SGZ.L Regulatory News (SGZ)

 Scotgold Resources Limited (AIM:SGZ)

("Scotgold" or the "Company")

Annual Results for the Year Ended 30 June 2019

Scotgold Resources Limited (AIM:SGZ) which is focused on the development of its advanced stage Cononish gold and silver project in Scotland (Cononish Project) announces its final results for the year ended 30 June 2019.

The full results will be available shortly via the Company's website, www.scotgoldresources.com

and can also be viewed via the following link: http://www.rns-pdf.londonstockexchange.com/rns/0305T_1-2019-11-11.pdf

OPERATIONS REVIEW

BACKGROUND - 

Scotgold Resources Limited ("the Company") was established in 2007 and is listed on the AIM market of the London Stock Exchange (AIM:SGZ). The Company delisted from the Australian Securities Exchange on 21 October 2016.

The Company's principal objectives have continued to be:

a) the advancement of the Cononish Gold and Silver Project in Scotland's Grampian Highlands; and

b) the ongoing exploration of the highly prospective tenements comprising the Grampian Gold Project with the view to identifying further project opportunities.

Corporate Social Responsibility ("CSR")

The Company recognises its responsibilities to the Community, the Environment, its Employees and the Workplace with respect to sustainable development, safety and community development. The CSR Committee held its first meeting on 10th May 2019, noting its purpose as reviewing and monitoring relevant policies, programmes and activities of the Scotgold Resources Group on behalf of the Board of Directors of the Company to ensure these responsibilities are met. The CSR Committee may investigate any concerns regarding activities of the Company that relate to sustainable development and community development.

Peter Hetherington chaired the first meeting in May 2019 and subsequent to adopting the Charter, three broad areas of focus were proposed and agreed:

- Health, Safety and Welfare of the Community, Employees, Consultants and Visitors

- Stewardship of the Environment

- Corporate Citizenship and Societal Interaction

These areas are presented on the Scotgold website alongside details of how complaints will be handled.

Through the year to August 2019, our activities with regard to CSR have included the following:

- Compliance with all relevant health & safety, employment and data protection legislation

- Revision of the Employee Handbook to ensure clear information on policies and procedures is provided to every employee

- An Occupational Health Scheme has been put in place, recognising the importance of monitoring and securing the health of the workforce

- An ongoing training and development programme for SGZ Cononish staff, plus provision of training as required for all Scotgold employees

- Working with the statutory agencies, including the Health and Safety Executive, Scottish Environmental Protection Agency and Loch Lomond and the Trossachs National Park, to build a professional relationship through a proactive approach to achieving short and long term compliance.

- Provision of accommodation for staff living over 25 miles away and working on shifts.

- Meetings with local housing and planning authorities with regard to increasing the supply of social housing in the area

- Continuing to support young people by working with universities to provide opportunities for research and work experience

- Complying with equality and data protection legislation in recruitment whilst having a particular focus on employing local people

- Instigation of quarterly Community Meetings to enable local people to understand developments and to present their views

- Working with the Scottish Business Pledge, delivering on all nine elements.

Cononish Gold and Silver Project -

On 15th February 2012, the Board of the Loch Lomond and the Trossachs National Parks ("NPA") issued the Decision Notice granting planning permission for the development of the Project. The Crown Estate Commissioners unconditional grant of the Crown Lease was confirmed in May 2012.

During 2014, the Company made an application to vary this planning permission (relating to hours of operation of the processing plant and work on site) and on 24 January 2015, the Board of the Loch Lomond and the Trossachs National Park again voted unanimously to approve the Company's application. As a variation to a condition of the existing consent, this approval also had the effect of extending the date by which development should commence to January 2018.

In January 2015 the Company completed a Mineral Resource Estimate and subsequently, in August 2015 completed a Bankable Feasibility Study for the Cononish Project. On 24 February 2016 the Company announced its intention to conduct a Bulk Processing Trial ("BPT") and on 27 August 2016 the first official gold pour from the BPT was announced.

Experience from the BPT led to a radical rethink of the tailings disposal methodology and a study was conducted to determine the suitability of dry stack tailings disposal for the project. The benefits of the dry stack system include substantially reduced upfront capital costs, scalability and the potential for significant environmental benefits. The study determined that dry stacking was feasible and a number of options using this methodology were then modelled in the Update to the Bankable Feasibility Study, announced in March 2017. The 'phased' approach was determined as the Company's preferred option to take the project forward.

Subsequently, the Company submitted a revised application for planning permission to incorporate the new tailings disposal methodology. The application was unanimously approved in February 2018 by the National Parks Authority ("NPA") Board and a Decision Notice was received in October 2018.

Concurrently with the permitting process, the Company secured funding for the project in May 2018 consisting of approximately £4m of equity and £5m of debt. With the permitting pre-commencement conditions satisfied and funding secured, project development activities commenced in January 2019.

Grampian Gold Project - 

The Grampian Gold Project comprises Crown Option agreements covering approximately 2,900 km2 in the south west Grampians of Scotland and covers some of the most prospective areas of the Dalradian Series in the UK. This is a sequence of highly folded and metamorphosed sedimentary and volcanic rocks of late Precambrian to Early Cambrian age, which extends into regions that were contiguous at the time of its formation. This includes the western extension to the eastern seaboard of Canada and the Appalachian belt in the US, and the eastern extension into Norway and Sweden. The British Geological Survey has identified the Dalradian sequence as highly prospective for both significant gold and base metal deposits. On a more local scale, the Dalradian sequence extends to the south west from Scotland into Northern Ireland where it hosts other gold resources at Cavancaw (c. 0.8Moz of gold) and Curraghinalt (c. 4M oz of gold).

The Company has historically undertaken regional stream sediment sampling programs over the wider Grampian gold project area and identified a number of high grade outcrops in the vicinity of the Cononish project. In the current reporting period work has focused on orientation surveys over the known Cononish deposit in order to better understand the significance of these anomalies and improve our exploration methodology going forward.

Portuguese and French projects - 

In May 2016, the Company announced the acquisition of the Pomar licence area in eastern central Portugal by its wholly owned Portuguese subsidiary, Scotgold Resources Portugal Ltda. In May 2017, the Company was granted the Vendrennes PER (Permit Exclusif de Recherche / exclusive exploration licence) in France. In March 2018 the Company announced the entering of an "earn in" agreement for Pomar. However, during the year, PanEx Resources Limited, the counterparty to that agreement, resolved to withdraw from the agreement.

On 18 July 2019, the Company announced its decision not to extend the Pomar licence and the intention to apply to the Director General of Energy and Geology to terminate the licence. Accordingly, deferred exploration expenditure of $118,402 attributable to the Pomar licence was written off during the year.

The Company withdrew its interest in the Vendrennes licence and placed SGZ France SAS into voluntary liquidation during the year. The liquidation process was concluded on 1 October 2019.

Corporate Activities-

The terms of the secured loan facility made available to SGZ Cononish Limited were amended during the year so that by the end of the year, the facility totalled £6.0 million at a nominal interest rate of 9% per annum, to be drawn down in tranches which are repayable with accumulated interest 24 months after the date of drawdown. By the end of the reporting period, £2.0 million of that facility had been drawn down by SGZ Cononish Limited.

CONONISH GOLD AND SILVER PROJECT

The Bankable Feasibility Study (BFS) for "The Cononish Gold and Silver Project" was conducted by Bara Consulting Ltd and published in August 2015. An update was published in March 2017 following input from the Bulk Processing Trial in 2017, particularly with regard to tailings storage options.

The report highlighted that the Phased Project approach using a Dry Stack tailings storage system produced improved economic returns and reduced the development peak funding requirements.

Under the then assumed start date of November 2018, the phases were scheduled as follows:

→ Phase 1 (December 2019 - February 2022): After a 4 month ramp up and commissioning period, the mine is intended to operate at a production level of 3,000 tonnes per month (36,000 tonnes per annum).

→ Phase 2 (March 2022 - End of Life of Mine): The mining is intended to reach a steady state level of production at 6,000 tonnes per month (72,000 tonnes of ore per annum).

Phase 2 is intended to be organically funded by Phase 1 and the Company anticipates being in a position where profits generated by Phase 1 can be invested into the development requirements of Phase 2 within 2.5 years of first production.

Following the submission of a new planning application to accommodate the revised phased project and a successful fund raising in May 2018, the Company took the decision to proceed with Phase 1 and work during the current reporting period has focussed on the preparation for and initiation of project development activities.

Whilst progressing the planning application process, the Company committed funds to the ordering of the owner operated mining fleet, which was received in late 2018. The Company also advanced the processing plant tendering process and selected a preferred bidder.

Following receipt of the positive Planning Decision Notice in October 2018 and subsequent satisfaction of certain pre-commencement conditions in December 2018, mine development activities commenced in January 2019. With the limited mining expertise available locally, the Company focussed on local recruitment and training programs and is now successfully operating 24hr/day with a two-shift system.

Work also continued with the preferred bidder for the process plant to conduct confirmatory metallurgical testwork, and complete final design and equipment selection, culminating in a fixed price order being placed.

The process plant design facilitated the detailed design of the plant building and associated infrastructure. This highlighted the challenges of the plant's location in terms of topography, ground and weather conditions. As a result, together with certain engineering practicalities, a decision was taken to complete the full Phase 2 design for the building, associated infrastructure and significant elements of the processing plant, including the crushing and dewatering circuits.

The execution of the earthworks required for the building platform, together with the preparations for the tailings dry stacks and associated drainage and settlement systems, have been carefully considered to ensure compliance with stringent planning conditions appropriate for an environmentally sensitive area of the National Park.

Subsequent to the reporting period, in August 2019 the Company provided a project update indicating first production was expected at end February 2020, revised cost estimates and re-evaluating the project economics using a £1,200/oz gold price. Based on these assumptions, the key project parameters are given below:

Cononish Key Parameters:

The above key parameters were derived by Scotgold management using revised cost and gold price estimates and using BFS Update production schedule.

Details of the material assumptions considered in the derivation of the production target and forecast financial information above and the BFS Study Update Executive Summary are provided on Scotgold's website at www.scotgoldresources.com.

Cononish Mineral Resources

The Mineral Resource Estimate ("MRE") is classified as Measured, Indicated and Inferred Mineral Resources, (adhering to guidelines set out in the JORC Code (2012 Edition)), and is reported at a cut-off grade of 3.5 g/t gold as is presented in the Table below. The Table also serves as the Company's Annual Mineral Resource Statement.

Table: Latest Annual Mineral Resource Statement

Cononish Main Vein Gold and Silver Mineral Resources, estimated in accordance with the JORC code (2012 Edition) and reported at a 3.5 g/t Au cut-off as at 12/01/2015, which remain current subject to the depletion of approximately 6.5kt from the Indicated Resources - Mined Stockpile

Note: Mineral Resources presented above include Ore Reserves stated below.

There has been no change in the Mineral Resources reported previously as at 30/06/2018.

An internal review of the Mineral Resource Estimate concluded that the estimation techniques and parameters employed remained appropriate.

The Cononish mineralisation remains open at depth down plunge and to the west along strike. There is therefore potential to add to the resource by further extensional drilling.

In addition to the currently defined Mineral Resources, Scotgold believes that there is additional resource development potential close to the Cononish mine, subject to appropriate and successful further work. Extensive gold-in-soil anomalies, mineralisation associated with outcrops and trenches, and geophysical anomalies close to the current resource clearly warrant further follow up. In addition, there are indications that other reefs are present in the area. At this stage, such indications are highly conceptual and there is no guarantee that further exploration will define additional Mineral Resources.

Cononish Ore Reserves

As part of initial work towards developing the 2015 BFS, Bara Consulting Ltd ("Bara Consulting") completed a thorough review of the 2013 Cononish Development plan in order to identify opportunities to not only improve on the plan but to also improve the confidence in the plan. As a result of this review, further work was undertaken on the mining methodology, access design, geotechnical evaluation and overall mine design.

The outcome of this work was that an Ore Reserve Estimate was completed on 25 May 2015, in accordance with the JORC code (2012 Edition) based on the Mineral Resource Estimate (MRE) issued in January 2015. The subsequent addendum to the Bankable Feasibility Study resulted in no change to the Ore Reserve. Hence there is no change to the Ore Reserves reported previously for the project as at 30/06/2018. .

An internal review of the Ore Reserve Statement concluded that the modifying factors used in determining the Ore Reserve remained appropriate.

Table: Latest Annual Ore Reserve Statement

For greater detail on the parameters derived from this work and used for the Ore Reserve estimation process, please refer to the Company's announcement on 26/05/2015 - Cononish Gold Project Study Update and Reserve Estimate; and to the subsequent announcement on 16/03/2017 - Update to Cononish Bankable feasibility study on the Company's website.

The Ore Reserve statement above does not take account of the depletion of the surface stockpile through the BPT. At 30 June 2019, approximately 6.5kt had been removed from the stockpile and the reserves will be adjusted on full depletion of the stockpile.

Both the Mineral Resource Estimate and Ore Reserve statement were compiled by suitably qualified Independent Competent Persons as identified at the time of their release.

GRAMPIAN GOLD PROJECT

The Company continues to actively pursue exploration activities on its substantial land position (approx. 2,900 km2) in the Dalradian Belt of the south west Grampians, a terrain highly prospective for both gold and base metal occurrences. The majority (85%) of the area currently under option to Scotgold is located outside the Loch Lomond and the Trossachs National Park.

Scotgold has historically used various traditional exploration techniques to identify anomalies with a view to generating drill targets and, potentially, future mineral resources. Principal amongst these has been soil and stream sediment sampling to identify gold-bearing zones. It is recognised however that the history of glaciation over the last 30,000 years has spread anomalous sediment particles across the region, making interpretation difficult.

In addition to the above, geochemical techniques that rely on a full digest of the sample are known to be susceptible to very fine gold "nuggets", such that very large samples are required to produce representative results. The sample sizes required are much larger than those typically collected during exploration programmes.

Scotgold recognised that a different survey technique was required in order to counter the above challenges and generate geochemical anomalies representative of the geology and mineralisation in the bedrock (for soils) and catchment area (for streams). Scotgold worked with Dr Russell Birrell of Glob-ex Solutions, a leading exploration geochemist, to apply modern partial leach techniques that analyse for mobile metal ions on the surface of sediment particles. This technique is known as "ionic leach geochemistry".

Ionic Leach™ is a static sodium cyanide leach using the chelating agents of ammonium chloride, citric acid and EDTA with the leachant buffered at an alkaline pH (pH 8.5). Samples are digested as collected so there is very little opportunity to lose or introduce elements during the partial leach process. This innovative leach technique is designed for near surface soil samples. It is designed to improve geochemical mapping and enhance the potential to detect and resolve geochemical anomalies for a range of commodity elements.

Separately, the Company historically evaluated Very Low Frequency ("VLF") / magnetics and Induced Polarisation ("IP") Gradient Array geophysical surveys with limited success. The techniques worked well to map the bedrock geology but failed to "see" deep enough to help define the geology in three dimensions.

Orientation surveys have been conducted over the known Cononish Project Orebody, in order to evaluate the efficacy of the new exploration techniques in identifying bedrock mineralisation and to establish optimum parameter settings, such as sample spacing, as well as data processing methods.

The results of the initial orientation drainage survey were a success in both proving the application of the new technique, and in providing higher resolution anomalies over the wider Cononish area. The technique produces a strong positive anomaly in the area bounded by the drainages to the north east and south west of the estimated Cononish Project Orebody. The same techniques and parameters were then applied in the Beinn Udlaidh area to the north of Cononish. The Company is particularly encouraged by the scale of the Beinn Udlaidh anomaly produced. Previous drainage surveys did not produce such clear cut and unambiguous results.

Having established an anomalous area through stream sediment sampling, the next level of detail was obtained by conducting a systematic soil sampling campaign over the area. Not only has this new technique been able to map mineralised sections of the Cononish Vein, it has identified further anomalies associated with off-setting faults and structures in the immediate vicinity. These new anomalies are associated with the Mother Vein and so-called Barren Vein structures interpreted from the extrapolation of mapped veins.

Following these encouraging results from orientation surveys conducted over the Cononish orebody and within the wider Glen Orchy Central license block, the methods were applied over additional areas of interest within the company's licenses, with 3 main areas covered during the reporting period:

1. North East Strike extension of Cononish. This has indicated a strong previously unidentified anomaly around 1Km north east of the Cononish orebody associated with the Mother Vein. This anomaly appears to have a NW-SE orientation and further work will be conducted to verify its significance.

2. Coire nan Sionnach. This area had been identified as prospective by previous programs, however, this latest work indicates the anomaly is relatively limited in extent. This area is now considered a lower priority.

3. Inverchorachan. This area was known to contain isolated anomalous gold grades from historical work. As a result, it was selected as a project for two masters students to conduct a field work project to support their studies, which included the use of the "Ionic Leach" sampling techniques. The relatively small area covered by soil sampling has returned strongly anomalous values and the stream sediment sampling undertaken indicates the anomalous zone could be extensive. Of note, are the highest gold and silver values of 124.5 ppb and 420 ppb respectively which were detected as part of this most recent sampling. For comparison, the highest values for gold and silver detected within the Cononish area to date using Ionic Leach are 39.9 ppb Au and 240 ppb Ag. This area will now be considered a high priority for further soil sampling to the south west of the newly identified anomaly, in addition to infill stream sediment sampling.

Scotgold is pleased to report on the successful identification of new exploration techniques. The application of these techniques will ensure a more efficient, systematic and targeted approach to future exploration. Ionic leach stream sediment sampling can be used to define prospective catchment areas at the district and regional scale that will allow focus on the best areas. Ionic leach soil sampling can then be used, together with geological mapping, to identify the prospective areas at the prospect scale. The identified ground geophysics techniques can be used to map the bedrock geology in three dimensions and allow for optimal drill hole planning.

PORTUGUESE AND FRENCH PROJECTS

In May 2016, the Company announced the acquisition of the Pomar licence area in eastern central Portugal by its wholly owned Portuguese subsidiary, Scotgold Resources Portugal Ltda.

The Pomar licence area includes the historic antimony mines of das Gatas, Pomar and Casalinho, in addition to numerous small scale trials and occurrences.

Evaluation of styles of mineralization during initial site visits indicated the potential for undiscovered gold prospects in zones with quartz-only mineralization in addition to the known gold bearing felsic dykes traversing the area and potential extensions to the known antimony occurrences.

In March 2018 the Company announced the entering of an "earn in" agreement for Pomar. However, during the year, PanEx Resources Limited, the counterparty to that agreement, resolved to withdraw from the agreement.

On 18 July 2019, the Company announced its decision not to extend the Pomar licence and the intention to apply to the Director General of Energy and Geology to terminate the licence. Accordingly, deferred exploration expenditure of $118,402 attributable to the Pomar licence was written off during the year.

In May 2017, the Company was granted the 'Vendrennes' Permit Exclusif de Recherche ("PER") / exclusive exploration licence in France, applied for in 2015.

The Company withdrew its interest in the Vendrennes licence and placed SGZ France SAS into voluntary liquidation during the year. The liquidation process was concluded on 1 October 2019.

.

TENEMENT DETAILS

United Kingdom -

The Company holds a lease (100%) from the Crown Estate Scotland over Cononish Farm, county of Perth, Scotland UK.

The Company holds a lease (100%) from the landowner over Cononish Farm, county of Perth, Scotland UK.

The Company holds thirteen Mines Royal Option Agreements (100%) with the Crown Estate Scotland as detailed below:

Portugal -

As at 30 June 2019, the Company held a 100% interest in the Pomar Licence with a period of validity of 3 years from May 2016 (and an option to extend) in eastern central Portugal, near Castelo Branco though its subsidiary Scotgold Resources Portugal Ltda.

Subsequent to 30 June 2019, the Company announced its intention not to extend the Pomar Licence.

France -

The Company held a 100% interest in the Vendrennes PER (Permit Exclusif de Recherche or Exploration Licence) through its subsidiary SGZ France SAS.

The Company withdrew its interest in the Vendrennes Licence during the year.

No other beneficial interests are held in any farm-in or farm-out agreements and no other beneficial interests in farm-in or farm out agreements were acquired or disposed of during the period.

Competent Persons Statement:

No new exploration results are presented in this report. All results have been previously notified under JORC 2004 and are contained in Scotgold Annual reports 2008 - 2018 and various corresponding market releases.

The information in this report that relates to the 2015 Mineral Resources for Cononish Gold Project (refer ASX release - Resource Estimate Update - 22/01/2015) is based on information compiled by Malcolm Titley, a Competent Person who is a Member of The Australasian Institute of Mining and Metallurgy. Mr Titley is employed by CSA Global (UK) Limited, an independent consulting company. Mr Titley has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Titley consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

The information in this report that relates to the 2015 Ore Reserves for Cononish Gold Project (refer ASX announcement dated 26/05/2015) is based on information compiled by Pat Willis, a Competent Person who is registered as a Professional Engineer (Pr.Eng.) with the Engineering Council for South Africa (ECSA) and a Fellow in good standing and Past President of the Southern Africa Institute of Mining and Metallurgy (FSAIMM). Mr Willis is employed by Bara Consulting Limited, an independent consulting company. Mr Willis has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the 'Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves'. Mr Willis consents to the inclusion in the report of the matters based on his information in the form and context in which it appears. Further, the Company confirms it is not aware of any new information or data that materially affects the information contained in the original announcements and that all material assumptions and technical parameters underpinning the estimate of Resources and Reserves continue to apply and have not materially changed.

STRATEGIC REVIEW

The Company continues to review its corporate governance, structure, policies and practices with a view to maintaining and enhancing shareholder value.

The Company has adopted the QCA code of corporate governance and appointed an advisory service to assist with UK regulatory compliance issues as an AIM listed company. During the period the Company formally established a Corporate Social Responsibility Committee and is pleased to include its maiden report.

The Company predominantly operates in remote areas of Scotland, much of which face socio-economic challenges and are designated as "deprived". As such the Company works with Scottish Enterprise and other agencies to ascertain what governmental aid may be available and in October 2018 the Company was awarded a grant of up to £430,000, under the "Regional Selective Assistance" (RSA) scheme, This award is subject to certain conditions relating to capital expenditure and job creation at the Cononish Project and the first £50,000 tranche was disbursed in August 2019.

With effect from 1st January 2018, the Company established a new 100% owned subsidiary, SGZ Cononish Ltd to develop its flagship asset, the Cononish Gold and Silver Project. Its existing 100% owned subsidiary, Scotgold Resources Ltd (Scotland) was renamed SGZ Grampian Limited and continues to hold and operate the Scottish exploration licence.

Operationally, the Company's immediate focus remains the development of the Cononish Gold and Silver Project, which commenced in January 2019. However, to provide longevity beyond Cononish, and potentially growth in overall production, the Company is developing a pipeline of projects that we anticipate will meet our criteria. During the period the Company chose to focus on our Grampian Project which now consists of 13 Option Agreements ("Exploration Licences") covering some 2,900 km2 in Scotland and includes the highly prospective ground in the vicinity of Cononish.

The fundamental technical work completed on Cononish in 2015, with the revised Mineral Resource Estimate and Ore Reserve Estimate, underpinned the Updated Bankable Feasibility Study (BFS) completed in March 2017. This study amply demonstrated the project's technical and financial viability and funding was raised in May 2018. The key remaining impediment to commencement of development remained planning consent and in October 2018 the Decision Notice was issued by the NPA relating to the planning application (approved by the NPA Board in February 2018). Once the pre-commencement conditions had been satisfied in late December 2018, the Company commenced development activities. In August 2019 the Company announced that an additional £2.65m of funding had been secured to address an increased capital cost estimate and a two month delay to first gold production, now scheduled for the end of February 2020. Construction delays, particularly due to inclement weather, remain a risk factor.

The Updated BFS also demonstrated the increased value of Cononish given the improved gold market, particularly in GB Pound terms. The gold price has climbed from £948.87/oz to £1,114.87/oz over this reporting period and reached £1,278.06/oz in September 2019. In August 2019 the Company also provided an updated estimate of the expected financial returns, based on the increased capital estimates, revised construction schedule and a gold price assumption of £1,200/oz. The Company currently expects project returns in line with these estimates.

The work completed on advancing our future pipeline of projects has again been modest due to the need to focus cash and management resources on the advancement of Cononish. Notwithstanding this, the Company has identified the analysis of soil and stream samples using ionic leach as providing a cost effective and efficient method of identifying anomalous zones. Using this new methodology the Company has to date identified potential extensions to the Cononish orebody and a potentially new prospect at Inverchorachan. These programs will continue to be expanded and are expected to provide the Company with significant number of prospective drill targets in due course.

The coming period will be dominated by the Cononish development activities and we look forward to reporting the production of first gold.

CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME

FOR THE YEAR ENDED 30 JUNE 2019

These consolidated financial statements should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF

FINANCIAL POSITION

FOR THE YEAR ENDED 30 JUNE 2019

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2019

These consolidated financial statements should be read in conjunction with the accompanying notes.

CONSOLIDATED STATEMENT OF

CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2019

These consolidated financial statements should be read in conjunction with the accompanying notes.

NOTES TO AND FORMING PART OF

THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2019

NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Preparation

These financial statements are general purpose financial statements, which have been prepared in accordance with the requirements of the Corporations Act 2001, Accounting Standards and Interpretations and comply with other requirements of the law. Cost is based on the fair value of the consideration given in exchange for assets.

The financial statements have also been prepared on a historical cost basis. The financial statements are presented in Australian dollars.

The company is a listed public company, incorporated in Australia and operating in Australia, Scotland, France and Portugal. The entity's principal activity is mine development.

The accounting policies detailed below have been consistently applied to all of the years presented unless otherwise stated. The financial statements are for the consolidated entity consisting of Scotgold Resources Limited and its subsidiaries.

Reporting Basis and Conventions

The financial statements have been prepared on the basis of accounting principles applicable to a going concern, which assumes the commercial realisation of the future potential of the consolidated entity's assets and the discharge of their liabilities in the normal course of business. At balance sheet date, the consolidated entity had current assets of $4,098,887 (2018 : $11,382,235), including available cash and cash equivalents of $3,917,920 (2018 : $11,207,036), and current liabilities of $819,908 (2018 : $2,078,658).

The Board reviews cash flows covering a period of 12 to 18 months and while the Board considers that the consolidated entity is a going concern it also recognises that significant funds will be required in the development of the Cononish mine, regional exploration activities and general working capital. In addition to existing cash reserves the consolidated entity has further available funds by way of a secured £5.5m ($9.94m) loan facility not yet drawn down.

Going Concern

The financial report has been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realisation of assets and the settlement of liabilities in the normal course of business.

As at 30 June 2019, the consolidated entity had cash balances of $3,917,920 (30 June 2018 : $11,207,036) and for the financial year then ending, incurred net cash outflows from operating and investing activities of $11,284,113 (2018 : $1,996,828). The consolidated entity is currently commencing construction of the Cononish gold mine, and first cash inflows are expected in the first quarter of calendar year 2020. The ability of the consolidated entity to continue as a going concern is dependent on the successful commissioning of the Cononish mine, including the timing of the project generating positive cash flows and the construction costs being in line with budget, or in the case where there is a delay in commissioning, the ability of the consolidated entity to put in place additional financing to address any adverse effects of that delay.

These conditions indicate a material uncertainty that may cast significant doubt over the ability of the consolidated entity to continue as a going concern and therefore its ability to realise its assets and discharge its liabilities in the normal course of business.

The Directors believe that the consolidated entity has sufficient financing available to continue as a going concern for the following reasons:

·; As announced on 28 August 2019, the secured loan facility available from Bridge Barn Limited increased by £1,500,000, bringing the total available facility to £7,500,000. Of that amount, £2,000,000 had been drawn down at 30 June 2019;

·; As also announced on the same date, the consolidated entity has been successful in raising further capital in an equity raising exercise subsequent to the reporting date, in an amount of £1,150,000;

·; The amount of any additional cost which may be incurred as a result of a delay in commissioning is mitigated by the fact that the contract between SGZ Cononish Limited and the supplier of the processing plant to be commissioned provides that of the total contract value of USD3,862,668, USD115,880 ($165,245) will only be payable on successful completion of commissioning of the processing plant and USD193,133 ($275,408) will only be payable on the subsequent issuing by SGZ Cononish Limited of a certificate of completion in respect of the installation and commissioning of the processing plant; and

·; As at the date of signing of this report, there are 2,459,151 outstanding options with an exercise price of £0.40 per option. Each option entitles the holder thereof to acquire one ordinary share in the Company and is exercisable on or before 31 December 2019. The number of options outstanding includes 1,744,657 options acquired by an institutional investor from Nat le Roux in terms of an agreement concluded on 14 May 2019, in respect of which transfer was completed on 18 July 2019. These options are all "in-the-money" at the date of signing of this report. Should all the outstanding options be exercised, the expected inflow of cash will be £983,660 ($1,777,164).

The expiry date of the options precedes the commencement date of the period during which the Directors estimate that the peak funding requirement in respect of the development of the Cononish mine will be reached.

Should the consolidated entity not be able to continue as a going concern it may be required to realise its assets and discharge its liabilities other than in the ordinary course of business, and at amounts that differ from those in the financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or liabilities that might be necessary should the consolidated entity be unable to continue as a going concern.

Statement of Compliance

The financial report was authorised for issue on 8 November 2019.

The financial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

Adoption of new and revised standards

Changes in accounting policies on initial application of Accounting Standards

In the year ended 30 June 2019, the Directors have reviewed all of the new and revised Accounting Standards and Interpretations issued by the AASB that are relevant to the consolidated entity's operations and effective for the current annual reporting period.

It has been determined by the Directors that there is no impact, material or otherwise, of the new and revised Standards and Interpretations on its business and, therefore, no change is necessary to amounts recognised in the financial statements.

The following new or amended standards have been adopted during the year ended 30 June 2019:

AASB 9 Financial Instruments (which became effective for financial years commencing after 1 January 2018)

AASB 9 replaced AASB 139 Financial Instruments: Recognition and Measurement and, in particular, the provisions of AASB 139 relating to the recognition, classification and measurement of financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

The accounting policies implemented on adoption of the provisions of AASB 9 are set out in the Accounting Polices section below.

Adoption of AASB 9 has not resulted in any reclassification of financial instruments or any adjustments to previously reported figures.

AASB 15 Revenue from contracts with Customers (which became effective for financial years commencing after 1 January 2018)

AASB 15 replaces all existing revenue requirements in Australian Accounting Standards and applies to all revenue arising from contracts with customers, unless the contracts are in the scope of other standards, such as AASB 117 (or AASB 16 Leases, once applied). The core principle of AASB 15 is that an entity recognises revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. An entity recognises revenue in accordance with the core principle by applying the following steps:

► Step 1: Identify the contract(s) with a customer

► Step 2: Identify the performance obligations in the contract

► Step 3: Determine the transaction price

► Step 4: Allocate the transaction price to the performance obligations in the contract

► Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation.

The adoption of AASB 15 has had no impact on the consolidated entity.

New Accounting Standards and Interpretations

The Directors are also reviewing all new Accounting Standards and Interpretations that have been issued but are not yet effective for the year ended 30 June 2019.

AASB 16 Leases (Application date: Financial years commencing after 1 January 2019)

AASB 16 requires lessees to account for all leases under a single on-balance sheet model in a similar way to finance leases under AASB 117 Leases. The Standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g. personal computers) and short-term leases (e.g. leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (e.g. the lease liability) and an asset representing the right to use the underlying asset during the lease term (e.g. the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting is substantially unchanged from today's accounting under AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases.

The consolidated entity is currently evaluating the impact of the new standard.

In addition, the consolidated entity is also currently evaluating the impact of the following new standards:

Effective 1 January 2019:

AASB 2017-4 Amendments to Australian Accounting Standards - Uncertainty over income tax treatments;

AASB 2017-6 Amendments to Australian Accounting Standards - Prepayment features with negative compensation;

AASB 2017-7 Amendments to Australian Accounting Standards - Long-term interests in associates and joint ventures;

AASB 2018-1 Amendments to Australian Accounting Standards - Annual improvements 2015-2017 Cycle (covering issues in AASB 3 Business Combinations, AASB 11 Joint Arrangements, AASB 112 Income Taxes and AASB 123 Borrowing Costs);

AASB 2018-2 Amendments to Australian Accounting Standards - Plan Amendment, Curtailment or Settlement;

AASB 2018-3 Amendments to Australian Accounting Standards - Reduced Disclosure Requirements;

Interpretation 23 Uncertainty over income tax treatments.

Effective 1 January 2020:

AASB 2018-6 Amendments to Australian Accounting Standards - Definition of a Business;

AASB 2018-7 Amendments to Australian Accounting Standards - Definition of Material;

Conceptual Framework;

AASB 2019-1 Amendments to Australian Accounting Standards - References to the Conceptual Framework.

Effective 1 January 2021:

AASB 17 Insurance Contracts

Accounting Policies

(a) Basis of Consolidation

A controlled entity is any entity controlled by Scotgold Resources Limited. Control exists where Scotgold Resources Limited has the capacity to dominate the decision-making in relation to the financial and operating policies of another entity so that the other entity operates with Scotgold Resources Limited to achieve the objectives of Scotgold Resources Limited. All controlled entities have a 30 June financial year-end.

All intercompany balances and transactions between entities in the consolidated entity, including any unrealised profit or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with those policies applied by the parent entity.

Where controlled entities have entered or left the consolidated entity during the year, their operating results have been included from the date control was obtained or until the date control ceased.

(b) Income Tax

The charge for current income tax expenses is based on the profit for the year adjusted for any non-assessable or disallowable items. It is calculated using tax rates that have been enacted or are substantively enacted by the reporting date.

Deferred tax is accounted for using the liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amount in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the statement of comprehensive income except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profits will be available against which deductible temporary difference can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the consolidated entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

(c) Plant and Equipment

Each class of plant and equipment is carried at cost less, where applicable, any accumulated depreciation.

Plant and equipment are measured on the cost basis less depreciation and impairment losses.

The carrying amount of plant and equipment is reviewed annually by the Directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows which will be received from the employment and subsequent disposal of the assets. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future benefits associated with the item will flow to the consolidated entity and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred.

The present value of decommissioning liabilities attributable to items of plant and equipment, as well as any changes in the present value of such liabilities arising due to changes in the cash flows used to determine such liabilities or the discount rate applied to cash flows used to determine such liabilities, is included in the cost of that item of plant and equipment.

(d) Depreciation

The depreciable amount of all fixed assets including capitalised lease assets, but excluding computers, is depreciated on a reducing balance basis commencing from the time the asset is held ready for use. Computers are depreciated on a straight-line basis over their useful lives to the consolidated entity commencing from the time the asset is held ready for use.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset: Depreciation Rate:

Plant and equipment 15 - 50%

Motor vehicles 25%

Office furniture and equipment 15 - 50%

The assets residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date.

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the statement of comprehensive income. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings / accumulated losses.

(e) Exploration and Evaluation Expenditure

Exploration and evaluation expenditure incurred is either written off as incurred or accumulated in respect of each identifiable area of interest. Tenement acquisition costs are initially capitalised. Costs are only carried forward to the extent that they are expected to be recouped through the successful development of the areas, sale of the respective areas of interest or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves. Revenues earned from the sale of materials produced in connection with exploration activities are applied against the accumulated deferred expenditure with the result of reducing those expenditures.

Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the areas is made.

Mineral exploration and evaluation expenditure, of which the Bulk Processing Trial is an integral part, is reclassified to mine development expenditure once the technical feasibility and commercial viability of extracting the related mineral reserve is demonstrable.

A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest.

Restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are expensed as incurred and treated as exploration and evaluation expenditure. Likewise, fixed asset depreciation is charged directly to profit and loss in the period in which it is charged.

(f) Mine development expenditure

When an exploration area of interest meets certain criteria, including the determination of technical feasibility and commercial viability and the obtaining of all planning consents and approvals, the deferred exploration and evaluation costs attributable to that area of interest are reclassified as mine development expenditure.

All subsequent expenditure on mine development activities is capitalised. When production commences, mine development expenditure is amortised over the life of the mine to which the development expenditure relates according to the rate of depletion of the economically recoverable reserves of that mine.

The present value of restoration, decommissioning and environmental monitoring liabilities attributable to mine development activities, as well as any changes in the present value of such liabilities arising due to changes in the cash flows used to determine such liabilities or the discount rate applied to cash flows used to determine such liabilities, is included in mine development expenditure.

(g) Impairment of Assets

At each reporting date, the Directors review the carrying values of tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the assets, being the higher of the asset's fair value less costs to sell and value-in-use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the statement of comprehensive income.

Where it is not possible to estimate the recoverable amount of an individual asset, the consolidated entity estimates the recoverable amount of the cash-generating unit to which the asset belongs.

(h) Provisions

Provisions are recognised where there is a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

The consolidated entity has specific obligations in respect of restoration, decommissioning and environmental monitoring arising as a result of the undertaking of mine development activities. The extent of the liability arising in respect of these obligations is determined for each reporting period based on the extent of mine development activities undertaken by the end of that reporting period and the timing and amount of cash flows expected to be expended in future to meet such obligations. These expected cash flows are discounted to net present value at a current pre-tax rate and provided for, with a corresponding addition to mine development expenditure or specific items of property, plant and equipment required to be decommissioned in future.

The unwinding of the discount is expensed as incurred and recognised in profit or loss as a finance cost. The estimated future costs of restoration, decommissioning and environmental monitoring are reviewed annually and adjusted as appropriate, Changes in the estimated expected future costs, or in the discount rate applied to determine the net present value of those expected future costs are added to or deducted from mine development expenses, or items of property, plant and equipment required to be decommissioned in future.

(i) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

(j) Inventory

Inventory is valued at the lower of cost and net realisable value

(k) Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one party to the contract and a financial liability or equity instrument of the counterparty to that contract.

(l) Financial assets

Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI) or fair value through profit or loss.

The classification of financial assets at initial recognition depends on the contractual cash flow characteristics of the financial asset and the business model adopted by the consolidated entity for managing them. With the exception of trade receivables that do not contain a significant financing component, the consolidated entity initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price determined under AASB 15.

In order for a financial asset to be classified and measured at amortised cost or fair value through OCI, it needs to give rise to cash flows that are 'solely payments of principal and interest (SPPI)' on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.

For purposes of subsequent measurement, financial assets are classified in four categories:

- Financial assets at amortised cost;

- Financial assets at fair value through OCI with recycling of cumulative gains and losses;

- Financial assets at fair value through OCI with no recycling of cumulative gains and losses on derecognition; and

- Financial assets at fair value through profit or loss.

All of the financial assets of the consolidated entity have been classified within the category of financial assets at amortised cost.

Financial assets are measured at amortised cost if both of the following conditions are met:

- The financial asset is held in a business model with the objective to hold financial assets to collect contractual cash flows; and

- The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding;

As the consolidated entity is engaged in the principal activities of mine development and mineral exploration, the holding of financial assets is effected with the objective of collecting the contractual cash flows applicable to those financial assets for deployment in the mine development or mineral exploration and evaluation activities of the consolidated entity.

Financial assets at amortised cost are subsequently measured using the effective interest rate method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired.

When the consolidated entity has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the consolidated entity continues to recognise the transferred asset to the extent of its continuing involvement. In that case, the consolidated entity also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the consolidated entity has retained.

The consolidated entity recognises an allowance for expected credit losses (ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the consolidated entity expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For trade receivables and contract assets, the consolidated entity applies a simplified approach in calculating ECLs. Therefore, the consolidated entity does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date.

(m) Financial liabilities

Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognised initially at the fair value of consideration received and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The financial liabilities of the consolidated entity include trade and other payables and borrowings.

Subsequent to initial recognition, the measurement of financial liabilities depends on their classification, with the classification categories being:

- Financial liabilities at fair value through profit or loss; or

- Loans and borrowings.

Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

As at 30 June 2019, no financial liabilities are held for trading or have been designated upon initial recognition as at fair value through profit or loss.

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the statement of comprehensive income.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the statement of comprehensive income.

Loans and borrowings are classified as current liabilities unless the consolidated entity has an unconditional right to defer settlement of the liability for at least 12 months after the reporting date.

(n) Revenue

No revenue from the sale of goods or services is currently recognised by the consolidated entity. Revenues earned from the sale of materials produced in connection with BPT activities are viewed as an integral part of mineral exploration and evaluation activities and are applied against the accumulated deferred mineral exploration and expenditures with the result of reducing those expenditures.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

(o) Goods and Services Tax (GST) and Value Added Tax (VAT)

Revenues, expenses and assets are recognised net of the amount of GST or VAT, except where the amount of GST or VAT incurred is not recoverable from the relevant authority. In these circumstances the GST or VAT is recognised as part of the cost of acquisition of the asset or as part of an item in expenses. Receivables and payables in the statement of financial position are shown inclusive of GST or VAT.

(p) Issued Capital

Issued and paid up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of ordinary shares are recognised directly in equity as a reduction of the share proceeds received.

(q) Comparative Figures

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

(r) Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of Scotgold Resources Limited.

(s) Share based payments - shares and options

The fair value of shares and share options granted is recognised as an expense with a corresponding increase in equity. Fair value is measured at grant date and recognised over the period during which the grantees become unconditionally entitled to the shares or share options.

The fair value of share grants at grant date is determined by reference to the share price at that time.

The fair value of share options at grant date is determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, any vesting and performance criteria, the share price at grant date, the expected price volatility of the underlying share, the expected dividend yield and the risk free rate for the term of the option.

Upon the exercise of the option, the balance of the share-based payments reserve relating to the option is transferred to share capital.

(t) Foreign currency translation

The presentation currency of the consolidated financial statements is Australian dollars. In addition, functional currency is determined for each entity in the Group and items included in the financial statements of each entity are measured using that functional currency.

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

All exchange differences in the consolidated financial report are taken to profit or loss with the exception of differences on foreign currency borrowings that provide a hedge against a net investment in a foreign entity. These are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss.

Tax charges and credits attributable to exchange differences on those borrowings are also recognised in equity.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction.

Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss.

The functional currency of the foreign operations SGZ Grampian Limited and SGZ Cononish Limited is Pounds Sterling (£). The functional currency of SGZ France SAS and Scotgold Resources Portugal is the Euro (€).

As at the reporting date the assets and liabilities of these subsidiaries are translated into the presentation currency of the consolidated financial statements at the rate of exchange ruling at the reporting date and income and expense items are translated at the average exchange rate for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used.

The exchange differences arising on the translation are taken directly to a separate component of equity, being recognised in the foreign currency translation reserve.

On disposal of a foreign entity, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in profit or loss.

In addition, in relation to the partial disposal of a subsidiary that does not result in the consolidated entity losing control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to non-controlling interests and is not recognised in profit or loss. For all other partial disposals (i.e. partial disposals of associates or jointly controlled entities that do not result in the consolidated entity losing significant influence or joint control), the proportionate share of the accumulated exchange differences is reclassified to profit or loss.

(u) Critical accounting estimates and judgements

The application of accounting policies requires the use of judgements, estimates and assumptions about carrying values of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

Determination of date of reclassification to mine development expenditure

During the year, exploration and evaluation expenditure attributable to the Cononish area of interest was reclassified to mine development expenditure pursuant to the making of a judgement by the Directors that the criteria to be met to make such reclassification had been met on 19 December 2018. In making that judgement, the Directors took into account the requirements set out in the provisions of various agreements entered into by SGZ Cononish Limited dealing with the rights of SGZ Cononish Limited to conduct mining activities at the Cononish mine, the conditions to be met by that company prior to being permitted to conduct mining activities and whether all of these conditions had been met.

Impairment

The Directors assess impairment at each reporting date by evaluating conditions specific to the consolidated entity that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

In particular, pursuant to the making of a judgement that exploration and evaluation expenditure attributable to the Cononish area of interest met the criteria for reclassification to mine development expenditure on 19 December 2018, the attributable balance of exploration and evaluation expenditure proposed to be so reclassified was tested for impairment at the date of reclassification by reference to value-in-use calculations performed using a life-of-mine model of the Cononish mine incorporating key assumptions such as gold and silver market prices, any premia obtainable over spot market prices, mining rates, ore grades, plant processing recoveries and efficiencies, exchange rates, staffing levels and equipment operating efficiencies, among others. The formulation of these key assumptions involved the use by the Directors of judgements as to current and expected general macro-economic conditions and expected conditions in the gold mining industry as well as factors specific to the Cononish mine such as mineral resources and reserves estimates and ore grades.

Where the Directors adjudge that it is necessary to make material changes to key assumptions employed in the life-of-mine model, then these new key assumptions are incorporated into the life-of-mine model and the resultant value-in-use valuation produced by the life-of-mine model is then used as the basis for determining the necessity for and amount of any impairment.

As at 30 June 2019, the gross asset base of the consolidated entity directly attributable to the Cononish mine amounted to $23,602,730 (2018: 16,152,682). The Directors do not believe that there is any necessity to impair the carrying value of that asset base at 30 June 2019.

In the case of impairment of mineral exploration and evaluation, AASB 6 Exploration for and Evaluation of Mineral Resources requires an assessment of recoverable amount to be completed whenever facts and circumstance suggest that the carrying amount of an exploration asset may exceed its recoverable amount. Recoverable amount is defined within AASB 136 Impairment of Assets as the higher of fair value less costs to sell and value-in-use. Value-in-use is determined on a pre-tax basis and is the present value of the future cash flows expected to be derived from the asset or cash-generating unit.

At 30 June 2019, the consolidated entity had capitalised mineral exploration and evaluation expenditure of $2,034,815 (2018: $16,685,135). The Directors do not believe any indications of impairment are present.

Provision for restoration and decommissioning

A provision has been made for the present value of anticipated costs of restoration and decommissioning at the Cononish mine at the end of mining operations there as well as to carry out after-care and monitoring for an agreed period subsequent to such cessation. As at each reporting date, the consolidated entity recognises the best estimate of the Directors in respect of the liability for restoration and decommissioning which has been incurred up to and including that reporting date, which best estimate is determined by reference to the extent of mine development activity (or when production is underway, mining activity) undertaken up to that date as well as the obligations set out in the applicable legislation and agreements to which the consolidated entity is a party. Key assumptions employed in determining the best estimate in respect of liability for restoration and decommissioning include discount rates, the life-of-mine and the extent of obligations undertaken, all or any of which may change in the future and accordingly affect the carrying amount of the provision for restoration and decommissioning.

Based on the extent of mine development activities carried out up to and including that date, the provision for restoration and decommissioning at 30 June 2019 was $238,690 (2018 - $Nil).

Mineral reserves and resources

There are numerous risks inherent in estimating ore reserves and resources and the associated life-of-mine plan. A number of assumptions must be made when estimating ore reserves and resources, including assumptions as to exchange rates, gold and silver prices and any premia over market spot prices which may be obtained, extraction costs and recovery and production rates. Any such assumptions and estimates may change as new information becomes available. Apart from possibly resulting in changes to judgements as to the economic viability of the orebody, these changes may further change the estimate of life-of-mine, thereby changing the timing and amount to be recognised as a provision in respect of restoration and decommissioning and changing the basis of amortisation of mine development expenditure once production commences.

Share-based payments

In determining the amount to be recognised in respect of share-based payments during each reporting period, it is necessary to perform a valuation of instruments such as share options or warrants granted as share-based payments for services received.

The consolidated entity determines such valuation using the "Black Scholes" model. Inputs into that model include assumptions which require judgement on the part of the Directors. In addition, once such value has been determined, in accounting for these options the Directors must exercise judgement as to number of share-based payment instruments granted which are likely to vest and the likelihood that any non-market vesting conditions will be met.

Recognition of deferred tax assets

The Directors exercise judgement as to the likelihood that taxable income will arise in future against which assessable losses can be offset in order to reduce the liability for income tax on that taxable income. Where such taxable income is adjudged to be likely to arise, a deferred tax asset will be recognised to the extent of the future taxation saving.

As at 30 June 2019, the amount of deferred tax assets recognised was $Nil (2018 - $Nil).

NOTE 2 - OTHER INCOME

NOTE 3 - LOSS FROM ORDINARY ACTIVITIES BEFORE TAX EXPENSES

NOTE 4 - INCOME TAX

The prima facie tax benefit at 27.5% (2018 : 27.5%) on loss from ordinary activities is reconciled to the income tax benefit in the financial statements as follows:

INCOME TAX BENEFIT

The directors estimate the cumulative unrecognised deferred tax asset attributable to the Company and its controlled entities at 27.5% is as follows:

The potential deferred tax asset has not been brought to account in the financial report at 30 June 2019 as the Directors do not believe it is appropriate to regard the realisation of the asset as probable. This asset will only be obtained if:

(a) The Company and its controlled entities derive future assessable income of an amount and type sufficient to enable the benefit from the deductions for the tax losses and the un-recouped exploration expenditure to be realised;

(b) The Company and its controlled entities continue to comply with the conditions for deductibility imposed by tax legislation; and

(c) No changes in tax legislation adversely affect the Company and its controlled entities in realising the benefit from the deductions for the tax losses and un-recouped exploration expenditure.

Franking Credits

No franking credits are available at the reporting date for the subsequent financial year.

NOTE 5 - TRADE AND OTHER RECEIVABLES

During the year SGZ Cononish Limited entered into a Section 75 Agreement with the owner of the land on which the Cononish mine is situated, the Loch Lomond and the Trossachs National Park Authority and the Crown Estate Scotland in respect of the development of the Cononish gold and silver mine. This agreement sets out obligations on the part of SGZ Cononish Limited to undertake restoration, decommissioning and environmental aftercare and monitoring on cessation of operations at the end of the life of the Cononish mine as well as obligations to implement a plan for the management of the Greater Cononish Glen in which the Cononish mine is situated (the "Greater Cononish Glen Management Plan").

The Bond which was in place prior to the concluding of the Section 75 Agreement was refunded to SGZ Cononish Limited and the following amounts were lodged as security for the performance by that company of its obligations:

- £537,918 ($971,848) in respect of obligations to undertake restoration, decommissioning and environmental aftercare and monitoring on cessation of operations at the Cononish mine; and

- £268,693 ($485,444) in respect of obligations in terms of the Greater Cononish Glen Management Plan.

As part of the agreement with Roads Scotland in respect of the upgrading of the Dalrigh junction on the A82 road between Tyndrum and Crianlarich to ensure safe access from that road to the Cononish Mine, SGZ Cononish Limited lodged a deposit of £30,000 ($54,201) as security for the performance by SGZ Cononish Limited of its obligations to maintain the Dalrigh junction for a period of five years from the completion of the upgrade.

NOTE 6 - INVENTORY

NOTE 7 - OTHER CURRENT ASSETS

NOTE 8 - PLANT AND EQUIPMENT

Fixed assets with a net carrying value of $842,517 are the subject of hire purchase agreements and serve as security for the repayment of amounts owing in terms of these agreements.

NOTE 9 - MINERAL EXPLORATION AND EVALUATION

The ultimate recoupment of exploration expenditure carried forward is dependent upon successful development and commercial exploitation, or sale of the respective areas.

The net gain of $5,360 (2018 : $280,331) from the BPT is an integral part of the Company's mineral exploration and evaluation activities and includes $68,684 of revenue from Dore sales (2018: $203,177) and $63,324 of production costs (2018 : $557,477). There were no concentrate sales during the year, compared to a level of $634,631 in 2018.

The criteria to reclassify mineral exploration and evaluation expenditure to mine development expenditure in respect of the Cononish gold and silver mine project of SGZ Cononish Limited were met on 19 December 2018 and $15,180,832 of deferred mineral exploration and evaluation expenditure was accordingly reclassified to mine development expenditure on that date.

This amount includes deferred expenditure on minor preliminary works commenced on the development of the Cononish Mine of $130,635.

Pursuant to the taking of a decision by management not to extend the Pomar exploration licence in Portugal, $118,402 of deferred mineral and evaluation expenditure attributable to that licence was written-off during the year.

NOTE 10 - MINE DEVELOPMENT EXPENDITURE

The criteria for reclassifying mineral exploration and evaluation expenditure attributable to the Cononish mine project were met on 19 December 2018, with a consequent transfer of $15,180,832 of deferred costs. Subsequently, an amount of $5,606,392 was expended on mine development activities and capitalised into this asset. As the transfer occurred in the current financial period, no amounts are presented for the year ended 30 June 2018.

Share-based payment costs capitalised as mine development expenditure relates to options granted to senior management to incentivise the meeting of the corporate target of producing first gold at the Cononish mine in February 2020.

NOTE 11 - TRADE AND OTHER PAYABLES

Trade creditors are non-interest bearing and are normally settled on 30 days terms (2018 : 30 days).

NOTE 12 - BORROWINGS

All of the borrowings are denominated in £ (Pounds sterling).

Shareholder loan

On 14 March 2017 the Company entered into a short-term loan agreement for £1,000,000 with Nat le Roux, the Company's non-executive Chairman and major shareholder. Pursuant to the amendment of the loan terms on 20 March 2018 in terms of which all interest (including accrued interest) was waived and the date of repayment was extended to 30 September 2018 (which gave rise to the gain on renegotiation recognised in 2018), the principal was repaid on 26 September 2018.

Loan from company controlled by shareholder

The terms of the secured loan facility agreement entered into on 18 May 2018 between SGZ Cononish Limited and Bridge Barn Limited, a wholly owned and controlled company of Nat le Roux, the Company's Non-Executive Chairman and major shareholder, were amended during the year as follows:

(a) On 2 October 2018, the period of availability of the facility was extended to 12 months, with the facility to be drawn down in three tranches each repayable 24 months after date of drawdown of that specific tranche; and

(b) On 26 February 2019, the amount available to be drawn down under the facility was increased from £5,000,000 to £ 6,000,000, the number of tranches to be drawn down increased from three to four and the terms of payment of the interest on amounts drawn-down were amended to provide for repayment of interest on each tranche as at the date of repayment of that tranche.

No amounts had been drawn down on the facility as at the date of any of these amendments, with the first tranche of £2,000,000 being drawn down on 13 May 2019 and no other drawdowns being made during the year.

The terms of the secured loan as at 30 June 2019 are accordingly as follows:

i) An overall facility amount of £6,000,00 to be drawn down in two tranches of £ 2,000,000 followed by two tranches of £1,000,000;

ii) The period of availability of the first tranche ended on 30 June 2019, with the second tranche being available for a period of six months after the date of drawdown of the first tranche and the period of availability of the subsequent tranches being the period of six months from the date of draw-down of the immediately preceding tranche;

iii) Nominal interest rate is 9.0% applied to all amounts drawn down;

iv) Each tranche, together with accumulated interest thereon, is repayable 24 months after the date of drawdown of that tranche; and

v) Security for repayment is provided by way of Debenture over all of the assets and undertakings of the Company's wholly owned subsidiaries, SGZ Grampian Limited and SGZ Cononish Limited, including the transfer of security of the issued capital of each of these subsidiaries.

The movements on the secured facility loan agreement during the year are as follows:

The effective interest rate on the secured loan facility is 8.63%. As set out in the note on matters subsequent to the end of the financial year the amount available in terms of the secured loan facility agreement was increased in August 2019.

Hire purchase facilities

Subsidiaries of the Company have entered into hire purchase agreements with financial institutions to finance the purchase of motor vehicles and mobile plant during the year, as follows:

The respective assets financed in terms of each hire purchase agreement constitute the sole security for repayment of the amounts owing in respect of each of these agreements.

The movements during the year on those respective hire purchase agreements are as follows:

This provision represents the best estimate of the present value of expenditures required to effect restoration of the Cononish mine area at the end of mining operations at the mine as well as to carry out aftercare and monitoring activities in terms of the Decommissioning and Restoration Plan formulated in accordance with the requirements set out in the Section 75 Agreement entered into by SGZ Cononish Limited on 12 September 2018, based on the mine development activities carried out up to and including 30 June 2019.

In arriving at the amount of the provision, an inflation rate of 2.0% has been applied to estimated future costs stated at current levels and the resultant cashflows have been discounted back to 30 June 2019 using a discount rate of 1.32%.

No provision was made during the year ended 30 June 2018.

NOTE 14 - ISSUED CAPITAL

(a) Voting and dividend rights

Ordinary shares entitle the holder to participate in dividends and the proceeds on the winding up of the Company in proportion to the number of shares held. The ordinary shares have no par value and the company does not have a limited amount of authorised capital.

Article 16 of the Constitution specifies that on a show of hands every member present in person, by attorney or by proxy shall have one vote for every fully paid share held or in the case of a share which is not fully paid, a fraction of the vote equal to the amount paid up on the share over the nominal value of the share.

(b) Movements in ordinary share capital of the Company were as follows:

Shares issued for non-cash consideration amounted to Nil during the year (2018: Nil).

(c) Movements in options were as follows: