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Scotgold Resources: still looking risky as share price slides


Scotgold Resources’ (LON:SGZ) share price has been on a downward trend since the start of the year and although the company currently operates the first and only commercial gold mine in Scotland, increasing competition to tap the country’s assets could prove to be a future challenge for the business.

The share price for Scotgold Resources has fallen more than 37% from 98p to 61p since the start of the year. It is significantly lower than its 52-week high of 170p. Although at the current share price it might be worth buying, it is a risky bet.

First gold was poured in 2020

Scotgold Resources was founded in Australia in 2007, with the company being listed on UK’s AIM market in 2010. Its Cononish mine went into initial production in 2016 and towards the end of last year, the company said first gold was poured. It recorded a loss of £2.4 million in the six months to the end of December 2020, up from £1.3 million in the previous year.

Operations were impacted by Covid-19 as the pandemic led to a shutdown and reduced access to specialist suppliers and consultants from overseas.

Scotgold Resources also ran into some trouble earlier in the year as it encountered production issues that caused delays. Following a £1.5 million cash call in March, the group received a £2 million short-term loan from some of its directors and a shareholder in the business to help with cash-flow.

During the year, there was also a change in leadership with CEO Richard Gray retiring and handing the reins to Philip Day.

Production ramped up at Cononish

Despite the hiccups along the way, Scotgold Resources managed to ramp up production and in a July update said that it accessed high-grade ore zones quicker than anticipated at its Cononish Gold and Silver project. It added that it was able to continue mining uninterrupted through June and as a result increased the volume of ore in its stockpile.

In its latest monthly update, the company said: “Scotgold’s dual focus is to further enhance safe production through consistency and stability of mine and process plant operations in parallel with the opening of multiple faces of ore in the underground mine itself. During the month, the successful roll-out of this strategy has enabled the company to optimise the mine design allowing access to higher grade ore zones far quicker than anticipated.”

But again, there was a slight hurdle. A bearing failure in the process plant ball mill prevented a full ramp up. The directors said though that the risk analysis approach they are currently implementing will enable more consistent runtime in the future and ‘greatly increase the reliability of the mine and process plant operations’.

Scottish gold rush in the offing?

But Scotgold is not the only company looking to tap into Scotland’s potential as a gold mine. The company has certainly helped raise the profile of Scotland as a destination for gold miners. It is the subject of a BBC documentary series called Gold Town and Scotgold’s new chief executive Day has previously said he expects there to be much more gold in the area. So it’s no surprise there are others that are looking to get in on the action.

One such business is gold exploration company GreenOre, which has access agreements to four highly prospective sites and a total of six licenses. It is looking to list at the end of the year and can provide some competition to Scotgold.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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