The desirability of public registration of drilling records is discussed on another page (pp. 305-306).

QUANTITATIVE ASPECTS OF GEOLOGIC EXPLORATION

In recent years there has been a tendency to reduce the geologic factors in exploration to some kind of a quantitative basis. While these factors may be very variable and very complex, their net effect frequently may be expressed in terms of quantitative averages. In various mines and mining districts where operations are of wide extent, local quantitative factors have been worked out which are useful in predicting results from proposed explorations in undeveloped portions. Figures of this sort may be useful and practical guides in planning any given exploration, its cost, and its probable outcome.

Quantitative methods are illustrated in the general account of Lake Superior iron ore exploration in a later section.

Curves of production from oil wells and from oil districts have been found to have certain characteristic features in common which are often used in predicting the future output and life of a given well, property, or district. Where associated with coal, the percentage of fixed carbon in the coal may be a guide to the presence and nature of the oil (see Chapter VIII).

The geological staff of the Netherlands East Indies estimated the tin reserves of one of these islands by the use of a factor or coefficient, based on the experience of another island.

In the Cobalt district of Canada a factor for future discoveries and output, based on past experience, was similarly developed.

Hoover[39] made a statistical study of several hundred metal mines in various parts of the world, and found that not 6 per cent of the mines that yielded profits ever made them from ore mined below 2,000 feet; and that of the mines that paid dividends, 80 per cent did not yield profit below 1,500 feet, and most of them died above 500 feet.

Attempt has been made by a Swedish geologist to estimate the iron ore resources of continents by the use of an iron coefficient. This coefficient was obtained by dividing the known iron ore resources of the comparatively well-investigated portions of the world by the number of square miles in which they occurred, and was then multiplied into the area of the continents whose resources were to be determined.

The application of quantitative methods of this kind has not yet become very general, nor is it possible to use them in some cases; where applied many of them have been very crude and others have been partly disproved by experience. With increasing knowledge and experience, such methods are becoming more accurate and useful, and are likely to have wider use in the future.

ORIGIN OF MINERAL DEPOSITS AS A FACTOR IN EXPLORATION

In exploration, the geologist is keen to ascertain the origin of the mineral deposit. This is often a source of wonder to the layman or "practical" man, and the geologist may be charged with having let his fondness for theory run away with him. A widespread fatalistic conception is expressed in the Cornishman's dictum on ore, "Where it is, there it is." Yet an understanding of the origin of any particular ore, the "why" of it, is coming to be recognized as the most effective means of reaching sound practical conclusions. By ascertaining the approximate origin of the ore, it may be possible at once to infer a whole group of practical considerations based on experience with ores of like origin in other localities. The origin of the ore is the geologist's primary interest, and it is this which gives him his most effective and distinctive tool in exploration. Many other phases of exploration work may be picked up empirically by any one familiar with the local conditions; but when the man without sound geologic training attempts to go into this particular field, his lack of background and perspective often leads to fantastic hypotheses which may vitiate the inferences on which he plans his exploration.

The scientific investigator, while not accepting the fanciful theories of the local observer, will make a mistake if he fails to recognize the residuum of solid fact on which they are built. Many practical explorers are shrewd observers of empirical facts, even though their explanations may show a lack of comprehension of the processes involved. Any assumption of superiority, intolerance, or lack of sympathy, on the part of the geologist, toward the inadequate explanations and descriptions given him by the practical man, is likely to indicate a weakness or limitation in his own mental processes. The geologist's business is to sift out the fact from the inference, and not to throw over the whole structure because some of the inferences are faulty.

LAKE SUPERIOR IRON ORE EXPLORATION AS AN ILLUSTRATION

To illustrate the application of some of the methods of exploration of the kinds described in this chapter, the writer selects an example from his own experience in the Lake Superior iron fields.[40]

In this region, consideration of the economic aspects of the problem may eliminate from the best explorable field certain Canadian portions which are far from water transportation, because the conditions in these sections would prevent the use of anything but an exceptionally large and rich deposit. Economic conditions determine in advance also that it is not worth while looking for ores of certain grades, either because they are not usable on account of deleterious constituents or low content of iron, or because these particular grades have already been developed in excess of requirements. Having determined what ore is desired, whether Bessemer or non-Bessemer, whether open-hearth or foundry, further elimination of area is possible on the basis of past experience.

Coming to the geologic phases of the problem, the first step is to eliminate great areas of rock which are known never to contain iron ore, like the granite areas and the quartzite and limestone areas. Within the remaining areas, by examination of the surface outcrops and with the aid of magnetic surveys, iron formations are found which are the mother rock of the ores. In Michigan, it has been possible to use certain percentage expectations in the areal location of iron formations within certain series of rocks extending over wide areas. Such percentage coefficients have been useful, not only in exploration, but also in the valuation of lands which are so covered with drift that no one knows whether they carry an iron formation or not.

Examination of the iron formations results in elimination of large parts of them, because their metamorphic condition is not favorable to ore concentration. In the remaining areas more intensive methods are followed. It is scarcely possible to summarize briefly all of the structural and stratigraphic methods used in locating the ore bodies. These have often been described in print.[41] Comparatively recent advances in this phase of exploration work have been in the more detailed application of stratigraphic methods to the iron formation. The group characteristics of the iron formation are fairly uniform and distinctive as compared with all other rocks; yet within the iron formation there are so many different kinds of layers represented that it is possible to use these variations with great effectiveness, in correlating favorable horizons for ore deposition, in interpreting drill records, and in other ways. Another method of approach, employed chiefly on the Mesabi Range, relates to the slumping of the ore layers which results from the leaching of silica during the concentration of the ore. This slumping can be measured quantitatively, and has been used to much advantage in exploration, in correlation of ore horizons, in preparation of sections and ore estimates, etc.

Early geologic explorations in the Lake Superior country were based on the assumption that the ores were concentrated by waters working down from the present erosion surface; but recognition of the fact that the waters which did the work were related to a far older and different erosion surface, under conditions which allowed of a far deeper penetration, has modified exploration plans for certain of the districts like the Marquette and Gogebic.

Notwithstanding the complexity of the geologic factors involved, their net result has been to concentrate iron ores in a surprisingly uniform ratio to the mass of the formation in different parts of the region,—with the result that on an average it may be predicted for any district, in an exploration of sufficient magnitude, how much ore is likely to be cut in either vertical or horizontal dimension. Thirteen per cent of the productive area of the Mesabi iron formation is iron ore. For the remainder of the Lake Superior region five or six per cent is the factor. These figures mean that, if a person could explore a broad enough area of iron formation, any miscellaneous group of drill holes or underground openings would tend to yield these percentage results. Such percentages are amply sufficient to pay a large profit on the exploration. The question may be raised why the application of geology is required, if such average results can be secured from miscellaneous undirected work. The answer is that seldom is it possible to conduct an exploration on a sufficiently large scale to be sure of approximating this average, and that geologic study has made it possible in many cases to secure a better percentage result. If the geologist is able to raise the percentage ever so little, the expenditure is amply justified. He is not expected to have 100 per cent success; but he is expected to better the average returns, and in this on the whole he has not failed.

Applying this method specifically to the Gogebic Range, it appears that up to January 1, 1918, exploration and development had covered 3,650 acres of iron formation, measured along the dip in the plane of the footwall, within the limits of the area in which the formation is in such condition as to allow concentration of the ore. The total area of the footwall to a depth of 3,000 feet is approximately 9,650 acres. The range, therefore, was 38 per cent developed to this depth. In the developed area, 160,000,000 tons of ore had been found, or approximately one ton per square foot of footwall area, or 43,800 per acre of footwall explored. The total area of ore measured on the footwall was 785 acres. The ratio of ore area to total explored area, measured in the plane of the footwall, was 21-1/2 per cent. This may be taken in a rough way to indicate the average exploring possibilities in new ground, where local conditions to the contrary do not exist. This means that over the whole range about one drill hole or cross-cut in five will strike ore on an average. Or, looked at in another way, about 200 feet of drifting in every 1,000 on the footwall will be in ore. Applying this factor to the unexplored area, amounting to 6,000 acres, the range had an expectation on January 1, 1918, to a depth of 3,000 feet, over and above ores already discovered, of approximately 262,800,000 tons. This was sufficient to extend the life of the range by about forty-four years. Knowing the average cost of development of ore per foot in the past, and knowing the annual output and its rate of acceleration, it is possible to figure with some accuracy how much expenditure should be planned for annually in the future in order to maintain a safe margin of reserves against output.

Such quantitative considerations in the Lake Superior region serve not only to guide the general conduct of the exploration and development work, but in some cases as a basis for valuation both for commercial and taxation purposes.

DEVELOPMENT AND EXPLOITATION OF MINERAL DEPOSITS

The search for new ore bodies is closely related to the development, extension, and mining of ore bodies already found. In this field the geologist finds wide application of his science. Here he may not be so much concerned with the economic factors or with the broader methods of geologic elimination; his study is more likely to be based mainly on the local geologic conditions.

Some of the larger and more successful mining companies, perhaps the greater number of them these days, have geologists whose business it is to follow closely the underground operations, with a view to advising on the conduct of the development work. This requires the most precise and intensive study. For instance, the Anaconda Copper Mining Company has a staff of several geologists, who follow the underground work in the utmost detail and whose approval must be obtained by the operating department in the formulation of any development plan. The complexity and fault relations of the veins in this company's mines are such that the application of these methods has abundantly justified itself on the cost sheet.

Too often mining companies leave the planning and execution of the underground development work to the local management, commonly to the underground mining captain, without geologic consultation. This procedure does not eliminate the economic geologist; for when the development fails at any point, or new and unexpected conditions are met, the geologist is likely to be called in. In such cases the practice of a geologist is like that of the ordinary medical practitioner; he is called in only when his patients are in trouble. The use of adequate geologic advice in the planning stages is about as little advanced in some localities as the practice of preventive medicine.

The work of the economic geologist may not be ended by the finding and development of the ore; for the moment this is accomplished, he should again consider the economic phases of the problem—the grade of his ore, its probable amount, and other features, in relation to the general economic setting. In his enthusiasm for physical results, he may be carried into expenditures not justified by the economic factors in the problem. Some one else may and usually does look out for the economic elements, but the prudent geologist will at least see to it that someone is on the job.

FOOTNOTES:

[37] Smith, George Otis, and others, The classification of the public lands: Bull. 537, U.S. Geol. Survey, 1913.

[38] Schlumberger, C., Study of underground electrical prospecting: Translated from the French by Sherwin F. Kelly, Paris, 1920.

Bergstrom, Gunnar, and Bergholm, Carl, "Teknisk Tidskrift, Kemi och Bergvetenskap," 1918, Book 12.

[39] Hoover, Herbert C., Principles of mining: McGraw-Hill Book Co., New York, 1909, p. 32.

[40] Leith, C. K., Use of geology in iron ore exploration: Econ. Geol., vol. 7, 1912, pp. 662-675.

[41] Van Hise, C. R., and Leith, C. K., Geology of the Lake Superior region: Mon. 52, U.S. Geol. Survey, 1911.



CHAPTER XV

VALUATION AND TAXATION OF MINERAL RESOURCES

POPULAR CONCEPTION OF MINERAL VALUATION

The total returns from mining may not in the aggregate be far above the expenditure for exploration, development, and extraction; yet the total mineral wealth of the United States, on the basis of earning power and aside from the industries based on it, cannot be far from sixty billions of dollars, and this wealth has virtually come into existence since the 1849 gold rush to California. The mining industry supports a large population. These facts are the solid basis for the widespread popular interest in mineral investment—and mineral speculation. But there are other reasons for this interest,—the gambler's chance for quick returns, the "lure of gold," the possibility of "getting something for nothing," the mushroom nature of certain branches of the industry, the element of mystery related to nature's secrets, and the conception of minerals as bonanzas with ready-made value, merely awaiting discovery and requiring no effort to make them valuable. In the United States a factor contributing to the popular interest is the large freedom allowed by the laws to discover and acquire minerals on the public domain. Perhaps no other field of industry comes so near being common ground for all classes of people. The mineral industry is a field in which it is easy to capitalize not only honest and skillful endeavor, but hopes, guesses, and greed. It is not to be wondered at, therefore, that in the popular mind the valuation of a mineral resource is little more than a guess, and sometimes not even an honest one.

Nevertheless, the mineral industry has become second only to agriculture in its capital value and in its earning capacity. In this industry it is hardly possible to arrive at valuations as securely based as in many other industries, but the elements of hazard are not so hopeless of measurement as might be supposed. The great mineral and financial organizations do not depend on mere guesses, but use well-tried methods. If the general investor were to give more attention to these methods he would doubtless save himself money, and the mineral industry would be rid of a great incumbrance of parasites who live on the credulity of the public. To anyone familiar with the mineral field, it is often surprising to see the rashness with which a conservative business man, who would not think of entering another industrial field without close study of all the factors in the situation, will invest in minerals without using ordinary methods of analysis of values.

In the following account of valuation of minerals in the ground, and the closely related subject, taxation of such minerals, the attempt is made to state some of the principles briefly and simply with a view to making them intelligible to the layman. Values beyond the mine are concerned with so many factors of a non-geologic nature that they are not here discussed.

VALUATION AND TAXATION OF MINES

INTRINSIC AND EXTRINSIC FACTORS IN VALUATION

It is essential to recognize at the outset that the value of a mineral deposit, like the value of any other commercial material, comprises two main elements; an intrinsic element based on the qualities of the material itself, and an extrinsic element based on its availability and the nature of the demands for it. The two elements may not be sharply separated, and neither exists without the other. A mineral deposit in easy reach of a populous community, which has sufficiently advanced methods and requirements to use it, may have high value; an exactly similar deposit, if far removed from points of consumption, handicapped by transportation, or available only to people without developed methods for its use, may have little or no value. Intrinsically the deposits are alike; but extrinsically they are far different, and their values are correspondingly unlike. Even two adjacent properties, differently managed and controlled, and with different relations to markets, may have somewhat different values depending on the use made of them. The value of a deposit may vary from year to year with changes in demand for its output, or with changes in metallurgical and other processes which make its use possible. Minerals of small bulk and high value, as for instance gold, platinum, and diamonds, have a nearly standard value related to their intrinsic properties, because they can be transported so easily to any part of the world. On the other hand, materials of large bulk and low unit value, such as coal, iron ore, and clay, may have highly varying values independently of their physical characteristics, because of their relative immobility. But the values even of gold and precious stones represent a combination of intrinsic qualities and of demand. A diamond is made of carbon but is more valuable than coal or graphite because it appeals to the esthetic taste. It is only because man introduces an element of demand that the diamond takes on value. In short, man is the multiplier and the mineral substance is the multiplicand in the product known as value.

Recognition of the two elements of value is vital to a clear understanding of the methods and problems of valuation of minerals. It is too often assumed that the physical properties constitute the sole factor.

Looked at in a large way, the returns from the mineral industry are commensurate with the effort put into discovery and development of mineral resources, even though the returns to lucky individuals have been excessive. In respect to the importance of the human energy element, the mining of minerals is not unlike the cropping of soils. Some interesting economic studies have been made of mining districts to ascertain whether the total return has been equal to the total investments by both successful and unsuccessful participants. The results show that, even in some of the most successful districts, there is not a large "social surplus,"—that is, a surplus of receipts over total expenditures. It is difficult to generalize from such studies with any degree of accuracy; but it seems likely that if we could measure the vast amount of fruitless effort which has been expended in non-productive territories, the result would tend to bear out the general conclusion that the social surplus for the mineral industry as a whole is a modest one, if it exists at all. Of course, it is to be remembered that the total benefits from mineral resources are not to be measured in terms of gain to the producers,—but that their measurement must take into account the satisfying of all the complex demands of modern civilization.

VALUES OF MINERAL DEPOSITS NOT OFTEN ESTABLISHED BY MARKET TRANSFERS

While minerals as extracted and used may have standard market values, mineral deposits in the ground are not bought and sold on the open market with sufficient frequency to establish standard market values. A sale may establish a criterion of value for the particular deposit, but not for the class of deposits,—for no two mineral deposits are exactly alike. Stock quotations may establish a certain kind of market value, but these are often vitiated by extraneous considerations. For these reasons the valuation of a mineral deposit is in each case a special problem.

THE AD VALOREM METHOD OF VALUATION

The ordinary commercial method of valuing mineral deposits recognizes the two main elements of value above discussed. This method is sometimes called the rational or ad valorem method. The profit per ton (or per other unit) of the product is established, on the basis either of past performance of the property or of experience with other similar properties. This profit is multiplied by the total tonnage estimated in the deposit, the estimate including known reserves, probable reserves, and in some cases possible and prospective reserves. The product of the profit per ton and the total tonnage gives the total net amount which will be received; it does not, however, give the present value, because the commodity cannot all be taken out and sold at once, but must be mined and absorbed by the market through a considerable period of years. The returns receivable some years in the future have obviously a lower proportionate present worth than amounts to be received at once. The interest rate comes into play, making it necessary to discount each annual payment for the number of years which will elapse before it is received. It is evident, therefore, that an estimate of the life of the property is necessary, involving not only knowledge of the reserves, but also a forecast of the annual extraction or rate of depletion.

As a simple case of ad valorem valuation for illustrative purposes, a deposit containing 1,000,000 tons in reserve has an estimated output of 100,000 tons a year for ten years, on which the profit per ton has in the past averaged $1 and is expected to average $1 in the future. Ten annual instalments or dividends of $100,000 are to be received. The present value of the total of these instalments is figured by an annuity method. It is the value upon which the series of dividends will pay interest at a predetermined rate, in addition to paying to a sinking fund annual instalments which, safely invested each year at a low rate of interest (usually 4%), will repay the present value at the end of the ten years. In our hypothetical case, if an interest rate of 8% be taken, the present value of $1,000,000, to be received through ten years in ten equal instalments, is $612,000. In other words, the sum of $612,000 will be replaced by the sinking fund at the end of ten years, and will pay 8% interest during this period,—this requiring total receipts of $1,000,000 in ten equal annual instalments. If the deposit here cited as an illustration were to be worked out in three years, thus yielding three annual instalments of $333,000, its value would be $833,000.

Each of the factors entering into this method of valuation covers a wide range of variables, any one of which may be difficult to determine.

The profit per ton for a given deposit may have been extremely variable in the past, making it difficult to determine whether the highest or lowest figure should be projected into the future or whether some average should be taken; and if an average, whether the time covered by the average should be long or short. For a small, short-lived deposit obviously the most recent conditions would be taken into account in estimating future profits. For a long-lived property there would be more tendency to consider the long-time average vicissitudes, as reflected in the average profits of the past. For some mineral commodities there are cycles of prices, costs, and profits, of more or less definite length, established during the long past history of the industry; and in such cases it is desirable in calculating averages to use a period covering one or more of these cycles, rather than some shorter or longer period. For many minerals, however, these cycles have been too irregular to afford a sound basis for future estimates. If the experience of the property itself is too short to afford a sufficient foundation for forecasting profits, or if there has been no previous work on the property, then it is necessary to use averages based on other properties or other districts; or if there are none strictly comparable, to build up a hypothetical figure from various estimated costs of labor, supplies, and transportation, selling prices, etc. In the estimate of the profit factor, the geologist is not primarily concerned.

In estimating the total reserves in a mine, geological considerations nearly always play a large part. An ore body may in some few cases be completely blocked out by underground work or drilling, eliminating the necessity for inferring conditions beyond those actually seen; but in the huge majority of mineral deposits the reserves are not so definitely known, and it becomes necessary for the geologist, through knowledge of similar occurrences, through study of the structural features of the deposit, its origin, and its history, to arrive at some sort of an estimate of reserves.

In estimating the life of a mineral deposit it is necessary to start with the figure of total reserves, and from a study of conditions of mining and of markets to estimate the number of years necessary to exhaust the deposit. This is a more nearly commercial phase of the problem, in which the geologist takes only part of the responsibility. Perhaps more estimates of value have gone wrong because of misjudgment of this factor than for any other cause. If the physical conditions are satisfactory, it is easy to assume a rate of extraction and life based on hope, which experience will not substantiate.

The choice of the interest rate to be used in discounting future receipts to present worth likewise is a financial and not a geologic matter. Again, however, the geologist must give consideration to this factor, in view of the fact that the interest rate must be varied to cover the different degrees of hazard and doubt in the geologic factors. For instance, to the extent to which the estimate of ore reserves is doubtful, it is necessary to use a high rate of interest to allow for this hazard. In a large, well-developed mineral deposit, with the geological factors all well known and the demand and market well established, it is reasonable to use a lower rate of interest. In general, the mineral industry is regarded in financial circles as being more hazardous than many other industrial lines; and money is put into the industry with the expectation of a high rate of interest, no matter how safe the investment may be. In actual practice interest rates used in making valuations vary from 6 to 15 or 20 per cent.

It is clear that, where a property has long life, the interest will very materially reduce the present value of the ores to be mined far in the future. Reserves to be mined more than thirty years hence have relatively little or no present value. Beyond a certain point, therefore, the acquirement and holding of reserves for future use by private companies has little commercial justification. This is a matter which is too often not sufficiently well considered. Man's natural acquisitiveness often leads him into investments which, because of the time and interest factor, have little chance of successful outcome. Of course a large corporation, anticipating an indefinitely long life, or perhaps aiming at monopoly, may afford to hold reserves as a matter of general insurance longer than a small company,—even though, because of the interest rate, these reserves have no present value on their books. It is likewise true that governments, looking forward to the future of the nation, and without the necessity of paying so much attention to interest and taxes, are not so limited by this consideration.

An illustration of the limiting effect of the interest rate on the acquirement of long-lived coal deposits by private interests is discussed in Chapter XVII on Conservation. Investments made many years ago have so augmented, even at low interest rates, as to make it practically impossible to count on a return of capital and interest; or if the return were to be exacted from the public it would mean excessive charges, which are not possible in competition with other mines not so burdened.

In the commercial valuation of oil wells and pools, much the same method is used as has been described for mineral resources in the solid form, but the estimate of reserves or life is based on consideration of curves of production of the sort mentioned on pages 134-136.

The essence of the ad valorem method of valuation above described is income-producing capacity. This method recognizes the fact that the value of the mineral deposit depends, not only on its physical constitution, but also on what performance can be expected from it.

Stock quotations on mineral properties in the standard markets are based substantially on estimates of income capacity, more or less on the ad valorem basis. However, the quotations also reflect the hopes and fears of the public, often resulting in valuations quite different from those based on studies of the objective conditions.

The war introduced new considerations into the problems of ad valorem valuation. Under peace conditions there is a tendency toward the establishment of normal costs, selling prices, and markets, which can be taken more or less for granted by anyone attempting to value mineral deposits. Under war and post-war conditions, few of these elements can be taken for granted; it becomes necessary to consider the entire world situation in regard to a mineral commodity, the effects of the Peace Treaty (which greatly concerns minerals), future international relations, tariffs, and other matters of a similar sort. If a person were today valuing a manganese deposit according to the method above outlined, and were to confine himself solely to a narrow consideration of past markets and profits on individual properties, he would be very likely to go wrong,—for the world manganese situation has an immediate and practical bearing on each local problem (see pp. 173-176).

OTHER METHODS OF MINERAL VALUATION AND TAXATION

We have discussed the ad valorem method of valuation at some length because it is the one in widest commercial use, and also because the principles involved underlie practically all other methods of mineral valuation. The ad valorem method is used in appraisals for taxation in some districts and for some commodities, as, for instance, the iron mines of Michigan and Wisconsin. Its application, however, requires skill and judgment if equitable results are to be secured. For taxation purposes, therefore, it is not uncommon to adopt purely arbitrary or empirical methods which eliminate the element of judgment, and which often result in valuations quite different from those used commercially.

The state of Minnesota divides its iron ore deposits into a series of classes, on each of which a more or less arbitrary flat value per ton is placed, based on the spread between cost and selling price. The adjustments of flat values on the several classes through a series of years, however, as well as the assigning of specific ores to the different classes, have been based on the same factors as are used in ad valorem valuations.

The state of Wisconsin uses a so-called "equated income" method of valuation and taxation for the lead and zinc deposits of the southwestern part of the state. Under this method the state puts such a tax on the mine incomes for the preceding year as will yield approximately the same total return as under the ad valorem method,—the whole being based on the assumption that each deposit has about the average life figured for the mines of the entire district. So far as individual ore deposits vary from this average life, the value fixed departs from the true or ad valorem value.

Several states impose specific taxes based on the operations of the mines for the preceding year or for some combination of preceding years, as expressed in tonnage output or net profits or net proceeds, regardless of life or reserves. So far as output or net proceeds for a year are proportional to the real value of the property, a rough approximation to equitable taxation as between mines is accomplished. Often, however, the valuation thus obtained has little relation to the true value, because it does not take into account the great differences between properties in reserves, in life, and in capacity for future profit.

Income taxes, national and state, are of course based on the profits of the preceding year; but in the collection of these taxes from mineral operations, it is recognized that mineral deposits are wasting assets, and therefore a considerable part of the income may under the law be regarded as a distribution of capital assets, and be deducted from taxable income. The amount to be deducted obviously depends on the size of the reserves and the life,—with the result that progressive adjustment of income tax valuations tends to take into consideration exactly the same factors as are used in the ad valorem method. It is obviously unjust, for instance, to collect the same proportion of tax from the annual income of a mine which has a life of only two years as from a mine which has a life of fifty years. Under the federal income tax a capital value is placed on the mineral deposit as of March 1, 1913, which total capital value may be increased with subsequent discoveries. As the ore is taken out of the ground and sold, income tax is paid only on the difference between the assigned capital value per unit and the selling profit. If, for instance, the capital value as of March 1, 1913, is placed at 50c. per ton of mineral in the ground, and ten years later a ton is sold for a profit of $1, income tax is paid on 50c. The figure of 50c. per ton as value in the ground is actually obtained by estimating a profit, when the ore is ultimately mined and sold, of $1 per ton, and discounting this dollar to present worth as of March 1, 1913. Therefore the total amounts on which taxes are paid during the life of the mine should represent approximately the total accruals of interest from March 1, 1913. In this manner the proportion of annual income to be taxed becomes larger with the length of the life period. With a deposit having a life of thirty years the net result is that about half of the aggregate income is taxed, though this figure of course varies somewhat with the interest rate used.

In the collection of income taxes from coal mines in England, and in the collection of certain state income taxes in the United States, a considerably smaller allowance is made for the retirement of capital value (or for depletion, as this is commonly called). In these cases the deduction allowed is a small fixed percentage of the capital value, regardless of the actual life of the property.

The treatment of mineral resources as wasting assets in the United States income tax law meets one considerable practical difficulty—namely, that the law really requires physical or ad valorem valuation of every mineral property by the government, as a check on the claims for depletion allowance. This immense and expensive task is too much for the tax collection agencies as now organized, and it may be questionable whether it will ever be desirable to expand these agencies to the extent required for such a purpose. This is the principal argument for the use of arbitrary depletion factors such as those sometimes used abroad.

There are many advocates of the straight tonnage tax on mineral deposits, on the ground that it is simple, definite, and easily applied. The present tendency is to extend the application of this form of tax. It is clear, however, that to assume the same value per ton for taxing purposes on a property making a large profit, and on another property which, because of physical conditions, is barely able to operate at a profit, imposes a relative injustice. To meet this difficulty, it is sometimes proposed that the tonnage tax should be graded in such a manner as to allow for differences in physical conditions and in profit at different mines. When one attempts to apply a graded tonnage tax, however, it soon becomes apparent that, in order to make such a valuation equitable as between properties, it is necessary to use all of the factors of the ad valorem method for each of the properties. The wide appeal of arguments for a flat tonnage tax is based partly on popular misconception of the complexity of elements entering into mineral valuations.

There are many forms of more or less indirect tax which are substituted in different parts of the world for direct taxes. For instance, certain states in South America do not tax ores in the ground, but collect the revenue in the form of mining licenses or export taxes.

GENERAL COMMENTS ON TAXATION OF MINERAL RESOURCES

There has been a noticeable tendency in recent years to regard mineral resources as a heritage of the people, to be held in trust, rather than as property to be acquired and managed solely for private interest. This tendency has been indicated by the adoption in various parts of the world of laws affecting rights to explore and acquire minerals on the public domain; laws relating to the right of eminent domain over minerals already alienated from the government; laws regulating the exploitation of minerals in the interests of conservation; laws relating to tariffs and other restrictions on the export of mineral commodities; and laws relating to taxation.

The feeling that mineral resources really do not belong in private hands has undoubtedly been an underlying factor in the imposition of heavy taxes. Contributing to this action also are the popular belief in the intrinsic bonanza values in mineral resources, the failure to recognize the large element of value which is put into such resources by human efforts, and the failure to realize that the social surplus in the aggregate is small. To some tax officials an ore is an ore, more or less regardless of situation, of conditions of mining, of the demand for the product, and of the time when the demand will allow the ore to be mined,—in short, more or less regardless of what the ore may be made to yield as a going business. In this way heavy taxes are sometimes imposed on mineral reserves, which are based on unwarrantably high appraisals of future possibilities, and which cannot be paid out of earnings.

Ultimately, a tax must be adjusted to the capacity of the mine to pay out of its earnings, and this capacity in turn is determined both by the physical characters of the ore and by the success with which it may be made available for consumption. This view of valuation for taxing purposes is sometimes opposed by mining men on the grounds that it taxes brains, skill, and initiative, and that it puts a premium on shiftless management. The same argument might be applied to the valuing of any business or profession. To the writer the argument is not sound, in that it fails to recognize the element of human energy in resource values. If value were to be confined solely to the intrinsic character of the ore itself, there would be required an almost impossible degree of discrimination on the part of taxing officials to dissociate this value from other considerations; and there would be required further the differentiation between efficient and inefficient management, which involves so many considerations that the conclusion would be worthless.

In the application of income taxes to mining operations, there is sometimes another tendency toward over-taxation in that the income is regarded as more or less permanent, and insufficient allowance is made for exhaustion of the mineral deposit. Under the United States income tax, mineral deposits are definitely recognized as wasting assets and this factor is allowed for; but in state income taxes and in England and other parts of the world, allowances for this purpose are small.

There is wide belief that heavy taxation of mineral resources, particularly on the ad valorem basis, retards exploration and prevents the development of the reserves which are necessary to stabilize the mineral industry. High taxes have undoubtedly had this effect in some cases, especially where taxes have been imposed on resources long prior to development; but, in the writer's view, this tendency in general has not yet passed the danger point, and is not likely to do so until taxes become positively confiscatory of the industry. To argue that increase of taxes may even have certain beneficial results on the mineral industry may lead to suspicion of one's mental soundness; but it is hard to escape the conclusion that the incidence of high taxes has led to a much more careful study of the question of reserves, has eliminated in some cases the expenditure of money for development of excessive reserves to be used far in the future, and has tended to prevent over-production.

Where mineral reserves are developed too far ahead of demand, the interest on the investment piles up an economic loss to be charged against the industry. It may be assumed that the urge for exploration will continue as long as there is demand for mineral resources; and that, to keep the industry on a sound basis, a certain amount should be set aside and charged to cost for the purpose of keeping up reserves in a proper ratio to production. Much remains to be learned about the most desirable ratio between reserves and production. In many camps, before the incidence of high taxes, this ratio was not properly determined; and there was a tendency, due to natural acquisitiveness and in the absence of anything to hinder it, to build up reserves indefinitely. The first effect of high taxes in such camps has frequently been the curtailment of exploration and development. Later, as production has begun to approach the end of the reserves, exploration has been resumed, but only on a scale necessary to insure production for a limited period in advance.

The argument that high taxes inhibit exploration is good only beyond the point where the industry itself becomes no longer profitable. If there is sufficient demand for the resource, it is obvious that such a condition cannot long continue; for, as production and the development of reserves fall off, the resulting increase in the price received for the product is likely to offset any effect of taxes, and to restimulate production and exploration.

Nevertheless, in this period of high taxes following the war, there is much discouragement in the matter of exploration, suggesting that the danger point is being approached. Some relief has been afforded by recent special provisions of the federal income tax law, recognizing mineral resources as wasting assets, allowing recent discoveries to be included with total assets for depletion purposes, and recognizing special and peculiar circumstances with reference to each mine. Also a certain amount of exploration goes on through the momentum gained from past conditions, without sufficiently full recognition of the effect of present high taxes. This is not surprising when it is remembered that the people actively engaged in field exploration often do not think sufficiently fully of the tax situation, until after a discovery or development has brought them face to face with it.

Because of the vital importance of the reserve factor in mineral valuation, geologic aid and advice are extensively sought by both public and private organizations. Mining geologists are playing an important part in the application of the national income tax. A larger number are acting for private companies in appraisals required by this tax. Many geologists are used in making valuations for state taxes, and in two cases the state geological surveys have complete charge of appraisals. These appraisals include not only examinations of specific properties, but general surveys of large regions, to ascertain possible values of undeveloped lands and to establish broad principles of valuation based on a consideration of all the physical factors in the situation.



CHAPTER XVI

LAWS RELATING TO MINERAL RESOURCES

This heading is likely to suggest mining law and the vast literature devoted to it. Mining law has mainly to do with questions of the ownership and leasing of mineral deposits. In addition, there are laws relating to the extraction of mineral products, including those having to do with methods of mining and with safety and welfare measures. There are laws affecting the distribution of mineral products, such as those relating to tariffs, duties, international trade agreements, and many other matters. There are laws relating to underground water, to shore lines, and to various geologic engineering fields.

In the formulation of these laws, as well as in the litigation growing out of their infraction, basic geologic principles are involved; and thus it is that the geologist finds much practice in the application of his science to legal questions. It will be convenient to consider some of the laws relating to mineral resources under three headings: first, ownership and control; second, extraction; and third, distribution.

I

LAWS RELATING TO OWNERSHIP AND CONTROL OF MINERAL RESOURCES

Large use of mineral resources is of comparatively recent date. Some of the mineral industries are not more than a decade or two old and the greater number of them are scarcely a century old. In the United States the mineral industry dates mainly from the gold rush to California in 1849. The formulation of laws relating to the ownership of minerals has on the whole followed rather than preceded the development of the mineral industries; and hence mining laws relating to ownership are not of great age, although historical precedent may be traced far back.

ON ALIENATED LANDS

Where lands came into private ownership, or were "alienated" from the governments before the formulation of mining laws, varied procedures have been followed in different countries.

In England and the United States, under the old regime in Russia, and to a slight extent in other parts of the world, mineral titles remain with the owner of the land and the government does not exercise the right of eminent domain. But even in England, where private property rights have been held peculiarly sacred, the discovery of oil during the later years of the war led to an attempt to expropriate the oil rights for the government. Because of the objection of landowners this attempt has not reached the statute books, but the movement is today an extremely live political question in England. A somewhat similar question is involved also in the movement to nationalize the coal resources of England, now being so vigorously urged by the labor party. In the United States, no serious attempt has yet been made to take over mineral resources from private ownership.

Other countries have gone farther in retroactive measures in regard to alienated lands. Under the leadership of France, most of the countries of western Europe have appropriated to their governments the undiscovered mineral resources on private ground, particularly those beneath the surface, except where previously they had been specifically conveyed to the private owners, or with the exception of certain designated areas and minerals which had been conveyed to private ownership prior to certain dates. Some minerals occurring at the surface, variously specified and defined in different countries, are allowed to remain with the private owners, although often subject to government regulation in regard to their development and use.

In varying degree this treatment of mineral resources on alienated lands is followed in the British colonial laws—in South Africa, Australia, New Zealand, and Canada—and in the Latin-American laws. The laws are usually based on specified classifications of minerals. Those occurring at or near the surface, and called "quarries," "placer deposits," "non-mines," or "surface deposits," usually remain with the surface owners. Those beneath the surface, called "sub-surface deposits" or "mines," in general belong to the government. In some of the countries of South America the state exercises eminent domain even over the surface deposits; and in others even sub-surface minerals remain in private ownership, where specifically granted, or where the transfer of property took place prior to certain dates.

Where the government has acquired mineral ownership of lands previously alienated, the resources are open for development either by the owners of the surface or by others, on a rental, lease, specific tax, labor, or concession basis. The government holds the title, exacts tribute, and more or less directs and controls the operation. Exceptionally, as in Ontario, British Columbia, Quebec, and Newfoundland, the government grants patents, that is, it disposes of its rights to purchasers.

ON THE PUBLIC DOMAIN

Where the development of mineral resources began before the lands had passed from governmental ownership, special mining laws were enacted. Looked at broadly, these laws may be regarded as based on two partly conflicting considerations.

(1) The assumption that mineral resources, which are wasting assets, accumulated through long geologic periods, are peculiarly public property,—not to be allowed to go into private ownership, but to be treated as a heritage for the people as a whole and to be transferred to posterity in the best possible condition. Some of the early minerals to be developed were used either for money or for war purposes, leading naturally to the acceptance of the idea that these belonged to the government or to the sovereign.

(2) The assumption that the discovery and development of mineral resources requires a free field for individual initiative, and that the fewest possible obstacles are to be put in the way of private ownership. Governments have not as a rule been greatly interested nor particularly successful in exploration. Therefore, in framing laws of ownership, concessions have been made to encourage private initiative in exploration and development. In the case of the United States this idea was coupled with the broad doctrine that the government held public lands only in the interest of the people, and that its people were entitled to secure these lands for private ownership with the least possible restriction.

A survey of the mining laws affecting the public domain or non-alienated lands of different parts of the world, as well as the history of changes in the mining laws, indicates a wide range of relative emphasis on these two underlying considerations. In the United States, at one extreme, the laws have been such as to give the maximum possible freedom to private initiative, and to allow easy acquirement of mineral resources from the government. At the other extreme, in South Africa, Australia, and South America, it is impossible for the individual to secure title in fee simple from the government; he must develop the mineral resources on what amounts to a lease or rental basis, the ownership remaining in the government.

The trend of events in mineral laws is toward the latter procedure. This is evidenced in the United States by the withdrawal of large areas of public lands from entry, and by the recent enactment substituting leasing privileges for specified minerals for the outright ownership which was allowed under the federal law before the lands were withdrawn from entry. The withdrawal of oil lands from public entry in other parts of the world is another illustration (see pp. 131-132).

NATIONALIZATION OF MINERAL RESOURCES

Nationalization, as this term is popularly understood, means financial control and management of mineral resources by the government, either through actual ownership or through measures of public control designed to eliminate private interest from the active direction of the resources. In a broader sense, it may be used to include a considerable variety of restrictive and coercive measures adopted by the government in the proposed interests of public welfare,—as illustrated by the war-time measures instituted by the United States and other governments relating to the mining and distribution of coal, and to coal prices. In this broader sense various aspects of nationalization are indicated under other headings in this and other chapters.

It is clear that other countries of the world have gone farther in the direction of nationalization of mineral resources than the United States. The tendency was manifest before the war, and has been strongly emphasized during and since the war. In the United States, notwithstanding war-time measures, the subject has not yet come prominently forward, at least by name. On the other hand, there has been growing recognition of the dependence of public welfare on the proper handling of mineral resources—particularly of the energy resources, coal and oil,—as evidenced by a variety of proposals and measures under consideration in legislative and administrative branches of our national and state governments. Even taxation, both local and national, has in effect reached a stage where private interest has become considerably minimized by the increasing burdens laid on the industry by government requirements. The immediate purpose of taxation is to raise money for the needs of the government; but in the formulation of tax measures there is clearly to be discerned a growth of underlying sentiment that natural resources belong in some fashion to the public, and that private control is to be regarded not as a sacred property right but as a trust held on sufferance of the public.

In view of the obvious trend toward nationalization in other parts of the world and the significant tendencies in the United States, it seems likely that the subject of nationalization of mineral resources will come prominently to the front in this country in the comparatively near future. If so, it is time that students of mineral resources should recognize the comprehensiveness of this problem, and should attempt to develop basic principles to serve as a guide in the direction and formulation of the numerous and complex measures which are sure to be proposed. At present there is no government or technical organization related to the industry which is studying the problem in its broader aspects and is in a position to advise wisely with public officials interested in this problem.

It is beyond the scope of this book to discuss the pro and con of an economic question of this magnitude. The writer would, however, record his belief, which is implied also in discussions in other chapters, that the discovery and intelligent management of mineral resources by their very nature and infinite variety require private initiative, and that the history of government efforts in this field in this and other countries does not promise that nationalization can supply sufficient advantages to counterbalance the loss of this element. With this view the problem of nationalization becomes one of determining what steps, if any, can be taken by a government to the advantage of public welfare, which will at the same time preserve and foster private initiative, exercised with the hope of reward, which seems alone to be capable of meeting the variable, elastic, and complex problems inherent in the development of a natural resource.

A first step toward a broad scientific attack on this problem would be the recognition of the fact that tariffs, taxes, conservation, international mineral questions, leasing laws, and various technical investigations of minerals are but parts of a great unit problem. With this recognition there should follow naturally an attempt to correlate and direct the many government agencies, legislative and administrative, now concerned with different aspects of the problem. Under present conditions, the various elements of the problem are considered by different groups of persons, without sufficient contacts or correlation to promise the development of a broad, underlying policy.

EFFECT OF OWNERSHIP LAWS ON EXPLORATION

The nature and the progress of exploration (and development) in different countries have been more or less related to the character of the mining laws.

Where the mineral resource has passed from government control into private ownership, exploration is a matter of commercial arrangement between the explorer and the owner. There is often some lag in exploration, especially where the lands are held in considerable blocks. The owner is often not inclined, or unable, to institute effective exploration himself; and even though he is willing to offer favorable exploration terms to others, the inducement is often less attractive than on government lands. For instance, it is stated that in England, due to the many requirements of law and custom, it takes on an average eight years, and in some cases even longer, to close a coal lease after the terms have been agreed upon. The slowness of exploration and development on the great land grants in the United States, and on the tracts of the large timber companies, also illustrates the retarding effect of private ownership. It is partly this situation that is making governments increasingly careful about parting with mineral ownership, and that is leading to the introduction of more or less coercive measures, either to regain control or to make it easier for the public to explore and develop minerals on privately owned lands. Under the great land grants to railroads in the United States it is becoming increasingly difficult to secure mineral patents from the government; and there has been litigation between government and grantees, as in the case of certain oil lands of the Southern Pacific Railway. The taxation in some states of mineral rights which have been reserved by large owners is indirectly resulting in appraisal of these rights by the owners and in efforts to utilize them. As long as mineral rights were not taxed independently of surface rights, they were often reserved in selling surface rights on the mere chance that mineral might be found in the future, and thereby general exploration and development were held back.

In the United States, minerals on the public domain have been open to exploration and acquirement with minimum restrictions, except for the considerable areas later withdrawn from entry. After long delay a part of these withdrawn lands are again open to private exploration, but not to fee ownership. Specified minerals—coal, oil, phosphates, and potash—may be explored for, and may be leased under certain restrictions as to amount and time of development. The effect of this act on exploration is yet to be proved; but since many of the lands have now been shown to be favorable for minerals which are in great demand, there is little doubt that exploration will be resumed on a large scale. On the whole, under the federal mining laws of the United States the individual prospector has maximum leeway,—and from the standpoint of development of resources this procedure probably has been justified.

In other countries where the mineral resources are owned by the government, there is in most cases considerable restriction, through licenses and other regulative measures, upon the activities of prospectors. This restriction, together with the fact that it is usually not possible to secure title to the land, but only to secure rights through rental or leasing, is to some extent a deterring influence on the penniless prospector. It does not follow that under these conditions exploration and development are absent. The charges imposed are light, and in the early stages require comparatively small contributions as evidence of good faith. It is to be remembered that exploration has become concentrated more and more into the hands of persons financially able to meet such conditions. Exploration is passing from the highly hazardous stage of individual effort into a systematic business with calculable returns.

USE OF GEOLOGY IN RELATION TO OWNERSHIP LAWS

The contacts between geology and laws relating to mineral ownership are many and varied; a few illustrative examples are offered.

Many difficulties arise from the loose use of mineral names in these laws. The laws governing location of mineral deposits in Cuba are so framed that iron ores may be located and claimed from the government either as "iron ores" or as "bog ores and yellow ochers." Some of the important ores of eastern Cuba, now being extensively used in the United States, came into litigation because rival claimants had overlapping claims under the two classifications. The wording of the law is of course ambiguous, and suggests that geologists did not have a hand in its framing. To establish title to these claims it was necessary to show whether these ores had been rightfully located as iron ores, or whether they should have been located as bog ores and yellow ochers. This involved an analysis of the geological conditions, to show that the ores are the result of normal weathering and concentration in place of the underlying rocks—an origin common to many iron ore deposits,—and that they do not have the characteristic origin of bog ores. In short, the question was settled on the scientific principles of origin of ores and of metamorphic geology.

The efforts of our federal government to frame and apply mining laws to public lands have involved extensive geological and mining surveys by the United States Geological Survey and the Bureau of Mines. The land classification work for this purpose by the Geological Survey has been of wide scope. The recently enacted leasing law, which opens up government lands for exploration of coal, oil, potash, and phosphate, requires carefully prepared geologic data for its proper administration.

State governments also have initiated surveys of an exploring nature for taxing and other public purposes (see pp. 306, 311).

In the United States there is a wide use of geologists as witnesses in litigation affecting "extralateral rights." The federal mining law gives the owner of the claim containing the "apex" or top of a mineral vein or lode the right to follow the vein down the dip, with certain limitations, even though this takes him on to adjacent properties under other ownership. Where two branches of a vein are followed down from separate claims, the owner of the oldest claim is entitled to the vein below the point of junction. The law was framed to validate a procedure more or less established by mining custom. It was obviously framed with a very simple and precise conception in mind—namely, a simple vein definitely and easily followed, without much interruption or contortion.

In nature, however, veins or lodes have a most astonishing variety of form and occurrence, making it difficult to frame a definition that is comprehensive and at the same time sufficiently precise for all cases. A commonly used definition of a vein or lode is a mineralized mass of rock which is followed for purposes of finding ore. The mineral matter may be continuous or discontinuous. There may be one definite wall, or two walls, or none at all. There may be associated gouges and altered or mineralized rock. The vein may consist of almost any combination of the elements of mineral matter, walls, gouges, and mineralized rock. Instead of being a simple tabular sheet, a vein may have almost any conceivable shape; it may consist of multiple strands of most complex relations; it may have branches and cross-over connections. It may be a more or less mineralized sedimentary formation with limits determined by original deposition. It is very often bent or folded, and even more often faulted; the faulting may be of great complexity, making it extremely difficult to follow the vein. The vein may be cut by other veins of different ages, which in places may be hard to distinguish one from another. Erosion working down on a complex vein displaced by faulting and folding may bring several parts of the same vein to the surface, developing what seem to be separate vein apices. Where there are many veins close together, it may be difficult to determine whether the entire mass should be considered a unit vein or lode (a "broad lode"), or whether each vein should be considered independently under the law.

The geologic aspects of these problems are obvious. There are few mining districts where the vein conditions are so simple that no geological problems are left to be solved with relation to extralateral rights. In the early stages of the mining, separate operations may be carried on for a considerable time in a district without mutual interference; but as mining is carried down the dip, what seemed to be separate veins may be found to be parts of the same vein or parts of a complex vein system, and separate mining organizations are thus brought into conflict. It then becomes necessary either to consolidate the ownerships or to go to the courts to see which claim has the extralateral rights. In either case, the geologist is called on to play a large part,—in the valuation of rights for the purpose of combination, or in litigation to settle apex rights. A geologic survey of the conditions is a prerequisite. In order to get the needed information for the courtroom, it may be necessary to go further, and to conduct extensive underground exploration under geologic direction. Some of the most intensive and complete geological surveys of mineral resources in existence have been done for litigation purposes. The study in these cases is not empirical, but goes into every conceivable scientific aspect of the situation which may throw any light on the underground conditions—the source of the ores, the nature and source of the solutions which deposited them, their paths of travel, the structural and metamorphic conditions, the mineralogical and chemical character of the ores and rocks, and even broader questions of geologic age. The many volumes of testimony which have accumulated during famous apex trials cover almost every phase of geology, and are important primary sources for the student of economic geology.

It is often argued that strictly scientific, impartial geologic work is impossible in connection with one of these trials, because the viewpoint is warped by the desire to win. The sharp contrast in the views of experts on the two sides is cited in evidence.

There is no denying the fact that the conditions of a trial tend toward a certain warp in scientific perspective. On the other hand, the very existence of competitive and opposing interests leads to the most intensive detailed study, and to complete disclosure of the facts. In most cases there are no substantial differences in the statements of scientific fact by reputable experts on the two sides, although there may be wide differences in the inferences drawn from these facts. The failure to note a fact, or any distortion or misstatement of a fact, is followed so quickly by correction or criticism from the other side, that the professional witness usually takes the utmost pains to make his statement of fact scientific and precise as far as his ability goes. Few scientific treatises in geology contain any more accurate accounts of mineral deposits than testimony in cases of this sort. If every student of geology, early in his career, could have a day on the witness stand on a geologic problem, under both direct and cross examination, he would learn once and for all the necessity for close and accurate thinking, the difference between a fact and an inference, and the difference between inductive study of facts and the subjective approach to a problem.

It is a common assumption that a witness called to testify on scientific matters is on a somewhat different basis from the eye-witness to an event or transaction. We are not sure that this assumption is justified. Seldom is it possible in mining operations to disclose the facts in three dimensions so completely that they may be empirically observed and platted by the layman. The grouping and presentation of the facts in adequate perspective require an analysis of the origin of the ores and rocks, the rock alterations, the structural systems, and other facts. No one ever saw the vein or lode in the process of formation. The true nature of the event and of its physical results must be inferred inductively from circumstantial evidence. If it be conceded that it is necessary and right to call an eye-witness to an event involved in litigation, it is equally necessary where there are no eye-witnesses to call the persons best qualified to interpret the circumstantial evidence.

It is to be remembered that apex cases are only one kind of a vast variety of cases affecting mineral resources. At one time or another, and in some connection or another, practically every geologist of considerable experience has found it necessary to testify on geologic matters in court. The wide interest attaching to certain spectacular apex cases has led in some quarters to hasty criticism of the participation of geologists therein, without apparent recognition of the fact that the criticism applies in principle to many other kinds of litigation and to practically all economic geologists. This criticism also fails to take cognizance of the fact that, for every case tried, there are many settled out of court through the advice and cooperation of geologists. While there may be in the geologic profession, as in others, a very few men whose testimony can be bought outright, in general it must be assumed that geologists will appear on the witness stand only when, after careful examination, they are satisfied that there is a legitimate point of view to be presented.

Geologists and engineers understand more clearly than almost any other group the extent to which the complexities of nature vary from the conditions indicated in the simple wording of the law of extralateral rights. Almost to a man, they favor either modification or repeal of the law. On the other hand, the law has been in force since 1872, it has been repeatedly interpreted and confirmed by the courts, and a vast body of property rights has been established under it. Lawyers see great legal difficulties in the way of its repeal or serious modification. Mining men for the most part are not primarily interested one way or another, unless there is potential application of the extralateral-rights provision to their particular properties. Of those who are thus interested, some hope to gain and some fear they may lose in the application of the law. The general public naturally has little direct interest in the problem. There is thus no effective public sentiment favoring the repeal or modification of the law. It seems likely that for some time to come the law, in spite of its recognized defects, must be applied, and the best geological effort must be directed toward reaching interpretations which come most near to meeting its intent. To refuse to lend geologic science to the aid of justice because the law was improperly framed is hardly a defensible position. Presumably it will never be possible to frame laws with such full knowledge of nature's facts as to eliminate the necessity for scientific advice in their interpretation.

It has been suggested that the courts, and not the litigants, should employ the geologists. The practical objection to this proposition lies in the difficulty encountered by the judge in the proper selection of geologists. On the assumption that the judge would select only men in whom he had confidence, it is not likely that he would override their conclusions. The outcome of the case, therefore, would be largely predetermined at the moment the selection of experts was made. It is to be doubted whether courts can have the knowledge of the scientific field and of the requirements of the situation necessary to make the wisest selection of men to interpret the given condition. The competitive element would be eliminated. From a judicial standpoint, there seems to be an equally good chance of getting at the best interpretation of the facts by listening to presentations from different standpoints, with the accompanying interplay of criticism and questioning.

Another practical objection to appointment of experts by the court is the limitation of court costs, which would make it impossible to secure the highest grade men. So far as these men are public employees, such as members of the federal or state geological surveys, this might be arranged. For others, it might be suggested that they should be willing to sacrifice their energy and time in the interests of justice; but as long as human nature and conditions are what they are, it is perhaps futile to argue this question.

If it is right to apply science to practical affairs, in other words, if the profession of economic geology is a legitimate one, it seems inevitable that the application must be in some part directed by the geologist himself, in order to avoid mistakes and confusion. The contention that the scientist must isolate himself in a rarified atmosphere to avoid contamination from a non-scientific, commercial, or legal atmosphere, seems to the writer practically untenable, if we recognize any obligation on the part of science to the practical conduct of human affairs. The fact that the geologist in making these applications may occasionally find himself in a non-scientific atmosphere may be deplored from the standpoint of maximum creativeness in science, and from this standpoint there may be reason for limitation of time given to this kind of work,—but to stay out entirely on this ground is to deny his obligation to make his science helpful to his fellows. The problem cannot be solved by staying out. It calls rather for an especial effort on the part of the scientist to establish and maintain his standards of science and ethics in the applied fields. Some doubtless fail in this effort. Others are strengthened scientifically and ethically, and contribute important aid in raising general standards. The principle of non-participation in such activities for fear of lowering scientific standards may make the geologist's problem easier, but at the expense of non-fulfillment of duties. Such a course has for its logical consequence an abandonment of the application of his science to untrained men without the ethical anchorage of scientific achievement. In short, there may be legitimate criticism of individual geologists for their methods and ethics in the applied field, and this is desirable as an aid to maintaining and improving standards; but it is not a logical step from this to the conclusion that, to avoid unfortunate incidents, economic geologists must cloister themselves and thus deny the very implication of their title.

II

LAWS RELATING TO EXTRACTION OF MINERAL RESOURCES

Under this heading come a wide variety of laws and regulations,—national, state, and local,—affecting the manner in which mineral resources shall be mined or quarried. Such laws may specify the number of shafts or outlets, the use of safety and prevention devices, miners' compensation and insurance, and many other features. Most of these laws are framed for the purpose of conserving human life and energy, but they directly affect the mining or extraction of the mineral resources themselves. Geology plays but little part in relation to such laws.

Where the government retains ownership and leases or rents the resources, there are often provisions regarding the manner of mining and the quality and quantity of the material to be mined, in the interests of efficient operation and conservation. The geologist is often called into consultation both in framing and in dealing with the infraction of such provisions. It may be noted that the control thus exercised on the operator by government ownership is very much the same as that often exercised by the private fee owner. It is not unusual for fee owners of mineral rights to maintain a geological staff in order to follow intelligently underground developments, to see that the best methods of exploration and mining are followed, and that ores are either extracted or left in accordance with the best conservational practice.

III

LAWS RELATING TO DISTRIBUTION AND TRANSPORTATION OF MINERAL RESOURCES

Under this heading come governmental regulations affecting directly or indirectly the transportation and the destination of mineral products. Transportation rates, tariffs, zoning, duties, and international trade agreements of all sorts have vital effects on distribution. In framing any of these measures for a mineral resource, it is desirable to know all about the character of the raw material, its physical occurrence and distribution, and the possibilities for future development. In adjusting the scientific naming and classification of mineral materials with the crude names and classifications used commercially—as in tariffs, in import and export laws, in reports of revenue collectors, in railway and ship rates, etc.—the geologic information is likewise necessary.

Heretofore, the formulation of measures concerning mineral distribution has often not been done on a scientific and impartial basis; but in recent years geologists have been called on more frequently for aid and advice, as a means of checking or verifying the special pleadings of the different industries. The rude disturbance of trade routes during the war brought home the necessity of basing control of distribution of mineral products on fundamental facts of geology and geography; thus it was that geologists had a considerable voice in the vast number of special measures taken for war purposes by such organizations as the Shipping Board, the War Trade Board, the War Industries Board, and other public organizations. The same was true in relation to the mineral resource questions at the Peace Conference. In the reconstructive measures of the future, a still larger use of scientific considerations may be looked for. Further suggestions as to the relation of geology to laws affecting distribution appear in the chapter on International Aspects (Chapter XVIII).

IV

OTHER RELATIONS OF GEOLOGY TO LAW

It is often assumed that the economic geologist is exclusively interested in mineral resources. However, there are varied applications of geology outside of the mineral resource field,—to many kinds of engineering and construction operations, to soils, to water resources, and to transportation,—any of which may develop legal problems requiring geologic service. A few illustrative cases follow.

The classification of mineral materials in contracts presents many difficulties. A contract for a railway cut, for a canal, or for any other kind of excavation may specify different prices for removing different mineral materials. Too often these are stated in extremely crude and arbitrary terms, such as rock, hard rock, hardpan, earth, dirt, etc., without regard to the actual variety of materials to be dealt with. When, therefore, in the case of the Chicago drainage canal, the contractor encountered a soft shale and claimed compensation for rock excavation, geologists played a considerable part in the extensive litigation that followed in the attempt to define the facts of nature in terms of a contract which did not recognize them. In a railway cut through glacial drift or till, a contractor came suddenly upon a mass of till which had been so thoroughly cemented in place as to have all the resistance of rock. Litigation was then necessary to decide whether this should be classified as dirt or rock.

Rock and dirt slides of all kinds, met with in open-pit mining, canals, and other excavations, present engineering problems with a geologic basis. The kinds of rocks, their strength, porosity, and moisture content, the effects of weathering, and the structural conditions must be determined in order to ascertain the cause of the slides, and are features which figure largely in litigation arising from troubles of this sort.

Both federal and state laws give the right to lateral and vertical support. When, therefore, adjacent or underlying excavations cause earth movements in a neighbor's property, litigation is likely to ensue and the geologist is likely to be called in. The long-wall method of coal mining, extensively practiced in certain parts of the United States, is slowly withdrawing support from the ground overlying the coal seams, resulting in damages to surface structures and in some cases to overlying mineral deposits. Extensive litigation has been the result, and the future seems to promise more of it. In certain metal-mining camps, where considerable amounts of materials have been mined to great depths, caves and cracking in the surface are reaching over unexpectedly wide areas, again threatening litigation.

The laws relating to the use of surface and underground waters touch the geologic conditions in many ways. The permanent lowering or raising of a water level through mining or damming may require a careful geological analysis of the underground conditions affecting the movements of ground-water. The use of streams for placer mining, as in California, has resulted in formulation of laws and in extensive litigation, again requiring analysis of geologic conditions.

In fact geologists, perhaps more than any other group, have come to realize how many and how varied are the ways in which people get into conflict in using the earth on which they live.



CHAPTER XVII

CONSERVATION OF MINERAL RESOURCES

THE PROBLEM

Conservation of mineral resources may be defined as an effort to strike a proper balance between the present and the future in the use of mineral raw materials.

Mineral resources have been used to some extent as far back as evidences of man go, but great drafts on our resources have come in comparatively recent years. The use of many minerals has started within only a few years, and for others the acceleration of production within the past two or three decades has been rapid (see pp. 63-64). In general, the use of mineral resources on a large scale may be said to have started within the lifetime of men still active in business. The wide use of power necessary to an industrial age, the development of metallurgy, the increasing size and complexity of demands for raw material, mean that the intensive development and use of our mineral resources is in its infancy, and is in many respects in an experimental stage.

As nations have awakened to their need of mineral raw materials and to the recent rapid depletion of these materials, they have been naturally led to inquire how long the reserves may last, and to consider prevention of waste and the more efficient use of materials, with a view to planning more prudently for future national supplies. The first inquiries seemed to reveal such shortage of mineral supplies as to call for immediate and almost drastic steps to prevent waste, and possibly even to limit the use of certain minerals in the interests of posterity.

More careful study of the problem, as might be expected, revealed new factors and greater complexity. The conservational idea has a wide sentimental appeal, but the formulation and application of specific plans meet many difficulties. In its practical aspects the problem is now a live one, the solution of which is requiring the attention of mining men, engineers, geologists, economists, and public officials. It is a question which is coming more and more into the field of actual professional practice of the economic geologist.

It is our purpose to indicate the general nature of the conservation problem. We may assume agreement to the desirability of preventing waste, of making a wise present use of mineral products, and of striking a proper balance between the present and future in their use. Nature has taken many long geologic periods to build up these reserves. We, of the present generation, in a sense hold them in trust; they are entailed to our successors. With this general thought in mind, how shall we proceed to formulate definite plans for conservation?

An initial step is obviously a careful taking of stock. With increasing knowledge of mineral resources, it is becoming apparent that early estimates of supplies were too low. Many of these estimates failed to take into account mining to great depths, and wide use of low-grade ores, rendered possible by improved methods; and especially they failed to put sufficient emphasis on the probabilities of new discoveries to replace exhausted supplies. Early predictions have already been upset in regard to a number of mineral resources. The recognition of the general fact that the world is far from explored in two dimensions, to say nothing of three, of the fact that known geologic conditions do not yet indicate definite limits to the possibilities of exploration for most mineral resources, and of the consequent fact that for a long time in the future, as in the past, discoveries of new mineral deposits will be roughly proportional to the effort and money spent in finding them,—which means, also, proportional to the demand,—makes it impossible, for most of the mineral resources, to set any definite limits on reserves. It is comparatively easy to measure known reserves; but a quantitative appraisal of the probable and possible reserves for the future is extremely difficult. Successive revisions of estimates have, with but few exceptions, progressively increased the total mineral supplies available. The result is that the time of exhaustion has been pushed far into the future for most of the important minerals, thus minimizing the urge for immediate and drastic conservational action, which followed naturally from early estimates of very limited supplies. For both coal and iron, supplies are now known for hundreds or even thousands of years. For oil and lead, on the other hand, the reserves now known have a life of comparatively few years, but the possibilities for successful exploration make it probable that their life will be greatly extended. Notwithstanding this tendency to lengthen the exhaustion period, the limits of mineral resource life are still small as compared with the life of the nation or of civilization,—and the fundamental desirability of conservation is not materially affected.

It is not easy to predict the rate of production for the future. At the present rate of coal production in the United States, the supplies to a depth of 6,000 feet might last 6,000 years; but if it be assumed that the recent acceleration of production will be continued indefinitely into the future, the result would be exhaustion of these supplies in less than 200 years. It is generally agreed that exhaustion will come sooner than 6,000 years, but will require more time than 200 years. The range between these figures offers wide opportunity for guessing. It is supposed that per capita consumption may not increase as fast in the future as in the past, that possibly an absorption point will be reached, and that there will be limits to transportation and distribution; but how to evaluate these factors no one knows. In the case of some of the metallic resources, such as iron, the fact that the world's stock on hand is constantly increasing—losses due to rusting, ship-wrecks, etc., being only a small fraction of the annual output—suggests that a point will be reached where new production will cease to accelerate at the present rate and may even decline. But again, the factors are so complex and many of them so little known, that no one can say how soon this point will be reached.