Scotgold Resources, the company which operates the Cononish gold and silver mine near Tyndrum, has warned there is a “material risk” it may fall into administration in the next few weeks.

Shares in the miner were temporarily suspended yesterday morning after it told the City it could fail if a new payment plan is not agreed with one unsecured creditor. The company did not disclose the identity of the creditor or the size of the debt.

The threat of administration is the latest blow in what has been a gruelling year for Scotgold, which first highlighted doubts over its ability to continue as a going concern "in the very immediate term" in March.

Yesterday, it said the initial findings from a third-party review of the mine plan for Cononish, which was commissioned in July, have been fed back to the board.

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Scotgold said that although those early findings suggest there are “no fatal flaws” in the mine resource estimate (MRE) and grade control (GC) modelling process, initial assessment of the draft mine plan and associated cash flow forecasts indicate that “significant capital investment is required”. This investment is needed to “increase ore production to a level which would achieve sustained profitability”, Scotgold said.

The company, which employs around 80 people at Cononish, said talks with investors over additional financing are at an “advanced stage and, should they materialise, are expected to provide sufficient funding for the company to continue as a going concern”.

But it said the “outcome of the funding discussions is highly uncertain”, adding that failing to secure a “significant fundraise” would cast “material uncertainty” over its ability to continue as a going concern.

Moreover, Scotgold said it faced the prospect of falling into administration imminently if it cannot agree payment terms with one unsecured creditor.

The company said in a statement that it has been managing its creditors, including debt providers. It noted that debt providers have not been paid interest as it has fallen due but have agreed to payment plans and that so far there have been no defaults.

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However, Scotgold said: “One unsecured creditor has (recently) demanded full payment of outstanding interest, and although the company has sufficient funds to make this payment, it does not believe that to do so would be in the best interest of all stakeholders.

“As such an event of default is possible if such creditor does not agree to a new payment plan. In the event of default there is a material risk the business could be placed into administration in the next few weeks.”

The company said that trading in Scotgold shares on the alternative investment market had been suspended while the board continues to “explore its options and pending clarification of its financial position”.

The biggest shareholder in Scotgold is non-executive director Nat le Roux, who holds a 33% stake. Its other biggest shareholders are directors of the company.

Reporting its interim results to the stock market in March, the company stated that net debt stood at A$25m million (£12.85m) on December 31, 2022.

The company has already turned to investors to support its plans this year. A subscription and open offer raised £2m in May, which came after £3m was generated by a placing and retail offer in February.

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Scotgold noted yesterday that it had said in July that the first half had been “disappointing” for gold production and the development of the underground mine at Cononish. It reiterated that its ability to continue as a going concern over the long term would depend on the quantity and grade of ore mined being processed “being within a reasonable tolerance of the forecast quantity and grade and adherence to the previously planned product shipment schedule”.

The mine plan until July 2025, which is currently under review, now supports the use of long hole stoping (LHS) process at the mine. It is envisaged that investment needs to be made to fund a drilling programme and upgrades to power and ventilation to lift production and achieve sustained profitability.

LHS mining began on April 5 with gold concentrate steadily increasing in the second quarter. A total of 1,556 ounces of gold were produced, of which 818 ounces were attributed to June 2023. Total gold production for the first half was 2,314 ounces.

A spokesperson told The Herald: "Whilst we remain operational and are confident in the long-term viability of Cononish, Scotland’s first commercial gold mine, we are currently seeking a significant capital investment to deliver the mine plan. Funding discussions are at an advanced stage.”

Sean Duffy was named as interim chief executive of the firm in June after previous incumbent Phil Day stepped down to spend more time with his family in Australia.