Luna Gold had little cheery news to report in an update of its production guidance. It dropped its gold production forecast from a range of 85,000 to 95,000 ounces gold in 2014 to 75,000 to 80,000 ounces gold and meantime signaled that it would shelve expansion plans amidst cost over runs. It also forecast that cash costs would be higher than it previously expected: $915 to $1,010 an ounce gold up from $800 to $900 an ounce gold.
Luna Gold, a relatively new gold producer which owns the Aurizona gold mine in Brazil, has had to revise down its guidance before. Back in 2011 it had hoped to produce 55,000 to 60,000 ounces gold but later had to drop that down to 40,000 ounces gold.
Subsequent expansion plans have proven to be more expensive than initially budgeted. Today it said that a phase one expansion would cost $63 million, not the $50 million it had expected. As such, and with lower than planned cash flow, it shelved part of the expansion plan.
At the same time, to bolster its stretched finances, Luna Gold also said today it would do a private placement, most of which would be taken up by Sandstorm Gold, a gold royalty and streaming company which is already heavily invested in Luna Gold and the Aurizona gold mine. Luna Gold aims to raise $30.6 million in a placement that is to see Sandstorm’s equity in the company grow from about seven percent to 19.8 percent.
Furthermore Sandstorm and Luna also said Wednesday they were renegotiating Sandstorm’s existing gold stream that covers about 17 percent of Aurizona life of mine gold production through which it buys Aurizona gold at $404 an ounce, this year. It’s not clear how the terms might change at this point. Sandstorm said, “The focus of the discussions is to explore opportunities that will increase value for both Sandstorm and Luna shareholders with the goal of improving Luna’s access to capital, accelerating production and cash flow to both Sandstorm and Luna and leveraging the highly prospective brownfields and greenfields exploration targets.”