FACTORS LIMITING THE OUTPUT.

Although the above argument can be academically defended, there are, as said at the start, practical limitations to the maximum intensity of production, arising out of many other considerations to which weight must be given. In the main, there are five principal limitations:—

1.Cost of equipment.
2.Life of the mine.
3.Mechanical inefficiency of patchwork plant.
4.Overproduction of base metal.
5.Security of investment.

Cost of Equipment.—The "saving of fixed charges" can only be obtained by larger equipment, which represents an investment. Mining works, shafts, machinery, treatment plants, and all the paraphernalia cost large sums of money. They become either worn out or practically valueless through the exhaustion of the mines. Even surface machinery when in good condition will seldom realize more than one-tenth of its expense if useless at its original site. All mines are ephemeral; therefore virtually the entire capital outlay of such works must be redeemed during the life of the mine, and the interest on it must also be recovered.

The certain life, with the exception of banket and a few other types of deposit, is that shown by the ore in sight, plus something for extension of the deposit beyond exposures. So, against the "savings" to be made, must be set the cost of obtaining them, for obviously it is of no use investing a dollar to save a total of ninety cents. The economies by increased production are, however, of such an important character that the cost of almost any number of added units (within the ability of the mine to supply them) can be redeemed from these savings in a few years. For instance, in a Californian gold mine where the working expenses are $3 and the fixed charges are at the low rate of 30 cents per ton, one unit of increased production would show a saving of over $10,000 per annum from the saving of fixed charges. In about three years this sum would repay the cost of the additional treatment equipment. If further shaft capacity were required, the period would be much extended. On a Western copper mine, where the costs are $8 and the fixed charges are 80 cents per ton, one unit of increased production would effect a saving of the fixed charges equal to the cost of the extra unit in about three years. That is, the total sum would amount to $80,000, or enough to provide almost any type of mechanical equipment for such additional tonnage.

The first result of vigorous development is to increase the ore in sight,—the visible life of the mine. When such visible life has been so lengthened that the period in which the "saving of fixed charges" will equal the amount involved in expansion of equipment, then from the standpoint of this limitation only is the added installation justified. The equipment if expanded on this practice will grow upon the heels of rapid development until the maximum production from the mine is reached, and a kind of equilibrium establishes itself.

Conversely, this argument leads to the conclusion that, regardless of other considerations, an equipment, and therefore output, should not be expanded beyond the redemption by way of "saving from fixed charges" of the visible or certain life of the mine. In those mines, such as at the Witwatersrand, where there is a fairly sound assurance of definite life, it is possible to calculate at once the size of plant which by saving of "fixed charges" will be eventually the most economical, but even here the other limitations step in to vitiate such policy of management,—chiefly the limitation through security of investment.

Life of the Mine.—If carried to its logical extreme, the above program means a most rapid exhaustion of the mine. The maximum output will depend eventually upon the rapidity with which development work may be extended. As levels and other subsidiary development openings can be prepared in inclined deposits much more quickly than the shaft can be sunk, the critical point is the shaft-sinking. As a shaft may by exertion be deepened at least 400 feet a year on a going mine, the provision of an equipment to eat up the ore-body at this rate of sinking means very early exhaustion indeed. In fact, had such a theory of production been put into practice by our forefathers, the mining profession might find difficulty in obtaining employment to-day. Such rapid exhaustion would mean a depletion of the mineral resources of the state at a pace which would be alarming.

Mechanical Inefficiency of Patchwork Plant.—Mine equipments on speculative mines (the vast majority) are often enough patchwork, for they usually grow from small beginnings; but any scheme of expansion based upon the above doctrine would need to be modified to the extent that additions could be in units large in ratio to previous installations, or their patchwork character would be still further accentuated. It would be impossible to maintain mechanical efficiency under detail expansion.

Overproduction of Base Metal.—Were this intensity of production of general application to base metal mines it would flood the markets, and, by an overproduction of metal depress prices to a point where the advantages of such large-scale operations would quickly vanish. The theoretical solution in this situation would be, if metals fell below normal prices, let the output be reduced, or let the products be stored until the price recovers. From a practical point of view either alternative is a policy difficult to face.

In the first case, reduction of output means an increase of working expenses by the spread of fixed charges over less tonnage, and this in the face of reduced metal prices. It may be contended, however, that a falling metal market is usually the accompaniment of a drop in all commodities, wherefore working costs can be reduced somewhat in such times of depression, thereby partially compensating the other elements making for increased costs. Falls in commodities are also the accompaniment of hard times. Consideration of one's workpeople and the wholesale slaughter of dividends to the then needy stockholders, resulting from a policy of reduced production, are usually sufficient deterrents to diminished output.

The second alternative, that of storing metal, means equally a loss of dividends by the investment of a large sum in unrealized products, and the interest on this sum. The detriment to the market of large amounts of unsold metal renders such a course not without further disadvantages.

Security of Investment.—Another point of view antagonistic to such wholesale intensity of production, and one worthy of careful consideration, is that of the investor in mines. The root-value of mining stocks is, or should be, the profit in sight. If the policy of greatest economy in production costs be followed as outlined above, the economic limit of ore-reserves gives an apparently very short life, for the ore in sight will never represent a life beyond the time required to justify more plant. Thus the "economic limit of ore in reserve" will be a store equivalencing a period during which additional equipment can be redeemed from the "saving of fixed charges," or three or four years, usually.

The investor has the right to say that he wants the guarantee of longer life to his investment,—he will in effect pay insurance for it by a loss of some ultimate profit. That this view, contradictory to the economics of the case, is not simply academic, can be observed by any one who studies what mines are in best repute on any stock exchange. All engineers must wish to have the industry under them in high repute. The writer knows of several mines paying 20% on their stocks which yet stand lower in price on account of short ore-reserves than mines paying less annual returns. The speculator, who is an element not to be wholly disregarded, wishes a rise in his mining stock, and if development proceeds at a pace in advance of production, he will gain a legitimate rise through the increase in ore-reserves.

The investor's and speculator's idea of the desirability of a proved long life readily supports the technical policy of high-pressure development work, but not of expansion of production, for they desire an increasing ore-reserve. Even the metal operator who is afraid of overproduction does not object to increased ore-reserves. On the point of maximum intensity of development work in a mine all views coincide. The mining engineer, if he takes a Machiavellian view, must agree with the investor and the metal dealer, for the engineer is a "fixed charge" the continuance of which is important to his daily needs.

The net result of all these limitations is therefore an invariable compromise upon some output below the possible maximum. The initial output to be contemplated is obviously one upon which the working costs will be low enough to show a margin of profit. The medium between these two extremes is determinable by a consideration of the limitations set out,—and the cash available. When the volume of output is once determined, it must be considered as a factor in valuation, as discussed under "Amortization."

CHAPTER XVI.

Administration.

LABOR EFFICIENCY; SKILL; INTELLIGENCE; APPLICATION COORDINATION; CONTRACT WORK; LABOR UNIONS; REAL BASIS OF WAGES.

The realization from a mine of the profits estimated from the other factors in the case is in the end dependent upon the management. Good mine management is based upon three elementals: first, sound engineering; second, proper coördination and efficiency of every human unit; third, economy in the purchase and consumption of supplies.

The previous chapters have been devoted to a more or less extended exposition of economic engineering. While the second and third requirements are equally important, they range in many ways out of the engineering and into the human field. For this latter reason no complete manual will ever be published upon "How to become a Good Mine Manager."

It is purposed, however, to analyze some features of these second and third fundamentals, especially in their interdependent phases, and next to consider the subject of mine statistics, for the latter are truly the microscopes through which the competence of the administration must be examined.

The human units in mine organization can be divided into officers and men. The choice of mine officers is the assembling of specialized brains. Their control, stimulation, and inspiration is the main work of the administrative head. Success in the selection and control of staff is the index of executive ability. There are no mathematical, mechanical, or chemical formulas for dealing with the human mind or human energies.

Labor.—The whole question of handling labor can be reduced to the one term "efficiency." Not only does the actual labor outlay represent from 60 to 70% of the total underground expenses, but the capacity or incapacity of its units is responsible for wider fluctuations in production costs than the bare predominance in expenditure might indicate. The remaining expense is for supplies, such as dynamite, timber, steel, power, etc., and the economical application of these materials by the workman has the widest bearing upon their consumption.

Efficiency of the mass is the resultant of that of each individual under a direction which coördinates effectively all units. The lack of effectiveness in one individual diminishes the returns not simply from that man alone; it lowers the results from numbers of men associated with the weak member through the delaying and clogging of their work, and of the machines operated by them. Coördination of work is a necessary factor of final efficiency. This is a matter of organization and administration. The most zealous stoping-gang in the world if associated with half the proper number of truckers must fail to get the desired result.

Efficiency in the single man is the product of three factors,—skill, intelligence, and application. A great proportion of underground work in a mine is of a type which can be performed after a fashion by absolutely unskilled and even unintelligent men, as witness the breaking-in of savages of low average mentality, like the South African Kaffirs. Although most duties can be performed by this crudest order of labor, skill and intelligence can be applied to it with such economic results as to compensate for the difference in wage. The reason for this is that the last fifty years have seen a substitution of labor-saving machines for muscle. Such machines displace hundreds of raw laborers. Not only do they initially cost large sums, but they require large expenditure for power and up-keep. These fixed charges against the machine demand that it shall be worked at its maximum. For interest, power, and up-keep go on in any event, and the saving on crude labor displaced is not so great but that it quickly disappears if the machine is run under its capacity. To get its greatest efficiency, a high degree of skill and intelligence is required. Nor are skill and intelligence alone applicable to labor-saving devices themselves, because drilling and blasting rock and executing other works underground are matters in which experience and judgment in the individual workman count to the highest degree.

How far skill affects production costs has had a thorough demonstration in West Australia. For a time after the opening of those mines only a small proportion of experienced men were obtainable. During this period the rock broken per man employed underground did not exceed the rate of 300 tons a year. In the large mines it has now, after some eight years, attained 600 to 700 tons.

How far intelligence is a factor indispensable to skill can be well illustrated by a comparison of the results obtained from working labor of a low mental order, such as Asiatics and negroes, with those achieved by American or Australian miners. In a general way, it may be stated with confidence that the white miners above mentioned can, under the same physical conditions, and with from five to ten times the wage, produce the same economic result,—that is, an equal or lower cost per unit of production. Much observation and experience in working Asiatics and negroes as well as Americans and Australians in mines, leads the writer to the conclusion that, averaging actual results, one white man equals from two to three of the colored races, even in the simplest forms of mine work such as shoveling or tramming. In the most highly skilled branches, such as mechanics, the average ratio is as one to seven, or in extreme cases even eleven. The question is not entirely a comparison of bare efficiency individually; it is one of the sum total of results. In mining work the lower races require a greatly increased amount of direction, and this excess of supervisors consists of men not in themselves directly productive. There is always, too, a waste of supplies, more accidents, and more ground to be kept open for accommodating increased staff, and the maintenance of these openings must be paid for. There is an added expense for handling larger numbers in and out of the mine, and the lower intelligence reacts in many ways in lack of coördination and inability to take initiative. Taking all divisions of labor together, the ratio of efficiency as measured in amount of output works out from four to five colored men as the equivalent of one white man of the class stated. The ratio of costs, for reasons already mentioned, and in other than quantity relation, figures still more in favor of the higher intelligence.

The following comparisons, which like all mine statistics must necessarily be accepted with reservation because of some dissimilarity of economic surroundings, are yet on sufficiently common ground to demonstrate the main issue,—that is, the bearing of inherent intelligence in the workmen and their consequent skill. Four groups of gold mines have been taken, from India, West Australia, South Africa, and Western America. All of those chosen are of the same stoping width, 4 to 5 feet. All are working in depth and with every labor-saving device available. All dip at about the same angle and are therefore in much the same position as to handling rock. The other conditions are against the white-manned mines and in favor of the colored. That is, the Indian mines have water-generated electric power and South Africa has cheaper fuel than either the American or Australian examples. In both the white-manned groups, the stopes are supported, while in the others no support is required.

Group of Mines Tons of Material Excavated over Period Compiled[5] Average Number of Men Employed Tons per Man per Annum Cost per Ton of Material Broken
Colored White
Four Kolar mines[1] 963,950 13,611 302 69.3 $3.85
Six Australian mines[2] 1,027,718 — 1,534 669.9 2.47
Three Witwatersrand mines[3] 2,962,640 13,560 1,595 195.5 2.68
Five American mines[4] 1,089,500 — 1,524 713.3 1.92

[Footnote 1: Indian wages average about 20 cents per day.]

[Footnote 2: White men's wages average about $3 per day.]

[Footnote 3: About two-fifths of the colored workers were negroes, and three-fifths Chinamen. Negroes average about 60 cents, and Chinamen about 45 cents per day, including keep.]

[Footnote 4: Wages about $3.50. Tunnel entry in two mines.]

[Footnote 5: Includes rock broken in development work.

In the case of the specified African mines, the white labor is employed almost wholly in positions of actual or semi-superintendence, such as one white man in charge of two or three drills.

In the Indian case, in addition to the white men who are wholly in superintendence, there were of the natives enumerated some 1000 in positions of semi-superintendence, as contractors or headmen, working-gangers, etc.]

One issue arises out of these facts, and that is that no engineer or investor in valuing mines is justified in anticipating lower costs in regions where cheap labor exists.

In supplement to sheer skill and intelligence, efficiency can be gained only by the application of the man himself. A few months ago a mine in California changed managers. The new head reduced the number employed one-third without impairing the amount of work accomplished. This was not the result of higher skill or intelligence in the men, but in the manager. Better application and coördination were secured from the working force. Inspiration to increase of exertion is created less by "driving" than by recognition of individual effort, in larger pay, and by extending justifiable hope of promotion. A great factor in the proficiency of the mine manager is his ability to create an esprit-de-corps through the whole staff, down to the last tool boy. Friendly interest in the welfare of the men and stimulation by competitions between various works and groups all contribute to this end.

Contract Work.—The advantage both to employer and employed of piece work over wage needs no argument. In a general way, contract work honorably carried out puts a premium upon individual effort, and thus makes for efficiency. There are some portions of mine work which cannot be contracted, but the development, stoping, and trucking can be largely managed in this way, and these items cover 65 to 75% of the total labor expenditure underground.

In development there are two ways of basing contracts,—the first on the footage of holes drilled, and the second on the footage of heading advanced. In contract-stoping there are four methods depending on the feet of hole drilled, on tonnage, on cubic space, and on square area broken.

All these systems have their rightful application, conditioned upon the class of labor and character of the deposit.

In the "hole" system, the holes are "pointed" by some mine official and are blasted by a special crew. The miner therefore has little interest in the result of the breaking. If he is a skilled white man, the hours which he has wherein to contemplate the face usually enable him to place holes to better advantage than the occasional visiting foreman. With colored labor, the lack of intelligence in placing holes and blasting usually justifies contracts per "foot drilled." Then the holes are pointed and blasted by superintending men.

On development work with the foot-hole system, unless two working faces can be provided for each contracting party, they are likely to lose time through having finished their round of holes before the end of the shift. As blasting must be done outside the contractor's shifts, it means that one shift per day must be set aside for the purpose. Therefore not nearly such progress can be made as where working the face with three shifts. For these reasons, the "hole" system is not so advantageous in development as the "foot of advance" basis.

In stoping, the "hole" system has not only a wider, but a sounder application. In large ore-bodies where there are waste inclusions, it has one superiority over any system of excavation measurement, namely, that the miner has no interest in breaking waste into the ore.

The plan of contracting stopes by the ton has the disadvantage that either the ore produced by each contractor must be weighed separately, or truckers must be trusted to count correctly, and to see that the cars are full. Moreover, trucks must be inspected for waste,—a thing hard to do underground. So great are these detailed difficulties that many mines are sending cars to the surface in cages when they should be equipped for bin-loading and self-dumping skips.

The method of contracting by the cubic foot of excavation saves all necessity for determining the weight of the output of each contractor. Moreover, he has no object in mixing waste with the ore, barring the breaking of the walls. This system therefore requires the least superintendence, permits the modern type of hoisting, and therefore leaves little justification for the survival of the tonnage basis.

Where veins are narrow, stoping under contract by the square foot or fathom measured parallel to the walls has an advantage. The miner has no object then in breaking wall-rock, and the thoroughness of the ore-extraction is easily determined by inspection.

Bonus Systems.—By giving cash bonuses for special accomplishment, much the same results can be obtained in some departments as by contracting. A bonus per foot of heading gained above a minimum, or an excess of trucks trammed beyond a minimum, or prizes for the largest amount done during the week or month in special works or in different shifts,—all these have a useful application in creating efficiency. A high level of results once established is easily maintained.

Labor Unions.—There is another phase of the labor question which must be considered and that is the general relations of employer and employed. In these days of largely corporate proprietorship, the owners of mines are guided in their relations with labor by engineers occupying executive positions. On them falls the responsibility in such matters, and the engineer becomes thus a buffer between labor and capital. As corporations have grown, so likewise have the labor unions. In general, they are normal and proper antidotes for unlimited capitalistic organization.

Labor unions usually pass through two phases. First, the inertia of the unorganized labor is too often stirred only by demagogic means. After organization through these and other agencies, the lack of balance in the leaders often makes for injustice in demands, and for violence to obtain them and disregard of agreements entered upon. As time goes on, men become educated in regard to the rights of their employers, and to the reflection of these rights in ultimate benefit to labor itself. Then the men, as well as the intelligent employer, endeavor to safeguard both interests. When this stage arrives, violence disappears in favor of negotiation on economic principles, and the unions achieve their greatest real gains. Given a union with leaders who can control the members, and who are disposed to approach differences in a business spirit, there are few sounder positions for the employer, for agreements honorably carried out dismiss the constant harassments of possible strikes. Such unions exist in dozens of trades in this country, and they are entitled to greater recognition. The time when the employer could ride roughshod over his labor is disappearing with the doctrine of "laissez faire," on which it was founded. The sooner the fact is recognized, the better for the employer. The sooner some miners' unions develop from the first into the second stage, the more speedily will their organizations secure general respect and influence.[*]

[Footnote *: Some years of experience with compulsory arbitration in Australia and New Zealand are convincing that although the law there has many defects, still it is a step in the right direction, and the result has been of almost unmixed good to both sides. One of its minor, yet really great, benefits has been a considerable extinction of the parasite who lives by creating violence.]

The crying need of labor unions, and of some employers as well, is education on a fundamental of economics too long disregarded by all classes and especially by the academic economist. When the latter abandon the theory that wages are the result of supply and demand, and recognize that in these days of international flow of labor, commodities and capital, the real controlling factor in wages is efficiency, then such an educational campaign may become possible. Then will the employer and employee find a common ground on which each can benefit. There lives no engineer who has not seen insensate dispute as to wages where the real difficulty was inefficiency. No administrator begrudges a division with his men of the increased profit arising from increased efficiency. But every administrator begrudges the wage level demanded by labor unions whose policy is decreased efficiency in the false belief that they are providing for more labor.

CHAPTER XVII.

Administration (Continued).

ACCOUNTS AND TECHNICAL DATA AND REPORTS; WORKING COSTS; DIVISION OF EXPENDITURE; INHERENT LIMITATIONS IN ACCURACY OF WORKING COSTS; WORKING COST SHEETS. GENERAL TECHNICAL DATA; LABOR, SUPPLIES, POWER, SURVEYS, SAMPLING, AND ASSAYING.

First and foremost, mine accounts are for guidance in the distribution of expenditure and in the collection of revenue; secondly, they are to determine the financial progress of the enterprise, its profit or loss; and thirdly, they are to furnish statistical data to assist the management in its interminable battle to reduce expenses and increase revenue, and to enable the owner to determine the efficiency of his administrators. Bookkeeping per se is no part of this discussion. The fundamental purpose of that art is to cover the first two objects, and, as such, does not differ from its application to other commercial concerns.

In addition to these accounting matters there is a further type of administrative report of equal importance—that is the periodic statements as to the physical condition of the property, the results of exploration in the mine, and the condition of the equipment.