Metal Detectors for Finding Gold Go High Tech

Think of metal detectors. Fun, personal, small scale… a hunter scanning a ridge in the sun, excited to find five pennyweights of gold, right? But that’s not all. At the Sixteen to One, a legendary gold mine in Alleghany, California, metal detectors are big time underground technology. The key location tool now used at the mine, detectors have led the way to a rich gold strike that started in January and shows no signs of slowing up.

In its first three months of using metal detectors underground, the Sixteen to One produced more than 2,200 ounces of gold. It poured its first gold bullion bars in more than 25 years, and re-hired five miners who’d been laid off since October. Best of all, it looks as though the bonanza is far from over; 60% of the mine’s 26 miles have been initially surveyed with the new technology, and the crews have found gold every working day since the beginning of the strike in January.

Spectacular gold finds are nothing new at the Sixteen to One. Starting in the first half of the century, the Sierra County mine was known as one of the world’s greatest producers of high-grade gold; gold so rich it could be seen with the naked eye, and measured in ounces per pound rather than the ounces per ton of average grade gold.

During the gold rush, some of the gold mined at the Sixteen to One was so rich it wasn’t even milled; just sacked up and taken straight to the mint, where it was sold for cash. The largest pocket of high grade ever found at the Sixteen to One was a whopping 89,000 ounces; about the size of the average living room. The longest continuously active gold mining operation in the West, the Sixteen to One produced over 1,000,000 troy ounces of gold over its lifetime.

The mine is also famous for producing brilliant white quartz and gold specimens collected by private individuals and museums, including the Smithsonian. A baseball sized specimen so densely 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.

Despite these finds, by January of this year, it had been more than thirty years since the last big strike, and the Sixteen to One was dangerously short of cash.

An underground gold mine is an expensive asset to maintain. Because it extends thousands of feet below the water table, pumps must run night and day to keep it free of water. The electricity that powers the pumps at the Sixteen to One costs about $4,000 a month; a lot of money when a mine’s not producing gold. The Sixteen to One management had to let it flood back in 1965, after 30 years of government regulation of gold prices made it impossible for the mine owners to make a profit. Ten years later, the price of gold was deregulated. With prices soaring to a high of $840 an ounce, mining companies rushed to lease the Sixteen to One claims, hoping overlooked high-grade pockets would yield a quick strike.

While the Sixteen to One management could have chosen to go back in and mine the claims itself, most of its shareholders were elderly grandsons and daughters of the original miners who set up the company in 1911. They weren’t interested in risk. Rather than pursuing the aggressive development that would have re-activated the great mine, the Sixteen to One became a passive leaseholder.

But not for long. In 1975, Michael Miller burst onto the scene, armed with 100 shares of Sixteen to One stock. A tall, good looking man with a deceptively easygoing manner, Miller believed the company was wasting its assets by not fully developing the mine. Although he knew that leasehold royalty income kept the Sixteen to One going, he was convinced the company should forfeit the security of that income to develop the mine itself.

Thirty-three years old at the time, with ten years’ experience as a restaurant and building entrepreneur, Miller wasn’t about to let his complete lack of mining experience stop him from influencing the course of the Sixteen to One. To learn the business from the muck up, he bought a neighboring gold mine, the “Morning Glory.” With the help and advice of experienced miners, he attacked his education with seventeen hour work days. The first in the Alleghany district to pump out or “de-water” an abandoned mine, Miller worked hard at the Morning Glory, blasting, mucking, and prospecting.

His work further convinced him that the Sixteen to One should operate its own mine. He wooed every shareholder he could find with his vision of the Sixteen to One as a reborn, full-scale mining operation. When persuasion failed, he elbowed his way onto the board and waged a fierce proxy battle. By 1977 he was a director, and by 1983, the president and chief executive officer of the Sixteen to One.

“Well, yes, I suppose I did push a little, “he admits, “but it was the only way the Sixteen to One was ever going to get back into the mining business. And it seemed like a terrible waste of natural resources to let that high-grade sit there while wildcatters made money knocking down the pillars left in the old workings.”

In 1989, the Sixteen to One began development work on its Red Star and Osceola claims, areas thought to have rich potential for new strikes. 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 of 1991, the Sixteen to One bought back all its leaseholds, and began its first explorations as an active owner. For the first time in 26 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 in 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 90 day results were disappointing. Only 150 ounces of gold were foundÑnot enough to cover operating expenses, let alone needed development work. It became clear that the Sixteen to One could not afford to mine at this scale; it would have to raise substantial funds for additional development, then go back in and try again.

In October, 1991, Miller had to lay off the crew, hoping to bring it back in the spring. The company was almost out of money and electricity bills were mounting. Miller’s worst nightmare; the flooding of the mine was starting to seem inevitable.

So Miller had a mission. He pounded up and down the highways from Alleghany to San Francisco, looking for investors for the Sixteen to One. In miners’ boots and suede jacket, he strode through the Pacific Stock Exchange, the mutual funds, and the marketing firms, plunking down chunks of high-grade on the desks of jaded traders, tired financiers.

“You should have seen them swarm around,” he says. “I don’t think they’d ever seen real wealth before. I had to tell them, `It’s okay; you can touch it.”

Though they may have been impressed by the sight of raw gold in their executive suites and on their trading floors, the money men and women were not interested in risk. They all asked the same questions. “Exactly how much gold is left in the mine? How do you know the old timers didn’t get it all out? What are your reserves? How will the Sixteen to One be able to get it out at a profit when earlier operators couldn’t? How can you prove it?”

Miller hated the whole process, hated their mentality.

“You know, professional money people rarely understand a gold mine. This company owns its assets free and clear. It has no long term debt. It’s the richest mine in the state, and no more than 20% of the gold vein was ever taken out. You tell me why they couldn’t see it’s solid.”

The financiers told Miller they preferred to invest in companies that didn’t need cash.

At that crucial moment, Ian Haley, laid-off Sixteen to One mine foreman, and his partner, Randy Yager, came to Miller with a wild idea: why not try a metal detector to locate gold? Miller was skeptical; metal detectors aren’t commonly used to locate gold underground; but the mine was running out of options. He struck a deal giving the two miners a healthy percentage of any gold they found for 30 days.

On the gray afternoon of January 13, 1992, Haley and Yager donned their miners’ headlamps, powered up the little train that would take them down into the mine, and started their search. It wasn’t long before their borrowed metal detector, an ordinary park and beach-type model, started to ping. Two hours later they came out grinning, gold in their pockets, gold in their hands. Two ounces might not mean much to the company, but Haley’s $200 share was a nice bonus for a Sixteen to One man raising four kids alone.

The next day they started earlier, and brought out 30 ounces of gold, 22 of it in a stunning solid gold slug. Their metal detector was starting to look more like a mining tool and less like a toy.

One week later, when the mine lured Miller away from the paperwork on his desk, the three men located 200 ounces of gold; more than a month’s operating expenses recovered in a day. The Sixteen to One’s share would come to about $50,000, and there was no reason to believe there wasn’t plenty more where that came from. Haley and Yager found gold during every day of their share contract, and on the last day, February 10, 1992, came up with a whopping 150 ounces. The Sixteen to One had an important new tool.

Miller, converted, went to work, asking metal detector companies to lend their instruments for an exciting new experiment. Only Fisher responded, and was rewarded by an ABC news spot highlighting the use of its high tech “Gold Bug” in the Sixteen to One strike.

Since then, the company has bought more than a dozen metal detectors from various companies. Miller says the White’s Goldmaster II has proven to be most sensitive to gold, but that they’ve experienced problems with its durability in the rough working conditions in the mine. White’s has responded by sending down one of its engineers to spend a day underground at the Sixteen to One, listening to the miners’ comments on their device, and passing on tips for increasing efficiency. The Sixteen to One is looking forward to the sturdier model Goldmaster II it expects to result from these talks.

When Miller is asked the obvious question; why metal detectors haven’t been used before to locate gold in underground mines, there’s a long pause, then a laugh.

“Well, the first thing that comes to mind is that this won’t work unless you have a mine with gold in it; maybe the Sixteen to One is the first good mine it’s been tested in.”

Another pause.

“I guess it’s also because the technology of metal detectors has improved so much in the last five years. The sensitivity of the instrument to various types of metals has increased a great deal. And of course, we’ve had to learn how to use it…”

Ian Haley, the mine foreman who first suggested the use of metal detectors, elaborates a little on Miller’s first answer. “A metal detector really only works well where you have pockets of high-grade, areas of concentrated gold. The Sixteen to One has always been an unusually rich mine, and that helps us now.”

Almost five months after the first gray afternoon Haley and his partner ventured into the mine with a dream and a detector, the crews continue to find gold every day. They’ve hit bonanzas of 150 to 300 ounces at least six times, and averaged about 900 ounces a month for the first three months.

Since 140 ounces a month or so covers the mine’s operating expenses, pumping bills aren’t a worry any more. The company has paid its back taxes and is totally debt free (which may make it the only company in that position traded on the Pacific Stock Exchange. It has bought a new truck, a sophisticated computer program to map gold finds on the vein, and a portable air compressor to expand mining capabilities in out-of-the-way areas of the mine. A newly purchased mill gives it control over its own gold processing, and Miller expects the mill to yield another 750 ounces of gold from bits of rock and rubble that will be fed into it in July.

The miners profit from the strike as well under what may be a unique arrangement, they get 5% of all gold found over 140 ounces a month. Miller’s first proposal provided for more money at lower levels of production, and less on the high end. The miners said no–they were willing to risk having no bonus at all, but wanted to make sure they got a piece of the big strikes. “I guess that shows what they think about our chances of finding gold,” says Miller. “We’re all looking forward to hitting the 5,000 ounce pocket. We all believe it’s there.”

When asked if the miners could make more than double their usual salaries under this plan, Miller laughs. “Sure. They could end up making triple their usual salaries. But that will only happen if weÕre producing 1,300 or so ounces a month–and that’s exactly the kind of trouble I’d love to have.”

It’s hard to say what feels the best, says Miller. “We’d been told over and over again that the Sixteen to One was dead. We laugh about it now every day we walk out of there. The big joke is always–is this that last piece they were talking about?”

Miller says nothing can beat the thrill of finding pure gold ore down under. But one of the highest pleasures of this strike is being able, at least for the moment, to say Òno thanksÓ to the outside financiers Miller had to court for so long. Happily for him, the Sixteen to One may just have taken care of that itself.

“We have big plans for the Sixteen to One,” Miller says. “It’s a spectacularly rich mine that was never tapped out. Development is the key to keeping the mine alive, and that will take money. We have three major target areas to develop, some of which promise to yield as much gold as the Sixteen to One has produced in its lifetime.”

Miller’s initial plans called for raising $250,000 in interim funding to keep the company going until a $4-6 million public offering in April or May. After the first two and a half months of the metal detector strike, the mine had produced the $250,000 itself. If production keeps up at those rates, the Sixteen to One may even be able to fund the major development out of its own profits.

“That would mean we wouldn’t have to issue new stock, and current shareholders would get the full benefit of this strike,” says Miller, one of whose long-term goals is to start paying shareholder dividends again. “We’re all hoping… At any rate, any public offering has been put off until late this year.”

The strike has brought some other changes as well. Perhaps most important is the need for strict new security measures at the mine and mine offices. Just a few years ago, security was rough and ready, but not a major priority. When youÕre not producing gold, thereÕs not a lot to worry about.

Now a guard dog patrols the mine and miners are screened through sophisticated metal detection systems like those used at airports. Gold is sent off-premises almost as soon as it’s mined. (The mine has mailed so much bullion lately that the Alleghany post office ran out of stamps the other day, and couldn’t accept any packages at all.) When five metal detectorists showed up to hunt the Sixteen to One property without getting previous clearance from Miller, they were reported and escorted off the property within twenty minutes.

Miller says he’s even considering hiring one of the miners who has an AK-47 to guard the offices while he photographs specimens for a new direct marketing program. This level of caution makes Miller a bit uncomfortable .

“It sounds kind of extreme. I don’t take all that much precaution in my own life–hate the motorcycle helmet law, for instance. But this isn’t my gold. It belongs to the shareholders, and we have to do whatever’s necessary to protect it.”

The Sixteen to One has a new interest in the price of gold, at a low of $335 an ounce right now. When the mine wasn’t producing, fluctuations in the gold market had little effect on it. Now that it’s selling bullion and specimens, however, its profits are directly related to the price of gold.

But Miller says he isn’t worried. “Gold is a commodity, like anything else. Our costs of production are extremely low; we can do just fine with gold at $330, even $300. We’ve got no complaints.”

So, thanks to metal detectors and a wild idea, the legendary Sixteen to One lives on, continuing to make gold mining history. If its plans for development are successful, we’ll be hearing about this mine for a long time to come. Yee ha!

Editor’s note:The Sixteen To One Mine continues to make a success of hardrock mining with metal detectors, today. In our archive library there are two more stories of spectacular finds which will be appearing at this site, soon.