Scotgold predicting premium jewellery price for Cononish gold

The Cononish Mine. Picture: TSPL
The Cononish Mine. Picture: TSPL
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Scotgold has predicted that jewellery buyers will pay a premium for gold from the firm’s Cononish mine near Tyndrum, where production is set to begin in early 2014.

Chairman John Bentley also urged Scottish institutional investors to “put their hands in their pockets” and support the project, which will be Scotland’s first commercial gold mine.

Speaking after the company’s annual meeting in Edinburgh yesterday, Bentley told The Scotsman that “15 to 20” major Scottish jewellers had shown an interest in the mine, which will be capable of producing around 5,000 ounces of gold a year.

He said: “In jewellery terms, 5,000 ounces goes a hell of a long way, so the spin-off from this is that the Scottish jewellery industry will be able to create an enormous uplift in work and interest in ethical Scottish gold.”

Along with the Cononish project, the firm has other prospects in Argyll and Bute, including the River Vein area and Sron Garbh, where it has encountered some “very interesting” signs of platinum, although chief executive Chris Sangster stressed this work was at a very early stage.

Scotgold is seeking around £25 million in funding for Cononish, which is expected to generate £65m in pre-tax cashflow over its ten-year lifetime.

The firm has already secured almost £1.2m of initial financing from RMB Resources, the mining finance arm of South African bank FirstRand. Bentley said Scotgold has mandated RMB to provide debt finance for its main project, “which at the moment means we’re talking about £9m to £10m”, although there is the potential for that to rise to around £12m.

He said the funding would be in the form of a “gold loan”, where RMB would buy around 20,000 ounces in advance and Scotgold would repay the loan in the form of physical gold.

Given the potential for strong cashflows from the mine, Bentley said he was confident of securing the additional funds needed to proceed towards production, adding: “Scottish institutional shareholders should be putting their hands in their pockets and supporting Scotland’s only commercial gold mine.”

The same geological conditions that created the Cononish gold extend into Northern Ireland, where one Canadian miner has resources of around 2.7 million ounces, but Sangster said a lack of government spending on data for the rest of the UK was hampering investment.

He said: “The level of geological data in Scotland, and probably the rest of the UK, is worse than Burkina Faso, Ghana or Mali. Geophysics for the UK was done in 1955, and we suffer from a lack of fundamental data.”