COMPANY FORMATION AND OPERATIONS
All the world over, the operation of winning from the soil and rendering
marketable the many valuable ores and mine products which abound is
daily becoming more and more a scientific business which cannot be too
carefully entered into or too skilfully conducted. The days of the dolly
and windlass, of the puddler, cradle, and tin dish, are rapidly
receding; and mining, either in lode or alluvial working, is being more
generally recognised as one of the exact sciences. In the past, mining
has been carried on in a very haphazard fashion, to which much of its
non-success may be attributed.
But the dawn of better days has arrived, and with the advent of schools
of mines and technical colleges there will in future be less excuse for
ignorance in this most important industry.
This chapter will be devoted to Company formation and working, in which
mistakes leading to very serious consequences daily occur.
It is not necessary to go deeply into the question why, in the mining
industry more than any other, it should be deemed desirable as a general
rule to carry on operations by means of public Companies, but, as a
matter of fact, few names can be mentioned of men who mine extensively
single handed. Yet, risky as it is, mining is hardly more so than, say,
pastoral pursuits, in which private individuals risk, and often lose or
make, enormous sums of money.
In floating Mining Companies the first mistake usually made is not
providing sufficient working capital for meeting all necessary expenses
until permanent profits are realisable. This neglect has caused the
sacrifice of many good properties. In England, the Companies are often
floated fully paid up, but the same initial error of providing too
little money for the equipment and effective working of the mine is
usually fallen into.
Again, far too many Companies are floated on the report of plausible,
ignorant individuals posing as mining experts. These men acquire a few
geological and mining phrases, and by more or less skilfully
interlarding these with statements of large lodes and big returns they
supply reports seductive enough to float the most worthless properties
and cause the waste of thousands of pounds. But the trouble does not end
here.
When the Company is to be formed, some lawyer, competent or otherwise,
is instructed to prepare articles of association, rules, &c., which,
three times out of four, is accomplished by a liberal employment of
scissors and paste. Such rules may or may not be suited to the
requirements of the organisation. Generally no one troubles much about
the matter, though on these rules depends the future efficient working
of the Company, and sometimes its very existence.
Then Directors have to be appointed, and these are seldom selected
because of any special knowledge of mining they may possess, but as a
rule simply because they are large shareholders or prominent men whose
names look well in a prospectus. These gentlemen forthwith engage a
Secretary, usually on the grounds that he is the person who has tendered
lowest, to provide office accommodation and keep the accounts; and not
from any particular knowledge he has of the true requirements of the
position.
The way in which some Directors contrive to spend their shareholders’
money is humorously commented on by a Westralian paper which describes a
great machinery consignment landed in the neighbourhood of the Boulder
Kalgoorlie.
“It would seem as if the purchaser had been let loose blindfold
in a prehistoric material founder’s old iron yard, and having bought
up the whole stock, had shipped it off. The feature of the entire
antediluvian show is the liberal allowance of material devoted
to destruction. Massive kibbles, such as were used in coal mines
half a century ago, are arranged alongside a winding engine,
built in the middle of the century, and evidently designed for
hauling the kibbles from a depth of 1000 feet. Nothing less than
horse power will stir the trucks for underground use, and their
design is distinctly of the antique type. The engine is built to
correspond--of a kind that might have served to raise into position
the pillars of Baalbec, and the mass of metal in it fairly raises
a blush to the iron cheek of frailer modern constructions. The one
grand use to which this monster could be put would be to employ it
as a kedge for the Australian continent in the event of it dragging
its present anchors and drifting down south, but as modern mining
machinery the whole consignment is worth no more than its value as
scrap-iron, which in its present position is a fraction or two less
than nothing.”
Next a man to manage the mine has to be obtained, and some one is placed
in charge, of whose capabilities the Directors have no direct knowledge.
Being profoundly ignorant of practical mining they are incompetent to
examine him as to his qualifications, or to check his mode of working,
so as to ascertain whether he is acting rightly or not. All they have to
rely on are some certificates often too carelessly given and too easily
obtained. Finally, quite a large proportion of the allottees of shares
have merely applied for them with the intention of selling out on the
first opportunity at a premium, hence they have no special interest in
the actual working of the mine.
Now let us look at the prospects of the Association thus formed. The
legal Manager or Secretary, often a young and inexperienced man, knows
little more than how to keep an ordinary set of books, and not always
that. He is quite ignorant of the actual requirements of the mine, or
what is a fair price to pay for labour, appliances, or material. He
cannot check the expenditure of the Mining Manager, who may be a rogue
or a fool or both, for we have had samples of all sorts to our sorrow.
The Directors are in like case. Even where the information is honestly
supplied, they cannot judge whether the work is being properly carried
out or is costing a fair price, and the Mining Manager is left to his
own devices, with no one to check him nor any with whom he can consult
in specially difficult cases. Thus matters drift to the almost certain
conclusion of voluntary or compulsory winding up; and so many a good
property is ruined, and promising mines, which have never had a
reasonable trial, are condemned as worthless. But let us ask, would any
other business, even such as are less subject to unforeseen vicissitudes
than mining, succeed under similar circumstances?
It is now very generally agreed that to the profitable development of
mining, new countries at all events must look mainly for prosperity
while other industries are growing. Therefore, we cannot too seriously
consider how we may soonest make our mines successful.
What is the remedy for the unsatisfactory state of affairs we have
experienced? The answer is a more practical system of working from the
inception. Although it may evoke some difference of opinion I consider
it both justifiable and desirable that the State should take some
oversight of mining matters, at least in the case of public Companies.
It would be a salutary rule that the promoters of any mining undertaking
should, before they are allowed to place it on the market, obtain and
pay for the services of a competent Government Mining Inspector, who
need not necessarily be a Government officer, but might, like licensed
surveyors, be granted a certificate of competency either by a School of
Mines or by some qualified Board of Examiners. The certificate of such
Inspector that the property was as represented should be given before
the prospectus was issued. It is arguable whether even further oversight
might not properly be taken by the State, and the report of a qualified
officer be compulsory that the property was reasonably worth the value
placed upon it in the prospectus.
Probably it will be contended that such restrictions would be an undue
interference with private rights, and the old aphorism about a fool and
his folly will be quoted. There are doubtless fools so infatuated that
if they were brayed in a ten hundred-weight stamp battery the
foolishness that had not departed from them would give a highly payable
percentage to the ton. Yet the State in other matters tries by numerous
laws to protect such from their folly. A man may not sell a load of wood
without the certificate from a licensed weighbridge nor a loaf of bread
without, if required, having to prove its weight; and we send those to
gaol who practice on the credulity and cupidity of fools by means of the
“confidence trick.” Why not, therefore, where interests which may be
said to be national are involved, endeavour to ensure fair dealing?
Then with regard to the men who are to manage our mines, seeing that a
man may not become captain or mate of a river steamboat without some
certificate of competency, nor drive her engines before he has passed an
examination to prove his fitness, surely it is not too much to say that
the mine manager or engineer, to whose care are often confided the lives
of hundreds of men, and the expenditure of thousands of pounds, should
be required to obtain a recognised diploma to prove his qualifications.
The examinations might be made comparatively easy at first, but
afterwards, when by the establishment of Schools and Mines the
facilities have been afforded for men to thoroughly qualify, the
standard should be raised; and after a date to be fixed no man should be
permitted to assume the charge of a mine or become one of its officers
without a proper certificate of competency from some recognised School
of Mines or Technical College. The effect of such a regulation would in
a few years produce most beneficial results.
In New Zealand, whose “progressive” legislature I do not generally
commend, they have, in the matter of mine management, at all events,
taken a step in the right direction. There a mine manager, before he
obtains his certificate, must have served at least two years
underground, and has to pass through a severe examination, lasting for
days, in all subjects relating to mining and machinery connected with
mining. In addition, he must prove his capacity by making an underground
survey, and then plotting his work. The examination is a stiff one, as
may be judged from the fact that between 1886 and 1891, only 27
candidates passed. Then the conditions were made easier, and from that
date to 1895, 19 passed. Of the 46 students who gained first-class
honours, 30 have left for South Africa or Australia, in both of which
countries New Zealand certificated men are held in high estimation.
The result of the establishment of our own School of Mines (Plate V.)
has been to raise the standard of the mine officer, whether manager,
assayer, engineer, or “underground boss,” and our graduates have small
difficulty in obtaining positions both in the states of the Commonwealth
and in South Africa. The building alone cost nearly £40,000, of which
£15,000 was donated by the Hon. George Brookman, a successful mining
man. The mining and metallurgical courses extend over a period of four
years. There are also facilities for students to gain higher
qualifications, viz., the Fellowship in Mining, Metallurgy, Mechanical
Engineering, or Electrical Engineering. The School works in conjunction
with the Adelaide University, each institution teaching the subjects for
which it is specially qualified.
But returning to the formation of the Company, care should be taken in
appointing Directors that at least one member of the Board is selected
on account of his special technical knowledge of mining, and others for
their special business capacity. The ornamental men with high-sounding
names should not be required in legitimate ventures. Also, it is most
important that the business Manager or Secretary should be a thoroughly
qualified man, who by experience has learned what are the requirements
of a mine doing a certain amount of work, so that a proper check may be
kept on the expenses. The more Companies such a Secretary has in hand
the better, as one qualified man can supervise a large staff of clerks,
who would themselves be qualifying for similar work, and gaining a
useful and varied experience of mining business. An office of this
description having charge of a large number of mines is, in its way, a
technical school, and lads trained therein would be in demand as mine
pursers, a very responsible and necessary officer in a big mine.
[Illustration: PLATE V.--SOUTH AUSTRALIAN SCHOOL OF MINES AND
INDUSTRIES _To face p. 118_]
With respect to the men to whom the actual mining and treatment of ores
and machinery is committed the greatest mistakes of the past have been
that too much has been required from one man. The Mining Manager has
been expected to be a miner, metallurgist, engineer, and business man,
a combination not to be found probably in one man in a thousand. Such
Admirable Crichtons are rare in any profession or business, and that of
mining is no exception. Men who profess too much are to be distrusted.
Your best men are they who concentrate their energies and intellects
in special directions. The Mining Manager should, if possible, be
chosen from men holding certificates of competency from some technical
mining school and, of course, should, in addition, have some practical
experience, not necessarily as Head Manager. He should understand
practical mine surveying and calculation of quantities, be able to dial
and plot out his workings, and prepare an intelligible plan thereof for
the use of the Directors, and should understand sufficient of physics,
particularly pneumatics and hydraulics, to ensure thoroughly efficient
pumping operations without loss of power from unnecessarily heavy
appliances. Any other scientific knowledge applicable to his business
which he may have acquired will tell in his favour, but he must, above
all things, be a thoroughly practical man. Such men will in time be more
readily procurable, as students who have passed through the various
Schools of Mines will be sent to learn their business practically at the
mines just as we now, having given a lad a course of naval instruction,
send him to sea to learn the practical part of his life’s work.
But, of course, more is wanted on a mine than a man who can direct the
sinking of shafts, driving of levels, and stoping of the lode. Much loss
and disappointment have resulted in the past from unsuitable,
ineffective, or badly designed and erected machinery, whether for
working the mine or treating the ores. To obviate this defect a
first-class mining engineer is required.
Then, also, day by day we are more surely learning that mining in all
its branches is a science, and that the treatment of ores and extraction
of the metals is daily becoming more and more the work of the laboratory
rather than of the rule-of-thumb procedure of the past. Every mine,
whether it be of gold, silver, tin, copper, or other metal, requires the
supervision of a thoroughly qualified metallurgist and chemist, and one
who is conversant with the newest processes for the extraction of the
metals from their ores and matrices.
It has then been stated that to ensure effective working each mine
requires, in addition to competent directors, a business-manager,
mining-manager, and assistants, engineer, chemist, and metallurgist,
with assistant assayers, &c., all highly qualified men. But it will be
asked, how are many struggling mines in sparsely populated countries to
obtain the services of all these eminent scientists? The reply is by
co-operation. One of the most ruinous mistakes of the past has been that
each little mining venture has started on an independent course, with
different management, separate machinery, &c. Can it then be wondered at
that our gold-mining is not always successful?
Under a co-operative system all that each individual mine would require
would be a qualified, practical miner capable of opening and securing
the ground in a miner-like manner, and a good working engineer; and in
gold-mining, where the gold is free in its matrix, a professional
amalgamator, or lixiviator. For the rest, half a dozen or more mines may
collectively retain the services of a mine manager of high attainments
as general inspector and superintendent, and the same system could be
adopted with respect to an advising metallurgist and an engineer. For
gold, as indeed for other metals, a central extracting works, where the
ores could be scientifically treated in quantity, might be erected at
joint cost, or might easily be arranged for as a separate business.
A very fruitful cause of failure is the fatuous tendency of directors
and mine managers to adopt new processes and inventions simply because
they are new. As an inventor in a small way myself, and one who is
always on the watch for improved methods, I do not wish to discourage
intelligent progress; but the greatest care should be exercised by those
having the control of the money of shareholders in mining properties
before adopting any new machinery or process.
We have seen, and unfortunately shall see, many a promising mining
company brought to grief by this popular error. The directors of mining
companies might, to use an American saying, “paste this in their hats”
as a useful and safe aphorism. “Let Others Do the Experimenting; We Are
Willing to Pay Only For Proved Improvements.” I can cordially endorse
every word of the following extracts from Messrs. McDermott and
Duffield’s admirable little work, “Losses in Gold Amalgamation.”
“Some directors of mining companies are naturally inclined to
listen to the specious promises of inventors of novel processes and
new machinery, forgetting their own personal disadvantage in any
argument on such matters, and assuming a confidence in the logic of
their own conclusions, while they ignore the fruitful experience of
thousands of practical men who are engaged in the mining business.
The repeated failures of directors in sending out new machinery to
their mines ought by this time to be a sufficient warning against
increasing risks that are at once natural and unavoidable, and
to deter them from plunging their shareholders into experiments
which, in ninety-nine cases out of a hundred, result in nothing but
excessive and needless expense.
“It is certain that new machines and new processes are, and will
be, given attention by mining men in proportion to their probable
merits; but the proper place for experiments is in a mill already
as successful as under known processes it can be made. In a new
enterprise, even when the expense of an experiment is undertaken by
the inventor, the loss to the mine-owner in case of failure must be
very great, both in time and general running expenses. Directors
should not believe that a willingness to risk cash in proving an
invention is necessarily any proof of value of the same; it is only
a measure of the faith of the inventor, which is hardly a safe
standard to risk shareholders’ money by.
“The variety of modifications in approved processes ought at
least to suggest the desirability of exhausting the known, before
drawing on the unknown and purely speculative. It should also be
borne in mind that what might appear at first sight to be new
processes, and even new machinery, are, in fact, often nothing but
old contrivances and plausible theories long ago exploded among
practical men.
“Many mining companies have been ruined, without any reference
to their mines, through men deciding on the reasonableness of new
process and machinery who have no knowledge of the business in
hand. It is assumed often, that if an inventor or manufacturer of
new machinery will agree to guarantee success, or take no pay if
not successful, the company takes no risk. In actual fact a whole
year is wasted in most cases, failure spoils the reputation of
the company, running expenses have continued, and further working
capital cannot be raised, because all concerned have lost confidence
by the failure to obtain returns promised. All this in addition
to the regular, unavoidable risks of mining itself, which may, at
any moment during the year lost, call for increased expenses and
increased faith in ultimate success. To the mining man who makes
money by the business, the natural risks of mining is all he will
take; it is sufficient; and when he invests more money in machinery
he takes good care that he takes no chances of either failure or
delay.
“The following are rules which no mining company or individual
mine-owner can afford to neglect.
“(1) The risk should be confined to mining. No body of directors
is justified in taking a shareholder’s money and investing it in new
processes or machinery when the subscription was simply for a mining
venture. Directors are invariably incapable of deciding whether a
so-called improvement in machinery or process is really so or not,
and the reasonable course is to follow established precedents.
“(2) The risk of selecting an incompetent manager should be
reduced to minimum by taking a man with a successful record in
the particular work to be done. The manager selected should be
prohibited, as much as the directors, from experimenting with new
methods or machinery. A really experienced man will require no check
in this direction, as he will not risk ruining his reputation.
“(3) The only time for a company to experiment is when the
mine is paying well by the usual methods, and the treasury is in a
condition to speculate a little in possible improvements without
jeopardising regular returns.”
Probably this is the best place to insert another word of warning to
directors who are not mining specialists, and also to investors in gold
mining shares. Assays of auriferous lode material should always be
checked by the results of trials on large quantities. The reason is
obvious. First, the prospector or company promoter is not in the least
likely to pick the worst piece of stone in the heap for assay; and,
secondly, even should the sample be selected with the sole object of
getting a fair result, no living man can judge the value of a gold lode
by the result of treatment of an ounce of stone. So when it is reported
that a sample of rock from the Golden Mint Mine, Golconda, assays at the
rate of 2,546 oz. 13 dwt. and 21 grs. to the ton, and that there are
thousands of tons of similar stone in sight, the statement should be
received with due caution. The assay is doubtless correct, but the
deductions therefrom are most misleading.
A few words of advice also to directors of mine-purchasing companies and
syndicates, of which there are now so many in existence, may probably be
found of value. It is not good policy as a general rule to buy entirely
undeveloped properties, unless such have been inspected by your own man,
who is both competent and trustworthy, and indeed who should have an
interest in the profits. Large areas, although so popular in England, do
not compensate for large bodies of payable ore; the most remunerative
mine is generally one of comparatively small area, but containing a
large lode formation of payable, but often low grade, ore.
It is worse still, of course, to buy a practically worked out mine,
though this too is sometimes done. It must be remembered that mining,
though often so profitable, is nevertheless a destructive industry, thus
differing from agriculture, which is productive, and manufactures, which
are constructive. Every ton of stone broken and treated from even the
best gold mine in the world makes that mine the poorer by one ton of
valuable material; thus, to buy a mining property on its past reputation
for productiveness is, as a rule, questionable policy, unless you know
there is sufficient good ore in sight to cover the purchase cost and
leave a profit.
The point may be put thus: Human industry is (1) Productive, (2)
Constructive, and (3) Destructive.
(1) Productive.--Intelligent culture of the soil, including the
depasturage of profitable animals. This is the oldest.
(2) Constructive.--The manufacture of raw products, animal, vegetable,
and mineral, into articles of a necessary or æsthetic character.
(3) Destructive.--Mining, in all its forms, because the natural stores
of valuable minerals and metals won and used are not replaceable.
One of the greatest causes of non-success of gold mining ventures,
particularly when worked by public companies, is the lack of actual
personal supervision, and hence, among other troubles, is that
ultra-objectionable one--gold stealing from the mills, or, in alluvial
mining, from the tail races. As to the former, the following appeared in
1893 in the London _Mining Journal_, and is, I think, worthy of the
close consideration of mine directors in all parts of the world:--
“No one that has not experienced the evil of gold thieving
from reduction mills can have any idea of the pernicious element
it is, and the difficulty, once that it has got ‘well hold,’ of
rooting it out. It permeates every class of society in the district
connected with the industry, and managers, amalgamators, assayers,
accountants, aye, even bank officials, are ‘all on the job’ to ‘get
a bit’ while there is an opportunity. To exterminate the hateful
monster requires on the part of the mine proprietors combined, stern
and drastic measures undertaken under the personal supervision of
one or more of their directors, and in many instances necessitating
the removal of the whole of the official staff.”
The writer narrates how about twenty-five years ago he was led to
suspect that in an Australian mine running forty head of stamps, in
which he held a controlling interest, the owners were being defrauded of
about a fourth of the gold really contained in the ore, and the
successful steps taken to check the robbery.
“We first of all dispensed with the services of the general
manager, and then issued the following instructions to the mine and
mill managers, I remaining at the mine to see them carried out until
I substituted a practical local man as agent, who afterwards carried
on the work most efficiently:--
“(_a_) Both of these officials to keep separate books and
accounts; in other words, to be distinct departments.
“(_b_) The ore formerly was all thrown together and put through
the mill. I subdivided it into four classes, A, B, C, and D,
representing deep levels north and upper levels north, deep levels
south and upper levels south, and allotted to each class ten heads
of stamps at the mill.
“(_c_) The mine manager to try three prospects, forenoon and
afternoon of each day, from the dumps of each of the four classes
and record in a book to be kept for that purpose the estimated mill
yield of each one.
“(_d_) The mill manager was required to do the same at the mill
and keep his record.
“(_e_) There were four underground bosses in each shift, twelve
in all. I had a book fixed at the top of the shaft in which I
required each of these men, at the expiry of every shift, to record
any change in the faces of the quartz and particularly in regard to
quality.
“(_f_) Having divided the ore into four classes I instructed the
amalgamators, of which there were two in each shift, six in all,
that I required the amalgam from each to be kept separate, with the
object of ascertaining what each part of the mine produced.
“(_g_) I procured padlocks for the covering boards of the
mercury tables and gave the keys to the amalgamators with
instructions that they were not to hand them over to any one except
the exchange shift without my written authority, and instructed them
that they should clean down the plates every three hours, and after
cleaning down the amalgam, buckets to be placed in the cleaning
room, which I instructed to be kept locked and the key in charge of
a watchman night and day.
“(_h_) The whole of the amalgam taken from the plates during each
twenty-four hours to be cleaned and squeezed by the two amalgamators
on duty every forenoon at nine o’clock in the presence of the mill
manager, who should weigh each lot and enter it in a book to be kept
for the purpose, and the entry to be signed by the mill manager and
both amalgamators as witnesses.
“(_i_) Every alternate Friday the mortars (boxes) to be cleaned
out; the work to be commenced punctually at eight A.M. by the six
amalgamators in the presence of the mill manager, assisted by the
three amalgam cleaning room watchmen and the four battery feeders
on duty, prohibiting any of them from leaving until the cleaning up
was finished, and the amalgam cleaned, squeezed and weighed, and the
amount entered by the mill manager in the record book and attested
by the amalgamators.
“I think the intelligent readers (particularly those with
a knowledge of the business) will see the drift of the above
regulations, viz., for there to be any peculation the whole of the
battery staff--fourteen in all--would have to participate in it,
and the number was too many to keep a secret. Formerly the amalgam
cleaning room was sacred to the mill manager, and on announcing
to that official the new instructions he at once tendered his
resignation in a tone of offended dignity, immediately followed by
that of the mine manager. It is a significant fact that shortly
afterwards these two officials purchased a large mill and other
property at a cost of £10,000, and that the mine yielded for the
following three years during which I was connected with it an
average of over 17 dwt. to the ton, as against formerly 10 to 12 dwt.
“The reader must draw his own conclusions. I used to make it a
practice to visit the mine daily and prospect the ore, and having
the mine and mill managers’ daily prospecting as a guide as well
as my own, every man at the mill knew it was impossible for them
to thieve without my detecting it; moreover, I made it a rule to
discharge any of the mill employés that I discovered were interested
in any small private claims.
“The crux of the whole thing is having a practical miner at the
head of affairs, and it is impossible for him to thieve if the work
is carried out in the manner I have described.”
To bring the whole matter to a conclusion. It may be taken as a safe
axiom that to make gold-mining in the mine as distinct from mining on
the Stock Exchange really profitable the same system of economy, of
practical supervision, and scientific knowledge which is now adopted in
all other businesses must be applied to the raising and extraction of
the metal. Then, and not till then, will genuine mining take the place
to which it is entitled amongst our industries.