Original Sixteen to One Mine, Inc.
RENAISSANCE AT THE ORIGINAL SIXTEEN TO ONE MINE - Sierra Heritage- Nov./Dec. 1992
State-of-the-art technology, vision, determination, and sheer guts have turned this historic gold mine into an exciting, present-day business venture.
When the Original Sixteen to One Mine closed in 1965, no less an institution than the California Division of Mines and Geology mourned, calling it not just the death of one of the most productive and profitable gold mines California had ever known, but the end of a major California industry. But the Sixteen to One refused to die, and its uniquely modern success is a bright spot in a beleaguered state’s economy.
The Sierra has always attracted and rewarded the adventurous and the brave. The Sixteen to None is no exception to that rule. Its rebirth began in January 1992 with an unusual experiment- the use of metal detectors underground. Although these tools are not commonly used in underground gold mines, they proved to be perfectly suited to the rich deposit at the Sixteen to One, sparking a modern gold strike that is still going strong.
In its first nine months using metal detectors, the Sixteen to One produced more than 3,750 ounces of gold worth approximately $1.3 million. The mine produced its first gold bullion bars in more than twenty-five years, re-hired miners who had been laid off since October 1991, expanded its crew and bought a sophisticated computer system and a mill. But perhaps the most exciting part of the strike is its vindication of the company’s perseverance over the last seventeen years, and its proof that the great mine still has lots to give.
Spectacular gold finds are nothing new to the Sixteen to One. Known from the 1860s as one of California’s outstanding underground gold mines, the mine is located deep in the heart of the Alleghany Mining District. The district, one of the richest pocket belts of gold in the world, is famous for production of more than half a billion dollars of high-grade gold (estimates of gold production are calculated according to the current price of gold at $350 per ounce). Even in this setting, the Sixteen to One stood out, producing over 1,000,000 troy ounces of gold over its lifetime. Its high-grade gold was so rich that it averaged between 2,000 and 6,000 ounces of gold per ton of ore.
Just how rich is that? Well, from 1907 to 1908, some of the gold recovered from the Sixteen to One was so pure; it was picked out of the walls, sacked and taken straight to the Citizen’s Bank in Nevada City. This practice continues today, with certain specimens from the mine going directly to a Grass Valley bank. Individual ore pockets discovered in the mine from 1992 on proved to be extremely rich, with one relatively small body yielding $20,000,000, another more than $10,000,000 and several others more than $2,000,000 worth of gold. The largest pocket of high-grade ever found at the Sixteen to One was a stunning 89,000 ounces- about the size of the average living room
The mine is famous not only for its productivity, but for the beauty of its product. Sixteen to One quartz is a very brilliant white; the gold an unusually lustrous butter yellow. The combination makes specimens from the Sixteen to One seem especially ‘alive,’ and as a consequence they are sought by private individuals and museums, including the Smithsonian. A baseball-sized specimen so studded with gold, that even the most sophisticated observers are invariably impressed, was found in 1989, as was a specimen so exquisite that it sold for $3,000 although it weighed less than an ounce.
Even the depression didn’t slow down the Sixteen to One. The mine was extremely profitable during the ‘20s and ‘30s, when gold mining in California underwent a boom because of the low cost of gold production. Thousands of men came to the Sierra Nevada to find employment in the mines, and the Sixteen to One’s payroll averaged between eighty-five and one hundred. Alleghany became a real company town, and the Sixteen to One a hometown operation. Almost every employable Alleghany male worked at the mine, and father and son teams were not uncommon.
During the 1920s and 1930s, the mine yielded an average of 30,000 tons of ore per year, and was renowned for its high dividends- up to as much as fifty percent gold receipts. Third generation shareholder Carol Humphreys says her family survived the depression on Sixteen to One dividends. “My father was a stockbroker, and of course, every thing went. But we lived on the dividends from the Sixteen to One.” Current president Michael Miller says he’s heard the same tale from a number of shareholders.
Starting as a modest outcropping in Thomas Bradbury’s backyard and named by him in 1896 after William Jennings Bryan’s campaign slogan advocating the free coinage of silver at a sixteen to one silver-to-gold ratio, the mine has led a remarkably consistent corporate life. It was incorporated in 1911, as the Original Sixteen to One Mine, Inc., and the same company has owned it since 1911 to the present. The company began trading on the Pacific Stock Exchange in1989 under the symbol OAU.
Although federal restrictions during World War II limited mine operations, the Sixteen to One was still extremely productive from 1943 to 1945. Higher costs after 1945 made a pre-war scale of operations impossible, and the mine’s troubles began.
An underground gold mine is an expensive asset to maintain. Because it extends thousands of feet below the water table, pumps must run regularly to keep it free of water. The electricity that powers the pumps at the Sixteen to One today cost about $4,000 a month. By 1965, a combination of increased costs and thirty years of an artificially depressed gold price of $35 an ounce made it impossible to operate the Sixteen to one at a profit. The longest sustained underground gold mine operation in the West was left to flood.
In 1975, gold was deregulated, and as the price per ounce rose to a fabulous $840, a number of independent operators scrambled to lease claims from the famous Sixteen to One. While the company could have chosen to mine the claims itself, most of its shareholders were elderly grandsons and granddaughters of the original miners who incorporated the mine, and weren’t comfortable with risk. Rather than perusing the aggressive development that would have re-activated the Sixteen to One, the company became a passive landlord.
While some of the operators who leased the Sixteen to One claims were interested in full-scale development and mining, many were small outfits hoping to find a quick strike in overlooked pockets of high-grade. Operators like these are contemptuously known in the mining business as seekers of ‘pillar gold,’ meaning they will knock out the support pillars in once-rich ore zones to enrich themselves at the expense of the mine’s structure.
Allowing the mine to be plundered in this way was anathema to some; among them current mine President Mike Miller. Miller came to Alleghany in 1975, armed with 100 shares of Sixteen to One stock and a firm conviction that the company was wasting its assets by not fully developing the mine itself. He was convinced the Sixteen to One should forfeit the security of its leasehold royalties to develop the mine as an active owner-operator. “I just couldn’t stand to see all that natural resource going to waste,” he says.
Miller pushed, cajoled, and fought a fierce proxy battle fight to make real his vision of the Sixteen to One as a reborn, full-scale mining operation. By 1977, he was company director; by 1983, the president and chief executive officer; and by 1989, started the Sixteen to One on its own program of development work.
For two years, the crews prepared for a major new mining push. Tunnels were cleared and re-timbered, winzes (underground shafts) repaired, new ladders installed, machinery fine-tuned, air access assured. Impatient as Miller was, no gold exploration or production was attempted during this time.
Finally, in June 1991, Miller’s vision became reality; the Sixteen to One bought back all its leaseholds, and began its first explorations as an active owner. For the first time in twenty-six years, the company had no royalty income to rely on- it would have to make its own way.
To generate enthusiasm, Miller cut a deal with the crew called “Go for the Gold.” The miners worked for reduced pay I exchange for a high percentage of recovered gold. They produced record tonnage, more than tripling the output of past Sixteen to One operators.
But tonnage was not enough. The 150 ounces of gold found did not cover operating expenses, let alone needed development work. It became clear that the Sixteen to One could not afford to mine at his scale- it would have to raise substantial funds for additional development, then go back and try again.
In October 1991, Miller had to lay off the crew, hoping to bring them back in the spring. The company was almost out of money and electricity bills were mounting. The state’s recession made raising funds very difficult, and Miller’s worst nightmare- the flooding of the mine- was starting to seem inevitable.
At that crucial moment, Ian Haley, laid-off underground foreman, and his partner, Randy Yager, came to Miller with a crazy idea: why not try a metal detector to locate gold? Miller was skeptical- metal detectors weren’t commonly used to locate gold underground- but the mine was running out of options. He struck a deal, giving the miners a healthy percentage of any gold they found in thirty days.
On January 13, 1992, Haley and Yager donned their miners’ head-lamps and trudged down into the mine to start walking the more than twenty-five miles of tunnels. It wasn’t long before their borrowed metal detector, an ordinary park-and-beach-type model, started to ping. They emerged two hours later with two ounces of gold.
The next day they found thirty ounces of gold, twenty-two of it in a stunning solid gold slug. The project was starting to look more like a serious experiment and less like a wild idea.
One week later, Miller joined the duo in the mine; they located 200 ounces of gold- more than a month’s operating expenses recovered in a day. Similar bonanzas continued into the summer as the mine mounted its own metal detector program, with the best day yielding an impressive 280 ounces, and every working day yielding some gold. The Sixteen to one had critically-important new location tool.
“Metal detectors will be with us forever,” says Miller. “They not only work well, but they’re a very low cost method of gold location. Using detectors gives us a little leeway when the price of gold swings down.” The obvious question is why no one ever thought of using metal detectors before. The answer seems to be in the nature of the Sixteen to One itself. “You have to remember this is a beautiful mine, a unique mine,” says mine manager Johan Raadsma, a usually understated Dutchman. Ian Haley, the mine foreman who first suggested the use of metal detectors, elaborates. “A metal detector really only works well where there are pockets of high-grade and areas of concentrated gold. The Sixteen to One has always been an unusually rich mine, and that helps us now.”
Successful as the detectors have proven, the company is searching for even more sophisticated methods of gold location. “Geologists have told us that gold in the Sixteen to One is studded into the quartz like plums in pudding,” says Miller. “Metal detectors only reach some eight inches into the quartz to find gold. What we are looking for is a technology to allow us to reach the deeper plums.”
True to its innovative modes, the company is researching the various detection systems by offering the mine as a detection site to the manufacturers of the technology. Planned experiments include work with nuclear resonance and activation technologies, and radio imaging. Radio imaging proponents claim penetration hundreds of feet into the rock and neutron activation technology is purported to reach as far as 410 feet. Success with any of these technologies will allow the Sixteen to One to produce gold at an even lower rate of cost.
When asked about environmental concerns, both Raadsma and Miller sound proud of the Sixteen to One. “We are hard-rock underground miners,” says Miller. “We don’t have the same issues that open pit operations create. Our water tests the same downstream as up, and we don’t introduce any chemicals into the environment.”
Raadsma explains: “Ours is a free milling system. No chemicals are used in the milling process, and while our smelting and refining process does use mercury, it’s a closed system and the mercury is completely reclaimed.”
A long seventeen years after Miller first came to Alleghany with a vision, and a short nine months after Haley and his partner took a dream and a metal detector into the mine, the Sixteen to One has been transformed. The company has paid its back taxes and is totally debt free, which might make it the only company in that position traded on the Pacific Stock Exchange. Pumping bills are no longer a problem, and the company has bought a new truck, a sophisticated computer system to track gold finds in the vein, and a portable air compressor to provide access to out-of-the-way areas in the mine. A newly purchased mill gives the operation control over its own milling.
The miners have benefited from the Sixteen to One’s good fortune as well. Ian Haley is building a new house with his profits from the thirty day share program. Nine miners have new jobs, and the entire crew profits from an unusual bonus incentive program that gives them a percentage of any big finds at the mine. The miners turned down an initial plan that would give them more money at lower levels of production, instead choosing a plan providing more share in the big strikes. “I guess that shows what they think about our chances of finding more gold,” says Miller. “We’re all looking foreword to hitting the 5,000 ounce pocket and we all believe it’s there.”
That pocket is probably in areas that are yet undeveloped, says Miller. “Our recent find on the 1,500 level just corroborates what we’ve always known- lots of gold is waiting to be found in the regions of the mine we want to develop. The Red Star area of the mine has been a target for years. Now in our first week moving towards it, we’ve hit a sizable pocket of gold.”
Carol Humphreys, a seventy-five-year-old third generation shareholder, was so inspired by the recent success of the Sixteen to One she decided to visit the mine for the first time. She spent an afternoon underground with Miller, trudging through the muddy workings with her size 7 feet encased in size 10 mining boots. “I was very impressed,” she said “During my father’s time, I never would have been allowed underground. It was marvelous down there!”
Firmly rooted in Sierra history, undaunted by new experiences, eagerly trudging through the mud towards the gold- what could be a better symbol of the Sixteen to One? If the Sierra continues to reward the brave, we will be hearing about this mine for a long time to come.
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