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Scotgold's mining hopes alive after loan extension

SCOTGOLD Resources has taken another step towards keeping alive its hopes of mining precious metals from the hills of Argyll by securing a loan extension agreement from its banker RMB Resources.

But in a move the City interpreted as evidence of muted demand, the company has also extended to the end of the year the offer period for a £462,000 rights issue designed to buy it time to secure more permanent funding.

Scotgold told investors: "RMB Resources Limited, a division of Firstrand Bank Limited (London Branch) has received approval from its investment committee for the term of the corporate facility provided by RMB Australia Holdings Limited to be extended, conditional upon the cash balance being adequate to meet three months working capital for the duration of the extension."

This means the terms are in line with those on the existing £1.5 million loan.

The extension of the loan is a key part of a scaled-back plan Scotgold is developing for the Cononish prospect to cope with difficult funding positions due to a reversal in the gold price.

It launched the rights issue to give it more time to explore its options and yesterday it extended the closing date from December 23 to December 31.

Scotgold is offering three new shares for four currently owned by investors at a price of 50 Australian cents a share.

If there is a shortfall the board may place the shares with new investors.

Yuen Low, analyst at Shore Capital, said of the extension: "No reason was given; we speculate that the issue might be going slower and uptake less than the company had hoped."

After re-evaluating its approach, Scotgold is now likely to seek £10m in capital to start production at the mine down from the £25m orginally proposed.

Scotgold has struggled to raise funds primarily to a plunge in the gold price in April, from about $1600 to $1300-an-ounce.

The revised plan for Cononish is likely to see Scotgold focus on the higher-grade gold deposits initially, to bring in cash, and ­alternative processing arrangements.

This is likely to require further discussions with the Loch Lomond and the Trossachs National Park planning authority.

Scotgold hopes to put an alternative scheme could be put together within the next six to eight months. It would then take an estimated 12 to 18 months to get to production.

Scotgold, which is listed in Australia and the UK, said much of its work, such as the design of the tailings management facility, is just months from completion.

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