Luna Gold Corp.
TSX VENTURE : LGC

Luna Gold Corp.

May 17, 2011 08:30 ET

Luna Gold Corp. Reports Operational and Financial Results for the Three Months Ended March 31, 2011

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 17, 2011) - (expressed in United States dollars, unless otherwise noted) -

Luna Gold Corp. (TSX VENTURE:LGC) ("Luna" or the "Company") today announces its results for the three months ended March 31, 2011. 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

Luna Gold Corp. (the "Company") is a publicly listed company on the TSX Venture Exchange trading under the symbol "LGC". 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 15,000 hectares of land and includes a mining license and three exploration permits.

The Cachoeira gold project ("Cachoeira") is a development gold project with a National Instrument 43-101 compliant resource estimate 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 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 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

  • Net operating income for the quarter was $726.4 thousand, which was its first positive quarterly operating income since inception of the Company;
  • Operating cash inflow after working capital was $425.7 thousand, which was its first positive quarterly operating cash inflow after working capital movements since inception of the Company;
  • Aurizona gold production was approximately 9,200 ounces for the quarter;
  • Aurizona brownfield exploration drilling results in Q1 included 55.00 meters at 4.15 grams per tonne (g/t) of gold, including 17.00 meters at 7.80 g/t of gold;
  • The Company applied for a secondary listing on the Lima Stock Exchange; and
  • The Company appointed Peter Mah as VP Operations and Carlos Paranhos as Brazilian Exploration Director.

OUTLOOK

  • Aurizona gold production remains on target for 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 remains targeted to complete the 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.

Operating Data

Three months endedMar 2011Dec 2010Sep 2010Jun 2010Mar 2010
Mined waste - tonnes348,036579,012299,396278,670110,269
Mined ore - tonnes111,609457,873371,931276,011347,946
Ratio of waste to ore3.11.30.81.00.3
Ore Grade mined – g/t1.791.151.130.971.25
Processed ore – tonnes293,393328,735279,654138,960-
Average grade processed – g/t1.191.190.901.58-
Average recovery rate %83%78%59%17%-
Gold produced (ounces)9,2099,7684,7741,217-
Gold sold (ounces)8,3589,5941,462739-
Total cash costs (per ounce)$1,100$1,233$1,136$1,998-

Mining production

The Company mined approximately 460,000 tonnes of material of which approximately 111,600 tonnes was ore at an average head grade of 1.79 grams per tonne during Q1. This represented a reduction of 56% of total material mined and 75% of ore mined compared to the previous quarter. The lower mining activities were due to the onset of the rain season in Q1 and a decision to reduce mining activities while processing ore from the large build-up of the ore stockpile. The rain season in Brazil has been one of the heaviest on record, which has resulted in many disruptions to the mining activities. The Company also began blasting harder materials and focused on increasing the waste stripping in anticipation of mining higher grade ore in future periods and achieving a steady strip ratio over the life of the mine.

Of the total unit cash cost of production for Q1, approximately $250 per ounce was related to mining and ore costs. The cost per tonne of ore mined during the quarter was approximately $21 per tonne. Costs were higher than the feasibility study average rate due to the lower volumes mined and the related fixed costs of the mining function.

The Company is currently in the process of implementing its own mining team rather than utilizing a contract mining group. The Company obtained certain mining equipment during the quarter and is using a mining contractor for waste stripping activities. This is expected to benefit the operation resulting in lower mining production costs. A further study is currently in process to obtain the balance of the necessary mining equipment and team to implement the mining function at Aurizona.

Mill Processing

The mill processed approximately 11% less tonnes of ore in Q1 than the previous quarter. The lower production was the result of the onset of the rain season and an increase in downtime in preparation for the planned plant shutdown and upgrade which was completed in mid-April. The ore grade processed was similar to the previous quarter and the recovery percentage continued to improve while ramping up to feasibility level production rates.

The processing cash cost per unit of gold produced in Q1 was approximately $850 per ounce. This cost includes all milling, processing and administrative related costs of the operation. Costs were significantly higher than the full year average target of $620 per ounce due to the lower levels of production and the planned shutdown to upgrade the plant. The planned shutdown to achieve the targeted production levels resulted in higher salary related costs and increased consumable costs that were necessary to implement the plant upgrades. However, the average cash cost of production decreased from the previous quarter as the Company continues to reduce overhead costs related to the development and construction stage of the Aurizona.

The Company successfully installed the reduction gear box in the SAG mill, installed the pinion in ball mill #4 and upgraded the trash screens in April. The plant is currently being ramped up to full feasibility production levels in a steady rate while monitoring the increases to ensure there are no significant breakdowns. The Company also began to reduce the size of the workforce to targeted levels which will result in a reduction of cash operating costs.

AURIZONA EXPLORATION

The Company's exploration teams continued to advance exploration at Aurizona during the quarter as summarized below. Diamond drilling is on schedule for completion of the Phase 1, 20,000 metre 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 25 holes totaling 6,613 meters have been received and samples from 14 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. Recent significant drill intercepts (not true widths) from the ongoing program are listed below:

  • 55.00 meters @ 4.15 grams/tonne Au including 1.00 meter @ 20.00 grams/tonne Au and 17.00 meters @ 7.80 grams/tonne Au in BRAZD293A
  • 21.00 meters @ 2.50 grams/tonne Au including 8.00 meters @ 5.21 grams/tonne Au in BRAZD297
  • 29.00 meters @ 2.53 grams/tonne Au including 0.50 meters @ 57.00 grams/tonne Au in BRAZD301

Soil Surveys

Assays have been received for the majority of samples collected near the mine site and the data is being processed and new targets prioritized. Soil surveying commenced in the unexplored western portion of the Aurizona project (LDW Grid) in November 2010 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 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 was also recently completed at the Conceicao target and samples will be shipped to the assay laboratory in the coming weeks. Trenching 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, to a mining license advanced during the quarter. The DNPM approved the Company's positive final exploration report in March and work has commenced on the Brazilian Level Feasibility Study (PAE).

Auger Drilling

Auger drilling was completed at the Micote near mine target and the samples are currently at the assay laboratory. Auger drilling commenced at the Piaba East target area with the objective of defining extensions to the main Piaba ore body beyond the current eastern boundary of the resource model. This program is ongoing. Auger drilling also commenced at the newly defined Agenor near mine exploration target and drilling is ongoing.

CACHOEIRA GOLD PROJECT

The Cachoeira Gold 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 March 31, 2011, the Company had incurred accumulated exploration expenditures of approximately BRL 9.1 million as part of the commitment to incur expenditures of approximately BRL 9.5 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 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.

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. Results were received for auger drill holes completed at the Bavete target. Zones of narrow mineralization were defined which require follow-up via trenching programs. Drilling was completed at the Arara North target and samples will be shipped to the assay laboratory shortly.

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 in the Maranhao Greenfields project area. The Company continues its exploration programs throughout the wet season although at reduced rates.

Areal Grid

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. A geological mapping program was completed at Areal during the quarter which identified intrusion related gold mineralization associated with several granitoid bodies. Ground magnetic surveying is underway.

JST Grid

Soil and channel samples from the JST Grid are 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 – THREE MONTHS ENDED

(tabled amounts are expressed in thousands of US dollars)Q1 2011Q4 2010Q3 2010Q2 2010Q1 2010
Revenue10,357.413,656.71,620.3829.5-
Operating expense(8,728.9)(13,922.3)(5,576.2)(2,393.4)-
Depreciation and amortization(902.1)(1,783.0)(303.8)(46.9)-
726.4(2,048.6)(4,259.7)(1,610.8)-
General & administration (1)(1,062.0)(1,320.7)(1,367.6)(1,037.0)(1,019.1)
Exploration expense(1,398.7)(665.4)(1,334.5)(725.7)(63.2)
Financing (cost) income, net(355.6)(491.2)(327.4)(78.6)30.8
Unrealized gains (losses) from derivative liability1,628.3(899.0)472.7(520.9)-
Foreign exchange and other650.4519.130.4349.54.6
Net income (loss)188.8(4,905.8)(6.786.1)(3,623.5)(1,046.9)
Basic loss income per share0.00(0.01)(0.02)(0.01)(0.00)
Diluted loss income per share0.00(0.01)(0.02)(0.01)(0.00)
(1)General and administration consists of general and administrative expenses, professional fees and stock based compensation charges.

The Company achieved its first quarter of positive operating income and operating cash flow in its history. This achievement was driven by the high gold price, declining cash costs since achieving gold production in the second quarter of 2010 and by a non-cash derivative liability gain.

The Company sold 8,358 ounces of gold bullion compared to 9,594 ounces in the previous quarter. Of the total gold bullion sold, 6,937 ounces was sold at an average realized gold price of $1,401 per ounce and 1,421 ounces were delivered to Sandstorm Gold Ltd. at $400 per ounce, which was 17% of the total gold sold as per the Sandstorm Gold Purchase Agreement.

Operating expense decreased from the previous quarter due to a decrease in the average unit cash cost of production and due to lower sales volumes.

General and administrative expense was lower than the previous quarter due to the costs associated with the recruitment and replacement of the President and Chief Executive Officer of the Company, which were included in the previous quarter's expenses. Excluding those costs, Q1 2011 remained reasonably consistent with prior quarters.

Exploration expense increased over the previous quarters as the Company continued its exploration programs at Aurizona, Cachoeira and Maranhao Greenfields. In the current quarter, the Company spent $2.9 million at Aurizona (capitalized in mineral properties for accounting purpose), $0.6 million at Cachoeira and $0.7 million at Maranhao Greenfields.

Net financing cost was lower due to interest earned on higher cash balances outstanding during the quarter as compared to the previous quarter. Due to the transition to IFRS, warrants outstanding were classified as a derivative liability and were re-classed from share capital to liability. This derivative liability is to be mark-to-market every period end and will fluctuate based on factors such as Company's stock price and volatility. The non-cash unrealized gains and losses resulted from the required revaluation from the current quarter end. Foreign exchange gain was the result of positive currency movements for the Company on its funds held in foreign currencies.

LIQUIDITY AND CAPITAL RESOURCES – THREE MONTHS ENDED MARCH 31

(tabled amounts are expressed in thousands of US dollars)201120102009
Cash flows from operating activities
- Before working capital(801.7)(385.4)(928.8)
- After working capital425.7(1,650.0)(1,902.0)
Cash flows from financing activities(1,143.2)13,910.124,774.8
Cash flows from investing activities(5,955.6)(15,858.7)(1,673.1)
Effect of exchange rates on cash58.2(41.9)(165.6)
Net cash flows(6,673.1)(3,598.6)21,199.7
Cash balance4,088.78,925.021,390.0

The Company had approximately $4.1 million in cash and 3,227 ounces of finished gold on hand at March 31. The Company achieved its first positive operating cash inflow after working capital movements in its history. This achievement was the result of the positive net income in the quarter and an increase in accounts payable. The accounts payable increased from the previous quarter due to the receipt of the plant upgrades near the end of the quarter, which were implemented subsequent to quarter end.

Financing activities included a payment of $1.7 million on the Aurizona project debt facility and cash proceeds of approximately $0.6 million from the exercise of stock options. Cash flow from financing activities was significantly lower than the comparative quarter as the comparative quarter included the drawdown of the RMB debt facility.

Investing activities included payments of $2.9 million of capitalized exploration costs related to the brownfield exploration program to increase the resource at Aurizona. The balance of investment activity cash outflow was related to equipment purchases and plant upgrades at the Aurizona plant. Cash outflow from investing activities was significantly lower than the comparative quarter as the plant was substantially completed in late 2010.

In March, the Company accepted an indicative proposal for financing of a senior secured credit facility of up to $30 million to refinance the existing Aurizona project debt facility, fund future capital expenditures and provide additional working capital related to the Aurizona operation. The proposed facility would consist of a $20 million senior secured term loan ("Term Loan") and a $10 million senior secured revolving facility ("Revolving Facility"). The Term Loan would bear interest at 6-month Libor plus 3.625% per annum, be repaid in equal semi-annual instalments commencing twelve months from the closing date and would mature five years from the closing date. The Revolving Facility would bear interest at 6-month CDI plus 3.25% per annum, be repaid in full on the final maturity date and mature three years from the closing date. This proposed financing is currently subject to due diligence and final approval by the lender.

This proposed financing will assist the Company in its plans to upgrade the Aurizona production facility to achieve a production rate of 100,000 ounces per annum, subject to the results of the Company's proposed scoping study, and allow for additional working capital and liquidity in the current year.

As at March 31, 2011, the Company had the following contractual obligations outstanding:

(tabled amounts are expressed in thousands of US dollars)TotalLess than 1 year1 – 2 years2 – 3 years3 – 4 years4 – 5 yearsThereafter
Long term debt20,148.79,238.57,545.72,545.8545.8272.9-
Accounts payables6,507.26,507.2-----
Asset retirement obligation8,072.3-----8,072.3

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 were 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.

FINAME Equipment Purchase Financing ("FINAME")

In February 2011, the Company entered into debt financing in the amount of 4.0 million Brazilian Reais ("BRL") to purchase mining equipment through the FINAME financing program, which is administered through the Brazilian Development Bank ("BNDES"). Interest is calculated at 5.5% per annum and are repayable in equal monthly instalments beginning September 15, 2011 and ending February 15, 2016.

SHAREHOLDERS' EQUITY

Shareholders' equity increased over the prior year due to the Company's equity financing activities during the period, which was partially offset by an increase in the deficit.

As at the date of this report the Company had 443,522,764 shares outstanding, 21,751,666 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 ('000s)Vested ('000s)Price per share CA$Expiry Date
2752750.3015-May-11
1001000.5014-Mar-12
3653650.858-Aug-12
2102101.2316-Jan-13
1651651.052-May-13
2502500.9020-Jun-13
6,0916,0910.4224-Jul-14
7507500.3729-Jul-14
100670.554-Jan-15
1,3704570.635-Jul-15
5,0001,0000.5824-Sep-15
7,075-0.6512-Apr-16
21,7519,730

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
15,7470.8014-Jun-11
6,8591.0020-Jun-12
22,606

OUTLOOK AND STRATEGY

Aurizona Gold Mine

The Company continues to target 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. The capital upgrades needed to rectify the identified production constraints were successfully completed in April and the plant is currently ramping up to produce gold at feasibility study levels. Programs are underway to reduce current cash costs to achieve the targeted cash cost through a planned retrenchment program, improved maintenance programs and implementing the Company's own mining team to reduce reliance on mining contractors.

The Company remains targeted 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 Aurizona brownfield exploration and drill program remains on target to produce an updated NI 43-101 resource estimate for release in Q4.

Cachoeira Gold Property

The Company is targeting on completing the Cachoeira scoping study (the "Scoping Study") in Q3 2011 that will deliver the path forward to developing Cachoeira into a mining project feasibility study.

Maranhao Greenfields Property

The Company continues to aggressively explore 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 Income (Loss) and Comprehensive Income (Loss)
(expressed in thousands of U.S. dollars, except where indicated)
NoteThree months ended
March 31,
2011
March 31,
2010
Revenue
Gold sales8$ 10,357.4$ -
10,357.4-
Operating expenses
Cost of goods sold(8,728.9)-
Depletion and amortization(902.1)-
726.4-
Other (expenses) income, net
Exploration(1,398.7)(63.2)
General and administrative9(717.6)(410.2)
Unrealized gains on derivative liability101,628.3-
Foreign exchange gain (loss)619.1(22.9)
Stock-based compensation6(344.4)(608.9)
Finance income117.276.7
Finance cost(472.8)(45.9)
Other (expense) income31.327.5
Net income (loss) and comprehensive (loss) income for the period$ 188.8$ (1,046.9)
Earning (Loss) per common share
Basic0.00(0.00)
Diluted0.00(0.00)
Weighted average shares outstanding (000's)
Basic435,638358,839
Diluted441,957358,839
Total shares issued and outstanding (000's)436,213358,837

The accompanying notes are an integral part of these consolidated financial statements.

Interim Consolidated Statements of Financial Position
(expressed in thousands of U.S. dollars, except where indicated)
NoteMarch 31,
2011
December 31,
2010
January 1,
2010
Assets
Current assets
Cash and cash equivalents$ 4,088.7$ 10,703.6$ 12,565.5
Accounts receivable and prepaid expenses2,693.93,647.9743.7
Inventory8,707.16,325.5393.6
Investments--2,942.9
15,489.720,677.016,645.7
Property, plant and equipment495,978.488,166.054,867.6
Other assets1,590.01,089.5408.1
Total assets$ 113,058.1$ 109,932.5$ 71,921.4
Liabilities
Current liabilities
Accounts payable and accrued liabilities$ 6,507.2$ 3,524.2$ 5,364.6
Current portion of derivative liability317.51,605.8-
Current portion of debt instruments58,986.58,118.3301.6
Current portion of unearned revenue1,675.51,748.21,787.2
17,486.714,996.57,453.4
Debt instruments59,431.79,383.24,989.2
Derivative liability633.61,019.2-
Unearned revenue19,737.319,917.920,308.8
Asset retirement obligation2,317.22,370.92,108.5
Total liabilities49,606.547,687.734,859.9
Shareholders' equity
Share capital108,251.3107,233.365,687.7
Deficit(44,799.7)(44,988.5)(28,626.2)
Total shareholders' equity63,451.662,244.837,061.5
Total liabilities and shareholders' equity$ 113,058.1$ 109,932.5$ 71,921.4

The accompanying notes are an integral part of these consolidated financial statements.

Interim Consolidated Statements of Changes in Shareholders' Equity and Deficit
(expressed in thousands of U.S. dollars, except where indicated)
Attributable to equity holders of the Company
NotesSharesShare
capital
Contributed surplusDeficitTotal
Balance at January 1, 2010358,83760,063.25,624.5(28,626.2)37,061.5
Net loss for the period---(1,046.9)(1,046.9)
Stock options exercised10066.5(25.2)-41.3
Stock-based compensation charges-702.6-702.6
Balance at March 31, 2010358,937$ 60,129.7$ 6,301.9$ (29,673.1)$ 36,758.5
Balance at January 1, 2010358,83760,063.25,624.5(28,626.2)37,061.5
Net loss for the year---(16,362.3)(16,362.3)
Escrow shares returned to treasury and cancelled(214)(35.7)35.7--
Stock options exercised3,2671,183.2(405.6)-777.6
Stock-based compensation charges--1,952.9-1,952.9
Issue of share capital, net72,64938,701.6113.6-38,815.2
Balance at December 31, 2010434,539$ 99,912.3$ 7,321.1$ (44,988.5)$ 62,244.9
Net income for the period---188.8188.8
Stock options exercised61,6741,083.8(410.3)-673.5
Stock-based compensation charges6--344.4-344.4
Balance at March 31, 2011436,213$100,996.1$ 7,255.2$ (44,799.7)$ 63,451.6

The accompanying notes are an integral part of these consolidated financial statements.

Interim Consolidated Statements of Cash Flows
(expressed in thousands of U.S. dollars, except where indicated)
Three months ended
NotesMarch 31,
2011
March 31,
2010
Cash flows from operating activities
Net income (loss) for the period$ 188.8$ (1,046.9)
Items not affecting cash
Depletion and amortization919.38.5
Recognition of unearned revenue(253.3)-
Unrealized foreign exchange (gains) losses(584.8)16.7
Unrealized gains from warrant liability(1,628.3)-
Stock-based compensation charges6344.4608.9
Accretion of asset retirement obligation65.845.9
Accretion of interest146.4-
Other-(18.5)
(801.7)(385.4)
Change in non-cash operating working capital
Decrease in accounts receivable and prepaid expense932.271.1
Increase in inventory(1,895.0)(1,259.7)
Increase in accounts payable and accruals2,287.8-
Payments to the Departamento Nacional de Producao Mineral ("DNPM")(97.6)(76.0)
425.7(1,650.0)
Cash flows from financing activities
Proceeds from debt financing, net-13,868.8
Payment of debt financing fees(150.0)-
Repayment to principal of debt financing(1,666.7)-
Proceeds on issuance of common shares673.541.3
(1,143.2)13,910.1
Cash flows from investing activities
Proceeds from disposal of investments-2,964.2
Payments for property, plant and equipment(5,955.6)(18,822.9)
(5,955.6)(15,858.7)
Effect of exchange rate changes on cash58.2(41.9)
Decrease in cash and cash equivalents(6,673.1)(3,598.6)
Cash and cash equivalents - beginning of period10,703.612,565.5
Cash and cash equivalents - end of period$ 4,088.7$ 8,925.0

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

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. 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 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.

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.

Contact Information

  • Luna Gold Corp.
    Investor Relations
    (604) 689-7317 or toll free: 1-866-689-7317
    (604) 688-0094 (FAX)
    www.lunagold.com