OPINIONS AND VALUATIONS UPON SECOND-HAND DATA.
Some one may come forward and deprecate the bare suggestion of an engineer's offering an opinion when he cannot have proper first-hand data. But in these days we have to deal with conditions as well as theories of professional ethics. The growing ownership of mines by companies, that is by corporations composed of many individuals, and with their stocks often dealt in on the public exchanges, has resulted in holders whose interest is not large enough to warrant their undertaking the cost of exhaustive examinations. The system has produced an increasing class of mining speculators and investors who are finding and supplying the enormous sums required to work our mines,—sums beyond the reach of the old-class single-handed mining men. Every year the mining investors of the new order are coming more and more to the engineer for advice, and they should be encouraged, because such counsel can be given within limits, and these limits tend to place the industry upon a sounder footing of ownership. As was said before, the lamb can be in a measure protected. The engineer's interest is to protect him, so that the industry which concerns his own life-work may be in honorable repute, and that capital may be readily forthcoming for its expansion. Moreover, by constant advice to the investor as to what constitutes a properly presented and managed project, the arrangement of such proper presentation and management will tend to become an a priori function of the promoter.
Sometimes the engineer can make a short visit to the mine for data purposes,—more often he cannot. In the former case, he can resolve for himself an approximation upon all the factors bearing on value, except the quality of the ore. For this, aside from inspection of the ore itself, a look at the plans is usually enlightening. A longitudinal section of the mine showing a continuous shortening of the stopes with each succeeding level carries its own interpretation. In the main, the current record of past production and estimates of the management as to ore-reserves, etc., can be accepted in ratio to the confidence that can be placed in the men who present them. It then becomes a case of judgment of men and things, and here no rule applies.
Advice must often be given upon data alone, without inspection of the mine. Most mining data present internal evidence as to credibility. The untrustworthy and inexperienced betray themselves in their every written production. Assuming the reliability of data, the methods already discussed for weighing the ultimate value of the property can be applied. It would be possible to cite hundreds of examples of valuation based upon second-hand data. Three will, however, sufficiently illustrate. First, the R mine at Johannesburg. With the regularity of this deposit, the development done, and a study of the workings on the neighboring mines and in deeper ground, it is a not unfair assumption that the reefs will maintain size and value throughout the area. The management is sound, and all the data are given in the best manner. The life of the mine is estimated at six years, with some probabilities of further ore from low-grade sections. The annual earnings available for dividends are at the rate of about £450,000 per annum. The capital is £440,000 in £1 shares. By reference to the table on page 46 it will be seen that the present value of £450,000 spread over six years to return capital at the end of that period, and give 7% dividends in the meantime, is 4.53 x £450,000 = £2,036,500 ÷ 440,000 = £4 12s. 7d. per share. So that this mine, on the assumption of continuity of values, will pay about 7% and return the price. Seven per cent is, however, not deemed an adequate return for the risks of labor troubles, faults, dykes, or poor patches. On a 9% basis, the mine is worth about £4 4s. per share.
Second, the G mine in Nevada. It has a capital of $10,000,000 in $1 shares, standing in the market at 50 cents each. The reserves are 250,000 tons, yielding a profit for yearly division of $7 per ton. It has an annual capacity of about 100,000 tons, or $700,000 net profit, equal to 14% on the market value. In order to repay the capital value of $5,000,000 and 8% per annum, it will need a life of (Table III) 13 years, of which 2-1/2 are visible. The size of the ore-bodies indicates a yield of about 1,100 tons per foot of depth. At an exhaustion rate of 100,000 tons per annum, the mine would need to extend to a depth of over a thousand feet below the present bottom. There is always a possibility of finding parallel bodies or larger volumes in depth, but it would be a sanguine engineer indeed who would recommend the stock, even though it pays an apparent 14%.
Third, the B mine, with a capital of $10,000,000 in 2,000,000 shares of $5 each. The promoters state that the mine is in the slopes of the Andes in Peru; that there are 6,000,000 tons of "ore blocked out"; that two assays by the assayers of the Bank of England average 9% copper; that the copper can be produced at five cents per pound; that there is thus a profit of $10,000,000 in sight. The evidences are wholly incompetent. It is a gamble on statements of persons who have not the remotest idea of sound mining.