The goal of the Company has been to teach profitability by mining gold and earning a Production Royalty from leased claims. The scope of work completed in 1988 was to open up the underground access to the Red Star Mine in order to evaluate the condition of the old workings and gold potential of the mine. We believe that the Red Star Mine holds significant untapped gold deposits.
Basically the work undertaken, with funds from a Private Placement Memorandum (PPM) cleared the way for mining. We never anticipated producing gold during this phase. I anticipate mining, processing, and selling gold this year.
During the rehabilitation of the Osceola tunnel, the crew encountered more cave-ins and of greater size than anticipated. Our expectations as to the condition of the underground workings were based upon old records and testimony from four individuals who had been in them twenty-five years ago. The rehabilitation took longer; therefore eating into the funds budgeted for this work. The actual underground rehabilitation to the Winze was completed in August 1988.
The Red Star Winze held up very well over time. This is due to the fact that it was driven in country rock, not vein material. No structural timbering was required. Most of the timbers supporting the track were rotted and needed to be replaced. We made a decision to rehabilitate the winze in such a way that it was functional for future mining as well as safe man access for inspection. This involved performing repairs according to operational mining standards. Also all utility lines, track repair, equipment installation, etc. were done in a permanent manner. By taking this approach, which translates to the fact that we need not redo our work, we have positioned ourselves to begin mining in the near future.
In addition to our mining activities the work and situation with our lessee, Kanaka Creek Joint Venture (KCJV), continues to progress. During the fourth quarter of 1988, gold production exceeded the annual minimum. We began receiving Production Royalties. The concept was new to both parties, and it took several months to work through the reporting and payment program.
Dore is produced at the mine and shipped to a refiner, who purifies the gold into .999commodity. When the refiner has properly computed the final weight of the shipment, it credits the Company's account with ten (10) percent of the gold and silver. We determine when and how to sell our metal credits. Currently the Company orders the gold sold at the spot price, and funds are wired to our bank within two days.
Gold production has been erratic, ranging between 500 ounces and 1,000 ounces per month. It is expected that production will increase. KCJV is spending about 20% of its capital on pure dead work. This percentage will decrease. Only one level remains underwater, the 2400 level. Therefore, KCJV has a wider selection of available ground to mine that it did a year ago. Also the prospects for gold seem more promising as the lower levels are prepared for actual mining. KCJV has projected 10,000 ounces of gold production for 1989. It employs 62 people. It is the largest underground gold mining operation in California.
Our pursuit of becoming listed on a National Stock Exchange has ended. We began trading on the Pacific Stock Exchange (PSE) in May. Our market symbol is OAU. News regarding our listing on the PSE has been sent to non-shareholders, brokerage houses, and others. It will take time to develop a broad appeal for our shares. Now is a good time for each of you to tell a friend, some business associates, and your stockbroker about our availability on a National Stock Exchange. Please consider doing so.
According to our predetermined financial planning we have a second PPM, which is partly sold out. The amount of money sought commingled with income from KCJV will carry us into 1990. There is no doubt in my mind that future events (KCJV production, our mining, PSE activity, and perhaps an increase in gold prices) will enhance our Company. Should lessee's production not reach its expectations and if additional funds are not generated from our PPM, it will be difficult to maintain our mining program.
A more subtle effect of the work we have accomplished dates back to a plan initiated in 1985. With just two employees we set out to develop the company into a clear position to benefit from the next gold rush, whenever that should occur. This we have done. With such a poor choice of small gold mining companies to choose from, we stand apart from the hundreds who have only hope to offer. When the rush to buy stock begins, we will be ready.
Michael M. Miller