owners of the ground to exchange their titles for certain specified
fractional interests in the company. This is effected usually by going
through the formality of having the owners sell their holdings outright
for the entire issue of the capital stock. Then, according to
prearranged agreements, these owners donate to the treasury of the
company a portion of this capital stock to be henceforth termed
"treasury stock." The first step makes the capital stock "fully paid
for," since it has been accepted in full payment for the property. The
second step supplies the company with the necessary means for raising
funds to develop.
There can be no reasonable objection to this practice. But there is much
criticism of the usual apportionment of the owners' and the treasury
stock. It is agreed that the incorporators are, as a rule, greedy in
this respect, since they generally issue more than 50 per cent. (and
frequently 60 per cent.) of the capital stock to themselves and expect
to float the project to success upon the money derivable from the sale
of the balance or treasury stock.
Is a mere prospect, even under the best natural conditions, plus the
effort incidental to the organization of a mining company, worth
one-half or more of a producing mine? During an extended experience in
the business of converting discoveries into patented claims and
prospects into mines, the writer has found that _there is never an owner
who is willing to sell a developed mine for twice the price he had set
upon the original prospect_. The valuation of his holdings goes up by
greater multiples than mere doubling or even trebling and it is a rare
thing to find a man willing to sell out a proved mine at less than ten
times the prevailing valuation that would have been placed upon the same
piece of property before its development.
Hence, there is no propriety in the act of self-appropriating half the
capital stock by the organizers. Investors should be wary about taking
interests in companies which have been so organized. If an owner
believes that a mine is worth ten times as much as a prospect, let him
be consistent and offer his undeveloped property for a tithe of the
capital stock in the anticipated mine. If he has a worthy piece of
ground, he will reap the same benefits as the holders of the stock who
place their cash against his title to a tract of virgin territory. If he
will not thus act fairly, it indicates either a questionable piece of
property or an avidity undesirable in a partner. It is accordingly
advisable to shun offerings in such concerns.
Another matter to be considered here is that of overloading a fairly
good mining enterprise with so much capital investment that the
property cannot be made to pay proper dividends and fair interest on the
capital. Many worthy, though perhaps small, mining concerns have made
failures through a disregard for this economic feature. The proper
adjustment of this matter is a serious thing and it should not be passed
over lightly. Investors should look into this phase of mining
thoroughly.
XVI
MINING INVESTMENTS.
One should be able to establish, in his mind, a distinction between the
value of investments in operating mines and in prospective mines; and he
should likewise be competent to fix some difference in his attitude when
purchasing the stocks in these dissimilar projects. One should invest in
an established mine with the same business precautions that would guide
him in buying an interest in a mercantile establishment.
It is possible to obtain, through competent engineers, the approximate
present valuation and the probable life of any mine and thus to arrive
at conservative figures that will govern one's investments. But, when
debating the purchase of stock in a prospect, a man should learn all the
available facts concerning the geology and the organizers and should
then decide, in his own way, whether he cares to make the purchase. Even
the prospects offering the finest inducements have been known to
disappoint, just as some less promising prospects have occasionally
exceeded expectations.
[Illustration: MILL OF THE ROODEPOORT-UNITED MINES, TRANSVAAL, SOUTH
AFRICA.]
So, while there are certain safeguards to investments, there should also
be accepted the uncertainties which must accompany the placing of faith
in unseen things.
The same general rules for business success will attend both commercial
and mining enterprises. Any incorporation must be handled according to
recognized, successful methods, no matter what its scope or activity. In
most lines of business, there is a likelihood of growth with longevity,
there being no reason to limit the life of the usual mercantile
business. With advancing years, a manufacturing company, for instance,
with good management, will establish a reputation and will gradually
increase its business and its stock in trade. But with a mine, the
business is one which is most successful only when actually depleting
the assets at the most rapid rate. With some kinds of mines such as
coal, placer, iron or the "reef" gold mines of the Rand, the life can
be very accurately forecast and all activities may be planned for
specified periods.
In some kinds of mining ground--as for instance, the irregular masses of
Leadville or the crooked and uncertain veins of Tonopah--there can be no
predictions that will reliably or even approximately decide the probable
life of the mining activities of any company. The duration of mines of
this second class is wholly problematical. A few years ago, there was
much discussion of this subject and one writer, who had collected
statistics over an extended period and covering various kinds of mines,
arrived at the conclusion that the average life of a mine is about
eleven years. J. P. Wallace, in his work, _Ore Deposits for the
Practical Miner_, in discussing this point says, "The average mine, if
continuously worked, seldom lasts longer than three to five years. A
mine is valuable not for what it has produced, but for what it is
capable of producing." This opinion cannot be borne out by facts, for
the brevity he ascribes to the average mine is altogether unreasonable
and his statement is pessimistic. The cases of mines which have petered
out in three or five years are exceptionally few. It must be that the
experiences of this author have been in "pockety" districts, for he
could not have lived in any of the worthy mining camps of the world very
long and have come away with any such notion.
To take care of this intrinsic feature of mining, and to place
propositions fairly before the public, there should be attention given
to the matter of recovering the invested capital before the expiration
of activities through the exhaustion of mining assets, the ore bodies.
This practice, known as "amortization," is being given more and more
consideration as people come to realize this peculiarity of mining. Some
companies are now so organized and managed that there is a guaranteed
refund, at stated periods, or whenever profits have accrued, of
fractions of the invested capital with accumulated interest thereon.
These funds are calculated to continue over the number of years which it
is presumed the mines will live so that upon the cessation of mining,
the owners of the stocks will have been completely reimbursed with their
original outlay in addition to the dividends that have resulted from the
success of the enterprise. It is here that the problem of the life of a
mine enters into economics, and it is important that it be given its due
share of study. Amortization is not of American origin and it has not
been adopted in this country to the extent which it is bound to be in
the future.
One means of providing against an extinction of a mining company's
activity with the exhaustion of the ore bodies in the mines is to
provide new mining territory to which operations may be transferred at
the proper time. This plan has been very successfully carried out by a
number of large mining companies. When a mining company has been
maintaining its identity for a considerable period, it has reached a
very desirable stage of economy in the make-up of its various lists of
officials, superintendents and engineers. All this efficiency can be
very readily transferred to the operation of virgin mining property.
Often much of the equipment of a mine can be moved and used again. When
a mine is known to be nearing its finish, there is a hesitancy on the
part of the owners in replenishing the equipment and sometimes the
mining is kept up through the use of worn-out, inefficient apparatus
when, were the owners expecting to continue mining, they would purchase
and install the new equipment when it is needed.
One company in the San Juan region of Colorado prepared for the
contingency by purchasing neighboring property to which it moved its
operations. Another large company bought a large piece of mining
property in Mexico, although its initial operations were in Colorado.
Placer mining companies frequently dismantle, move and re-erect
dredges.
XVII
MINE EQUIPMENTS.
There is a constant tendency toward the adoption of machinery for the
performance of every mining act which, formerly, was done by manual or
animal labor. There are good reasons for this tendency. Good, trained
labor is scarce; wages are slowly but gradually rising; ores of lower
grade must be mined, and the tonnages must be correspondingly greater.
The increased economy in production can be brought about by the adoption
of devices that will supplant, and even excel, muscular effort.
A machine can now be installed and can be operated by a single man to
perform the work formerly done by many men. There have been machines
invented to entirely, or partially, perform every operation in and
around mines, and one might imagine an ideal mine in which all such
machines were installed. But even there, we should have to grant the
presence of some few men, for it would not be possible to keep all the
machines working without human, intelligent control. In such a mine, it
might be possible to maintain a large production with very few laborers
or overseers. Fewer men means less wages, less labor trouble, fewer
fatalities, and less time occupied in handling men into and out of the
workings.
In some ways, copper mines are ahead of gold mines in their equipment.
Coal mines have adopted car loaders which as yet and without any very
good reasons metal mines have not.
Plants for mines must utilize the same sources of power as are used by
any other plants. Steam and water have been the usual forms, but
electricity is gaining in favor in places where it can be cheaply
obtained. At a coal mine, we naturally expect to see all the power
generated through the combustion of coal under boilers. At metal
mines--which are frequently remote from sources of coal supply--we run
across the use of expensive coal for all power purposes. When it is
possible to obtain a sufficient supply and head, water is adopted to
furnish the required power for operation. At mines, with water
sufficient to produce a part only of the needed power, we may see both
steam and water power utilized. In the cases of some mines which are
distant from sources of both coal and water supply, power is generated
at points where stores of natural energy are available for use and the
power is transmitted (usually as electricity, sometimes as compressed
air) over long distances to the mines.
Some mines cannot be economically operated without the treatment of the
ores upon, or close to, the mining property. With certain sorts of
low-grade ore, or with those kinds of ores that may be concentrated
before shipment, provision should be early made for the erection of
appropriately designed mills. We say the subject should be considered
early, but we do not advocate the premature erection of any mill. The
hills of the Western mining states are dotted with monuments to men's
error in this particular. Here and there (not in our own country alone,
but throughout the mining world) one may run across an abandoned mine
plant, a complete mill, a smeltery, a railroad or an aerial tramway, all
prematurely provided for outputs which failed to materialize.
There are men still trying to succeed in the mining business while
thinking it is essential in mining that a complete plant be the first
thing given attention. Upon the showing in a ten-foot hole, such men
will induce capital to take interests enough to provide the wherewithal
for purchasing and installing an equipment capable of handling and
treating the output of a big mine. This is a grievous mistake that comes
about through misconceptions. It is often true that ores of the kind
these mines are expected to produce should be treated upon the ground.
But it is also true, and far more essential, that there be enough ore to
supply the treatment works. It is rank folly then to spend the money
needed to make a mine upon a plant to handle the product. Money should
be spent, first, in exploitation and proving the value of a property. If
the proof is forthcoming, it is then time enough to erect the plant.
Meanwhile, during the development stages of a mine, the proper amount of
experimentation can be conducted to ascertain the correct process for
treating the ore. If ores are produced in abundance, they may be shipped
for treatment in custom works until such time as the company's own plant
is ready; or the ores may be stocked up for emergency mill supply at
future times when it may be compulsory to curtail the mine production
because of accidents or other unforeseen causes.
One who considers these matters from an economic standpoint will
recognize that there must exist some proper ratio of mine output to
treatment capacity. Just what this relationship is constitutes a serious
problem for each particular mine and there cannot be stated any
ironclad rules that may be applied to all cases.
In the first place, we believe _a mine will be operated at its greatest
economy when it is making its largest and most regular output_. This
being the case, we must agree that the plant and mill must be capable of
taking care of this maximum output. It would then seem axiomatic that
the equipment must be calculated according to the mine's capabilities.
But, in the youth of a mine, how are we to know what its mature capacity
will be? Here comes the rub.
Very nice discussions along this line have been indulged in by British
and American representative mining men. When speaking of operations that
are typical of some foreign mining districts and especially those that
possess ore-bodies whose extents are readily calculated, no clever
prophecy is required to ascertain the proper amount of equipment. But
there are many regions, especially in our own country, where nobody can
predict, with any degree of accuracy, how extensive will prove to be
the natural reserves of any mine. It is in such places as these that
hard study and careful guessing are needed, and we are inclined to agree
with George J. Bancroft when he says, "To my mind, there is more credit
due to those who take up the hard propositions and make them pay than to
those who exploit bonanzas along purely scientific lines. The first
usually require energy, sagacity, perseverance and, very often, daring;
while the others need chiefly cool calculation."
It is a safe practice, throughout the world, whenever there is no
absolute means of reaching figures of a mine's ultimate production, to
erect the treatment installations in units. By a "unit" is here meant
the outfit of machinery and the other equipment which will handle a
specified round number of tons per day. In some districts, a unit will
be for the treatment of 10 tons; in other districts this number may run
up to 100 tons. In the plans provisions are made for additions, from
time to time, as mining development warrants. Very much the same scheme
should be followed in the erection of the plant for carrying on the
operations, which are strictly those of obtaining the ore from the
earth. That is, mining equipment, as well as the milling equipment,
should be on a flexible plan so as to be readily adapted to an increased
scale of operation. There must be space provided for harmonious
additions to the initial plant whenever such extra parts are required.
[Illustration: SPRAY SHAFT HOUSE OF COPPER QUEEN CONSOLIDATED MINING
CO., BISBEE, ARIZONA.]
XVIII
MINE MANAGEMENT.
No matter how splendid a company's holdings may be naturally, there
cannot be expected any profits from the workings of the deposits if
there be not a sound business management. H. C. Hoover, the prominent
mining engineer and mine manager, says, "Good mine management is based
upon three elements: first, sound engineering; second, proper
coordination and efficiency of every human unit; third, economy in the
purchase and consumption of supplies." And he goes on to emphasize the
fact that "no complete manual will ever be published upon 'How to Become
a Good Mine Manager.'" In view of this damper upon good intentions one
might possess, and granting that the subject is one that cannot be
taught (except along very general lines possibly), no attempt will be
made to enter into arguments concerning this important subject of Mine
Management.
Good administrative ability can be improved by cultivation just as can
an individual of the vegetable kingdom; but there must first be the
existent, innate ability. No man should attempt such a hard proposition
as the management of a mine, with its varied phases of activity, unless
he has found himself possessing the fundamentals that go to assure
success in managerial positions. Furthermore, he should not think,
because he has been successful in running a clothing business or any
other mercantile line, that he is certain to succeed in running a mine.
The duties of directors and president are pretty much the same in all
sorts of incorporations. But, while there are many mining companies--and
successful ones, too--that hold upon their directorates men who probably
never saw a mine prior to their present ventures, it may still be stated
that it is obviously advisable to select for such places men who have
knowledge and sound ideas concerning the industry of mining. To be sure,
if they are ignorant along mining lines, they can, and often do, place
the blame for their shortcomings upon their manager, their consulting
engineer, or their superintendent. But this is not an auspicious state
of affairs and it were well for stockholders to see to it that they
elect to the directorate men who are cognizant of mining economics.
The well-organized mining concerns of today maintain their engineering
staffs just as completely as do other great technical businesses. The
engineer is a very important man in mining affairs. His duties are
probably more varied than those that appertain to any other sort of
engineering. His operations will extend into the realms of the
mechanical, the civil, the chemical, the metallurgical, the hydraulic,
and the electrical engineers. He must be posted along the latest
conceptions in geology, mineralogy, and physics. Besides he should be an
accurate and rapid mathematician and draftsman.
The manager finds in the engineer his most helpful and trusted aid.
Often the engineer performs many of the functions usually attaching to
the office of manager and, in the absence of the latter person, he may
attend to all of the management. As stated above, the qualities that
make a good manager are inherent; hence, to a certain extent, we may
hold the deduction that good mining engineers, also, must possess innate
qualities. Yet there may be pointed out this distinction between the
make-up of a good man for manager and that of a good mining engineer:
one, as said, cannot learn his business except through his own
experience, while the other can receive vast benefit by _study_ of a
theoretical nature and by _practice_.
Lately, there is much said about the _consulting_ mining engineer. His
field of usefulness is broad. He can be asked to add his opinions and
recommendations to those of the regular engineer, at any time; he can be
used at times when the duties are too much for the resident engineer; he
can be called upon to substitute; he need not live near the property,
but may visit it periodically. Thus, while his retention is deemed
remunerative, his services are available at a fractional part of what
he would demand if he were employed exclusively by the company.
Under ordinary working conditions, it should be considered just as
essential for a mine to take an occasional inventory as it is for a
mercantile establishment. In truth, there is far more need in mining
operations of the knowledge thus derived than in any other business. In
mining, as already suggested, the business is one of selling off the
stock in trade without replenishing it. The opening of more reserves of
ore is not bringing more goods into the stock, but it may be likened to
simply unpacking more goods in the storehouse. No new reserve can be
added--they can simply be found and unpacked, as it were.
This finding entails the greatest amount of concern, and upon its
successful practice depends the life of the mine. The presumption is
strong that many mines have been abandoned while they really contained
possibilities; but lack of knowledge of things geological, or perhaps
failures to explore, permitted the operators to remain ignorant of the
splendid assets that were available. Proof of this error has been found
in many mines that have been subsequently re-opened.
The work of sizing up the quantity and the value of available ore is
known as sampling. It is not well to limit the practice of sampling to
the times only when a sale is contemplated. Reports based upon careful
sampling should be issued frequently. Some companies employ men whose
sole occupation is the daily sampling of every working face. The assay
results obtained from the collected samples inform the superintendent
just "how the stuff is holding up" throughout the mine and he governs
his work accordingly. At longer intervals, the engineer should go into
the work more thoroughly by not only taking very careful, scientific
samples (not the usual "grab" samples taken by the daily sampler) but
also by making careful memoranda of the physical appearances of the ore
with its thickness and all geological data that will tend to throw light
upon the permanency of each body. The engineer's monthly report will
then be a substantial guide to the manager and the directors.
Managers, too, are expected to make periodical reports--monthly,
quarterly, or annually--to the directors who, in turn, issue reports to
the stockholders. The reports of managers and directors are not usually
technical in their nature, although sometimes it is the practice of a
manager to attach the engineer's report to his own for the perusal of
such readers as may desire to dip into the technical affairs of the
operations. Usually, the directors' reports are of a simple, financial
nature, stating the conditions of affairs in plain business language to
the persons whose cash has been invested in the enterprise.
It may happen that, for some reason, a special report is desired by the
directors who may be contemplating some consolidation or other financial
move and both the manager and the engineer will be required to furnish
detailed statements concerning their respective branches. If a sale is
planned, it may be that not only the company's engineer, but very
probably another engineer engaged by the contemplative purchaser, will
make examinations. They may work together or separately, as best suits
them mutually, but it is upon the reports issued by them that the
satisfactory price for the exchange of title is based.
XIX
PRICES OF METALS.