Pacific Road Capital to provide $30 mln in funding to Luna Gold

Australian mining private equity firm Pacific Road Capital has agreed to acquire common shares, warrants and debt in Luna Gold Corp (TSX: LGC), a Vancouver-based gold production and exploration company focused on projects in Brazil. Pacific Road has committed to provide $20 million in debt and $10 million in equity to the business. Luna said that with a restructured gold stream and recapitalized balance sheet, it will be able to undertake a work program to restart operations at its Aurizona gold mine, which is located in the Brazilan state of Maranhão.

PRESS RELEASE

Luna Gold Announces Restructuring of Sandstorm Stream and $30 Million Financing by Pacific Road

VANCOUVER, BC–(Marketwired – May 08, 2015)

Luna Gold Corp. (TSX: LGC) (LMA: LGC) (OTCQX: LGCUF) “Luna” or the “Company”) announced today that the Company has executed a definitive agreement (the “Transaction Agreement”) with Pacific Road Resources Funds (“Pacific Road”) for a proposed C$20 million debt and C$10 million private placement equity financing which, upon closing, will result in the Company receiving gross proceeds of C$30 million (the “Proposed Financing”). As well, the Company has executed definitive agreements for the previously announced restructuring of Sandstorm Gold Ltd.’s (“Sandstorm”) existing gold stream and debt facility (the “Restructuring”). The closing of the Proposed Financing and the Restructuring remains subject to a number of conditions, including among others, the raising of an additional C$10 million of equity. As part of the Proposed Financing, Luna expects to complete a concurrent private placement (the “Concurrent Equity Financing”) of up to C$15 million which the Company intends to offer to new and existing shareholders.

Highlights

With a restructured gold stream and recapitalized balance sheet, Luna will be in a position to undertake a work program that will have the ultimate goal of restarting operations at the Aurizona gold mine (“Aurizona”). The proposed 18-month work program will involve significant infill drilling, updating the geological model, calculating a new resource estimate, formulating a new, optimized mine plan, producing an updated prefeasibility study incorporating an upgraded crush and grind circuit and continuing the on-going licensing and permitting process to ultimately secure all the needed permits to restart Aurizona. The work program has a particular focus on continuing to build capacity in the local community, with the continuation of skills training programs and the launch of new initiatives to encourage agricultural entrepreneurship in the communities surrounding Aurizona.

Marc Leduc, Luna’s CEO said, “The fundamentals of the Aurizona asset remain strong and the economics of the project will be enhanced with the replacement of the old 17% gold stream with the much lower NSR royalties and optimization of the mining plan. We have a new team of senior managers in place, that includes a committed core of existing Brazilian management that together are ready to move the project development forward. With the closing of both the Pacific Road financing and the Sandstorm restructuring, the Company expects to have the financial resources and working capital necessary to fund the work programs currently outlined. Additionally, the Company has two long-term committed shareholders/partners in Pacific Road and Sandstorm to further strengthen our financial and technical mining expertise. Finally, we will extinguish our existing bank debt and rebuild the capital structure of the Company.”

The Company expects to use the proceeds from the Proposed Financing to: (i) repay its existing debt facility with Société Générale (Canada Branch) and Mizuho Corporate Bank (the “Senior Lenders”); (ii) commence an infill drilling program, prepare engineering studies and submit updated permits at Aurizona; and (iii) for general working capital and corporate purposes.

The Proposed Financing, Concurrent Equity Financing and Restructuring are subject to a number of conditions, including the approval from Luna’s shareholders. If the Proposed Financing and Restructuring are not completed, the Senior Lenders’ agreement to forbear from commencing enforcement actions against the Company and its assets will terminate and the Senior Lenders will have the immediate right to commence such actions, including, without limitation, the initiation of legal proceedings that could result in an insolvency proceeding against the Company and its subsidiaries. The Company cannot give any assurance that the Senior Lenders will continue to forbear from taking such actions if the Proposed Financing, Concurrent Equity Financing and Restructuring fail to complete, whether due to an absence of shareholder approval of the transactions or otherwise.

Pacific Road Financing Terms

Senior Secured Note

Under the terms of the Proposed Financing, Pacific Road will provide Luna with a C$20 million senior secured note bearing interest at a rate of 10% per annum (the “Note”), payable quarterly in arrears in cash or shares at Pacific Road’s election. The Note is required to be secured by first-ranking liens and encumbrances and is expected to mature on June 30, 2020 and if Luna were to enter into default on the Note the interest rate would increase to 15% per annum. All outstanding amounts, including principal and any remaining accrued interest, will be payable at maturity. Luna has also agreed to provide Pacific Road with 200 million class B common share purchase warrants, exercisable for a term of 5 years at C$0.10 (the “Class B Warrants”).

Subject to the receipt of all required approvals, Pacific Road will have the right to reduce the Note outstanding as satisfaction of the exercise proceeds of the Class B Warrants.

Private Placement

Pacific Road has also agreed to acquire C$10 million of units in the capital of Luna (“Units”) in a non-brokered private placement (“Private Placement”). Each Unit will consist of one common share and one whole class A common share purchase warrant (each, a “Class A Warrant”). Subject to receipt of all required approvals, the issue price of each Unit will be C$0.10 per Unit. The Class A Warrants will have an exercise price of C$0.125 per Luna common share and will be exercisable for a term of 5 years.

It is anticipated that an offer will be made to existing shareholders, including Sandstorm, and to new investors, to participate in the Concurrent Equity Financing of Units on the same terms of the Private Placement for up to an additional C$15 million, subject to compliance with securities laws.

Any securities issued in the transactions described in this press release will be subject to a four month hold period which will expire four months plus one day from the closing date.

Conditions

The Proposed Financing is subject to a number of conditions, including (i) the concurrent completion of the Restructuring, (ii) regulatory approvals such as the approval of the Toronto Stock Exchange, (iii) the approval of Luna’s shareholders in accordance with the policies of the Toronto Stock Exchange and applicable securities laws at a meeting which we anticipate will be held on or around June 18, 2015, and (iv) other customary closing conditions. Until the conditions are satisfied there can be no assurance that the Proposed Financing will be completed. The Proposed Financing, if completed, will raise C$10 million of the C$20 million in equity financing that is a condition of the Restructuring. The Company anticipates completion of the Proposed Financing on or around June 30, 2015, assuming the foregoing conditions can be met. If the Proposed Financing and Restructuring are not completed, the Senior Lenders will be in a position to accelerate our senior debt due to our previously announced covenant breaches and commence enforcement proceedings against the Company and its assets. The Company cannot give any assurance that the Senior Lenders will continue to forbear from taking such actions if the Proposed Financing and Restructuring fail to complete, whether due to an absence of shareholder approval of the transactions or otherwise.

In connection with the Proposed Financing, Pacific Road is requiring that Luna grant it certain rights, including a pro rata participation right in future equity financings, registration rights in certain circumstances and the right to appoint a number of directors to Luna’s board that is equal to Pacific Road’s partially diluted pro rata equity ownership in the Company, assuming exercise of its Class B warrants. Assuming the C$15 million Private Placement is fully subscribed, Pacific Road’s fully-diluted pro-rata equity ownership will be 48% and Pacific Road will have the right to nominate three of Luna’s seven directors.

On closing of the Proposed Financing, Pacific Road will require that Luna pay it a fee equal to 4% of the principal amount of the Debenture and 2% of the gross proceeds from Pacific Road’s subscription to the Private Placement. Pursuant to the Definitive Agreement Luna has agreed in certain circumstances to pay Pacific Road a break fee of C$1.2 million if the Proposed Financing does not close.

Sandstorm Gold Stream Restructuring

Under the terms of the Restructuring, Sandstorm’s existing 17% gold stream (the “Gold Stream”) on Luna’s Aurizona project will be terminated and replaced by two net smelter return royalties (“NSR”) (the “Aurizona Project NSR” and the “Greenfields NSR”) and a convertible debenture. The Aurizona Project NSR covers the entire Aurizona Project, including the current 43-101 compliant Resources, and all adjacent exploration upside that is processed through the Aurizona mill, net of third party refining costs. The Aurizona Project NSR pays Sandstorm a sliding scale royalty based on the price of gold as follows:

3% if the price of gold is less than or equal to US$1,500 per ounce;
4% if the price of gold is between US$1,500 per ounce and US$2,000 per ounce; and
5% if the price of gold is greater than US$2,000 per ounce.

The Greenfields NSR covers the 190,073 hectares of exploration ground held by Luna and is a 2% NSR. Luna would have the right to purchase one-half of the Greenfields NSR for US$10 million at any time prior to achieving commercial production.

Under the Restructuring, Sandstorm will also receive a US$30 million debenture with interest at a rate of 5% per annum (“Debenture”). The Debenture will be payable in three equal annual tranches of US$10 million plus accrued interest beginning June 30, 2018. Luna will have the right to convert principal and interest owing under the Debenture into common shares of Luna as long as Sandstorm owns less than 20% or more of the outstanding common shares of Luna. Luna can choose to postpone the payment of any instalment until a point when the issuance of shares would not result in Sandstorm owning more than 20% of the common shares of Luna.

Further, the existing Sandstorm Debt Facility will be amended so that the maturity date is extended from June 30, 2017 to June 30, 2021, the interest rate is revised to 5% per annum, payable in cash on the maturity date, and Luna would be subject to a default rate of interest equal to 10% per annum.

Management

As announced on February 2, 2015, Mr. Marc Leduc, P.Eng., was appointed President, CEO and Director of the Company. Since his appointment, Mr. Leduc has been assembling a team that includes a wide experience range. This team includes:

Duane Lo, Executive VP and CFO (since August 2009) — Former controller with First Quantum Minerals;
Martin Kostuik, Director of Development and Operations — Mining Engineer, MBA. 20+ years of mining experience in all aspects of mine operations and development;
Carol Fries, Director of Environmental & Community Affairs — Over 30 years of experience in the environmental, community relations and sustainability sectors;
Carlos Paranhos, Exploration Director (Since April 2011) — Geologist with over 30 years of exploration and mining experience in Brazil and similar international Precambrian terrain; and
Richard Pearce, PE, Director of Corporate Development — Economist and civil engineer with +20 years of experience planning and managing complex mining projects.

Strategic Development Plan

The Aurizona project fundamentals remain strong with the deposit containing a Measured Resource of 0.5 million ounces of gold (10.9Mt @ 1.4 g/t) and an Indicated Resource of 2.4 million ounces of gold (52.8Mt @ 1.4 g/t) (estimate filed in an update NI 43-101 Technical Report on March 27, 2015) for a total Measured and Indicated resource of 2.9 million ounces of gold (63.7Mt @ 1.4 g/t Au).

The new management team has spent the last 3 months developing a strategic plan and also implementing the first phases of this plan. The first part of the plan called for the renegotiation of the Sandstorm stream and the elimination of the senior bank debt. With the closing of the Proposed Financing and Restructuring, the Company will have accomplished both of these objectives. The Company then plans on using the balance of the financing proceeds to commence a significant infill drilling program, updating the geological model, calculating a new resource, formulate a new and optimized mine plan, produce an updated prefeasibility study and continuing the permitting process to ultimately secure a permit to restart Aurizona. Commencing in mid-2016, Luna expects to use the results of the exploration program and the pre-feasibility study to move on to detailed engineering and ultimately the restart of the mine as a hard rock operation.

It is anticipated that additional financing will be needed for the construction and restart of the Aurizona mine because it is likely that a new crushing and grinding circuit will be required to process the different types of ore in the existing ore body. The balance of the processing circuit will benefit from the significant capital spent on the Phase I plant upgrade, which was stopped by the Company in the Third Quarter of 2014, after having spent over $40 million on this Phase I work.

The updated and revised mine plan will require amendments to some of our existing permits at Aurizona as well as other permitting activities for some off-site infrastructure. Luna will be working diligently with the relevant government authorities in Brazil to advance the permitting process. Many of the required permits will be amendments to existing permits.

Luna’s community relation’s initiatives will continue to focus on building capacity within the communities in our area of influence and on multi-stakeholder partnership models, that involve strengthening local labor skills through the establishment of partnerships with the Industry State Federation (FIEMA), and in partnership with state and local governments and community associations on campaigns to raise social awareness about important issues, such as children’s education, community safety and security, and the prevention of domestic violence and substance abuse, and our Open Door program to provide information to the public on an ongoing basis regarding mining activities in a framework of openness and transparency.

Conference Call and Webcast

Luna will hold a conference call at 11AM Toronto time on May 8, 2015 to allow management to discuss the Proposed Financing and Restructuring details. The call can be accessed by dialing 416-340-2216 or, for toll-free in North America dial 866-223-7781. For a list of International dial-in numbers use the following link: https://www.confsolutions.ca/ILT?oss=1P29R8662237781. The conference call will be available for replay until May 22, 2015 by dialing 905-694-9451 or, for toll-free in North America dial 800-408-3053. The Passcode for the replay is 3714533. The webcast can be accessed through this link (http://www.lunagold.com/conference-calls/). The presentation will be available on Luna’s website at www.LunaGold.com.

About Pacific Road Resources Funds and Pacific Road Capital

The Pacific Road Resources Funds are private equity funds investing in the global mining industry. They provide expansion and buyout capital for mining projects, mining related infrastructure and mining services businesses located throughout resource-rich regions of the world. The Pacific Road Resources Funds are managed or advised by Pacific Road Capital Management Pty Ltd. (“PRCM”). The PRCM team, located in Sydney, Australia, San Francisco, USA, and Vancouver, Canada, is comprised of experienced mining investment professionals that have extensive knowledge and experience in the mining and infrastructure sectors, including considerable operating, project development, transactional and investment banking experience. For further information on the Pacific Road Resources Funds and PRCM, please go to their website at www.PacRoad.com.au

About Luna Gold Corp.

Luna is a gold production and exploration company engaged in the operation, discovery, and development of gold projects in Brazil.

On behalf of the Company

LUNA GOLD CORP.

Marc Leduc P.Eng. — President, Chief Executive Officer and Director
Website: www.lunagold.com

This news release does not constitute an offer to sell or a solicitation of an offer to buy securities to, or for the account or benefit of, persons in Canada or elsewhere, including persons in the United States or “U.S. persons” (“U.S. Persons”), as such term is defined in Regulation S under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”). Any such offer or solicitation will be made at a later date and in compliance with all applicable laws. Our securities have not been and will not be registered under the U.S. Securities Act or any state securities laws, and may not be offered or sold to, or for the account or benefit of, persons in the United States or U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

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 the successful completion of the Proposed Financing, the Concurrent Equity Financing, the Restructuring or any transaction or transactions similar in nature, regulatory and shareholder approvals of any such transactions, the continued forbearance of the Company’s senior leaders, the Company’s ability to continue as a going concern, future or continued mining operations, expected gold production and/or the results of analysis on gold production, expected grades, anticipated tailings facility cost, anticipated timing for the release of the new resource and reserve estimates and the Company’s compliance with its debt and other financing arrangements. 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 a significant transaction such as the Proposed Financing, the Concurrent Equity Financing, the Restructuring or other related transactions, regulatory and shareholder approvals, use of proceeds from the Proposed Financing, financial performance or results, suspension and potential restart of operations, the continued forbearance of the Company’s senior leaders, the effect of the Company’s non-compliance with certain covenants in its debt and other financing agreements, the 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, uncertainties with respect to non-compliance with credit facility covenants 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.

For further information contact

Luna Gold Corp.
Investor Relations
+1 (604) 568-7993

Photo courtesy of Luna Gold Corp