THE auditor of Scotgold Resources, the mining company that has ambitions to exploit the Cononish mine in Argyll, has warned of a "material uncertainty" that could threaten its ability to continue as a going concern after it posted a AUS$1 million (£555,000) pre-tax loss for the first half of its financial year.
The company last year scaled back its plans for the mine after its funding drive was hit by a declining gold price.
However, the ambitions of the company and its chief executive Chris Sangster have been kept alive by a recent series of fundraisings from existing and new investors, including Nat le Roux, the Scot who made millions of pounds from spread betting company IG Group.
Scotgold needs to repay a £1.5m loan to South African bank RMB Resources this summer and requires around £10m to back the development of the mine which is in the Loch Lomond and Trossachs National Park.
In a section on "emphasis of matter" in his auditor's report, Marcus Ohm, partner at accountant HLB Mann Judd of Perth, Australia, drew attention to the fact that as of December 31, the group had cash available of some AUS$174,000 but a working capital deficit of nearly AUS$3.3m.
This, he said, indicates "the existence of a material uncertainty that may cast significant doubt about the company's ability to continue as a going concern and therefore, the company may be unable to realise its assets and discharge its liabilities in the normal course of business". Scotgold said its board considered it a going concern while recognising that it needs more financing to back its operations.
"The directors believe the company will obtain sufficient funding to enable it and the consolidated entity to continue as going concerns and that it is appropriate to adopt that basis of accounting in the preparation of the financial report," the company said.
But it acknowledged its financial circumstances constitute a material uncertainty about its ability to continue as a going concern.
Scotgold said its recent rights issue and share placing puts it in "an excellent position" to examine a smaller and less capital intensive Cononish project focusing on extracting higher grade gold and sliver.
The company recently appointed Australian Mining Consultants UK to produce an initial mining schedule to examine the feasibility and practicality of this approach.
"Initial results are being evaluated and work is continuing to optimise a possible production profile," it said.
It is also examining whether it can cut costs in the building of the tailings management facility that would process waste from the mine.
Scotgold reiterated its belief that any permits could be quickly acquired and Cononish could produce gold and silver within 18 months of obtaining finance.
Scotgold brought in revenue of AUS$12,000 for the six months to December 31. Having cut all but essential expenditure as it pursues a funding deal, its pre-tax loss narrowed to $1m from $1.7m for the same period of 2012.