Jan. 20, 2015 1:35 AM ET Summary
- Luna Gold got its Q4 production back up to the 20,000 oz./quarter range and its ore grade back up to nearly 1.4 gpt.
- Management will reduce mining activity from February onward in order to avoid high mining costs during the rainy season.
- This is in line with expectations.
- Shares remain depressed and offer significant upside should management turn its operations around at Aurizona.
Luna Gold (OTCQX:LGCUF) just announced its Q4 production data in its January 19th press release (a link to the PDF can be found here). The company, which had a rough 2014 given reduced production in Q2 was able to bring its production back up to over 20,700 oz. It also brought its ore grade back up to 1.39 gpt. These figures hit lows in Q2 of 14,300 oz. and 1.14 gpt., respectively.
The company further reiterated its plan to reduce production going into the rainy season starting in February. Recall that last year the company's Q2 production was hit due to difficulties in mining during the rainy season. These problems had been exacerbated as it is obligated to sell 17% of its gold production to Sandstorm Gold (NYSEMKT:SAND) at $404/oz. (now $408.04/oz. due to an embedded 1% inflation adjustment), and this raises its effective cost of production. In order to avoid this, management is going to process stockpiled ore and mine a small amount in addition to this in order to avoid mining at full capacity during this potentially high-cost time of year.
These are all positive developments for a company that has seen its stock price lose 80% of its value in the past year due to the Q2 problems. Given the very low expectations I think this could regenerate some interest in the stock, especially now that there is more interest in gold and gold miners. The company is now a 75,000 oz. per year producer, and it has the potential to produce at relatively low costs for a very long time at these rates given the high grade of its ore and the size of its resource.
It is for this reason that I recommended the shares in October. While they continue to be high risk, management has a plan to move forward in a way that ensures that it maximizes cash-flow while minimizing risk. However Luna Gold is especially vulnerable to a drop in the gold price, especially given its Sandstorm agreement and its $47 million debt load, but at the current valuation the reward significantly outweighs the risk.
https://seekingalpha.com/article/2830936-update-luna-gold-reports-a-rebound-in-production-but-a-planned-reduction-in-production-from-february-onwards