Scotgold Resources, the AIM-listed company drilling for gold and silver in the Trossachs, is now prospecting for up to £15 million of equity from Scottish institutions after completing its drilling programme.
The company, which held its annual meeting in Edinburgh yesterday, has told shareholders it is on track to raise £10m to £12m of debt but needs a similar injection of equity. It believes mining will get under way at Cononish in Argyll in the second quarter of next year with first gold production in early 2014.
Chris Sangster, chief executive, said: "The final results from the drilling programme demonstrate the high grade nature of the Cononish vein. We are very encouraged by the results and now await [consultants] Snowden's updated resource statement."
Chairman John Bentley told The Herald: "If we get Cononish into production and demonstrate we can mine in Scotland, it could be a major catalyst for mineral exploration generally in Scotland."
It could trigger government support for geophysical resource mapping, which is routine in other countries around the world but absent in Scotland.
Mr Bentley admitted the project had "slipped a month or two" but said that had coincided with a rising gold price which could help its eventual debt funding deal. Snowden was now preparing a plan which would determine the debt capacity of the project, based on an agreement with South African bank RMB Resources to pre-pay for gold – based on the spot price when the deal is done. The business plan is based on an operating cost of $600 an ounce and gold at $1100, while gold is currently at around $1770 – raising the projected internal rate of return from 25% to above 60%. "There couldn't be a better time to be doing it," Mr Bentley said, adding that Scottish and other institutions were now being approached for mezzanine or pure equity funding support. "Chris and I have been talking to institutional investors, we have had a good response."
The chairman added: "It is an interesting time to be coming to production. It is Scotland's first commercial gold mine ever, what we are trying to do is find a way of engaging with Scottish institutions and retail investors, which is quite challenging. If you go to Australia and open a newspaper there is a whole page of small mining companies, here we are the only one."
Shares in the company, which floated in February 2010 at 6.6p and touched 7.4p a year ago, edged up 0.12p to 4.5p, valuing Scotgold at around £8.8m.Mr Bentley commented: "It is a curious situation where gold prices are at an all-time high but share prices are not that high."
Scotgold expects to recover 21,000 ounces of gold and 74,700 ounces of silver from Cononish annually. Pre-production costs have almost doubled in three years due to commodity prices, but the company estimates it can recoup the costs of development in just 18 months of production. The project is expected to bring 52 jobs to the area.
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