Mine Valuation (Continued).

The method of treatment for the ore must be known before a mine can be valued, because a knowledge of the recoverable percentage is as important as that of the gross value of the ore itself. The recoverable percentage is usually a factor of working costs. Practically every ore can be treated and all the metal contents recovered, but the real problem is to know the method and percentage of recovery which will yield the most remunerative result, if any. This limit to profitable recovery regulates the amount of metal which should be lost, and the amount of metal which consequently must be deducted from the gross value before the real net value of the ore can be calculated. Here, as everywhere else in mining, a compromise has to be made with nature, and we take what we can get—profitably. For instance, a copper ore may be smelted and a 99% recovery obtained. Under certain conditions this might be done at a loss, while the same ore might be concentrated before smelting and yield a profit with a 70% recovery. An additional 20% might be obtained by roasting and leaching the residues from concentration, but this would probably result in an expenditure far greater than the value of the 20% recovered. If the ore is not already under treatment on the mine, or exactly similar ore is not under treatment elsewhere, with known results, the method must be determined experimentally, either by the examining engineer or by a special metallurgist.

Where partially treated products, such as concentrates, are to be sold, not only will there be further losses, but deductions will be made by the smelter for deleterious metals and other charges. All of these factors must be found out,—and a few sample smelting returns from a similar ore are useful.

To cover the whole field of metallurgy and discuss what might apply, and how it might apply, under a hundred supposititious conditions would be too great a digression from the subject in hand. It is enough to call attention here to the fact that the residues from every treatment carry some metal, and that this loss has to be deducted from the gross value of the ore in any calculations of net values.

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."]

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.

The cost of production embraces development, mining, treatment, management. Further than this, it is often contended that, as the capital expended in purchase and equipment must be redeemed within the life of the mine, this item should also be included in production costs. It is true that mills, smelters, shafts, and all the paraphernalia of a mine are of virtually negligible value when it is exhausted; and that all mines are exhausted sometime and every ton taken out contributes to that exhaustion; and that every ton of ore must bear its contribution to the return of the investment, as well as profit upon it. Therefore it may well be said that the redemption of the capital and its interest should be considered in costs per ton. The difficulty in dealing with the subject from the point of view of production cost arises from the fact that, except possibly in the case of banket gold and some conglomerate copper mines, the life of a metal mine is unknown beyond the time required to exhaust the ore reserves. The visible life at the time of purchase or equipment may be only three or four years, yet the average equipment has a longer life than this, and the anticipation for every mine is also for longer duration than the bare ore in sight. For clarity of conclusions in mine valuation the most advisable course is to determine the profit in sight irrespective of capital redemption in the first instance. The questions of capital redemption, purchase price, or equipment cost can then be weighed against the margin of profit. One phase of redemption will be further discussed under "Amortization of Capital" and "Ratio of Output to the Mine."

The cost of production depends upon many things, such as the cost of labor, supplies, the size of the ore-body, the treatment necessary, the volume of output, etc.; and to discuss them all would lead into a wilderness of supposititious cases. If the mine is a going concern, from which reliable data can be obtained, the problem is much simplified. If it is virgin, the experience of other mines in the same region is the next resource; where no such data can be had, the engineer must fall back upon the experience with mines still farther afield. Use is sometimes made of the "comparison ton" in calculating costs upon mines where data of actual experience are not available. As costs will depend in the main upon items mentioned above, if the known costs of a going mine elsewhere be taken as a basis, and subtractions and additions made for more unfavorable or favorable effect of the differences in the above items, a fairly close result can be approximated.

Mine examinations are very often inspired by the belief that extended operations or new metallurgical applications to the mine will expand the profits. In such cases the paramount questions are the reduction of costs by better plant, larger outputs, new processes, or alteration of metallurgical basis and better methods. If every item of previous expenditure be gone over and considered, together with the equipment, and method by which it was obtained, the possible savings can be fairly well deduced, and justification for any particular line of action determined. One view of this subject will be further discussed under "Ratio of Output to the Mine." The conditions which govern the working costs are on every mine so special to itself, that no amount of advice is very useful. Volumes of advice have been published on the subject, but in the main their burden is not to underestimate.

In considering the working costs of base-metal mines, much depends upon the opportunity for treatment in customs works, smelters, etc. Such treatment means a saving of a large portion of equipment cost, and therefore of the capital to be invested and subsequently recovered. The economics of home treatment must be weighed against the sum which would need to be set aside for redemption of the plant, and unless there is a very distinct advantage to be had by the former, no risks should be taken. More engineers go wrong by the erection of treatment works where other treatment facilities are available, than do so by continued shipping. There are many mines where the cost of equipment could never be returned, and which would be valueless unless the ore could be shipped. Another phase of foreign treatment arises from the necessity or advantage of a mixture of ores,—the opportunity of such mixtures often gives the public smelter an advantage in treatment with which treatment on the mine could never compete.

Fluctuation in the price of base metals is a factor so much to be taken into consideration, that it is desirable in estimating mine values to reduce the working costs to a basis of a "per unit" of finished metal. This method has the great advantage of indicating so simply the involved risks of changing prices that whoso runs may read. Where one metal predominates over the other to such an extent as to form the "backbone" of the value of the mine, the value of the subsidiary metals is often deducted from the cost of the principal metal, in order to indicate more plainly the varying value of the mine with the fluctuating prices of the predominant metal. For example, it is usual to state that the cost of copper production from a given ore will be so many cents per pound, or so many pounds sterling per ton. Knowing the total metal extractable from the ore in sight, the profits at given prices of metal can be readily deduced. The point at which such calculation departs from the "per-ton-of-ore" unto the per-unit-cost-of-metal basis, usually lies at the point in ore dressing where it is ready for the smelter. To take a simple case of a lead ore averaging 20%: this is to be first concentrated and the lead reduced to a concentrate averaging 70% and showing a recovery of 75% of the total metal content. The cost per ton of development, mining, concentration, management, is to this point say $4 per ton of original crude ore. The smelter buys the concentrate for 95% of the value of the metal, less the smelting charge of $15 per ton, or there is a working cost of a similar sum by home equipment. In this case 4.66 tons of ore are required to produce one ton of concentrates, and therefore each ton of concentrates costs $18.64. This amount, added to the smelting charge, gives a total of $33.64 for the creation of 70% of one ton of finished lead, or equal to 2.40 cents per pound which can be compared with the market price less 5%. If the ore were to contain 20 ounces of silver per ton, of which 15 ounces were recovered into the leady concentrates, and the smelter price for the silver were 50 cents per ounce, then the $7.50 thus recovered would be subtracted from $33.64, making the apparent cost of the lead 1.86 cents per pound.