Administration (Continued).

First and foremost, mine accounts are for guidance in the distribution of expenditure and in the collection of revenue; secondly, they are to determine the financial progress of the enterprise, its profit or loss; and thirdly, they are to furnish statistical data to assist the management in its interminable battle to reduce expenses and increase revenue, and to enable the owner to determine the efficiency of his administrators. Bookkeeping per se is no part of this discussion. The fundamental purpose of that art is to cover the first two objects, and, as such, does not differ from its application to other commercial concerns.

In addition to these accounting matters there is a further type of administrative report of equal importance—that is the periodic statements as to the physical condition of the property, the results of exploration in the mine, and the condition of the equipment.

ACCOUNTS.

The special features of mine accounting reports which are a development to meet the needs of this particular business are the determination of working costs, and the final presentation of these data in a form available for comparative purposes.

The subject may be discussed under:—

In a wide view, mine expenditures fall into three classes, which maybe termed the "fixed charges," "proportional charges," and "suspense charges" or "capital expenditure." "Fixed charges" are those which, like pumping and superintendence, depend upon time rather than tonnage and material handled. They are expenditures that would not decrease relatively to output. "Proportional charges" are those which, like ore-breaking, stoping, supporting stopes, and tramming, are a direct coefficient of the ore extracted. "Suspense charges" are those which are an indirect factor of the cost of the ore produced, such as equipment and development. These expenditures are preliminary to output, and they thus represent a storage of expense to be charged off when the ore is won. This outlay is often called "capital expenditure." Such a term, though in common use, is not strictly correct, for the capital value vanishes when the ore is extracted, but in conformity with current usage the term "capital expenditure" will be adopted.

Except for the purpose of special inquiry, such as outlined under the chapter on "Ratio of Output," "fixed charges" are not customarily a special division in accounts. In a general way, such expenditures, combined with the "proportional charges," are called "revenue expenditure," as distinguished from the capital, or "suspense," expenditures. In other words, "revenue" expenditures are those involved in the daily turnover of the business and resulting in immediate returns. The inherent difference in character of revenue and capital expenditures is responsible for most of the difficulties in the determination of working costs, and most of the discussion on the subject.

Working Costs.—"Working costs" are a division of expenditure for some unit,—the foot of opening, ton of ore, a pound of metal, cubic yard or fathom of material excavated, or some other measure. The costs per unit are usually deduced for each month and each year. They are generally determined for each of the different departments of the mine or special works separately. Further, the various sorts of expenditure in these departments are likewise segregated.

In metal mining the ton is the universal unit of distribution for administrative purpose, although the pound of metal is often used to indicate final financial results. The object of determination of "working costs" is fundamentally for comparative purposes. Together with other technical data, they are the nerves of the administration, for by comparison of detailed and aggregate results with other mines and internally in the same mine, over various periods and between different works, a most valuable check on efficiency is possible. Further, there is one collateral value in all statistical data not to be overlooked, which is that the knowledge of its existence induces in the subordinate staff both solicitude and emulation.

The fact must not be lost sight of, however, that the wide variations in physical and economic environment are so likely to vitiate conclusions from comparisons of statistics from two mines or from two detailed works on the same mine, or even from two different months on the same work, that the greatest care and discrimination are demanded in their application. Moreover, the inherent difficulties in segregating and dividing the accounts which underlie such data, render it most desirable to offer some warning regarding the limits to which segregation and division may be carried to advantage.

As working costs are primarily for comparisons, in order that they may have value for this purpose they must include only such items of expenditure as will regularly recur. If this limitation were more generally recognized, a good deal of dispute and polemics on the subject might be saved. For this reason it is quite impossible that all the expenditure on the mine should be charged into working costs, particularly some items that arise through "capital expenditure."

The Dissection of Expenditures Departmentally.—The final division in the dissection of the mine expenditure is in the main:—

The detailed dissection of expenditures in these various departments with view to determine amount of various sorts of expenditure over the department, or over some special work in that department, is full of unsolvable complications. The allocation of the direct expenditure of labor and supplies applied to the above divisions or special departments in them, is easily accomplished, but beyond this point two sorts of difficulties immediately arise and offer infinite field for opinion and method. The first of these difficulties arises from supplementary departments on the mine, such as "power," "repairs and maintenance," "sampling and assaying." These departments must be "spread" over the divisions outlined above, for such charges are in part or whole a portion of the expense of these divisions. Further, all of these "spread" departments are applied to surface as well as to underground works, and must be divided not only over the above departments but also over the surface departments,—not under discussion here. The common method is to distribute "power" on a basis of an approximation of the amount used in each department; to distribute "repairs and maintenance," either on a basis of shop returns, or a distribution over all departments on the basis of the labor employed in those departments, on the theory that such repairs arise in this proportion; to distribute sampling and assaying over the actual points to which they relate at the average cost per sample or assay.

"General expenses," that is, superintendence, etc., are often not included in the final departments as above, but are sometimes "spread" in an attempt to charge a proportion of superintendence to each particular work. As, however, such "spreading" must take place on the basis of the relative expenditure in each department, the result is of little value, for such a basis does not truly represent the proportion of general superintendence, etc., devoted to each department. If they are distributed over all departments, capital as well as revenue, on the basis of total expenditure, they inflate the "capital expenditure" departments against a day of reckoning when these charges come to be distributed over working costs. Although it may be contended that the capital departments also require supervision, such a practice is a favorite device for showing apparently low working costs in the revenue departments. The most courageous way is not to distribute general expenses at all, but to charge them separately and directly to revenue accounts and thus wholly into working costs.

The second problem is to reduce the "suspense" or capital charges to a final cost per ton, and this is no simple matter. Development expenditures bear a relation to the tonnage developed and not to that extracted in any particular period. If it is desired to preserve any value for comparative purposes in the mining costs, such outlay must be charged out on the basis of the tonnage developed, and such portion of the ore as is extracted must be written off at this rate; otherwise one month may see double the amount of development in progress which another records, and the underground costs would be swelled or diminished thereby in a way to ruin their comparative value from month to month. The ore developed cannot be satisfactorily determined at short intervals, but it can be known at least annually, and a price may be deduced as to its cost per ton. In many mines a figure is arrived at by estimating ore-reserves at the end of the year, and this figure is used during the succeeding year as a "redemption of development" and as such charged to working costs, and thus into revenue account in proportion to the tonnage extracted. This matter is further elaborated in some mines, in that winzes and rises are written off at one rate, levels and crosscuts at another, and shafts at one still lower, on the theory that they lost their usefulness in this progression as the ore is extracted. This course, however, is a refinement hardly warranted.

Plant and equipment constitute another "suspense" account even harder to charge up logically to tonnage costs, for it is in many items dependent upon the life of the mine, which is an unknown factor. Most managers debit repairs and maintenance directly to the revenue account and leave the reduction of the construction outlay to an annual depreciation on the final balance sheet, on the theory that the plant is maintained out of costs to its original value. This subject will be discussed further on.

Inherent Limitations in Accuracy of Working Costs.—There are three types of such limitations which arise in the determination of costs and render too detailed dissection of such costs hopeless of accuracy and of little value for comparative purposes. They are, first, the difficulty of determining all of even direct expenditure on any particular crosscut, stope, haulage, etc.; second, the leveling effect of distributing the "spread" expenditures, such as power, repairs, etc.; and third, the difficulties arising out of the borderland of various departments.

Of the first of these limitations the instance may be cited that foremen and timekeepers can indicate very closely the destination of labor expense, and also that of some of the large items of supply, such as timber and explosives, but the distribution of minor supplies, such as candles, drills, picks, and shovels, is impossible of accurate knowledge without an expense wholly unwarranted by the information gained. To determine at a particular crosscut the exact amount of steel, and of tools consumed, and the cost of sharpening them, would entail their separate and special delivery to the same place of attack and a final weighing-up to learn the consumption.

Of the second sort of limitations, the effect of "spread" expenditure, the instance may be given that the repairs and maintenance are done by many men at work on timbers, tracks, machinery, etc. It is hopeless to try and tell how much of their work should be charged specifically to detailed points. In the distribution of power may be taken the instance of air-drills. Although the work upon which the drill is employed can be known, the power required for compression usually comes from a common power-plant, so that the portion of power debited to the air compressor is an approximation. The assumption of an equal consumption of air by all drills is a further approximation. In practice, therefore, many expenses are distributed on the theory that they arise in proportion to the labor employed, or the machines used in the various departments. The net result is to level down expensive points and level up inexpensive ones.

The third sort of limitation of accounting difficulty referred to, arises in determining into which department are actually to be allocated the charges which lie in the borderland between various primary classes of expenditure. For instance, in ore won from development,—in some months three times as much development may be in ore as in other months. If the total expense of development work which yields ore be charged to stoping account, and if cost be worked out on the total tonnage of ore hoisted, then the stoping cost deduced will be erratic, and the true figures will be obscured. On the other hand, if all development is charged to 'capital account' and the stoping cost worked out on all ore hoisted, it will include a fluctuating amount of ore not actually paid for by the revenue departments or charged into costs. This fluctuation either way vitiates the whole comparative value of the stoping costs. In the following system a compromise is reached by crediting "development" with an amount representing the ore won from development at the average cost of stoping, and by charging this amount into "stoping." A number of such questions arise where the proper division is simply a matter of opinion.

The result of all these limitations is that a point in detail is quickly reached where no further dissection of expenditure is justified, since it becomes merely an approximation. The writer's own impression is that without an unwarrantable number of accountants, no manager can tell with any accuracy the cost of any particular stope, or of any particular development heading. Therefore, aside from some large items, such detailed statistics, if given, are to be taken with great reserve.

Working Cost Sheets.—There are an infinite number of forms of working cost sheets, practically every manager having a system of his own. To be of greatest value, such sheets should show on their face the method by which the "spread" departments are handled, and how revenue and suspense departments are segregated. When too much detail is presented, it is but a waste of accounting and consequent expense. Where to draw the line in this regard is, however, a matter of great difficulty. No cost sheet is entirely satisfactory. The appended sheet is in use at a number of mines. It is no more perfect than many others. It will be noticed that the effect of this system is to throw the general expenses into the revenue expenditures, and as little as possible into the "suspense" account.

GENERAL TECHNICAL DATA.

For the purposes of efficient management, the information gathered under this head is of equal, if not superior, importance to that under "working costs." Such data fall generally under the following heads:—

Labor.—Returns of the shifts worked in the various departments for each day and for the month; worked out on a monthly basis of footage progress, tonnage produced or tons handled per man; also where possible the footage of holes drilled, worked out per man and per machine.

Supplies.—Daily returns of supplies used; the principal items worked out monthly in quantity per foot of progress, or per ton of ore produced.

Power.—Fuel, lubricant, etc., consumed in steam production, worked out into units of steam produced, and this production allocated to the various engines. Where electrical power is used, the consumption of the various motors is set out.

Surveys.—The need of accurate plans requires no discussion. Aside from these, the survey-office furnishes the returns of development footage, measurements under contracts, and the like.

Sampling and Assaying.—Mine sampling and assaying fall under two heads,—the determination of the value of standing ore, and of products from the mine. The sampling and assaying on a going mine call for the same care and method as in cases of valuation of the mine for purchase,—the details of which have been presented under "Mine Valuation,"—for through it, guidance must not only be had to the value of the mine and for reports to owners, but the detailed development and ore extraction depend on an absolute knowledge of where the values lie.