While doing research for a project I recently ran across a letter to the editor published in the December 26, 1926, edition of the Engineering and Mining Journal which I quote here in its entirety as it is a good read:
Sir—A communication, “As a Lawyer Sees Mining,” in the Dec. 4 issue, prompts me to express some opinions that I have long needed to get off my chest. While I can hardly be classed as a so-called mining scout*, I have examined a good many properties in the course of a careful search for something with promise. This took in all classes, from bare prospects to producing mines. Incidentally, there was very little time to stick around a cigar stand, and I had to be contented with rolling one occasionally; so perhaps I do not qualify.
What I want to mention in particular is the large number of properties owned, controlled, or managed by lawyers, doctors, dentists, bankers, cattlemen, butchers, storekeepers, lumbermen, farmers, and in fact anyone but a man with training and experience in mining. The usual result is about what I would expect to get if I went to a plumber for legal advice or paid a blacksmith to put an inlay in an obstreperous molar. Yet people hand over hard earned money to such as these to develop and operate a mine. They bungle along for a period of time, perhaps take out a little ore and finally reach the point where it is difficult to raise more money to equip the property or revamp the unsuitable equipment already purchased. About this time a mining scout, or let us say an ordinary mining engineer who has cut his eye-teeth, comes along and looks over the layout. Perhaps it has some promise, but everything he looks at bristles with glaring mistakes caused by inexperience and over-enthusiasm. When it comes down to a discussion of price and terms he finds that the buyer is expected to pay for all these follies dollar for dollar. The price of the property is based on the amount of money already spent plus a certain sum for ore in sight or believed to be just within reach. Having cut his eye-teeth, the engineer knows the buyer will make a few mistakes himself. It is bad enough to pay for these without taking on somebody else’s. So he tells the owner what he figures the property is worth and that is the end of it. The discrepancy is large and the owner thinks the engineer is a highwayman.
Time and a natural inability to write will not permit of citing numerous instances that come to mind. I have just turned down a man who states he has a million tons in sight. One short tunnel constitutes the underground work, and the purchase price is only about $150,000. Perhaps I have passed up the opportunity of a lifetime, but I hardly think so. Some properties are priced according to probable net profit on estimated ore reserves, but what can a poor “scout” do when his own careful estimate of tonnage and that of the owner do not tally by a wide margin; especially when the probable profit is predicated on a large expenditure in equipment necessary for more economical operation? There are many properties worthy of development from a geological standpoint that are not grabbed up for the same reason that a man doesn’t grab up two-cent stamps at five cents each.
As Mr. Russell states, all mines were originally prospects, but many instances can be cited of mines that paid their way from the grass roots. I will not dispute the statement that the percentage of successes in mining far exceeds that of any other line of business, not being familiar with statistics and history in other lines. I would be contented, however, with a fraction of the difference between the total sum expended in mining enterprises and the total proceeds. I believe I could build a pretty good fence to keep the proverbial wolf away from the door. This is not knocking my own profession; I went into it with my eyes open and have not had cause to blink at the facts since. ENGINEER. Talache, Idaho.
Written nearly a century ago, the above letter demonstrates that little has changed with respect to the owner of a potential mining property, his or her idea of how much it is worth and how it should be valued. Indeed, the line about the “large number of properties owned, controlled, or managed by lawyers, doctors, dentists, bankers, cattlemen, butchers, storekeepers, lumbermen, farmers, and in fact anyone but a man with training and experience in mining” remains very relevant today, when junior mining companies are so often managed by lawyers and accountants or others with scant technical training and little or no mining experience.
Using the 1926 analogy, some such companies bungle along today until they finally reach the point where they need a Technical Report for listing, raising finance, or in support of a transaction for the property. At that time, they hire a mining consultant to review their work or value the property. Thankfully, along with the rising strength of professional organizations, compliance with international standards, best practice guidelines and accepted valuation methodologies have taken some of the uncertainty out of the process. However, the end result remains only as reliable as the underlying data or the integrity of the individual or firm undertaking the valuation. Often, it will be found that insufficient exploration or development work has been undertaken to justify the owner’s inflated opinion of value.
Just as in the past, then, today’s mining consultants are faced with the same dilemma in that “there are many properties worthy of development from a geological standpoint that are not grabbed up for the same reason that a man doesn’t grab up two-cent stamps at five cents each”. Unfortunately, when it comes to the valuation of mining properties, the owner invariably aspires towards some multiple of its fair value and it seems this has not changed in the last 100 years!