2020 Mining Investor Forum

Scotgold Resources (SGZ) is an AIM-listed gold company, which is commissioning the first phase of the high-grade, low-cost Cononish gold-silver mine in Scotland’s Grampian Mountain. In geological terms, the mine is located in the Dalradian Belt, which runs from Scotland to Northern Ireland, and is believed to host more than 5.0m ounces of gold. The company has recently raised £3.0m to begin phase two development at Cononish and fund further exploration work. Our provisional NPV valuation is 167p per share.

• Cononish underground mine: Phase one will see annualised gold production of almost 10,000 ounces. p.a. with the first gold expected by 30 November 2020. Cash operating costs of $566/oz put Cononish in the lower quartile of the industry’s cost curve, helped by the very high-grade ore of 11.6g/t.
• Phase two accelerated: The schedule for Cononish phase two has been brought forward by 11 months to May 2022. This will more than double gold production to at least 23,000 ounces p.a. during the remainder of the nine-year mine life. Gold reserves are currently estimated at 198k ounces with total resources of 266k ounces.
• Upside potential: The Cononish orebody is open at depth below 450m. Furthermore, SGZ has identified several near-mine exploration targets, which have potential to extend mine life. Going forward, the strategy is to develop additional mines in Scotland or other low-risk jurisdictions.
• Risks: SGZ is subject to the normal risks for a junior miner. These include volatility in gold and silver prices, operational risks in executing the mining plan and running downstream processing facilities and funding risks. We believe that jurisdictional risk is significantly reduced in SGZ’s case.
• Investment summary: We have estimated a provisional valuation for SGZ is 167p per share. This is based on an NPV valuation using a long-term gold price of $1,700/oz, a discount rate of 8%, the company’s estimated cash operating cost of $566/oz, a capital cost for phase two of Cononish of $8.5m and maintenance capex during 2023-29 of $0.5m p.a.