Original Sixteen to One Mine, Inc.

"Gold Mining in Sierra County" printed in the Mountain Messenger Summer of 1989

GOLD MINING IN SIERRA COUNTY

By Jack Hawkins—SERIES ONE

August 17, 1989

 

There is still a lot of gold in Sierra County, but it is necessary to once again find it. The mines were gradually shut down, beginning with World War II, and continuing afterward, as the cost of mining went up while the government held the price of gold down.

 

The last mines to close were the C.L. Best Mining Company (privately owned) and the Original Sixteen to One Mine (publicly owned) which ceased operations in 1965. For a history of gold mining in this area, we would refer you to James Sinnott’s books on Sierra County. This report is about what is happening now.

The old prospectors with their gold pans and sluice boxes have been replaced by the dredge operators who can be seen up and down the rivers, sucking gravel from the bottom to run over the riffles in their sluice boxes.

No accurate figures are available on what they earn. Judging from the number of operators, and the fact that the cost of a dredge begins around $800 and can run as high as $100,000, it seems safe to say that the dredgers have either a very expensive hobby or a lucrative avocation…depending on luck.

A drive or hike around the back roads of Sierra County will disclose a number of occupied mine sites with names such as Telegraph and Golden Lion. These mines are privately owned and may or may not be in operation: but they do have potential—or at least hope.

There are a number of old mines where publicly owned companies are spending money trying to determine the profit-ability of reopening them. A lot of money comes from abroad: Canada, Australia, Ireland. The two major American companies are Hecla and Battle Mountain: both are listed on the New York Stock Exchange.

Hecla's claims are near Sierraville. Battle Mountain is interested in San Juan Ridge. Although this is in an adjacent county, they also have claims in Sierra County held by subsidiaries.

Most of the exploratory work is being done by small companies listed on the Vancouver Stock Exchange. This is no exchange for the neophyte investor, but it serves a purpose by raising high risk capital for speculative ventures.

An illustrative example revolves around the Sierra Buttes near Sierra City. A profitable center of early mining, around 1980 some of the current owners of these properties, along with some Canadian interests, did extensive drilling to search for old veins, but finally abandoned the project. Most recently, the owners of the Colombo Mine leased it to Magna Ventures (VSE) which did diamond core drilling on the mountain above the mine several years ago. They later invited Canarc (VSE) to continue exploration in order to earn a 50% interest. As of this year we could find no sign of activity there.

Another Canadian Company, Norsemont (VSE) has been working to reopen the Plumbago, near Alleghany. Sierra Nevada Gold (VSE) has an interest in the Primrose Mine. Once again, there is no activity at either location.

Similarly, O'Hara Resources (VSE), took a lease on some placer claims near Camptonville, but nothing has been done. Quartz Creek (VSE) took an option on the Ruby Mine, but apparently gave it up before exploring the possibilities. Brush Creek Mining and Development, a U.S. company traded Over-the-Counter, tried to reopen Brush Creek, then abandoned it in favor of Gardner's Point, which in turn was abandoned.

Since the Ruby and Brush Creek were the two mines operated by the C.L. Best Company, we know they were profitable. Restoring them to production is neither simple nor cheap.

For the more positive side, we must look to the larger companies which have money to spend and operate either directly or through subsidiaries they control. A group of Irish companies which are in the process of consolidation are exploring the Red Ledge off the Tyler-Foote Crossing road. Western Mining, a large Australian mining company, is doing surface drilling at the Oriental in Alleghany to see what can be developed.

The only mine or mines actually producing gold today in Sierra County center around the Original Sixteen to One in Alleghany. Mining began in the area in the 1850's. When the Original Sixteen to One was incorporated in 1911, they began acquiring adjoining mines such as the Tightner, Ophir, Red Star, Osceola, and others. When they shut down in 1965, the ownership remained with the stockholders, although there was no market for the stock. When the price of gold reached a point where mining would again be profitable, the company was reactivated. To expedite operations they entered into various leases, and a part of the mine is now being successfully operated by Royal Creek Gold, a Denver company, traded Over-the-Counter.

Meanwhile, with part of the mine in operation, the management of Original Sixteen to One set about putting the rest of their holdings into production. They updated their various filings with the Securities and Exchange Commission, and in May of this year the Original Sixteen to One was again listed on the Pacific Coast Stock Exchange.

Since none of these mines are open to visitors, we would be remiss if we did not mention the Kenton Mine Lodge in Alleghany. A quiet placer to fish, hike, or just relax, they offer cabins, campsites and a dining room. Many of the old mine buildings are still there, and a visitor can see "How It Was."

For those not wishing to make a long stay to see "How It Was" the Kentucky Mine and Museum in Sierra City is the place to go. The museum has artifacts from early mining days and the stamp mill has been restored to operable condition, although it cannot be operated for safety reasons.

Finally, despite Mark Twain's caveat that "a gold mine is a hole in the ground with a liar at the top" gold fever is as strong as ever in the gold country. If you doubt this, then ask a dredger who has just pulled a nugget from the riffles of his sluice box-or a miner who has just seen a cart of high-grade ore come out of the mine!

 

GOLD MINING IN SIERRA COUNTY

WHY GOLD?

By Jack Hawkins

 

August 24, 1989

 

Some people are "gold bugs." They believe in the gold standard: that gold is the only true money. They have "gold fever." To understand why, it is necessary to tell a fable.

Once upon a time there were three men: a hunter, a farmer, and a miner. The hunter killed animals for their skins, which were made into clothing; the farmer raised grain for food; the miner dug gold for ornaments. Each took his product to the marketplace where they would barter hides and gold and grain. This was a great burden for the hunter and farmer to carry, and the miner risked being robbed.

They decided to store their products in warehouses, getting a receipt for what was stored. They then bartered the receipts which could be redeemed for the hides or grain or gold. This was convenient and enabled all farmers, miners, and hunters to store goods and barter receipts. A one ounce gold receipt was worth 20 bearskins or 40 bushels of grain. The exchange rates varied with supply and demand.

Soon people realized that grain and hides spoiled or rotted in storage, and these must be cashed fairly promptly and the product used. Gold lasted forever. There was no need to cash gold receipts until the gold was needed.

Pretty soon gold receipts were the only money in circulation. Another advantage of using gold receipts was that they could be used to pay the hauler of water or the digger of ditches, who had no product to barter. These laborers could then buy what they needed with their money.

Now change the name of the gold warehouse to bank. The bank stores gold and issues bank notes (receipts) and we have paper money, backed by gold. The banker soon realizes most people do not cash their receipts for gold, so the banker issues receipts for more gold than he has in storage. He lends these banks notes to the water hauler who buys a horse and wagon, hauls more water, earns more money, and pays the banker back with interest.

There is nothing bad about this. The banker earns interest and the borrower can buy now. If the banker is cautious in his lending and does not issue too many "extra" receipts, everyone benefits. If people demand gold, the banker calls in the loans; any losses are his, decreasing his profits from interest and storage charges.

Some bankers become greedy and issue too many gold receipts. People realize there are too many receipts in circulation (price of hides and grain bid up) and demand gold. The banker cannot redeem, the bank fails, and people lose their money. The banker may be run out of town-or even lynched.

This is basically the way our banking system operated before the Civil War. The government coined only gold and silver. Banks issued banknotes against reserves of gold. The "greenbacks" (paper currency) were first printed by the U.S. Government to finance the Civil War. They circulated at a discount compared to gold until the federal government decreed that all paper money would be redeemed in gold.

Now change the name of the banker to government. The government, as banker, realize that if it could prevent the people from demanding gold (as happened in 1906) they could issue unlimited amounts of money. The method was simple. Pass a law making paper money legal tender for all debts, public and private, and forbid citizens to own gold. This was done in the 1930's.

It is interesting to note that the history books tell us that the price of gold was "raised" from $20 to $35 an ounce. The truth was the value of the dollar was decreased from 1/20th ounce of gold to 1/35th ounce of gold. The fact that the federal government could now borrow without any restraint was not even mentioned.

Since the paper money could not be redeemed for anything tangible, borrowing by government became the same as printing money. If you hold a $10,000 U.S. Government bond due in 90 days in one hand, and 10,000 one-dollar bills in the other, the only difference is that the bond cannot be spent for 90 days. At that time your bond will be paid in cash and new bonds issued for periods up to 30 years- and for even larger amounts to cover interest and budget deficits. There is more money in circulation.

This fable is an oversimplification of a difficult subject called money and banking. You need not agree. Most Americans do not. They feel paper money is perfectly good and blame rising prices on inflation rather than the mounting federal debt. The gold people feel differently. Living in Gold Country, it is important that you understand them, even if you think they are crazy.

Lest you think this is all fable, this writer was in Shanghai after World War II. Although the dollar was readily accepted in bars and shops, the shopkeeper on the street preferred soap or cigarettes. Since there was no foreign trade, the dollar, as a sound currency, was valuable for hoarding. Soap and cigarettes, which were newly available, were freely exchanged. Shanghai was on a soap and cigarette standard.

As this soap and cigarettes standard illustrates, a gold standard is not essential. It can be anything tangible. It can be another metal or a group of commodities, as was suggested by the International Monetary Fund several years ago.

Gold became the metal because it is virtually impossible to destroy, and no method has been found to create it. It is distributed worldwide, but is limited in supply. The difficulty of mining it determines and stabilizes its value.

That is why the gold bug puts his faith in gold. A paper currency unredeemable in anything of value cannot last. Circulating in unlimited quantity, it must collapse. As in Germany after World War One and Argentina and Brazil today, the old currency fails and is replaced with new. The life of un-backed paper currency has seldom exceeded 45 years.

Marco Polo discovered paper currency in China. (Europe used metal coins). When he returned ten years later, the original currency was worthless, replaced by new paper.

This presentation is not made with the intent of convincing you of the merits of gold or the gold standard. You will not read such heresies as presented here except in the Wall Street Journal. However, since you live in gold country, it is important that you know what makes us gold bugs tick.

But has gold measured up to the above scenario? Has it held its value as true money? Well, in 1920 one ounce of gold ($20) would buy a man's suit. In 1989 one ounce of gold ($375) will still buy a good suit. In 1920 twenty ounces of gold ($400) would buy a Model T Ford. In 1989 twenty ounces of gold ($7500) will still buy a new low priced car.

The search for gold goes on: in Canada, Australia, United States, Russia, China, everywhere. The countries, which do not have gold miners, are the biggest importers of gold. Taiwan and Japan were the major buyers of gold in recent years, spending their depreciating dollars for gold to hoard.

Oh, for those of you paying attention to the 45-year rule stated above, if you take the end of World War II (1946?) as the date we went completely off the gold standard, then our 45 years would be up around 1991.

 

GOLD MINING IN SIERRA COUNTY

ORIGINAL SIXTEEN TO ONE

SIERRA COUNTY'S GOLD MINE

By Jack Hawkins

 

August 31, 1989

 

"To be sold. 25 beautiful irreplaceable quartz and gold specimens suitable for museum or private display."

That classified ad in a San Francisco paper marked the end of an era. The Original Sixteen to One Mine was making a last desperate attempt to stay open by selling its priceless collection of specimen gold to raise money to operate "until the government raised the price of gold." It was sold for $24,000.

The year was 1965. As early as 1960 the United States had dumped huge amounts of our Fort Knox gold reserve on the London market to keep the "price" down. Everyone thought that our government would recognize that there were too many dollars in circulation and devalue by raising the price of gold to at least $50 per ounce. If the 16 to 1, the most profitable mine in California, could just stay open…It was not to be. The Original Sixteen to One closed that same year.

The gold mineralization in the Alleghany area is unique. Geologically, gold was formed in layers millions of years ago. As mountains were heaved up, the layers were broken into veins, which are common throughout North America.

In Alleghany there was also (apparently) great heat, which caused the gold to precipitate out, depositing in sort of a halo at the outer edges of the quartz where it met a different mineralization such as arsenopyrite.

Although frequently referred to as "the richest pocket mine in the world" the 16 to 1 is not really a pocket mine, which is defined as pockets of gold lying outside normal veins.

Throughout Sierra County there are many veins and lode mines. The Alleghany area, and especially the 16 to 1, is different in that high-grade pockets are found within and around the veins. These pockets are as rich as 3 or 4 ounces of gold per pound of ore. For comparison, today gold can be profitably mined at .02 ounces per ton. One quarter ounce per ton is considered good ore.

Gold was discovered in the area in 1851 by Kanaka sailors, "Kanaka" being what Hawaiians called themselves. Mining was begun by some miners from Pennsylvania who name the place after the Allegheny Mountains.

The best history of the Original Sixteen to One and the Alleghany area is in Jack R. Wagner's book Gold Mines of California (Howell-North Books, 1980). Wagner states that it was the story of the 16 to 1 that inspired him to write the book.

The Original Sixteen to One was incorporated in 1911. Over time, other mines were acquired, chiefly the Twenty-One and the Tightner, but now including the Ophir, Red Star and others. The ore at the 16 to 1 was so rich it was sometimes bagged in the mine and taken directly to the refiners. As mentioned in the 1989 annual report, from 1930 to 1950, high-grade gold production exceeded one ounce per pound.

With a 16 to 1 type mine it is not necessary to crush a large quantity of ore to recover a small amount of gold. William P. Fuller, Jr., formerly geologist for the mine and now on its board of directors, in a 1968 article for the California Division of Mines, mentions that one stope 40 feet long produced $2,000,000 of gold at $35 per ounce. The current price of gold is over ten times that. The pocket veins may be 2 to 5 feet thick and up to 50 feet long or wide.

Finding the pocket is the problem. The veins run in certain types of rock with exotic names like amphibolite and quartzite, which are laced with fine threads of gold. Once the proper rock is found, one then tries to trace the threads to the "golden egg" of high-grade ore.

Management estimates that less than 20% of this high-grade ore was recovered before the mine was shut down. That is why the stockholders "kept the faith" since 1965. Even when the stock was listed on the Pacific Stock Exchange in May of this year, there was no rush to sell. The stock has traded quietly in a narrow range from 2 3/8 to 2 2/8. The symbol is OAU.

Who owns and runs the mine today? Well, they have 350 stockholders in 26 states. The largest holder of stock is Michael Meister Miller, age 47. He owns 16.3%. A graduate of the University of California with a degree in economics, he was self-employed in Southern California before coming to Alleghany.

He had always been interested in the 16 to 1 because his father had been a stockholder before the mine shut down. He began acquiring stock in private purchases until he had enough to get on the board of directors. He moved to Alleghany in 1977 to begin reactivation of the mine, and later became president.

Other large stockholders owning more than 4% of the company include: retired lawyer and his wife in Virginia who also own a ski resort in the east; a professional stock trader in Chicago; a Coloradan who is chairman of a bank and has been finance officer of a number of mining companies; and the daughter of a past president of the 16 to 1.

On the operating side, the mine superintendent is Johan Raadsma. He is a graduate Mining Engineer from the University of South Wales, Sydney, Australia. He began working in mining in 1972, being employed by Broken Hill Propriety Co. Ltd., the largest mining company in Australia. He joined the 16 to 1 in 1984.

Beginning in 1977, a series of explorations by lessees resulted in the rediscovery of high-grade ore by LCM Corp. in 1984. Transwestern took over this lease and formed Kanaka Creek Joint Venture. Royal Gold, out of Denver, succeeded Transwestern in 1987 and continues to operate KCJV.

With this lessee mining gold, the board of directors decided to reopen the rest of the mine. To facilitate this a private placement of stock was made, raising $430,000. This financing enabled the 16 to 1 to reopen the Osceola tunnel over a mile into the mountain, and to rehabilitate a winze (or shaft) going down another 600 feet to the Red Star Mine.

The Red Star offered the best prospects, according to mine superintendent Raadsma. Although everything was progressing satisfactorily, management decided to cease operations until more money could be raised. Accordingly, the work crew was reduced from twelve to four.

There were a number of reasons for waiting for more money. First, the ball mill, with a capacity of 50 tons per day, should be reconstructed for continuous operation. This expense should not be undertaken until there is at least $50,000 worth of recoverable ore available for milling. This means that mining operations should be enlarged and mining and milling brought into operation at the same time. The 16 to 1 owns 420 acres and has mineral rights to an additional 1300 acres in and around Alleghany and Forest.

There are only three ways a company can raise money: borrowing, a private placement of stock, or a public offering of stock. In the case of gold mining, there is a fourth: forward selling of borrowed gold, to be repaid from production. This method is unwise. Not only must the gold be repaid, but the company misses out on any advance in the price of gold.

Looking to the other three, borrowing is usually impractical because earnings are siphoned off to pay interest, and the debt must be repaid before the stockholders can fully benefit.

The Original Sixteen to One is virtually free of long term debt at present. A public offering of stock, especially for a small company, is both costly and time-consuming. This leaves a private placement as the most logical course; it was used before.

From the company's standpoint, it is also more likely to attract the long-term investor rather than those seeking a quick profit. No decision has been made at this time.

The royalties from Royal Gold's operation are expected to sustain operations. This should enable 16 to 1 to seek out the financial arrangement most beneficial to the company, Miller stated.

Actually, the stockholders and the board of directors would like to see a broader public ownership. "We would like to have ten times our present 350 stockholders," says Miller.

 

 

 

Gold Mining in Sierra County

GOLD: FROM WHENCE TO WITHER —By Jack Hawkins

 

September 7, 1989

 

In the early formation of the earth, gold was created in layers. Over ages, as mountains were heaved up, those layers were broken and appeared as veins throughout the world.

Some of these outcroppings were eroded away and settled in rivers and lakes. Today’s mining is based on these locations. In South Africa the gold strata are still mostly on different levels and one digs down, often several miles, to find ore. It is then easy and profitable to mine: the vein runs in all directions.

In the United States and most other countries the layers are broken: the veins are mined where they are found until the gold runs out, then new veins are sought. That is why California (and Sierra County) has so many mine locations. Any outcropping could be claimed by the miner who found it and worked until the gold bearing ore ended. These hard rock mines are called lode mines.

The gold in rivers was simply washed out of the gravel. It could be small scale or large, as with the dredge companies which scooped out river bottoms. Old riverbeds from millions of years ago were found. If easily accessible, they too were washed with water. Sometimes whole hills were dynamited and hosed down through huge sluice boxes. This was hydraulic mining.

If the riverbed was not readily accessible, tunnels were dug into it. These were called drift or gravel mines. Most of this gold was recovered without further processing. It was just lifted from the riffles; it was still a washing project.

In the lode mines, or where the drift mines had too many large chunks, the ore had to be crushed. This was done in a stamp mill. After the ore was ground to a fine powder it was mixed with mercury, which amalgamated with the gold, removing it from the slurry. The mercury was evaporated from the gold dore and condensed for reuse. The dore was refined to pure gold for sale.

Early this century, mercury was replaced by cyanide to remove the gold because mercury vapors were a deadly health hazard. The stamp mill was replaced by the ball mill, which was quieter, cleaner, and more efficient. A ball mill resembles a giant cement mixer where chunks of ore are tumbled with ten pound steel balls until crushed fine.

Today most mining is open pit mining. The process was developed by Newmont Mining at Carlin, Nevada, and is used by Homestake at its MacLaughlin Mine in California.

Gravel and sand are scooped from old lake and riverbeds where gold settled, and piled about forty feet high on pads (usually asphalt) and sprinkled with a cyanide solution which filters through, removing the gold.

The cyanide is collected and pumped through carbon (usually charcoal) which removes the gold from the cyanide. The carbon is then mixed in a solution which deposits the gold on steel wool. This passes through a furnace which melts off the gold. The cyanide, carbon, and steel wool may be recycled.

In areas where outdoor heap leaching is not possible, the entire operation can be done in an enclosed, self-contained unit. This is called carbon-in-pulp processing. It is used at Homestake's MacLaughlin Mine. With open pit mining, after the gold is removed, the rock and dirt are put back into the hole to restore the landscape.

Lode mining, which had fallen from favor because of the high cost, has been revived because there are still some very high-grade underground ore bodies. There is also a strong probability that at Carlin, Nevada, there may be a South African type deposit: a layer of gold bearing ore a half-mile or more down.

This was discovered by American Barrick on their claim adjoining Newmont Gold's open pit. It was confirmed by Newmont drilling. There have been a number of optimistic reports, but both parties are awaiting further delineation of the ore body before making forecasts. This would most probably be underground lode mining.

High-grade ore can be measured in ounces of gold per pound of ore. Heap leaching can profitably recover gold from ore which has as little as .02 ounces per ton. There is no clear line between high, medium, and low. Obviously, with high-grade ore, merely crushing it in a ball mill frees the gold dore, and it may need no chemical processing before refining. As the grade decreases, some form of extraction operation may be required. The point is that the cost of hard rock mining is offset by the quality of the ore.

No discussion of modern mining would be complete without consideration of the environment. As Homestake has proved, open pit mining can be done profitably in complete compliance with California's strict environmental protection laws. Even the landscape can be restored.

Lode mining is even more environmentally safe because the mining is all in rock below the ground. There is no defacement of the surface. Since the ore requires little processing, there is no toxic problem. Even the rock and sand removed from the tunnels can be sold for aggregate to build roads.

Unfortunately, when most people think of mining, they think of the iron and coal mines back east where mountains were moved, towns undermined, and miners got black lung disease. Gold mining is "clean" mining now that hydraulic mining has stopped.

Many of the people who oppose mining for environmental reasons really suffer from a NIMBY complex: "Not In My Back Yard." They oppose anything which might change their neighborhood. The "environment" becomes a convenient rallying cry.

There are also many well-intended people who care about the environment but are acting out of fear or ignorance of what modern gold mining is all about. We would suggest they check the record of the successful mines.

Actually, as Homestake has proved, gold mining is environmentally safe. It is a boom to any area, not only in payroll, but in taxes. If the Alleghany area were to be restored to its pre-1965 bonanza, the taxes alone should keep Sierra County operating.

But there are real environmental problems. This writer learned of many violations while researching the Sierra County mines. Most of these were by fly-by-night operators who "played gold miner" and then moved on.

Many of the "mines" up and down the California's gold belt are stock promotions rather than mines. A few holes are dug, some earth moved, and the hype begins. GOLD!! After the stock is run up, the mine is abandoned and the new stockholders and the counties are left holding the bag.

We would like to submit the following plan to protect the counties from environmental damage resulting from these scams.

Small mines which have made a positive commitment to mining (such as the Original Sixteen to One and its lessee Royal Gold) should be encouraged. They have invested money and time and labor, and they are mining gold. They are listed on the Pacific Stock Exchange and NASDAQ, respectively, so their finances and operating records are available for inspection.

Large mining companies such as Battle Mountain, Hecla, and Western Mining should be invited to come and prospect. They have the money and manpower to complete a major project, if warranted, as Homestake did.

With the unknown gold company, the real problem is accountability. The county should demand a written proposal showing the plans and the time schedule. The county should also get a financial statement for the company planning to operate in the county and an affidavit as to who actually owns it. There may be good reasons for using a subsidiary; it may also be a dodge to avoid liability.

Armed with this information, the county can reach an agreement as to what will get done, what must be done, and how the property will be left if mining proves unprofitable. The agreement would also specify who is responsible and show the financial status of the clean-up guarantor.

Wouldn't it be nice to see California once again the Golden State? Wouldn't it be nice to have some new gold millionaires as well as electronic and defense millionaires?

 

Jack Hawkins

See Forum under the topic Another U.S. Precious Metals Miner goes Foreignby Jack Hawkins

 
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