Arizona republican., 1913-11-10

cannot be predicted with the same certainty as those of the porphyry deposits whose ore is blocked out and whose ultimate life in most cases is known.
 The question therefore arises, how shall we determine the true cash val
 ue of these various mines so that the values arrived at will be equitable themselves, as we may without doubt dismiss from our minds the solution
 of the problem that the true cash val ue can be determined by oracularly standing at the mouth of the shaft and looking down it, as one can stand at the intersection of two streets and see the building on the corner lot.
 The result in Arizona is that there are two schools; one demanding the physical valuation of mines by care ful study of them by ComDetent en- gineer or board of engineers. In the case of the porphyry mines this would be relatively simple One would know the life of the mine to be fif- teen, twenty or twenty five years, one could assume an average selling price for copper, the costs are well known, and it could be easily calcu- lated that the mine could produce so
  years Then by the use of actuary tables the present values of all of the annual dividends could be calculated and the sum of them would be the present value of the mine. This has been worked out quite carefully by II. c. Hoover in his classical work on The Principles of Mining. If the same engineer could examine one of the vertical mines which was yielding the same annual profit and could find but two or three years of ore in sight, he would be forced to one of two con clusions; either to fix the present val ue of this mine, based upon the two or three years ore in sight. or else to make a guess far into the future, and say that this or that mine in his ] estimation would last five, ten, fif- teen or twenty years This it is inn possible to do and the owner of mine, if he chose to be technical, could without doubt upset such an assumption as being arbitrary in the i extreme.
 The other school claims that the value of a mine should be based by 1 taking as the primary facts it's an nual production and the profits aris- 1 ing from that production, and that the value of any property in it's ultl- mate analysis really is based upon the profit that it can make. It there l fore demands that the mines shall be assessed using these figures as 1 basis. If a mine lasts for five years, then it pays taxes for five years, if it lasts twenty years. then it pays ] taxes for twenty years, and the state 1 loses nothing by the transaction. i The claim is made that inasmuch 1 as taxes are paid annually the ques- | ton of Valuing a mine for the pur- l pose of taxation is radically different 1 from that of valuing it for the pur- 1 pose of sale or purchase, or cOnsoli- dation with other mining properties. l It is of course. assumed that If two 1 mines are to be consolidated each making the same annual net profit, one of which it is fair to assume has | a five year life. and the other a ten year life that the second mine should 1 be given greater value in the con- solida ton, but for the purpose of tax
 ation the factor of probable life may
 be omitted because the taxes are not 1 paid in a lump sum in the begin
 ming as would be the purchase price, but are paid year after year. If the value of the mine was to be based upon the tonnage of ore in sight It | would be an incentive to the mine | owner to retard his development, which eventually would be 9 detri- i ment to the state, as unquestionably development ahead in a mine tends to prolong it's life, as it carries man
 over those periods of poor shOwings | in a mine when he might be tempted | to abandon it.
 The present mine valuation law in ! Arizona. which was passed in the ! 1rt nf
 mines shall be assessed by adding together one eighth of the gross pro- duction for the previous year, four times the net profit for the previous ! year. and the value of the improve i ments This then represents 'The l Full Cash Value of the Mine,' and i in most cases amounts to about five 1 times the net annual profit. In other
 words the mines are put on approx ] imately a 20 per cent basis. of which 1 it may be considered that 10 per cent | is income (which is not considered l high in Arizona considering interest
 rates and the risks in mining), and
 the other 10 per cent is to return the capital invested, because it must be
 borne in mind that a mine is in a constant state of liquidation from the day that it starts and that when the ore IS exhausted the surface plant and reduction works, no matter f2w much they may have cost, are of
 no value Hoover in his Principles
 of Mining in determining the present
 value of a mine does not consider the plant or reduction works as one Of the factors to be added in. Tn Arizona this point was seriously dis
 cLssed, and while q number of the
 advocates of the sesond scFool stren-
 uousIy held out for a non-assess-
 ment of plant, the legislature con
 sidered this too radical a change and therefore declined to omit it. Many
 of the advocates of the latter system would have preferred to have used
 a greater factor in multiplying the
 net profit and not have had the plant
 ll- ncrnt nie.