Luna Gold Announces Results for the Second Quarter 2014

VANCOUVER, BC--(Marketwired - August 14, 2014) - Luna Gold Corp. (TSX: LGC) (LMA: LGC) (OTCQX: LGCUF) ("Luna" or the "Company") today announced its operational and financial results for its second quarter ("Second Quarter") and six-month period ("YTD") ending June 30, 2014. This news release should be read in conjunction with the unaudited interim consolidated financial statements and the Management's Discussion and Analysis dated June 30, 2014.

SECOND QUARTER 2014 RESULTS HIGHLIGHTS

• Revenue of $16.1 million, including sales to Sandstorm;
• Gold sales and production of 13,882 ounces and 14,262 ounces respectively;
• Total cash cost of production of $1,140, All-in sustaining cost of production of $1,297, All-in cost of $1,484 per ounce of gold produced;
• Cash flow from operating activities before changes in non-cash working capital of $(0.20) million ($0.00 per share);
• Net income of $0.10 million ($0.00 per share); and
• After closing the Sandstorm Gold Ltd. ("Sandstorm") strategic investment in Luna, the Company has a cash balance of approximately $35.5 million and 6,700 ounces of finished gold inventory.

Second Quarter and YTD 2014 Highlights

Company Developments

• The Company re-tendered the final construction packages for the Phase I Expansion, which resulted in capital costs increasing from the original estimate of $50.0 million to an estimate of $63.0 million. This 26% increase is due to increased contractor costs associated with mechanical, piping and electrical installations as well as higher cement costs associated with the completion of the high rate thickener foundations;
• Due to a combination of lower cash flow than budgeted during the first six months of 2014 and the revised capital estimates to complete the Phase I Expansion, the Company has decided to delay completion of a portion of the expansion for an indefinite period. In particular, work package 3 ("WP3"), which consists of two high rate thickeners and three Carbon-In-Leach tanks and work package 4 ("WP4"), which consists of a triple deck wet screen, cyclones, pumps and trash screen will be delayed for an indefinite period. The Company is determining the optimum production profile for sustained long life production at the Aurizona mine and prioritizing allocation of its limited capital and cash flow in order to right-size production in the current gold price environment; 
• In August 2014, the Company announced a non-brokered private placement (the "Placement") of up to 30,000,000 common shares (the "Placement Shares") priced at C$1.02 per share, for gross proceeds of up to C$30.6 million. As part of the financing, the Company entered into a strategic investment agreement (the "Agreement") with Sandstorm which, upon completion, will make Sandstorm the Company's largest shareholder. Pursuant to the Agreement, Sandstorm has purchased a minimum of 19,500,000 of the Placement Shares, for gross proceeds of approximately C$19.9 million. Proceeds of the transaction will be used for expenditures related to the Aurizona mine, ongoing brownfields exploration at and around the Aurizona mine, exploration at Luna Greenfields, and for general working capital; 
• As required by the Agreement, Mr. David Awram, Senior Executive Vice President of Sandstorm, has been appointed to the Company's Board of Directors;
• Mr. Luis Baertl has stepped down as Chairman of the Board and has been succeeded as Chairman by the Company's current lead independent director, Mr. Steven Krause. Mr. Baertl will remain a Director of the Company;
• Mr. Peter Mah, Chief Operating Officer, has left the Company; and
• Mr. Mark Halpin, Vice President Corporate Development, has left the Company.

OUTLOOK AND STRATEGY
Based on the first half of 2014 gold production and average unit cash costs of production, the Company has revised its 2014 full year operating guidance as follows:

To address operational mining deficiencies, the Company has engaged a mine management contractor from Canada and temporarily increased its contractor mine fleet. The Company is targeting to extract 7.5 million tonnes of material from the Piaba mine pit, produce between 41,000 and 46,000 ounces of gold in the second half of 2014 and stockpile approximately 600,000 tonnes of ore at an estimated grade of 1.2 grams per tonne by December 31, 2014. The rain season ended in July and pit dewatering programs are in process. During the month of July, approximately 1.1 million tonnes of material was mined (ore and waste) from the Piaba pit and 6,700 ounces of gold produced. The gold production target above is based on a mine plan designed to feed the existing plant with saprolite ore.

The Company intends to complete the four main circuits in work packages 1 ("WP1") and 2 ("WP2") of the Phase I Expansion as well as honour any outstanding procurement commitments. WP1 and WP2 consist of the carbon regeneration kiln, intense leach reactor, elution circuit and electro-winning cells. The timeline for mechanical completion of WP1 and WP2 remains before year end 2014. The estimated cost to complete these work packages is $6.0 million, including outstanding procurement commitments, which will bring the total Phase I Expansion expenditures to approximately $47.0 million. The Company is working with the mining and environment authorities to modularly commission and permit WP1 and WP2. 

The Company commenced its brownfield exploration program to expand resources and reserves, specifically targeting new saprolite mineralization and to improve its understanding of high grade mineralization controls and to sterilize footprints for future plant expansion, tailings and waste storage areas. The Company hired a drilling contractor and commenced drilling. The Company delayed the purchase of three multi-purpose drill rigs and will review its decision to acquire these rigs in 2015. The Company expects to spend $4.0 million in exploration in the second half of 2014.

The mine management contractor has been engaged to assist the Company's team to implement a water management program for the 2015 rain season and improve operational mining techniques. The focus over the remainder of the year will be to stabilize and improve mine operations, including operator training and implementation of best practices in mine operations. Expenditures on sustaining capital projects for the second half of 2014, including a tailings dam raise, mine equipment rebuilds and other plant projects, is budgeted between $5.0 and $7.0 million.

The Aurizona Phase II Expansion Prefeasibility Study ("PFSII") and the Aurizona NI 43-101 Resource and Reserve update ("Resource and Reserve Update") remain on target for completion and release in the second half of 2014. The PFSII study will identify the Company's options to address the additional crushing and grinding circuit that will be needed to process the harder primary ore body in the future. The Resource and Reserve Update will utilize a lower gold price and incorporate improved geological modelling and information which are likely to result in changes to the previous Aurizona NI 43-101 Resource and Reserve.

AURIZONA GOLD MINE - MARANHAO STATE, BRAZIL
Phase I Expansion Update
The Phase I Expansion is designed to expand, improve efficiencies and debottleneck the existing Aurizona process plant in order to increase gold production with minimal impact to the current plant foot print and operations.

The expansion consists of four work packages designed to increase the Aurizona process plant nameplate throughput to 10,000 tonnes per day ("tpd") of saprolite ore. In addition, the expansion has been designed to allow flexibility for further upgrades to maintain the 10,000 tpd throughput as the Company develops the harder primary ore body. These four work packages consist of (WP1) intensive cyanidation reactor ("ICR") with dedicated electro-winning cells ("EW"); (WP2) carbon regeneration kiln, and new elution and acid wash columns; (WP3) feed and tailings high rate thickeners and three additional CIL tanks; and (WP4) triple deck wet screen, additional cyclones, pumps and trash screen. 

The increase from the original capital budget estimate of $50.0 million to an estimate of $63.0 million was due to increased contractor costs associated with mechanical, piping and electrical installations as well as higher cement costs associated with the completion of the high rate thickener foundations. These increases from the original budget were due to delays in execution resulting in inflationary increases in labour, consumables and other costs related to the completion of the expansion, including overhead costs.

The Company remains on target for mechanical completion of WP1 and WP2 before year end 2014 and is working with the mining and environment authorities to modularly commission and permit WP1 and WP2. With the decision to delay WP3 and WP4 for an indefinite period, the Company will put these assets in care and maintenance until a decision is made to complete these items.

The detailed status of each work package is as follows:

1. This work package is designed to improve gravity gold recovery efficiency through the elimination of the inefficient shaking tables. The ICR is an intense cyanidation process delivering gold in pregnant solution directly to one new dedicated stainless steel electro-winning cell. Three additional electro-winning cells, bringing the total to four, will increase the efficiency of the gold room through higher capacity and improved controls. The ICR building is structurally complete, and block wall construction has started on both the ground floor, and first level between the new and existing structures. The ICR, EW cells, and rectifiers are in place. Lighting is substantially complete, cables have been pulled from the rectifiers to the EW cells, and piping preassembly and installation is ongoing. This work package is targeted for mechanical completion before year end 2014. 
2. This work package is designed to increase the efficiency of the CIL circuit, reduce carbon replacement costs and increase capacity of the elution circuit. The elution and acid wash columns are designed to improve the overall capacity and efficiency of the elution process. The carbon regeneration kiln building and acid wash structure are structurally complete. The new kiln, dewatering screen, feed hopper, quench tank, acid wash column, and elution column have been placed. Piping to the elution column has begun, and pipe spool preassembly is ongoing. Lighting in the elution column area and kiln building is substantially complete. The kiln control panel has been set in place, and cabling from the kiln to the control panel has begun. The construction of the barren solution tank, hydrostatic testing and final inspection are complete, and the barren solution pump has been rough set. This work package is targeted for mechanical completion before year end 2014. 
3. The high rate thickeners provide increased throughput and optimal water/solids slurry control for consistent delivery of both ore in solution to the CIL tanks and recovering of cyanide in solution prior to cyanide destruction and tailings disposal. The three CIL tanks will provide increased ore retention time and throughput to the CIL process. This work package has been delayed for an indefinite period.
4. This project is designed to improve crushing and grinding circuit efficiencies through optimized feed particle sizing and distribution. This work package has been delayed for an indefinite period.

In order to complete WP1 and WP2, as well as other procurement commitments, the Company estimates an additional $6.0 million in 2014. As at June 30, 2014, the Company has spent a total of approximately $41.0 million on the Phase I Expansion. Sandstorm owes the Company approximately $0.4 million related to their 17% contribution to the Phase I Expansion and has paid the Company approximately $1.3 million in 2014. 

Second Quarter and YTD Operating Results

Mining production
During the three and six month periods ended June 30, 2014, total material mined (ore and waste) decreased from the comparative periods of 2013 by 12% and 36%, respectively, primarily as a result of above average rainfall of 35% and 25%, respectively, compared to historical averages, and lower than planned equipment availability. Mining operations were inadequately prepared for the above average rainfall that the mine encountered in the quarter. In addition, mine equipment availability was lower than planned due to delays in receiving equipment maintenance parts from suppliers resulting in significant downtime on some of the mine fleet. This led to lower mine production and higher costs per tonne mined. In contrast, total material mined for the comparative six month period in 2013 benefited from drought conditions experienced at the Aurizona mine, which allowed for an opportunity to increase mine production in dry conditions during a period which normally has heavy rainfall.

The average ore grade mined in the three month period ended June 30, 2014 was lower than the comparative period of 2013 due to flooding in the main area of the Piaba pit. As a result, the Company was unable to access the higher grade ore in the pit and therefore had to mine areas with lower grade ore. The average ore grade mined in the six month period ended June 30, 2014, was comparable to the same period in 2013.

After adjusting for a foreign exchange gain of $0.44 per tonne and $0.62 per tonne, for the three and six month periods ended June 30, 2014, respectively, mining costs were significantly higher per tonne mined compared to the same periods of 2013, primarily due to lower tonnes of material mined and inflationary increases related to salaries and consumables.

Mill processing
Gold production during the three and six month periods ended June 30, 2014 was 24% and 7% lower than the comparable periods of 2013. The decrease was due to lower grade ore processed through the mill and lower recovery, offset slightly by higher ore throughput.

Ore throughput for the three month period ended June 30, 2014 was higher than the comparable periods of 2013 due to an increase in plant availability due to process plant maintenance improvements and planning. Ore throughput for the six month period ended June 30, 2014 was higher than the comparable period in 2013 as the drought conditions that positively impacted mine operations in Q1 2013 had the opposite impact on processing ore due to a lack of water available for ore processing. There were no water shortage issues in Q1 2014 resulting in the increase in process plant availability.

The average ore grades processed for the three and six month periods ended June 30, 2014 was lower than the comparable periods in 2013 due to ore availability associated with mining operations. Recoveries in the three and six month periods ended June 30, 2014 were lower due to a higher percentage of laterite and transitional ore blend, resulting in additional lime requirements in the production process. Ore throughput in the process plant was also intermittent due to a lack of steady feed from the mine. A combination of these items resulted in a negative impact to recoveries.

Cash costs of production
The Company's results are subject to seasonal variation, in particular the wet season in Northeastern Brazil. The wet season generally starts in January and continues through June, with the heaviest rainfall normally experienced in the months of March to May. As a result of the wet season, pit access and the ability to mine ore will be lower in this period than other periods of the year and the unit cost of production will also be higher. To address this issue, the Company mines ore and waste at higher levels within the pit in the wet season and stockpiles ore in the dry season ahead of the wet season for processing.

The total cash cost of production was 64% and 23% higher for the three and six month periods ended June 30, 2014 compared to the same periods in 2013. The strengthening of the US dollar in relation to the Brazilian Real had a positive impact on the total cash costs for the three and six month periods ended June 30, 2014 of approximately $88 per ounce and $118 per ounce, respectively, compared to the 2013 periods.

After adjusting for positive foreign exchange movements, the mining costs per ounce produced in the three and six month periods ended June 30, 2014 were higher by approximately 163% and 88%, respectively compared to the same periods of 2013. Lower production, an increase in pit dewatering activities, an increase in mine equipment maintenance and inflationary increases related to salaries and consumables all led to an increase in costs. 

After adjusting for positive foreign exchange movements, processing costs were approximately 46% and 21% higher than the comparative periods of 2013. The increase in the average process cost per ounce produced was due to the processing of the lower grade stockpile and lower recoveries due to higher leaching costs related to the increase in laterite and transitional ore processed.

The administration cost per ounce produced for the three and six month periods ended June 30, 2014 was higher than the comparative periods of 2013 primarily due to lower gold production and salary inflationary increases. 

Refining and transportation costs were lower due to a change in gold refineries in 2014.

Royalty costs for the three and six month periods ended June 30, 2014 are comparable to the same periods in 2013.

The total all-in sustaining cost ("AISC") of production was higher by 50% and 9% for the three and six month periods ended June 30, 2014, as compared with the same periods of 2013. The higher AISC for Q2 2014 was the result of higher cash cost of production and higher capitalized mine activities related to the clearing and preparation of a new mining area on the west side of the Piaba pit, which was partially offset by deferring all non-essential sustaining capital projects to the future on an as-needed basis. 

After adjusting for a foreign exchange gain of $3.25 per tonne and $1.82 per tonne, total cost per tonne processed was 26% and 12% higher in the three and six month periods ended June 30, 2014, respectively, compared to the same periods of 2013. This was generally due to the higher mining costs associated with low mine production and higher processing costs associated with lower grade and gold recovery and higher leaching costs, which were partially offset by a higher volume of ore tonnes processed through the mill. 

Exploration
Exploration expenditure during the second quarter of 2014 was related to Aurizona resource geology review and planning programs to be executed in the second half of 2014.

In April 2014, the Company announced a brownfield exploration program at the Aurizona Gold Mine. The Company hired a drilling contractor under this initiative and has commenced exploration and condemnation drilling in the third quarter of 2014. The objectives of this drilling program are to expand resources and reserves, specifically targeting new saprolite mineralization, to better understand high grade mineralization controls, and to sterilize footprints for future plant expansion, and for tailings and waste storage areas. The Company has budgeted to spend $4.0 million on this brownfields exploration program in 2014. The Company has delayed its purchase of three new multi-purpose drill rigs until 2015 and will rely on contract drilling services during the second half of 2014.

The Brownfields Exploration drilling program will target new mineralization in several near-mine areas as well as an expansion of resources and reserves through step-out drilling at the Piaba, Boa Esperança, Conceição and Ferradura gold deposits. The drilling program will focus on saprolite mineralization along strike from these deposits and new saprolite mineralization east-southeast of Piaba within the Micote-São Lourenço trend and basin area.

Permitting
The mine license application for the Tatajuba claim was submitted in March 2012 and remains under review by the Brazilian Mining Department. The Company is currently progressing the Environmental Impact Assessment ("EIA-RIMA") and is targeting to receive the mine license in the second half of 2015. 

CONFERENCE CALL DETAILS
The Company will also host a conference call at 11:00 a.m. Eastern Time on Friday August 15 2014, where Management will both review the financial results and discuss the 2014 outlook.

Conference Call Dial-In Details

A replay of the call will be available on Luna's website, www.lunagold.com.

About Luna Gold Corp.
Luna is a gold production company engaged in the operation, expansion, and exploration of gold projects in Brazil.

On behalf of the Board of Directors

Luna Gold Corp.
Geoff Chater - President and CEO

Website: www.lunagold.com

Forward-Looking Statements
This release contains certain "forward looking statements" and certain "forward looking information" as defined under applicable Canadian and U.S. securities laws. Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe", "continue", "plans" or similar terminology. Forward-looking statements include, but are not limited to, statements with respect to future gold production and/or the results of analysis on gold production. Forward-looking statements are based on forecasts of future results, estimates of amounts not yet determinable and assumptions that while believed by management to be reasonable, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Forward-looking statements are subject to various risks and uncertainties concerning the specific factors identified in Luna Gold Corp.'s periodic filings with Canadian Securities Regulators. These factors include the inherent risks involved in the mechanical completion and commissioning of the Aurizona Phase I expansion, preparation and delivery of the Aurizona Phase II expansion prefeasibility study, exploration and development of mineral properties, the uncertainties involved in interpreting drill results and other exploration data, the potential for delays in exploration or development activities, the geology, grade and continuity of mineral deposits, the possibility that future exploration, development or mining results will not be consistent with the Company's expectations, accidents, equipment breakdowns, title matters, labor disputes or other unanticipated difficulties with or interruptions in production and operations, fluctuating metal prices, unanticipated costs and expenses, uncertainties relating to the availability and costs of financing needed in the future, the inherent uncertainty of production and cost estimates and the potential for unexpected costs and expenses, commodity price fluctuations, currency fluctuations, regulatory restrictions, including environmental regulatory restrictions and liability, competition, loss of key employees, and other related risks and uncertainties. The Company undertakes no obligation to update forward-looking information except as required by applicable law. Such forward-looking information represents management's best judgment based on information currently available. No forward-looking statement can be guaranteed and actual future results may vary materially. Accordingly, readers are advised not to place undue reliance on forward-looking statements or information.