The Wallace miner. [volume] (Wallace, Idaho) 1907-current, 1919-10-30
Federal Taxation of
Mines. A Notable
Discussion.
CONTINUED from Page %

teFpf1Se, yel IL everything 5oeS wen
and his original assumptions on the
basis of which the valuation was
reached proved to be justified, he will
be receiving a 10 per cent return on
his entire initial capital through the
last year when only a small fraction
of that capital is invested in the 10
per cent risk and the major part has
been used in some other way. In
reality, therefore, he receives on the
average distinctly more than 10 per
cent on the capital that is at risk.
Since the money still in the enter
prise derives greater and greater in
,terest return with time, it could,
therefore, afford to carry greater risk
during the late than in the early per-
iod of the investment. Clearly enough
In going mine, purchased on the ba
sis of proved and prospective ore the
early years would indeed involve less
risk, while, as viewed from the be-
ginning, the later years, necessarily
relying on ore less positively assured,
would entail greater uncertainty and
hazard. The method and the facts
thus appear to coincide in direction,
and although it may be doubted if the
risk mounts at the very end at so
rapid a rate as the percentage of re-
turn Is found to do, or if on the other
hand, the risk of the late middle years
is sufficiently covered, it nevertheless
seems likely that no more accurate
coincidence can he established save
by complex formulas which would be
quite unjustifed, Acceptance of the
flat rate has behind it, furthermore
the support of accepted custom. Still
another advantage is that because of
the rapidly increasing spread in the
later years of life between say an 8
per cent, 10 per cent and ~ per
cent flat rate of return, justification
Is AFFORDED for employing in the COM
putations of present value, rates of
interest that do not differ very great
~ and yet make provision for a wide
range of risk, as for example. a por-
phyry copper mine and a pockety sill
yer mine.
Another phase of the present value
method which appears not to have
been clearly set forth in any of the
discussions thus far devoted to this
subject, is that all the assumptions on
which this method has been based and
all the tables that have been printed
as aids in applying it arise from the
idea of equal annuities, and imply, IN
fact, that given property will mine
fixed tonnage of constant average
grade of ore throughout its history
All the computations as to life and an
the interest factors involved rest on
fact, these assumptions may apply co
certain classes of property They
probably do pretty we'll apply to OPP
erations upon a given seam of coal
tributary to a developed industrial
district. 1t was to such condition
| believe, that this fundamental meth
cd of valuation was first applied
namely, the English collieries. But
the assumptions of constant grade OF
ore and fixed tonnage per year
surely do not apply to many other
mines in which this method coulo
otherwise be advantageously used
Many mines, like the porphyry cop
pers, which have great reserves of ore
established by exploration, will
through choice, and must indeed, OF
necessity work richer ores during
their early years and depend upon
leaner and leaner ores as their life
progresses. This will tend to bring
realization of eventual earnings into
the interest market at an earlier date
and will increase the present value
OF the property. Likewise, such mines
possessing enormous ore reserves are
likely to continue in future as they
have done in the past to increase
their scale of operations and their rate
OF output so that the actual life OF
the mine will be shorter than is in
dicated by any present rate of ex-
haustion.
Perhaps some Justification should
be given for the conclusions that have
just been stated. First, as to the hy-
pothesis of declining grade Of ore
with time. Almost every influence
combines to cause mining of a great
deposit to begin on about the richest
ore it contains. Some of these in
fluences are;
(a) Most deposits of the class en-
braced in the long life ahead mines
decrease in value outward and down.
ward.
CD Most such deposits are explor-
ed first in their upper central portions
that is where the ore is best and
where surface indications were prob
ably most attractive, and only with
time are the explorations pushed to
the lateral and bottom limits of the
deposit
(c) 1t is natural that actual oper-
alton, that is, ore extraction, shall be-
gin approximately at the point where
exploration began. Indeed, common
ly, extraction has already been going
on there before the marginal portions
of the deposit are completely develop
ed 1t takes time to gradually ex-