Scotgold Resources (LON: SGZ) achieved that unlikely feat of actually mining gold - which is, as we know, as good as money - and managing to run out of money as it was doing so. OK, this only seems amusing to those who don't know their mining but still, a nice proof of the concept that “that's a gold mine” doesn't mean quite the same thing in mining as it does in the vernacular.
What actually happened to Scotgold Resources was that the veins of ore thy thought they were following weren't quite there. So they mined through a significant piece of barren rock without actually gaining any gold from having done so. That could just be embarrassing of course but Sctogold's finances rested on the idea that there would be revenue from those activities. No revenue did ensue - or perhaps a lot less than expected - nd thus Scotgold couldn't keep mining. There is still gold in the mine but without the cash to pay for the costs of getting it out then it's just going to stay there.
Scotgold Resources share price from London Stock Exchange
As we can see from that hart the report of having no cash left caused a significant drop in the SGZ share price. There's been some recovery since then but in the way that percentages work today's 20% rise doesn't make up for the earlier 63% fall. We've not just got different sized movements the denominator is also different.
In the earlier admission Scotgold suggested that it might be able to find new cash through an offtake agreement. That's what today's Scotdgold announcement is about. Obviously, a gold miner has a gold buyer lined up. It's not unusual for working capital to extract the gold to come from the later buyer of the gold extracted. This is known as offtake financing and this is what Scotgold has been able to negotiate - $500,000 US in working capital to be paid back at $100k a month off the invoices for gold delivered. The interest rate is 4.5% above market which looks pretty reasonable.
All Scotgold has to do now is make sure that it only mines the rocks with gold in them.
