Luna cutting costs, boosting output at Aurizona

Working away in the relatively remote San Luis craton of northeast Brazil, Luna Gold (LGC-V) has commissioned one gold mine, advances a second project to the scoping stage and holds an extensive greenfield land package in the area.

The company first came to Brazil in 2007 looking for a quick start-up thanks to previous work at its Aurizona gold mine, but
delays had Luna only announcing commercial production in February 2011.

Ramping up to full production, Luna expects to produce 55,000 oz. gold from the open-pit Aurizona mine, and hopes to increase production significantly in the years ahead. A scoping study is underway to increase production to 100,000 oz. per year.

The company is mining the Piaba deposit, which, along with the Tatajuba deposit roughly 2.4 km southwest, forms the Aurizona Main area.

As of July 2010, and based on US$750 per oz. gold, reserves at Piaba stand at 9.2 million tonnes grading 1.22 grams gold per tonne in saprolite, 2.4 million tonnes grading 1.33 grams gold in a transition zone and 4.9 million tonnes grading 1.54 grams gold in fresh rock. Combined, Piaba hosts 16.5 million in situ reserve tonnes grading 1.33 grams gold for 709,000 reserve oz.

The reserves translate to a mine life of 12 years, while a 2008 feasibility study says the mine has a net present value of US$81 million at an 8% discount rate, and a 44% internal rate of return.

Piaba has 3 million tonnes of measured and indicated resources outside the reserves, which, combined with the nearby 1.5 million tonnes of measured and indicated resources at the Tatajuba deposit, add roughly 200,000 contained oz. at Aurizona. Combined, Piaba and Tatajuba inferred resources stand at 11 million tonnes, grading 1.14 grams gold for 403,000 oz. gold.

To upgrade resources, Luna is implementing a 20,000-metre drill program to infill the 3 km strike length of the Piaba deposit. The most recent results from the program include 11 metres grading 15.48 grams gold in hole 294, 56 metres carrying 1.92 grams gold in hole 296 and 48 metres averaging 3.29 grams gold in hole 299. The company’s 2011 exploration budget is over US$16 million for Aurizona.

Piaba is a shear-hosted orogenic deposit in a northern hanging wall sequence, composed mainly of tonalitic intrusives with subordinate dacitic volcanics. Tatajuba and satellite targets have similar geology.

Luna works to trim costs and optimize production of the mining operations at Aurizona. The company is switching from contract mining to its own fleet to reduce costs. Luna’s movement away from the development and construction stages meant cash costs dropped in 2011’s first quarter.

Still, cash costs were around US$850 per oz. for the 9,200 oz. gold produced in the quarter, significantly higher than the life-of-mine estimates of US$615 per oz. The higher costs were due in part to less ore mined and processed because of heavy rains, plus a planned shutdown to upgrade infrastructure for higher production. The company looks to process 1.5 million tonnes of ore per year for the life-of-mine.

The company doesn’t reap all the benefits of production, however, owing to a May 2009 deal with gold streaming company Sandstorm Gold (SSL-V). Luna sold the rights to 17% of gold production from Aurizona Main for an upfront payment of $17.8 million, with Sandstorm paying US$400 per oz. for its share of the gold, or the spot price if it dips lower.

Luna lost gold in a nastier way in December, when armed robbers took off with 1,500 oz. The company noted that it was insured for such an event and has filed a claim.

The company is advancing its 37-sq.-km Cachoeira property, situated 100 km southwest of Piaba. Luna released an initial resource estimate on the project in December that established 12.5 million indicated tonnes grading 1.11 grams gold for 446,000 contained oz. gold, plus 5.4 million inferred tonnes grading 1.27 grams gold for 221,000 oz. gold.

The company launched a scoping study on Cachoeira, and expects to complete it before 2012.

Luna holds roughly 1,700 sq. km of land known as the Maranhao Greenfields that surrounds the 200-sq.-km Piaba project. The area hosts over 100 hard rock artisanal workings, with Luna conducting soil sampling and field mapping.

Luna Gold’s share price recently closed at 52¢. The company has 436 million shares outstanding, or 476 million fully diluted.