Principles of Mining: Valuation, Organization and Administration

by Herbert Hoover

Mines compared to Other Commercial Enterprises.—The profits from a mining venture over and above the bed-rock value A, that is, the return to be derived from more extensive ore-recovery and a higher price of metal, may be compared to the value included in other forms of commercial enterprise for "good-will." Such forms of enterprise are valued on a basis of the amount which will replace the net assets plus (or minus) an amount for "good-will," that is, the earning capacity. This good-will is a speculation of varying risk depending on the character of the enterprise. For natural monopolies, like some railways and waterworks, the risk is less and for shoe factories more. Even natural monopolies are subject to the risks of antagonistic legislation and industrial storms. But, eliminating this class of enterprise, the speculative value of a good-will involves a greater risk than prospective value in mines, if properly measured; because the dangers of competition and industrial storms do not enter to such a degree, nor is the future so dependent upon the human genius of the founder or manager. Mining has reached such a stage of development as a science that management proceeds upon comparatively well-known lines. It is subject to known checks through the opportunity of comparisons by which efficiency can be determined in a manner more open for the investor to learn than in any other form of industry. While in mining an estimate of a certain minimum of extension in depth, as indicated by collateral factors, may occasionally fall short, it will, in nine cases out of ten, be exceeded. If investment in mines be spread over ten cases, similarly valued as to minimum of extension, the risk has been virtually eliminated. The industry, if reduced to the above basis for financial guidance, is a more profitable business and is one of less hazards than competitive forms of commercial enterprises.

In view of what has been said before, it may be unnecessary to refer again to the subject, but the constant reiteration by wiseacres that the weak point in mining investments lies in their short life and possible loss of capital, warrants a repetition that the A, B, C of proper investment in mines is to be assured, by the "A" value, of a return of the whole or major portion of the capital. The risk of interest and profit may be deferred to the X, Y value, and in such case it is on a plane with "good-will." It should be said at once to that class who want large returns on investment without investigation as to merits, or assurance as to the management of the business, that there is no field in this world for the employment of their money at over 4%.

Unfortunately for the reputation of the mining industry, and metal mines especially, the business is often not conducted or valued on lines which have been outlined in these chapters. There is often the desire to sell stocks beyond their value. There is always the possibility that extension in depth will reveal a glorious Eldorado. It occasionally does, and the report echoes round the world for years, together with tributes to the great judgment of the exploiters. The volume of sound allures undue numbers of the venturesome, untrained, and ill-advised public to the business, together with a mob of camp-followers whose objective is to exploit the ignorant by preying on their gambling instincts. Thus a considerable section of metal mining industry is in the hands of these classes, and a cloud of disrepute hangs ever in the horizon.

There has been a great educational campaign in progress during the past few years through the technical training of men for conduct of the industry, by the example of reputable companies in regularly publishing the essential facts upon which the value of their mines is based, and through understandable nontechnical discussion in and by some sections of the financial and general press. The real investor is being educated to distinguish between reputable concerns and the counters of gamesters. Moreover, yearly, men of technical knowledge are taking a stronger and more influential part in mining finance and in the direction of mining and exploration companies. The net result of these forces will be to put mining on a better plane.

CHAPTER XX.

The Character, Training, and Obligations of the Mining Engineering Profession.

In a discussion of some problems of metal mining from the point of view of the direction of mining operations it may not be amiss to discuss the character of the mining engineering profession in its bearings on training and practice, and its relations to the public.

The most dominant characteristic of the mining engineering profession is the vast preponderance of the commercial over the technical in the daily work of the engineer. For years a gradual evolution has been in progress altering the larger demands on this branch of the engineering profession from advisory to executive work. The mining engineer is no longer the technician who concocts reports and blue prints. It is demanded of him that he devise the finance, construct and manage the works which he advises. The demands of such executive work are largely commercial; although the commercial experience and executive ability thus become one pier in the foundation of training, the bridge no less requires two piers, and the second is based on technical knowledge. Far from being deprecated, these commercial phases cannot be too strongly emphasized. On the other hand, I am far from contending that our vocation is a business rather than a profession.

For many years after the dawn of modern engineering, the members of our profession were men who rose through the ranks of workmen, and as a result, we are to this day in the public mind a sort of superior artisan, for to many the engine-driver is equally an engineer with the designer of the engine, yet their real relation is but as the hand to the brain. At a later period the recruits entered by apprenticeship to those men who had established their intellectual superiority to their fellow-workers. These men were nearly always employed in an advisory way—subjective to the executive head.

During the last few decades, the advance of science and the complication of industry have demanded a wholly broader basis of scientific and general training for its leaders. Executive heads are demanded who have technical training. This has resulted in the establishment of special technical colleges, and compelled a place for engineering in the great universities. The high intelligence demanded by the vocation itself, and the revolution in training caused by the strengthening of its foundations in general education, has finally, beyond all question, raised the work of application of science to industry to the dignity of a profession on a par with the law, medicine, and science. It demands of its members equally high mental attainments,—and a more rigorous training and experience. Despite all this, industry is conducted for commercial purposes, and leaves no room for the haughty intellectual superiority assumed by some professions over business callings.