We recently confirmed a significant target adequate to warrant shareholder recognition and a press release. We have been finding gold over the past six months in a fascinating spot in the mine. This front-page newspaper article is a worthy report:
THURSDAY, JANUARY 10, 2002 DOWNIEVILLE, SIERRA COUNTY, CALIFORNIA
Happy New Year Gold Strike at Sixteen to One
ALLEGHANY-Last Year was not a pleasant time at the Sixteen to One, Sierra County’s last operating mine. The usual problem, the low price of gold, was compounded by the politics of the era: a steady number of government regulators with seriously declining number of regulatees. Consequently, the mine received much more attention from government agencies than previously, and much more bureaucratic paperwork to be filed to keep those agencies’ appearances up.
The price of labor and electricity was soaring also. At one point, workman’s compensation insurance was costing $44 for every $100 paid to a miner and the price of power more than doubled. The energy cost for keeping the mine dewatered and functional rose from $4,000 per month to nearly $10,000.
And finally, the miners simply hadn’t been lucky, In a pocket mine such as the Sixteen, there is rarely a steady supply of paying ore. The mine depends on periodic rich strikes, and there hasn’t been a repeat of the legendary “Million Dollar Day” for some time.
In the face of all this, the miners agreed to give it one more push. Their efforts were rewarded just before the new year. In a little worked but readily accessible part of the mine, over 1,000 ounces of gold has been daylighted since December 14.
According to the mine President Mike Miller, the richest single rock has been a 48-pound chunk of quartz containing 193 ounces of gold.
The find was on the Tightner side of the “Compromise Raise.” That working resulted from the discovery that the Sixteen to One was mining the same vein as the Tightner, in the early part of the 20th century before the two mines were consolidated. The owners compromised by ceding the vein north of the raise to the Tightner, south to the Sixteen.
The Sixteen mined the vein with considerable success, but Tightner miners were disappointed in the northern lead.
“For over 50 years, people just assumed the vein wasn’t as rich in the Tightner,” explains Miller. “But the old geologists certainly put the Compromise Raise where they did for a reason. So we worked the area, finding little indications of gold, not knowing if it was the leftovers or the signs we were getting closer to rich ore.”
Miners continue to raise on the ore body at the 800 level, the level of the mine’s main adit.
“We’re not out of the woods, but it is sure a relief to be able to pay some bills,” allows Miller.
The mine has plans for further exploration in the area, and Miller is anxious to dewater some previous workings.
“It’s always exciting to re-examine areas that haven’t been seen or worked for most of a century. I’m hopeful it will be more than just interesting and we’ll continue to keep the nation’s oldest working gold mine in business.” Miller said.
The Sixteen currently employs a crew of 19.
Even though the 1000-ounce pocket of gold significantly helped our operation, gold production for the 2001, year was insufficient for the company to be profitable. Gold inventory contributed to the cash flow required to operate the mine. The 1000-ounces in itself did not warrant a disclosure. What has taken place in January is another story. We are mining about five feet per day, sacking heavy chunks of quartz and gold and adding to the gold in place identified with our detection system. We have over twenty feet of proven signals with no indication that they will cease as we continue to open the vein.
Historical production exceeds over 300,000 ounces to the south of the Compromise Raise. Production to the north is scanty with very little mining. We are heading north.
I am always conflicted in forecasting future production. As you know we own the ultimate gold mine of chance. Even though future production is not provable, its likelihood can be projected. I am confident that there is a greater probability we will mine significant ounces of gold during the foreseeable future than an insignificant amount. We cannot come up with empty sacks. We could mine our way into one of those giant pockets found south of the Compromise Raise. You need to know this because all of us here in Alleghany believe this to be true. Our hopes are very high, even though we can never predict the outcome.
This leads me to some different topics.
I received a most unusual letter from a federal agent working at the Security Exchange Commission (SEC). I have posted excerpts at www.origsix.com in the Forum section under President’s Correspondence. When you read it, you will scream in disgust or howl with laughter or both. The SEC recommends that we quit calling the Sixteen to One a mine and our crew miners. Well, if that is now the federal definition of the oldest US gold mining company, I guess our concerns with federal MSHA and the outrageous workers compensation rates for underground mines are over.
It is now possible to measure the size of MSHA fines. Most of you know the consequences of giving in to the unlawful demands of MSHA had significance beyond money. The agents and agency interfered with our ability to conduct business. After an administrative hearing, many citations were dropped. Actual fines were reduced to $1,030.00; however the miners, oops, our crew and I believe these are excessive and are continuing our rights of appeal. Our relationship with MSHA has improved. Nevertheless, the damages the company sustained are significant. The monetary loss is $24.5 million, which the federal agency should reimburse to the company. I intend to pursue a claim for damages.
I am at my wits end regarding other regulatory attitude. California agents now unilaterally defined all water in California as drinking water under the new federal arsenic standards. This places impossible restrictions on us and anyone operating in areas with naturally occurring minerals. I will be reviewing the arsenic topic at www.origsix.com.
Arsenic is one of the top twenty elements on earth. Of course it is toxic in extreme doses. So is oxygen. Every plant and every animal alive have developed in contact with arsenic. It is an important naturally occurring element. It also has a great beneficial effect of controlling microorganism that are harmful to people. Filtration of naturally occurring arsenic should be done on potable water taps when levels exceed health standards.
It is absolutely criminal that our political leaders and the bureaucracy quote an academic study done in 1988 and 1990 in Taiwan to develop thresholds in America. Rational persons who take the time to ponder these issues need to be heard. Please use our forum page for comment.
For all of us, the twenty-first century has quickly distanced itself from the twentieth. I am sure that you, like me and everyone here at the mine feels a change. No one truly knows what lies ahead. In an old traditional business as ours, it has been important to keep astride of industry and related trends. Ten years ago we began discussing what the gold mining company of the future would look like. To compensate for our complete inability to affect the spot bullion price, we tested a new market for our gold, “quartz laced with gold,” or “gold in quartz.” Our value added (jewelry) program is a success. The idea is now proven. Gold sales still have room for significant growth in the coming years.
All companies talk about the upside potential of technology. We did something about it. We increased our ability to detect gold in quartz many fold. The limits have not been reached.
I pledge to you to aggressively pursue advanced remote sensing technology in our mine during 2002. By now you probably know what an impact it will have on production and profits.
Homestake Mining is gone. So is the mine in Lead, South Dakota. I attended the last shareholder meeting when the shareholder’s barely approved the merge with Barrack. I also spent five days in Lead. With the elimination of Homestake we became the oldest US gold mining company. I made a proposal to acquire Homestake before the merger was completed. It was rejected by Homestake even though it added value to the $2.3 billion merger to both the shareholders of Homestake and Barrack. I wrote the largest shareholder for support and have posted my letter to him under President’s Correspondence.
It looks like we will walk on the 2400-foot level at the Tightner Shaft in February. The 2700-foot level will be next. Accessing these old workings is a chore, and like much mining, we can only surmise what will be found. Our past ten year history gives credibility to the opinion that our gold detectors will identify precious metal over looked by the old timers. I invited a CBS television reporter to join me for the first look. I will not be able to send you advanced notification, however, if you check www.origsix.com you will find the current status of the work.
Thank you for all your support. The crew appreciates it and intends to diligently work towards increasing the value of our special company.
Michael M. Miller
President & CEO