Luna earning its due

It’s been a busy second half of the financial season for Luna Gold (LGC-T).

The company has brought on new management, graduated to the TSX big board, sold off an asset, arranged a gold stream financing, optimized its Aurizona Gold mine in Brazil and launched into an expansion plan, as well.

And all of the work and activity is paying off.

Since the summer doldrums — when its shares bottomed out at $1.80 — its stock has been on a steady climb and closed at $3.25 per share in Toronto, on Nov. 1.

The strong run has come as the company has whipped Aurizona into game shape through operational improvements coming under the guidance of a new management team that began taking the reins in the summer.

And the Street is taking notice.

“Luna’s Aurizona mine is finally hitting its stride with costs down dramatically and production set top management’s initial guidance for the year and grow in 2013 with decreasing cash costs,” wrote Tara Hassan, an analyst with Haywood Securities.

The company managed to produce 33,332 oz. of gold in the first six months of the year with average cash costs of US$767 per oz. That helped to generate a net income of $7.3 million.

But those numbers are set to grow considerably. With the board’s approval for a Phase 1 expansion at the mine, Aurizona is expected to produce 125,000 oz of gold per year with the build-out being finished by the fourth quarter of next year.

Capex for the expansion is estimated at $43.2 million and is being funded by a combination of internal cash generated by the mine and through a deal with the gold streaming company Sandstorm Gold (SSL-V) by which Sandstorm will fund 17% of required capex.

And the company doesn’t want to stop there. It is currently studying the merits of a Phase 2 expansion that could bring production up to between 250,000 and 275,000 oz. of gold per year.

Fueling such loft ambitions is the prospectiveness of both Aurizona, with its near surface saprolite mineralization, and a large swath of neighboring ground.

Indeed Luna has proven to be exploration savvy by growing its resources at Aurizona by roughly 200% since May 2008. Measured and indicated resources currently stand at 78 million tonnes grading 1.26 grams gold for 3.17 million oz. Out of that total, Luna has outlined 17.1 million tonnes of proven and probable reserves with an average grade of 1.36 grams gold for 731,000 oz. of gold.

And it believes there is the potential for considerably more expansion when its Luna Greenfields ground is taken into account — a property that covers 2,200 sq. km of ground to the south of the Aurizona permits.

The area plays host to 100 historical artisanal gold workings, while drilling on three key targets at the property is currently underway.

Both Aurizona and Luna Greenfields are situated in the Northeast corner of Brazil, roughly 320-km northwest of Sao Luis.