Thea Gilmore breathes new life into the words of a tragic lost star

For several decades now, we have grown used to record labels ransacking their vaults for demos and out-takes with which to repackage old albums in expanded editions. So perhaps it's surprising that it has taken the music industry this long to catch onto another major revenue stream involving "heritage" artists: the revitalisation of dormant lyrics.

It's something first tried in the latter years of the last century, when Woody Guthrie's daughter Nora gave her blessing for Billy Bragg and Wilco to devise tunes for a sheaf of her father's lyrics. The results, recorded on Mermaid Avenue, offered a bracing reminder of the range and vigour of Guthrie's songcraft, and sold enough albums (more than 250,000) to make a second volume worthwhile. A similar opportunity arose just a few years ago, when Hank Williams's notebooks turned up. The Williams estate, rightly surmising that the closest modern equivalent to Hank was Bob Dylan, offered the lyrics to him for a proposed album of collaborative songs.

For whatever reason – presumably too many of his own fish required frying and he couldn't give Williams's words the attention they required – Dylan vacillated over the project, until a year or two later the Williams estate suggested a compromise, with Bob being but one of several artists applying their melodic muse to a single song apiece. The resulting album, The Lost Notebooks of Hank Williams, was finally released a couple of weeks ago on Dylan's Egyptian Records label, featuring such luminaries as Jack White, Merle Haggard, Sheryl Crow and Norah Jones applying their distinct styles to Williams's words.

Now, just a few weeks on, comes another example of this new kind of posthumous collaboration, with Thea Gilmore releasing an album of previously unrecorded Sandy Denny lyrics which she has set to music. This is perhaps a more surprising example than the Woody Guthrie and Hank Williams projects: though Sandy Denny shares with them a reputation as a troubled and occasionally troublesome talent, her impact has been much more restricted than theirs, making this one more of a pure labour of love than those previous efforts.

"She still hasn't got the kudos that some of her contemporaries have received," believes Gilmore. "You can walk into a 19-year-old's bedroom and there might be a couple of Nick Drake albums, and it strikes me as strange that Sandy hasn't got the level of adoration that Nick Drake managed to acquire posthumously. There was an awful lot of talk about Nick Drake becoming depressed when he couldn't set the world alight commercially, and there's a lot of that in Sandy's lyric for 'Long Time Gone', that feeling that you're swimming against the tide and can't break through."

Denny is still best remembered as the voice of Fairport Convention in that group's halcyon era, although, as just one amongst the band's various songwriters vying for their material to be performed, she is perhaps less well remembered as a composer. Despite that, she still managed to contribute several of the group's best-known songs before it opted to pursue a more single-minded strategy of updating traditional folk-songs – most notably "Who Knows Where the Time Goes", which, through cover versions by singers as diverse as Nina Simone, Cat Power and Judy Collins, secured her position in the songwriters' pantheon.

Denny left Fairport before the end of the Sixties, forming her own band, Fotheringay, with her partner Trevor Lucas, then developing her own solo career when that group dissolved. But although she received great critical acclaim for albums such as The North Star Grassman and the Ravens and Sandy, and was consistently voted Britain's top female singer in magazine polls, she never achieved commensurate commercial success. Part of the problem may have been the diversity of her work: her restless changes of style within a single album rather dissipated the firm image required for broader recognition. Nor was her situation helped by her heavy indulgence in drink and drugs, which, by the time her daughter Georgia was born in 1977, had severely affected her reliability.

While on holiday in Cornwall in March 1978, Denny fell badly, injuring her head on concrete. The following month, she lapsed into a coma before dying of a brain haemorrhage. By that time, concerned about her erratic behaviour, Trevor Lucas had returned to his native Australia with their child.

It was amongst papers discovered by his widow, Elizabeth Hurtt-Lucas, in the aftermath of his death in 1989, that the lyrics to the forthcoming Gilmore/Denny album Don't Stop Singing were found.

Since then, Denny's dormant star has risen considerably, with a multitude of old recordings, live sessions, demos and early work done with such as The Strawbs and Alex Campbell being uncovered and released. Last year, Island Records put out an exhaustive 19-disc box set of her entire career, including more than 100 previously unissued recordings; and just a few weeks ago, the album 19 Rupert Street was released by a small label, featuring recordings made in 1967 by a visiting Danish friend while Sandy was staying at Alex Campbell's Glasgow apartment. It was against this backdrop of burgeoning interest that the decision was made to record Denny's incomplete lyrics. Initially, it was planned to have several female singer-songwriters offer their interpretations of individual songs, but after hearing Gilmore's take on "Song No 4", she was offered the entire job.

I wasn't thinking it would turn into anything," says Gilmore. "It was just nice to see her handwriting – and also quite eerie. I realised it was quite a sensitive project, that I was dealing with lyrics that Sandy may never have wanted in the world. It did trouble me for a while, then I decided that the only honest way to approach it was to look at what she'd left, and ask if it would make great music. If the answer to that was yes, then I'd do it; but if it didn't work, and I was trying to crowbar lyrics into melodies, then I'd tell them to ask somebody else to do it. But the more I tried, the more it gelled."

It was important, Gilmore felt, not to try to second-guess the kind of melody Denny might have intended for a lyric. "If I had done that, I would have just been perpetrating some horrendous act of musical sycophancy."

The results are impressively congruent, given their fractured origins. Though apparently taken from different periods of her career, many of the lyrics reveal a persistent inner turmoil afflicting Denny, with even the lullaby "Goodnight" containing lines about her being "afraid to start a war within myself again". Gilmore has given the words a dreamy, crepuscular setting, while elsewhere the homesick musician's plaint of "London" is tempered by a more joyous, Fairport-esque arrangement anticipating homecoming.

Some other songs' meanings are less clear. "Frozen Time", another song reflecting Denny's pervasive fascination with the passage of time, features an appropriately icy piano arrangement to accompany lines such as "Beauty's made of stone/ They've no need to breathe air".

"I'm not sure what it's about," admits Gilmore, "but that line in particular reminds me of my experience of what it feels like to be a female in the music industry. That sort of disconnection you feel as a woman who's perhaps not classically beautiful, trying to operate in a business where you're expected to be – or if you're not, things don't come as easily. I don't know how gender politics worked in Sandy's time, but I suspect they were much the same, and that line made me feel like she had the same exasperation as I have.

"The other thing I connect with is that she refers to home a lot, which is something I do too, and it helped to find these little areas of common ground between these two songwriters separated by all these years."

'Don't Stop Singing' is out on Island on November 7