What were you thinking when you opened last month's mail from the Sixteen to One? Hardly the newsletter you usually receive. That's what happens when great news meets caution and conservative public information is issued in compliance with securities law. Now that the rush of mining almost one million dollars in a single day, suspending trading on the Pacific Stock Exchange to protect you from making an uninformed sale and handling two network television news crews at once is over, I can get back to my preferred style of friendly chats with the owners of this great mine.
Year End Wrap-Up
The strike closed 1993 with a bang - 3740 ounces of gold production in December, for a year's total of 8147 ounces. We are sure that we are going to be profitable for the year and beat the $0.13 per share profit we had in 1992, and YES, I AM GOING TO RECOMMEND TO THE DIRECTORS THAT WE ISSUE EACH AND EVERY ONE OF YOU A DIVIDEND JUST AS SOON AS WE GET OUR BEAN COUNTERS TO FIGURE OUT JUST HOW MUCH WE MADE.
Six Months Production in A Day
Now that your big question is out of the way, let's talk about last month's strike. On Friday, December 17, 1993, we hit a pocket of high grade on the 1330 level that yielded over 2500 ounces of gold that day alone. Compare this one day to our previous high production months of March 1992 (1588 ounces) and August (1430 ounces) and you'll see what all the shouting was about. In fact, our total production for 1992 was 5240 ounces, so our one day hit last month represented almost 48% of our production for the entire preceding year. Production continues into this month and 469 ounces have been mined. As we'd already pulled some 700 ounces out of the same spot in October and November, this makes the total for this particular lode 6290 ounces. During all the years I've insisted that the Sixteen to One still contains 5,000 to 10,000 ounce pockets of gold, some people said I was just an uncontrolled optimist. Our December strike provides the first modern corroboration of the existence of such rich lodes in the mine.
How it Happened
Although you may already have seen some of the news coverage, I thought you might enjoy hearing some of the details of our historic day. Here goes.
It seems odd to say this but, in a way, the day was a failure. What we were really trying to do was pull out the biggest specimen ever mined, somewhere in the neighborhood of 1000 pounds. We knew the 1333 raise was a good prospect from mine maps and visible gold, and a ground penetration radar program supervised by mine manager Johan Raadsma in early fall corroborated that initial call. By December 15, 1993, when the crews had pulled out more than 1500 ounces from the area and miners Scott Robertson and Randy Yager reported a four foot wide band of visible gold, we decided it was time to try for the big one.
Johan consulted demolition experts, who advised us to use seismic chord instead of dynamite; the crews spent Thursday drilling closely spaced holes around the thickest gold and removing waste rock to provide room for the hoped-for mass; I alerted the media. ABC and NBC decided to attend, and we were ready to go.
It was quite a scene down on the 1300 level on Friday afternoon, with all thirteen of our miners, seven media people, two company directors and I gathered for the big blast. But when the dust cleared, what the cameras showed was not one mammoth piece of gold and quartz, but a pile of many smaller pieces. Although it didn't include the monster slab we were hoping for, we couldn't stay disappointed long. When we started mucking through the pile, we realized we were looking at an amazing amount of gold.
To recover the 2500 ounces of gold, we had to pack out 804 pounds of quartz. Each sack was sealed and recorded underground. Everybody, including the company directors, grabbed a big burlap sack, slung it over his shoulder and trudged on up to day light. Once we got the gold above ground, we still had to reweigh it, tag it, and load it into Alleghany's first armored truck, to be taken to Sacramento for storage. As the truck started up the hill, someone shouted "Wait, we forgot the pictures!" The driver stopped and we gathered round the gold for the last time, miners' headlights reflecting the remnants of a great day. Poetic, you bet.
Sixteen to One Stock
Not surprisingly, I've been deluged with inquiries from shareholders asking how to respond to the market's recent surge in OAU stock. While it may go beyond the usual duties of a corporate president to provide investment advice to fellow shareholders, two forces prompt me to step into this grey area:
- The Securities Exchange Commission has encouraged management to offer opinions and become more intimate with shareholders when it comes to presenting figures and their interpretations.
- Since I became the company's president and spokesperson in 1983, my approach to management is to openly share my decision making rationale and philosophy for the company with you. Why change now?
Now about those inquiries.....let me tell you what I have told shareholders: sell if you need the money for personal care or comfort. That's what an investment is for - to give you the money for a new roof when you need one. But if you don't have a specific need for cash right now, and you're thinking of selling because you're afraid the stock moved too far too fast, let me give you my thoughts on our stock value. Remember, this is the opinion of a biased president, but I mean every word of it.
I believe that OAU was extremely undervalued before the recent surge. At least three factors contributed to this undervaluation:
- Stocks trading under $5.00 a share are handicapped in the marketplace by regulations that require brokers to get disclaimer statements from clients wishing to buy "penny stocks";
- Gold analysts tend to be unfamiliar with and therefore unwilling to recommend investment in a high grade gold mine based on a no-reserves but historically high producing vein system like ours; and
- In line with current accounting procedures, our patented claims are valued on the books at 1913 dollar rather than fair market value.
I believe that with the recent uptick in OAU stock, the market has begun to recognize the fact that we own a great mineral deposit and know what to do with it. Giving our plans for the future and our capacity to expand the underground mining I don't believe our growth is over yet.
Development For 1994
We can now look ahead to the company's potential for future production. Those of you who have been with us for a while know that underground exploration and development is the key to our future. With the influx of funds provided by this strike, we can now fund much of the development necessary to create that production.
We are continuing with the metal detector and small block mining in the old workings that proved successful throughout 1992 and 1993. We have many potential target areas, including sites identified by RIMtech (radio wave imaging) in their trials here last fall. Even areas we scanned and mined at the start of the metal detection program in January 1992 have potential, for as our sophistication with metal detection grows, it's difficult to write off any of this mine as being completely exhausted.
But the big excitement is our movement into previously unexplored areas of the mine. The block of ground at the south end of the mine below the 2400 level, lowest level of the mine, is the planned star of 1994 and a long term target for anyone who's ever studied the gold deposit patterns at the Sixteen to One. If you remember, we just dewatered the 2400 level last year. We plan to use the 2400 level as a jumping-off place to sink a winze (an underground shaft) into the pathway of what field and historical data suggest will be a major gold channel.
Purchase of the Brown Bear
In the summer of 1993, we began investigating the possibility of buying a famous old gold mine in Trinity, California. While it is not a high-grade mine like the Sixteen to One, it has a good history of production, with about 500,000 ounces total and an average grade of one ounce per ton. This is a very respectable grade for efficient and profitable low-grade underground gold mines.
The reasons we thought the Brown Bear would fit into our style of operating are that we can mine its small underground vein system with the same drilling and rock breaking techniques we use at the Sixteen to One; the Brown Bear claims are patented, which means we won't be affected by proposed changes in the mining law requiring royalties on unpatented claims; and Trinity County seems to be friendly to green miners.
We reviewed production records and evaluated potential for environmental liability. One of our longtime directors, Richard Sorlien, and I toured the mine. Four of us checked it out underground for two days. Johan Raadsma, who is a California Registered Environmental Assessor and a mining engineer studied the mine for potential liability and found none. After completing two studies on the feasibility of mining gold at the Brown Bear's 549 timbered acres we bought the property for $300,000 (cash and stock). The Sixteen to One is now the proud owner of the queen of the Lewiston Mining District. If you pass through Weaverville, check out the museums. The Brown Bear is well featured.
Finally, about that recommended dividend. We have one of the finest, most qualified board of directors to be found in any American corporation, large or small. Whatever the ultimate decision, all of us should be comforted by knowing that the pros and cons will be fully discussed to provide the best long term results for the mine and its owners.