SGZ.L Regulatory News (SGZ)

Scotgold Resources Limited

("Scotgold" or the "Company)

Final Results

Scotgold Resources Limited (AIM: SGZ), the gold exploration and production company focused on Scotland, is pleased to announce its Annual Results for the year ended 30 June 2020. A copy of the Company's Annual Report and Accounts for the year Ended 30 June 2020 will be available on the Company's website shortly.

OPERATIONS REVIEW HIGHLIGHTS

Developing Scotland's first commercial gold mine

· Phase 1 production at Cononish Gold and Silver Mine on course to commence on 30 November 2020

o Phase 1 targeting average annual gold equivalent production of 9,910oz

· Phase 2 expansion of production at Cononish, targeting 100% increase in annual production to 72,000 tonnes of ore and average annual gold equivalent production of 23,500oz, brought forward by 11 months to May 2022

o Follows post period £3m fund raise, the proceeds of which will also fund systematic exploration work across the Company's Scottish licences which cover ~2,900km2 of the Dalradian Belt

· Recalculated model using the accelerated Phase 2 development strategy and gold and silver prices of £1,400/oz and £19.23/oz respectively deliver highly attractive Life of Mine ('LOM') economics:

o £178 million EBITDA;

o £156 million pre-tax Cash Flow;

o £127 million Net Cash Flow; and

o £96 million Pre-tax NPV (discount rate of 8%)

· Encouraging results from ongoing exploration programme include the identification of gold and silver anomalies to the north east of the Cononish mine and from the Beinn Udlaidh and Inverchorachan prospects

o Results in line with strategy to increase mineable ounces at the Cononish mine and also identify potential new mines of Cononish scale or larger

CEO, Richard Gray, commented: "To be on the brink of first pour at the Cononish Gold and Silver Mine, despite the unprecedented challenge of navigating COVID-19 and associated lockdowns, is testament to the professionalism and hard work of both the team at Scotgold and all those connected with the project over the course of the year under review and beyond. 

"The commencement of Phase 1 production at Cononish, which will become Scotland's first commercial gold mine, will transform Scotgold into a production as well as a development and exploration company, one with a defined path to future growth. We have the funds in place to accelerate the Phase 2 development of the mine, which is targeting average annual gold equivalent production of 23,500oz compared to 9,910oz during Phase 1, and also to embark on a systematic exploration programme across our licence base, which covers an area of ~2,900km2 of the Dalradian Belt. As a result, Scotgold is ideally positioned to be at the heart of gold mining in Scotland for many years to come and, with this in mind, I look forward to providing further updates on our progress."

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 development of the Cononish Gold and Silver Mine ("Cononish" or the "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, which held its inaugural meeting on 10th May 2019, continued throughout the year to pursue its purpose of 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. 

In doing so, it continued to focus on the three broad areas of:

· Health, Safety and Welfare of the Community, Employees, Consultants and Visitors;

· Stewardship of the Environment; and

· Corporate Citizenship and Societal Interaction

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

During the latter part of the year, the CSR Committee had to deal with the unique threat to health and safety and employee well-being posed by the Covid-19 pandemic. The Committee oversaw the performance of a detailed risk assessment in respect of the effects of Covid-19 on the operations of the Company and the formulation and implementation of a comprehensive set of operating procedures to deal with the pandemic based on that risk assessment prior to resumption of mining operations at the beginning of July 2020. The CSR Committee continues to oversee the carrying out of regular assessments of the risks posed by Covid-19 and the adjustment of the aforementioned operating procedures in response thereto.

Cononish Gold and Silver Mine

On 15 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.

In August 2019 the Company raised a further £2.65m (£1.15M equity and an increase of £1.5m in secured debt facilities) to ensure the Project remained fully funded to completion.

Record high rainfall in February and more latterly Covid 19 restrictions in March 2020 led to delays in the development schedule being experienced, most notably in relation to the bulk earthworks element of the Project.

In October 2020 the Company announced that first gold production from the development of Phase 1 was expected by 30 November 2020. Given the more recent progress made on the development of Phase 1 and the improved gold price outlook, the Company also elected to raise a further £3m before costs to accelerate the development of Phase 2 and provide for an expansion of the Company's exploration programmes.

Grampian Gold Project

The Grampian Gold Project comprises 13 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. 4Moz of gold).

Following on from the success of the previously completed orientation surveys, Scotgold has continued to use the ionic leach technique for regional stream sediment sampling across 6 of its 13 Crown Option areas, identifying several drainage catchments with encouraging values that require detailed follow up work. Subsequent to the reporting period, regional stream sediment sampling has been completed across 10 of Scotgold's 13 Crown Option areas.

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.

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 and the process of termination is in the final stages.

The process of voluntary liquidation of SGZ France SAS, initiated pursuant to the Company withdrawing its interest in the Vendrennes PER, 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 £7.5 million at a nominal interest rate of 9% per annum, to be drawn down in tranches and/or sub-tranches which are repayable with accumulated interest 36 months after the date of drawdown. By the end of the reporting period, £4.0 million of that facility had been drawn down by SGZ Cononish Limited and a further £2.5 million was drawn down after 30 June 2020.

Subsequent to the reporting period, net equity funding of £2.8 million was raised in October 2020.

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.

The phases were scheduled as follows:

→ Phase 1 (28 Months): 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 (7 years): 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 was intended to be purely organically funded by Phase 1, and the Company anticipated sufficient cashflow generated by Phase 1 to meet the development requirements of Phase 2 within 2.5 years of first production.

Subsequent to the reporting period, in October 2020 the Company reviewed this timing of Phase 2 and elected to accelerate the development of Phase 2, such that it is now expected to be completed in May 2022 and will be funded by a combination of £2.5M of the new equity raised in October 2020 and funds generated internally over the shortened Phase 1 operating period.

At the same time in October 2020 the Company provided a Project update indicating first production was expected by 30 November 2020, revised cost estimates and re-evaluating the Project economics using a £1,400/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 the 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: 2020 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. Mine development during the reporting period has predominantly been in waste, with a non-material volume of Mineral Resource placed on surface stockpiles.

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

There has been no change in the Mineral Resources reported previously as at 30/06/2019.

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 Cononish, 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 30/06/2019. Mine development during the reporting period has predominantly been in waste, with a non-material volume of Ore Reserve placed on surface stockpiles.

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

Table: 2020 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 2020, 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 precious 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.

Following on from the success of the previously completed orientation surveys, Scotgold has continued to use the ionic leach technique for regional stream sediment sampling across 6 of its 13 Crown Option areas, identifying several drainage catchments with encouraging values that require detailed follow up work. Subsequent to the reporting period, regional stream sediment sampling has been completed across 10 of Scotgold's 13 Crown Option areas.

More targeted soil sampling using the ionic leach technique has been completed over prospects in the Glen Orchy Central and Inverliever East option areas. The three main prospects covered during this reporting period are as follows:

1. Kilbridge - This area had been identified as prospective by previous programmes; however, this latest work indicates an anomaly that is relatively limited in extent. This area is now considered a lower priority.

2. Beinn Udlaidh - This area has been the focus of several exploration programmes in the past, with conventional stream sediment and soil sampling as well as limited drilling completed over the prospect. The orientation drainage survey confirmed the prospectivity of the area, and soil sampling using the ionic leach method was completed during this reporting period with the objective of improving the understanding of the target area and highlighting previously undetected anomalies. The sampling detected a linear anomaly in the centre of the sampled area, associated with a prominent quartz vein exposed at the summit of Beinn Udlaidh as well as a linear anomaly in the southwest of the area sampled, where there is limited rock outcrop visible at surface. Further sampling, subsequent to the reporting period, has identified a highly anomalous area on the southern slope of Beinn Udlaidh, further sampling is required to constrain these positive anomalies.

3. Inverchorachan - This area had previously been sampled and mapped by students as part of their Masters research projects. The limited study had returned highly anomalous gold and silver values across the Inverchorachan gorge associated with the Tyndrum fault and an altered intrusive body. This initial survey area was expanded, and results indicate that the highly anomalous area continues to the southwest along strike of the Tyndrum fault. Subsequent to the reporting period, sampling has been completed further to the southwest which has identified several discrete but coherent anomalies.

In addition to the above mentioned geochemistry the Company embarked on a geophysical programme to evaluate more modern equipment to that historically trialled; including ground magnetics, Very Low Frequency ("VLF") / magnetics and Induced Polarisation ("IP") Gradient Array. Subsequent to the reporting period, the ground geophysics data reprocessing is currently in progress with promising initial results, this data will be the subject of a future regulatory announcement.

No fieldwork was completed between 16/03/2020 and 05/06/2020 due to the coronavirus pandemic and nationwide lockdown restrictions. This time was principally used for data analysis, procedure review and database work. 

The Company is pleased to report the identification of several new anomalies across its prospects as well as development of the understanding of areas previously identified as prospective and continues to employ a systematic and targeted approach to exploration.

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.

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. The termination process is currently in its final stages.

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 prior year. The liquidation process was concluded on 1 October 2019.

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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 2020, the Company was in the process of terminating its 100% interest in the Pomar Licence in eastern central Portugal, near Castelo Branco held through its subsidiary Scotgold Resources Portugal Ltda, pursuant to the Company announcing on 18 July 2019 its intention not to extend the Pomar Licence.

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 - 2019 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 adopted the QCA code of corporate governance in 2018 and subsequently appointed an advisory service to assist with UK regulatory compliance issues as an AIM listed company.

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. The first and second tranches of £50,000 and £150,000 payable under the scheme were received in August 2019 and June 2020 respectively.

With effect from 1 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 and is expected to be complete at the end of November 2020. However, to provide longevity beyond Cononish, and potentially growth in overall production, the Company is developing a pipeline of additional 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, then scheduled for the end of February 2020.

The Company then encountered further schedule delays relating to the management of excavated materials (peat in particular) and endured record high rainfall in February. Progress continued to be made however until the end of March 2020 when all non-essential construction in Scotland was placed under lockdown due to the Covid 19 pandemic. A skeleton staff was then maintained on site to undertake environmental monitoring and other essential maintenance activities, until June 2020 when the restrictions were lifted in stages and development activities could recommence.

In October 2020 the Company announced that it expected to achieve first gold production at Cononish by 30 November 2020 and that it had raised a further £3m (before costs) principally to accelerate the development of Phase 2 in order that the Phase 2 production levels of 72,000tpa could be achieved as soon as practicable thereafter (expected by May 2022).

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 and then again in October 2020 the Company provided revised expected financial returns based on a gold price assumption of £1,400/oz. These estimates demonstrate the increased value of Cononish given the steady improvement in the gold market, particularly in GB Pound terms, as the gold price has climbed from £1,100/oz to £1,437/oz over this reporting period and subsequently reached £1,569/oz in August 2020.

Notwithstanding the recent retreat of the spot gold price from record highs, the Company currently expects Project returns in line with these estimates.

As discussed above, the Covid 19 pandemic has already had a modest impact on the Project development schedule and associated capital costs, however these are not considered material to the overall expected Project returns. As mining operations fall within the classification of manufacturing and/or construction from the Scottish Government's restrictions perspective, it is expected that operations will continue even under the current Tier 4 level of restrictions currently prevailing in the area. There remains the risk of a more severe total lockdown, however it is anticipated that any such event would be relatively short and Government financial support similar to the earlier Job Retention Scheme would be available.

It is also expected that the Covid-19 pandemic will have a longer-term impact on global macro-economics but it is considered that this is unlikely to be negative for the long-term outlook for the gold price.

The work completed on advancing our future pipeline of projects has during the current reporting period 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. In September 2020 the Company announced key appointments to its geoscience team, and these will be key to expanding our exploration programmes in the coming period.

Annual General Meeting

The Company is intending to hold its annual general meeting ('AGM') in January 2021, which will be a virtual meeting, and formal notice of AGM will be posted to shareholders in due course. A further announcement in respect of the Company's AGM will be made to shareholders accordingly.

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

**ENDS**

For further information please contact:

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE YEAR ENDED 30 JUNE 2020

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 30 JUNE 2020

CONSOLIDATED STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED 30 JUNE 2020

NOTES TO AND FORMING PART OF THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 JUNE 2020

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 and mineral exploration.

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 date, the consolidated entity had current assets of $1,437,657 (2019 - $4,098,887), including available cash and cash equivalents of $1,019,979 (2019 - $3,917,920), and current liabilities of $2,131,873 (2019 - $819,908).

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 at 30 June 2020, the consolidated entity had further available funds by way of a secured £3.5m ($6.27m) loan facility not yet drawn down at that date.

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 2020, the consolidated entity had cash balances of $1,019,979 (30 June 2019 - $3,917,920) and for the financial year then ending, incurred net cash outflows from operating and investing activities of $9,934,309 (2019 - $11,284,113). The consolidated entity is nearing completion of the processing plant installation and tailings management facility at the Cononish Mine with the proceeds of the sale of the first gold produced expected to be received in December 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:

· The consolidated entity is nearing completion of the processing plant installation and tailings management facility at the Cononish Mine with the proceeds of the sale of the first gold produced expected to be received in December 2020;

· Subsequent to 30 June 2020, drawdowns in a total amount of £2,500,000 were made on the Bridge Barn secured loan facility and an amount of £1,000,000 of that loan facility remains undrawn and is available to be drawn down until 31 December 2021;

· As set out in Note 30, equity funding, net of attributable costs, in the amount of £2,839,650 ($5,190,125) was raised in October 2020 pursuant to a successful placement exercise, with these funds intended to be deployed in bringing forward the Phase 2 expansion of the Cononish Mine (thereby increasing monthly production levels from 3,000 tonnes of ore per month to 6,000 tonnes of ore per month) and conducting a comprehensive exploration campaign; and

· The extent and timing of the aforementioned exploration campaign lies solely within the discretion of management and can be varied to respond to the effects on group cash flows of uncertainties in the operating environment caused by the Covid-19 pandemic, which is still having a major global impact.

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 27 November 2020.

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 2020, 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 other than as noted below.

The following new or amended standards have been adopted during the year ended 30 June 2020:

AASB 16 Leases

The consolidated entity has adopted AASB 16 with effect from 1 July 2019. The Standard replaces AASB 117 'Leases' and for lessees it eliminates the classifications of finance leases and operating leases. Except for short-term leases and leases of low value assets, right-of-use assets and corresponding lease liabilities are recognised in the statement of financial position.

Straight line operating lease expense recognition is replaced with a depreciation charge for the right-of-use assets and an interest expense on the recognised lease liabilities.

For lessors, the standard does not substantially change how a lessor accounts for leases.

Impact of adoption

AASB 16 has been adopted using the modified retrospective approach, in terms of which comparatives have not been restated.

The effect of adoption on opening accumulated losses is as follows:

When adopting AASB 16, the consolidated entity has applied the following practical expedients:

· applying a single discount rate to the portfolio of leases with reasonably similar characteristics;

· accounting for leases with a remaining term of 12 months at 1 July 2019 as short-term leases; and

· Using hindsight in determining the lease term when the contract contains options to extend or terminate the lease.

The weighted average incremental borrowing rate used to measure the right-of-use assets and lease liabilities at 1 July 2019 was 7.44% per annum in respect of leases previously classified as operating leases. In the case of hire purchase facility balances reclassified as leases on 1 July 2019, the respective interest rates implicit in those agreements were retained (see Note 15).

Right-of-use assets

A right-of-use asset is recognised at the commencement date of a lease. The right-of-use asset is measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date net of any lease incentives received, any initial direct costs incurred, and, except where included in the cost of inventories, an estimate of costs expected to be incurred for dismantling and removing the underlying asset, and restoring the site or asset.

Right-of-use assets are depreciated on a straight-line basis over the unexpired period of the lease or the estimated useful life of the asset, whichever is the shorter. Where the consolidated entity expects to obtain ownership of the leased asset at the end of the lease term, the asset is depreciated over its estimated useful life. Right-of-use assets are subject to impairment or adjusted for any remeasurement of lease liabilities.

The consolidated entity has elected not to recognise a right-of-use asset and corresponding lease liability for short-term leases with terms of 12 months or less and leases of low value assets. Lease payments on these assets are charged to mine development costs or expensed to profit or loss as incurred, as appropriate.

During the year, an aggregate amount of $276,732 (2019 - $Nil) paid in respect of short-term leases and leases of low value assets was charged to mine development expenditure, with the major component of this amount being payments in respect of mobile plant used in the construction of the Cononish Mine processing plant building and tailings management facility hired on a weekly basis for consecutive periods of more than one month, which are all expected to be off-hired by 31 December 2020.

Lease liabilities

A lease liability is recognised at the commencement date of a lease. The lease liability is initially recognised at the present value of the lease payments to be made over the term of the lease, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate of the consolidated entity.

Lease payments comprise:

· fixed payments less any lease incentives receivable;

· variable lease payments that depend on an index or a rate;

· amounts expected to be paid under residual value guarantees;

· exercise price of a purchase option when the exercise of the option is reasonably certain to occur; and

· any anticipated termination penalties.

The variable lease payments that do not depend on an index or a rate are expensed in the period in which they are incurred.

Lease liabilities are measured at amortised cost using the effective interest method. The carrying amounts are remeasured if there is a change in the following:

· future lease payments arising from a change in an index or a rate used;

· residual guarantee;

· lease term;

· certainty of a purchase option; and

· termination penalties.

When a lease liability is remeasured, an adjustment is made to the corresponding right-of-use asset, or to profit or loss if the carrying amount of the right of use asset is fully written down.

The consolidated entity has applied the provisions of AASB 2020-4 - Covid-19 Related Rent Concessions during the year. AASB 2020-4 introduced a practical expedient that permits lessees not to assess whether a rent concession that occurs as a direct consequence of the COVID-19 pandemic is a lease modification. The lessor of the Boomer S1D drill rig and Scoop Tram used by the consolidated entity in its mining operations halved the monthly payments on these items of mobile plant during the months of April 2020 to June 2020 during which mining operations were suspended as a result of the Covid-19 pandemic. The resultant aggregate reduction in payments of $26,835 (£14,000) has been recognised as a reduction of capitalised mine development expenditure.

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

The adoption of this standard has had no effect on the consolidated entity.

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

The adoption of this standard has had no effect on the consolidated entity.

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)

The adoption of this standard has had no effect on the consolidated entity.

Interpretation 23 Uncertainty over income tax treatments

The adoption of this standard has had no effect on the consolidated entity.

New Accounting Standards and Interpretations

The following new/amended accounting standards and interpretations have been issued but are not mandatory for financial years ended 30 June 2020. They have not been adopted in preparing the financial statements for the year ended 30 June 2020.

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

This standard was issued in December 2018 and clarifies the definition of a business' in AASB 3 to assist in determining whether a transaction should be accounted for as a business combination or as an asset acquisition.

The standard is effective for annual reporting periods beginning on or after 1 January 2020 and applies to acquisitions occurring on or after the beginning of the first annual period beginning on or after 1 January 2020. No impact on the financial statements is expected when these amendments are first adopted because they apply prospectively to acquisitions occurring on or after the beginning of the first annual reporting period beginning on or after 1 January 2020, i.e. on or after 1 July 2020.

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

This standard was issued in December 2018 and clarifies the definition of what is 'material' to the financial statements, including adding guidance and explanations to accompany the definition. The standard primarily affects AASB 101 and AASB 108.

The standard is effective for annual reporting periods beginning on or after 1 January 2020 and is to be applied prospectively. Initial application is not expected to have an effect on the consolidated entity.

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

This Standard was issued in May 2019 and sets out amendments to Australian Accounting Standards, Interpretations and other pronouncements to reflect the issuance of the Conceptual Framework for Financial Reporting (Conceptual Framework) by the AASB.

The standard is effective for annual reporting periods beginning on or after 1 January 2020. Initial application is not expected to have an effect on the consolidated entity.

AASB 2019-3 Amendments to Australian Accounting Standards - Interest Rate Benchmark Reform

This Standard was issued in October 2019 and amends AASB 7, AASB 9 and AASB 139 to modify some specific hedge accounting requirements to provide relief from the potential effects of the uncertainty caused by the interest rate benchmark reform. In addition, the amendments require entities to provide additional information about their hedging relationships that are directly affected by these uncertainties.

The standard is effective for annual reporting periods beginning on or after 1 January 2020. Initial application is not expected to have an effect on the consolidated entity as the consolidated entity does not engage in hedging activities.

AASB 2019-5 Amendments to Australian Accounting Standards - Disclosure of the Effect of New IFRS Standards Not Yet Issued in Australia

This Standard was issued in November 2019 and clarifies that, in complying with paragraph 30 of AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors, entities intending to assert compliance with IFRS must also disclose the potential effect of IFRS standards that are yet to be issued by the AASB.

The standard is effective for annual reporting periods beginning on or after 1 January 2020. The effect on the entity is expected to be limited to additional disclosure in respect of IFRS standards which are in effect before the equivalent AASB standard has been issued to show the effect of application of such IFRS standards.

AASB 2020-1 Amendments to Australian Accounting Standards - Classification of Liabilities as Current or Non-current

This standard was issued in March 2020 and contains four main changes to the requirements for classification of liabilities as current or non-current and specifically, the unconditional right to defer settlement, the effect of bank covenants, the right to defer settlement vs intention to do so and early settlement by conversion to equity.

The standard is effective for annual reporting periods beginning on or after 1 January 2022. As these amendments only apply for the first time to the 30 June 2023 Statement of Financial Position (and 30 June 2022 comparative Statement of Financial Position), the entity is not yet able to make an assessment of the impacts regarding the right to defer settlement, compliance with bank covenants, and intention to settle set out therein.

AASB 2020-3 Amendments to Australian Accounting Standards - Annual improvements 2018-2020 and Other Amendments

This standard was issued in June 2020 and effects amendments to AASB 1, AASB 3, AASB 9, AASB 116, AASB 137 and AASB 141. The standard is effective for annual reporting periods beginning on or after 1 January 2022.

The amendments to AASB 1 apply only to entities that apply AASB 1 for the first time for the year ended 30 June 2023 and are not expected to have any impact on the consolidated entity.

There will be no impact on the financial statements of the consolidated entity when the amendments to AASB 3 are first adopted because they apply prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period to which this amendments applies, i.e. annual periods beginning on or after 1 July 2022.

The amendment to AASB 9 clarifies which fees an entity includes when it applies the '10 percent' test to assess whether there has been a modification or substantial modification to a financial liability. There will be no impact on the financial statements of the consolidated entity when these amendments are first adopted because they apply prospectively to financial liabilities that are modified or exchanged on or after the beginning of the first annual reporting period to which this amendment applies, i.e. annual periods beginning on or after 1 July 2022.

The amendments to AASB 116 provide that where samples are produced as a result of testing whether an asset is functioning properly, then the revenue resulting from the sale of those samples produced while bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management must be recognised in profit or loss (as opposed to being credited to the cost of that asset).

The amendments to AASB 116 apply retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary to be capable of operating in the manner intended by management, on or after the beginning of the earliest period presented in the financial statements to which the amendment first applies (i.e. 1 July 2021). However, it is intended to apply these amendments to all revenues from the sale of gold and silver resulting produced as a result of the testing and commissioning of the Cononish Mine processing plant in the year ended 30 June 2021.

The amendments to AASB 137 provide that the costs of fulfilling a contract need to be considered when assessing whether a contract is onerous and sets out examples of such costs. These amendments only apply to contracts with unfulfilled obligations at the beginning of the first annual reporting period to which the amendments apply, i.e. annual periods beginning on or after 1 July 2022. The cumulative effect of initially applying the amendments will be recognised as an adjustment to opening balances of retained earnings on 1 July 2022.

The amendments to AASB 141 deal with biological assets in the agriculture industry and application thereof is not expected to have any effect on the consolidated entity.

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 differences 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, 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

The consolidated entity held thirteen exploration licences in Scotland at 30 June 2020. The commencement date of each of these licences is 5 November 2018, with a term of five years and an option to extend for a further period of four years, subject to the Crown Estate Scotland being satisfied with the progress made in conducting exploration activities in the area covered by that licence. No minimum capital expenditure figure is stipulated in any of the thirteen licences.

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 in the case of areas of interest in respect of which tenure is current and 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 2020, 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) Government grants

Grants from the government are recognised only when there is both a reasonable assurance that the entity will comply with any conditions attached to the grant and the grant will be received.

Government grants relating to costs are deferred and recognised in profit or loss over the period necessary to match them with the costs that they are intended to compensate.

Government grants are receivable in the form of Regional Selective Assistance provided by Scottish Enterprise in respect of the Cononish Mine project. The Regional Selective Assistance grant is receivable in four instalments with conditions as to capital expenditure, project funding and creation of new jobs being attached to each claim instalment. Claims in respect of each instalment are submitted to Scottish Enterprise together with proof that the specific conditions attached to that claim instalment have been met. Claims received are recognised as other income.

(p) 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.

(q) 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.

(r) Comparative Figures

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

(s) 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.

(t) Share based payments - shares and options

The fair value of shares and share options granted is recognised as an expense or as an addition to mine development expenditure depending on the services rendered in respect of which the shares or share options are granted, 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.

(u) 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.

(v) 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.

(v)(i) Critical accounting estimates and associated assumptions

Estimation of useful lives of assets

The determination by the consolidated entity of the estimated useful lives and related depreciation and amortisation charges for its plant and equipment and finite life intangible assets involves a significant amount of judgement, based on historical experience with similar assets, available industry information with regard to similar assets and anticipation of future events.

The useful lives determined could change significantly as a result of technical innovations or some other event. The depreciation and amortisation charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down.

Lease term

The lease term is a significant component in the measurement of both the right-of-use asset and lease liability. Judgement is exercised in determining whether there is reasonable certainty that an option to extend the lease or purchase the underlying asset will be exercised, or an option to terminate the lease will not be exercised, when ascertaining the periods to be included in the lease term. In determining the lease term, all facts and circumstances that create an economical incentive to exercise an extension option, or not to exercise a termination option, are considered at the lease commencement date. Factors considered may include the importance of the asset to the consolidated entity's operations; comparison of terms and conditions to prevailing market rates, incurrence of significant penalties, existence of significant leasehold improvements and the costs and disruption to replace the asset. The consolidated entity reassesses whether it is reasonably certain to exercise an extension option, or not exercise a termination option, if there is a significant event or significant change in circumstances.

Incremental borrowing rate

Where the interest rate implicit in a lease cannot be readily determined, an incremental borrowing rate is estimated to discount future lease payments to measure the present value of the lease liability at the lease commencement date. Such a rate is based on what the consolidated entity estimates it would have to pay a third party to borrow the funds necessary to obtain an asset of a similar value to the right-of-use asset, with similar terms, security and economic environment.

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 2020 was $657,934 (2019 - $238,690).

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 premium 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.

(v)(ii) Critical judgements in applying the consolidated entity's accounting policies

Determination of date of reclassification to mine development expenditure

During the prior 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.

The same judgement process will be applied in future in evaluating whether other areas of interest have met the criteria for reclassification to mine development expenditure.

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 premium 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 2020, the gross asset base of the consolidated entity directly attributable to the Cononish mine amounted to $33,502,849 (2019 - $23,953,258). The Directors have not identified any impairment indicators necessitating impairment of the carrying value of that asset base at 30 June 2020.

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 2020, the consolidated entity had capitalised mineral exploration and evaluation expenditure of $2,441,728 (2019 - $2,034,815). The Directors do not believe any indications of impairment are present. 

NOTE 2 - INTEREST INCOME

NOTE 3 - OTHER INCOME

NOTE 4 - INTEREST EXPENSE

NOTE 5 - DEPRECIATION AND LOSS ON DISPOSAL OF NON-CURRENT ASSETS

NOTE 6 - INCOME TAX

The prima facie tax benefit at 27.5% (2019 - 27.5%) on loss from ordinary activities is reconciled to the income tax benefit in the financial statements as follows:

The difference in tax rate between jurisdictions arises due to the difference in corporation tax rate between Australia (27.5%) and the United Kingdom (19.0%). It is considered that there are sufficient assessable losses as at 30 June 2020 to offset the effect of taxable temporary differences in future.

INCOME TAX BENEFIT

The directors estimate the cumulative unrecognised deferred tax asset attributable to the Company and its controlled entities at the tax rates applicable in the respective applicable jurisdictions is as follows:

The potential deferred tax asset has not been brought to account in the financial report at 30 June 2020 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 7 - TRADE AND OTHER RECEIVABLES

During the prior 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. That 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 following amounts were lodged as security during the prior year for the performance by SGZ Cononish of its obligations in terms of the Section 75 Agreement

- £537,918 ($962,975) in respect of obligations to undertake restoration, decommissioning and environmental aftercare and monitoring on cessation of operations at the Cononish mine; and

- £268,693 ($481,011) in respect of obligations in terms of the Greater Cononish Glen Management Plan.

The cumulative amount of interest earned on the amounts lodged is $30,818 (2019 - $Nil).

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, during the prior year SGZ Cononish Limited lodged a deposit of £30,000 ($53,706) 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 8 - INVENTORY

NOTE 9 - OTHER CURRENT ASSETS

NOTE 10 - PLANT AND EQUIPMENT

On initial application of AASB 16, mobile plant and motor vehicles with a net carrying value of $842,517 on 1 July 2019 were reclassified as right-of-use assets on that date. These assets are financed by hire purchase facilities which were classified as leases on initial application of AASB 16.

NOTE 11 - RIGHT-OF-USE ASSETS

Pursuant to the classification of hire purchase facilities as leases on the initial application of AASB 16, mobile plant and motor vehicles financed by such facilities, with a net carrying value of $842,517 on 1 July 2019, were reclassified as right-of-use assets on that date.

Included in the additions after date of initial application during year figure of $552,323 is an amount of $47,710 (2019 - $Nil) paid in respect of costs necessary to bring certain right-of-use assets to a condition in which they are ready for their intended use and a provision for decommissioning and restoration of $27,476 (2019 - $Nil), which costs did not form part of the cash flows of the related lease liability.

During the year, an amount of $276,732 (2019 - $Nil) paid in respect of short-term leases and leases of low value assets was charged to mine development expenditure, being primarily payments in respect of mobile plant used in the construction of the processing plant building and tailings management facility hired on a weekly basis for consecutive periods of more than one month, which are all expected to be off-hired by 31 December 2020.

NOTE 12 - 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.

NOTE 13 - MINE DEVELOPMENT EXPENDITURE

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

Mine development expenditure includes $276,732 (2019 - $Nil) of amounts paid during the year in respect of short-term leases and leases of low value assets, with the major component of this amount being payments in respect of mobile plant used in the construction of the processing plant building and tailings management facility hired on a weekly basis for consecutive periods of more than one month.

Mine development expenditure includes the following amounts in respect of the Cononish Mine which will be transferred to plant and equipment when they have been completed and are in a condition suitable for their intended use or in the case of capitalised mining costs, once first ore is produced:

NOTE 14 - TRADE AND OTHER PAYABLES

Trade payables are non-interest bearing and are normally settled on 30 days terms (2019 - 30 days).

NOTE 15 - BORROWINGS

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

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 28 August 2019 the overall amount available under the facility was increased from £6,000,000 to £7,500,000 and the period of repayment of tranches already drawn and to be drawn on the facility was extended from a period of 24 months after date of drawdown of that specific tranche to a period of 36 months; and

(b) On 28 April 2020 the period of availability of the third tranche of the secured loan facility was extended from a period of six months after the date of drawdown of the second tranche of that facility to a period of eighteen months, the period of availability of the fourth tranche was extended to end on the earlier of 31 December 2021 and the date falling twelve months after the date of drawdown of the third tranche and SGZ Cononish Limited was given the right to draw down each of the third and fourth tranches in sub-tranches of £500,000 each, with the sub-tranches of each tranche to be drawn down within the amended period of availability of that particular tranche.

The amendment effected on 28 August 2019 resulted in a gain on renegotiation of repayment terms of £22,223 ($38,383) being recognised in respect of the first tranche of the facility, which had been drawn down on 13 May 2019. The amendment effected on 28 April 2020 did not give rise to a gain or loss.

The second tranche of the secured facility was received on 21 October 2019, with the reference drawdown date of the second tranche for the purpose of calculation of interest and determining the date of repayment thereof being 25 October 2019.

The terms of the secured loan facility at 30 June 2020 are accordingly as follows:

i) An overall facility amount of £7,500,000 to be drawn down in two tranches of £2,000,000 (both of which had been drawn down by 30 June 2020 in their respective periods of availability) followed by a third tranche of £2,000,000 and a fourth tranche of £1,500,000 with the option to draw down each of the third and fourth tranches in sub-tranches of £500,000 each;

ii) The period of availability of the third tranche (including any sub-tranches of that third tranche) ends on 25 April 2021 and the period of availability of the fourth tranche (including any sub-tranches of that fourth tranche) ends on the earlier of 31 December 2021 and the date falling twelve months after the date of drawdown of the last sub-tranche of the third tranche (or the date of drawdown of the third tranche where it is drawn down in its entirety as a single tranche);

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

iv) Each tranche or sub-tranche, as appropriate, together with accumulated interest thereon, is repayable 36 months after the date of drawdown of that tranche or sub-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.

Movements on the secured facility loan agreement for the year ended 30 June 2020:

Movements on the secured facility loan agreement for the year ended 30 June 2019:

The effective interest rate on the secured loan facility is 8.46% (2019 - 8.63%). As set out in Note 30, after 30 June 2020 the third tranche was fully drawn down and one sub-tranche of £500,000 of the fourth tranche was drawn down.

Right-of-use lease liabilities

Pursuant to the implementation of AASB16 during the year, lease liabilities have been raised in respect of right-of-use assets. In addition, on initial application of AASB 16, hire purchase facilities with an aggregate outstanding balance of $732,531 at 1 July 2019 were reclassified as lease liabilities on that date:

Movements for the year ended 30 June 2020:

The effective interest rate on the right-to-use lease liabilities is 9.88%. Right-of-use assets with an aggregate net carrying value of $1,738,238 (2019 - $Nil) are financed by the right-of-use lease liabilities.

Hire purchase facilities

Subsidiaries of the Company are parties to hire purchase agreements with financial institutions to finance the purchase of motor vehicles and mobile plant. On the initial application of AASB 16 on 1 July 2019, hire purchase facilities were reclassified as leases.

On initial application of AASB 1 on 1 July 2019, the following hire purchase facilities, with an aggregate outstanding balance of $732,531 on that date, were reclassified as lease liabilities:

The movements on hire purchase facility borrowings for the year ended 30 June 2019 were 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 2020.

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 2020 using a discount rate of 0.87% (2019 - 1.32%).

Movements in the provision are as follows: