CHAPTER XIX.

The Amount of Risk in Mining Investments.

RISK IN VALUATION OF MINES; IN MINES AS COMPARED WITH OTHER COMMERCIAL ENTERPRISES.

From the constant reiteration of the risks and difficulties involved in every step of mining enterprise from the valuation of the mine to its administration as a going concern, the impression may be gained that the whole business is one great gamble; in other words, that the point whereat certainties stop and conjecture steps in is so vital as to render the whole highly speculative.

Far from denying that mining is, in comparison with better-class government bonds, a speculative type of investment, it is desirable to avow and emphasize the fact. But it is none the less well to inquire what degree of hazard enters in and how it compares with that in other forms of industrial enterprise.

Mining business, from an investment view, is of two sorts,—prospecting ventures and developed mines; that is, mines where little or no ore is exposed, and mines where a definite quantity of ore is measurable or can be reasonably anticipated. The great hazards and likewise the Aladdin caves of mining are mainly confined to the first class. Although all mines must pass through the prospecting stage, the great industry of metal production is based on developed mines, and it is these which should come into the purview of the non-professional investor. The first class should be reserved invariably for speculators, and a speculator may be defined as one who hazards all to gain much. It is with mining as an investment, however, that this discussion is concerned.

Risk in Valuation of Mines.—Assuming a competent collection of data and efficient management of the property, the risks in valuing are from step to step:—

1.The risk of continuity in metal contents beyond sample faces.
2.The risk of continuity in volume through the blocks estimated.
3.The risk of successful metallurgical treatment.
4.The risk of metal prices, in all but gold.
5.The risk of properly estimating costs.
6.The risk of extension of the ore beyond exposures.
7.The risk of management.

As to the continuity of values and volumes through the estimated area, the experience of hundreds of engineers in hundreds of mines has shown that when the estimates are based on properly secured data for "proved ore," here at least there is absolutely no hazard. Metallurgical treatment, if determined by past experience on the ore itself, carries no chance; and where determined by experiment, the risk is eliminated if the work be sufficiently exhaustive. The risk of metal price is simply a question of how conservative a figure is used in estimating. It can be eliminated if a price low enough be taken. Risk of extension in depth or beyond exposures cannot be avoided. It can be reduced in proportion to the distance assumed. Obviously, if no extension is counted, there is nothing chanced. The risk of proper appreciation of costs is negligible where experience in the district exists. Otherwise, it can be eliminated if a sufficiently large allowance is taken. The risk of failure to secure good management can be eliminated if proved men are chosen.

There is, therefore, a basic value to every mine. The "proved" ore taken on known metallurgical grounds, under known conditions of costs on minimum prices of metals, has a value as certain as that of money in one's own vault. This is the value previously referred to as the "A" value. If the price (and interest on it pending recovery) falls within this amount, there is no question that the mine is worth the price. What the risk is in mining is simply what amount the price of the investment demands shall be won from extension of the deposit beyond known exposures, or what higher price of metal must be realized than that calculated in the "A" value. The demands on this X, Y portion of the mine can be converted into tons of ore, life of production, or higher prices, and these can be weighed with the geological weights and the industrial outlook.