PRICE OF METALS.
Unfortunately for the mining engineer, not only has he to weigh the amount of risk inherent in calculations involved in the mine itself, but also that due to fluctuations in the value of metals. If the ore is shipped to custom works, he has to contemplate also variations in freights and smelting charges. Gold from the mine valuer's point of view has no fluctuations. It alone among the earth's products gives no concern as to the market price. The price to be taken for all other metals has to be decided before the mine can be valued. This introduces a further speculation and, as in all calculations of probabilities, amounts to an estimate of the amount of risk. In a free market the law of supply and demand governs the value of metals as it does that of all other commodities. So far, except for tariff walls and smelting rings, there is a free market in the metals under discussion.
The demand for metals varies with the unequal fluctuations of the industrial tides. The sea of commercial activity is subject to heavy storms, and the mine valuer is compelled to serve as weather prophet on this ocean of trouble. High prices, which are the result of industrial booms, bring about overproduction, and the collapse of these begets a shrinkage of demand, wherein consequently the tide of price turns back. In mining for metals each pound is produced actually at a different cost. In case of an oversupply of base metals the price will fall until it has reached a point where a portion of the production is no longer profitable, and the equilibrium is established through decline in output. However, in the backward swing, due to lingering overproduction, prices usually fall lower than the cost of producing even a much-diminished supply. There is at this point what we may call the "basic" price, that at which production is insufficient and the price rises again. The basic price which is due to this undue backward swing is no more the real price of the metal to be contemplated over so long a term of years than is the highest price. At how much above the basic price of depressed times the product can be safely expected to find a market is the real question. Few mines can be bought or valued at this basic price. An indication of what this is can be gained from a study of fluctuations over a long term of years.
It is common to hear the average price over an extended period considered the "normal" price, but this basis for value is one which must be used with discretion, for it is not the whole question when mining. The "normal" price is the average price over a long term. The lives of mines, and especially ore in sight, may not necessarily enjoy the period of this "normal" price. The engineer must balance his judgments by the immediate outlook of the industrial weather. When lead was falling steadily in December, 1907, no engineer would accept the price of that date, although it was then below "normal"; his product might go to market even lower yet.
It is desirable to ascertain what the basic and normal prices are, for between them lies safety. Since 1884 there have been three cycles of commercial expansion and contraction. If the average prices are taken for these three cycles separately (1885-95), 1895-1902, 1902-08) it will be seen that there has been a steady advance in prices. For the succeeding cycles lead on the London Exchange,[*] the freest of the world's markets was £12 12s. 4d., £13 3s. 7d., and £17 7s. 0d. respectively; zinc, £17 14s. 10d., £19 3s. 8d., and £23 3s. 0d.; and standard copper, £48 16s. 0d., £59 10s. 0d., and £65 7s. 0d. It seems, therefore, that a higher standard of prices can be assumed as the basic and normal than would be indicated if the general average of, say, twenty years were taken. During this period, the world's gold output has nearly quadrupled, and, whether the quantitative theory of gold be accepted or not, it cannot be denied that there has been a steady increase in the price of commodities. In all base-metal mining it is well to remember that the production of these metals is liable to great stimulus at times from the discovery of new deposits or new processes of recovery from hitherto unprofitable ores. It is therefore for this reason hazardous in the extreme to prophesy what prices will be far in the future, even when the industrial weather is clear. But some basis must be arrived at, and from the available outlook it would seem that the following metal prices are justifiable for some time to come, provided the present tariff schedules are maintained in the United States:
[Footnote *: All London prices are based on the long ton of 2,240 lbs. Much confusion exists in the copper trade as to the classification of the metal. New York prices are quoted in electrolytic and "Lake"; London's in "Standard." "Standard" has now become practically an arbitrary term peculiar to London, for the great bulk of copper dealt in is "electrolytic" valued considerably over "Standard.">[
| Lead | Spelter | Copper | Tin | Silver | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| London Ton | N.Y. Pound | Lon. Ton | N.Y. Pound | Lon. Ton | N.Y. Pound | Lon. Ton | N.Y. Pound | Lon. Per oz. | N.Y. Per oz. | |
| Basic Price | £11. | $.035 | £17 | $.040 | £52 | $.115 | £100 | $.220 | 22d. | $.44 |
| Normal Price | 13.5 | .043 | 21 | .050 | 65 | .140 | 130 | .290 | 26 | .52 |
In these figures the writer has not followed strict averages, but has taken the general outlook combined with the previous records. The likelihood of higher prices for lead is more encouraging than for any other metal, as no new deposits of importance have come forward for years, and the old mines are reaching considerable depths. Nor does the frenzied prospecting of the world's surface during the past ten years appear to forecast any very disturbing developments. The zinc future is not so bright, for metallurgy has done wonders in providing methods of saving the zinc formerly discarded from lead ores, and enormous supplies will come forward when required. The tin outlook is encouraging, for the supply from a mining point of view seems unlikely to more than keep pace with the world's needs. In copper the demand is growing prodigiously, but the supplies of copper ores and the number of copper mines that are ready to produce whenever normal prices recur was never so great as to-day. One very hopeful fact can be deduced for the comfort of the base metal mining industry as a whole. If the growth of demand continues through the next thirty years in the ratio of the past three decades, the annual demand for copper will be over 3,000,000 tons, of lead over 1,800,000 tons, of spelter 2,800,000 tons, of tin 250,000 tons. Where such stupendous amounts of these metals are to come from at the present range of prices, and even with reduced costs of production, is far beyond any apparent source of supply. The outlook for silver prices is in the long run not bright. As the major portion of the silver produced is a bye product from base metals, any increase in the latter will increase the silver production despite very much lower prices for the precious metal. In the meantime the gradual conversion of all nations to the gold standard seems a matter of certainty. Further, silver may yet be abandoned as a subsidiary coinage inasmuch as it has now but a token value in gold standard countries if denuded of sentiment.
COST OF PRODUCTION.
It is hardly necessary to argue the relative importance of the determination of the cost of production and the determination of the recoverable contents of the ore. Obviously, the aim of mine valuation is to know the profits to be won, and the profit is the value of the metal won, less the cost of production.