Soaring prices promise a gold rush in Scotland

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Stock market jitters and a weak dollar are a gold mine for Scotland – literally. Visitors to Lanarkshire may know not there is gold in the hills, but there is, and an Australian company is preparing an industrial operation to extract it.

The idea of mining the Scottish hills was explored 10 years ago but abandoned when the price of gold tumbled. Now the weakness of the US economy, fear of inflation, and uncertainty about future share values has pushed the price of gold to record heights. This week, for the first time, the average price in world markets went above $900 (£450).

With that sort of money to be made, an Australian mining company has decided to risk extracting and marketing Scottish gold. The company, Scotgold, has raised millions of Australian dollars to finance the operation, and plans to become the country's most significant gold producer.

Scottish gold is particularly valuable because it is rare, and has a rich yellow colour. Scottish museums have been prepared to pay more than £3,000 an ounce for it. There have been no Scottish goldmines for years but panners who patiently sift through buckets of gravel from the river beds of Perthshire, Dumfries & Galloway and Sutherland will usually find enough to reward their labour.

Panners donated the ore to make the gold ring that is embedded in the Scottish Parliament Mace. The wedding ring that the former Liberal Democrat leader Charles Kennedy gave to his wife was also made from Scottish gold.

In the spring of 1869, Scotland had its own gold rush, after a local man, Robert Gilchrist, who had worked for 17 years in the Australian goldfields, was permitted to start prospecting in the Helmsdale river, at Strath Kildonan where, 50 years earlier, a nugget big enough to make a ring was discovered. The ring is still owned by the Duke of Sutherland's family.

After word got out that Gilchrist had found significant quantities of gold in two tributaries of the Helmsdale, 600 prospectors poured into the valley and set up a shanty town. They started drifting away when the Duke of Sutherland demanded £1 per head per month for prospecting licences, plus 10 per cent of all gold found. At the end of the year, the remainder were ordered out.

In Leadhills, in the Lowther hills, there are traces of a 500-year-old goldmine. A nugget the size of a horse's head is rumoured to lie near the village of Wanlockhead in the Southern Uplands, nicknamed "God's Treasure House". Some of the purest gold in the world was found around Wanlockhead, and used to make the Scottish crown jewels. The biggest find in the past 60 years was in Urlar/Moness burn at the Birks of Aberfeldy in Perthshire. Its discovery attracted so many amateur prospectors that Perth and Kinross Council issued a reminder that it is illegal for the public to pan in the area, a designated site of special scientific interest.

Scotgold bought Cononish mine in Tyndrum, north of Glasgow, in May last year, and is planning to open a mine that will employ 60 people. The previous owners spent up to £10m on exploration work before abandoning the project. Scotgold also has mining rights covering 2,200 sq km of central Scotland.

"Much of the hard work has already been done, with previous owners carrying out exploration on the project over some 15 years," Scotgold's non-executive chairman, Shane Sadleir, said.

"Exploration work was also done on diamond drilling and the construction of a 1.2km tunnel along the vein, culminating with planning approval for a small mining operation of 25,000 oz of gold per annum in 1996. A downturn in the gold price shortly after saw the project placed in care and maintenance for the next 10 years."

Mr Sadleir added: "Unlike most other goldmining companies in the world, we hope to add value to the uniquely Scottish nature of the gold produced and intend to have early discussions with a number of local jewellery manufacturers."

If Scotgold is to produce sufficient reserves, it will have to apply again for planning permission to both the Loch Lomond and Trossachs authorities to enable commercial extraction.