One of the biggest errors I see with new operations, besides the wrong equipment and a total lack of experience, is their projections when it comes to estimating gold production and revenues.
Here is what the inexperienced newbie often does: We can have a crew of 3 (or 4) and work 8 hour (or 6 hour) shifts each, so that’s round the clock 24-hours a day. And gosh darn it, we are hard workers, so we are going to work 7 days a week. June, July, August, September, and (because we are hard core awesome) October is 26 weeks. So we are going to do 4368 hours of mining per summer. And because I heard a rumor once about a guy getting 1 ounce per hour we figure that will be 4368 ounces per season. And since the price of gold once hit $1800 per ounce that comes out to well over $7.8 million, yee-haw!
Ok, that is an extreme example, and I’ve only seen it that bad a few times, but more often than you might think.
More reasonable, but still way too idealistic is the following example, that I’ve actually heard: We can have a crew of 4 and work 5 hour shifts each, so that’s round the clock 20-hours a day. And gosh darn it, we are hard workers, so we are going to work 6 days a week (only because Sunday is a day of rest). Mid-June, July, August, September, and through mid-October, minus a few weeks for storms is 14 weeks. So we are going to do 1680 hours of mining per summer. And I heard that a skilled crew, when they are on the good stuff can average 1/3 ounce per hour we figure that will be 560 ounces per season. And the price of gold has been around $1200 per ounce that comes out to well over $670,000, yee-haw!
Ok, now we are getting the the realm of possibilities. There have been dredges that have got that much gold in one season. These have been commercial 10″ dredges with a veteran crew of highly experienced divers, on the best leases out there. And even then, they don’t do that every year.
So how should people estimate, what do I recommend based on my 9+ years running dredges offshore Nome with 6″, 8″, 10″, and 18″ dredges of both recreational and commercial scale. There are several factors that go into the estimate, multiply them together to predict the range of revenue you can expect:
Ounces of gold mined per hour: Now we’ve all heard the 1ozt/hr and even the 2 or 4 or 6 troy ounces per hour stories. Ignore them unless you have first hand knowledge of you doing that yourself. These rumors are mostly not true, or are for a very select subset of time. It is true that with an 8″ dredge I have mined over 10ozt in 8 hours, but that was a very hot spot where I was singing in my mask for 8 hours. For estimating purposes, we need to figure on the long term average gold per nozzle hour, including prospecting, moving sand, weak days, and yes, the super hot hours. The more skilled the operator, generally the better the rate. The better the lease, the better the rate. Here are some guides which I would use:
6″ dredge: 0.05 to 0.25 ozt/hr (Typical 0.20 for skilled on good ground)
8″ dredge: 0.10 to 0.33 ozt/hr (Typical 0.33 for skilled on good ground)
10″ dredge: 0.25 to 0.75 ozt/hr (Typical 0.50 for skilled on good ground)
Excavator: 0.10 to .75 ozt/hr (Not enough info for a typical estimate)
18″ dredge: (Secret)
* Hours in a day: This depends on weather, seaworthiness of the vessel, endurance of the divers, number of divers, etc. This is for actual nozzle hours, working, sucking up the gold hours, it can easily take 12 wall hours to get 8 nozzle hours. Here are the numbers I would use:
6″ dredge: 4-8 hours per day, number of divers doesn’t increase this because the day breeze will kick you out, a fit diver can do this by themselves daily or two divers could each do 4 hours daily, 4 divers could each do 4 hours every other day.
8″ dredge: 4-12 hours per day, number of divers doesn’t increase this because the day breeze will kick you out, a fit diver can do 8 to 9 hours by themselves daily or two divers could each do 4-6 hours daily, 4 divers could each do 6 hours every other day.
10″ dredge: 4-20 hours per day, a fit diver can do 5 to 6 hours by themselves daily. You better be a skilled and fit diver to do this every day.
Excavator: 16 to 18 hours per day, time is lost due to maneuvering, anchor management, maintenance.
18″ dredge: (Secret)
* Days in a season: This depends on weather, equipment, fatigue, ice/seasons, endurance. In general, you can count on sea ice to leave by June 15th, but if your stuff is on the barge, don’t plan on being ready until early to mid July, because of final assembly and troubleshooting. Things start freezing overnight at the end of September, Sometimes October can be wonderful, sometimes the opposite. Count on about 4 total weeks of storms/turbidity during the season. If you are here in Nome from May 21 through October 10th, with working equipment, and able crew, then these are the typical numbers you will see, sometimes more, sometimes fewer:
6″ dredge, 30 to 45 days/year
8″ dredge, 35 to 55 days/year
10″ dredge, 35 to 65 days/year
Excavator, 65 to 80 days/year (depends on size/type of platform)
18″ dredge, 65 to 80 days/year (depends on size/type of platform)
* Cost of the lease: If you are small enough to work in the Rec areas, this is 3% to Alaska for anything above $40k. If you are on a lease held by someone else, then also first take 20% off the top for the typical deal.
* Net Smelter Return (NSR), this is often overlooked by newbies. The gold that you mine is not pure, it’s a natural alloy. Plus, depending on how skilled you are at cleanup, it may be dirty which will increase your melt loss from your raw dry weight. I discuss this in more detail in another post. Question About Selling Gold. Basically, take your clean dry weight and take off 15% to 20% to get your pure gold equivalent.
* Price of gold: Gold buyers typically use the London PM Fix, it is generally safe to use the lowest price that gold has been in the past 5 years. If gold goes higher, great a bonus, but this will give you a good margin of safety.
So lets put it all together:
(Gross Revenue) = (Gold per hour) * (Nozzle hours per day) * (Days per season) * (1-Cost of lease) * (Net Smelter Return) * (Price of gold)
Example 6″ dredge with 2 fit operators in their second year on the rec area: (0.10ozt/hr)*(8hr/day)*(45day/season)*(.97 after State tax)*(.85 NSR)*($1100) = $32,650 per season. Subtract expenses and split two ways. Assuming fuel, moorage, and incidentals were $7,650, that’s $12,500 each for 6 months of time.
Example 8″ dredge with 2 fit skilled operators in their fourth year on a good lease: (0.33ozt/hr)*(12hr/day)*(55day/season)*(.97 after State tax)*(0.80 after lease fee)*(.85 NSR)*($1100) = $158,000 per season. Subtract expenses and split two ways. Assuming fuel, moorage, and incidentals were $18,000, that’s $70,000 each for 6 months of time. Sounds pretty good, but of course this assumes skilled operators and that the equipment is operator owned and paid off, and doesn’t count the high cost of living in Nome.
Example Excavator with low-paid operators, run by unqualified managers, who raised money by paying 10% of capital raised to professional money raisers, who have never successfully mined before, despite years of trying, and are mining on low grade leases very far from harbor that they own: (0.10ozt/hr)*(12hr/day)*(65day/season)*(.97 after State tax)*(.85 NSR)*($1100) = $70,750 per season. Subtract expenses and multiply by 70% for the investor’s share. Assuming fuel, moorage, crew, management, and incidentals were $430,000, that comes out to a loss of $360,000 per year. In this example, they would need to find ground that could produce an average of 7.3 ozt per day, or 0.60ozt/hr just to break even; or for a mere 10% return would need 1,200ozt/yr which would need a sustained very high average of 1.50ozt/hr for this type of operation. (You may think that I’m talking about Blue Water Gold, or their new company called Blue Water Mining, but I will not confirm nor deny this. Investors should always be leery of companies like Blue Water Mining are trying to raise yet another round of several million dollars, and using projections that they will be able to mine more every day than their past performance has been able to do in a month.)
If someone is trying to get your money to invest, they will typically have outrageous numbers, which are fairly easy to spot if you know what to look for. Be wary if they project the price of gold going up significantly into the future, especially if they need the price to double within 3 years to make their investment sound appealing. Be aware of large numbers of ounces projected to be mined every day. Be aware of large numbers of days projected to be mined. Be aware of idealistically low projected expenses. Be aware if they omit Net Smelter Return, especially when they project a large number of ounces mined each day.
If you are experienced with offshore dredging in Nome, you know what you can make or lose. If you are not, then I would suggest you use as an upper limit, the estimates I give in this post. Never estimate more gold than you got last year doubled plus 100ozt. For a newbie this would be no more than 100ozt even if the formula above shows something higher. For a new crew or new dredge, increasing the number of workers typically only adds more expense, not more production.
If you are a small operation, under 25 acres mined per year, and have a hired geologist on the staff, whose main role with the operation is to do geology work, then you will likely fail, divide these estimates by 10. The geology around Nome is already well studied and well understood, sampled, researched, and published. It has been for well over 20 years. Sure it’s fun to understand what rocks are what, but that does not help with gold recovery in this area. If you are not familiar enough with gold mining offshore Nome to understand how a geologist is no longer needed for a dredging operation here, then you likely have other serious flaws in your plans and designs.