Luna Gold LGCUD

PI Financial: Buy rating & $1.80 target for Luna Gold Corp.

[hockeyguy123]

According to PI Financial:

https://app.box.com/s/hcu83orgnyk62udzlaya

LUNA GOLD CORP.

RATING: BUY
(unchanged)

TARGET: $1.80
(unchanged)

Operation and Financials In-Check

EVENT: Today, Luna announced its Q114 financial results, reporting quarterly net earnings of $7.5M and operating cash flow of $7.6M or $0.07/sh and $0.07/sh versus our estimates of $4.8M and $8.4M or $0.04/sh or $0.07/sh, respectively.

DISCUSSION: These results were in-line with our expectations while the earnings beat was attributed to income on financial instruments including foreign exchange contracts and gains on marketable securities. The positive results come on production of 19,414oz and gold sales of
23,002oz that was impacted by a brief road blockade into the Aurizona mine site. Low operating costs continue to support good profit margins with reported cash costs and AISC achieving $705/oz and $787/oz on par with our estimates of $688/oz and $791/oz.

Awaiting completion of Phase I: Luna is now 43% complete its construction of its Phase I expansion which is less than at EOY 2013 due to incorrect installation of one of the CIL tank shells and needed to be removed and re-installed. Management continues to aim at completion
of Phase I in the H214. A further $11M is expected to be required to complete this initiative and bring throughput levels up to 10,000tpd and support an increased production profile to begin targeting 135,000oz/yr. At the end of April 30, 2014, Luna had $31M in cash and 4,500oz of
finished gold bullion and is inclusive of the recent $10M drawdown on its line of credit in order to fund exploration and condemnation on the brownfields land package.

IMPACT: Positive.

FORECAST/OUTLOOK: The Aurizona operation needs further saprolite ore to better blend feed rates with laterite to the mill and to optimize throughput under the upcoming expansion scenario. With Phase I anticipated for completion in H214, further saprolite resource expansion and condemnation drilling is required in anticipation of the Phase II expansion. After today’s beat we are increasing our annual EPS target of $0.09 to $0.11 and maintaining our CFPS estimate of $0.20.

VALUATION/RECOMMENDATION: Our target price is based on a combination and equal weighting of 1.0x our NAV/sh (5% discount, $1,400 long-term gold price) and 8.0x multiple of our 2014E CFPS of $0.20. At this time, we are maintaining our $1.80/sh target and our BUY recommendation.