a.s.suming a prospect that has been reliably reported to the owners as possessing the earmarks of a mine and as warranting expenditures for exploitation, upon what basis should a company be capitalized? If the owners of the property have capital, the chances are that they will not care to share their holdings with other parties. But very frequently worthy "prospects" are held by men of no means, and in order to develop their mines the owners feel the necessity of cooperation with parties who can furnish working funds. In every such instance, there will arise this debate as to the proper basis of capitalization.

There is no human means of arriving at a _close_ valuation of any prospect, so it becomes a matter of pure judgment as to future probabilities and the possibility of placing the stock at the most advantageous price. A company will, therefore, be stocked for some round number of shares, say 100,000, upon which some empirical par valuation, say $1, is placed per share. This is not to be understood as stating nor a.s.suming that the property has a present valuation equalling the par of the entire capitalization. Who would a.s.sert that any mere prospect ever had such a value as $100,000? No, it is not the intention of the organizers to claim that the ground is worth the par valuation; but some start must be made and so, in the absence of something precise, round numbers are made to do service.

Stock is then offered at figures much below the par valuation and in such quant.i.ties as will maintain sufficient capital in the treasury of the new concern to get the property's exploitation under way and to so sustain it as to make the prospect grow into a mine.

If shares are offered at 10 cents, it does not mean that a prospect is worth even that valuation. It does mean (we are considering now only the operations of honest concerns) that the men who are managing affairs believe that the sale of so many shares at ten cents each will furnish adequate means for the development and equipment of the mine. Therefore, there is a _prospective_ valuation placed upon all such enterprises.

Is an investment in such a company to be considered as gambling? If there have been sound a.s.surances from reliable examiners concerning the likelihood of the ground carrying the essentials of a mine and the only uncertain element is the ultimate magnitude of the mine, then we might say that the investment is not a gamble at all, since there is no chance to lose. The purchase of such stock is a very sane investment and there is no telling what the returns may reach.

When incorporating a new company, it has become the fashion for the owners of the ground to exchange their t.i.tles 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 t.i.the of the capital stock in the antic.i.p.ated 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 t.i.tle 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 pa.s.sed 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 att.i.tude 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.

[Ill.u.s.tration: 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 a.s.sets 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 ma.s.ses 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 cla.s.s 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 a.s.sets, 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 acc.u.mulated 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 ident.i.ty 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 const.i.tutes 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 n.o.body 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 s.p.a.ce provided for harmonious additions to the initial plant whenever such extra parts are required.

[Ill.u.s.tration: 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 a.s.sure 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.