TORONTO (miningweekly.com) – The TSX-listed stock of Canadian miner Luna Gold had so far this week traded almost 20% lower after it late last week announced that it had secured C$30-million in dilutive financing and had restructured its existing 17% gold stream with NYSE-listed Sandstorm Gold.

The financing with private equity funds administrator Pacific Road Resources Funds included C$20-million in debt to repay its existing debt facility, as well as a C$10-million private placement.

In connection with the financing, Luna on Friday said it had executed definitive agreements to restructure its Sandstorm gold stream into two net smelter royalties and a convertible debenture.

Under terms of the deal, Pacific Road had agreed to subscribe for C$10-million in a nonbrokered private placement of Luna units, each consisting of one common share and one whole Class A common share purchase warrant.

Subject to receiving all required approvals, the issue price of the units would be C$0.10 apiece, resulting in Luna issuing 100-million shares, and pushing its current outstanding shares up to 241.5-million, a 70.7% dilution. The warrants would have an exercise price of C$0.125 a share and would be exercisable for a term of five years.

Pacific Road had also offered to provide Luna with a C$20-million senior secured note bearing a 10% coupon, payable quarterly in arrears in cash or Luna common shares at Pacific Road's option. The note was required to be secured by first-ranking liens and encumbrances and was expected to mature on June 30, 2020.

Luna had agreed to provide Pacific Road with 200-million Class B common share purchase warrants, exercisable into one Luna common share for a term of five years at C$0.10. At Luna’s C$0.14-a-share price on Wednesday, these financing options were already in the money.

Pending regulatory and other approvals, the proposed financing was expected to close on June 30.

Luna needed to raise more than $20-million to complete the gold-stream restructuring and also potentially restart operations at the Aurizona mine by 2017.

AURIZONA PLAN
Vancouver-based Luna was in the process of suspending mining operations at its flagship Aurizona mine. It would continue to run the mill, processing about 860 000 t of stockpiled ore over five months at an expected head grade of 1.1 g/t.

In its effort to conserve capital, Luna had cut back mine-site personnel, stopped all nonessential capital programmes and would require additional capital to restart economical mining activities at Aurizona.

The company expected to use proceeds of the proposed financing to complete infill drilling, advance the current mine plan, prepare engineering studies and submit permits at its Aurizona project, in Brazil, and for general working capital and corporate purposes.

The Luna management team had spent the last three months developing a strategic plan and also implementing the first phases of this plan. Luna intended to use the balance of the financing to prepare a prefeasibility study (PFS) on a hard rock plant and perform some detailed infill drilling in the main Piaba orezone to achieve greater confidence in the grade and the characteristics of the ore.

Starting next year, Luna expected to use the results of the PFS study to move on to detailed engineering in preparation for the restart of the mine as a hard rock operation.

Luna might need more funds to build and restart the mine as it was likely that a new crushing and grinding circuit would be needed to be fully capable of processing the entire existing orebody.

Based on the findings of the engineering and geological studies, it was also expected that during the restart development phase some of the plant upgrades that were started in the previous Phase 1 work would be completed.

Following the construction of the new crushing and grinding circuit, Luna expected the Aurizona project to be capable of processing about 7 000 t/d to 9 000 t/d of any Aurizona ore type.