Luna’s gold is Sandstorm’s gain

Luna Gold’s (LGC-T) Aurizona gold mine in Brazil is looking more robust all the time and that is good news to two sets of shareholders.

Aurizona represents one of Sandstorm Gold’s (SSL-V, SAND-X) most valuable gold streams according to Canaccord Genuity analyst Nicholas Campbell who says the stream makes up roughly 37% of the company’s value.

The stream was Sandstorm’s first and, since then, the company has defined a core competency buying gold streams from emerging producers in transactions that involve up-front financing in exchange for future gold production at a discounted price. The deal on Aurizona gave Sandstorm the right to buy 17% of the life of mine gold produced from Aurizona for US$400 per oz. on an inflation adjusted basis.

And with the latest boost to resources, that investment is looking to be a shrewd one that will net it more cheap gold than many on the Street originally imagined.

Luna increased measured and indicated resources tonnage by 15% to 3.63 million oz. from 82 million tonnes grading 1.38 grams gold while gold ounces in the inferred category are up 44% to 1.04 million oz. from 18.5 million tonnes grading 1.74 grams gold

Piaba is a 3.3 km long deposit with an operating open pit mine on a portion of it. The deposit is not only the source of Aurizona’s production but it is also the key contributor to resources. The latest estimate shows that the deposit is looking richer all the time as average grades are climbing. The average grade for the deposit was up 10% compared to its previous estimate and now stands at 1.39 grams gold per tonne for the measured and indicated categories and 1.61 grams gold for the inferred category.

Luna says it expects production from the mine to be 74,000 oz. of gold in 2012.

The richer ore caught the attention of Haywood Securities analyst Tara Hassan who wrote in a recent report: “We note that increased grades buck the trend of Luna’s peers and will further contribute to an improved cost profile at the mine.”

But Piaba isn’t the only story at Aurizona. The resource estimate also outline maiden estimates on a suite of satellite deposits.

So while recent drilling cut 6,933 metres into Piaba a further 7,478 metres were cut into the Boa Esperanca, Ferradura, and Conceicao deposits.

“While additions from these deposits were not as meaningful as Piaba given lower grades and tonnage, they will benefit Aurizona by providing additional oxide feed for blending,” Hassan wrote.

Hassan also expects a reserve update to be in the works with a release targeted for the end of the first quarter of next year.

Aurizona currently has proven and probable reserves of 17 million tonnes grading 1.36 grams gold for 731,000 oz. Reserves have not, however, been updated for two years, meaning that the growing robustness of resources in that time should translate into hefty reserves in the future, a situation that will have both Luna and Sandstorm shareholders smiling.