Scotgold Resources has suffered a setback in its plans to create Scotland’s only commercial gold mine after a major shareholder ruled out any further investments in the company.
The Aim-quoted firm said the funding environment remained “difficult” and it was considering scaling back its ambitions for its Cononish project, near Tyndrum, as it announced plans to raise about £470,000 through a rights issue.
In September, Scotgold raised some £117,000 through a share placing that saw Africa-focused miner Luiri Gold take a 4.5 per cent stake in the business. At the time, it was thought additional cash injections could be in the pipeline, but Luiri has told the firm that it has no plans to “pursue a corporate transaction”.
Scotgold, headed by chief executive Chris Sangster, had estimated that it would cost about £22 million to begin production at its Cononish site, which is believed to contain at least 82,600 ounces of gold.
It is now considering a smaller project to “significantly” reduce the amount of capital required, although any changes to the scheme would depend on talks with the Loch Lomond and the Trossachs National Park planning authority.
Scotgold last month said its losses had doubled to almost A$2.6m (£1.5m) for the year to the end of June. It also warned that the fundraising environment had worsened because of a sharp decline in gold prices, which have fallen from almost $1,700 an ounce at the start of the year to less than $1,300 amid a revival in the equity markets.
The firm, which holds its annual meeting in Australia this week, is due to repay a £1.5m loan to RMB, the mining finance arm of South African lender RMB next month, but has asked for an extension to the deadline.
Shore Capital analyst Yuen Low said: “Scotgold essentially admitted being unable to finance the development of the Cononish gold project in its current form.
“We reiterate our expectation that the shares will continue to trend down.”
Shares in Scotgold fell 22.5 per cent or 0.22p to end yesterday’s session at 0.78p.