The Big Interview: Scotgold Resources chief executive Richard Gray

Richard Gray believes the Cononish mine near Tyndrum will deliver up to 200,000 ounces of gold. Picture: John Devlin
Richard Gray believes the Cononish mine near Tyndrum will deliver up to 200,000 ounces of gold. Picture: John Devlin
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Loch Lomond & The Trossachs National Park has been described as a place of contrasts, with both rolling lowland scenes and high mountains, as well as scores of lochs, rivers and large burns.

It is home to more than 15,000 people and the site’s management stresses that the area is a “living, working landscape”.

The latter aspect has in fact proved pivotal in the park’s authority board a few days ago green-lighting an application for Scotland’s first commercial gold mine at Cononish, Tyndrum.

Board convener James Stuart said the unanimous approval came after concluding that the short- to medium-term impact will be more than compensated for by factors such as longer-term environmental gains as well as the social and economic benefits for the local community and beyond.

“The national park is a special place,” Stuart explained. “But it is also a place where people live and work and it is the park authority’s job to balance the need for development with the heritage and conservation of this unique landscape.”

The go-ahead enables Scotgold Resources to finally fire up the mine’s development, in what managing director and chief executive Richard Gray describes as a real landmark moment.

“We have had permission before but we’ve never had [it] with such a good plan in place,” says Gray. Previous plans were more complex, needed “a lot more work and a lot more money to get off the ground and really we’ve never managed to get the two together at the same time – whereas now we have real opportunity to do that”.

The firm now has a third of the capital required “in the bank”, with about £3 million generated by a rights issue at the tail end of last year. With planning permission now under its belt, Scotgold is now looking to raise approximately £7m in order to get the mine into production and move the company forward.

In terms of potential funding sources, nothing has been ruled out, according to Gray. He highlights strong interest from an equity perspective as well as opportunities on the vendor financing side plus more conventional debt-type options.

“We’ll be looking at what is the best package for us as a whole to get that all together, but I expect there to be elements of all three,” he says.

Scotgold was founded in 2007, and its name belies its Australian domiciliation, but it is “in essence a UK company”, says Gray, noting that its headquarters are effectively its office on the platform of Upper Tyndrum station.

The firm delisted from the Australian Securities Exchange in 2016, while its shares were admitted to trading on London’s Alternative Investment Market in 2010, and sparkled after Tuesday’s planning permission news. Furthermore, Gray points out, its chairman and major shareholder Nat le Roux grew up in Scotland.

Gray sees huge appetite for Scottish gold, with the business in June announcing that it had struck a deal to supply two jewellery manufacturers north of the Border – Orkney designer Sheila Fleet and Edinburgh-based luxury brand Hamilton & Inches, which in its latest annual results flagged soaring overseas demand.

The agreement covered the first refining batch of about 16 ounces of gold from its bulk processing trial, and Gray said at the time that it “validates our belief in the strength and value of combining Scottish gold of proven provenance with the skill and prestige of the Scottish jewellery industry”.

Scotgold said the premium received was higher than the 30 per cent reserve stipulated for its auction the previous November of the first ten one-ounce coins, or rounds, each stamped with the Scottish Gold Mark of the stag’s head and minted by Baird & Co.

Gray adds: “We’ve always believed [a premium] to be there, but to be prudent in terms of the returns on the project we’ve never accounted for it.

“What this little trial has demonstrated is that we’ve got very good reason to believe we will [be able to] sell at a premium.” The amount that can be sold obviously depends on how much the market can absorb, he adds. Nonetheless, Scotgold has had interest from more than 50 other institutions including jewellers, “so when we get into production we believe we’ll be able to offtake a significant amount at that premium”.

The firm in September reported its annual results to 30 June, saying it had reduced its loss for the year to about A$1.35m (roughly £760,000) from about $1.5m in the prior 12-month period, and had A$572,332 in cash at the end of the financial year.

The firm believes the Cononish site houses about 200,000 ounces of gold and Gray says the firm’s operations are very much at the “micro” end of the precious metal mining scale in terms of resource and production rates.

Consequently it is unlikely to be a big draw from an institutional perspective. The big funds “like what they see”, but Gray says the firm is an opportunity for their smaller counterparts seeking out a high-return project in a stable environment.

Scotgold currently has a core staff of about eight, set to grow to just shy of 40 in the first phase, with work expected to start on-site around May, subject to ticking some final legal check-boxes. Headcount should then reach more than 60 when production hits full stride in a couple of years’ time.

Cononish’s gold deposits were discovered in the 1980s, pre-dating the 2002 launch of the national park in which they are located. Scotgold became involved in 2007 with a full development plan completed in 2013.

However, the project’s finance was disrupted by a dramatic fall in the gold price, which saw Scotgold “caught between a rock and a hard place”, in Gray’s words. The scheme only advanced again with the recapitalising and reinvigorating intervention of Le Roux in 2014. The former head of spread betting firm IG Group brought on board Gray, who took up his current role later that year. An operator by training, he had spent his whole career developing and running gold mines.

Gray studied mining engineering at Imperial College London’s Royal School of Mines, and later secured an MBA from Cape Town University.

His most recent role was head of mining and expansion at Avocet Mining, and he also spent 15 years working in South Africa for Gencor and ten years in West Africa for Golden Star Resources.

Gray believes the vocation he chose requires a thorough understanding of both the mechanical and civil engineering side of things, as well the broader context in which a mine sits. .

Looking at Scotgold, he says: “We don’t just benefit our shareholders – at the end of the day you’ve got to benefit all your stakeholders or you’re not going to continue to operate.”

One advantage he sees of operating in Scotland is the access to a skilled workforce, and the firm has also been making inroads into the Grampian Gold Project, which covers a vast area stretching across the most prospective geological belt in Scotland.

More mines are in its sights. “Now we’re getting one off the ground we’re very excited about the opportunities [to] start investing more and doing some more exploration and finding where the next projects going to come from.”The company has also been targeting sites in France and Portugal, but its focus is very much on Scotland.

Gray acknowledges that objections to the Cononish project from those to whom a national park and mining are fundamentally incompatible were made “very forcefully”. Ultimately, however, it was felt that the park must accommodate the communities living there rather than remain totally pristine and on the condition that there should be no lasting site damage, approval was finally granted.

“Everything we’re doing will in fact improve the overall environment in the longer term,” says Gray. “We feel that if we can make a success of Cononish and we operate to the environmental standards required to operate in a national park successfully, then we’re more than well-equipped to operate anywhere else in Scotland.”