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Scotgold secures favourable decision notice for development of Cononish

Last updated: 18:30 23 Oct 2018 AEDT, First published: 19:11 22 May 2018 AEST

1526980503_Scotgold---Richard-Gray-at-Tyndrum
Scotgold's Richard Gray

Shares in Scotgold Resources Ltd (LON:SGZ) ticked up to around 27p in late October after the relevant planning authorities issued a favourable decision notice that allows Scotgold to proceed with construction at the Cononish mine in Scotland.

The company has had funding in place since mid-May.

“It’s very good news,” says Richard Gray, the company’s chief executive.

WATCH: ScotGold Resources acquires final tranche of funding for Cononish mine

“I come from an operational background, and I joined Scotgold with a view to getting things up and running. We can now focus on the road ahead.”

The funding for Cononish comes in a familiar form: a standard split between equity and debt. The £4mln equity component was raised in an oversubscribed placing to private equity and high net worths.

The debt comes in the form of a secured loan facility with Nat le Roux, Scotgold’s chairman and largest shareholder. He has consistently backed the company ever since he became involved, and his support has allowed Scotgold to negotiate a tough financing environment in which Cononish has been deemed too small for major institutions to be interested in, but too big to go it completely alone.

There will now be a short period in which Scotgold endeavours to meet the conditions laid out in the decision notice. 

“We need to complete our legal agreements with the Parks Authority,” says Gray. 

Once the development timetable proper kicks in, there will be a three month period to allow for the sourcing of suppliers and to finalise contracts, and then construction will begin with the mining being the priority.

Just under a year to get into production

The first item on the agenda will be a widening of the existing adit. Thereafter, Scotgold will work on developing the first ramp and installing the ventilation systems before moving on to first stoping.

While that’s all going on, the new plant will be coming in, and installation will get underway.

All told, says Gray, it should take the company just under a year to get into production. During the first phase of production, Scotgold expects to process around 3,000 tonnes of ore per month. The cash generated from that mining activity will then be fed back into the project and allow for an expansion to 6,000 tonnes per month.

All told, according to a feasibility study produced last year, Cononish is likely to generate between £67mln and £100mln in earnings over the life of the mine. The pre-tax net present value was put at £43mln, using a 10% discount rate.

Those numbers were predicated on a US$1,150 gold price, or around £920 per ounce, so there’s still plenty of room for manoeuvre in spite of gold’s recent decline against the dollar.

“We have a very low cost per ounce of production,” says Gray.

One reason for that is the high grades at Cononish. The resource may be small at 555,000 tonnes, but with the gold running at 11.1 grams per tonne gold, it’s likely to be highly profitable to mine.

There’s also the premium for Scottish gold to consider. That’s hard to quantify, but Gray is convinced it will be beneficial.

“Whatever the spot price is I’m convinced we’ll achieve a premium from this gold,” he says.

There’s still some work to be done yet, though.

Grampian projects and exploration

“The job isn’t done when the money’s raised,” continues Gray. “The job’s done when the gold’s coming out of the ground.”

But what’s he got planned between now and then to keep investor interested focussed firmly on the company during what’s likely to be a period of relatively sparse newsflow?

“We’ll be looking at our Grampian projects and exploration,” he says.

“In addition to Cononish, some of the money that we raised will be used to build up our exploration team. It would be wonderful if we could identify another project the size of the Dalradian one.”

The Dalradian project, across the Irish sea but on the same geological trend, is the largest gold mining project in the British Isles. And if that seems a tad ambitious, in due course there will also be exploration in and around Cononish.

At the moment, the mine life there is set at ten years. But with a bit of work, it could conceivably go higher.

“Once we’re a couple of years into it I can see Cononish having its own little exploration programme,” says Gray.

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