Evaluation Of The 16-To-1 Mine As A Candidate For Project Financing - A Case Study

INTRODUCTION The Sunshine Mining Company's 16-to-1 silver deposit and mine project are located 384 kilometers (240 miles) southeast of Reno and 360 kilometers (225 miles northwest of Las Vegas, near Silver Peak in Esmeralda County, Nevada, at an elevation of about 2,300 meters (7,000 feet). The deposit was being developed, in 1980, with an anticipated mining and milling rate of 150,000 tons per year (500 tons per day). Mining is by underground, blast-hole open stoping with rubber-tire haul-age out of the mine to a straight cyanide plant about 5.5 kilometers (3.5 miles) from the mine. The product is a gold-silver dore which may be further refined at Sunshine's new refinery in Kellogg, Idaho. The cash required for investment was obtained through the sale of $25 million worth of 6 l/2h silver-indexed bonds. Some $15.0 million were directed toward development of the 16-to-1 Mine. These bonds, which were underwritten by Drexel Burnham Lambert of Chicago in April of 1980, are redeemable on or after April 15, 1985 or payable at maturity on April 15, 1995 at the greater of either $1,000 or the market price of 50 ounces of silver. Behre Dolbear acknowledges the kindness of the Sunshine Mining Company (Sunshine) for allowing the presentation of the subject material for this Case Study. APPLICABILITY AS CASE STUDY Reasons for Choosing 16-to-1 The reasons for choosing the 16-to-1 Mine as a case study follow: 1. The project is simple and compact. 2. The mine is small -- thus relevant to other contemplated precious metal operaions in the western states. 3. The areas of risk are readily identifiable. 4. A change to project financing was under consideration. 5. A substantial decline in the price of silver was experienced during development. 6. Behre Dolbear undertook one of the first feasibility studies of The 16-to-1 and thus has some familiarity with the project. Historical Summary The following history serves as a setting: 1. Late 1920s -- minor "production"(?) via shallow pitting. 2. Mid-1930s -- neighboring Nivlok Mine successfully put into production. 3. Late 1950s (?) -- Callahan Mining Company acquired rights and drilled -- results inconclusive; Callahan turned property back to Arthur Baker, who had originally interested Callahan in 16-to-1 on the basis of its similarity with Nivlok Mine.