North of 60 Mining News - The mining newspaper for Alaska and Canada's North

As marine placer miners prepare for another summer of plumbing the gold-laden seabed off the coast of Nome, many of these intrepid individuals are keeping an eye on potential new rules that could affect future lease renewals.

Proposals being considered by the Alaska Department of Natural Resources are meant to clear up ambiguity in eligibility requirements for renewing offshore mining leases offered by the state. Currently, the rules primarily apply to nearly 24,000 acres of marine placer gold prospects auctioned by DNR's Division of Mining, Land and Water in 2011.

When awarded, the leases on these parcels were good for 10 years and could be continued "for so long as there is production in paying quantities from the leased area," but no real mechanism existed for renewing the leases.

In 2012 the Alaska Legislature somewhat refined the process by passing a bill that allows offshore mining leases to be renewed if DNR's director "determines that renewal is in the best interest of the state."

The law, however, does not provide guidelines to determine "the best interest." DNR is hoping to rectify the arbitrary nature of offshore mining lease renewals with a clear process to guide future directors' decisions.

"The DNR needs a consistent process for determining whether a lease renewal is in the state's best interest, and if the lessee is actively developing, mining, and producing minerals from the leased property. If a lease is not being developed properly through exploration, mine planning and actual mining, the state's best interests may lie in re-offering the ground for competitive lease sale rather than renewing a lease that is not being developed," according to the department.

Best interests

DNR Mineral Property Manager Bill Cole said the potential new rules governing offshore mining leases are meant to serve the best interests of lessor and lessee alike.

"A part of the objective is to provide lessees an idea of what they need to do during the initial term of their lease to demonstrate that they are diligently developing the lease so that renewal will be in the state's best interest," Cole explained in a March 7 email.

"Providing a consistent process that treats all applicants equally is one of the objectives in writing a regulation," he added.

During a public comment period that expires March 27, DNR is asking the mining community and public at large for input on renewal regulations that are efficient and equitable for miners with Alaska offshore mineral leases, as well as meets the state's best interest.

DNR has offered some suggestions to guide this input:

What benefits should the state and people of Alaska derive from a renewed offshore mining lease?

How can DNR best determine that the interests of the state are being adequately met with regard to an offshore mining lease?

At what point are the state's needs not being met?

What is an appropriate level of either production or exploration to demonstrate that the lessee is seriously developing the lease in the best interests of the state?

What requirements for lease renewal might help the lessee further their ability to effectively develop and mine the lease?

What requirements and documentation will create the least regulatory burden on the lessee?

What system of lease renewal application will be least burdensome for the lessee, and most efficiently administered by the DNR?

DNR hopes this process will end in a set of rules that provide clarity as to what is expected from lessees regardless of who is director.

"Although the renewal decision is still at the discretion of the director, the lessee will have a clear idea of what they need to do throughout the lease term in order to have the lease renewed, and can operate the lease with renewal in mind," Cole said.

Some concern

The prospect of new regulations has some miners who hold offshore leases worried. Their primary concern is the proposed new rules, if codified into law, may allow the state to cut short the original lease.

Robert Retherford, a co-founder of Solomon Gold Inc., is among holders of marine placer gold leases off the beaches of Nome who are concerned about adding another layer of rules.

He told Mining News that he does not believe DNR intends to create rules that are onerous to holders of the state's offshore mineral leases, but he worries what might come out at the other end of the process.

"When you open the door for rewriting the regulations, it may not necessarily be in your benefit," he said.

DNR's Cole said the proposed rules are part of an ongoing process meant to allow offshore mining leases to be extended, not a mechanism to shorten their terms.

He said it was DNR that urged the Alaska Legislature to pass the 2012 law that allows offshore miners the opportunity to renew their leases, "in addition to the ability to continue the lease through continued production, which can still be done."

Active leases

The impetus to update the lease renewal laws is not due to a lack of current activity on offshore mining leases.

During 2014, at least a dozen companies and individuals had active programs on Nome offshore gold properties leased by the state. According to requisite filings, miners invested upwards of US$12 million during the year in mining the gold-rich deposits on Alaska leases offshore of Nome.

For the first two seasons after DNR auctioned leases to 84 tracts of state land in Nome's coastal waters, Placer Marine Mining Inc. was the big spender. This joint venture between AngloGold Ashanti Ltd. and the De Beers Group invested roughly US$12 million on exploration, environmental baseline studies and other preliminary work on its state leases during 2012 and 2013.

Much of this work culminated in a preliminary economic assessment that identifies a mining plan for Placer Marine's aptly named Nome Offshore project that the company believes represents a low capital risk solution for optimal mining of the marine gold placers. A mining system, processing plant and operation support were included in the operation outlined in the 2013 PEA.

A roughly US$1 million program carried out by Placer Marine in 2014 focused primarily on continued environmental baseline work. The company has previously said it hopes to begin mining the gold-rich marine deposits on its state leases by the 2017 season.

While Placer Marine's investment waned in 2014, other miners stepped up their spending last year. Most notably, Pioneer Marine Mining invested roughly US$6.8 million in mining its offshore leases.

Phoenix Marine Mining, the operating company for Pioneer, used two jack-up barges unique among the typical flotilla dredging the gold-rich placers off the shores of Nome.

The Phoenix barges, which lower legs to the seabed, provide a stable platform for an excavator, enabling a mining set-up similar to what you might find at a terrestrial placer gold operation. The company reports that the stable platform also significantly increases production time during a notoriously short mining season.

In addition to the ability to stay put when free-floating dredges must seek safe harbor from the rough seas that frequent this region of western Alaska, Phoenix Marine reports that its jack-up barges allow the company to get started earlier and stay later in the season. The company calculates these advantages provide it with 500 percent more production time than traditional marine dredges.

David Young invested roughly US$3.5 million last year developing a similar set-up to mine leases offshore of Nome.

CORRECTION:This article originally stated that the Nome offshore leases "were good for 20 years." The leases awarded by the state of Alaska in 2011 have 10-year primary terms.

Author Bio

Shane Lasley, Publisher

Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.

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