MINING.

Otago Witness, 14 December 1893, Page 12

MINING.

THE MISTAKES MADE BY IKYESTORS IN MINES.

THE DIRECTION IN WHICH THEY MAY BE REPAIRED. The following article, reprinted from the London Money Market Review of October 7, is a refutation of the unkind observations of many English critic 3 upon the merits of investment in Australian ruining ventures :—: — There is no class of enterprise in which, with proper management, so much money may be made as in mines ; yet there is, perhaps, not one in which bo much money has been lost by British investors. Hore is at, once a aorfc oi'

paradox and a scandal ! How happens it ? The answer is that, in respect of a very large proportion of the mining enterprise of the day, the British public is simply swindled. What is more, we know the name of the cheat by whom all this robbery, running into scores— aye, in the course of years into hundreds— of millions, is perpetrated; his name is Overcapitalisation. The result is that scores, or rather hundreds, of mines stand in the market at only one shilling, or perhaps sixpence or threepence, for every pound sterling represented by them. The records of the windiug-up courts are most significant. Innumerable instances might be cited, bufc for the sake of our space we will refer to only one of the most recent. A few days ago the accounts of the Tominil mines were filed. This company had a capital of the amount usual in such cases — namely, £500,000. Of this amount, again as " per usual," £4Oo|oOOJ or four-fifths, was assigned to the vendors. The British public were invited to subscribo £50,000 for working capital, and the confiding British public did bo, the capital being "oversubscribed." The assets of the concern aro practically nil, for the official report states that as regards contributories there is a total deficiency of £422,560. What else could happen to bo absurdly handicapped a project as this P

Let us leave out of consideration, however, baseless projects of this kind, and look into the position of reputable concerns, by way of illustrating the way in which the investing public are too often treated. We are not fond of sweeping generalisations, yet do not hesitate to say that scarcely a mine "comes out" bud is over-capitalised. There is a fine sonorous ting about a large capital which attracts the public ear. Large concerns go down— usually in more senses than one ; while modestly capitalised ventures are unduly neglected. The Stock Exchange itself is to blame, for in its pride and mightiness it will not grant the privilege of offich 1 quotation and "settlement" to coucerns whose capital falls below a certain amount, albeit it thereby directly encourages the undue stilting up of capital amounts. To such an extent has the evil proceeded that, in regard to the great majority of Australian and other coloniai ventures, colonial men — men on the spot, conversant with the conditions of the various properties — habitually avoid a London-launched and English-managed mine, and put their money into small, lecal concerns. Experience shows them that in the one case there is an over-capitalisation and an extravagance or remissness of management which are enough to sink any project ; while in the other the capitals are studiously kept down ; directors' fees are a merely nominal quantity ; and the expenditure of every pound for working expenses is mest jealously watched. The contrast is more than remarkable — it is something astounding, alike as regards amount of capital, cost of winning the gold, and, as a necessary consequence, amount of dividends. We want our readers to follow us closely in this sort of investigation, for it lies at the very root of mining success. We have studied the subject long and exhaustively, and must say that in no quarter have we found so much assistance as from Mr Samuel James, the mining share dealer, of 3 Copthall Chambers, E.C., whose circulars are occasionally quoted in this journal. To say that Mr James has studied his subject would be almost an impertinence. He has been practically and closely identified with mining business all his life, has been for many years a member of the mining exchanges of London and Redruth, has always stood in the highest rank of mining share dealers, and has brought to bear upon this branch of business a rare degree of instinctive acumen and native ability. To these attributes he adds an innate independence of character which leads him to follow his own course untrammelled by outside influences, and to deal out an unsparing criticism penetrating to the very roots of things. He is emphatically a man who " calls a spade a spade." Moreover, he has personally visited Australia and South Africa with the express object of studying the conditions of the various mines on the spot, and has established a system of local correspondence of the highest value to a London dealer, for in this way he holds in his hand, as it were, the threads of the various mines, any change in which is instantly communicated to him by telegraph. Mr James is not a member of the London Stock Exchange, simply because the real mining market— the market for a vast number of promising Australian and other properties — lies outside of the Stock Exchange. The Stock Exchange, as we have said, takes cognisance mainly cf only large concerns, possessing those big capitals the very size of which signifies the deferring of the bopca of shareholders and the_ diluting of dividends when the dividend stage is arrived at ; whereas the " outside" market, under the impulse given to it by Mr James, resembles the local wellinformed stock exchanges of the various Australian mining centres, in dealing in mines the limited amount of whose capital and the strict economy of whose management immensely increases the prospects of remunerative results. Little arithmetic is needed to prove that a 5 per cent, per annum dividend paid upon a capital of half a million means 25 per cent, upon a capital of £100,000 and 100 per cent, upon one of £25,000. Look on this picture and on that, may truly be said in regard to miniEg capitals. Let us glance, firstly, at the capitals of a few of ffce London-launched mines. Amongst Australian gold concerns, without any wish to throw stones, we may reproduce the following figures : — Australasian MiniDg, capital £210,000, price of the £1 share about Is 6d ; Bonnie Dundee, shares issued £120,000, paid up to 17s per £1, price about 2s 9d ; Day Dawn Block, shares issued £498,400, price of the £1 share 5s 6d ; Day Dawn P. 0., shares issued £490,000, price of the £1 share _6s ; Kaboonga, capital £250,000, shares 10s, price 6d to 9d ; Mosman, capital £185,000, price of the £1 share 3s 6d to 4s ; Mount Leyshon, shares issued £156,239, £1 shares with 19s 9d paid, price 6d to Is ; Weutwortb, priority capital £150,000 in £1 shares, price 15s; ditto, ordinary capital £350,000 in £1 shares, fully paid, price 9.3 ; and Efcheridge, capital £137,500 in 5s shares, with 4s 9d paid, present price 3d to 6d. Amongst Australian silver mines we may cite the British Broken Hill, whose capital is no less than £1,300,000, and the price of the £5 share about 3s 6d. Passing from this dreary record of largelycapitalised companies and huge market losses, we will now avail ourselves of the materials drawn from Mr Samuel James's circulars to show what is being done in regard to some of the Australian mines possessing comparatively small capitals whose shares, hitherto dealt in almost exclusively on the local Australian exchanges, are now being largely introduced by him to English investors, aud are becoming popularised in the London "outside" market. If what we are about to say do not set English mine shareholders rubbirjg their eyes we shall be surprised. The Australian "Gympie" goldfield, in particular, is full of present prizes and of future promise. Few people in this country have heard of the Charters Towers concern known as the "Papuan Brilliant aud Victoria." Thu capital of this company is £12,000, in 96,000 shares of 2s 6d, on which there has been paidhow much does the reader suppose? — l^d per share ! The shares are quoted about 8s to 10s. For the last half-year thia concern v&u-eil

25750z of gold, realising £9180. The dividends —dividends on a 3£d share ! — paid for the half-year were £5880. What were the directors' fees ? Hear it, oh ye London "guinea pigs"! — £35. What were the "salaries"? The answer is £60. Consequently only £95 was Consumed iv returning fco shareholders iv dividends £5,880. Mark it, ye London directors and secretaries ! Mark, tjo, the fact that over 61 per cent, of the gold raised was actually distributed in dividends. ' • When," plaintively exclaims Mr James, "will mines managed from London give such results, and why is London incapable management co costly?"

But this concern is only ona of many prizes. Mr James came back from Australia last year full of practical information gained on the spot, and, having invested a certain proportion of his own capital, naturally did the next best thing inputting his clients "up" to good local concerns, such as No. 1 South Phconix, No. 2 South Phcenix, Crown and Phcoaii, No. 1 North Phcoaix, Phccu ; x Golden Pile, Mills's Day Dawn, Craven's Caledonia, Baker's Creek, and other mines, which are only now beginning to become kaown in London. We say advisedly that the English public are lamentably ignorant in regard to the real Australian gold-mining prizes. Bamboozled by high-sounding names and dazzled by the glitter of huge capitals, they have mistaken the shadow for the substance. That local Gympie concern, the No. 1 North Phceaix, with absolutely no capital called up, for it struck a rich reef just prior to the formation of the joint stock company, has actually paid £400,500 in dividends on a capital of £10,000, has returned upon each 10s share the sum of £20 0d 6J, and has paid for the first eight months of this year 63 per share. This is something like a mine. But there are plenty oi other fine things always in course of development. The capital oE No. 1 South Phcenix, another Gympie Company, is £18,000 ; if it had "come out " in London tha amount would probably have had a cypher clapped on to it. This mine entered the dividend list in October last, and has since returned a good deal more than the entire amouub of its paid-up capital, having paid 13s 9d in dividends on each 10a share. The capital of the neighbouring No. 2 South Phcenix is yet more restricted, being £10,000 ; since December last it has paid in dividends 13s on each 5s share. Five months ago Crown and Pfacenix shares were obtainable at about Is ; they are now quoted about 2s 6 J, the concern having entered the dividend list by paying 9d a share in June, 6 J in July, 9d on August 7, and Is on Augusb 25. The capital is £20,000 in 10s shares, on which 93 2d has been paid. North Smithfield is another Gympie mine ; last year it paid 193 6d on each 10s share ; it has improving prospects, and is shortly expected to re-enter the dividend list, together with other concerns. We are still keeping to the Gympie district; the No. 1 North Great New Zealand mine early in August yielded from 271 tons of stone no less than 31660z of gold, which realised £11,163 7s 4-d, whereupon a dividend was paid amounting to £10,350 ; for it is a feature of these local companies that, as soon as a dividend is earned, the shareholders get it, bimply because the funds are not frittered away. This dividend amounted to 53 9d per 53 share. But the amount of capital actually paid in regard to the company's 53 shares is remarkable, being Is 2d. The capital is £9000 in 36,000 shares. The total amount of dividends paid by this mine since June last is 16s per share, 33 6d having been advked on Sepfcen> her 1 by cable.

We might fill our p^ges with examples of the splendid returns which are being made by local companies working with small capitals in the Gympie, Bendigo, and Charters Towers districts ; but, lest these remarks should become unduly extended, we shall perhaps do better to refer our readers to Mr James himself, who is willing ah all times to furnish information. There are mines in those regions in every stage of development, and all that buyers have to do is to get into promising properties at the right moment. In regard to the established properties, it is important to remark not only the richness of the yield and the economy with which it is obtained, but likewise the frequency of the dividend announcements. Thus, in the case of the No. I North Phoenix, 195 dividends have been paid. Running his eye over a number of the Gympie properties which either adjoin one another or are in close proximity, Mr James points the extraordinary feature of the position when he fays : " The colonial mines pay dividends ; the English-managed ones do not " ; and he supplies the explanation in the pithy remark that " purely Euglish companies do not get 20s worth of work done for the 20i expended." Mr James, too, hits a blot when he says : " For the great majority of Australian mines there are no London offices for the receipt of transfers and calls, the payment of dividends, and where the latest reports and condition of the mines may be ascertained and plans of. the workings inspected. It is absolutely necessary that all these should be provided if a flow of capital is desired for the ever-increasing and prosperous goldfields of Australia. At present much is left to private enterprise that ought to be done officially "; and he proceeds to illustrate the tendency of private enterprise to supplement official shortcoming by himself undertaking the transmission and payment to holders of dividends on shares bought through his medium.

Now in these remarks we contend that we have proved our position, and have demonstrated the main causes why English investments in Australian and other gold mines have been productive of co much disappointment. Here are mines which, such as the No. 1 SouHi Phcenix, have paid since last October dividends equal to about 218 per cent, per annum on the paid-up capital, and others which, as in case of the Crown aud Phcenix, actually show a return of about 360 per csnt. per annum on the present pries of the shares. Taking everything together, we are disposed to agree wholly with Mr James when, speaking of Australian locallymanaged gold mines, he says: "In no other iiold in the world is so much paid in dividends upon the amount of capital expended." Aud the cause of these splendid results are to be found, as he saj s, in the satisfactory position of the great majority of the mines, the magnitude of the dividends paid by them, the smallness of the capitals, the limited cost of management and of direction, and the fact that shareholders receive in actual dividends so large a proportion of the gross proceeds of the gold raised. We advise our readers, in a word, to disabuse themselves of the idea that large capitals ar« necesary for the remunerative working of mines, and to give their attention preferentially to properties of small capital economically managed on the spot.