TORONTO (miningweekly.com) – Precious metals streaming firm Sandstorm Gold has agreed to restructure the 17% gold stream it holds on Luna Gold’s Aurizona mine in Brazil, as well as to extend the maturity date of a $20-million loan.

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.

Luna's management team was currently working to develop an updated Canadian National Instrument (NI) 43-101-compliant technical report to provide a mineral reserve estimate based on a new geological model and updated project parameters.

Subject to several conditions precedent, including the requirement for Luna to raise $20-million and regulatory approvals, the current gold stream would be terminated and replaced by two net smelter return royalties (NSR) and a convertible debenture.

The Aurizona project NSR would cover the entire Aurizona project, including the current NI 43-101-compliant resources and all adjacent exploration potential that would be processed through the Aurizona mill net of third-party refining costs.

The NSR comprised a sliding-scale royalty based on the gold price and would be 3% if the price of gold was less than or equal to $1 500/oz, 4% if the gold price moved between $1 500/oz and $2 000/oz, and 5% if the gold price climbed higher than $2 000/oz.

The second royalty, the greenfield NSR, would cover the 190 073 ha of exploration ground held by Luna and would be a 2% NSR. Luna would have the right to buy back half of the greenfield NSR for $10-million at any time up to the declaration of commercial production.

Sandstorm would hold a right of first refusal on any future streams or royalties on the Aurizona project and exploration prospects.

Under the proposed restructuring, Sandstorm would also receive a $30-million debenture bearing a 5% coupon. The debenture would be payable in three equal yearly tranches of $10-million and accrued interest starting on January 1, 2018.

Luna would have the right to convert the principal and interest owing under the debenture into common shares, as long as Sandstorm did not own more than 20% of Luna's outstanding common shares.

Further, Sandstorm had agreed to extend the maturity date of a $20-million loan from June 30, 2017, to June 30, 2021. The interest rate would be revised to 5% a year, payable in cash on the maturity date, and Luna would be subject to a default interest rate of 10% a year.

"The restructuring puts Luna Gold on a development path to move the Aurizona mine toward sustainable, long-term production. We believe that Aurizona has the potential to produce gold profitably for many years and the agreement between Sandstorm and Luna provides an opportunity for all stakeholders to benefit,” Sandstorm president and CEO Nolan Watson said.

Sandstorm's current attributable gold equivalent output guidance of between 36 000 oz and 44 000 oz this year did not include potential output from Aurizona.