Dunnet Bay Distillers Limited (DBDL) is leading the project, which will create 13 jobs. The project has also received a £2 million funding package from HSBC UK.

The mill was originally built to feed workers in the local flagstone industry in the 1800s, which once employed up to 500 people, but later fell into disrepair.

The derelict building is now being converted into a new state-of-the-art craft whisky distillery and world class visitor attraction. It will be known as Stannergill Distillery, which is understood to be a Norse phrase that means stone enclosed gorge or ravine – or river of stone.

DBDL previously secured £500,000 from Historic Environment Scotland for the renovation works.

The HIE funding will help meet the costs of plant and equipment to fit out the new facility. It will also help lever in significant private sector investment to the project.

Stannergill Distillery will source water onsite and use energy from renewable sources to fuel the electric distillery equipment.

Plans are underway to dispose of any waste from the distillation process in a sustainable and environmentally conscious way, including options for it be used as fertiliser by a local barley farmer.

Hilary Budge development manager with HIE’s Caithness and Sutherland team said: “Whisky production is a key part of the food and drink sector in Caithness that is helping to diversify the local and regional economy through whisky-based tourism.

“There are several aspects to this project that will bring benefits to the local area and to the wider economy. It will bring a disused building back into productive use as a place of interest promoting local heritage and improving the aesthetics of the area. And of course, it will create valuable local jobs and contribute towards net zero ambitions.

“I’m delighted we’ve been able to provide support and look forward to seeing the new distillery taking shape.”

Martin Murray, co-owner of Dunnet Bay Distillers, said: “What delights me about this project is saving an old building and giving it new life.

“The opportunities it will create for new local employment is something that really pleases us and we look forward to when we can start recruiting!”

Dunnet Bay Distillers Ltd was founded in 2013 by Martin and Claire Murray and now produces and sells more than 110,000 bottles of gin, vodka and rum every year.

The business consists of a distillery and five-star visitor centre in Dunnet, east of Thurso on the NC500 route, and employs more than 15 full time equivalent posts. It is a Fair Work Accredited business and is committed to the net zero agenda.