August 11, 2008

Golden Opportunity is No Flash in the Pan

By Rosemary Gallagher

YOU might expect the headquarters of a goldmining company to be located somewhere a little more swanky than a rural railway station in deepest Scotland. Chris Sangster, chief executive of Scotgold Resources, Scotland's only gold mine, emerges from the tiny office at Upper Tyndrum in Perthshire clad in hiking boots, a heavy anorak and looking like he revels in the outdoor life.

The company is soon to start drilling at Cononish, but Sangster is more likely to be asked the time of the next train to Glasgow than the price of gold. The small "Scotgold" paper signs stuck on the station windows are the only indication that this is the firm that will be spending millions mining the precious metal in the surrounding mountains.

Sangster says gold mining is more about sweat and toil than glamour, and a plush office is not a priority. "It's hard work being underground, and gold miners need a lot of patience," he says.

Gold mining is certainly proving to be a long, drawn-out process in Scotland. The gold deposits at Cononish were discovered in 1984 by an Irish firm, Ennex International. They were never commercially mined by the previous owners because the relatively low price of gold made it unviable. But Sangster, a down-to-earth mining engineer, born of Scots parents and raised in Surrey, has been in the gold industry long enough to know when he's on to a good thing. He has spent more than 20 years of his career as a mining engineer in a number of countries, including Australia, Canada and South Africa, and he is confident he can succeed in Scotland where others have failed. It was the lure of "gold in them thar hills" - a cliche that raises his hackles - that brought him back to Scotland and he now lives in Comrie in Perthshire.

Sangster drives us the few miles from Upper Tyndrum to the entrance of the Cononish mine shaft to show, first-hand, what he is determined to develop into Scotland's first commercial, hard-rock gold mine entered via a small, hidden tunnel at the foot of Ben Lui.

The view from the mine of mountains and the Cononish River that weaves its way along the valley makes it appear more like the setting of a whisky distillery than a gold mine. The sheds beside the mine resemble disused war shelters but are, in fact, storage space for the 15km of "drill core" that the previous owners spent several years - and GBP 100 a metre - removing from the ground to find evidence of gold and silver.

Sangster says: "People tend to have a picture in their head of donkeys pulling bars of gold out of a mine. Looking around here dispels that image."

Last May, Scotgold acquired the gold and silver assets in the 2,200sq km area around Tyndrum for GBP 800,000 from Swiss-based Oak Consortium. Oak, which bought the mine in 1995, had research estimating there is about 4.5 tonnes of gold and 20 tonnes of silver in the ground. However, the price of gold was falling and hit a low of dollars 250 an ounce around the millennium, so it was uneconomical to start production.

With gold currently priced at around dollars 860 an ounce, mining is, once again, a lucrative prospect. Sangster places the value of metal in the ground at Cononish at approximately dollars 175m. "It's a good time for gold, with the price expected to be up around dollars 1,000 in 2009," he says.

But many more months of painstaking exploratory work is still to be completed before gold mining can begin at Cononish for the first time and this will require a substantial amount of investment.

Scotgold floated on the Australian Stock Exchange at the start of the year to raise GBP 2.3m, which will fund further exploratory work. This includes drilling, which is about to start, to confirm exactly where the gold is located. It will also examine if, as an independent reported has suggested, there is more gold deposited in the rocks than originally thought.

"It will be at least 18 months before commercial mining can be started. We'll be looking to raise about GBP 10m from banks to put the mine into production. We think there is then about eight years' worth of mining at the site," says Sangster.

A dual listing on the London Stock Exchange is being considered to raise more money if further deposits of gold are confirmed. And he is expecting interest from Scottish investors.

"They will not be attracted to investing in gold mining for particularly romantic reasons. It will be more about the economic proposition," he says. Although Sangster won't put a figure on expected returns, he says the mine will generate a profit as long as gold is priced at dollars 300 an ounce upwards.

He seems relaxed about the challenges faced by his company as we walk about 500 metres through the dark, damp mine. To the uneducated eye there is little sign of any precious metal. "This is what geologists get very excited about," he says, shining a torch on a line of quartz running through the mine. "There's a lot of gold in that section of rock which runs a few hundred feet up inside the mountain."

Technology has developed since drilling was last carried out at Cononish in the 1990s and Sangster says modern methods can now be used to make mining more environmentally friendly.

As Cononish is located within Loch Lomond National Park, he will have to convince the planning authorities that the impact on the surrounding countryside will be minimal.

He is clearly aware of the nature in the area that will have to be protected, pointing out the peregrine falcons, nesting in the mountain above the mine. "We've gone a long way to reduce our environmental footprint. We have submitted an application to the National Parks to extend the planning permission which the previous owner had obtained."

Advances which might help win over planners include the ability to keep processing plants underground and out of sight of tourists and returning waste material to the mine rather than dumping it at ground level.

If planning permission is granted and mining starts, Scotgold will have up to 60 jobs to fill, both in the mine and working above ground, with the majority being for those with backgrounds in construction. New employees will join the current staff of five, which includes three geologists.

"We've already had inquiries from people who have read about the mine and are interested in working for us. A recent one was from a born and bred Scot who had emigrated to Australia and worked in gold mines, but now wants to move back home," says Sangster.

Scotland's "gold rush" may not stop at one mine, with Scotgold's exploration director, Dr Ron Thom, saying there are further prospects along the Tyndrum fault line. These are around Cononish and near Inverary, within the area of land owned by the company.

Sangster is also considering manufacturing jewellery and selling it at a site near the mine. "There is certainly the potential for jewellery to be manufactured nearby. Scottish gold jewellery would be in demand as it's very scarce."

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