Arizona republican. [volume] (Phoenix, Ariz.) 1890-1930, 1902-08-08
PHOENIX, ARIZONA, AUG. s. 1902.
The Financing of Mines.

The loose financial management
which characteriZes the development of
most mining prospects is feature pc
culiar to the mining business, as
everybody knows. That such good re-
suits are frequently achieved in the
face of downright rlismanagementa and
extravaganza, only goes to show the
great merit of mining as a business
II mining were treated as any other
manufacturing business. with careful
attention to economy in all branches,
mining stocks would be the safest in
vestment in all the range of industrial
securities. The recognition of this fact
is gradually working a reform in the
methods of mine promotion, but for d
long time to come there will be ground
for such sound criticism as is con-
tanned in the following editorial from
the New York Financier:
1T is probably true that the finances
of mining companies generally are
managed with less economy and COM
mon sense, and perhaps with less hon
eSty, than in any other legitimate bust
ness. OF course there are great many
exceptions to any such sweeping state
ment, but it will generally be admitted
that a large proportion of mining COM
panies have been financed in ways
which would be regarded as unjustifietl
in any other industry. We refer TO alb
Surd ton, imperfect IL
ties to property, rash promises of divi-
bends, cxtravagant commissions for the
sale of stock, absence CT reasonable
guarantees in regard to thee proper
expenditure for development purposes
of money received from the sale OF
treasury stock, management by a small
board OF directors who elect themselves
by voting stock they never paid for,
failure to inform stockholders about
the cost of property. salaries, expenses,
etc, as well as receipts. and the mort
gaging of the property by the directors
without the knowledge and consent of
the stockholders.
Several years ago a prospect-not a
mine-was offered to the public in
glowing words BY a company that il
Illustrated most of the shortcomings
that we have mentioned. The fact that
the company did not have a dollar of
Indebtedness was one of the reasons
urged for investing in the stock. After
the public had responded to the allur-
ing invitations to the extent of about
half a million dollars-of which per-
haps 100000 was actually used for de-
velopment purpOses-it appeared TO
some of the directors that the only
hope of continuing operations was IN
d reorganization which should elimin-
ate some of the water Of the stock and
provide more cash. AS the stock was
full paid and some of it had actu-
ally been sold to original subscribers
above par. they didn't know how to
effect the operation. Stating their diff
ficulty to one of the most prominent
and successful mining lawyers in the
city. he said. in substance: THAT will
be all right; l will arrange it fer you.
Then he sent the company a bill Of
$4,000 for legal services and advice. As
they did not have have money enough
to pay the bill the stockholders We're
invited to pay a voluntary assess
ment. The amount thus raised being
insufficient for liquidation, judgment
WAS taken and the whole property sold
by the sheriff was bought in by a re-
organization committee representing
the stockholders who had contributed
in organizing Il new company for the
property the committee reduced tbs
capitalization by 971a per cent, and
offered the stock below par, so that
the new prospectus is quite attractive
The fact that the smart lawyer is coun-
sci for the new company is a guaran-
tie that somebody's interests will be
:1f H.rf 1nr-I1a
quire how much net revenue from op-
erations the company must produce il
order to have a surplus for dividend.
after the continuous enjoyment of sucf
expensive legal advice.
There is a grim huTnOr about suCl
reorganization which will be better
appreciated by the legal fraternity thar
by stockholders-particu as the
same legal light is actively promotins
number of mining companies of hi.
Cwn-aEd at the same time preparing
to reorganize at least one of those ne
promoted last year.
But notwithstanding many wei
known cases of gross mismanagemen
in mining companies. stocks in sucl
enterprises are coming to be recognized
as Il good investment for those who car
discriminate and afford to take tn.
risk The conclusion is inevitable tina
the growing appreciation of such in
vestlnents is due to their real vaIue
and the great profits of the industry
which are sufficient to overcome tn.
above named handicaps-so seriou.
that no other industry could endur.
them.
The most encouraging feature of TIL
business at present, however, is No
that so much ore is taken out at
profit, or that so many big dividend
are paid. but that the business is get
ting down to the conservative method
of other industries, in which investor
depend more on facts than on fancies
and the reputation of the managers i
regarded as much as anything else.