Scotgold’s Chris Sangster bullish over funding for gold mine

CHRIS Sangster, chief executive of Scotgold Resources, said yesterday that the miner was confident of securing the necessary £22 million of financing to begin drilling for gold and silver at its Cononish mine.

The Aim-quoted company is understood to be in discussions with a range of financial institutions with a view to raising the funds needed to begin developing the project by the end of this year. It is also believed that the firm may consider a share placing to raised additional funds.

If all goes to plan, the first production of gold is expected during the fourth quarter of 2013, making it Scotland’s only commercial gold mine.

Shares in Scotgold rose by as much as 10 per cent in early trading after it published a report saying there could be nearly £66m worth of gold in its mine at Cononish, in the Loch Lomond and the Trossachs National Park.

The study, carried out for the company by Australian Mining Consultants, found that, at current gold spot prices of $1,655 an ounce, the project would generate nearly £65.9m in pre-tax free cashflow over the life of the mine, which Sangster said was expected to be seven to eight years.

“The results demonstrate a robust project at the base case gold price with very attractive returns at current spot gold prices,” Scotgold said.

Based on current gold spot prices, the company expects its initial investment could be paid back within 18 months of production starting. At a base gold price of $1,100 an ounce, Cononish would produce £23.4m of cash flow and pay back the investment within 31 months.

Sangster said: “The results from the updated study clearly demonstrate the viability of the Cononish project.”

He added: “At base case gold price assumptions, project financials are robust with more than acceptable returns. The project at current prices is highly cash generative with over £65m in pre-tax free cashflow over the life of the mine.”

Scotgold estimates it will be able to produce 21,000 ounces of gold and 74,700 ounces of silver each year from the mine, near Tyndrum. Over the lifetime of the project, the company estimates it will produce a total of 131,600 ounces of gold and 465,000 ounces of silver.

Sangster said: “The results underpin Scotgold’s intention to proceed to a production decision as soon as possible subject to securing financing.”

In April 2011, Scotgold announced that it had accepted an offer of a Regional Selective Assistance (RSA) grant from Scottish Enterprise of up to £600,000 to establish the mine, which it hopes will lead to the creation of around 50 jobs. Planning permission for the project was granted in February and Sangster said he expects to secure the necessary Crown lease in mid-May.

Scotgold has three licences covering 3,200sq km across central Scotland, including the Cononish site, which will be the country’s only operational gold mine when it begins production.

The licences give it the right to prospect for and seek a lease to mine gold and silver, with other minerals generally belonging to the owner of the land.

Scotgold was launched in 2007 and took over two Scottish gold mining companies. It floated on the Australian stock market the following year and added a listing on Aim in 2010.