RUBY MINE.
In December of 1989, the Company issued 100,000 shares of its Common
Stock which it used to purchase an option to lease the Ruby Mine and to
purchase equipment located on the site. In March of 1990, the Company paid
$50,000 to extend the option period to April 30, 1990. In April of 1990, the
Company issued an additional 125,000 shares of its common stock in order to
extend the option period to June 30, 1990. The Company exercised the option on
June 30, 1990 by paying the owner $150,000 cash, which represents lease
consideration of $50,000 and a $100,000 down payment on the purchase of the
equipment. To complete the equipment purchase, the Company agreed to pay an
additional $100,000 in cash in three equal semi-annual installments, which
have been paid. The Company's investment in this property is $4,554,575 at
June 30, 1997, consisting of $327,336 of land and land options, $2,251,714 of
development costs, and $1,975,525 of mining equipment.
Pursuant to the terms of the lease, which was most recently modified on
November 1, 1994, the Company must pay a 7-1/2% net smelter royalty on all
minerals produced from lode deposits and 10% on minerals produced from placer
deposits with a minimum lease payment of $10,000 per month through June 30,
2000, subject to an adjustment based on the Consumer Price Index. The lease
may be extended for two additional five-year periods or the property may be
purchased for $4,000,000 subject to adjustment based on the Consumer Price
Index payable by June 30, 2000. All payments made subsequent to July 1, 1995,
to acquire the lease/option and all payments made under the lease subsequent
to July 1, 1995, will be credited against the option purchase price.
Performance under the lease purchase agreement is secured by the Company's
equipment used in the mining operations on the leased premises.
During 1997, the Company negotiated modification agreements for the Ruby
Mine and the Rising Sun Mine (see below) to pay, in cash, one month lease
payment in arrears, increase the amount of equipment held as collateral
pursuant to the Ruby Mine and the Rising Sun Mine lease agreements by filing
UCC-1 financing statements listing the additional equipment, all right, title
and interest of certain "ore specimens" for which Ruby Development Co., Inc.
will credit the value against past due minimum royalty payments and grant Ruby
Development Co., Inc. an option to purchase up to 50,000 shares of the
Company's common stock at a price of $.25 per share until July 1, 1999.
The Ruby Mine is an underground placer and lode mine located between
Downieville and Forest City, California in Sierra County. The Ruby Mine
consists of two patented claims comprising approximately 435 acres and 37
unpatented claims comprising approximately 1,150 acres. The mine encompasses
four distinct underground river channels and three known lode gold veins.
All of the unpatented claims in the property package are in good standing
with assessment work documents for 1997 filed with both the BLM in Sacramento
and Sierra County in Downieville. The patented claims of the Ruby Mine are
fully permitted for underground exploration, small scale development and small
scale production. However, a waste discharge permit is required and a plan of
operation must be filed with the U.S. Department of Forestry before operations
can be expanded beyond the current 225 tons-per-day.
Production began at the Ruby Mine in the late 1870's when approximately
50,000 ounces of gold were extracted from what became known as the Old Ruby
Channel. In the 1930's, the Ruby Mine was purchased by Clarence L. Best, who
produced gold from the mine until it was closed in 1942 by War Production
Board Order L- 208. High labor rates and a gold price freeze kept the Ruby
Mine from re-opening. In the 1950's, the Ruby Mine was sold and was
subsequently mined by small operators until the mid-1970's. In 1979, the mine
was leased to Alhambra Mines, Inc. After limited rehabilitation, Alhambra
Mines, Inc. failed to make lease payments and the Ruby Mine reverted to its
owner.
The majority of the historical production at the Ruby Mine has come from
underground placers. Since 1942 virtually no new ground has been opened and
most of the attention has been directed at the Wolf lode vein and the Big Bend
area of the Black Channel, a famous underground placer. Due to extensive
overburden of up to 700 feet on the property, the only way new reserves will
be established is from underground, utilizing mapping, sampling, and drilling
techniques and by opening new ground.
The Ruby Mine hosts a gold recovery washing plant with all associated
equipment, a mill building, and a separate compressor building in good
condition. The Ruby Tunnel has been rehabilitated, retimbered and refitted.
The underground workings include 30-pound mine rail and electrical and
ventilation equipment. The Ruby Mine has compressors, generators and an
electric train with sufficient haulage capacity to feed a 200 ton
per-day-mill. There are 21 mine ore cars and a Mancha locomotive in good
condition on the property.
The Ruby Mine is accessible via State Highway 49 to Pliocene Road to the
Henness Pass paved road then via five miles of paved and gravel road. Power is
generated on the site.
The Company filed its plan of operation for the Ruby and Carson Mines
with the United States Forestry Department, and has obtained all necessary
permits for production and milling at the Ruby Mine of up to 225 tons of
material per day. The mine, if operated, however, has been operating at less
than 225 tons of material per day. From February 1992 when the Company began
limited production at the Ruby Mine to December 1992 when the Company ceased
production due to inclement weather, the Company milled approximately 7,300
tons of mineralized material and recovered approximately 200 ounces of gold,
an amount which is inconsistent with historical production at the Ruby Mine in
the early 1900's, and is insufficient in total quantity to be a reliable
representative sample of the expected grade of the mineralized gravel.
Consequently, no assurances can be given that future production will result in
grades of similar or historical amount. Furthermore, the Company has not
completed sufficient geological activities and drilling to establish proven or
probable ore reserves at the Ruby Mine. The Company has no present intention
of conducting further geological exploration and drilling to establish ore
reserves at the Ruby Mine at this time.
From December 1992 when the Company ceased production at the Ruby Mine
until July 2, 1993, when the Company recommenced production, the Company
rehabilitated and re-timbered approximately one and one-quarter miles of
horizontal haulage tunnel supports and a 210 foot vertical shaft for mine
safety, built underground roads for use by diesel loaders, constructed a new
sixty-foot steel head frame and installed a hoist over the Lawry Shaft at the
Ruby Mine, installed a complete underground ventilation system and electrical
system at the Lawry Shaft, constructed a new waste water treatment system for
use at the mill site, modified and enlarged the structures and ore bins at the
mill site, and removed two main mill and warehouse structures at the Carson
Mine.
The Company commenced production in the Lawry Shaft, a new area of the
Ruby Mine, on July 2, 1993, and in August 1993 recommenced production in the
Black Channel of the Ruby Mine where most of the production occurred between
February 1992 and December 1992. The Company has completed the sixty foot
steel head frame at the Lawry Shaft and set-up electrical lines and
constructed a hoist house, with associated hoist equipment.
The Company recommenced production in the Lawry Shaft on June 26, 1994.
Underground programs consisted of driving exploration drifts towards potential
primary channels. Sampling programs were undertaken to allow the mining of
approximately 5,000 tons of material. The Company drove a total of
approximately 430 feet downstream and 520 feet upstream in the Lawry Channels.
The Lawry shaft is currently under care and maintenance as the Company
concentrates on its hard rock targets.
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