http://minesite.com/news/scotgold-gets-its-rights-issue-away-and-...

http://minesite.com/news/scotgold-gets-its-rights-issue-away-and-lives-to-fight-another-day

What inference should we draw from the 90 per cent uptake in Scotgold’s rights issue, which closed at the end of December?

First off, it’s pretty clear the company got the pricing right.

“The share price was A$0.02 when we announced the rights issue”, says Scotgold’s chairman John Bentley, “so at A$0.005 it was very deeply discounted. We swallowed hard”.
Swallowed hard, but then pressed the button.

And that looks to have been the right decision, because now the company has an additional A$742,000 in its coffers to help it continue with work on the Cononish project in the Grampians.
In some respects that may not seem like a whole lot of cash, but in Scotgold’s case it’s likely to go a long way.

“This more than gives us breathing space”, says John. The most immediate concern had been an outstanding loan due to RMB, due for repayment on 31st December 2013.
RMB, though, have been “very helpful”, according to John, and have extended the loan.

That, combined with the new money gives the company time to talk to potential strategic investors, and to progress with plans to beef up the economics with a plan to reduce less gold but at higher grades.
“The new development plan will involve high grading, lower volume and lower costs and lower capex”, says John.

It’s a plan that should be simple enough to achieve, since the high grade areas at the mine are immediately accessible beneath an existing adit.

Under the old plans, the company was looking for around £25 million to get Cononish going again. The new plans are still on the drawing board, but the expectation is that the equity component will now be more like £10 million, or perhaps even less.

Under the revised parameters, production is likely to run at around 10,000 ounces per year, and assuming a gold price of between US$1,200 and US$1,300 the internal rate of return numbers still ought to come in pretty healthy.

Whether it’ll be enough to attract in a strategic investor remains to be seen. But John is confident there’ll be interest.

In the immediate term, he has no doubts the company can place the remaining 10 per cent of the rights that haven’t been taken up. Indeed, he speculates that some people didn’t take up their rights purely for administrative or logistical reasons, such as the slowness of the Christmas post.

So the original A$800,000 or so that was asked for might yet come in.

As to the more medium and longer term, John argues that Cononish could well have an appeal to a company with a longer-term development project already under its belt, but which is looking for a little bit of near-term production and cashflow just to balance the portfolio.

But that’s not the only option. Gold bugs, he says, can see the attraction. It’s a small project, but it can make money.

“And as it gets smaller one can pay more attention to the extra value from the premium branding”, says John.

By that he means that people are prepared to pay more for Scottish-branded gold, and particularly the free-milling content of the Cononish ore, which is likely to amount to around 25 per cent of output.

“The base case circuit is crush, grind and gravity separation”, he says. “We’d get that on site and we’d smelt that on site.” The Scottish mint would then verify it as ethical, and there is plenty of demand for a product like that from the likes of Cartier or Tiffany.”

The premium wouldn’t be huge – probably in the order of five or ten per cent – but in a time of weakened gold prices every little helps.