 (48,550.1)
2010
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)
2010 2009
Cash flows from
operating activities
Net loss for the year $ (15,880.8) $ (2,116.9)
Items not affecting
cash
Depletion and 2,180.5 157.6
amortization
Recognition of (429.9) -
unearned revenue
Unrealized foreign (798.7) (1,516.8)
exchange gain
Stock based 2,202.3 804.7
compensation
expense
Accretion of asset 188.5 -
retirement
obligation
Accretion of 9 251.8 103.9
interest
Other (21.4) (751.0)
(12,307.7) (3,318.5)
Change in non-cash
operating working
capital
Increase in accounts (3,993.5) (589.1)
receivable and prepaid
expense
Increase in inventory (5,617.8) (393.6)
Decreases in accounts (172.6) (1,838.9)
payable and accruals
Payments to the 9(c) (312.3) (297.1)
Departamento Nacional
de Producao Mineral
(\'DNPM\')
(22,403.9) (6,437.2)
Cash flows from
financing activities
Proceeds from debt 9(a) 13,868.8 (113.2)
financing, net
Repayment to principal (1,666.7) -
of debt financing
Proceeds from Sandstorm - 17,800.0
transaction
Proceeds from issuance 13(b) 29,786.0 -
of special warrants,
net
Proceeds on issuance of 13(c) 11,558.2 27,881.8
common shares
53,546.3 45,568.6
Cash flows from
investing activities
Proceeds from disposal 2,964.2 -
of held for trading
investment
Acquisition payments - (3,670.0)
Payments for property, (36,611.9) (26,984.7)
plant and equipment
(33,647.7) (30,654.7)
Effect of exchange rate 643.4 3,732.9
changes on cash
(Decrease) Increase in (2,505.3) 8,476.7
cash and cash
equivalents
Cash and cash 12,565.5 355.9
equivalents - beginning
of year
Cash and cash $ 10,703.6 $ 12,565.5
equivalents - end of
year
Supplemental cash flow
information
Interest and taxes paid 1,320.0 22.5
Significant non-cash
transactions:
Accrued amount for 2,600.3 4,267.9
property, plant and
equipment
Asset retirement 473.3 2,108.5
obligation
Sandstorm shares - 1,901.7
received
Depreciation 326.7 323.2
capitalized to
property, plant and
equipment
Stock-based 142.6 175.8
compensation
capitalized
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
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.
For further information:
contact Investor Relations at (604) 689-7317 or toll free at 1-866-689-7317.
Website: www.lunagold.com