you're just about spot on. The whisky, in this case, wasn't 'rejected', but it was what we call 'dead' whisky. I.e. whisky that has little use in what J & A Mitchell are famous for (Springbank and Cadenhead bottlings). In days gone by this stuff would have been used in the Moidart vatted malt but it was turned into a blend instead (I think originally to commemorate the tri-centenary of Campbeltown - those are the rare Campbeltown Loch ones).
The reason it's so cheap and tastes so good? Well, it's cheap because there is very little packaging, marketing (and little of it). Tastes good because Frank McHardy was instrumental in putting it together.
Isn't it a shame when we are sceptical about something that tastes good, is quite old but doesn't cost the earth!