A prospector discovers mineralized rock. He locates one or more claims as controlled by the laws of the district where he is. Perhaps others also locate more ground. A little work is done, and then the claims are up for sale. A claim is perhaps sold for a few hundred to several thousand dollars; sometimes the seller receives in addition stock in the company to be formed. No attention is paid to the geology, but a company is formed ostensibly for the purpose of mining, with a capital of one million shares at one dollar par. Perhaps four hundred thousand shares are placed in the treasury to be sold for development purposes. Of course the whole thing is as yet on a wholly gambling basis. The property is still a prospect and not a mine, and hence it is not possible to put it on an investing basis. Comparatively few companies have ever used the services of a real expert, although very possibly the company furnishes a report made from a purchasable local "mining engineer," one of the cheapest commodities in any mining district, where the wide hat and the high-laced boot often take the place of a mining education and a reputable character. This is the stage at which, this is the basis on which, most of the mining "investments" of America are made.
In this state of affairs grafters find their opportunity. Prices in a boom camp are always above any sort of industrial warrant. There were literally millions of dollars poured into Goldfield and Tonopah for claims which never had any careful examination by competent men. Fortunes were made by local promoters and "operators" out of claims which could not show ten feet of actual work. Sometimes the entire capitalization was sold out, and the promoters put the money in their pockets. One operator of this kind sold $130,000 worth of stock, and omitted the precaution of putting even ten per cent. of it in the treasury. Fortunately, he got into the penitentiary. Many of his fellows never had actions brought against them except under the postal laws, which naturally are inefficient. There was one shaft of a hundred feet which cost twelve thousand dollars, charged up to the stockholders, the names of dead men being used on the pay rolls as "laborers." The mine boss and the local officers got big salaries to keep their mouths shut. The real mine was in the savings banks of America, in the pockets of non-residents. In Nevada alone, in the past four years, more than twenty million dollars have been invested in WORTHLESS properties. One engineer with a government certificate could have saved the clerks, stenographers, widows, washwomen, and orphans of America fifteen million dollars at the cost of, say, five thousand. Would that have been a good investment? What could a dozen do? What could an efficient corps do? Is there here yet one more future task for our patient and long-suffering United States Army? What police work would pay better dividends?
THE PROMOTER AND THE CREAM
Even when the mine wins, the small stock-holder rarely wins. The promoters often take the cream. Suppose a company is organized for three million shares. One million is put in the treasury for sale. Of this million shares, say, two hundred thousand are offered at twenty-five cents. This raises a working capital of fifty thousand dollars. Let us be very glowing, and suppose that, with this fifty thousand dollars, we really uncover five million dollars' worth of ore. The net profit would not exceed three million dollars; so that the man who put in twenty-five cents might, after a long time, get back a dollar. In the meantime, two million dollars would have gone to promoters, in "commissions," and so forth. There are thousands of such cases, and still the people continue to bite on such bait.
THE PUBLIC = THE MINE
Instances of actual Nipissing rises caught in time by the lamb are very rare. I rom first to last, the PUBLIC is the mine, AND THE RETURNS COME OUT OF THE SAVINGS BANKS. In some mines "high grading"—the carrying away of valuable pieces of ore by the miners themselves—is fought as sternly as the diamond stealing by the Kaffirs in a Kimberley mine. In yet other mines, far more numerous, high grading is encouraged among the miners. The report gets out that the ore is so rich that the miners steal it in their dinner pails. That booms the stock. WALL STREET MAKES THIS MONEY OUT OF THE MARKET AND NOT OUT OF THE MINE.
In spite of all warning and all examples, the average American will to a certain extent persist in gambling in mining stocks. Supposing this to be true, it is of value for the investor to learn something of the theory of mines, something enabling him to pass on the natural value of any mining stock which is offered to him. What, then, is a mine? What are some of the inevitable features in developing a mine?
In the first place, there must be prospecting. This is sheer and unavoidable risk on the face of it, and it is attended with economic waste which cannot be avoided. Of a hundred prospectors, ninety-nine die poor. The failures must be charged off to industrial waste attendant upon inherent conditions of the mining industry.
Again, in the development of a mine after it is located and proved in part, there is more unavoidable economic waste. The rock is blank and silent. It can only be explored by means of expensive drifts and drillings. In one mine at Bisbee, Arizona, a shaft was sunk which had drifts at the 600-and 900-feet levels, all without result. Later on they found a blanket of copper between those two levels, from which six million dollars were taken. Even in old established mines there is something of a chance, and there are often unwittingly false standards of values. Which is no argument for making all gamble that which originally was part gamble.
Any mine, no matter how rich, or how large, begins to be exhausted from the time the first pick is stuck into the ground and all its profits ought to be figured on the basis of diminishing deposits. When your deposit is drawn out, your bank does not honor your check. A mine is the reverse of a mortgage or a bond. The security does not remain stable nor increase in value, but, on the contrary, CONTINUALLY DECREASES in value. In a mortgage, six per cent. is wisdom; in a mining return, it is folly. A mine, instead of being figured on the basis of a mortgage, ought to be figured on the basis of a term annuity. That is to say, on the basis of a wiping out date. When the mine is done paying dividends, there is no return of the face of the principal invested. Yet the great and gullible public forgets this all-important fact, which differentiates mining from every other form of business.