Luna Gold Corp.
TSX VENTURE : LGC
LMA : LGC

Luna Gold Corp.

March 02, 2012 08:30 ET

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

VANCOUVER, BRITISH COLUMBIA--(Marketwire - March 2, 2012) - Luna Gold Corp. (TSX VENTURE:LGC)(LMA:LGC) ("Luna" or the "Company") today announces its results for the three months and year ended December 31, 2011. The complete financial statements and management discussion 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 and on the Bolsa de Valores in Peru 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 a large greenfield exploration program located in northeast Brazil.

The Aurizona gold mining operation ("Aurizona") consists of an open pit mine and gold processing plant. Aurizona contains the Piaba and Tatajuba deposits and over 10 near mine exploration targets which are being actively explored by the Company. It covers approximately 15,500 hectares of land and includes a mining license and three exploration permits.

The Maranhao Greenfields exploration property ("Maranhao Greenfields") is located next to Aurizona and consists of an extensive landholding of exploration licenses totalling approximately 190,000 hectares. This 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 major West African gold deposits. The area encompasses over 100 artisanal gold workings that are being explored by the Company.

The Cachoeira gold project ("Cachoeira") is an advanced stage exploration project with a National Instrument 43-101 compliant resource estimate in three gold deposits consisting of quartz vein systems, hydrothermally altered host rocks and stockworks within a north-south trending shear zone.

The Company's near term focus and goals are to(1):

  • Achieve 60,000 ounces of gold production at the Aurizona operation in 2012;
  • Complete phase 1 expansion scoping study, commence feasibility and construction work to upgrade the Aurizona facility with the goal to achieve 100,000 ounces of production per annum;
  • Complete phase 2 expansion scoping study and advance towards Preliminary Economic Assessment to further assess the Aurizona plant expansion potential to a range up to 300,000 ounces per annum;
  • Reduce the Aurizona average unit cash cost of production with a target of $750(1) per ounce;
  • Continue generating solid exploration targets at Maranhao Greenfields via surface exploration programs;
  • Commence drilling at Maranhao Greenfields to obtain greater understanding of the mineralization potential at Maranhao Greenfields;
  • Define deep high-grade mineralized zones at Piaba through drilling; and
  • Define new mineralized structures at Aurizona for resource generation.

The Company's longer term focus and goals are to:

  • Discover and define a new sizable gold resource within the Maranhao Greenfields Project;
  • Significantly increase the Aurizona mineral resources through further exploration; and
  • Become a mid-tier gold producer in Brazil with gold production ranging between 300,000 to 500,000 ounces per annum from the Aurizona Gold Mine and through future discoveries leading to a new mine development growth at Maranhao Greenfields.

HIGHLIGHTS - 2011

  • Record quarterly gold production of 13,620 ounces was achieved in Q4. Gold production for the year was 41,898 ounces;
  • Significant Aurizona resource upgrade of 250% from the previous mineral resource estimate. Aurizona gold resource includes measured and indicated of 3,166,000 ounces and inferred of 720,000 ounces;
  • Q4 average unit cash cost of production was $851(2) per ounce and for the year was $1,031(2) per ounce;
  • Gross profit at the Aurizona operation for Q4 was $6.2 million and for the year was $8.8 million;
  • Net loss for Q4 was $0.1 million and for the year was $4.9 million;
  • Operating cash inflow before working capital movements for Q4 was $3.4 million and operating cash outflow before working capital movements for the year was $0.4 million;
  • The Company successfully raised gross CA$42 million through a combination of a marketed public offering and private placement;
  • Mechanical issues resolved at the plant, conversion to owner operated mining advanced, major equipment fleet orders and new management in place; and
  • Keith Hulley, current Chairman of the Board of Directors of Gabriel Resources, appointed as a Director of the Company.

OUTLOOK AND STRATEGY

Operations - Aurizona

The Company is focused in 2012 to developing best in class health and safety, environment and community development programs.

Steady health and safety improvements and performance were achieved in Q4 2011 throughout the Company including no lost time accidents. The Company has entered into a contract with DuPont to perform a gap analysis and provide recommendations regarding the Company's health and safety program. An agreement was reached and signed with the military police where the Company will donate a regional police post, furnishings and equipment to the State of Maranhao to help the region and communities establish security.

The 2012 focus and goals include(1):

  • Achieve 60,000 ounces of gold production at a targeted average unit cash cost of $750(1) per ounce;
  • Complete Phase I and II scoping studies by the end of Q2;
  • Commence construction of the Phase I expansion with targeted delivery of a 100,000 ounces per annum production rate by year end; and
  • Deliver a Preliminary Economic Assessment of the Phase II expansion to above 100,000 ounces per annum by year end.

A review of the process plant recoveries was completed during Q4, 2011. An integrated plan involving operations and the Phase I expansion study team has been developed targeting improvements to improve gold recoveries, maintainability, operability and throughput. A design criteria of 10,000 tonnes per day and 91% gold recovery has been established for the Phase I expansion. The main strategy to improve recoveries includes the following: mine plan optimizations of blending, process plant equipment upgrades, process control, preventative maintenance and training.

SNC-Lavalin Inc., Vancouver, has been retained to complete the Phase I and II scoping study. The Phase I expansion scope of work includes upgrades to the following circuits: crushing, grinding, pre-leach thickening, CIL, gold elution, carbon handling and reactivation, electro-winning and the replacement of the shaking tables with an intense leach reactor. Engineering and trade-off studies are progressing on the work package estimates and equipment orders.

Sufficient coarse ore has been stockpiled near the ore hopper during the last quarter of 2011 to de-risk the 2012 rainy season.

Conversion to an owner operated mining fleet is progressing with final deliveries and commissioning planned by the end of Q2 2012. CAT is currently assisting with operator training of local employees and with deliveries of twelve (12) CAT 740 articulated dump trucks and three (3) CAT 374 excavators scheduled for delivery during the next few months.

Exploration

The Company's targeted exploration expenditure is $12 million for the 2012 year. These expenditures will be spent in the Maranhao Greenfields project and in the Aurizona brownfields area. The Company may alter the expenditure and programs during the year based on the interim results of the ongoing programs to take advantage of positive drill results.

Maranhao Greenfields Project

During the first half of 2012, the Company will finalize geologic studies including ground geophysical surveys, structural mapping, auger drilling and some trenching prior to drilling the three most advanced gold targets identified to date in this region. The potential drill targets will be rate ranked in priority and the current top three targets will be drilled commencing in the third quarter of 2012. At the same time, the Company will continue to focus on identifying new gold targets through field geochemical and geophysical surveys. The information that is expected to be received through these programs will assist the Company to obtain a greater understanding of the mineralization potential at Maranhao Greenfields.

Aurizona

The Aurizona 2012 brownfields exploration programs have been designed to firstly conduct exploration drilling at several near mine targets to deliver a resource update and provide near surface operational blend flexibility. The second focus is to drill a series of structurally guided deep drill holes to test for extensions to the high grade ore zones that have been mapped in the Piaba Pit. Detailed structural mapping has been completed and the first two holes have been sited. The Company will continue to drill for high grade ore zones through the second quarter of 2012. Any discovery of high-grade mineralization within the large Piaba deposit will then be assessed for the possibility of developing an underground mine and improving feed grade. Finally, the Company will continue with surface exploration programs focused on the area to the east of Piaba to deliver new drill targets in 2013.

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 application process to convert to a mine license.

Segmented operating results
Three months ended Year ended
December 31 December 31
(tabled amounts are expressed in thousands of US dollars) 2011 2010 2011 2010
Mined waste - tonnes 965,019 579,012 1,667,821 1,267,347
Mined ore - tonnes 622,480 457,873 1,266,708 1,453,762
Ratio of waste to ore 1.6 1.3 1.3 0.9
Ore grade mined - g/t 1.49 1.15 1.41 1.14
Processed ore - tonnes 389,476 328,735 1,310,249 747,349
Average grade processed - g/t 1.39 1.19 1.29 1.15
Average recovery rate % 82 % 78 % 80 % 59 %
Gold produced (ounces) 13,620 9,768 41,898 15,759
Gold sold (ounces) 13,982 9,594 41,502 11,795
Total cash costs (per ounce)(1) $ 851 $ 1,132 $ 1,031 $ 1,550
Gross profit (loss) $ 6,225.1 $ (2,048.6 ) $ 8,825.1 $ (7,919.1 )

Mining production

During the quarter, waste removal and ore mined increased by 67% and 36% over the comparative quarter of 2010, respectively, and 180% and 48% over the previous quarter, respectively. These increases were a direct result of the implementation of the new management and mining team and the Company's decision to become owner-operator of mining activities in the previous quarter. With the mobilization of the Company's own fleet, which consisted of owned and rented equipment, mining activities targeted to increase its waste removal to free up higher grade ore areas and catch up on its waste stripping as outlined in the mine plan. The increased ore mining was planned to build up the ore stockpile to de-risk the ability to feed ore to the process plant in the upcoming rain season while allowing for the delivery and commissioning of the new Company owned mining fleet and operating team. The new equipment, which is expected to arrive during the first half of 2012, consists of twelve (12) CAT 740 articulated dump trucks, three (3) CAT 374 excavators and ancillary support equipment.

The annual mining volume in the current year was 8% higher than the prior year. The Company demobilized its mining contractor in Q1, which led to minimal mine production in Q2. At the beginning of Q3, the Company implemented its own mine management team and mobilized a new fleet, which resulted in a significant increase in mine production and allowed for the overall increase in tonnage mined.

The overall change to larger, articulated dump trucks and matching fleet requirements, as well as improved road design, drainage improvements and laterite surfacing, is expected to result in additional year round mining efficiencies and increased production in the upcoming year.

Mill Processing

During the quarter, gold production was 39% higher than the comparative quarter of 2010. This was the result of an 18% increase in ore feed to the mill, a 17% increase in ore grade processed and a 5% increase in recoveries. Gold production was also on par with the previous quarter. The increase in ore processed and recovery rate was due to the plant upgrades and improvements that were implemented in Q2, which resulted in a decrease in plant downtime and loss of gold to tails. The higher ore grade processed was a direct result of the improvements in the mining activities and grade control. In addition, gold-in-circuit inventory increased at year-end due to the timing of cut-off procedures related to the gold smelting and piping and insulation upgrades in the elution circuit.

Gold production for the year was significantly higher than prior year as the plant was commissioned in early 2010 and first gold production was achieved in Q2 2010. Production in the prior year was hampered by significant plant downtime related to poor construction, which led to planned plant shutdowns in Q1 and Q2 of this year to upgrade the facility. In addition, a new operating management team was hired in Q2 that delivered feasibility level production in Q3 and maintained it throughout the remainder of 2011.

The following chart displays the quarterly gold production for the year:

http://media3.marketwire.com/docs/Luna_Gold_Chart.pdf

The Company expects to improve the gold recovery rate in 2012 with the implementation of a carbon regeneration kiln, an intense leach reactor and further plant upgrades with a target of achieving a 90% recovery rate.

Aurizona is subject to an agreement with Sandstorm Gold Ltd. ("Sandstorm") pursuant to which Sandstorm has the right to purchase 17% of the production of Aurizona at $400 per ounce. In Q3, the Company met the requirements of the Completion Guarantee in the agreement with Sandstorm exceeding the three month production minimum whereby the Company was required to produce 12,500 ounces of gold in a three month period before April 2012.

January 2012's monthly production was approximately 5,300 ounces of gold.

Cash Costs(1)

The average unit cash cost of production for Q4 was higher than the target of $750 to $780 per ounce due to lower than planned recoveries, increased payroll related to year-end bonuses associated with the successful turnaround of the operations and a one-time write down of consumable inventory recognized at the end of the year. Q4 unit cash costs improved over the comparative quarter of 2010 due to increased production.

The average unit cash cost of production for the year remained higher than target primarily due to lower than planned production, particularly in the first half of the year and higher than planned employee and maintenance costs. Employee costs were higher than planned due to high inflationary costs in Brazil and the competition for employee talent in the mining industry. The Company recruited and replaced a number of key employee positions during Q2 and Q3 that were critical to the contribution of the production increases. Maintenance costs were higher than planned due to the trouble shooting of the plant after shutdown and ongoing plant upgrades in Q2 and Q3 to improve operating efficiencies. In addition, diesel consumption for the power generators was higher than planned due to the insufficient power supply from CEMAR, the state utility company. The full year average unit cash cost was improved over the prior year due to the increase in production.

The Company expects to reduce its average unit cash cost of production in 2012 with a target of $750 per ounce. This is expected to be achieved by continuous improvement of gold production through increases in operating time, plant throughput and recovery rates.

AURIZONA EXPLORATION

The Company's exploration team delivered a major resource update in early December. Six drill rigs were demobilized from the project and two rigs remain and have recently completed exploration drill holes at the Boa Esperança, Ferradura and Conceição near mine targets. Deep drill holes are planned at the Piaba deposit and will commence in late February. Results of the Tatajuba auger drill program were received showing that mineralization outcrops along the length of the Tatajuba deposit. A ground magnetic survey was completed and provides new information on geological structures in the area immediately east of the Piaba Deposit.

Aurizona Resource Update

The Company delivered a significant mineral resource update at the Aurizona operation. Measured and Indicated gold resources now total 78.0 million tonnes at 1.26 grams per tonne ("g/t") gold ("Au") or 3.17 million ounces gold, an increase of 250% from the previous mineral resource estimate published in January 2009. Inferred gold resources now total 15.2 million tonnes at 1.47 g/t Au or 0.72 million ounces gold, an increase of 79% from the January 2009 mineral resource estimate. The resource was updated by SRK Consulting (U.S.) Inc. according to Canadian National Instrument 43-101 guidelines and is based on 43,968 metres of new diamond, reverse circulation and auger drilling by the Company. The Piaba deposit is now 3.30 kilometres in length and significantly it remains open at depth and along strike to the east and west. These results confirm the Company's confidence in the geological mineral endowment at Aurizona. The high percentage of pit constrained Measured and Indicated ounces demonstrates the high quality of this resource estimate.

Consolidated Statement December 8, 2011, Inclusive of Reserves
Deposit Classification kt Au g/t Au oz
Measured 10,782 1.13 391,000
Indicated 62,939 1.28 2,596,000
Piaba Pit Constrained1 Measured and Indicated 73,721 1.26
Inferred 2,469 1.47 117,000
Measured 0 0.00 ,000
Indicated 2,738 1.29 113,000
Piaba Underground2 Measured and Indicated 2,738 1.29
Inferred 10,901 1.56 547,000
Measured 0 0.00 0
Indicated 1,554 1.31 66,000
Tatajuba3 Measured and Indicated 1,554 1.31
Inferred 1,859 0.94 56,000
Measured 10,782 1.13 391,000
Indicated 67,231 1.28 2,775,000
Total Measured and Indicated 78,013 1.26
Inferred 15,229 1.47 720,000
Notes:
25g/t Au capping at Piaba and 10 g/t Au capping at Tatajuba.
Block dimensions are 10m x 10m in the xy plane and 3m on the z axis.
Piaba database consists of 69,578 metres consisting of 335 diamond drill holes and 142 reverse circulation holes and 374 auger drill holes.
1 Piaba pit constrained resources are reported at a cutoff grade of 0.30 g/t Au inside a pit optimization shell based on a gold price of US$1500 per ounce.
2 Piaba underground resources are reported at a cutoff grade of 0.75 g/t Au outside the pit optimization shell. The cutoff grade has been calculated at a gold price of US$1500 per ounce.
3 Tatajuba database consists of 4,740 metres in 45 diamond drill holes (2008). The Tatajuba resources are not constrained by a pit optimization shell. Mineral resources that are not mineral reserves do not have a demonstrated economic viability. The independent QP responsible for the preparation of the mineral resource estimate and who has reviewed the above disclosure is Leah Mach, CPG, of the Denver office of SRK Consulting (U.S.), Inc.
4 The Company has not yet up-dated its mineral reserves estimate for the Aurizona Gold Operation based on the new mineral resource discussed in this MD&A. For greater clarity, the Company's mineral reserves estimate effective as of July 13, 2010 previously disclosed by the Company is based on an earlier mineral resource estimate which did not include the additional drilling data.
5 There may be political, environmental, legal and other risks that may materially affect the mineral resource estimate disclosed in this MD&A.

Deep Diamond Drilling - Piaba Deposit

Work significantly advanced on the identification of deep structural drill targets beneath the limit of the updated Piaba resource. In November, Itasca CA completed a structural mapping program in the Piaba pit to define the high-grade mineralization controls. This work program combined with in house structural mapping has developed a better understanding of the structural setting of Piaba and controls on high-grade shoots and will guide deep drilling planned for commencement in late February 2012.

Auger Drilling - Tatajuba Deposit

A shallow auger drill program (1,365 metres in 141 holes) was completed at the Tatajuba gold deposit. This followed a review of the 2008 Tatajuba resource estimate which identified a lack of near surface drill data. The samples are currently at the assay laboratory, though preliminary results confirm that the ore body is outcropping along the deposit strike and these holes should have a positive effect on future Tatajuba resource estimates.

Diamond and Reverse Circulation Drilling - Boa Esperança

A diamond and reverse circulation ("RC") drill program commenced at the Boa Esperança near mine target in November 2011. Eight diamond drill holes totalling 1,949 metres were completed, testing a target strike length of 1,000 metres. Fourteen RC drill holes totalling 1,548 metres were also completed at Boa Esperança testing a strike length of 1,000 metres. Assay data will be released when the results have been fully received and validated. Core geology is dominated by tonalities interbedded with metavolcanics and weak to moderate hydrothermal alteration.

Diamond Drilling - Ferradura

Diamond drilling commenced at the Ferradura near mine target in December 2011. Eight diamond drill holes totalling 1,283 metres were completed testing a target strike length of 500 metres. Assay data will be released when the results are fully received and validated. Core geology is dominated by tonalities and gabbros.

Diamond Drilling - Conceição

Diamond drilling commenced at the Conceição near mine target in February 2012. Three diamond drill holes totalling 400 metres were completed, testing a strike length of 300 metres. Assay data will be released when the results have been fully received and validated. Core geology is dominated by tonalities and gabbros.

Ground Magnetic Geophysical Surveys

The ground magnetic surveying data collected at Aurizona during the last quarter was interpreted. The data was collected over several near mine targets located to the east of the Piaba deposit within the mine licence. The data interpretation shows numerous sub-parallel structures associated with gold anomalies that will be rate/ranked ahead of future drill programs at Aurizona. These results are very positive.

Permitting

The process of converting the Tatajuba exploration licence, which hosts the Tatajuba deposit, to a mining license advanced during the quarter and the full application is expected to be submitted to the DNPM in Q1 2012.

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 kilometres northwest of the port city of São Luis, Maranhão State. Cachoeira comprises one contiguous block consisting of two mining and three exploration licenses covering approximately 4,742 hectares.

In October 2007, the Company 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 of at least BRL 9.5 million over a 50 month period. The Company achieved this commitment during the year. The Company's interest in the property is 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 2010, 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.

All activities during Q4 were related to social and community development within the Cachoeira project.

MARANHAO GREENFIELDS EXPLORATION PROPERTY - MARANHAO STATE, BRAZIL

The Maranhão 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 approximately 190,000 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.

Following the delivery of a major resource upgrade at Aurizona in 2011, the Company is now focused on unlocking the potential of the Maranhão Greenfields project through aggressive exploration programs targeting large scale mineralizing systems. The Company's geologic interpretation shows that the Maranhão Greenfields project area is transected by numerous major shear zones associated with gold anomalies and artisanal gold workings. The Company established 3 field bases which provide support for teams over the entire project area and currently have 10 exploration teams active in the project area conducting soil and geophysical surveys, geological mapping of artisanal pits and larger scale geological programs in addition to auger drilling. To date the crews have registered 70 artisanal gold workings within the Company's landholding and the program is ongoing. This evidence of gold mining activity combined with results from the Company's exploration programs demonstrate the major potential of this new gold district to host gold deposits.

The Company currently has six exploration teams working five targets simultaneously in the Maranhão Greenfields project area.

Areal Gold Target

Areal is a new gold target located 21 kilometres due southwest from the Aurizona plant. It was identified via soil and ground magnetic surveys followed-up by geological mapping and rock sampling. An auger drill program designed to test the main gold anomaly on a 200 metre by 20 metre grid was finalized. 382 holes totaling 2,223 metres were drilled. Samples are at the assay laboratory. A topographic survey was also completed over the Areal target.

Ceara-Arete Targets (PC Grid)

Soil geochemical data were received and interpreted for the PC Grid that is located along strike to the west of the Aurizona mine. Two targets identified within this grid were prioritized for further work - Ceara located 16.5 kilometres due west/southwest from the Aurizona plant, and Arete is located 15 kilometres due west/southwest from the Aurizona plant. Geological mapping was completed over both targets. Ceara is a historic garimpo with several old pits while Arete is a new geochemical discovery. Both targets are associated with favourable geophysical structural lineaments. An auger drill program was completed at Arete. 239 holes totaling 1,309 metres were drilled. A similar program has been planned for Ceara. A reconnaissance rock sampling program was also completed and a ground magnetic survey commenced over both targets. Full exploration results for the Ceara-Arete target will be released shortly. Several other gold targets were also discovered within the PC grid and these are being prioritized for geological mapping.

Nova Vida Target

The Nova Vida target is located 42 kilometres due southwest from the Aurizona plant. Nova Vida is a large low-grade gold-in-soil anomaly associated with recent and paleo-conglomerates and several alluvial gold garimpos. Assay results were received for the Nova Vida east extension soil sampling program with positive results. Full exploration results for the Nova Vida target will be released shortly.

Jiboia, Santarem, Tatu Targets (JST Grid)

The JST targets are located in the far southwest of the Maranhão Greenfields project area 50 kilometres due southwest from the Aurizona plant. They are significant in that they extend surface gold mineralization in the project area to the extreme southwestern limit of the Company's claim boundaries. No work was conducted at JST in the quarter. Geologic mapping and ground geophysical surveys will be conducted at JST in 2012 and the targets will be reported on finalization of these programs.

CPB, PJP, BML, SDP, C-MAG Grids

Work continued at these targets in the quarter and assay data are being uploaded to the databases. The Company is aggressively exploring its extensive and prospective landholding at Maranhão Greenfields to deliver drill targets on 100% owned mineral rights in 2012.

DNPM Permitting

The Company currently has 5 new claim applications totaling approximately 33,000 hectares at Maranhão Greenfields. These applications are under evaluation at the DNPM and will be reported on as and when they are granted.

SUMMARY OF OPERATING RESULTS

Three months ended December 31, Year ended December 31,
(tabled amounts are expressed in thousands of US dollars)(4) 2011 2010 2009 2011 2010 2009
Gold sales (ounces) 13,982 9,594 - 41,502 11,795 -
Revenue 19,854.1 13,656.7 - 55,301.4 16,106.5 -
Operating expense (11,361.3 ) (13,922.3 ) - (40,090.1 ) (21,891.9 ) -
Depreciation and amortization (2,267.7 ) (1,783.0 ) - (6,386.2 ) (2,133.7 ) -
Gross profit (loss) 6,225.1 (2,048.6 ) - 8,825.1 (7,919.1 ) -
General & administration (3) (2,043.9 ) (1,320.7 ) (813.4 ) (7,654.5 ) (4,744.4 ) (2,631.4 )
Exploration expense (2,352.6 ) (665.4 ) (576.1 ) (5,724.5 ) (2,788.8 ) (3,234.7 )
Financing (cost) income, net (1,583.4 ) (491.2 ) 977.4 (4,542.6 ) (866.4 ) 1,489.9
Unrealized gains (losses) from derivatives (5,356.6 ) (899.0 ) - (3,064.8 ) (947.2 ) -
Foreign exchange and other (693.4 ) 519.1 (891.2 ) 1,576.1 903.6 2,259.4
Income taxes 5,695.7 - - 5,695.7 - -
Net income (loss) (109.1 ) (4,905.8 ) (1,303.3 ) (4,889.5 ) (16,362.3 ) (2,116.9 )
Basic/diluted loss per share (0.00 ) (0.02 ) (0.00 ) (0.01 ) (0.04 ) (0.01 )
Total assets 158,201.8 109,932.5 71,921.4 158,201.8 109,932.5 71,921.4
Total liabilities 59,090.8 47,687.7 34,859.9 59,090.8 47,687.7 34,859.9

Revenue increased over the comparative periods of 2010 due to the increase in gold production and the increase in the price of gold. The Company's average realized price of gold received was $1,571 per ounce for 2011, excluding gold sales to Sandstorm and delivery of gold on behalf of the prepaid gold agreement with RMB. The Company achieved operating profits in Q4 and the full year compared to operating losses in the comparative periods of 2010. This was due to an increase in gold production and a decrease in the average unit cash cost of production in the current periods.

G&A expense was significantly higher than comparative periods of 2010 primarily due to increases in stock based compensation expense related to the hiring of new management and increases in marketing and investor relations expenditures.

Exploration expenditure was approximately $4.5 million in Q4 and $20.1 million for the year, of which, $2.1 million in Q4 and $14.3 million for the year was related to the Aurizona resource definition (capitalized in mineral properties for accounting purpose). The Company embarked on a significant drill program at Aurizona resulting in the increase in the size of the Aurizona resource, which was publicly released in December. The balance of exploration activities was related to Maranhao Greenfields and Cachoeira. Exploration activities increased in the Maranhao Greenfields area as the Company began identifying drill targets for 2012, with the expectation of discovering and defining a new gold resource for the Company. Exploration activities at Cachoeira were limited to social and environmental work.

Net financing cost was higher in both Q4 and the full year as compared to the same periods of 2010 due to the non-cash accreted interest (for accounting purpose) from the settlement of RMB debt facility and due to higher outstanding debt balances in 2011.

Unrealized gains (losses) from derivative liability were related mark-to-market adjustments on foreign exchange forward contracts, interest rate swap contracts and a warrant derivative related to the transition to IFRS, whereby the warrants outstanding were reclassified as a derivative liability on the balance sheet and subject to mark-to-market adjustments through the profit and loss statement. The full year unrealized loss on derivatives consisted of a loss on foreign exchange forward contracts and warrants liability of $3.1 million $0.1 million, respectively, which was offset by a gain on interest rate swap contract of $0.2 million. The loss during the current quarter was primarily due to changes in the BRL:USD exchange rate in Q4.

Foreign exchange gains and losses for 2011 were primarily related to the WestLB Revolving Credit Line, which is denominated in BRL currency. The foreign exchange gains in the comparative periods of 2010 included foreign exchange gains on working capital items.

Income tax provision recovery was mainly triggered by recognition of tax loss carry forward from MASA. As a result, an amount of $8.1 million was capitalized as deferred tax asset. This impact was netted out by current tax provision of $2.4 million from MASA's annual taxable income.

Consolidated profit and loss - 2 year historic trend

(tabled amounts are
expressed in thousands of
US dollars)(4)

Q4 11

Q3 11

Q2 11

Q1 11

Q4 10

Q3 10

Q2 10

Q1 10
Revenue 19,854.1 15,910.5 9,179.4 10,357.4 13,656.7 1,620.3 829.5 -
Operating expense (11,361.3 ) (9,009.2 ) (10,990.7 ) (8,728.9 ) (13,922.3 ) (5,576.2 ) (2,393.4 ) -
Depreciation and amortization (2,267.7 ) (2,012.9 ) (1,203.5 ) (902.1 ) (1,783.0 ) (303.8 ) (46.9 ) -
Gross profit (loss) 6,225.1 4,888.4 (3,014.8 ) 726.4 (2,048.6 ) (4,259.7 ) (1,610.8 ) -
General & administration(3) (2,043.9 ) (2,370.5 ) (2,178.1 ) (1,062.0 ) (1,320.7 ) (1,367.6 ) (1,037.0 ) (1,019.1 )
Exploration expense (2,352.6 ) 263.2 (2,236.4 ) (1,398.7 ) (665.4 ) (1,334.5 ) (725.7 ) (63.2 )
Financing (cost) income, net (1,583.4 ) (1,979.1 ) (624.5 ) (355.6 ) (491.2 ) (327.4 ) (78.6 ) 30.8
Unrealized gains (losses) from derivative liability (5,356.6 ) (73.8 ) 737.3 1,628.3 (899.0 ) 472.7 (520.9 ) -
Foreign exchange and other (693.4 ) 1,994.2 (375.1 ) 650.4 519.1 30.4 349.5 4.6
Income taxes 5,695.7 - - - - - - -
Net income (loss) (109.1 ) 2,722.4 (7,691.6 ) 188.8 (4,905.8 ) (6,786.1 ) (3,623.5 ) (1,046.9 )
Basic/Diluted (loss) income per share (0.00 ) 0.01 (0.02 ) 0.00 (0.01 ) (0.02 ) (0.01 ) (0.00 )

Revenue's began in Q2 2010 with the Company's first ounce of gold produced and increased up to Q4 2010 due to higher production output and rising gold prices. However, production decreased in Q1 2011 and Q2 2011 due to the planned Aurizona plant shutdown and upgrade to improve the plant's operating capabilities. Subsequent to the shutdown and upgrade, production increased to feasibility levels resulting in an increase in gold sold in Q3 and Q4 2011. Operating expenses followed the same trend as gold sales with movements in quarterly operating expense directly related to the number of ounces of gold sold within that period. In addition, operating expenses based on an average unit cash cost of production basis were directly impacted by production and recovery rates. General and administration expense remained consistent quarter on quarter since production began in Q2 2010, except for the period between Q2 2011 to Q4 2011, which was impacted by an increase in stock based compensation expense related to the hiring of new management and increases in marketing and investor relations related costs.

Exploration expense was related to the Cachoeira and Maranhao Greenfields exploration programs which began in Q2 2010. Variances between quarters were due to the timing of executing the planned exploration programs and the seasonal weather.

Net financing costs were directly related to the interest expense on the outstanding loan balance and interest income on the cash balance of the Company.

Unrealized derivative gains and losses quarter on quarter was mainly driven by the volatility in the Company's share price (and its relation to the outstanding warrants) and the foreign exchange rate.

Foreign exchange movements each quarter are related to changes in the USD:BRL exchange rate in relation to the Company's working capital accounts in Brazil and its WestLB revolving credit facility which is denominated in BRL.

Income tax provision recovery was mainly triggered by recognition of tax loss carry forward from MASA. As a result, an amount of $8.1 million was capitalized as deferred tax asset. This impact was netted out by current tax provision of $2.4 million from MASA's annual taxable income.

LIQUIDITY AND CAPITAL RESOURCES

Three months ended Year ended December 31
December 31
(tabled amounts are expressed in thousands of US dollars) 2011 2010 2011 2010
Cash flows from operating activities
- Before working capital 3,459.4 (2,576.2 ) (434.8 ) (12,307.7 )
- After working capital (250.4 ) (1,532.7 ) (3,018.2 ) (22,403.9 )
Cash flows from financing activities (656.3 ) 9,514.5 52,722.5 53,546.3
Cash flows from investing activities (4,501.7 ) (5,156.2 ) (24,525.0 ) (33,647.7 )
Effect of exchange rates on cash (296.0 ) 310.8 (229.9 ) 643.4
Net cash flows (5,408.4 ) 2,825.6 25,179.3 (2,505.3 )
Cash balance 35,653.0 10,703.6 35,653.0 10,703.6

At December 31, 2011, the Company had cash and cash equivalents of $35.7 million and finished gold bullion inventory of approximately 2,700 ounces. The Company has adequate funds available to meet its working capital requirements, debt payments, and execute its planned capital upgrades and exploration activities in 2012. The Company expects to spend approximately $39 million in capital additions to Aurizona consisting of approximately $18 million on general operations expansion and sustaining projects, $11 million on mining fleet and $10 million on expansion studies and plant equipment. The Company also plans to spend approximately $12 million on exploration activities, which consist of some deep drill holes at the Piaba pit and on exploration targets within the Maranhao Greenfields project.

In Q4, the Company achieved positive operating cash inflow before working capital due to the achievement of operating income during the quarter. The full year operating cash outflow was due to net loss for the year. The Q4 and full year operating cash flow improved over the comparative periods of 2010 due to the improved operating results.

Cash outflow from financing activities in Q4 included the $3 million debt repayment to Brascan and Eldorado, which was offset by the over-allotment proceeds from Q3's equity financing and private placement. The full year cash inflow of $52.5 million consists of proceeds raised from equity financing and private placement and the drawdown of the WestLB facilities, which were partially used to repay the RMB facility. The 2010 comparative periods included private placement equity financings.

Cash outflow from investing activities in Q4 consisted of $2.1 million on payments to further define the Aurizona resource and $2.4 million on capital items at the Aurizona plant. The annual expenditure consisted of $14.3 million on payments related to the Aurizona resource definition and $10.2 million on capital items at Aurizona, which included the plant upgrades. The 2010 comparative periods included capital payments related to the construction of the Aurizona plant.

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

(tabled amounts are expressed in thousands of US dollars) Total
Less than
1 year
1 - 2
years
2 - 3
years
3 - 4
years
4 - 5
years
Thereafter
Long term debt 30,291.0 3,273.9 5,373.9 6,073.9 14,390.3 1,179.0 -
Accounts payables 8,178.5 8,178.5 - - - - -
Asset retirement obligation 7,008.9 - - - - - 7,008.9

Senior secured credit facility with WestLB AG ("WestLB")

In July 2011, the Company closed a senior secured credit facility with WestLB. This facility is comprised of a $20.0 million senior secured term loan (the "Term Loan") and a 15.6 million BRL senior secured revolving loan (the "Revolving Facility"). The Term Loan also has a cash sweep provision, which has no material impact to the Company's cash position or financial statements as at December 31, 2011. The purpose of the Facility was to refinance the Company's existing debt with RMB Resources and to fund additional capital expenditures and working capital needs at the Aurizona gold mine.

The Term Loan is a 5 year loan with semi-annual instalments commencing on July 1, 2012 and bears interest at LIBOR plus 3.625%. The Revolving Facility is denominated in Brazilian Reais, matures on July 1, 2014 and bears interest at CDI plus 3.25%. Any outstanding commitments under the Revolving Facility shall be repaid in full on the final maturity date.

The Company has provided security on the facility in the form of a first fixed floating charge over the Aurizona operation, a first mortgage over the shares of Mineracao Aurizona S.A. ("MASA") and of the rights, title and licenses associated with the operation and a general security agreement by the Company in favour of WestLB AG.

The Company shall maintain a debt service coverage ratio ("DSCR") to be greater than 1.35, a loan life coverage ratio ("LLCR") to be less than 1.35 and a reserve tail ratio ("RTR") to be greater than 30% over the life of the loan.

Aurizona project debt facility

In December 2009, the Company entered into a senior secured, project debt facility (the "RMB Facility") in the amount of up to $15.0 million with RMB Resources Inc. ("RMB") to assist in the completion of the Aurizona processing plant. The RMB Facility was comprised of two tranches in the amount of $7.5 million each that bore interest at LIBOR plus 7.5% and was to be fully repaid by December 31, 2012.

The RMB Facility was repaid in full with the proceeds from the West-LB Term Loan during the year.

RMB $5.5 million prepaid gold agreement

On May 25, 2011, the Company entered into a $5.5 million prepaid gold agreement with RMB. In exchange for the upfront cash received by the Company, the Company was required to deliver a total of 3,880 ounces of gold to RMB. The Company had fulfilled this obligation during the year.

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.

In July 2011, the Company entered into an agreement with Brascan and Eldorado to amend the outstanding debt of $6.0 million of the Company to Brascan and Eldorado. The Company paid $1.5 million and issued 2,417,949 common shares of the Company, to each party respectively and the debt obligation was fulfilled as at December 31, 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 the FINAME is repayable in equal monthly instalments beginning September 15, 2011 and ending February 15, 2016.

Derivative Contracts

Subsequent to quarter end, the Company entered into the following derivative contracts as required under the terms of the WestLB Facility:

BRL / USD Forward Contracts

The Company sells US dollars and buys Brazilian Real as follows:

Expiry Date Notional Amount (USD) BRL / USD Price
December 16, 2013 $6,000.0 1.86725
June 16, 2014 $6,000.0 1.92986
December 15, 2014 $6,000.0 1.99265
June 15, 2015 $6,000.0 2.04843
December 15, 2015 $6,000.0 2.11206
June 15, 2016 $6,000.0 2.16633

Floating to Fixed Interest Rate Swap Contracts

The Company pays a fixed annual interest rate of 1.495% and receives 6 month US Libor rate as follows:

Start Date End Date Notional Amount (USD)
January 25, 2012 July 25, 2012 $ 20,000.0
July 25, 2012 January 25, 2013 $ 12,304.0
January 25, 2013 July 25, 2013 $ 12,304.0
July 25, 2013 January 27, 2014 $ 4,235.7
January 27, 2014 July 25, 2014 $ 4,235.7

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.

During the current fiscal 2011, the Company closed a marketed public offering and concurrent private placement of units of the Company for total gross proceeds of approximately CA$39.4 million and subsequent to the quarter end, an additional CA$2.6 million was received on the exercise of the over-allotment option. Each unit consisted of one common share of the Company plus one half common share purchase warrant at a price of CA$0.52 per unit.

The Company intends to use the proceeds as follows:

  • Aurizona expansion scoping study / pre-feasibility / feasibility study;
  • Aurizona resource definition expansion;
  • Aurizona plant expansion;
  • Maranhao Greenfields discovery exploration;
  • Cachoeira social impact study;
  • Reduction of debt;
  • Corporate development; and
  • General corporate purposes and working capital.

Each full warrant is exercisable to acquire one common share of the Company at a price of CA$0.70 for a period of 24 months from the closing of the offering, which was September 29, 2011.

On February 24th, 2012, the Company completed its share consolidation of the Company's common shares at a ratio of 5 to 1. The Company's currently outstanding non-listed warrants (the "Non-Listed Warrants") and stock options were adjusted on the same basis. There are currently 6,859,221 Non-Listed Warrants and 40,600,282 listed warrants (the "Listed Warrants") issued and outstanding. Following the Consolidation, each five (5) Non-Listed Warrants will entitle the holder to purchase one post-consolidation Common Share at an aggregate exercise price of $5.00 per post-consolidation Common Share and each five (5) Listed Warrants will entitle the holder to purchase one post-consolidation Common Share at an aggregate exercise price of $3.50 per post-consolidation Common Share. Both the Non-Listed Warrants and the Listed Warrants are exercisable at any time until September 29, 2013.

As at the date of this report the Company had 104,540,169 common shares outstanding, options to purchase 5,198,000 common shares and warrants to purchase 9,491,901 common shares 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
20 20 2.50 14-Mar-12
41 41 4.25 8-Aug-12
42 42 6.15 16-Jan-13
33 33 5.25 2-May-13
50 50 4.50 20-Jun-13
140 140 4.50 19-Sep-13
990 990 2.10 24-Jul-14
150 150 1.83 29-Jul-14
20 20 2.75 4-Jan-15
162 162 3.15 5-Jul-15
1,000 300 2.90 24-Sep-15
1,265 180 3.25 12-Apr-16
570 50 2.75 18-May-16
520 173 2.95 9-Aug-16
195 - 2.30 14-Oct-16
5,198 2,351

Subsequent to the Consolidation, as explained above, each 5 Warrants will entitle the holder to purchase 1 post-consolidation Common Share at an aggregate exercise price per the post-consolidation common share listed in the table below. 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
6,859 5.00 29-Sep-13
40,600 3.50 29-Sep-13
47,459
Consolidated Statements of Loss and Comprehensive Loss
For the years ended December 31,
(expressed in thousands of U.S. dollars, except where indicated)
2011 2010
Revenue
Gold sales $ 55,301.4 $ 14,028.5
Other revenue - 2,078.0
55,301.4 16,106.5
Operating expenses
Cost of goods sold (40,090.1 ) (21,891.9 )
Depletion and amortization (6,386.2 ) (2,133.7 )
Gross Profit 8,825.1 (7,919.1 )
Other (expenses) income, net
Exploration (5,724.5 ) (2,788.8 )
General and administrative (4,397.0 ) (2,934.1 )
Loss on derivative liability (3,064.8 ) (947.2 )
Foreign exchange gain 2,771.3 921.3
Stock-based compensation (3,257.5 ) (1,810.3 )
Finance income 251.2 226.2
Finance cost (4,793.8 ) (1,092.6 )
Other expenses (1,195.2 ) (17.7 )
Loss before income taxes (10,585.2 ) (16,362.3 )
Income taxes expense - current (2,426.7 ) -
Income taxes recovery - future 8,122.4 -
Net loss and comprehensive loss $ (4,889.5 ) $ (16,362.3 )
Loss per common share
Basic & fully diluted (0.01 ) (0.04 )
Weighted average shares outstanding (000's)
Basic & fully diluted 459,024 387,402
Total shares issued and outstanding (000's) 522,551 434,539
Consolidated Balance Sheets
As at December 31,
(expressed in thousands of U.S. dollars, except where indicated)
December 31, December 31, January 1,
2011 2010 2010
Assets
Current assets
Cash and cash equivalents $ $ $
Accounts receivable and prepaid expenses 5,029.7 3,647.9 743.7
Derivative asset 106.0 - -
Inventory 8,710.3 6,325.5 393.6
Investments - - 2,942.9
49,499.0 20,677.0 16,645.7
Property, plant and equipment 97,862.4 88,166.0 54,867.6
Derivative asset 58.9 - -
Deferred tax asset 8,122.4 - -
Other assets 2,659.1 1,089.5 408.1
Total assets $ $ $
Liabilities
Current liabilities
Accounts payable and accrued liabilities $ $ $
Current portion of derivative liability - 1,605.8 -
Current portion of debt instruments 3,098.2 8,118.3 301.6
Current portion of other liabilities 576.3 1,748.2 1,787.2
11,853.0 14,996.5 7,453.4
Debt instruments 25,937.8 9,383.2 4,989.2
Derivative liability 9,435.8 1,019.2 -
Other liabilities 9,676.6 19,917.9 20,308.8
Asset retirement obligation 2,187.6 2,370.9 2,108.5
Total liabilities 59,090.8 47,687.7 34,859.9
Shareholders' equity
Share capital 148,989.0 107,233.3 65,687.7
Deficit (49,878.0 ) (44,988.5 ) (28,626.2 )
Total shareholders' equity 99,111.0 62,244.8 37,061.5
Total liabilities and shareholders' equity $ $ $
Consolidated Statements of Changes in Shareholders' Equity and Deficit
As at December 31,
(expressed in thousands of U.S. dollars, except where indicated)
Attributable to equity holders of the Company
Shares Share Contributed
('000) capital surplus Deficit Total
Balance at January 1, 2010 358,837 $ $ 5,624.5 $ $
Net loss for the year - - - (16,362.3 ) (16,362.3 )
Escrow shares returned to treasury and (214 ) (35.7 ) 35.7 - -
Stock options exercised 3,267 1,183.2 (405.6 ) - 777.6
Stock-based compensation charges - - 1,952.9 - 1,952.9
Issue of share capital, net 72,649 38,701.6 113.5 - 38,815.1
Balance at December 31, 2010 434,539 $ 99,912.3 $ 7,321.0 $ $ 62,244.8
Net loss for the year - - - (4,889.5 ) (4,889.5 )
Stock options exercised 2,475 1,583.6 (596.3 ) - 987.3
Stock-based compensation charges - - 3,257.6 - 3,257.6
Issue of share capital, net 85,537 37,510.8 - - 37,510.8
Balance at December 31, 2011 522,551 $ 139,006.7 $ 9,982.3 (49,878.0 ) $ 99,111.0
Consolidated Statements of Cash Flows
For the years ended December 31,
(expressed in thousands of U.S. dollars, except where indicated)
2011 2010
Cash flows from operating activities
Net income (loss) for the year $ (4,889.5 ) $ (16,362.3 )
Items not affecting cash
Income tax provision (5,695.7 ) -
Depletion and amortization 6,437.6 2,180.5
Recognition of other liabilities (3,118.2 ) (429.9 )
Unrealized foreign exchange gains (2,970.8 ) (872.4 )
Unrealized (gains) losses from derivative 3,064.8 947.2
Stock-based compensation charges 3,257.5 1,810.3
Accretion of asset retirement obligation 257.9 188.5
Accretion of interest 2,074.8 251.8
Other 1,146.8 (21.4 )
(434.8 ) (12,307.7 )
Change in non-cash operating working capital
Increase in accounts receivable and prepaid expense (2,719.8 ) (3,993.5 )
Increase in inventory (2,112.5 ) (5,617.8 )
Increase (decrease) in accounts payable and accruals 2,248.9 (484.9 )
(3,018.2 ) (22,403.9 )
Cash flows from financing activities
Proceeds from prepaid gold agreement 5,500.0 13,868.8
Payment for settlement of prepaid gold agreement (3,862.7 ) -
Proceeds from debt 30,000.0 -
Payment of debt financing fees (1,712.7 ) -
Repayment to principal of debt financing (16,333.3 ) (1,666.7 )
Proceeds from issuance of special warrants, net - 29,786.0
Proceeds on issuance of common shares 39,131.2 11,558.2
52,722.5 53,546.3
Cash flows from investing activities
Proceeds from disposal of investments - 2,964.2
Payments for mineral properties (14,334.6 ) (2,628.7 )
Payments for property, plant and equipment (10,190.4 ) (33,983.2 )
(24,525.0 ) (33,647.7 )
Effect of exchange rate changes on cash (229.9 ) 643.4
Increase (decrease) in cash and cash equivalents 25,179.3 (2,505.3 )
Cash and cash equivalents - beginning of year 10,703.6 12,565.5
Cash and cash equivalents - end of year $ 35,653.0 $ 10,703.6

Reference

(1) The foregoing are goals and targets forming part of the Company's business plan and strategy. There is no assurance that such goals and targets will be realized. Future production goals and targets and mineralization definition goals will be subject to detailed mining studies and decisions of the board of the Company.
(2) Cash cost is a non IFRS measure. See "Non IFRS Measures".
(3) General and administration ("G&A") consists of general and administrative expenses, professional fees and stock based compensation charges.
(4) The quarterly and annual comparatives from 2009 are presented under Canadian GAAP. IFRS transition began on January 1, 2010.

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", "goals", "targets" 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 Aurizona property (including amount of production, cost of production, future potential) and other development projects of the Company, 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, general business and economic conditions, interest rates, the supply and demand for, deliveries of, and the level and volatility of prices of gold and related products, the timing of the receipt of regulatory and governmental approvals of our projects and other operations, our costs of production and production and productivity levels, as well as those of our competitors, power prices, continuing availability of water and power resources for our operations, market competition, the accuracy of our resource and reserve estimates (including with respect to size, grade and recoverability) and the geological, operational and price assumptions on which these are based, conditions in financial markets, the future financial performance of the Company, our ability to attract and retain skilled staff, our ability to procure equipment and operating supplies, positive results from the studies on our projects, our gold inventories,
our ability to secure adequate transportation for our products, our ability to obtain permits for our operations and expansions, and our ongoing relations with our employees and business partners 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 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. Risks and uncertainties that may cause actual results to vary materially include, but are not limited to, changes in gold prices, changes in interest and currency exchange rates, acts of foreign governments, inaccurate geological and metallurgical assumptions (including with respect to the size, grade and recoverability of mineral reserves and resources), unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, unavailability of materials and equipment, government action or delays in the receipt of government approvals, adverse weather conditions and unanticipated events related to health, safety and environmental matters), labour disputes, political risk, social unrest, failure of counterparties to perform their contractual obligations, changes in our credit ratings and changes or further deterioration in general economic conditions, uncertainties with respect to operating in Brazil, including political unrest, theft, uncertainties with respect to the rule of law, corruption and uncertain court systems and other risks discussed elsewhere in this MD&A and our latest AIF filed on SEDAR at www.sedar.com.

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

Peter Mah, P.Eng., Certified Mining Engineer, the Company's Vice President Operations 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 and approved the corresponding technical disclosure throughout this MD&A. Titus Haggan Ph.D., EurGeol Certified Professional Geologist #746, the Company's Vice President 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 and approved 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..

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