A Revitalised Scotgold Is Now Moving Rapidly Towards A New Mine Plan And New Funding Options

By Alastair Ford

There’s a new man at the top at Scotgold. Richard Gray first came to Scotgold as a consultant more than a year ago. Back then, the gold price had collapsed, financing for junior mining companies had disappeared and Scotgold’s prospects of ever getting its Cononish gold project into production looked bleak.

There was also the small matter of an outstanding loan to RMB. And that was a real deal-breaker.

“The company had a study”, says Richard. “It had a project. It also had the loan from RMB and no way of paying it off.”

What’s more, the burn rate simply from servicing the loan was unacceptably high.

Something had to be done. And so it was that a new group of investors came to the company with a view to turning it around, sorting it out and finally, at long last putting Cononish into production.

Among the new investors was Nat Le Roux, well-known among financial circles as the man who ran IG Group between 2002 and 2006, and Richard Harris, the man who founded Eleckra Mines, now Gold Road Resources, which is busy proving up a new gold camp in Yarmarna in Australia and who before that organising the syndicate which recapitalised Alcyone Resources in 2009.

Between them Nat Le Roux and Richard Harris took just over 12 per cent of Scotgold in a placing organised back in 2014. But before they could close on the deal and deliver the money they needed someone to do the due diligence for them.

Enter Richard Gray, late of Avocet Mining. “The group of investors came in”, he says, did a placing and got the company liquid again. They also wanted a change at the board level.”

Chris Sangster, the man who’d done so much to keep Scotgold alive, and to deliver the company safely through the treacherous permitting process, was not to be dispensed with. Parting with such a store of knowledge on the company and its asset would not have been prudent. But a new public face, and a new go-to man for the City, was deemed desirable.

Chris moved to non-executive. That left the CEO’s role open. “They invited me to take it on”, says Richard Gray. “There was a board meeting on October 10th of last year when the management changes were finalised. Our share price started moving from that point.”

Not that things have gone entirely without hitch. New chairman Sandy Littlejohn, subsequently had to relinquish the role after he was unable to come good on underwriting commitments he gave in respect to a subsequent rights issue that was designed to bring in enough money to pay down that RMB debt in full.

But the rights issue was also underwritten by Nat Le Roux so most of the money did come in, the RMB debt has been paid in full and the company is now funded until at least it can come up with a comprehensive restart plan to take to the market. At that point it will be looking for project finance, and the game will change again.

But in the meantime Richard Gray has got one or two jobs in hand.

“The feeling was that we weren’t putting our best foot forward”, he says. “So we employed CSA Global to redo the resource. Previously we used the polygonal methodology, which is poor in its prediction of grade. I felt it to be conservative. So we used the latest techniques and the result has been a phenomenal success for us.”

What he means is that on 21st January the company was able to announce that total mineral resources had increased by 34 per cent to 617,000 tonnes and that the measured and indicated resource had more than tripled, to nearly 250,000 ounces.

What’s more, the grade was 9% better, at 14.3 grams per tonne gold in the measured an indicated portion, and 18% better across the whole resource.

“There’s more tonnes and more gold”, says Richard, “and that’ll be critical for us in terms of future financing.”

What it also means is that significant adjustment will have to be made to the mining plan, and that’s work that’s ongoing now.

“Originally”, says Richard, “the plan had been to use mechanised mining and long-haul stoping. But the orebody does shink and swell.” Under the old plan, there may have been points when mechanisation amounted to costly overkill.

“We can now anticipate where the higher grades are”, says Richard. “Now we can quantify the benefits of one mining method over the other.”

Mechanised mining, of course, is more capital intensive, so if the company can cut back on that, the up-front costs could fall. And on that score, Richard has other plans too. The thinking is that the operation of the processing plant could be extended from the previous 16 hours per day to 24 hours, excepting Sundays. That would allow for smaller equipment to deliver the same result over the same period of time, also cutting up-front costs.

That change involved an amendment to the planning permit. But before long-standing investors in Scotgold imagine they might be suffering from recurring nightmares, Richard hastens to add: “It’s all been approved and it’s now been permitted.”

It all amounts to pretty good progress in a short space of time. The new mining plan is due mid-year, and in the meantime Richard is investigating options for funding.

“The original capex was £23 million”, he says. “We’d hope to make a significant dent in that.”