August 05, 2009The Anonymous Interests Keen To Take Scotgold’s...

August 05, 2009

The Anonymous Interests Keen To Take Scotgold’s Cononish Deposit Into Production Should Reveal Themselves Shortly.

Charles Wyatt / www.minesite.com

When Scotgold, after a lack of interest from investors in Scotland, listed in Australia in December 2007, the price of gold was US$404 per ounce. In February this year when we last wrote about the company the price of gold was US$627 per ounce, and now it is US$963 per ounce. A rise of 240 per cent in less than 20 months tells you something about the hedge that gold provides during difficult financial times, and as far as the Scottish gold explorer is concerned it should make the road to production that much easier. Maybe this is why in May of this year a group of anonymous farminees announced that they would be providing sufficient money to take the Cononish deposit, which at the moment has JORC resources amounting to 154,000 ounces of gold and 589,000ounces of silver at a 3.5 grammes per tonne gold cut-off , through to production.

This agreement, and it is not binding at this stage, is a little odd as it allows a totally new level of promotion to be exercised. The price rose from A7 cents to A12 cents in a matter of days after it was announced, but not a word of protest from the ASX.which is renowned for the way it issues speeding tickets.

Nor has anything further has been heard from the farminees, but Shane Sadleir, a director of Scotgold resident in Australia, explains that they are carrying out their due diligence and further news is expected shortly. When the original announcement had to be made, advice was sought from the ASX authorities and they could see no alternative but to reveal the facts, while surrounding them with health warnings.

The plain fact is that the farminees have not gone away and a decision is anticipated before the next board meeting which is scheduled to take place in the next few days. In the meantime, Shane points out, he and the rest of the board have been put on hold as far as their shares are concerned as they are in possession of sensitive information, viz the identity of the farminees.

It’s not all roses being a director as Scotgold’s board have been in this position for two months now while they wait to see whether, or not, a major hurdle has been removed from the potential development of a mine. The results of a scoping study were announced in February, supported by a mining inventory of 454,000 tonnes grading 10.2 grammes per tonne gold and 40.4 grammes per tonne silver. Based on this, total production over a 6.5 year period would be 139,600 ounces of gold and 538,000 ounces of silver, which equates to just over 21,000 ounces of gold and 83,000 ounces of silver annually.

A conventional gravity concentrator could treat 72,000 tonnes of ore per year from underground mining and it should be possible to recover about 25 per cent of the gold by simple gravity methods, for smelting on site. The rest of the sulphide-rich concentrate would be transported to a suitable plant for recovery. Using these methods it should be possible to recover 93 per cent of the gold and 90 per cent of the silver.

As far as the farminees are concerned the figures they will be most interested in are the capex that will be required and the return expected. Well, pre-production project expenditure and capital is estimated at A$ 26.9 million, with a further sustaining and deferred capital cost of A$ 3.3 million over the life of the project, including a 15 per cent contingency allowance.

At the moment the sterling equivalent is easy to calculate as there are A$2.00 to every £1.00, so the amount they will have to chip in is around £15 million, which is fairly modest. And this figure will come as no surprise to the farminees as the scoping study was announced before they made their initial move. Average operating costs are estimated to be equivalent to US$417.50 per ounce, including a 20 per cent contingency allowance. Based on a gold price of US$944 per ounce, which is marginally below what it is today, the internal rate of return would be 74 per cent and the net present value would be £28 million, factoring in current exchange rates too.

This is many times greater than the current market capitalisation of Scotgold, so the farminees should appreciate that this is no marginal venture even though it may be small when compared with gold projects in other parts of the world. Annual production at current metal prices is worth US$21.36 million at the gross revenue level.

The farminees will also be also be able to take considerable heart from some high gold grades that have been identified on the Grampian gold permit which surrounds the Cononish deposit. This permit lies within the north-western extremity of the Loch Lomond and Trossachs National Park and about 90 kilometres northwest of Glasgow. Within Scotland, the large tectonic block known as the Grampian Highlands, bounded by the Great Glen Fault to the northwest and the Highland Boundary Fault to the southeast, is highly prospective for gold and base metals.

This terrain, which consists mostly of metasediments and volcanics of Dalradian age, is a direct continuation of the Dalradian gold province of Northern Ireland which hosts the Curraghinalt and Cavanacaw gold deposits. Ground as prospective as this would have been explored years ago if it had been in Australia or Canada, but Brits have a strange habit of ignoring the fact that the Romans came all the way here seeking tin, copper, lead and gold and that Ireland, Wales and Scotland all have a history of gold production dating back to pre-Roman times. Even the transport routes are known: gold from the Wicklow Mountains beyond Dublin was transported back through Anglesey to the land of the Iceni in East Anglia and thence to Europe.

These latest exploration results indicate that there could be more than one deposit within the Grampian gold project. No less than 13 samples from outcrops and boulders grading more than 100 grammes per tonne have been identified from historic data, and the frequency of these high grade outcrops and boulders, and their alignment with regional structural features are similar to that at Cononish.

Scotgold’s new Geographic Information System, which has been designed to capture and integrate historic and disparate exploration data from across the Cononish and the greater Grampian gold projects, shows that this pattern is repeated over an extensive area covering some seven kilometres by 37 kilometres so the sooner drill targets are identified, the better. Looks like the farminees picked a good time to carry out the due diligence.