In the New Gold Rush, Equipment Suppliers May Strike It Rich

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In the New Gold Rush, Equipment Suppliers May Be the Big Winners In an uncertain economy, gold almost always goes up in value. Little wonder, then, that the vertiginous swoops and dives of the stock market over the past three years have sent gold values to record highs. And with unemployment at its highest levels since the end of World War II, it's hardly surprising that many struggling workers have started thinking about trying their luck in the gold fields. From weekend panners to the go-for-broke stars of the Discovery Channel's Gold Rush: Alaska, it seems like the economic future for many Americans will involve following in the footsteps of the prospectors of generations past.

Yet while some would-be ore-hunters may find their fortunes in the bottom of a gold pan, the biggest beneficiaries of the current gold rush will probably be the same people who benefited from previous stampedes: the suppliers and towns that support the intrepid adventurers. From blankets to gasoline, gold pans to folding shovels, prospecting is a tool-intensive practice, and there's big money to be made in feeding the dream.

A Retail Bonanza

At the most basic end of the prospecting spectrum, supplies aren't all that expensive. Walter Evens, store manager of California-based Gold Fever Prospecting, points out that beginning prospectors "just need a gold pan," though he notes that "panning can be tedious, so many use a sluice box to consolidate material for panning."

With pans available for $4.95 and sluice boxes starting at $49, the cost of simple weekend prospecting is negligible. In many places, this sort of panning operation is also largely unregulated. In California, Evens notes, panning doesn't require a permit, although some states are stricter.

Not surprisingly, Evens sees a direct link between the price of gold and his store's business: "Every time the price of gold goes up $100, 10 or 15 new people walk into my store. Since Gold Rush: Alaska started, our phones have been constantly ringing and we have new customers coming in and out." Evens thinks his customers have a good chance of making their hobby pay. In fact, he admits, "I've thought about going up to Alaska myself. A friend of mine is prospecting up there and I asked him if I could make enough money in a summer to last me all year. He told me that I could make somewhere around $50,000."

Not all prospecting suppliers are quite so optimistic. Brad Jones, director of operations for the Gold Prospectors Association of America, is quick to warn would-be prospectors not to bet the farm on literally hitting pay dirt: "We're like a casino," he explains. "Casinos love it when people gamble, but don't want to see people do that as a full-time occupation."

Machines to the Rescue

The stars of Discovery's Gold Rush: Alaska have taken the full-time occupation route to an extreme, moving their lives -- and, in some cases, their families -- to the gold fields. They also have a much more extensive operation, which costs more money than basic panning. The group's leader, Todd Hoffman, has a deal with an established claim holder, who owns the mineral rights to the land that they are mining. In return for allowing prospectors to use the land, claim holders take between 10% and 20% of the gold that is found on their property.

While pans and shovels aren't too expensive, they also aren't all that efficient. Prospecting is, ultimately, a matter of sorting through large quantities of material in search of a small amount of gold, and full-time miners use machinery that is designed to speed up that process. Hoffman's prospecting team is working an area that is known for yielding small gold nuggets, so he uses a collection of machines that sort rocks and mud into progressively smaller grades, ultimately straining out everything larger than ½ inch in diameter.

These machines don't come cheap: Hoffman estimates that, brand new, his sorters, earth-moving tools and generator would likely cost between $150,000 and $500,000. However, he has a background in aviation and some of his team members have worked in machining, which meant that they were able to build and develop many of their own tools. In addition, Hoffman notes, the recession and the bursting of the housing bubble have forced many contractors to sell their tools at a fraction of their book values. It's a sad side effect of the economy, he admits, "but it also makes it a great time to buy equipment."

Without the technical skill of his crew, Hoffman wouldn't have been able to take his chances in Alaska. While Discovery has given him some money to help out with food and fuel, Hoffman had to find the cash to pay for his machines. "I scraped together money by selling equipment, and I traded some equipment for other equipment," he recounts. "I also borrowed money from family and sold an airplane. I'm not sure how I made it, but we decided that we just had to go for it."

"Go-To Guy"

While Hoffman and his team search for gold, they're also learning from the lessons of earlier gold rushes. Having built his own cheap, effective machinery, he's now designing and building equipment for other prospectors. "I've become sort of a poor man's go-to guy for gold mining machinery. I'm refurbishing shakers that are 20 or 30 years old and working with engineers to design and build equipment that is cheap and effective."

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Although they haven't advertised their equipment business, customers have found them. "I'm not soliciting business, Hoffman notes, "but several guys have approached me." Currently, he's working with a group in Arizona that "is talking to me about building machines for them."

For Hoffman, the sideline is more than just a revenue stream. It's also a chance to share his experience. "After using my equipment, I looked at the things that I did right and the things that I did wrong," he says. "My machines are not going to be high-flying, brand-new stuff. I'm making quality equipment that a guy can buy and use to attack his dream. I think that gold prospecting is one avenue that we can use to develop wealth in our country again."
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