Australian prospectors look to Scotland for gold

SYDNEY (Reuters) - Australia's Scotgold Resources plans to bring gold mining back to Scotland some 500 years since the first mines were dug, driven by a surge in the price of the precious metal.

Instead of scouring better-known gold veins in the Australian outback, where hundreds of tonnes of gold are already mined each year, Scotgold plans to pan the far lesser-known Cononish region of Scotland, 100 kilometres (62 miles) north of Glasgow.

With bullion worth nearly $900 (459 pounds) a ounce - more than double the price five years ago - Scotgold is willing to give mining in the region another shot, Chairman Shane Sadleir told Reuters in an interview.

"This was a project I looked at 11 years ago and I've been waiting for the right gold price ever since," Sadleir said.

Scotgold's stock is set to begin trading on the Australian Stock Exchange on Tuesday after raising A$4.9 million (2.2 million pounds) in an initial public offering of 16 million shares priced at A$0.25 each.

After the listing, which was over subscribed by A$2 million, the company will have 6.4 million shares on issue and a starting market capitalisation of A$15.8 million.

Gold mining in Scotland dates back to the early 16th century and has occurred intermittently at best since then.

A gold discovery in the hills surrounding Tyndrum, near Cononish, sparked a short-lived gold rush in the 19th century, though the area quickly returned to being little more than a stopping off point on the drovers road from the northern and western Highlands to market in the south.

Earlier prospectors had looked at ways to develop a mine at Cononish, only to abandon the idea when bullion prices tanked in the 1990s, said Sadleir, a former government environmental officer in Australia.

"Much of the hard work has been done for us. With the return of the gold price, I doubt you'd be able to buy a project like this today," he said.

"It's more like something you might find in Australia."

Investors have poured into gold, driven by uncertainties in financial markets and inflation fears amid signals that aggressive U.S. interest rate cuts may be on the cards.

The idea of gold as a safe-harbour investment has also been boosted by worries of further write-downs among major financial institutions and credit market meltdown in the United States.

Scotgold hopes to use part of Cononish's railway ticket office as its headquarters, Sadleir said, because of the lack of commercial real estate in an area better known for tourism and farming.

($=A$1.12)