December 17, 2017 

Risk Management Strategies


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 By Michael Miller

02/20/2010  12:43PM

Hans, no one bit with your constructive ideas that started this topic. I’ll give it a shot this mid winter afternoon before the topic moves to Miscellaneous.

The “feast of famine” concept is deceiving when used to calculate a very high-grade gold deposit such as the Sixteen to One. Many important factors must be used to evaluate the Sixteen to One mine. Over the last couple of years management favored giving up future profit for speed or timing. We sought working capital. The company would benefit from some outside capital. I wrote, listened to or spoke with numerous people, men actually. Women seem totally out of gold as a means to increase or protect their wealth. It’s too bad. Women would find underground hard rock gold mining at the Sixteen profitable and stimulating. I would like to see women move into the gold mining industries. The men have screwed it up for the past twenty plus years. That is why so many gold deposits in the world lay idle. The industry lacks credibility even though many more investors have lost fortunes in high tech and the dot-com segment of investments.

Greed, lying just to make a buck, going after the quick dollar and indolence are not well suited to mining operations that place production (profitable production) as the primary goal. Too many past investments in gold mining failed. The stock play has been a dominant goal not gold mining. Frankly, failure is much greater than success. The next time some “want-to-be” gold player or gold critic brings up Bree X as a reason to stay away from gold, I’ll just mutter Enron or Lehman Brothers and politely walk away. My point: don’t put all of us in the gold mining industry in the same basket.

You get the point: all gold mines, all gold deposits and all gold mining plans are different. But students of the past gain a great edge in ferreting out the best from the good and the good from the bad. Gold mining, however, remains mysterious, more than drilling for oil, making new drugs for sale or the hottest investments known as “intellectual technology”.

Over the years my engineers, geologists and other staff and crew have figured costs down to a nat’s ass. What changes are the prices, but it is easy to plug in current figures. We co0ntinue to practice the art and science of mining, much like doctors and lawyers are always practicing medicine or law. When will they get it right and quit the practicing and start doing.

The metal detector has changes many areas in our mining operation, all for the better. More improvements wait. Much of what we have learned and incorporated into future operations is not for general discussion. It would be considered proprietary. A banker in Silicon Valley called my business “trailing edge technology”. After he got up off the floor, he explained that it was not the “leading edge” his investors thought so great. Yes, I took some offense to his characterization of our mining because few really know how much progress we have made over the past eighteen years in developing our “leading edge” technology.

The mine and company’s glorious past may not provide the assurances needed to attract some investors. Nevertheless, historic data are serious factors to judge. In 1974, it was that historical data, observations on the ground and analysis for the future direction of gold that convinced me to move here from Santa Barbara. The present and the outlook for the future provide the assurances for investment. The proposed limited partnership for investors that you saw removed much of the risk. Anything speculative has risk. Compared to all gold ventures I know about, the potential rewards exceed justification for the potential risks. That is one reason I continue my interest in our mines. All mining carries risk; however mining the Sixteen to One today has risks but the risk should not be considered “high”. Reaching that comfort level require a type of due diligence that few have taken. I along with a couple of dozen others took those steps and made a meaningful commitment. Hundreds of others have made a serious commitment but not necessarily with serious capital.

Influxes of money on acceptable terms to the Company shorten the time for developing the Red Star shaft. It will happen but sooner rather than later is my goal. The study or analysis or due diligence you proposed adds nothing new to the gut reality of the Sixteen to One operation. While it may be an exercise that nudges a cautious gold speculator into our camp, it adds nothing to the moves we are taking and have planned. My conclusions are that no one will get involved financial with our operation; we must figure this out on our own because the global fear of uncertainty has masked the unbelievable situation our company finds itself. Broke isn’t fun. Being aggressively attacked by some ill informed bureaucrats out of Sacramento isn’t fun. Under achieving a grand opportunity isn’t fun. Not taking a salary isn’t fun. BUT, the stars have aligned for this 100-year-old company. What it cannot control is positive with a favorable future. What is has before it underground is proven. Of the three M’s necessary for success in a gold mine (men-money and minerals) only money is in short supply. If I had a choice of which of the three to be short, it would be money.

I wish I could play into your concerns, but I cannot. Gold is not for everyone and neither is the Sixteen to One. I do wish that someone would knock at the office door with the only missing ingredient for blasting into that 100,000-ounce pocket of gold; however, the lack of money will not prohibit it from happening. It may just take longer.
 By Hans Kummerow

01/01/2010  9:41PM

The often described "feast or famine" experience throughout 100 years of mining within the Origsix-Orebody is a very strong argument to qualify any investment into OSTO-Stock as a "high risk investment".

By looking into the details of any high risk investment, it has proven helpful to seperate technical risks from financial risks because the risk management strateties for both risks are quite different too.

The simple fact, that Origsix still exists, is indisputable evidence that the management of the company has been able to manage technical and financial risks successfully in the past.

However, even the most glorious past is no assurance at all that todays challenges will be mastered equally successfully as well.

With a gold-price of well above US-$ 1.000,00 for several weeks now, chances are high, that high risk investors can be attracted to OSTO-Stock if any investment offer is properly termed.

In todays capital markets there are dozens of offers that target risk embracing investors. And there are serious offers that promise to yield 20% p.a. with a lesser risk than an investment into OSTO-Stock. To compete for the funds of high risk investors, any offer must match market conditions. Otherwise it will be discarded as "not worth the risk".

For 2010 I would like to recommend to all friends of Origsix to support Mike in establishing a convincing uptodate risk managment strategy for the typical risks of hard rock gold mining in the Alleghany Mining District.

My recommendation would be to minimize the cost of the traditional Drill-Blast-Muck sequence by combining an underground drill program into prospected pay-zones with an underground sensor-based exporation scheme before you ask anybody to fund actual mining activities.

Seperate underground exploration risk from actual mining risk and make a financing offer that is consistent with todays market's expectations. And 2010 may become a very successful year for OSTO-Stock.

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