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Scotgold on track to pour first gold from Cononish in December

Published: 07:05 25 Apr 2019 EDT

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All the mining equipment is now on site

“It’s exciting,” says Richard Gray.

As a trained engineer and chief executive of Scotgold Resources LTD (LON:SGZ), he’s really been coming into his own in recent months, as Scotgold forges ahead with the development and construction work at the Cononish mine in the Grampians.

Gone are the days when disputes with the Parks Authority would hold up development, and gone are the days too, when Scotgold was scrambling around for cash just to keep going.

READ: Scotgold’s Cononish gold mine is ticking all the right boxes

Now, firmly and confidently backed by key investor Nat Le Roux, the company is forging ahead with construction, and aims to be pouring its first gold in December this year.

“We’ve just finished recruiting personnel to make up the last shift of the mining crew,” says Gray.

“We’ll be starting our second shift at the end of April. We’ve got all the mining equipment on site and the crews are there. Overall we’re on schedule on the mining side. The next step is the surface earthworks, and on that we’ll be breaking ground within the next two months.”

The immediate aim is to be mining around 3,000 tonnes of ore per month from the second quarter of 2020, to produce around 12,000 ounces of gold per year.

Initially the company will be processing development ore, which may deliver variable grades, but by the second half of 2020, it’s anticipated that the operation will have bedded down, with gold production well established and cash flow coming in.

At that point, it will be time to start considering the second phase of development, designed to bring production up to 24,000 ounces a year.

Some elements for that uplift to production will be put in place in the initial development, says Gray, which means that there will be a slight overshoot to the budget. But the benefits will then show through in the second phase of development, since detailed design work will have already been done, and crushing bins and communition circuits will already be in place.

The ball mill and float circuits will be duplicated as the build out gets underway.

“We could very quickly go to phase 2 if we want to,” says Gray.

“Our initial models had phase 1 at two-and-a-half years, with the initiation of phase two dictated by cash flow and the repayment of debt. But given that the capex hurdle to get to phase 2 has now been reduced, we will review that when we get into production.”

Scotgold’s cost of production is likely to be in the order of US$500 per ounce, making it a very low cost miner, and offering plenty of margin. That dynamic will be helped to a significant degree by the current relative valuations of sterling - in which Scotgold incurs its costs - the US dollar and gold.

“The fall of the pound since Brexit has significantly helped,” says Gray.

And there will also be a further reduction in costs when phase 2 comes on stream, because at that point the operation will switch from using generators to grid power.

In the background, meanwhile, there is the constant potential of Scotgold’s exploration portfolio.

“We have a tremendous land package in Scotland,” says Gray.

“Previous work has shown that there’s smoke everywhere, but it’s been very hard to pin down anomalies.”

Accordingly, since last summer, Scotgold has been trialling ionic leaching as an exploration technique, with some extremely positive results.

“It’s a very sensitive tool,” says Gray. “Not only does it show you gold ions, but also other elements.”

The new method has shown up a couple of anomalies off-strike of the main orebody which could be very interesting.

As Gray says, the proof will come in the drilling, but ahead of that, it’s interesting to speculate what sort of deposit might be out there.

Finding another Cononish would be quite a reasonable expectation, reckons Gray. But there’s also the possibility of something larger, along the lines of what Dalradian has got across the Irish Sea.

That’s an enticing thought indeed, especially since by the time Scotgold came to investigate such a discovery in detail, it would be well supported by cash flow, and would in no way be hostage to wider market conditions.

So, 2019 will be a transformational year. But there could be even more excitement to come in the 2020's.

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