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The Legal Maze of Small-Time Gold Dredging in Alaska

On Behalf of | Apr 14, 2018 | Firm News

WRITTEN BY:  Adam Cook

Nome has been the epicenter of gold mining in Alaska since the Alaska Gold Rush blasted off in 1898.  Prospectors and miners have been finding gold deposits in the hills and creek beds around Nome for over a century.  They have also been finding placer gold (i.e., unrefined gold) in the seabed of Norton Sound, an inlet of the Bering Sea.

Several waterways drain into Norton Sound off the Seward Peninsula, depositing fine quantities of gold into the shallow waters near the coast.  For decades people have been dredging up sediment from the seabed, sluicing it, and collecting gold and other minerals.  They dredge frantically during the four months of the year that low ice levels permit such work.  This relatively obscure method of mineral extraction was pushed into the spotlight in 2012, when the Discovery Channel began airing the reality TV show Bering Sea Gold.  The show follows various groups of colorful characters dredging the waters near Nome.

Suction dredging is tricky business.  The placer gold does not appear in veins on the seabed, the way it does in rock formations on dry land.  Some sediments are rich with “paydirt,” but it is difficult to map profitable areas, and tidal forces or other geological activity might alter a rich location.  The work itself is also very dangerous.  Suction dredging often requires the work of a suited diver, who operates an airlift on the seabed, sucking sediment up to a boat and into a mechanical sluice.  In the meantime, the waters of the Norton Sound are icy cold, and visibility underwater near the seabed is almost nil.  And there are no guarantees.  For unlucky dredgers, weeks of dredging might result in barely any gold at all.

Regulatory Control

Gold dredging in Alaska is also legally complicated.  Like any other form of mining, dredging is heavily regulated by the Alaska Department of Natural Resources (“DNR”) and the U.S. Department of Interior.  Norton Sound is a protected salmon fishery.  Starting in 1993, the U.S. Army Corps of Engineers and the Environmental Protection Agency implemented regulations on suction dredging in order to preserve the seabed habitat.  A person with the daring and determination to plunge into the icy waters in search of gold must first plunge into an array of restrictions on dredging dates and permissible equipment and practices.

Also, unlike fishing, gold dredging is not a simple matter of heading out in a boat and then choosing a location that feels right.  DNR does allow some “recreational mining” in public areas off the Nome beach.  But these areas are limited to small-scale operations, in seabeds with limited gold deposits.  Dredgers who actually wish to make their fortune with suction dredging have to dredge in one of a limited number of claims, either “staked” by other dredgers, secured by patent, or leased out by the State of Alaska.  Dredgers fortunate enough to hold an offshore claim or lease can sublease it to another party, or grant another dredger permission to dredge the claim, in exchange for royalties.

Suction dredging is thus a risky, legally complex, and very competitive way of making money.  But it has only gotten worse in the last ten years.  Since 2000, the price of gold has skyrocketed, from $273 per ounce to about $1,325 per ounce today (placer gold is worth slightly less than pure gold).  These price movements sent droves of profit-seekers into previously-unpopular dredging locations.  The runaway success of Bering Sea Gold (now in its 9th season) added fuel to the fire.  In 2015, the Nome Harbormaster reported more than 100 gold dredges operating out of the Harbor.

Status of Operators

Once dredging near Nome started to take off, the State of Alaska moved to take advantage of the demand.  In September 2011, DNR held its first offshore mineral lease auction in almost 12 years.  DNR successfully auctioned 84 leases, constituting more than 24,000 acres off the coast of Nome.  The State of Alaska made about $9.3 million from the auction.

The outcry auction drew strong interest from bidders because there are a limited number of available parcels offshore for dredging — and the majority of them are currently held by large commercial operators.  Anyone who does not hold a claim or mineral lease must purchase “operator authorization” from a claimholder in order to perform commercial operations.  This situation has created its own miniature industry, as lessees and claimholders sign deals with small operators allowing them on the claims.

Around the same time that Bering Sea Gold peaked in popularity, two developments sent shockwaves through the dredging community.  The first development was a decision by DNR to update its antiquated recordkeeping and approvals process.  Prior to 2014, claimholders could grant operator authorization to anyone with a boat, with little government oversight.  But at the start of the 2014 dredging season the DNR modified the mandatory Application for Permit to Mine in Alaska (“APMA”) to include specific information about third-party operators.  The APMA Operator Authorization Supplement required detailed information about the plan of operations, with the plan now a part of accessible public records.

The era of “Wild West” operators was over.  The claimholders and lessees giving operator authorization were now assuring the various regulatory bodies that the dredging operations would be legal, safe, and environmentally responsible.  Many claimholders and lessees started insisting on bonding or insurance to provide protection in the event of an accident or violation of the law.  The crude, simple watercraft used in the past — sometimes consisting of just an air pump on pontoons — were under enhanced scrutiny.

The second development was the death of a diver working a dredge operation near Nome on August 12, 2014.  The death prompted the U.S. Coast Guard to classify gold dredges as “commercial vessels,” rather than recreational watercraft.  The dredges now must maintain various safety gear, undergo dockside inspection, and get credentialed before sailing.  The new regulations meant additional expenses for dredge operators.

The Future

Today, gold dredging off Nome is more popular than ever.  But the industry is marked by three ongoing trends:  (1) consolidation of leases and claims into the hands of a few large commercial operators; (2) the increasing price of gold; and (3) increasing government oversight.  These trends work to make dredging spots more rare, the payoff for success more lucrative, and the cost of compliance more burdensome.  All of this works in the favor of very large operators, such as South African mining company AngloGold Ashanti, which holds more than half of the offshore leases issued by the State of Alaska in 2011.

Meanwhile, the smaller operators are feeling the squeeze.  Large corporations can pay the cost of insurance and legal headaches with much greater ease than a two?man operation.  Legal battles can and do erupt over the right to dredge, and large corporations have an easier time shouldering the cost of these legal battles.  Alaskans have always grumbled that increasing regulation has yanked away the livelihoods of the “little guys,” whether the activity is hunting, fishing, or mineral extraction.  It remains to be seen if Nome’s small operators can weather the trend.