Ulster's Gold Rush

Sam McKinley always believed that the only benefit offered by Mother Nature on the Cavanacaw bog was the golden glow to the skin that resulted from tending sheep on it on a summer's day.

Little did he know that the soggy layer of peat in County Tyrone that has been grazed by his family's flocks for five generations was hiding a far more lustrous prize - the rock formations needed to open the first gold mine in Ireland for three millennia.

Situated in a heather and gorse-covered valley in the lush Ulster countryside overlooking Omagh, the Cavanacaw gold mine has quietly opened for business as an unlikely competitor on a bullion market dominated by giant mines in locations from Peru to Tanzania.

In so doing, the "dreary steeples" of Tyrone, as Winston Churchill once put it, have been transformed by gold fever.

Omagh, which was the scene of the worst single atrocity of the Troubles when a Real IRA car bomb killed 29 people in August 1998, is enjoying the prospect of a peace time economic boon from the precious metals which have long lain unnoticed on its doorstep.

From core samples painstakingly drilled out of the ancient rock, geologists have worked out that the mine is sitting on verified deposits of about 14 tonnes of Irish gold. Once it enters full production in the coming months, managers aim to produce 30,000 ounces of gold a year, worth some £15m.

There are early indications of further deposits which could sustain production for decades if planning permission for further digging is obtained. In the meantime, there are advanced plans to take a slice of the global £3bn gold jewellery business by marketing a range of products fashioned entirely from Cavanacaw's riches.

Mr McKinley, 60, a former farmer who now works as chief mechanic for Galantas, the Anglo-Canadian company which is operating the mine, said: "It was land that we had little use for, mostly peat bog that was used to keep sheep. The only time we'd go up there was to cut the turf and get a sun tan.

"My brother once joked that it would be great if we struck oil under there. We had no idea - it came as a complete surprise when we learnt there was a gold deposit underneath.

"People all around are delighted to have it. They still can't quite believe it - a gold mine in Omagh. Who'd have thought it?"

In reality, experts have long suspected that Ireland - along with a swath of Great Britain - is sitting on significant gold deposits. A belt of the type of prehistoric rock that is required for the formation of rich ore veins containing large quantities of gold particles runs through northern Canada and across the Atlantic into Scandinavia via Ireland and Scotland.

As a result gold and Ireland have a distinguished history. The Celts produced some of the most accomplished treasures of the Bronze Age: intricate gold jewellery, including necklaces weighing up to two kilograms and the beautiful brooches and buckles associated with burial hoards unearthed over the ages.

Researchers declared earlier this year that much of the gold used by the Celtic goldsmiths had not come from abroad, as originally thought, but had been gathered from the Sperrin Mountains, also in County Tyrone, and other locations around Ireland.

A gold rush in Wicklow in the early 19th century yielded an estimated 400kg of nuggets from the bed of the Aughatinavought River. The largest nugget from what became known as the Gold Mines River weighed nearly 700 grams and was melted down to make a snuffbox for George III.

But once the easy pickings on river beds were exhausted, the remaining gold remained locked underground and there has not been a functioning mine in Ireland since the diggings of the Celts.

Roland Phelps, the chief executive of Galantas - Gaelic for "elegant thing" - was in charge of Britain's only gold commercial mine at Gwynfynydd in Snowdonia, Wales, which closed in January. He has now sunk £1m of his own money into the Omagh venture in the firmly held belief that it is an even richer prospect.

Standing in the ramshackle portable building that currently passes for Galantas's operational headquarters at the mine, with sweeping views over the grey spires of Omagh's cathedral, he said: "On the global scale, this is a small mine but it has the potential to be a very sweet one. A commercial mine can operate on yields of three grams of gold per tonne of ore. Our samples have produced results of 17 grams per tonne.

"By being the only mine in Ireland, we will have a de-facto monopoly on Irish gold and in those circumstances, a monopoly is a beautiful thing. We employ local people, we source as much of our material as possible locally and we are here for the long term."

The company, which is listed on both AIM alternative investment market in London and the Toronto stock exchange, is hoping to use some of the gold to produce a range of jewellery which will appeal to the 50 million-strong Irish diaspora around the world.

Test marketing for the Irish gold made from an initial production run of 101 tonnes of ore has already sold £300,000 of rings, earrings and pendants costing up to £1,200. A shamrock lapel pin fashioned from the gold was given to Bill Clinton by the Taoiseach, Bertie Ahern. Negotiations to sell the range in stores owned by the Goldsmiths chain are in their final stages.

Mr Phelps said: "We aim to only use about 10 per cent of the gold that comes out of the mine in the jewellery business but that will be plenty. As far as I know there is nowhere else in the world that can offer gold with a specific geographic origin. The last place that could was Wales and that has now shut down. We believe the idea of gold specifically from Ireland, with all its beauty and mystique, will make it attractive to the millions of people across the world who have Irish blood."

Anyone equating the Cavanacaw gold mine with a quaint underground pit where labourers chip gleaming nuggets from a rich seam should think again.

A few hundred metres beyond the unobtrusive entrance to the Omagh site, which employs 35 people, is an open-cast mine, in effect a large quarry stretching over four acres of land, from which the peat has been systematically scraped back to reveal a scarred landscape of broken rock and large pools for settling sediment. Two large diggers and a fleet of dumper trucks beetle across the site extracting the mine's core product - a charcoal black ore ranging in hardness from granite to thick clay which is rich in microscopic particles of gold, silver and lead.

The gold deposits, contained in Precambrian rocks formed up to 500 million years ago, were discovered in the early 1980s by prospectors from the global mining conglomerate Rio Tinto, which bought the mineral rights from local farmers, including Mr McKinley's family, over an area measuring 180 square kilometres. The company eventually sold the stake to a consortium headed by a former Rio Tinto executive, Jack Gunter, who is now the executive president of Galantas.

The gravel-voiced Canadian, who has lived in London for 20 years, said: "The mine was too small for it to be worth Rio Tinto's while to operate it. I saw a good opportunity and a deal was negotiated. But it has been a long road since to bring it into an operational mine."

Mr Gunter won planning permission to open a mine over the four-acre area of the Cavanacaw bog in 1995 at the longest public inquiry in Northern Ireland prior to the Bloody Sunday Inquiry. But it was not until the Good Friday Agreement was signed in 1998 and the subsequent peace in the province that institutional investors were prepared to put forward funds to bring the mine to fruition.

One City broker who is in charge of rallying interest in the mine across the Square Mile said: "A lot of people assume a worthwhile gold mine could only be in Central America or Africa. But when we show that it is in Ireland and it is in production they become a lot more interested."

The investors, including some of London's leading merchant banks and investment funds, have now financed a £3.5m plant to crush the ore into a fine powder which is bubbled through floatation tanks to separate the metals from sediment.

The quarried rock is then filled back in and replanted to restore the bog to its natural state and allow sheep to return. A thick black paste containing the gold particles is shipped in 25-tonne containers to a smelting works in New Brunswick, Canada, to produce the finished bullion.

Mr Phelps said: "It isn't very romantic. I'm afraid gold is a hard-nosed business."

Four miles away on the streets of Omagh there is growing excitement about the mine.

A spokeswoman for Hazel Allen Jewellers, the only shop in the town to sell Galantas gold, said: "We've been almost cleared out. People have come in locally, from across the border in the south and we've had orders on the internet from Brazil. There is great demand for it."

The bullion industry

SOUTH AFRICA

Europeans first mined gold in South Africa in 1886, near Johannesburg. Soon the pursuit of gold dominated the country's mining industry. South Africa has almost a half of the world's known gold reserves.

UNITED STATES

Gold was produced in the southern Appalachian region, in the eastern US, as early as 1792, and perhaps as early as 1775 in southern California. The discovery of gold at Sutter's Mill in California sparked the gold rush of 1849-50. The largest gold mine is now in Lead, South Dakota.

AUSTRALIA

The earliest recorded discovery of gold was made in 1823 at Bathurst, New South Wales. But Australia's gold rushes did not begin until 1851, when Edward Hargraves made his discovery, also at Bathurst.

CHINA

As early as 1091 BC in China, gold became legal tenders as an alternative to silk, which was used as a currency at the time. Today, it produces around 240 tonnes of gold annually.

CANADA

Canada produces around 140 tonnes of gold annually from around 330 gold mines.

INDONESIA

Over 70 per cent of Indonesia's gold production is generated as a by-product of copper mining at the Grasberg mine, Papua province and Batu Hijau mine, in Sumbawa.

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