Luna Gold Corp. announce that it has entered into definitive documentation with Sandstorm Resources Ltd. and a subsidiary of Sandstorm Resources Ltd. under which the Company’s operating subsidiary, Mineracao Aurizona S.A., has agreed to sell, and Sandstorm has agreed to purchase, 17% of the payable gold to be produced from any open-pit mine within defined areas belonging to Aurizona, in Maranhao State, Brazil, in exchange for an upfront cash payment of US$17.8 million and ongoing payments of $400 per ounce of gold delivered to Sandstorm (subject to an increase of 1% per annum beginning on the third anniversary of the date that the Piaba open pit mine commences commercial production). The defined areas in the Project make up approximately 25% of Aurizona’s current property position in the region but are the areas that have been most explored to date.
The Upfront Payment will be used to fund construction and development of the Piaba open pit mine and for general and administrative costs associated therewith.
Sandstorm Resources Ltd. has guaranteed the obligations of Sandstorm under the Agreement and will also issue 5,500,000 of its common shares to Luna in consideration for Luna’s guarantee of its operating subsidiary’s obligations under the Agreement.
Luna has provided a completion guarantee that within 30 months from the date that Sandstorm makes the Upfront Payment, the Project will produce a minimum of 12,500 ounces of payable gold in any three consecutive month period.
If Aurizona decides to develop an underground mine on the Project, Sandstorm will also have the right to purchase 17% of the payable gold from any such Underground Mine if it elects to pay 17% of the capital and other expenditures incurred to determine the economic viability of and to construct the Underground Mine and make ongoing payments of $500 per ounce delivered to Sandstorm during the life of the mine (subject to an increase of 1% per annum beginning on the third anniversary of the date that the Underground Mine commences commercial production).
The Upfront Payment and the Shares will be deposited in escrow and will be held in escrow pending satisfaction of certain conditions including the requirement that Luna shall have spent or irrevocably committed US$17.5 million in expenditures on development and construction of the open-pit mine and that at the applicable time no material adverse change, as defined in the Agreement, shall have occurred.
Sandstorm will be granted a charge on the assets and undertaking of Aurizona to secure the obligations of the Company and Aurizona under the Agreement and the guarantee, which charge Sandstorm has agreed to subordinate to any other existing and future indebtedness.