WEDNESDAY 18 APRIL 2012TEXT SIZE Scotgold could recoup mine costs in 18 months
Tim Sharp City Editor MINING company Scotgold Resources has estimated it could recoup the costs of developing its gold project in Cononish within 18 months.
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PROSPECTS: Chris Sangster, chief executive of Scotgold Resources, at the Cononish Valley Gold Mine in Tyndrum. Picture: Mark Mainz The firm published a projection that the mine would generate £65.9 million of cash at current prices.
The optimistic outlook comes despite an 81.3% rise in expected pre-production expenses.
Scotgold is examining ways to raise funds to begin development of its gold and silver mine near Tyndrum in the next few months.
A new study published yesterday showed Scotgold faces pre-production spending of £22.3m, compared to £12.3m when it last conducted research in 2009.
Chief executive Chris Sangster told The Herald the jump was due to rising costs in the mining industry, thanks to the commodity boom of the past few years.
On top of this, Scotgold has had to make changes to aspects, such as reducing the size of the tailings management facility where waste would be disposed, in order to get planning permission from the Loch Lomond and The Trossachs National Park, in whose territory it sits.
Its latest projections, based on a study by Australian Mining Consultants UK, show that Scotgold expects to recover 131,600 ounces of gold and 465,000 ounces of silver from the mine, slightly down on previous projections.
Mr Sangster said: "The results from the updated study clearly demonstrate the viability of the Cononish project.
"At base case gold price assumptions, project financials are robust with more than acceptable returns.
"The project is highly leveraged to gold prices and at current prices is highly cash generative with over £65m in pre-tax free cashflow over the life of the mine.
"The results underpin Scotgold's intention to proceed to a production decision as soon as possible subject to securing financing."
The news sent shares in Scotgold, which is listed on the junior Alternative Investment Market and in Australia, up 0.25p, or 4.7%.
Scotgold said it had been pursuing "a number of financing options with a various parties".
To encourage potential lenders it has begun an infill drilling programme of six holes, which will be completed by the end of May and should allow it to upgrade some reserves in the "inferred" category to more certain status.
Scotgold expects to receive its Crown lease in May following the statutory period of three months from approval of the mine.
It will then update its study on completion of drilling and granting of the lease.
The company believes, subject to financing, that project development could begin in towards the end of 2012 leading to the first production of gold in late 2013.
It is expected to recover 21,000 ounces of gold and 74,700 ounces of silver annually.
Scotgold's base case of a gold price of $1100 (£694) an ounce would see it generate £23.4m in pre-tax free cashflow over the lifetime of the mine and payback would start after 31 months.
At current prices of US$1655 an ounce this would rise to £65.9m.
The net present value of the mine would be £40.5m at current prices and £10.6m using its base case.
SGZ Price at posting:
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