Friday 30th September 2016

Resource Clips


To The Moon—Or 300K Oz Annually

Luna Gold Plans to Upsize Brazil Production

By Ted Niles

Things seem to be coming together for Luna Gold Corp TSX:LGC. That might seem an odd thing to say about a company that’s been producing since February at its Aurizona Gold Mine, but success is not a static achievement. Bringing a mine to production only really marks the transition of a junior miner from adolescence to adulthood. Issues of liquidity, logistical strength and effective management require constant attention for success to burgeon. That’s why John Blake was appointed Luna President and CEO in September 2010.

“My job was to review the company, and I had full support from the board,” Blake says. “We had mechanical issues in the construction phase that have been repaired, and now we’re delivering our feasibility-study production. We’ve revamped our management team, and we’ve got a really strong operational team now to add to the strong team we already had in finance and exploration. We’ve recently recapitalized the company in terms of new project debt financing with WestLB, and we’ve raised equity in the market. So we’ve now got very solid capital structure to move the company forward. The next step is to increase our resource in December so we’ve got a solid platform for growth.”

Luna Gold Plans to Upsize Brazil Production

And Luna Gold is well on its way in that endeavour. Its 190,000-hectare Aurizona gold project—located in the state of Maranhão in northeast Brazil, roughly equidistant between the cities of São Luis and Belém—has a 2009 NI 43-101 resource estimate of 909,000 ounces gold measured and indicated, and 403,000 ounces inferred. (With proven and probable reserves of 729,000 ounces.) From August 2010 to October 2011, the company drilled 40,000 metres. “The resource-definition program has been drilling along strike and at depth to improve our inferred resources to measured and indicated and also to add more ounces,” Blake reports. “The 1.3-million-ounce resource we have at Aurizona at the moment was based on 30,000 metres of drilling. So you can see what we’re trying to target in terms of an additional upgrade.”

November 7 assays of Aurizona’s Piaba deposit included

  • 33.63 grams per tonne gold over 13 metres (including 104.83 over 4 metres)
  • 3.87 g/t over 50 metres (including 8.47 g/t over 7 metres)
  • 2.46 g/t over 68 metres (including 6.02 g/t over 11 metres)
  • 2.65 g/t over 31 metres (including 6.32 g/t over 1 metre)

October 27 results included

  • 2.57 g/t over 53 metres
  • 4.32 g/t over 31 metres
  • 2.22 g/t over 54 metres
  • 2.03 g/t over 35 metres
  • 2.49 g/t over 55 metres
  • 3.64 g/t over 22 metres
  • 2.6 g/t over 41 metres
  • 2.01 g/t over 52 metres
  • 1.51 g/t over 65 metres

Blake comments, “We’re getting very good and consistent values, and I’d say that the upgraded resource is going to show that continuity both along strike and at depth. We’re very encouraged that we can get a sizeable increase in our resource. There are some very good high-grade intersections, but what [these results] really demonstrate is that we’ve got really good continuity around about the 1.36 g/t range, which is our current resource head grade.”

We’re a 60,000-ounce producer; cash costs are coming down; and we’re looking forward to producing 100,000 ounces per year and building up our resource base —John Blake

In addition to the upcoming resource update, Luna has undertaken a preliminary economic assessment to be released 2Q 2012. Upgrades to the SAG mill earlier this year caused a delay in reaching 2011 targeted production of 60,000 ounces per year. On November 10, Luna reported Q3 production of 13,473 gold ounces at $830 per ounce and nine-month production of 28,277 ounces at $1,117 per ounce. The company reported $2.72 million net income for the quarter and revised its 2011 gold production target to 42,000 to 44,000 gold ounces at $990 to $1,000 per ounce. Blake says, “Our scoping study will give us a path to produce 100,000 ounces in 2013.”

The project’s relative disadvantages—illustrated perhaps most dramatically by the December 2010 theft of 1,500 ounces of gold from the mine—are offset, Blake argues, by governmental support. “We’re in an area that’s largely been underexplored, and we’re getting some very good encouragement from the state of Maranhão to work in the area. They worked with us in the construction phase to build a 69kV power line to deliver power to site, and they have given us a discount in corporate tax for the first 10 years of operation. So the government is really working hard to attract mining investment in the northeast of Brazil.”

Blake believes Luna is undervalued, and he puts this down to a lack of exposure. “If you look at our history,” he says, “we’ve raised our capital through private placements. Last month we raised $42 million with National Bank Financial as our lead. That’s the first time we’ve used banks. Up until now we’ve had no coverage, so we would be one of the only gold producers on the TSX without market analyst coverage. So we are not a well-known story for the institutions.”

He concludes, “Now we’ve got a good story to tell. We’re a 60,000-ounce producer; cash costs are coming down; and we’re looking forward to producing 100,000 ounces per year and building up our resource base. We’re not setting ourselves up for takeover. We’ve got 190,000 hectares of prime exploration country, where we expect to find another couple million ounces in the very near future. We’re spending between $12 million and $15 million on exploration every year to generate our own future and get us up to a 300,000-ounce producer in three to five years.”

At press time, Luna Gold Corp had 522.6 million shares trading at $0.58 for a $303.1 million market cap. It had $41.4 million in cash and equivalents as of September 30. Sandstorm Gold Ltd TSX:SSL holds 17% of the life-of-mine gold production from the Aurizona Mine. Luna Gold’s other projects in northeast Brazil are the Cachoeira project and the Maranhão Greenfields.


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