The value of a metal mine of the order under discussion depends upon:—
- The profit that may be won from ore exposed;
- The prospective profit to be derived from extension of the ore beyond exposures;
- The effect of a higher or lower price of metal (except in gold mines);
- The efficiency of the management during realization.
The first may be termed the positive value, and can be approximately determined by sampling or test-treatment runs. The second and the third may be termed the speculative values, and are largely a matter of judgment based on geological evidence and the industrial outlook. The fourth is a question of development, equipment, and engineering method adapted to the prospects of the enterprise, together with capable executive control of these works.
It should be stated at the outset that it is utterly impossible to accurately value any mine, owing to the many speculative factors involved. The best that can be done is to state that the value lies between certain limits, and that various stages above the minimum given represent various degrees of risk. Further, it would be but stating truisms to those engaged in valuing mines to repeat that, because of the limited life of every mine, valuation of such investments cannot be based upon the principle of simple interest; nor that any investment is justified without a consideration of the management to ensue. Yet the ignorance of these essentials is so prevalent among the public that they warrant repetition on every available occasion.
To such an extent is the realization of profits indicated from the other factors dependent upon the subsequent management of the enterprise that the author considers a review of underground engineering and administration from an economic point of view an essential to any essay upon the subject. While the metallurgical treatment of ores is an essential factor in mine economics, it is considered that a detailed discussion of the myriad of processes under hypothetic conditions would lead too far afield. Therefore the discussion is largely limited to underground and administrative matters.
The valuation of mines arises not only from their change of ownership, but from the necessity in sound administration for a knowledge of some of the fundamentals of valuation, such as ore reserves and average values, that managerial and financial policy may be guided aright. Also with the growth of corporate ownership there is a demand from owners and stockholders for periodic information as to the intrinsic condition of their properties.
The growth of a body of speculators and investors in mining stocks and securities who desire professional guidance which cannot be based upon first-hand data is creating further demand on the engineer. Opinions in these cases must be formed on casual visits or second-hand information, and a knowledge of men and things generally. Despite the feeling of some engineers that the latter employment is not properly based professionally, it is an expanding phase of engineers' work, and must be taken seriously. Although it lacks satisfactory foundation for accurate judgment, yet the engineer can, and should, give his experience to it when the call comes, out of interest to the industry as a whole. Not only can he in a measure protect the lamb, by insistence on no investment without the provision of properly organized data and sound administration for his client, but he can do much to direct the industry from gambling into industrial lines.
An examination of the factors which arise on the valuation of mines involves a wide range of subjects. For purposes of this discussion they may be divided into the following heads:—
- Determination of Average Metal Contents of the Ore.
- Determination of Quantities of Ore.
- Prospective Value.
- Recoverable Percentage of Gross Value.
- Price of Metals.
- Cost of Production.
- Redemption or Amortization of Capital and Interest.
- Valuation of Mines without Ore in Sight.
- General Conduct of Examination and Reports.
DETERMINATION OF AVERAGE METAL CONTENTS OF THE ORE.