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Executives

John Blake - President and CEO

Peter Mah - COO

Duane Lo - CFO

Mark Halpin - VP, Corporate Development

Analysts

Tara Hassan - Haywood Securities

Shane Nagle - National Bank Financial

Luna Gold Corp. (OTCQX:LGCUF) Q4 2013 Earnings Conference Call March 20, 2014 11:00 AM ET

Operator

Good morning, ladies and gentlemen. Welcome to the Luna Gold 2013 Full-Year and Fourth Quarter Conference Call. There will be a Q&A session, following management’s remarks for institutional analysts and investors. Contact information for representatives of the media and retail investors will be given at the end of the call.

I’d now like to turn the meeting over to Mr. Mark Halpin, VP of Corporate Development. Please go ahead sir.

Mark Halpin

Thank you. Good morning, everyone, and welcome to Luna Gold’s conference call to review the Company’s financial results for the fourth quarter and full-year ending December 31, 2013. Also I take this opportunity to discuss Luna Gold’s outlook and strategy for 2014.

I’m Mark Halpin, Luna Gold’s Vice President, Corporate Development. With me on the call this morning are John Blake, the Company’s President and Chief Executive officer; Peter Mah, the Company’s Chief Operating Officer; and Duane Lo, the Company’s Chief Financial Officer. Following our prepared remarks, we will conduct a question-and-answer session for analysts and institutional investors.

Before we begin, I must caution all participants that this conference call contains forward-looking statements that reflect management’s expectations regarding the Company’s future. Whenever possible, these statements will be identified by words such as anticipate, believe, expect or similar expressions, which are based on the information currently available to the Company.

Investors should not place undue reliance upon these statements, which involve significant risks, uncertainties and assumptions. These statements are made as of the date of this call, and the Company assumes no obligation to update or revise them to reflect new events or circumstances.

I’ll now pass the call to John, who will start by reviewing the Company’s results for the fourth quarter and full-year, followed by recent developments and our outlook for 2014 as well as the Phase I expansion update. John?

John Blake

Thank you, Mark, and good morning everyone and welcome. 2013 was a very productive year for Luna Gold which [results] [ph] in positive cash generation and thus positive cash was reinvested towards Phase I.

Fourth quarter highlights for 2013 were, record gold production of 22,177 ounces, an increase of 630 ounces from the previous fourth quarter of 2012. Total cash cost of production was $652 per ounce, $16 per ounce decrease from the fourth quarter of 2012. All-in sustaining cost of production was $832 per ounce of gold, a decrease of 17% per ounce from the fourth quarter of 2012. All-in cost of $982 per ounce of gold produced, a decrease of $152 per ounce from the fourth quarter of 2012.

Cash flow from operating activities before changes in non-cash working capital of $3.5 million which represents $0.03 per share, a decrease of $9.4 million or $0.09 per share from the fourth quarter of 2012. Cash balance and finished gold inventory at the end of February 2014 of $25 million and 5,000 ounces respectively. Net loss of $0.5 million, a decrease of $8.8 million in net income from the fourth quarter of 2012.

The Company’s average realized price of gold received on sales, excluding amounts delivered to Sandstorm for the three months ended 31st of December 2013 was $1,312 per ounce. Total sustaining CapEx for the fourth quarter was $2.7 million.

For the full-year of 2013 financial highlights include record gold production of 79,229 ounces, an increase of over 4,900 ounces from the full-year of 2012. Total cash costs $723 per ounce of gold, a $28 per ounce decrease from the full-year of 2012. All-in sustaining cost of production $891 per ounce of gold, a decrease of $60 per ounce from the full-year of 2012. All-in $1,056 per ounce of gold produced, a decrease of $149 per ounce from the full-year of 2012.

Cash flow from operating activities before changes in non-cash working capital of $23.1 million or $0.22 per share, a decrease of $8.4 million or $0.08 per share from the full-year of 2012. Net income of $7.8 million or $0.07 per share, a decrease of $11.2 million or $0.11 per share from 2012.

The Company’s average realized price of gold received on sales, excluding amounts delivered to Sandstorm for the period ended December 31, 2013 was $1,419 per ounce. Total sustaining CapEx for the full-year of 2013 was $11.5 million.

The following is a summary of milestones achieved by the Company at a corporate level. As we announced on January 20th, the Aurizona Gold Mine produced 22,177 ounces of gold during the fourth quarter of 2013, and 79,229 ounces for the full-year of 2013, both a record production for Luna.

On a full-year basis, the increase of gold production was a result of both higher average head grade and better recoverage when compared with 2012, which was slightly offset by a lower processing throughput as during 2013 Luna processed more laterite material which was a higher work index.

The Aurizona Phase I expansion is progressing and remains on budget as at the 28th of February 2014. The overall engineering, including detailed site engineering, reached 97% complete, procurement awarded reached 97% complete on a planned material and equipment packages. The construction reached 48% complete. Completion and commissioning of Phase I Expansion is targeted for the second half of 2014. In 2014, Phase I expansion costs were estimated at approximately $12.5 million net of contribution from Sandstorm.

On 25th of February 2014, the Company successfully completed a public offering, on a bought deal basis of 16,950,000 common shares at a price of CAD$1.18 per share for the gross proceeds to the Company of approximately CAD$20 million. This will be used for general corporate purposes. As a result of this financing, the Company had approximately $25 million in cash and 5,000 ounces of finished gold on hand at 28th of February 2014.

The Company filed a National Instrument 43-101 technical report dated 29th of April 2013, updating Measured, Indicated and Inferred Mineral Resources and Proven and Probable Mineral Reserves at its Aurizona Gold Mine, increasing Proven and Probable Mineral Reserves to 2.36 million ounce of gold at the Piaba deposit, representing a 222% increase when compared with Piaba July 2010 reserve statement.

The Company completed an independent Mineral Resource update at the Company’s Aurizona Gold Mine, resulting in the Company’s increasing Measured and Indicated Resources to 3.63 million ounces of Inferred Resources to 1.0 -- sorry, from 1.04 million ounces.

The Company has entered into a $30 million corporate secured revolving credit facility with Société Générale and Mizuho Corporate Bank. The Company entered into a $10 million subordinated debt facility with Sandstorm Gold Ltd, for the purpose of providing additional working capital during the Aurizona Phase I expansion.

Now for our 2014 guidance. In January 2014, the Company announced its full-year 2014 guidance as follows. Annual gold production is targeted at 85,000 to 95,000 ounces for the full-year. The production targets for 2014 were based on mine plan designed to feed the existing plant with saprolite ore that is not reliant on the planned expansion upgrades to achieve production targets.

Average annual cash cost of production is targeted at between $690 to $740 per ounce of gold. Average annual all-in sustaining cost of production targeted at $800 to $900 per ounce of gold. Capital expenditure on sustaining items and other non-expansionary projects of $9 million throughout 2014.

The Aurizona Phase II expansion feasibility study is progressing well and remains on target for completion in the second half of 2014. The study is assessing the viability of expanding Aurizona gold production from between 2,000 -- 200,000, sorry to 300,000 ounces per annum. Phase II study will also identify the incremental and sustaining capital investment necessary to maintain a minimum life of mine average of 135,000 ounces of gold production per annum level by implementing successive incremental low cost capital projects.

The Company is in the process of planning a five-year brownfield resource and reserve expansion at Aurizona. The Company plans to commence condemnation and discovery drill programs in the second half of 2014. The objective of these programs are to identify the future footprints for plant expansion, tailings and waste storage areas and increase the Aurizona resource and reserve, specifically targeting new saprolite mineralization. Results of these drill programs will further assist in the process to determine the optimal expansion scenarios.

Work on the Aurizona reserve update with a targeted increase release in the second half of 2014. The Company is planning on developing the Tatajuba deposit with permits received and adding in the Boa Esperança, Ferradura and Conceição resources into the life of mine plan and reserve. The updated life of mine plan will focus on feeding oxide ore to the plant. The combination of these ongoing studies and work plans will be used in advancing Aurizona reserve report.

Phase I update. The Phase I expansion continues to progress towards completion and commissioning in the second half of 2014 and remains on budget as at the 28th of February 2014. From an approved budget of $49.8 million, the Company has committed to approximately $47 million, which is approximately $38 million having been incurred to the end of February 2014. As previously mentioned, the Phase I expansion costs are estimated at approximately $12.5 million, net of Sandstorm’s contribution for 2014. (Indiscernible).

The 2014 gold production target is based on a mine plan designed to feed the existing plant with saprolite ore and is not reliant on the Phase I expansion upgrades to achieve this production target. The Phase I expansion consists of four work packages, design to increase the Aurizona process nameplate throughput to 10,000 tonnes per day of saprolite ore.

A summary of each of the work packages and the stage of completion as at the end of February is as follows. Work package one, the intensive cyanidation reactor with dedicated electro-winning cells is to -- is designed to improve the gravity gold recovery efficiency. This package is 67% complete.

Work package two, the carbon regeneration kiln, the new elution and acid wash columns are designed to increase efficiency of the leaching circuit, reduce carbon replacement costs and increase elution capacity. This package is 60% complete. Work package three, is designed to increase -- an increase in downstream plant throughput. This third package consists of two high rate thickeners which is 40% complete and three additional Carbon-In-Leach tanks, which are 50% complete.

Work package four includes a triple deck wet screen, additional cyclones, pumps and a trash screen. This package is designed to improve crushing and grinding circuit efficiencies through optimized feed particle size and distribution. Work package four is 20% complete. Luna will provide periodic updates as the work package is progressed towards completion and commissioning.

Before I hand the conference call back to Mark Halpin, I’d like to reiterate Luna’s long-term priority continues to be focused on cash generation, where an accreting cash balance may be invested into assets which are targeted to maximize the Company’s future cash generating capacity. Back to you Mark.

Mark Halpin

Thanks, John. Before we begin today’s question and answer session, I’d like to remind everyone that questions will be reserved for institutional investors and analysts. For retail investment – sorry for retail investors, and members of the media who wish to ask questions, please call Patrick Balit, Luna’s Investor Relations Manager directly at +1604-568-7993. Operator, we can now proceed to Q&A. Thank you.

Question-and-Answer Session

Operator

Thank you, Mr. Halpin. We will now take questions from the telephone lines. (Operator Instructions) Our first question is from Tara Hassan from Haywood Securities. Please go ahead.

Tara Hassan - Haywood Securities

Good morning, gentlemen and congrats on the quarter and to the year. Could you maybe give some details on what the acceleration plans are this year in an effort to expand the oxide resources and how that money will be spent quarterly and what the focus will be of that program?

John Blake

Tara, we’re working on that plan. We’ve got (indiscernible) the various different things at the moment. So we can’t really commit to a detailed plan on that right now. But we will be putting that at to the market in the next month or so.

Tara Hassan - Haywood Securities

Okay. That’s great. And then, can you give some additional detail around the construction deficiencies on the CIL tank construction ,and maybe how the problem was identified and how it will be rectified moving forward?

Peter Mah

Yes, hi Tara. It’s Peter here. We had a failure on our -- one of our jacks and we’re in the process of figuring out a remediation plan and evaluating [inaudible] proposals.

Tara Hassan - Haywood Securities

Okay. It was -- was it in a deficiency that the contractor identified or that you guys identified?

Peter Mah

The contractor identified it.

Tara Hassan - Haywood Securities

Okay. That’s great. Thank you.

Operator

Thank you. (Operator Instructions) Our next question is from Shane Nagle from NBF. Please go ahead.

Shane Nagle - National Bank Financial

Thanks, operator. Just a quick question on to the costs for next year guys. You mentioned you’re going to be mining an increased amount of saprolite ore and with the guidance of $690 to $740 compared to around $650 in Q4, is there just the waste stripping you’ve got to catch up on declining grade, is there any material cost increase with contracts that you have or is it just largely related to the grade and the strip ratio for next year?

Duane Lo

Hi Shane. It’s Duane here. The higher cost is purely modeled on a higher strip ratio that we’re expecting to ramp up in 2014.

Shane Nagle - National Bank Financial

Okay. That’s some of the stripping that you guys deferred from this year?

Duane Lo

That’s correct.

Shane Nagle - National Bank Financial

Okay. And then just going forward with, do you have enough -- I mean in the current reserves from the saprolite ore to continue driving at those 10,000 tonne per day throughputs at the expanded rate or is there sufficient crushing capacity in the work package that you have now to handle an increased proportion of those harder ores?

Peter Mah

Yes, Shane, it’s Peter. We are -- as John mentioned, we’ve added in the satellite resource in Boa Esperança, Ferradura and Conceição and Tatajuba dependent on the permit that we’ve applied for. So that will -- we’re working through those plans and how long that will last and then also the timing of further incremental crushing, grinding studies are ongoing as part of the Phase II [pre-FS] [ph].

Shane Nagle - National Bank Financial

Okay. So those satellite deposits and additional resource additions would be required to add some more softer ores to maintain that 10,000 tonne a day throughput then?

Peter Mah

Correct.

Shane Nagle - National Bank Financial

Okay, great. Thanks, guys.

John Blake

Shane, it’s John Blake here. Just to add to that, that it’s in our best interest to continue identifying the softer oxide ores, which is obviously cheaper to produce out of the longer term. So whilst the cash - while the gold price remains relatively low, we will pursue on that basis.

Shane Nagle - National Bank Financial

Okay, great. Makes sense. Thanks, guys.

Operator

Thank you. (Operator Instructions) Sir, we have no further questions.

Mark Halpin

Thanks, Mark. In conclusion, we like to thank everyone for joining our fourth quarter and full-year 2014 results call this morning. We are available to answer further questions on +1 604-568-7993. Before we finish, I’d like to remind listeners that we’re continually uploading new images to our Phase I photo gallery on our website. We are looking forward to updating you on the Company’s first quarter 2014 results this May. Thank you and have a good day.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for participating.

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Source: Luna Gold's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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