Cost of Acquiring and Operating Mineral Properties

Cost of Acquiring and Operating Mineral
Properties
P a r t I. Metal, Nonmetallic, and Coal
BY PAUL M. TYLER
Consulting Engineer, washington 14, D.C.
Mineral raw materials, because they are essential to our industrial prosperity and military strength, must be made available in substantial quantities regardless of cost. Variations in the cost of procuring minerals, as
compared with the cost of obtaining other commodities, and changes in
the cost of production of different minerals relative to one another, will
naturally influence the quantities of a given mineral item that can be marketed readily. However, in the last analysis, the cost of winning minerals
from the ground usually constitutes only a small fraction of the value of
the end-use products and services derived from them. The miner's share
of the cost of a typewriter, telephone circuit, or even a modem office building, is almost insignificant. Far more important to the ultimate consumer,
therefore, than any minor saving in cost is the assurance of ample supplies
of 'the minerals needed to aliment our expanding economy.
To create a successful metal mining operation involves (1) the discovery
and systematic development of a mineral deposit, (2) extraction of the
ore, ( 3 ) the mechanical and metallurgical processing to eliminate worthless or harmful impurities, and (4) the profitable disposal of the product.
The first step of the technological process belongs chiefly in the realm of
the geoloj$st, the second is a mining engineer's job, the third is mainly up
to the millmen and extractive metallurgists; whereas the fourth and equally
important step poses a commercial problem that has aspects in common
with the marketing of other products. Ore finding is far from being an exact
science. There is no mathematical criterion for evaluating the efficiency
of prospecting and exploration. Lady Luck shares the honors or assumes
part of the blame along with the prospector and geologist. Marketing likewise involves factors that seemingly defy engineering analysis. Although
the other steps can be measured with some degree of mathematical accuracy, even they tend to vary so widely in basic principle, as well as in
163
164
ECONOMICS OF THE MINERAL INDUSTRIES
unit cost, that attempts to describe the mining business in its entirety soon
lead to, complications if not confusion.
Notwithstanding the difficulty of discussing even a single branch of the
mining industry as a whole, we do find many points in common. Often it
is useful and sometimes necessary to distinguish sharply between the metal
mining business and the business of producing coal, petroleum products,
natural gas, or miscellaneous nonmetallic minerals, and within each of
these major groups there are frequent points of difference. In the present
chapter, however, the aim is to emphasize the features that are common to
many branches of the industry rather than to catalog these points of difference. Important exceptions may be cited to almost any statement that
purports to cover the industry as a whole but meticulous attempts to observe such exceptions would result merely in our failing to see the forest
because of the trees.
When we speak of "cost7' we ordinarily think of price, or the amount
paid for something. Although the cost of procurement of any commodity
or service can often be expressed in dollars and cents, it does not follow
that this is the entire cost. Behind the money value-and not infrequently
quite apart from and additional to the items that can be listed on the cost
sheet-are likely to be other outlays. 'No mining enterprise becomes successful without major contributions of human ingenuity, experience, technical know-how, organizational advantages, managerial skill, personal sacrifice, and countless other intangibles "above and beyond the call" of a
pay check. One is tempted to stress the courage that spurs the prospeotor
to keep on looking for signs of hidden deposits or that causes the promoter
or hancier to gamble his money on a long shot. Then, too, there is the
social cost which stems from the hard fact that the ore reserves upon which
a community may depend for its livelihood are exhaustible. Here in the
United States the numerous ghost towns that were deserted when the mines
were closed may be regarded simply as reminders of a colorful past. But
this is because we still think in terms of new frontiers. In Europe, on the
other hand, one may find a totally different attitude. Efforts to speed up
production rates to meet present-day needs for minerals may be resisted
even after it may be shown that a higher production rate would increase
the ultimate total. net return. Both nationally and locally, both economic
growth and profit considerations may have to compromise with the dread
that future generations may suffer. The prospective abandonment of established con~munitiesafter known mineral deposits are worked out looms
as a social responsibility that few European staltesmen are willing to face.
Another cost factor is the heavy expense of many tributary functions involved in doing business in minerals, such as the cost of accounting, collecting taxes, legal work, personnel work,. accidents, insurance, controlling
pollution, public relations, obsolescence, and requirements on abandon-
ment. These are frequently overlooked by the uninitiated but they add up
to important tolls against the earnings from production.
Even when we confine our consideration to monetary cost we are beset
with various problems. Conditions are widely different at different mines
and change rapidly even at the same mine. Each mine or mineral deposit
' is a special case in itself. The "average mine" will never be found, and if
it were found it would not remain that way long. When we talk about computed averages or so-called "typical" costs we should keep in mind the
man who drowned when he ventured to wade across a stream that averaged
only two feet deep.
The time and effort spent in obtaining actual cost data for various types
of mineral enterprises for the purposes of this chapter will be worse than
wasted if readers fail to take account of the certainty that no two mines
are really alike. Before venturing to extrapolate figures from one mine to
another, we must compare the nature of the enterprises, the scale of operations, the geographic and political environments, the date, and a great
many other factors.
To add to the general confusion attending the attainment of proper
perspective, questions arise as to the optimum unit for measuring costs.
The oil and gas industries employ barrels of crude oil and thousands of
cubic feet of natural gas whereas cubic yards (or cubic meters) are the
customary units in placer mining and often in stripping operaltions. Other
branches of the mining industry consider tons of crude ore or coal mined
or treated as the common denominator of their operations and these tons
may weigh 2,000, 2,204.6, or 2,240 pounds, and they may be "gross" or
"net," "wet" or "dry." No quan~titativeunit, however, is entirely suitable
nor always understandable to the uninitiated. Gold miners often find it
necessary to report their cost data not merely in terms of tons of ore mined
or milled but also per ounce of metal recovered and sold. Many metal
mining companies base their cost data upon pounds of copper or units of
U,Os, WO,, Cr,O,, etc. Academic economists may elect to employ such
abstract units as installed horsepower of equipment, man-years, or thousands of dollars of capital invested. For many businessmen, a breakdown
' based upon the sales dollar may be recommended as most informative.
However, in nearly all mine valuations, cost5 are tied in with ore reserve
units.
Many years ago, while en~ployedby the United States Tariff Commission, the author of this chapter conceived the idea of assembling unit costs
at various stages of advancement of mineral-based products from crude
ore, to concentrates, to metal, and finally to rolled sheet, merchant bars,
etc., or from crude, oil to refined products. It was believed that such figures
would be useful in comparing costs of production in the United States and
abroad. It soon became apparent, however, that even in the iron and steel
166
industry comparisons on the basis of man-hours and other physical units

were even more misleading than dollar equivalents. The most efficient use
of basic factors in production will vary according to the economic environment and local conditions. Laborsaving devices are economical only when
they save money as well as man-hours. Some of the cheapest mining ever
accomplished was done by slave labor under primitive conditions. Many
gold mines in the southeastern United States were picked clean before the
Civil War by plantation workers who had to be fed during the winter and
who had no other useful outlet for their energy. Under such circumstances
it paid to work ores that were far too low-grade to yield a profit under
present-day conditions. Except where the rock was too hard for hand drilling, or the flow of water was too great for primitive pumps, or the ores
were refractory, no amount of modem equipment or know-how can, in
general, offset the higher wages that must be paid today. The traditional
benefits of modem machines and mass production methods, moreover, are
likely to prove illusive when it comes to mining small or erratic ore bodies.
Notwithstanding the astounding progress made within the last few decades,
there are still quite practical financial limits to our ability to overcome by
improved technology the handicaps of higher hourly wage rates and the
necessity of working progressively lower-grade deposits.
It follows from the foregoing paragraphs that a study of the cost of
producing mineral products must include not merely a presentation of
selected cost data but also a good deal of more or less academic analysis
of the major factors behind the expense items that ultimately appear on
the cost sheet. Consideration will also be given in the ensuing pages to
certain imponderables and to the economic and social problems that influence the climate in which mining operations may have to live.
The time factor is another consideration that calls for 'at least brief
mention. Ours is a changing industry. Basic facts of even a decade ago are
no longer applicable to many current problems and what is true today may
not be true a few years from now.
Cost o f Obtaining Economic Deposits and Preparing Them ,for

Commercial Production
The cost of acquiring and exploring an economic mineral.deposit and
getting it ready to start producing is a capital expense. Minerals must be
found before they can be extracted and the cost of finding them usually
must be liquidated before a mine can begin to show a net profit. To maintain a prosperous mineral producing industry we must not only maintain
production from existing mines but also open new mines and reopen
abandoned workings. This takes effort-more effort than ever before in
history. Notwithstanding the major advances that have been made in techniques of earth moving and subsurface exploration, it is getting harder and
harder to find a worth-while mineral deposit. Wildcat wells and diamond

core drilling to test deep-seated formations call for expenditures far beyond
the resources of individual prospectors of the old school who sought deposits that would pay from grass roots. Although a mining company may
set aside specific sums to be spent on prospecting and exploration, no
amount of budgeting will assure how much mineral will be found per dollar
expended. In view of the uncertainties involved, no widely acceptable basis
for estimating average cost has yet been devised.
Besides the risks of ordinary business, mining enterprises are subject
to depletion; one must always be searching for additional reserves and new
deposits. Mine property differs from other real property in that it is necessarily consumed in the regular course of business. Yet, unlike other expendable property, it cannot be readily replaced by purchase in the open
market. The financing and sale of mineral properties is a legitimate and
necessary business. Reputable promoters engaged in this business make
useful contributions to the mining industry and they are entitled to reasonable profits. The plain fact, however, is that acquisition of a commercial
mine, or even of a good prospect, is a complex process usually fraught with
great uncertainty and subject (to frequent disappointments.
Potentially valuable prospects or regions favorable for the intensive
search for economic minerals must be discovered. After being discovered
the deposits must be explored and ordinarily, even if exploratory work confirms the existence of a deposit of economic size and grade, a great deal
of work must still be done to develop the property into a mine. The shape
of the deposit must be established in order to develop a suitable mining
plan, and enough information must be gained to determine the most advantageous treatment process and optimum sue of plant.
Apart from the reluctance of most mining companies to publish costs
there is the problem of establishing a comparable basis. Even with copper,
variable credits for associated metals or other joint products tend to complicate the significance of a calculated average cost per pound of metal.
The cost per unit of ultimate product may range from a low figure,
particularly for a deposit with high-grade outcrops that may begin to pay
from grass roots, to large sums that could not likely be repaid out of a
commercial operation. Because many mining properties have paid off after
repeated failures to find commercial ore bodies or suitable metallurgical
processes, the question might be asked as to how much of the money lost
by the unsuccessful enterprisers should be included in the final capital cost.
Construction and equipment costs, on the other hand, are capable of
being computed with fair accuracy, when made by competent engineers and
where the mines and plants employ time-tested procedures. But where new
and untried processes or other unknown factors come into the picture, the
original estimates of even the best engineers may often partake largely of
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168
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ECONOMICS O F T H E M I N E R A L I N D U S T R I E S
intelligent guesswork. A 20% excess of actual over estimated cost of such

projects is not uncommon especially if a longer time than anticipated is
required to achieve production, and a 10% allowance for contingencies
must usually be added to an engineering cost estimate. Only 5% is allowed
in most bids.
No general rules can be established for estimating the cost of mine development much in advance of laying the project out on the drawing board
except for unit labor crews, and unit labor and materials costs. A great
deal depends upon the geologic setting. Estimates of the continuity of ore
in areas that are not actually sampled can only be based on experience
with the particular type of occurrence. The spacing of drill holes, trenches,
or other developmenlt openings for delineating an ore body will be much
closer .in the case of a high-grade or spotty deposit than for one that is
low-grade and uniform in character.
Similarly it is impossible to idealize regarding the normal cost of surface
equipment, underground installations, and machinery requirements. In contrast with a small mine in an established community, big mines in remote
regions often must be started from scratch. In addition to the facilities
necessary to operate the mine, including perhaps a railroad, it may be
necessary to lay out a sizable town with water, sewerage, electricity, stores,
workers' dwellings, recreation facilities, public buildings, hospitals, and
preventive medical programs.
A check list of items to be considered in estimating the capital cost of
establishing a small uranium mine, as described in Bureau of Mines Information Circular 7726, includes the following: Development (underground
or surface excavations to afford access to the ore), access road construction,
establishment of a camp, and installation of mine plants. The cost of headframe, hoist house, hoist, skip and/or cage, and loading and dumping arrangements will depend, of course, on the size and life of the project. Although a vertical shaft may be preferred when the ore lies at depths below
say 150 to 200 ft, inclined shafts may be cheaper as they may require less
timber and less costly surface equipment; mucking costs also are lower.
First cost must be compared with operating cost. Upit costs of certain
operations, as reported in this Circular, are given in a later section of this
chapter.
Underground Development Costs

Development costs do not cease when a mine begins to produce ore. A
review of numerous cost sheets tends to indicate that development costs
at large underground metal mines may average between five. and fifteen
percent of the total operating cost'but there are mines where current development costs as much as stoping.
As noted in the next section of this chapter, the cost of advancing ordi-
nary driAs and raises may range all the way from twenty dollars or less to
sixty dollars or more per foot. A typical breakdown of direct cost of such
work act a Western United States mine in fairly hard rock, however, is
shown in Table 1.
TABLE
1. Western Mine Development Costs, 1956
Salaries
and Wages
Item
Drilling and blasting

$10.16
Mucking
4.44
Timbering
3.48
Track
0.30
Lights
0.19
Venti1:~tion
0.13
Engineering and superintc~~dcncc $ 2 . 5 7
Supplies
Power
$0.41
-
0.04
Other
Total
- $13.77
4.44
4.75
0.73
0.29
1.02
2 . 64
$21.27
TABLE
2. D'evelopnzent Costs at Sunbright Limestone Mine
Units
Dollars
3.26
1.71
3.41
1.32
$5.15
3.17
5.6!)
3.54
A. Labor (man-hours per foot)

Breaking (drilling and blasting)
Mucking (mechanical loading)
Haulage
Supervision
Total labor
Feet per 8-hour drill shift-11.9
B. Power and Supplies, pcr foot
Explosives-lb
Total power (est.)
Air compression-kwhr
Ventila.tion-kwhr
Lighting-kwhr
Other supplies
'
Total cost
$40.00
At a large underground limestone mine in hard, firm, brittle rock, current development (1958) consists mainly of driving an opening 20.3 by
38.2 ft in section. Cost data for this large drift or room are reported as
shown in Table 2 in a Bureau of Mines Information Circular.
Miscellaneous Mining Cost Data

. Although, as repeatedly pointed oult in this chapter, the cost of mining
is likely to vary widely from mine to mine, experienced mining engineers

are called upon to make estimates and must have fairly definite ideas as to
what it is likely to cost to do a job under fairly typical conditions. By
170
suitably modifying their more or less basic figures, they are often able to
make shrewd estimates as to what it should cost to perform the work under
a new set of circumstances. But since the process of arriving at acceptable
estimates in this fashion is really an art rather than a science, a careful
and competent engineer is required to do the work.
A comparison of cost distribution between an individual property and
average figures for a group of more or less similar operations often helps
to spot weak points. Case histories of various other mines, therefore, may
be truly useful even when they cannot be translated directly or set up as a
model for other mines. (Note: Unless otherwise specified all cost data in
this chapter are estimates for United States mines in mid-1957.)
During the 193OYs,the United States Bureau of Mines conducted an extensive series of investtigations of mining methods and costs at various types
of mines. These data were well summarized by the late Messrs Chas. F.
Jackson and J. H. Hedges in Bureau of Mines Bulletin 419. Although
outmoded by technologic changes and wage advances during and after
World War 11, these tabulations may still be useful'provided suitable consideration is given to the inflation faotor as well as to differences in local
conditions at specified properties. But it is impossible to bring tabulations
made several decades ago up to date by any system of calculation based
on changes in wage rates or other economic indexes, including those for
wholesale prices and machinery costs. This is true even though academic
allowance may be made for the increased output per man-hour. Whereas
the efficiency of mine labor has increased in the United States at an
astonishingly uniform rate of about three percent a year until fairly recently
the changes in any single branch of the mining industry, and more especially at any given mine, are quite variable and unpredictable.
A rough-and-ready rule employed by some mining engineers for many
years was to estimate total direct mining costs at twice the labor cost. It is
easy to find the number of men employed and wage rates at a particular
mine, and tonnage figures are not hard to get, but the examining engineer
as well as the casual visitor rarely is afforded access to more detailed data.
A suitable factor based on labor cost, therefore, would be useful also in
preliminary estimates for a new project in any area. Average cost breakdowns, as reported to the United States Census Bureau for specified
branches of the mineral industry, so far as available, are summarized in
the next section of this chapter. This tabulation tends to support an approximate estimate of fifty percent for labor at metal mines in 1954. The
corresponding figure during the 1920's and early 193OYs,on the other hand,
was about sixty percent, and the tendency still seems to be continuing
downward for this figure.
Useful comparisons between prewar and more recent conditions in
Canada are set forth in a semiofficial pamphlet entitled "Ontario Gold
'
COST OF ACQUIRING AND OPERATING MINERAL PROPERTIES

'
17 1
Mines" which reported that tons of ore mined and milled per wage earner
at Ontario gold mines increased by 40 percent between 1935 and 1954from 617 tons to 886 tons-while
annual wages rose 103 percentfrom $1,595 to $3,236. Excluding fixed charges, the total cost per ton
rose from $4.31 to $6.08 and the cost per ounce of gold produced jumped
from $14.10 tor$24.40. The breakdown of these figures of direct costs is
shown in Table 3.
Notwithstanding the almost universal introduction of laborsaving machines since the 1930's and the adjustment of mining methods to new
equipment and techniques, this publication points out 'that the cost rise
has been slowed down but not reduced and that this fact raises the question
as to whether the pace of recent increases in man-hour efficiency can be
maintained. (Current observations indicate that it cannot.) Increases in
costs for specified items are reported as in Table 4.
TABLE
3. Ontario Gold.Mines: "Variable Cost per Ton Mined and Milled"
Item
Wages and salaries
&laterials
Fuel and power
1935
$2.83
0.99
0.49
1954
$4.10
1.58
0.40
$4.31
$6.08
TABLE
4. Ontario Gold Mines: Increased Costs of Major Supplies
Item
Explosives
Cyanide
Timber (B. C.)
Lagging
Coal
Drill steel
Grinding balls
Steel plate
Rails
'
Unit
100 lb
100 lb
M fbm
piece
ton
100 Ib
ton
100 lb
long ton
1935-38
$13.25
12.75
37.00
0.26
8.05
11.00
71.80
3.50
66.08
1954
$19.13
15.72
110.00
0.53
16.78
20.00
138.35
9.00
?
Increase,
Percent
44.4
23.2
197.3
103.8
108.4
81.8
92.7
157.1
?
Cost data for each of the major branches of the mineral industry are
discussed in the next section of this chapter. At this point, however, it
may be noted that over-all mining and milling costs at a few American
mines where conditions are exceptionally favorable are still below $2 a
ton. Rock-bottom figures are probably about $1.00 for mining and $0.60
for milling. At the experimental oil shale mine of the Bureau of Mines at
Rifle, Colorado, E. D. Gardner and his associates actually obtained an
out-of-pocket mining cost of less ,than 754 a ton and ,there was hope that
this might be reduced eventually to 50$. In effect, however, this was a
huge open-pit type of operation notwithstanding the fact (that it was actually underground. Somewhat similar conditions may exist at large under-
172
ground limestone mines and a few other mines, but nonselective mining on
so large a scale can be undertaken only under extraordinary conditions.
Metallic ore bodies are almost never big enough or sufficiently uniform
in outline or grade to permit laying out a mine by pure geometry. Gold
dredging costs may occasionally approach a minimum figure of seven or
eight cents a cubic yard. This is lower than the cost of moving worthless
overburden at ordinary mines and a good deal less than the cost of producing sand and gravel because the latter requires more handling even
when washing and screening operations are omitted.
An ordinary drift, up to say 7 by 9 ft and largely untimbered, costs all
the way from about $20 to $60 or more per foot; in the United States a
rough average is perhaps around $30 to $40 a foot of which $10 represents
indirect costs. A raise 4 X 4 or 6 X 6 ft is likely to cost around $20 a foot.
Sinking a three-compartment shaft may be estimated at $250 to $500 a
foot, excluding erection of headframe, hoist, and surface equipment. At
uranium mines on the Colorado Plateau (IC 7726), a typical "deep"
vertical two-compartment shaft, timbered, averaged nearly $100 per foot
for direct cost to which must be added about $50 a foot more for indirect costs including surface equipment. Direct cost for a "shallow" shaft
was reported as being only $75 a foot for actual sinking plus $40 to cover
the cost of plant construction and installation. A single-compartment inclined shaft on the Plateau cost from $25 to $50 a foot, depending upon
the size of the opening and the length of the incline.
Other rule-of-thumb approximations of unit costs collected for the purpose of the present chapter are $250 per ton of capacity for mine cars,
$200 per man for a dryhouse, $10 per square foot for ordinary one-story
houses and $300 per ton of daily capacity for underground face equipment.
Pipe lines cost about 50% more than the material cost and in the Western
United States the unloading of materials costs about 4# a pound.
At least one company estimates start-up costs for a new mine at 10%
of the capital cost. New construction cost estimates ordinarily include a
contingency reserve of 20%, and engineering costs are often figured at 5
to 10% of the cost of a job.
The cost of a small (50 to 500 tons per day) gravity or simple flotation
mill is commonly estimated roughly at about $2,000 per ton of daily
capacity; about half of this is for machinery and equipment and half for
freight, site preparation, and installation. For a lead-zinc mill employing
selective flotation, the cost must be increased by 15% or to about $2,300
per ton of daily capacity. And a cyanide plant using continuous decantation might cost $3,000 per ton of daily capacity, more if all-slime treatment
is needed.
A D-7 bulldozer costing about $18,000 has an estimated life of 10,000
hours and operating cost may be figured at $5 an hour plus operator's
wages. Bulldozer stripping of narrow veins or prospect trenches costs 8 to

204 a cubic yard for unconsolidated overburden, 50# to $2 or more if rock
has to be blasted. In general, unconsolidated material can be moved considerable distances for 304 whereas rock removal costs 80# a cubic yard.
Professor Eugene P. Pfleider (Mining Congress Journal, Feb. 1956)
gives extraction costs for open-pit mining as shown in Table 5.
Diamond core drilling on contract costs from $2.50 to $10 a foot or
more depending upon location, character of ground, size and depth of
hqle, and size of job. Some companies make a flat charge for mobilizing
and demobilizing equipment in addition to the footage rate. Chum drilling
TABLE
5. Extraction Costs for Open-pit Mining
System
Shovel and wagon
Self-propelled scraper
Tractor scrapers
Walking drpgline
Hydraulick~ngFree
Ejector
Sand pump
Dredge
Cents per eu yd
Cu yd per unit
per shift
45.9
37.9
26.6
11.8
43.0
62.7
74.6
386.2
7.3
11.5
8.8
8.5
136.5
87.2
295.3
300.0
Contract Drilling Charges on the Colorado Plateau

I)cptl~of IIole, It
0- 100
100- zoo
200- 300
300- 400
400- 500
500- 750
750-1.000
I~
Di:~mondDrill
wit11 core
no corc
$1 .75-$12.50
1.85- 2 . 7 5
2.75- 3 . 5 0
3.00- 4.00
3.50- 5 . 5 0
5.50- 7 . 0 0
7.50- 9.00
$1.00-$1.75
1.5& 2 . 2 5
2.00- 2 . 7 5
2.50- 3 . 0 0
3 . 0 0 - 4 .00
3.50- 4.50
4.50- 6.00
Rotary dry
10.40-$1 .OO
0 . 6 0 - 1 .25
1.125- 2 .OO
1 ,125- 2 . 0 0
2.00- 3.00
Pcrc~~ssion
$0.50-$0.75
0 . 7 5 - 1 .00
1.2.5- 2 . 0 0
0.00- 3.00
usually is cheaper than core drilling-as little as $1.50 a foot without casing. For large contracts on the Colorado Plateau (IC 7726) the typical
cost of core drilling is $3 a foot excluding overhead and.evaluation charges,
and percussion drilling costs 57# a foot. Comparative cost data are shown
in Table 6.
Mining Costs in Coal, Metal, and Nonmetal Mines

Mining methods and costs, it may reasonably be argued, should be discussed on the basis of such factors as the size, attitude, and structure of the
deposit or the tonnage and quality specifications of the product rather
than upon the nature of material mined. The cost of mining a ton of copper ore, for'example, need not differ inherently from the cost of mining
a ton of iron ore, lead-zinc ore, or any other mineral product provided the
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174
deposit and other conditions are similar. Oil and gas wells, of course, present different problems than mines or quarries so are discussed in a later
section of 'this chapter. Anthracite and bituminous coal have some features
in common with one another and also with other branches of the mining
industry. Nonmetal mines (other than those producing fuels) may likewise be comparable in many respects to mines producing other mineral
products. As a practical fact, however, characterisltic differences do exist
even between the several branches of the metal mining industries. These
differences are due not so much to the nature of the products as to geologic
and economic factors. Iron ore is ordinarily produced by large-scale mining, whether $theoperations are open pi't or underground. The bulk of our
copper comes from huge porphyry deposits which differ greatly from the
common types- of lead-zinc deposits. The latter are usually much smaller,
contain higher percentages of recoverable metal, and are likely to occur
in limestone. In the following pages the differences between .,the various
branches of the miningindusitry may appear to be unduly stressed but this
TABLE
7 . Comparative Percentage Costs at Two Zinc-lead Mines
Labor
Supplies
Power
General Indirect
Mine No. 1
Mine No. 2
Percent
57.3
19.8
9.4
13.5
Percent
62.0
22.8
4.9
10.3
100.0
100.0
Mine No. 1
Mining
Milling
General Indirect
Percent
55.1
17.0
27.9
Mine No. 2
.
Percent
68.0
12.5
19.5
100.0
100.0
is because of limitations in available data and should not result in any

serious distortion of perspective. True, some copper mines resemble lead
or gold mines more than they do most other copper mines, and vice versa.
In the lead-zinc industry, especially, there is generally a wide differential
between costs in the Central States and in the Western States. More confusing still, if we seek for statistical correlations, are the differences found
between relatively nearby mines of the same company. Comparative cost
distributions for two such mines are presented below in percentages of the
total cost at each mine. Both mines are in zinc-lead sulphide ore bodies
but Mine No. 1 employs open stope and pillar mining methods whereas
Mine No. 2 requires timbering and filling and, although a rather large
operation, has a smaller output than Mine No. 1. One part of Table 7
shows labor, supplies, power, and the general indirect charges not covered
in these three items as percentages of 'the total cost; the other part of the
tabulation shows the mining, milling, and general indirect charges.
By far the largest compilation of mining cost data may be found in the
reports of the U. S. Bureau of the Census. On the basis of (the published
'
data on Mines and Quarries, it is possible to trace over the years many of
the basic economic trends that have characterized the mineral industries.
Using data for 1909, 1919, and 1929, the author of this chapter has
pointed out (Wage Costs in the Mineral Industries. Min. & Met. vol. 4,
November 1933, pp. 447-51; Where Does the Mine Dollar Go? Idem.
vol. 15, April 1934, pp. 183-5) how these data can be used to show
changes in average wages and labor efficiency in the various industries
over the years and the effe~tsof geography, size of plant, etc. Although
the Census is careful to state that no basis exists in the Census figures for
calculating profits, the margin between the sum of the so-called "Principal
Expenses" and the total value of products of an industry seems to have
some significance. Actually this margin includes, in addition to any profits,
a variety of items such as depreciation, depletion, royalties, interest, insurance, rent, taxes, and traveling expenses. Most of these items, however,
TABLE
8 . Relative Cost Factors for the Entire Mineral Industry in the
Last Half Century
Percentage of Total Value of Products
Item
1954
Wagcs
Salaries
Supplies and Materials
Fuel and Electricity
Contract Work
Indirect Costs and Profits
Note-Census
1929
1919
17.4
4.2
46.8
5.1
12.3
4.9
0.7
30.2
52.2
4.8
14.9
4.5
0.5
23.1
53.2
4.4
14 5
4.1
1. 2
22.6
51.7
4.9
}13.5
28.4
6.0
9.0
3.8
6.1
46.7
100.0
100 0
100.0
100.0
100.0
1939
1909
1902
0.5
29.4
data incomplete for 1954.
can be classed as being capital's share of the mine dollar. If the several
mining industries are ranged in descending order of this apparent margin
above "direct costs," it will be found that most of the marginal industries
are near the bottom of the list as would be logical.
Over-all figures showing the relative importance of the principal expense items as calculated from Census data for the entire industry, including crude p&roleum and natural gas production, are greatly influenced
by changes in the relative importance of the several branches of the industry-notably, during this period the growing importance of oil and gas
and a general decline in coal output. Table 8, however, shows the diminishing importance of wages, and a slight increase in the relative importance
of salaries and also of power costs expressed as percentages of total value
of products.
Broad distinctions between the principal branches of the mining industry
are indicated in Table 9, showing the estimated distribution of the mine
1.76
ECONOMICS OF THE M I N E R A L INDUSTRIES

'
operator's dollar in 1939. These data were roughly estimated from Government data which are not available at this writing for a later year.
In 1939, excluding the oil and gas industries where wages accounted
for only 20 percent of the value realized from sales of products, about onehalf of the coal, metal, and nonmetal mine dollar went to the wage earners.
Comparable figures for later years are not yet available but preliminary
data for 1954 show marked increases in output per man shift'and in many
industries a substantial reduction in the relative importance of labor costs
notwithstanding the unprecedented increases in wage rates that occurred
during and after World War 11.
TABLE
9. Where the Mine Dollar Went in 1939"
Item
All Mines,
Quarries,
Oil and Gas
Wells,
Percent
Bituminous
Coal Mines,
Percent
Anthracite
Mines,
Percent
Metal
Mines,
Percent
Wages and Salaries

34.4
63.2
71 . 6
Contract Work
6.6
0.3
0.3
Fuel and Supplies
13.1
18.6
17.8
Repairs
2.0
2.4
3.2
Ilepreciation
6.6
4.6
3.7
8.6
. 2.0
. 3.7
Depletion
Othcr Costs
16.0
3.6
2.3
Profits
3 ,4
(9.4p
(l.ly
Interest
2.2
1.5
4.6
Taacs
6.9
4.9
2.2
OPaul M. Tyler: From the Ground Up. McGraw-Hill. New York,
Deficit.
,
Nonmetal
Mines,
Percent
41.3
38.2
0.8
0.7
23.8
23.3
1.3
3.6
4.3
5.8
9.3
3.2
10.3
12.0
1.3
6.9
1 :3
1.4
6.3
4.9
1948, pp. 10-11.
Table 10, which summarizes calculations of the percentage distribution

of principal expenses for specified metal mining industries, shows wide
variations from the general pattern for some of these industries. As late
as 1939, the ratio of wages to ore sales was down to 22 percent in iron
mines and did not exceed about 35 percent in other mining industries that
were characterized by large mining units. As more and more of our national
output of minerals is produced by large mechanized mines, the relative
contributions of small mines, and of those where laborsaving equipment
cannot be used to advantage, have declined.
Comparative figures for 1954 are sometimes distorted by abnormally
large purchases of ore from other mines whose costs therefore are lumped
together in the item of "Supplies and Ores," and by the tendency toward
more "Contract Work." However, the rela'tive decline in importance of the
labor item is clearly recognizable in most of these iindustries.
Table 11 gives similar figures for the leading Nonmetal Mining industries
(other than Fuels). The largest United States indust i-y in this group is the
crushed and broken stone industry. Excluding 100 million dollars worth
of stone produced in captive quarries of cement and lime plants, this industry shipped 299 million tons of stone worth an average of $1.53 a ton
in 1954. The principal expenses, as reported by the Census, added up to a
trifle over 904 which is the lowest average unit "direct cost" of any mineral
TABLE
10. Metal Mining Industries: Summarized U . S. Census Data,
1939 and 1954 (Preliminary Figures)
I
I i
Il
Averagc per Ton"
Percentage of Total Value of

Products Expended for:
Year
Value
Principal
Expenscs
All metal miricsb

Iron orc
Coppcr ore
T,cnd-zinc ore
Gold-lodc
Gold-placcr
Silver orc
M:~ng:~ncse
ore
Tungstcn orc
Mcrcury ore
Titanium ore
1954
1939
1954
1939
1954
1939
1954
193!)
1954
1939
1954
1939
1954
193!)
1954
1930
1954
1939
1954
1939
1954
1939
$5.18
2.53
5.60
2.62
, 9.50
3.84
12.70
7.60
$3.00
0.85
4.60
1.45
10.00
2.50
9.50
4.50
-
93.60
10.80
70.70
19.70
31.40C
8.50'
17.30
5.65
53.40
16.80
19.35':
5.85C
23.80C
27.80C
14.80C
16.40c
Molybderiurn, c t c . 9 9 5 4
1939
Fuel
and
Powcr
Contract
Work
--
Sttlnrics Supplies
a11d
arid
Wages
Ores
34.0
29.8
29.1
22.1
33.2
30.1
50.9
40.4
45.6
36.5
39.0
24.2
49.6
32.5
28.6
59.8
24.3
40.8
43.6
50.1
29.1
39.7
23.9
13.3
29.3
13.3
18.3
7.2
42.3
16.7
42.7
16.8
23.4
1 6 .
26.2
13.6
17.9
11.7
32.3
17.0
31.6
10.8
25.7
12.5
9
8.3
17.1
11.1
7.3
5.6
4.3
4.3
3.6
5.7
5.9
7.0
4.8
5.6
15.3
7.7
3.1
3.5
3.7
8.2
2.8
(i.4
5.9
9.5
9.3
10.8
2.7
2.6
8.6
0.5
6.9
0.2
10.7
0.4
4.3
0.6
1.2
1 .2
0.7
0.5.
3.0
0.6
11.0
0.0
3.1
1. 6
0.6
0.2
2.6
0.0
5.6
0.3
"Average per ton mined and/or milled, except for tungsten and titanium ores for
which basis is ore or concentrates shipped.
Excludes uranium and/or vanadium ore mines.
cIncludes extraordinary purchases of ores and/or tailings for treatment.
Molybdenum, chrome, cobalt, and nickel.
'
product in that year wilth the exception of common sand and gravel. The
reported average value of the latter products as shown in the table, was
$1.14 but if we deduct material sold in the form of ready-mixed concrete,
concrete blocks, and other advanced products, the average was less than
994 of which about 604 was accounted for by the reported "principal ex-
178
TABLE
1 1 . Nonmetal (Other tllan Fuels) Mining Industries: Summarized U . S.
Census Data, 1939 and 1954 (Preliminary Figures)
I
Average per Ton
I year i
Tndustry
-1
'
Common sand, gravcl

Glass sand
Foundry sand
Fire clay
Fuller's earth
Kaolin, ball clay
Phosphate rock
sail.
Pot:~sh,e k b
Sulphur
Feldspar
Fluorspar
Barite
Talc
-1
1954
1939
1954
1939
1954
1939
1954
1939
1954
1939
1954
1939
1954
1939
1954
1939
1954
I939
1954
1!)39
1954
1939
1954
1939
1954
1939
1954
1939
1954
1939
1954
1939
-I
$14.90
-
1.65
0.78
1.14
0.60
3.36
1.93
1.95
1.08
4.98
1.75
19.36
10.87
15.15
7.21
8.80
3.10
24.56
15.2%
60.25
16.80
20.20
5.95
19.50
12.90
Salaries Supplies
p r i n c i ~ a and
and
Espenses Wages
Ores
Value
Dimension slone
(Quarries only)
Crushed stonc
'II
Percentage of Total Value of

Products Expended for:
-1
-1
13.1
8.5
19.2
15.5
13.2
10.7
17.3
12.1
7.9
7.6
9.6
8.7
13.9
17.7
14.4
lT.4
4O.Pa
12.2
15.0
12.6
16.1
19.0
10.1
5.3
26.0
40.00
10.40
8.70
3.35
12.90
7.95
32.0
40.1
212
36.4
40.6
36.5
25.4
14.9
12.4
11.9
16.3
18.9
0.97
0.49
0.62
0.32
1.82
1.12
1.06
0.50
2.54
1.19
11.51
7.81
8.67
4.25
6.00
1.75
-
7.35
3.55
-
Contract
Work
-i-I
45.3
47.3
31.2
37.1
31.8
31.7
27.4
33.6
3 . 2
29.7
29.6
53.9
29.1
35.5
31.1
34.0
18.2
30.3
24.0
28.6
31.1
27.815.0
14.0
27.3
$9.83
I
Fuel
and
Poavcr
" Includes extraordinary purchases of ore or tailings for processing.

Potash, sodium salts, and borates.
penses." In 1939, when sales of advanced products were an almost negligible factor, the average unit value of common sand and gravel was 604 and
the principal expenses totaled only 32$ a ton. Comparable figures are not
available for the stone industries in 1939.
Notwithstanding several marked exceptions, it will be noted that the
ratio of wages to value of products tends to be higher among the industrial
mineral industries than in metal mining. The total of all principal expenses
likewise tends to represent a larger percentage of the value. Moreover, in
contrast to the major metal mining industries, many industries of this group
registered little or no change in the ratio of salaries and wages to value of
products or total direct costs. In the sulphur industry, wages accounted for
only 13.8% and total reported operating expenses only 30% of the value
of products in 1954 compared with 16.4% and 23.3%, respectively, in
1939. These exceptionally low percentages, of course, are a feature of the
Frasch process which accounts for most of United States sulphur production.
Bituminous Coal
In 1956, in the United States, 80 percent of all underground coal was
being loaded mechanically and over 92 percent was cut by machine. Produotion per man per day increased from the 1945-49 average of 6.24, to
8.17 tons in 1953 and to over 10 tons in 1955. In ,the spring of 1956, the
TABLE
12. Estimated (Composite) Operating Costs at Mechanized
Steam Coal Mines, 1955
Cost pe<Ton
Minc Wagcs and S:~larics:
Miners.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1.72
Supervisory and Clerical... . . . . . . . . . . . . . . . . . . . 0 .iL?
FVclfareFund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.40
Vacation Payments. . . . . . . . . . . . . . . . . . . . . . . . . . 0.0.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.46
Supplies and Power.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.83
Other Mine Espense.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.0.5
Social Shcurity, Old Age, and Workmen's Compensation... . .
.ll
Rent, Royalties, Other Taxes, e t c . . . . . . . . . . . . . . . . . . . . . . . . .
.14
.09
Administrative Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketing.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.l2
Depreciation and Amortization.. . . . . . . . . . . . . . . . . . . . . . . . . .
.17
Depletion (Sustained a.nd Percentage). . . . . . . . . . . . . . . . . . . . . 0 . 1 9
Grand Total.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4.16
basic daily wage in American coal mines was $20.25 and most workers
earned more. In August of that year the average hourly earnings had increased to $2.78 with still higher earnings in prospect as the result of a new
wage agreement. An average daily output of 16.5 tons per man shift is
confidently predicted within the next twenty years; already in some underground mines the figure is twenty tons and in strip mines more than forty
tons. The increase in outputt from strip mines (which recently produced
20 to 25 percent of the industry's total output) and use of continuous
mining machines have contributed greatly to the recent improvement in
average efficiency. However, #the main reason for this improvement has
180,
been mechanization of conventional mining methods. Whereas it is commonly estimated that a continuous mining machine can boost the average
output per man shift by as much as 2.5 tons, the margin as compared with
the best conventional mining methods probably does not exceed 0.5 ton.
The main factor in recent forecasts of expected improvement in efficiency
TABLE
13. Coal Mine A - H U ; ~ Loading on Conveyors June to December
1955. Northern Appalachian. I500 Tons per Day. 2 Shifts. Slope.
Hand Picking o f Lump Size. No Washing Plant. Steam Coal.
Average Coal Height, 40 in.
Cost pcr Ton of Ship1,cd Coal
Tal bor
Maiiagernci~t
Tipple Expense
Power Maintenance
Mine Tmm~sportation
Deadwork
Pumping
Ventilation
Mine Szfety
Hand and Conveyor Loaded Coal
Smithing
General TTauling
General
Timber--Roof Bolts
Engineering Expensc
Sundrics (200)
Purchased Powcr
Royalty
Office
Insurance Mine Property
$0.0751
,1268
Total
Welfare and Retirement Fund
Compensation Insurance
Prov. for Employer's FICAa Tax
Prov. for FUIb Tax
Vacations
$3.2655 -
Grand Total
Federal 'Insurance Contributions Act.
Tederal Unemployment Insurance.
,4379
,0417
.0589
,0204
0 :0343
2.1220
0.0015
.0078
:0446
,0391
,0048
Materia.1
$0.0186
.0050
,0771
,0216
.0373
,0163
,1342
,0144
,1553
.0107
,0388
,1986
,0893
0.0506
0.0102
$0.2751
.I454
,0050
.5i50
:0417
,0805
.0577
0.0506
2.2562
0.0015
,0422
,0446
.I553
,0498
.
.0436
.I986
,0893
. ,0506
0.0102
--
$0.8274
0.4000
0.0093
$4.0929
0.4000
.0293
.0640
.0881
0.0902
$1.0567
$4.7645
0.0640
,0881
0.0902
$3.5078
Total
is a possible reduction in the number of backup men for each man actually
working at the face. Instead of a ratio of 1 : 1 as in recent years, a single
back-up man should suffice for each three men at the face.
Average costs of mechanized mines producing steam coal in the Northem High Volatile Field (Northern West Virginia, Ohio, and Western
Pennsylvania) as estimated from a composite of a number of actual operations in 1955 are shown in the Table 12.
Comparable detailed data for two fairly large mines are presented in
two additional tables (1 3 and $14).Although the grand total cost per ton
at both these mines is not greatly different, there is a wide difference in
almost all the individual items.
Augering is usually the cheapest and often the only economical method
of recovering fringe coal. Several case histories and other information on
TABLE14. Coal Mine B-Mobile
Loading into Mine Cars. Northern

Appalachian. Average Seam Height, 48 in. Slope. 2500 Tons per Day.
2 Shifts. Hand Picking and Jig Washing to %-in. Airdox Blasting.
Refuse, 1 5 % . July to December 1955
Cost per Ton of Shipped Con1
Material
'
'
Total
Management
Tipple Expense
Power Rlaintennnce
Mine Transport:~tion
1)e:~dwork
l'umping
Vcntilation
Mine St~fety
Mol~ileLoading
Sruithiug
General I-Iauling
General
Timber--Roof Bolts
Engineering Expense
Sundries (200)
Purchased Power
Royalty
Office
Insurance, Mine Property
$0.1511
,2930
.0107
.6072
.I417
.0446
,0604
0.0607
2.0467
0.0093
.0208
,0555
,2547
,0617
,0396
.I426
.0612
,0508
0.0100
Total
Welfzlre and Retirenlent Fund
Compensation 1nsur;tncc
l'rov. for Employer's FICA Tnx
Prov. or FUI Tax
Vnc:~tions
$4 .less
0.4000
,0344
,0491
,0044
0.0713,
Grand l'otnl
$4.. 6875
this type of mining were presented at the annual American Mining Congress Convention at Cleveland in 1955 and reported in the publication
"Coal Mine Modernization, 1955." ~roducti6ncosts per ton loaded in
trucks, as reported therein (pp. 232-35) by Fred 0 . See, ranged from
$0.595 for a 42-in. hole in Ohio (investment approximately $26,000) to
$0.90 for a 32-in. hole in Harlan County, Kentucky. J. M. Poindexter gave
the cost data shown in Table 15.
182
These data for 1954-55 included "all costs charged to the operation,
not the cost of drill operation alone." The smaller diameter holes were in
the Pocahontas No. 6 Seam which varied in thickness from 32 to 36 in. and
which had previously been mined with 2%-cu yd shovels and large tractors. Stripping was discontinued when a high wall of 40 to 45 ft was reached
at which time the average cost of overburden had risen to 406 per cu yd
and the yardage of overburden removed per ton of coal had increased to a
ratio of approximately 6.75 to 1. Such costs as labor, highwall cleanup,
haulage, and supervision, remained fairly constant without regard to auger
diameter or length of hole. Other factors, such as fuel, repairs, depreciation, taxes, and insurance, vary with the size of equipment used. The drill
crew, however, has to work harder when moves are too frequent.
TABLE
15. Cost o f Operations per Ton for Operations in the Pocahontas

Field o f Southern West Virginia
Operating Supplies
Coal Hauling
Labor
1)eprccia tion
Orerl~carl
Total cost per ton
26-in. hole
39-in. hole
$0.401
0.686
1.046
0.410
0.406
$0.28
.56
,527
.04
0:15
$2.969
$1.49
The broad financial improvement in the coal industtry after World War
11, following long years of operating in the red, sparked a 16 million
dollar program of research and process development in all departments of
coal technology including exploration, mining, transportation, marketing,
and ~tiliza~tion.
Interesting developments in the transportation field, for
example, include hydraulic (pipe line) movement, longer and wider conveyor belts, relocating plants on rivers and coastal barge routes, and mechanized handling to minimize rail costs.
A nthracite
Anthracite is currently mined from three principal sources-deep
mines, strip pits, and culm banks. In addition, a few hundred thousand tons
a year of "river coal" is recovered by dredging culm bank material that
was washed into streams. As recently as 1947, underground mines furnished 65 percent of the total output but other sources have continued to
grow more and more important.
In underground mines, the chamber-and-pillar method of mining is
used in flat areas regardless of the thickness of seam. Longwall mining is
largely confined to seams less than 4 ft thick. The breast-and-pillar or
slant chute method is used in both thick and thin seams in steeply piltching
areas.
Pitching seams, intermittent operations, and pumping costs, along with
other problems of deepening mines and the exhaustion of the best mines in
some areas, all have contributed to make the cost of mining anthracite
considerably higher than that of bituminous coal. In contrast to over 10
tons per man shift in the early 1950's and the prospect of 16 tons shortly
in the nation's bituminous mines, the average output per man per day in
anthracite mines rose to only 4.02 tons in 1954; in 1951, it was only 2.97
tons. Even this improvement, moreover, was due only in part to the subTABLE
16. Typical Anthracite Mining Costs, 1956
Cost pcr Ton
Total dcvelopmcnt cost and mining 1:lbor.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insidecomp:~.nylabor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inside material costs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inside Social Security taxes and compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vacation payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .;. . . . . . . . .
$2.823
2.192
0.670
0.405
0.112
Total insitle costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . : . . . . . . . . . . . . . . . . $6.202

Outside labor costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.775
Outside material costs.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,307
Outside Social Security and compensation payments. . . . . . . . . . . . . . . . . . . . . . .
,056
Outside vacation payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.016
Total outside and inside labor and material.. . . . . . . . . . . . . . . . . . . . . . . . . . . . $7.356
Distributed cost of purchased coal.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . 1 7 1
Total colliery cost before general charges. . . . . . . . . . . .' . . . . . . . . . . . . . . . . . . . $7.527
Pon7er, water, fuel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.351
Royalty.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.a79
Insurance, health, and welfare.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.520
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ,077
Administrative and selling, public relations, and other general office charges. . 0.255
Gmnd Total Cost.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9.009
stantial improvements in underground and open pit operating techniques

because high cost mines were closed or operated on a reduced schedule
during this period of continuing decline in total output: Whereas the
statistics show that only a little over 40 percent of the anthracite mined
underground is mechanically loaded as against 80 percent in bituminous
mines, mechanization in the anthracite industry actually compares favorably with that in other types of coal mines. Much of the so-called "handloaded" anthracite is from pitching seams and actually drops into cars by
gravity. .
Anthracite mining companies have been notably unwilling to disclose
their cost data. However, Table 16 is submitted as being a "typical anthracite cost sheet for the year 1956."
184
ECONOMICS OF THE MINERAL INDUSTRIE~
Iron Ore
As regards both tonnage and value of mine production, the iron ore industry is by far the largest segment of the metal mining industry. Although
there are large iron mines in Alabama, New York, Utah, and other states,
approximately 80 percent of the United States output of iron ore still comes
from the Lake Superior region. As reserves of high-grade ore in Minnesota,
Michigan, and Wisconsin have diminished, use of low-grade ores, including taconite, has increased. The latter, however, are more costly
sources of the metal because they have to be beneficiated and the resulting concentrates sintered. Capital requirements are greater, upwards of
$30 a ton compared with $5 for some open-pit direct shipping mines, and
labor man-hours are as much as three times greater. Depletion of known
reserves of direct shipping ore is further advanced at open-pit mines than
at underground mines. This fact promises further to increase the average
cost of producing domestic iron ore because about 80 percent of iron ore
production even now is derived from open-pit mines whose production
costs are low, as shown by figures compiled by the State tax authorities
for Minnesota and presented in Table 17.
TABLE
17. Avernge Iron Ore Production Costs in Minrtesota, 1953
Per Ton
Ilirect Costs
Opcn Pit
Undcrgrountl
L:lbor ant1 Supplies. . . . . . . . . . . . . . . . . . . . . . . . . $0.713

Development.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . 6 8 5
Administration. beneficiation, depreciation, and
miscelln neous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . 7 9 1
Royalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . 3 8 7
$3.888
0.064
$2.606
$5.508
0.994
0.580
Other Charges
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
llnil Frcigl~t,-to I)ulutl~.. . . . . . . . . . . . . . . . . . . .
Boat Freight,, to T,ower T,nke ports. . . . . . . . . . . .
"Taxes for both open-pit and underground mines.
$0.693
I ,180
1.830
The State of Michigan publishes average mining costs for each of the
principal mining districts in that State, where most of the workings are
underground except for open-pit mining of siliceous ores. Michigan deep
mines employ a variety of mining methods but because the bulk of the ore
has been won in recent years by sublevel stoping the figures in Table I 8
for the three major districts may be considered typical for that method of
stoping whereas the siliceous ore data represent costs by open-pit methods.
Data for taconite mines are not segregated. According to a statement by
the American Iron and Steel Institute, "to get one ton of enriched pellets
of iron ore, three tons of taconite must be drilled, blasted, mined, transported, ground fine as flour, separated, rolled into balls, and baked. Each
ton of pellets requires 85 kwhr of electricity, 10,000 gallons of water,
three tons of taconite, five pounds of steel consumption-rods, balls, etc."
TABLE
18. Average Costs at Michigan Iron Ore Mines, per Ton, 1955
Gogebic
R:Inge
Direct Costs
La.bor
Material
Mnrqucttc
ltange
Menominec
Range
Siliceous
(Open Pit)
$2.8622
1 ,0708
$4.6414
1.1402
$0.5616
0.3834
0.3142
$3.0530
0.2934
$3.7816
0.2551
$0.9450
0.1542
,3948
.0156
.0634
.2708
,0408
,0669
.2778
,0502
.0535
.0463
,0154
,0196
.I483
,0520
,0019
,1665
0.3762
3.1248
0.0611
,1194.
,1041
.0121
,2448
0.2201
2.6833
0.0553
,0920
,0197
,0111
,2332
-0.2473
2,7110
0.0844
.0520
,0265
,0182
,0188
0.1028
2.6469
0.0577
$8.7034
0.5622
0.9966
$8.0440
0.3358
0.2037
$7.8176"
0.2581
0.3757
$4.1034
0.1222
0.3398
$8.4514
$4.5654
'
$2.7846
1 ,2000
$3. !)8Sfi
Deferred,Costs
Taxes
General Property
State Corporation
Social Sec;rity
General Overhead
General Office
General S ~ ~ e r i n t e n d e n c c
General Insurance
Employee Insurance
Depreciation
Transportation-Total
Marketing
Subtota.1~
Royalty
Federal Income Tax
'
--
1
I
Gmnd Tota.1~
$10.2622
$8.5835
Includes $0.0007 for "Other General Expense."
TABLE
19. Open-pit Mining Costs at a California Mine
Labora
,
Repairs
Supplies
Special Itemsb
Drilling
and Blasting
Sllovel
Operation
Truck
Operation
Total
$0.04
.01
.02
0.06
$0.01
'.02
0.01
$0. 02
.02
.01
0.01
$0.07
.05
.04
0.07
$0.06
$0.23
Total
$0.13
$0.04
a Includes direct supervision, payroll tax, and insurance.
Chiefly explosives and tires.
Open-pit mining costs are given in a report issued in 1956 by the United
States Bureau of Mines (IC 7735) for the Kaiser Steel Corporation's
Eagle Mountain Mine, Riverside, Calif.,'as shown in Table 19. The figures .
are for direct labor, maintenance repairs, and operating supplies per ton
of crude ore mined. They do not include overhead, property taxes, interest,
depreciation, and depletion. This is a large operation producing an average
186
of 15,587 tons per day on a single shift. Transportation is in 15-cu yd

trucks over good roads with no grades exceeding 8% and with a minimum
radius of 150 Et on curves. Truck hauls ranged from 500 to 2,600 ft. Consumption of explosives averaged 0.372 lb per ton of ore and waste broken.
Hourly wages were $1.85 for laborers, $2.00 for jackhammer men and
heavy-truck drivers, $2.25 for churndrill men, and $2.55 for shovel operators.
Copper
In 1957, the late Roy H. Glover, then chairman of the Anaconda Company, estimated that 13.9% of the United States outputt of copper during
the preceding year cost 304 a pound or more, 22.6% cost 294 or more,
and 33.1% cost 254 or more. African producers issued a previous statement that their costs were 194 a pound as against 184 in the United States.
The saga of the Porphyry Coppers is one of the brightest ~haptersin
the brilliant record of American engineering achievement. Although the
low average mining cost .per ton of crude ore at our copper mines has
been due mainly to huge open-pit operations, extremely low costs have
been achieved also at several underground min'es employing block-caving
or shrinkage-stoping.methods on a hitherto unprecedented scale.
As reported by A. B. Parsons ( T h e Porphyry Coppers in 1956) the
direct cost of power shovel mining, exclusive of stripping overburden, had
leveled off by 1930 to only-about 124 a ton at Bingham, Utah, and the
total 'cost of open-pit mining at several properties was less than 504 a ton.
Underground mining costs in the late 1920's were generally around $1 a
ton despite an all-time record of 754 achieved at Inspiration. But then the
Miami Copper Company, after spending four million dollars to expand
plant capacity from 6:600 tons to 17,500 tons per day,' came forward
with an underground mining cost in November 1930 of only 35.74 a ton!
Including concentrating cost of 24.94 and general .charges amounting to
10.74, the total cost of mining and milling was down to 71.34. Ore tonnage
per man shift was up to 24.31 in the mine department and 81.58 in the
concentrator. Wages were down, reflecting the low price of copper, and
with miners averaging $4.95 and concentrator operators $4.40 per shift,
the cost per pound of copper in concentrates was only 6.764 even though
a ton of the ore yielded only 10.55 Ib. The AIME recognized this achievement by awarding the William Lawrence Saunders gold medal for 1931
to Francis W. Maclennan.
In the volume cited, Parsons tells the story of San Manuel. At this really
.low-grade property, the capital investment up to the end of 1955 reached
the staggering sum of 110 million dollars. But an even bigger project was
being developed in Peru where four United States companies, aided by 'their
own Government, were pouring in 200 million dollars as the initial capital
investment for mine development, plant construction, and related facilities.
'
COST OF ACQUIRING
AND OPERATING MINERAL PROPERTIES
187
By the end of 1954, the Porphyry Coppers had contributed 60.5 billion
pounds of copper, worth $10,440,000,000. More important than this contribution to the world's material wealth, however, was the practical demonstration of the power of well-financed imagination and sound engineering.
Whereas a half century before, a deposit carrying 2% copper was of
doubtful value, ore bodies that yield no more than 12 lb of copper per
ton are being exploited successfully today.
Using data largely gleaned from company reports, Parsons shows in
some detail the financial results of some of these big enterprises. Table 20
TABLE
20. Utah Copper Enterprise: ~ y ~ o t h e t i ' c aBalance
l
Sheet,
from Inception to December 31, 1953
1. Nc\\, c:ipital. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24,000,000

2. Miscell:~neousincolne.. . . . . . . . . . . . . . . . . . .
"?5,000,000
3. Sale of lna jar metals
(a) Copper, 6,081,700 tons. . . . . . . . . . . . . 1,980,113,000
(b) Gold, 6,271,000 oz. . . . . . . . . . . . . . . . .
197,855,000
(c) Silx-er, 53,340,000 oz.. . . . . . . . . . . . . . .
40,643;000
(d) Riolybdenite, 300,000,000 1L.. . . . . . . .
130,000,000
*$?,397,611,000
Outgo
1. T : ~ s e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9; 462,857,000
2. P:Iyrolls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Y42,1!)6,000
3. Supplies, powcr, and various scrviccs. . . . . .
460,136,000
4. Smelting, freight, and other payments. . . . .
402,088,000
5. Subtotal.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,667,277,000
6. Available for sharel~olders... . . . . . . . . . . . . .
730,334,000
a Sundry sales, rents, interest, dividends, etc. (No account taken of Nevada Consolidated.)
During 1954-55, copper having a market value of $300,000,000 was produced.
shows his findings as to where the money came from and where it went
for the biggest of all these enterprises, Utah Copper.
Parsons figures the over-all average cost of producing copper at Inspiration, never considered a low-cost producer, as being 12.4$ per lb of
copper during the period from 1915 to the end of 1954 compared with an
average price realization of 16.8$. Total receipts or "income" were
.figured at 481 million dollars of which 16 million was new capiltal and the
remainder was from copper sales and premium payments from the Federal
Government during World War 11. Table 21 shows how these funds were
probably disbursed.
Comparative financial data for three important Porphyry operations
are reproduced in Table 22.
188.
TABLE
21. Inspiration Copper Company Distribution o f Expenditures,
1915-1954 (from A . B. Parsons)
1. Capital investment in plant.. . . . . . . . . . . . . . . $ 30,000,000
2. Prepaid mine development.. .................
5,000,000
18,000,000
3. Net current assets (end of 1954). . . . . . . . . . . .
4. Dividends paid.. . . . . . . . . . . . . . . . . . . . . . . . . .
85,000,000
5. Suhtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $138,000,000
6. Differencea. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343,000,000
'
7. T o t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $481,000,000
"Includes wages, cost of supplies, power, freight. smelting, marketing, and taxes, including federal income tax.
TABLE
22. ~ o r ~ h y Coppers.
jy
Comparative Data to December 1954
(from A . B. Parsons)
Andes
Inspirution
Riiau~i
1.
2.
3.
4.
5.
6.
7.
Ore mined, tons

181,000,000
143,300,000
134,000,000
Copper produced from ore mined, tons
1,576,700
1,307,000
1,118,100
13.7,
23.5'
19.5
Average copper content, lb per ton
New capital invested
$55;000,000
$16,000,000
$5,000,000
Capital from earllings
2,000,000
14,000,000
10,000,000
8!2,800,000b
84,500,000
51,800,000C
Dividends paida
Dividends less new capitald
27,800,000
68,500,000
46,500,000
' A large part of Inspisation and Miami dividends were paid before Andes started
operations.
Includes a distribution of $21,494,274, or $6 a share, made in 1952 out- of Surplus
Account following a reduction in par value of shares from '$20 to $14 by vote of
stockholders.
Part of these dividends were from earnings of Miami's subsidiary, Castle Dome.
Indicative of the returns to date on the original investment.
Lead and Zinc
As reported by the United States Tariff Commission (Senate Doc. 119,

83d Congress, 2d session, 1954), the average mining and milling expense
per ton of crude ore mined for all American lead and zinc mines rose from
$2.46 in 1939 to $6.77 in 1952, or 175%. Meanwhile, the mine or mill
value of.ore and concentrates increased only 156%, from $3.84 to $9.83.
The principal expenses incurred were broken down as shown in Table 23.
According to .the'Census figures, efficiency, as measured by,value of shipments per 1,000 man-hours worked by production and development
TABLE
23. Breakdown of Lead-zinc Mining and Milling Costs in 1952
Per ton ore inined
19501939
Salaries and wages

Supplies and materials
Fuels
Purchased electrical energy
Totals
$4 35
2.04
0 05
0.33
$1.54
0.65
0 05
0.22
$6.77
$2.46
workers, jumped from $1,930 in 1939 to $6,400 in 1954, or 231 % . Comparative figures on a tonnage basis are confused by the fact that an extraordinary proportion of tailings was being treated in 1939. The calculated increase in output per 1,000 man-hours was from 502 tons to 672
tons during this period but there was a slight reduction on the basis of tons
milled, from 729 tons to 725 tons.
TABLE
24. Mining and Milling Costs per Ton at the Gray Mine, Galena, I l l .
in June 1956
Repairs,
Explosives,
'
Labor
Drilli~rg.. . . . . . . . . . . . . . . . . . . . . . . $0.216
Blastillg.. . . . . . . . . . . . . . . . . . . . . . .
,008
Power
$0.037
Loading . . . . . . . . . . . . . . . . . . . . . .
.091
Ore haulage. . . . . . . . . . . . . . . . . . . . . .
,119
Roof trimming.. . . . . . . . . . . . . . . . .
,007
Developmetit.. . . . . . . . . . . . . . . . . . .
,017
Gcneral mine cxpet~sc.. . . . . . . . . . . 0 . 1 1 8
,007
,004
:.
Tot:~1Minc. . . . . . . . . . . . . . . . . . . $0.576
Pumping. . . . . . . . . . . . . . . . . . . . . . .
,005.
Milling.. . . . . . . . . . . . . . . . . . . . . . . .
,271
General . . . . . . . . . . . . . . . . . . . . . . . . 0 . 1 7 8
Grand Total. . . . . . . . . . . . . . . . . ' $1.030
Supplies
$0.067
,181
,102
,071
Total
Cost
$0.3335
.I898
,2065
,2039
.0075
,0235
0.2132
Other
$0.014
-
,006
.010
-
.002
0.027
$0.085
,106
0.177
$0.059
$0.457
,038
,260
0.046
.039
0.145
$1.1779
.I509
,7471
0.3695
$0.370
$0.801
$0.243
$2.4454
TABLE
25. Western Lead-zinc Mine Stoping Costs per Ton o f Ore Broken,
March 1956
Salaries
and Wages
Power
Total
$0.10
$2.14
1.79
1.75
0.06
.ll
.o2
.25,
.OGa
0.62
$0.33
$8.80"
Drilling and bl;lsting

Rlucking
Timbering
Track
Filling
Ligl~ts
Ventilation
E~~gineering,
etc.
Superintendence
$1.42
1.74
1.04
0.02
.04
.02
.05
.01
0.62
Total Stopit~gCost
$4.96
Includes $0.04 of "Other Costs."
.01
.o",
0.20
$1.46
Under favorable conditions and excellent management, total underground mining and milling costs at the Gray Mine of the Tri-State Zinc
Company, at Galena, Illinois averaged less than $2.25 per ton in 1955-56.
Mining alone cost around $1, milling 754 to 804, and general expenses
and pumping in the neighborhood of 454 per ton of ore mined. In June
1956, they were a little higher as shown by the breakdown in Table 24.
Much less favorable condiltions are usual in the Western mines. Instead
of about $1 a ton for mining, Table 25 shows stoping costs of $6.80 a ton
190
TABLE26. Cornparafive Development and Operating Cost Data for the

Morning Mine in Idaho, 1939 vs. Period frotn August 1,
I950 to July 31, 1951
Periotl #l
1939
Miners' d : y's
~ pay
Stoping costs, per ton
Lab&
Tiu~l~er
F:xplosives
Otl~crs ~ ~ p p l i c s
I'o\\rcr
Milling Costs, per tor]

Labor
Supplies & power
Shaft Sinking (19 X 9 tt) per ft
Labor
'l'imber
Explosives
Othcr supplics
Power
Drifting, per ft
Cross section, ft
Labor
Timber
Explosives
Othcr supplies
Power
$ 6.00
$ 1.44
$ 12.45
$
6.12
0.82
.I7
.79
0.57
$ 2.16
8.48
$ 0..290
0.857
1'. 161
$ 0.851
2.018~
$61.90
7.30
7.48
11.79
2.22
$163.42
30.92
11.51
21.52
2.82
$90.68
$230 : 19
0.30
.09
.14
0.19
0.561
13x14
$14.97
3.40
2.97
4.02
0.74
$26.10
Crosscuts :~nrlLaterals, pcr ft

Cross section, ft
Labor
Timber
Explosives
.
Other supplies
I'o\\.cr
Yeriotl #2
1950/51
8 x9
11x13
$ 39.61
5.92
3.88
8.61
1.22
$ 59.24
9 x9
$ 8.84
$ 20.08
0.20
2.07
3 .26
0.58
0.13
3.87
7.23
1 .22
$14.96
$ 32.53
'
"Much finer grind has boosted recoveries to 97%.
Source: Reynolds, J. R.. Mining Methods and Costs at the Morning Mine; AS&R Co.,
Shoshone County, Idaho. Bu. Mines Inf. Circ. 7743, May 1956, 40 p.
at a moderately large property in the Rocky Mountain area. Milling costs

at this property (not shown in the table) were from $4 to $5 so the total
cost per ton of ore mined and milled exceeded $1 in some months of 1956.
The data in Table 26 for the Morning Mine of the American Smelting
and Refining Company in Idaho are taken from one of the first completed
investigations in the Bureau of Mines new series of 'studies of mining

methods and costs.
After adopting trackless mining and doubling milling capacity so as to
treat 1,500 tons per day, the Pend Oreille Mines and Metals Companyat
Metalline Falls, Washington, effected a 40% reduction in costs as shown in
Table 27.
TABLE.^^. Comparison of Costs per Ton at Pend Oreille
Mining and developinent.. . . . . . . . . . .
Milling.. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating costs. . . . . . . . . . . . . . .
General cxpcnsc ant1 taxes. . . . . . . . . . .
$1.94
0.71
0.33
0 .%R
--
$3.54
1.07
0.7%
0.76
Total ~ ~ , c r a t i n g - c o s. t. .. . . . . . . . . . . $3. fL6

1)eprcci:ition. . . . . . . . . . . . . . . . . . . . . . . .
0 :79
1)cplction.. . . . . . . . . . . . . . . . . . . . . . . . .
Tncomc tax provisiotl . . . . . . . . . . . . . . . . 0.08
$6.09
0.68
Total cost per toll. . . . . . . . . . . . . . . . $4.13
$6.90
--
0.13
A good deal of data are available for various Canadian mines for 1953.
Barvue Mines, Limited, which operated a 6,000 tons per day mill, and
mines low-grade (average recovery $4.05 per. ton) ore from an ~ ~ e n ' ~ i t ,
had an operating cost of $2.25 a ton, excluding interest charges ($0.35),
depreciation, and income taxes. Golden Manitou Mines, Limited, Val d'Or,
Quebec, which increased its milling capacity from 600 to 1,000 tons per
day in 1953, reported its operating cost as $6.18 to which were added
$0.17 for taxes, $0.31 for depreciation and amortization, and $0.17 for
interest on loans, thereby making the total cos't $6.83 vs. an average recovery of $7.29 per ton. At several Canadian mines, development charges
ranged in 1953 from $0.40 to $0.75 a ton, mining costs were around
$3.50, and milling around $1.50 a ton.
Total costs, including freight and treatment charges, as ~eportedby
New Calumet 'Mines, Limited, for specified years, are shown in Table 28.
A typical analysis of the ore showed 7.1 % zinc, 1.5% lead, 3.07 oz silver,
and 0.01 5 oz gold.
Per pound of refined lead metal produced, Wm. P. Shea (in Eng. & Min.
Jour., vol. 157, no. 9,- 1956, pp. 82-87) estimates that operating costs
of major producers in the United States averaged 7.68$ before taxes and
10.0?4 after taxes in 1955, as against 40.3$ and 4.18$ in the prewar
period 1936-39. The, major Canadian companies' costs in 1955 were
4.954 and 7.734, respectively, for 1955, and. 2.20$ and 2.564 in the
1936-39 period. Among the leading producing countries, South Africa
showed the lowest operating costs in 1955, both before and after taxes
%
192
TABLE
28. Total Operating and Marketing Costs per Ton o f Ore Mined by
New Calumet Mines, Ltd., Calumet Island P. O., Que.
1954
Development.. . . . . . . . . . . . . . . . . . . . $
Mining.. . . . . . . . . . . . . . . . . . . . . . . . .
Milling.. . . . . . . . . . . . . . . . . . . . . . . . .
Assaying.. . . . . . . . . . . . . . . . . . . . . . .
etc. . . . . . . . . . . . . . . . . . . . . .
Marketing.. . . . . . . . . . . . . . . . . . . . . .
Freight charges.. . . . . . . . . . . . . . . . . .
Treatment.. . . . . . . . . . . . . . . . . . . . . .
U. S. duty on lead and zir~c. . . . . . .
Mine office.. . . . . . . . . . . . . . . . . . . . . .
General expetlse.. . . . . . .,. . . . . . . . . .
I-Io~neoffice expense. . . . . . . . . . . . . . .
0.61
3.52
1.54
0.08
0.95
0.16
1.47
4.66
0.87
0.44
1.80
0.23
Total operating expcllsc.. . . . . . . . $15.63

Provision for taxes.. . . . . . . . . . . . . . .
0.34
Depreeiatio~l.. . . . . . . . . . . . . . . . . . . .
Grand Total Cost. . . . . . : . . . . . . . . $15.97

Recovery.. . . . . . . . . . . . . . . . . . . . . $15.43
'
'
1953
1951
$ 0.84
$ 0.67
3.94
1.38
0.05
0.21
0.13
1.13
3.86
0.61
0.32
1.04
0.30
3.61
1.11
0.06
0.23
0.15
1.31
4.70
0.32
0.32
0.87
0.22
$13.81
$13.57
0 . 7 5 ~ .
9.00
0.66
0.44
$13.79
$19.79
$16.01
$19.85
(4.564 and 6.65$, respectively). The tax "bite" was highest in Mexico at
3.5 14 per pound of metal, and lowest in Australia where it was only 1.044
compared with an estimated United States tax of 2.344 per pound of metal.
Gold
redg gin^
Probably the cheapest mining and milling operations now being conducted anywhere in the United States are performed by the gold dredges
in the Sacramento Valley, California where the Yuba Company reported
a cost of only 54 a cubic yard as recently as 1947. Current costs (1956)
are estimated at over 74 and still rising. In 1931, according to E. D.
Gardner and Chas. F. Jackson (Bureau of Mines Inf. Circ. 6788), gold
dredging costs in California ranged from 3.8 to 14.74 per cubic yard but
most operations were conducted at a cost of around 54. The cost was
about evenly divided among labor, power, and supplies. Generally speaking, the larger the dredge the lower the cost when working in ordinary,
noncemented gravel over 30 ft deep. Power consumption then ran from
about 0.6 to 2.0 kwhr or more per yard, averaging perhaps 1.0. Manhours per cubic yard were reported as low as 0.024, which is equivalent
to around 300 cu yd per 8-hr man shift.
One of the largest gold dredging operations in the world, Pato Consolidated Gold Dredging, Limited, in the Department of Antioquia,
Colombia, handled a total of 26.8 million cubic yards of gravel in 1955
at an average working cost of 10.834 a yard. Additional costs included
administrative expenses amounting to 0.446, plus Colombian income taxes,

gold tax, and other taxes aggregating 2.844.
Asnazu Gold Dredging, Limited, handled 1,246,240 cu yd of rich
gravel with a single dredge on the Upper Cauca River, Colombia, in 1955
at a cost (as calculated from the Company annual report) of only 5.656
for actual dredging operations (61.7% for labor, 8.2% for supplies, 5.1%
for power, and 25.0% for repairs and replacements) plus 1.176 for
drilling and land clearing, 0.856 bullion expense (smelting, refining, etc.),
1.406 for camp maintenance, and 5.36 for all overhead and indirect
charges. The total cost, therefore, was 14.376 a cubic yard, exclusive of
royalties.
The Bulolo Gold Dredging Co., Limited, operating its three dredges in
Borneo, had a total cost of about 106 a cubic yard in 1955. By contrast,
Yukon Consolidated, which operates near Dawson, Yukon Territory, has
recently experienced costs ranging between 25 and 356; these figures, of
course, include the cost of thawing frozen ground, hydraulic stripping, and
idle time during the long winter monlths when no digging can be done.
Nonmetals (Other,than Fuels)

Nonfuel minerals that are not used primarily as sources of metals are
often classed as "industrial minerals" or "nonmetallics." This is a widely
diversified group, differing not merely in mineral composition and uses
but also in respect to production methods, costs, and tonnage. The spread
in unit values is greater between gem stones and ordinary crushed granite
than between any of the metallic ores or between metallic ores and fuel
minerals. In short, almost every industrial mineral constitutes a special
problem. In general, the commoner types of industrial minerals are so
widely available thalt it is often cheaper to open a new pit or quarry than
to follow them to greater depths. It may be economic, when market
conditions warrant, to adopt nonselective mining operations or to leave
unmined any parts of a deposit that offer any handicaps to cheap mining.
The scale of operations in the industrial mineral group runs the gamut from
mass mining with giant machines to gophering along tortuous underground
workings in search of strategic mica books or other scarce and high-priced
minerals of similarly erratic natural occurrence.
Listed in order of relative importance, the cement, stone, sand and
gravel, and clay industries account for 75% of the total value of production of the industrial minerals group in the United States. Sulphur, common salt, phosphate rock, and potash salts are the only other items whose
annual production is valued at more than about fifty million dollars. Census
data for these and a few other n~oderatelylarge industrial mineral industries
are summarized in Table I I in the introductory portion of this chapter.
194
Smelting a n d Treatment Charges

Most metal mining companies sell their ore or concentrates to smelters
which charge for treatment services on the basis of rather complicated
schedules. Some smelters operate custom milling planlts and charge for
this additional service according to the character of the ore, the size and
frequency of shipments, the mode of payment, the extent of competition,
etc. Custom mills other than those operated as adjuncts of smelting plants
are generally designed to treat gold or silver ores from within a radius
limited by transportation costs.
The cost of transportation to smelters or other treatment plants is
almost always charged to the seller. For most base metals, the smelter
usually establishes a flat treatment charge designed to cover unloading
sampling, smelting, freight on crude metal to the refinery, refining, selling,
and also a carrying charge from the time the ore is purchased until the
metal is sold. It is customary to make certain deductions from the assay
percentages of major metals to take care of smelting losses and also to
reduce the unit price somewhat below the market quotaitions for the applicable date. The amount of these more or less hidden charges varies but
it generally constitutes an important addition to ,the nominal "treatment
charge" or flat sum per dry ton of material processed.
Many smelting firms, especially in Europe, raise or lower their charges
depending upon their position in the market. If they need ore they modify
their terms accordingly. Although American firms ordinarily adhere to
more or less fixed schedules, the schedules of different firms may vary
substantially from one another. Some firms, in addition to other factors, include in their contracts a sliding scale adjustment of the base treatment
charges according to their actual hourly wage rate for specified classes
of operating labor.
Copper ores or concentrates can be sold to either a copper smelter or a
lead smelter since the copper contents of lead ores are paid for after making only a slight additional deduction. A ftypical copper ore purchase
schedule in 1956 in the Eastern United States establishes a nominal treatment charge of $5 to $7 a ton, depending on the value of the ore, and
provides payment for the copper conltents less 0.5% at 95% of the Engineering and Mining Journal cathode copper price, less 3.34 a pound. The
base treatment charge for concentrates is $10.75 a ton for material containing 25% or less copper plus an increase of 154 for each 1 % over 25 %.
The copper contents are paid for after deducting a maximum of 1% at
the wirebar quotation less 3.3754. Gold, if in excess of 0.03 oz per ton,
is paid for at the mint price on the basis of 92.57% of the assay value.
Silver is paid for after a minimum reduction of 0.5 oz from the assay
value, at the Handy & Harman quotation less 1.54 an ounce. Another
smelter deducts 1.3% from the wet assay for copper and charges $18 a
ton for treatment.
The base charge at lead smelters is generally $10 to $15 a ton. A deduction of 1.5% is invariably made from the wet assay and the remaining
lead is paid for at 90% of the New York price for lead bullion less about
2.34. Copper is subject to an assay deduction of 1.0% (sometimes 1.3%)
and the remainder is paid for at the wirebar quotation in New York with
no further deduction. Gold and silver are paid for on the same terms as
under the copper schedules or sometimes on slightly better terms. Penalties
are charged for excessive amounts of impurities such as zinc (8% free),
arsenic plus antimony ( 1 .O% free), bismuth (0.05 % free), sulphur (3%
free), etc. A credit may be allowed for lime in excess of say 10%.
Treatment charges for zinc ores are generally much higher and more
variable than those for lead or copper ores. The base rate ranges from $40
to $50 or more per ton with adjustments up or down at the rate of $1 or
$1.50 for each 14 variation in the price of Prime Western zinc at East St.
Louis above or below 10&a pound. The percentage of metal paid for varies
with the assay up to about 85% for high-grade concentrates (60% plus).
No payments for precious metals or lead are made by retort smelters but
electrolytic plants usually pay for as much as 60% of the gold and silver
and may allow a credit for cadmium if present in excess of 0.4%.
Quotations for iron ores, manganese ores, chrome ores, and ores of the
minor metals are published in trade journals. Ordinarily, the treatment
charges and allowances for smelting losses are taken care of in the price
quoted for the metal content. For tin ores, however, it is customary to
quote a "returning charge" which is deducted from the estimated value of
the metal content.
At metal mines, marketing expenses generally represent at least 1% of
the total cost of doing business and for large integrated concerns selling
costs amount to around 1.5 to 2% of gross sales. About 3% may be a
typical figure for coal mines.
Custom milling charges for gold ores and for certain other ores are
rarely published in an open schedule. In principle they are calculated according to what the traffic will bear with the result that the milling charge
for low-grade ores is less per ton than for higher-grade even though the
latter actually may be easier and less expensive to treat.
Manpower Problems
Since mineral raw materials are the basis for about two-thirds of our
national wealth. and an even larger proportion of our durable goods, they
generate at least one-half and probably as much as two-thirds of our national employment. The employment -created by minerals, however, is
largely outside of the mining industry. Minerals and the manifold products
196
derived from them are used by workers in virtually every industry yet, surprisingly, only a little more than one percent of those gainfully employed
in the United States are actually engaged in mining or producing oil and
gas from the ground. In December 1955, no more than 753,000 persons
were employed at mines, quarries, and oil and gas wells out of a total labor
force of 69,538,000 of whom 64,165,000 were employed in civilian occupations (United States Bureau of Labor Statistics).
Whereas the population and the number of persons willing and able to
work have increased rapidly in recent years, and notwithstanding the almost steady expansion in the output of minerals, the labor requirements
of the mineral industries of the United States have generally declined, not
only in proportion to the total labor force but in autual numbers. The
annual average figures shown in Table 29 show changes in the numbers
TABLE
29. Persons Employed in Mining, 1939 and 1957
Averagc Nuni ber
I3mployetl
1,000's
Pcrccnt Change
--
Industry
1057
1939
1ncrc:lsc
Decrcase
Met:il Mining.. . . . . . . . . . . . . . . .
Anthracite . . . . . . . . . . . . . . . . . . . .
Bitumi~iousCoal Mining. . . . . . .
Oil and Gas Wells.. . . . . . . . . . . .
Other Nonmetallic Mining.. . . . .
03
26
216
254
00
103
81)
388
189
76
9.7
70.8
44.3
Total.. . . . . . . . . . . . . . . . . . . . .688
845
34.5
30.3
A
18.6
(twelve-month averages) of persons employed in each of the major

branches of the mining industry as reported by the Bureau of Labor Statistics for specified years.
The statistics of mine employment from different sources vary in magnitude according to the method of reporting. The Department of Labor
reports payroll figures on a monthly basis and averages these figures on an
annual basis. The Bureau of Mines, on the other hand, calculates employment on the basis of the average number of men working daily which, of
course, is always less than the number on the payroll and much less than
the number of persons who may list their usual occupation as being in the
mineral industries. However, any of the yardsticks show a fairly regular
and quite persistent decline in total employment during the entire period
after World War I. In 1956 there were signs that this decline was'ended,
following stabilization in the coal and metal mining industries and continuing rises in the crude petroleum and natural gas industries and at nonmetallic mines and quarries. Notwithstanding declines in the final quarter, the
average number of production workers rose in 1957 to 688,000 vs. 680,000

in 1956.
One reason for the decline in number of workers notwithstanding the
general growth in over-all mineral production, was the increase in average
number of days worked each year, especially at coal mines. Steadier employment due to fewer strikes and other shutdowns at the mines and plants has
been only partly offset by the fewer number of hours worked per shift. The
main reason, however, why production is higher with fewer men is that
mechanization and more economical mining methods have increased the
output per man-hour of productive workmen.
Merely because the numerical needs of the mining industry for workmen
are relatively small, it does not follow that the mining industry has no
recruitment problems. Particularly in some localities it has not been easy
to attract away from other industries enough workmen having the necessary
natural aptitudes, strength, and intelligence. Moreover, even after hiring a
sufficient number of potentially good workmen, the industry must train
a certain proportion of them for key positions requiring special skills and
experience.
In established mining camps-and
generally throughout the regions
where mining is the dominant factor in the local economy, as in coal mining
areas in Pennsylvania and West Virginia or in the Rocky Mountain States
-men
and boys are growing up whose fathers and grandfathers were
miners. In such communities, underground work is accepted as a matter
of course and its advantages and disadvantages as compared with other
occupations are well known. This does not mean that the son of a miner
will elect to follow in his father's footsteps but it does mean that a job
seeker knows what to expect underground and so does not conjure up
fears and false concepts of possible dangers or hardships. In many communities no experienced miners are available and men who want and need
a job are hesitant about going underground to face new and obviously different environments. Some persons never feel really comfortable in a deep
mine; they are prone to imagine all sorts of hazards lurking in the dark.
Others, while not beset by unnatural fears, never can quite adapt themselves to underground work even though the operations to be performed
are not grealtly different from work that they may be accustomed to do on
the farm or on an outdoor construction job. Still others are naturally careless and likely to cause accidents.
Apparently, therefore, a good potential miner must possess a natural
aptitude, or at least an emotional tolerance, for working in an underground
mine. Many men actually prefer the atmosphere of a well-ventilated mine
to the open air and thus find real satisfaction in their employment. They
escape the heat of summer and the rigors of winter and they find the work
198
interesting and different. Some men even accept the discomforts of a wet
shaft as a challenge, and scorn a more monotonous type of work.
Mining was formerly a much more arduous, hazardous, and dirty occupation than it is today. Workmen in the mineral industries still do not have
soft jobs, but conditions have improved vastly and are getting better all
the time. Even now, there is hard work to be done, especially at small
mines, but there are more and more mines, both underground and open
pit, where hand labor is minimized and where machines do most of the
work. Now that compressed air and electricity are almost universally available both underground and on top because hourly labor costs have soared
so high, even hand shoveling or "mucking," and hand tramming have almost disappeared.
Whether modern mining calls for more or less skill than formerly, it
undoubtedly demands less physical exertion and more mechanical ability.
Mechanical ability has become equally important in other industrial occupations and even on the farm. This tends to make the switch from other
jobs to mining work less difficult than it used to be. This is true even for
an underground job, especially in a big mine. Much of the work in a large
open pit or strip mine and in the oil and gas industries is quite similar to
that on a big construclion job.
Resourcefulness has always been a characteristic qualification of a good
mining worker but employment in a modem mineral extractive or treatment establishment now calls for more and more organization and teamwork. Not long ago a small mine could be worked with little supervision.
At each working face one or two men assumed all the responsibility for
hand drilling, blasting, and delivering ore and waste to a main haulageway
or chute. In soft, narrow, rich veins, it was customary even for a "leaser"
to do much of the work with a "pick-a-poke" or long bar with a bent point.
As the ore was pried out it dropped on a canvas and was carried out in
sacks. High wages and danger of pilfering in most industrialized countries
have eliminated this and other types of "gophering" operations. Gone to
their final reward are most of the lone miners who prided themselves on
having a "nose for ore" and who were willing to squirm and sweat in
cramped quarters and bad air seeking a rich pocket that always lay just
ahead. The typical miner of this generation is content to work for "day's
pay" and under more supervision than used to be tolerated by a really
good miner. Temperamentally, he may still be individualistic but this
characteristic is far less typical of the average workman than it used to be.
Mines are often situated in remote places where living conditions,
schools, and opportunities for social contacts, amusement, and cultural development depend upon the support of the mining company and thus may
be inadequate. To venture into a distant or new and raw community, especially in a strange country, in order to take a mining job, therefore, may
call for something of the pioneer spirit-not only by the mine worker but
also by his wife and family. This feature is an important consideration for
a mining engineer when he chooses his profession but for the general runof-mine labor, up to and even including the rank of shift boss, the prospect
of a roving career is incidental. Most mine workers if they so desire can
live in a settled community. Even if the mine shuts down they can generally find jobs in construction, lumbering, or a factory. The slogan "Once
a miner, always a miner" has never been quite true and now that mining,
in common with other occupations, tends to utilize general mechanical
rather than specialized skills, the shift from one job to another has become
easier than ever before. Always there have been tramp miners just as there
were tramp printers and all kinds of itinerant workmen who want to be
forever on the move. The itch to travel unquestionably enters the calculations of those who specialize in prospecting or even oil-well drilling but
opportunities to visit out-ot-the-way parts of the world are by no means
confined to the mineral industries. The main reservoir of labor of the best
type lies in the ranks of those who could get a job almost anywhere but
who would rather work underground or around mineral industry plants
even if the pay were no better than in some other industry.
As previously noted, a certain proportion of the workmen in the mineral
industries have to be trained for special jobs. Both underground and on
surface many of the jobs are suited to unskilled workmen but the key positions will always call for a background of training and experience.
The qualifications needed by a good miner or a competent timberman
used to be acquired by years of experience as a helper. No regular apprenticeship was served and by changing from mine to mine some men qualified
themselves for such jobs sooner than others who were not in such a hurry
to "steal" their trade. Nevertheless, it generally took a long time for even a
good man to learn how to cope with the varied problems he was supposed
to handle.
Although the statement that there is no substitute for experience is still
true, ondhe-job training is more and more common. Most of the large
machinery makers and explosives manufacturers employ as field salesmen
competent mining men to instruct and advise how to use their products.
The purpose of supplying these services, of course, is to push the sales of
an individual company but these experts continually disseminate valuable
information that contributes to the development of a competent operating
staff at the mines. The employers' liability insurance company inspectors not
only have authority to condemn unsafe practices but they also help to instruct
the management and men in how to do the work better. Federal and State
government employes are another means of spreading the gospel of safer
and more efficient methods. In addition to these services, which are available to any and all persons, many of the larger mining companies have
200
ECONOMICS O F T H E MINERAL INDUSTRIES
instituted their own training programs, some of which cover virtually all
.phases of instruction for skilled or supervisory positions.
Wages and Labor Costs

Since wages and salaries represent from 40 to 6 0 % or more of the cost
of producing most mine products, increases in wage rates are important
to an employer even Ihough in the long run they may be offset by increased
efficiency or higher prices for the product. For many years the mining industry was notably successful in keeping down its costs and prices while the
price levels of other commodities were going up. In more recent years,
however, as workers demanded higher and higher standards of living,
wages and other payroll costs, including the rapidly expanding fringe benefits, have advanced at an accelerating pace. A technologic revolution in
mining methods and improved metallurgical and chemical engineering
techniques has kept production costs from rising as rapidly as wage and
salary rates but mounting payrolls can no longer be offset completely by
technologic progress. Over-all costs, including labor costs, have increased
sharply since World War I1 and the current trend is still upward.
Whether expressed in terms of annual earnings, weekly wages, or
hourly rates, workmen in the mineral industries are well paid in comparison
with those in most other industries. Whereas many miners, especially coal
miners, used to be idle for days or weeks at a time when the mines were
closed for want of orders or for other reasons, employment in recent years
in the mining industry as well as in other branches of the mineral industries has been fairly regular and relatively free from seasonal fluctuations.
Average hours of work in time of normal demand tend to be over 40
hours a week in metal mining and in the oil and gas industry. In mining
nonmetals other than fuels, the average work week is close to 45 hours
but in bituminous coal mining, even recently, it has been between 30 and
38 and in anthracite mining it rarely totals as much as 35 hours.
Whereas annual earnings or take-home pay are major factors in determining purchasing power of workmen and living standards of their
families, wages per man-hour are more significant than figures for longer
periods of time when it comes to their effect on labor cost to employers
or the industry. Formerly they were a fairly accurate measure except for
minor modifications that began to be needed because of variable customs
in respect to time allowed for rest periods and for going to and from working places. Since World War 11, however, so-called fringe benefits have become more and more important. In addition to rising percentage rates on
payroll accounts that must be paid for employers' liability insurance, social
security, and unemployment insurance, employers now have to pay additional sums, either directly or indirectly, to their employes for pension
plans, vacation and holiday grants, shift premiums, and sundry other eco-
201
nomic and social benefits for both workmen and their families. The sum
of all such supplementary charges now ranges from a minimum of about
20% to as much as 50% additional to the base pay rate.
As shown in Table 30, hourly base pay rates in most branches of the
mining industry in December 1955 were roughly three times the average
rates for 1939. In the decade after World War 11, they practically doubled
and further advances were made in 1956. Soft coal miners won $1.20 per
shift on October 3 of that year and an 806 rise on April 1, 1957.
TABLE
30. Annual Average Hourly Wage Rates in United States
Mining Industries"
'
Yc:~r
I939
1045
1 !)50
1052
]!I54
11155
1956
1957
Mct:11
Mini~ig ,
$0.708
1.042
1.554
1.86
2.07
2 . 19
. 2.30
2.48
* U. S. Bureau of
A~~tl~racite
Mining
$0.923
1.252
1 .D70
2.26
2.52
2.53
2.64
2 .95
Bituminous
Coal
Mining
$0.886
1.240
2 ,010
2.29
2.48
. 2.56
2.81
3.04
Oil ant1
N:Itur:~l
Gas
Otl~cr
Noll~nct:~l
Mining
$0.550
0.8X6
1 ,301
1 58
I 70
1.82
1.92
2.03
Labor Statistics: Monthly Labor Review.
At least 11% and probably a gradually increasing percentage of employes in the mineral industries are white-collar workers. In the period
1939-54, while ordinary laborers (excluding mine labor, however) received increases amounting to 250%, the median rates for all male professional, technical, and kindred workers in the United S'tates rose only
171% from $1,809 to $4,905 a year. For managers, the increase was from
$2,136 to $5,234 (145% ), for clerical workers from $1,421 to $3,735
(163 % ), and for craftsmen and foremen from $1,309 to $4,246 (224% ).
These figures compare with average annual earnings for all full-time employes in the mining industry of $4,372 in 1954.
During the period covered by the data in Table 30, average wage rates
in manufacturing esltablishments rose from $0.633 in 1939 to $1.023 per
hour in 1945 and to $2.09 in 1957. These figures are seen to be substantially lower than the average rates for any of the major branches of
the mineral industries except the mining of nonmetals other than fuels
which is so often conducted in rural areas where living costs and wage rates
are typically much lower than in more populous communities or in Western
mining camps. Effective March 1, 1956, the national minimum wage was
increased by law from $0.75 to $1 .OO an hour but this had practica 11-y no
effect on the mineral industries.
In a study of the Lead and Zinc Industries (Senate Doc. 119, 83d Con-
'
202
gress, 2d Session, 1954), the United States Tariff Commission showed a

comparative breakdown of the principal expenses per ton of crude ore
mined in 1939 and 1951, respectively. As given in able 3 1, the ,average
cost of mining increased 175% while wages and salaries rose 182%.
Most of the increase in cost of electrical energy, it may be assumed, and
also par.t of the increase in cost of materials and, supplies, resulted from
increased mechanization which, in turn, was necessitated by the rise in
wage. rates. The breakdown is given in Table 3 1.
TABLE
3 1 . Expenses per Ton of Crude Lead-zinc Ore Mined
Iten1
S:~l:~rics
and Wagcs
Sr~pplicsand M:~tcri:~ls
F~lcls
Purchased Electricity
1939
Pcrccnt Increase
$1.54
0.65
0.05
0.22
$4.35
2.04
0.05
0.33
189
214
0
50
$6.77
175
Total
1959
$9.46
, Later figures covering entire branches of the industry are not available
but the Census data and various individual company reports clearly show
that as labor works fewer hours and gets more dollars per day, the cost of
mineral production generally has to go up, not necessarily in proportion
but up nevertheless. In the forty-year period, 1913-53, output per manhour in American manufacturing establishments increased about threefold.
The improvement in the mineral industries has probably been even better,
current productivity being perhaps 3.5 times what it was immediately before World War I. Over and over again, during the interwar period, the
mineral industry managed to cut prices or at least to keep them on a level
while increasing its payments to workers who thus received most of the
benefits of technologic gains. During and since World War 11, however,
wages and the recent sharp increases in fringe benefits have gone up much
faster than output per man. Breyer (Engineering and Mining Journal,
March 1956) has shown that the amount of zinc that could have been
bought with 33 labor hours in 1915 would buy only five or six hours of
labor in 1955. In 1951, it would have bought 12 hours, in 1933 17, and in
1925 19. During this 41 -year period, the price of zinc rose roughly from
a 5& to 6& range to between 124 and 146; and meanwhile, the labor-hour
cost was boosted from a range of 154 to 256 to between $1.75 and $2.75.
In similar fashion, but using index numbers (1913=100), he showed
that in the copper industry metal prices rose only from 100 to 275 whereas
the gross cost of a labor-hour went up from 100 to 1240 and construction
costs (capital costs) from 100 to 675. The squeeze on the mineral industries, he believes, has developed to the point that further rises in metal
prices will follow more quickly henceforth after a labor-cost rise. In 1957,
metal prices dropped sharply while wage rates continued upward, and the
squeeze came on mining company earnings.
In broad perspective the situation in mining areas outside of the United
States follows the saine pattern. Wage rates in most foreign countries, of
course, are substantially lower than they are in the United States. In many
mines abroad, men, and women too, are willing to work an 8- or 10-hour
shift for less pay than the dollar equivalent of a half hour's work in the
United States. It does not follow that production ,costs in these mines are
proportionately or even actually lower than in an equally good American
mine. But it is true that free labor throughout the world is demanding and
getting more wages and better living standards. Percentagewise the changes
in the more backward countries promise to be vastly more profound than
in North America or even in Europe. More and more, American government and private capital and know-how are being sought to soften the impact of social and economic evolultion in such countries.
Social Security, Unemployment Insurance, and Fringe Benefits

for Workers
Since 1945 there has been an impressive extension of employe-benefit
programs of various kinds, including welfare and pension funds, health
and accident insurance supplements, life insurance for workers and their
families, and, more recently, the drive for a guaranteed annual wage. Most
of these fringe benefits, like employers' liability insurance (which is discussed in a subsequent section of this chapter), are largely paid for by the
employer, often with no specified contribution by the employe. Meanwhile, most employers have had to yield to demands for more pay for overtime, pay for holidays, sick leave, and vacations; together with premiums
for work performed on the "graveyard shift" and during other unconventional or inconvenient hours, or under uncomfortable conditions.
The taxes imposed by the Social Security Act are nominally shared
equally by the covered employe and the employer although the latter is
responsible for records and collection of the payments which are usually
deducted from the take-home pay. For the calendar years 1937-49, inclusive, the rate of tax was 1 % for both employe and employer for the
first $3,000 of wages paid during the year. The rate of tax was subsequently raised so that each contributed 1'/,% on the first $3,600 of wages
and then, after January 1, 1954, it was boosted again to 2% on the first
$4,200 of annual wages. After 1959, further increases are scheduled so
that employe and employer will each pay progressively higher taxes until
in 1975 and subsequent years the rate for each will be 4%.
Although the worker is supposed to contribute his share of Social Security and other payroll deductions, including federal income taxes which
likewise are generally withheld by the employer, it may be questioned if
204
such involuntary contributions are not actually levied against the employer. Many workers are prone to think only in terms of take-home pay.
In fact wage negotiations often start from the premise that nominal wages
must be upped at least enough to take care of all deductions so that the
worker's spendable income will remain intact.
In addition to the old-age and survivors insurance features of the Social
Security Act, this act includes a program of assistance to the unemployment insurance systems,of the several states. This calls for the payment of
an additional tax which is borne by employers and not shared by the
workers. Unemployment insurance compensation is payable only by the
states and in accordance with state law. Formerly, small firms with less
than eight employes were exempted from this program but after December
31, 1955 only those with less than four employes have been exempted. Although the federal tax for unemployment insurance is levied at the rate of
3% of the annual payroll, an allowance is made for taxes paid by the employer in compliance with state laws. This allowance may be as much as
90% of the federal tax or 2.7% of the payroll. In other words, the minimum tax actually levied by the Federal Government under this program
may be no more than 0.3% of the payroll. Many state laws provide that
each employer shall be rated in accordance with his individual employment record. An employer who provides relatively stable employment pays
'
a lower state tax than one whose operations are seasonal or irregular.
Health and insurance plans, such as are rapidly being embodied in most
labor-management contracts, provide one or more of the following benefits: Life insurance or death beneMs, accident and sickness benefits (excluding sick leave and workmen's compensation), and cash or services
covering hospital, surgical, maternity, and general medical care. Many existing programs have been broadened to include additional benefits such
as surgical and in-hospital medical care or the extension of benefits to dependents and retired workers. New features include private supplementation of workmen's compensation so as to assure a worker injured on the
job an income equal to the amounts he would receive as a result of an offthe-job injury.
Financing of these various plans may be by the employer alone or
jointly by both employer and employes. According to a United States Department of Labor study, however, 85% of the employes covered by pension plans in 1954 made no contributions, benefits being provided by the
employer on a noncontributory basis.
Paid vacations, formerly granted as a special benefit only to whitecollar workers, are now commonly given to factory and many mineworkers.
Usually the wage earner is required to wait until after he has been regularly
employed by the company for a few years before qualifying for paid vacations but even this requirement is being waived. These and other trends
'
all fall within the broad pattern of more and more leisure for all classes of
workers. In common with other benefits and social gains by employes at
all levels of employment, what used to be a rare privilege rapidly becomes
a right.
Cost analyses of fringe benefits and premium pay practices have been
completed in a few industries and areas but no official data are available
in respect to branches of the mineral industries. However the comparison
in Table 32 purports to show the trend in the iron and steel industry. During the period 1940-1955, the straight time hourly labor index for the
iron and steel industry increased almost threefold,-from about 340 to 910.
Including the various fringe benefits, the gross labor cost, before the new
TABLE
32. Relative Amounts o f Benefits and Prerniurn Poy to Base Pay in
the U . S. Iron and Steel Industry, 1940 and 1955
Item
Pensions, Social Security, insurnncc
Vacations
Holidays
Shift prerniu~ns
Total
Percent of Base Pay

1940
1955
G
1CL
0
4%
2
0
0
1%
20
contracts won in 1956, had increased substantially faster than the hourly
base pay rate index. Labor's demands for more and more guarantees and
concessions were further acceded to in the 1956 contract which has not
been correlated with the foregoing dalta.
Transportation Costs
A keen observer once remarked that all mankind is engaged in moving
things from one place to another. Mineral production is largely concerned
with movement. Ore is shot from the face, dropped or otheAse loaded
into cars or trucks, hoisted or trucked to a mill where the waste flows to a
tailing pond and concentrates are started on a journey to the smelter.
There they are moved about a great deal; the metal continues on to a refinery, thence to a fabricating plant, often via warehouse. Finally, the
,factory products have to be delivered to consumers. To complete 'the picture one may consider scrap metal being collected, returned to a smelter,
and going through part of the circuit all over again.
Crude and semifinished products of mines (including oil wells) comprise more than one-half of the tonnage of revenue freight handled by
American railroads. Until quite recently, almost one-third of all freight
carloadings consisted of coal, coke, and crude ore alone. If liquid fuels,
sand and gravel, stone, and the tonnage handled by smelters and refineries
be added, along with the output of cement, lime, clay produc~ts,and glass
206
works, plus the products of the iron and steel works, foundries, and metalworking plants, it is likely that the mineral industries generate in the aggregate as much as three-fourths of all traffic by rail and truck and a like
proportion of domestic barge and boat transportation.
Boat transportation has been a major factor in the iron ore industry
owing to the heavy movement from Lake Superior mines to blast furnaces
tributary to the Lower Lake ports. Combined rail and vessel rates for this
movement have accounted for as much as one-half the cost of the ore delivered at Pittsburgh. Barges are an important means of transportation for
coal and coke, fluxing stone, iron ore, sand and gravel, and other bulky
commodities in several domestic districts, notably along the Mississippi
River and its principal tributaries (especially the Ohio-Tennessee rivers)
and around Birmingham. Overseas shipments, of course, must be made in
ocean-going vessels. The coastwise movement of coal out of Norfolk,
Virginia is important; petroleum products comprise almost one-third ( 3 1 %
in 1951) of all intercoastal traffic between the Gulf Coast and East Coast;
and shipments between Atlantic and West Coast by way of the Panama
Canal are by no means insignificant. Actually, however, solid fuels and
minerals travel in the United States mostly by rail and truck and the use
of injternal waterways is relatively less important in this country than it is
in ~ u i o p e Water-borne
.
traffic is composed principally of petroleum products, solid fuels, iron ore, scrap, limestone (flux), and concrete aggregates.
In the oil and gas industry, naturally, the principal means of transportation is by pipeline. In 1954, for example, 74.8% of the crude petroleum
receipts at United States refineries were by pipeline, 23.8% by boat, and
only 1.4% by tank car or truck. Pipelines are likewise being used more
and more for long distance delivery of gasoline, fuel oil, and other petroleum products to inland markets in the upper Middle West and Atlantic
Coast States. Motor fuel, kerosine, and distillate fuel can be shipped consecutively through the same line with almost no loss from intermingling
at the point of contact.
Airplanes, although contributing to speedy delivery of emergency supplies and repair parts, and to serve remote regions away from roads, are
scarcely used at all for the carriage of mineral products other than precious
metals, industrial diamonds, gem stones, and wartime mica.
Attempts to evaluate the relative importance of transportation costs to
the total procurement cost of minerals in general have been futile. Theoretically, the rising cost of transportation, combined with better treatment
'technology, favors the trend toward increasing decentralization of industry.
In the mineral industries, each rise in freight rates puts a premium on the
exploitation of local deposits. Even though much smaller and poorer in
quality than more distant sources, and correspondingly more costly to
work, nearby deposits may become economical sources of supply when the
cost of transportation boosts the delivered cost of competitive materials
high enough.
Inasmuch as the basic principle for establishing transportation rates is
to charge what the traffic will bear, railroads often scale their charges
roughly in proportion to the value of the ore. In 1951, for example, the
rail freight from Ouray, Colorado to Salt Lake City treatment plants varied
from $6.75 for ore worth $10 or less a ton up to $10.78 for ore worth $90
or more. Similarly, the rates per ton to Salt Lake custom mills and smelters
from Caliente, Nevada, ranged all the way from $2.92 to $9.42. Availability of back-haul commodities in a particular region is another factor
in developing freight rates. A familiar example often cited by economists
is the exchange of coal or coke for iron ore. In 'this example the tonnage
of ore is greater than the tonnage of fuel but the advantage, in respect to
blast furnace location, generally lies nearer the coal mines because steel
consuming industries also tend to locate near sources of fuel and power
which, of course, means that the major markets for iron and steel products may be further away from iron mines.
The practice of charging higher rates on high priced commodities is
justified because the impact of the high cost may be unimportant on a percentage basis. In diamonds, for example, it may be insignificant. Mines that
yield products having a high enough unit value, therefore, may enjoy a
world market whersas customers for a sand and gravel operation are likely
to be within a radius of only a few miles. High transportation costs often
afford benefits to local producers similar in effect to protective tariff duties.
Producers of goods having a wide market may be vulnerable to competition from almost any quarter whereas a sand and gravel producer may continue to reign supreme within his own limited territory even though his
costs and prices are substantially higher than the average for his industry.
So long as he can pass his cost to consumers, he is undermo compulsion to
improve his technology or introduce drastic economy. In economic parlance, his purpose in pricing should merely aim at maximizing profits without attracting a prospective new producer who might challenge him in his
own territory.
Owing to the concentration of industry around coal mines and with
power plants often situated literally at the pit mouth, great quantities of
fuel are consumed without any substantial charge for transportation from
the mine. By contraslt, however, a good deal of coal, often of special types,
travels long distances. Due to its relatively low unit value, rail transportation to industrial consuming plants commonly adds as much as 70% to the
fob mine cost. British coal used to be carried all over the world but the
pattern of world movement is complex and shifting. In 1956, Europe was
208
ECONOMICS OF T H E M I N E R A L INDUSTRIES
'
buying American coal costing $22 or more a ton delivered, as compared

with say $8 for the same grade of coal at the boiler door in leading American industrial centers.
A tabulation of transportation costs has no meaning except in respect
to the mines listed and their current markets. Some mines are hard hit by
freight charges, others are not. Remote mines in Canada may pay as much
as $50 a ton to ship their concentrates to a smelter whereas some mines
have only a switching charge to pay. A fair example of the wide differences
that exist is afforded by the lead and zinc industry. In 1952, as reported
by the United States Tariff Commission, the average coslt of transporting
lead ores and concentrates from each shipping point to each destination
ranged from 0.1 to 2.1$ per pound of lead content and that of transporting
lead bullion ranged from 0.7 to 1.3$. The range for zinc in ores was from
0.1 to 1.5$. Rail rates at the end of 1952 were from 36 to 80% higher
than those charged at the end of 1946 but the impact of these unequal increases was obviously much more serious on some mines than it was on
others.
According to a symposium reported in the Canadian Mining Institute
Bulletin for June 1956, the average per-ton-mile revenue for moving railway freight traffic is 1.54 compared with 5.5$ for highway and 404 for air
transportation. But actually a . good deal of rail freight moves at rates
around 1.04 a ton-mile or one-third below the regular revenue rate because
the principle of rate making favors raw materials and low-valued commodities. Additional information regarding transportation in Canada, as reported in this symposium, is summarized below:
AIR TRANSPORTATION:
This mode of transportation is employed by the
mining industry for surveying terrain, landing of parties at more or less inaccessible points, and subsequcntly flying material, supplies, and labor by
helicopter. The uranium mines on Great Bear Lake and subsequently
those at Beaverlodge Lake were served by Eldorado Aviation, a subsidiary,
which contributed greatly to a praotical mining program in remote parts
of the Dominion. In ten years, these operations carried 28,000 tons of
freight and passengers, the round trip from Edmonton to Port Radium being approximately 2,000 miles. Building materials and supplies were flown
in and concentrates flown out. Following a fire on November 9, 1951, and
despite the rigors of winter only 35 miles below the Arctic Circle, necessary materials and supplies were brought in and the plant rebuilt by the
following May. Throughout this period, transportation by connecting
waterways or any other means than air was completely out of the question.
Charter rates ranged in 1956 from $77 per hour for the Beaver type
plane to $475 per hour for a Douglas DC 4 freighter but even in Canada
there was great difference in rates. The average air lift haul is about 500
miles. The cost per ton mile is highest for small slow planes. It works out
'
COST OF ACQUIRING A N D OPERATING MINERAL PROPERTIES
209
to $1.07 for the ~ e a v e which

r
has a pay load of 1,200 lb, a speed of 120
mph, and a charter rate of $77. In a DC 3, carrying roughly 6,000 Ib and
cruising 160 mph at $1 80 an hour, the cost per ton mile is only 384.
Despite the high hourly cost, the ton-mile cost in the long range Douglas
DC 4, with its huge payload of 19,000 lb and high speed of 195 mph, is
only 26$. Overhead expenses are figured at $20 per hour flown.
In the United Kingdom, in the 19507s,the cost of air freight per long ton
mile was estimated at seven shillings (slightly less than $1 U.S.) based on
live load for one-halt the flying time (that is, no back haul), at 2,000 hours
a year at 220 mph.
WATERTRANSPORTATION:
On the Great Lakes, a ton of ore can be
transported 100 miles at a cost to the shipper of less than 20$. Cheap
transportation does not exist merely because a water route is available.
Here, it is due to the large tonnages handled and the shore facilities for
rapid loading and discharge. In a single season, only seven or eight months,
boats on the Great Lakes carry 150 million tons of ore, coal, and limestone
alone. The larger the vessel, the more economical to run, so huge sums
have been spent to deepen and straighten the channels to accommodate
larger and larger vessels. In 1957 there were three ore carriers of 60,000
tons' capacity and new vessels on order all had capacities in excess of
30,000 tons each. In comparing cubic capacity of ore carriers and tankers,
for example, it should be noted that cargo space for ore is only 18 ft per
ton as against 48 ft per ton for oil.
RAIL TRANSPORTATION:
Mine products comprise more than 35% of
Canada's rail freight volume. Railroad construction costs so much that it
cannot be undertaken until a large volume of traffic is assured. The Canadian National Railways spent $17,000,000 to build its 144-mile line to
Lynn Lake to serve the copper-nickel-cobalt deposits. The 40-mile branch
line across the Rockies to serve the $500,000,000 aluminum project at
Kitimat, B.C. traverses some of Canada's most difficult terrain; it cost
$10,000,000.
~on'structionof the Beattyville-Chibougamou railway recently permitted
a reduction of one-third or $7 per ton as compared with the cost of highway transport. A 30% reduction was estimated by the Commission of the
Northwest Territories in a discussion of the need for rail service to Great
Slave Lake. All-year transportation by the Mackenzie Highway from Edmonton to Hay River cost approximately $50 a ton whereas rail transportation was expected to cost $32 a ton.
The railroad's advantage in large scale movement of bulk commodities
is largely due to the separation of motive power (locomotive) from the
carrying capacity (freight cars). Capacity is geared to volume of traffic
by the simple technique of adding more standard carrying units. Another
great advantage is the operation of flanged wheels on steel tracks. Friction,
210
the obstacle to be overcome in all forms of land transport, is minimized

by the roller-bearing principle of the railway. The main disadvantage of the
railway, of course, is lack of flexibility owing to a fixed right of way.
ROADTRANSPORTATION:
Burro-back transport,ation over mountain trails
has been largely superseded in North America by heavy trucks roaring
over well-paved highways. Some modem roads are located with the same
care as a railway right of way, beginning with an aerial survey followed by
detailed mapping by ground crews. Grades may be less than 10% and
curves set at less than 6 degrees. Construction costs vary according to the
terrain and other conditions. In Ontario, 300 miles of mine ,access roads
cost a trifle over $2,368,000; at the end of 1955, Quebec had built 1,500
miles of such roads for a total capital expenditure of $23,000,000. These
figures indicate average costs per mile of $7,900 and $15,300, respectively.
Truck-trailer haulage costs, using 45-ton units with 90% truck availability, are reported as ranging from 33; to 47/64, broken down percentagewise as shown in Table 33.
TABLE
33. Breakdown o f Truck-trailer Haulage Mechanical Costs
Tractor tires
Motor
Lubrication and oil filters
Asles ar~dbrakes
Translnission and tlrive lines
Trailer tires and axle
Miscellaneous, trailer
Miscellaneous, tractor
Percent
25.7
14.0
11.8
5.7
3.4
18.0
3.0
18.4
100.0
Source-Alan S. McClimon, Past and Present Trends in Truck Design, Coal Mine
Mechanization, p. 217. American Mining Congress, 1955.
Taxes
In 1954, the mining industries of the United States, including crude
petroleum and natural gas, paid out a total of $859,158,000 in taxes,
nearly 9% of their total receipts. Federal income and excess profits taxes
alone almost equaled net profits after taxes for the industry as a whole.
They aggregated $560,737,000 as against net profits of $566,577,000.
In all major groups except metal mining and anthracite mining the Federal
Government's share of the industry dollar substantially exceeded profits.
In later years, following the repeal of excess profits taxes, income taxes on
all but the smallest corporations were figured on the basis of 52% of net
profits before taxes.
In comparison with manufacturing industries, where the National Government took $14,200,000 and left only $10,700,000 in net profits in
1954, the mining industries have a seeming advantage by reason of the
COST OF ACQUIRING A N D OPERATING MINERAL PROPERTIES
211
allowable deductions for depletion allowances, prospecting expenses, etc.

At long last, however, it has been generally recognized that the relief
allowances specifically granted to the mining industries are designed
simply to offset the greater risks that are peculiar and different from those
inherent to other industries. Without the percentage depletion allowance,
for example, the increasingly expensive search for new ore reserves to
perpetuate the industry, would cease abruptly.
Local taxes paid by mining industries, as reported by the United States
Treasury income tax records for 1954, totaled $228,421,000. Although
this total is only a little more than one-half the take by the Federal Government, local taxes are to a considerable extent in the nature of fixed charges
that must be paid whether the enterprise itself is successful or not. In addition to real estate taxes, sales taxes, and various other levies many states
are now collecting income taxes.
The average effective rate of federal, state, and local taxes on corporate
net income for all industries declined sharply from 1945 to 1946 but rose
again with the outbreak of the Korean war. In the 1951-53 period, it
varied around 55% or close to the high point of World War 11. The
Revenue Act of 1954 cut back the rate to roundly 50%, about midway
between the 1950 and 1951 levels. Indirect taxes, estimated at only 5 %
of sales in 1939, were estimated in 1954 as being an even smaller percentage of the total. At least one large mining and smelting company
reports general taxes as amounting to only 0.1% of gross sales compared
with 6% for income taxes.
Taxes are a universally important but often unpredictable item in the
cost of producing and processing minerals for sale. In most countries, enlightened self-interest tends to avoid strangling the mining industry by
excessively burdensome levies or regulations but there is always the danger
that an enterprise may be hurt either inadvertently or deliberately, particularly if it happens to be foreign-owned. Whereas Canada, Peru, and the
Union of South Africa have created a favorable political climate for investment of American funds the free Asiatic nations, with the possible exception of Turkey, have a poor reputation for protecting foreign capital.
Insurance
The insurance problems of firms and persons engaged in the mineral
industries do not generally differ much from those of iirms and persons
engaged in other productive enterprises. Such differences as do exist may
be attributed not so much to inherent characteristics of the mineral industries as to the numerous special conditions that may be met in special cases.
A mining establishment situated in a remote region, for example, is likely
to have difficulty in obtaining fire insurance at reasonable rates. Big mills,
nowadays, are mostly fireproof structures but small mills are commonly
212
built of wood and reports of uninsured mills struck by lightning or otherwise destroyed are disturbingly frequent in the mining business. Although
it is proper to record that mineral industry establishments in some communities may have difficulty in obtaining coverage at reasonable cost for several
types of insurance, especially liability insurance, the fault generally lies in
the ignorance of the insurance writers or the fact that there are not enough
comparable establishments locally to spread the risk over a sufficient number of units. Inspection costs are another factor in such circumstances.
By far the most costly of the various forms of insurance that mining
companies usually carry is workmen's compensation or employers' liability
insurance. This class of insurance is compulsory in many states and only
a large company can afford not to carry it in places where it may not
actually be required by law. Rates are based upon the total payroll. Recently, they have risen to more than 9 % in some localities. Workmen's
compensation laws provide for necessary medical care and also for payment of part of the wages normally paid to any worker if he is disabled
in an industrial accident, and damages to his dependents if he is killed.
The principle that this form of relief should be borne as a cost of production was first established definitely in the United States in 191 1 but had
been accepted in several other countries before that. This is the only field
of worker-benefit legislation in which state jurisdictions operate completely
independent of the Federal Government. Every state and territory of the
United States adopted its own laws. These laws differ widely; only about
half of them are compulsory; the others are more or less elective. Under
some laws of the latter group, however, an employer and all his workers
are likely to be pressured to come under the law unless the employerand, in some states, the worker himself-individually rejects it. Under other
laws, an employer must positively elect to be covered as otherwise he
would be subject to the employers' liability laws with the common law defenses abrogated. Some laws are part compulsory, part elective.
The prime purpose of all this legislation is to provide prompt benefit
payments to the injured worker, to provide adequate and competent
medical services, to rehabilitate the worker as soon as possible so he can
go back to work, and to work for accident prevention. Administration is
a key factor and it varies in competence. In some states, no records are
made of benefit payments and only a few states have, good yardsticks of
performance.
Most state laws provide for a brief waiting period of from three to seven
days before compensation can be paid in lieu of wages. The purpose of this
waiting period is to discourage malingering or false claims but it also eliminates the great bulk of minor injuries. More and more, however, employers
are tending to pay for this lost time even though they do not have to and
even though the cost is not covered by their insurance premiums. They may
also supplement the legal compensation in lieu of wages which is limited

to only 50 to 6674% of the wages lost. Although the percentage of wages
payable as benefits has remained nominally about the same over a period
of years, the maximum limits have lagged behind the sharp advances in
earnings. More than half of the states still specify a maximum allowance
-of less than $30 a week so if the employer chooses to supplement this his
contribution must come out of his own pocket.
The fundamental characteristic of the workmen's compensation system
is that it imposes liability on the employer for work accidents without
regard to where the blame lies. It is effective in relieving miseries of the
worker and his dependents and protects society from the injured worker
becoming a public charge.
Although a reasonably complete system of workmen's compensation
should prescribe the exclusive liability of the employer and should cover
all his legal obligations to an injured worker, some vestiges of the older
liability for negligence and the damage suit still remain. These arise
from ( 1 ) failure of the employer to secure payments of compensation by
insurance or self-insurance which may make him subject to damage suit
liability, ( 2 ) serious and willful misconduct or gross negligence of employer, ( 3 ) exclusion of some classes of workers from workmen's compensation in various jurisdictions such as farm workers or household
domestic servants, and ( 4 ) a movement in some quarters to restore action
for damages against employers either as an alternative or in addition to
workmen's compensation rights.
In addition to the premium for workmen's compensation insurance
against accidents it is often customary to charge an additional premium,
say 0.1 % of the payroll, to cover dust or other industrial disease hazards.
Rates for fire, windstorm, and other ordinary forms of insurance vary'
greatly, of course. Large companies having many different properties scattered over this or other countries may be as well situated to carry their own
insurance as an outside company with not many more risk units. Others,
while self-insured within moderate limits, may carry outside insurance to
cover major losses in excess of say $250,000 or more. The cost of ordinary
insurance, as distinguished from employers' liability or workmen's compensation insurance and unemployment insurance (Social Security) does
not constitute a large item of production cost. In the Michigan iron ore
mines, for example, it recently amounted to only 1.9 mills per ton or
about 0.04% of total cost fob mines. Employer's insurance cost 16.654 or
about 6 % of the labor cost and 3 % of the total fob cost.
Legal Expenses
All large mining companies have legal departments in the home office
and usually they employ local law firms both in each community in which
.
'.
2 14
they do business and in the nearest large city. Typical retaining fees in the
Western United States are $1,000 a year for the local law firm and $3,000
a year for the city lawyers plus customary fees for any specific services.
In addition to conducting occasional lawsuits, assisting in the negotiation
of contracts, title search, and tax work the chief activity of company lawyers is usually in connection with labor relations.
Local lawyers are even more important in foreign countries than here
in the United States. In Mexico, for example, the usual advice to a prospective mine operator coming from the United States is first to get a good
lawyer. Legal advice may be absolutely essential to steer one's course
through the maze of tax laws, mining laws and regulations, laws relating
to foreigners, export and import regulations, and numerous special local
ordnances and federal statutes. In some countries, it is well to check on
what legal restrictions have been found impractical and are never enforced.
In the aggregate the mineral industries pay large sums for legal advice
and protection but legal expenses seldom bulk large enough to show up
in a breakdown of costs per ton of ore mined during any long period.
Moreover, since top officials and directors of large mining companies
frequently have legal training, it is quite likely that sundry services which
might properly be chargeable as legal expenses are actually contributed in
the form of routine administrative decisions.
Amortization and Obsolescence

To stay in business, plants must be kept in repair and productive capacity or efficiency increased by enlarging existing facilities or by acquiring
additional facilities by purchase or new construction. In a continuing enterprise, money or credit must be available for replacement of worn-out or
obsolete buildings, machinery, and equipment. Depreciation is defined as
the loss in value of a structure or other facility between two dates. Although
depreciation is the actual loss in value, depreciation cost, as deiined by
accountants, is the annual contribution to the depreciation fund or sinking
fund required at a certain date to cover the total depreciation or loss in
value of the asset property. Theoretically, the annual cost of depreciation
is the first cost of the property less its estimated salvage value at the end
of its useful life divided by the estimated number of years of service. In
estimating the useful life of an asset, consideration must be given to how
long it will be needed, not merely how long it might take to wear out or
to become obsolete. The headframe, buildings, and much of the equipment
of a typical mine, for example, might be rugged enough to last for half
a century but ordinarily these items are worth little or nothing after the
mine is worked out or abandoned. They may 'not even be worth tearing
down to salvage the materials for scrap.
Some assets become outmoded long before they cease to be able to

maintain their original function. This may be attributable, for example, to
a rapid increase in the rate of production, to new and more efficient facilities being invented and put on the market, to market price changes, or to
other good and sufficient reasons including a change in operating techniques, as when underground mines have to be converted to opencut or
vice versa or when the mill flowsheet needs to be modified to suit changes
in the nature of the ore or new metallurgical ideas. An asset is said to be
"obsolescent" when its value is deteriorating for reasons other than wearing
out and "obsolete" when conditions are such that it would be more economical to replace it with a new or better facility than to keep it in
operation.
A sinking fund established to extinguish a debt is commonly called an
amortization fund and the yearly deposit to return the capital invested in a
specified asset is known as the annual amortization cost. In common parlance, amortization and depreciation are virtually synonymous terms.
Whereas depreciation allowances are customarily figured so as to permit
recovery of capital spent for construction or acquisition of buildings and
other needed physical assets, they are not designed to offset the effects of
subsequent inflation. Owing to the steady decline in the purchasing power
of the dollar, amortization of the capital cost of almost any facility by no
means provides for the replacement of the facility when it has to be
scrapped. Within the space of only the last few years, the cost of almost all
capital goods has at least doubled and sometimes increased as much as
tenfold. Moreover, it takes more physical equipment or machinery per
worker per unit of production now than ever before. For these reasons,
amortization or depletion reserves, if they are to be considered at all
realistic, must be fed by substantial additions to the legally allowable deductions from current income as defined for income tax purposes.
The practice of different companies may differ greatly in respect to these
matters. Mining equipment, however, is often depreciated within at least
five years; but rock drills may be depreciated in a single year, thus being
virtually chargeable to operating account. On the other hand, there are
instances of a hoist being sold for more than it cost thirty years ago. Since
depletion and depreciation are often lumped together in the annual reports
of many companies, the combined total often being around 2% of gross
sales, it is often difficult to determine the accounting practice of such companies. However, depreciation charges appear to average well over 1%
of gross sales for most mining companies and in the oil and gas industries
the ratio is higher. Based upon "cost of goods sold," the average allowances
for depreciation and amortization, respectively, have been calculated from
the income tax returns for 1951, as shown in Table 34.
2 16
TABLE
34. Average Depreciation and Amortization Allowances as Reported
for Inconze Tax Purposes, 1951
Industry Branch
Mctnl Mining
Anthr:~citeMining
Bituminous Coal mining
Crude Petrolcutn and Natural Gas
Nonmetal Mining and Quarrying
Percent of Cost of Goods Sold

Depreciation
Arnortiz:ition
4 55
0 19
3 360 00
5 15
0 01
14 50
0 06
8.17
0 OR
-
All Branches,
8 18
0.08
Depletion
Allowances for depletion of natural resources in the income tax laws
of most states are equivalent to those allowed under the federal Internal
Revenue Code (sec. 23m) and regulations of the Bureau of Internal
Revenue. Depletion, in its broad economic significance, is the reduction in
property or capital suffered by the mineowner by reason of the extraction
and sale of the mineral. Because mineral deposits are capital assets and
because capital should not be taxed as income, the revenue derived from
the liquidation of such assets differs in character from ordinary income and
thus should be and commonly is exempted from taxation as income. From
the standpoint of tax legislation, there is an analogy between the treatment
of depletion and that accorded to capital gains. Instead of selling his whole
mine, a mine operator sells it piecemeal, ton by ton. The purpose of depletion allowances, however, is not merely to pay back the miner for his ore
but also to encourage him to stay in business and keep on finding more
ore to mine.
Safety as a Factor in Cost
Although the humanitarian aspects of industrial health and safety work

are commonly emphasized, the cost accountant is vitally concerned also
in protecting workers from physical injury, occupational disease, and
other hazards that may shorten their lives or impair their health and efficiency. Such work calls for some out-of-pocket expenditures but these are
likely to be recouped indirectly in the form of savings in insurance
premiums, less lost time, and improved output per man shift. Moreover,
many of the steps that minimize accident hazards tend to advance the art
of economic extraction of minerals-including, in respect to deep mines
for example, improved and cheaper methods of shaft sinking, roof control,
and the systemizing of operations.
Frequent attempts have been made to add up the cost of individual company programs aimed at accident prevention and greater safety but it is
almost as difficult to establish a bookkeeping cost for emphasizing safety
as it is to show on the books how much may have been saved by minimizing accidents or escaping the liabililties which would otherwise have been
imposed on >theemployer as a result of the increasing variety of humanitarian laws on the statute books. It would be possible, of course, to set up
the cost of establishing a separate safety department and to add up the
expenditures for such items as hard toe boots, hard hats, better lights,
suitable gloves, respirators, and other types of safety clothing or specially
designed appliances or equipment, for wet vs. dry drilling equipment, and
for rock dusting a coal mine, but such items do not make up the total cost
of making a mine or plant a safer place to work. It may be impossible to
evaluate the difference in cost between good and bad timbering, roof control, or other operating methods and practices, and above all, perhaps,
between an entire organization alerted to safety and one that tends to be
careless of ordinary safety rules.
Small and poorly financed operators are often handicapped in their
ability to obtain the full benefits of accident prevention practices. Even
when they are well informed as to optimum procedures and principles they
may not be able to adopt them all. The plain fact is that many small mines
would be put out of business if ordinary safety regulations were strictly
enforced. The excellent safety records that some of these mines show are
due solely to watchful supervision and awareness of danger by workers
plus, of course, good luck.
Since a mine or company that emphasizes health and safety work is
likely to take advantage of other cost saving equipment and methods, it is
, difficult to distinguish where economy ends and safety begins. It is the duty
of good management to take advantage of all possible cost savings as well
as to guard the safety of employes. Hindsight alone may show that measurable losses may result from accidents that could have been prevented. In
addition to awards for legal claims and damages for occupational disease,
are losses due to the interruption of operations, electrical and mechanical
breakdown, and other misfortunes. Collapsed mine workings may result
in excessive dilution of ore or coal and may even make impossible the
economical extraction of mineral from a portion of the mine. The intangible
losses likewise may become only too apparent when accidents or neglect of
safety measures cause the men to lose the feeling that "this is a good place
to work." The general attitude of employes is quickly reflected in labor
turnover and output per man shift.
Ironically, employers' liability insurance rates have gone up by leaps and
bounds while accident rates have declined. This of course is because claims
for' compensation for injuries or occupational disease have increased even
faster than the rate of accident prevention. In most communities, moreover,
the courts or juries have been more and more generous in awarding
damages in doubtful cases and in increasing the amount of compensation
awarded valid claimants by reason of partial as well as total disability or
death. Nevertheless, it is still possible sometimes for a company to obtain
218
'
someabatement of excessive premium charges when it can show an exceptionally favorable safety experience.
Cost o f Interrupted Operations

Whole mining districts have been threatened with extinction when connecting mines are closed and begin to fill with water. Because private enterprisers cannot be expected to keep their mines open when they are losing
money, the Government on several occasions has taken steps to postpone
abandonment of such mines by means of subsidies or special salvage measures. Otherwise, the mineral resources might have been lost to posterity.
No less serious is the problem of an individual mining company that
begins to lose money. As costs rise or prices drop, many once profitable
enterprises have to decide whether to shut down or to try to keep going.
To keep going indefinitely means exhaustion of the treasury as well as
profitless depletion of mineral reserves. After income fails to meet reasonable depreciation and depletion allowances it may still be wise to continue
operations, but when more dollars are going out than are coming in, the
situation is critical. If the prospect of profitable operations in the foreseeable future appears hopeless, the logical course is to stop work at once,
dismantle the equipment, and salvage as much as possible before abandoning the mine.
When hope remains that profitable operations may be resumed before
long, the management faces a decision as to whether to continue operating
at a loss, either at the normal rate or at a reduced scale, or whether to
entail the expenses required to maintain the mine or plant in stand-by
condition plus the cost of starting up again when conditions improve. Similar decisions have to be made as a result of major strikes or work stoppages
for other causes.
The time factor is the principal consideration but the nature of the
operation is also important. Some plants can be closed and reopened again
without too much trouble. When operations can be resumed promptly and
if the cost of maintenance during the moratorium is not excessive, it would
be foolish to accept losses merely for the purpose of avoiding a shutdown.
For a deep mine, however, the situation is different. Over long periods,
closed mines fill with water, timbers rot, roofs cave, and developed ore
bodies may become inaccessible or lost. Surface plants deteriorate, experienced staff moves away, certain taxes and possibly royalties or interest
charges have to be met, and there is always a certain amount of overhead.
It is almost essential to have one or more watchmen to guard the premises
and it is often desirable to maintain a skeleton crew, including a responsible
manager, to keep the pumps going and to do more or less repair and maintenance work.
During the depression of the 1930's one large mining company borrowed
$10,000,000 in order to keep going. The ore or metal thus produced could
not be sold at the time but later it served the nation during World War 11,
augmenting the supply of essential raw materials for the military effort, and
it yielded a tidy profit to the company. In a growing economy, no wellfinanced company with ample ore reserves should overlook the chance that
material stockpiled during a period of depressed costs may later be sold
at profitable prices.
One danger in maintaining operations during a period of stress is the
temptation to resort to over-selective mining. The penalty for trying to
"pick the eyes out of a mine" is often the loss of low-grade reserves that
would pay to work later when prices recover. Alternatively, a company
that owns several mines may be able to close one or more high cost units.
If the margin of profit from the operating units is substantially higher than
the average, the impact of lower prices and curtailed demand may be
softened considerably.
A special form of the problem of interrupted operations is the deliberate
closing of marginal enterprises or regulating production at other mines or
wells. This has been common practice by members of European cartels
and has been sanctioned in the United States under certain circumstances
in the coal industry and under the several "prorationing" and shut-in production plans for crude petroleum.
Experience at other mines or during previous crises is not likely to contribute much to the right decision to make under current circumstances.
As in many other matters affecting mining a great deal depends upon local
conditions at a given mine or plant or at the specified time. Anyone, however, who has had the experience of rehabilitating an abandoned mine will
thenceforth hesitate ,to allow workings to cave or fill with water (especially
acid water) or to release key employes until he feels sure that the chances
of resuming profitable operations within a reasonable time are slim indeed.
Part 2. Petroleum and Natural Gas

BY J O H N R . CRANDALL, J. W. GLANVILLE, L. COOKENBOO,
E. D. PRESSLER, AND L. H. THOMPSON
Humble Oil and Refining Co., Houston, Texas
Consumption of petroleum in the United States and in the free world

has exhibited over a long period of years a strong upward trend. This
growth has reflected (and also substantially contributed to) rising industrial
production and income, increasing population, and technological improve-
220
ments in both use and supplies of fuel. In the United States alone, it has
been estimated by the Paley Commission that domestic petroleum demand
will reach 13,700,000 bbl per day by 1975, or about 80% greater than
that existing at present. The capital costs of supplying this ever increasing
demand are tremendous, and it is the purpose of this discussion to consider
some of the factors which affect these costs.
The petroleum industry is characterized by high capital cost. The Chase
Manhattan Bank has estimated that the fixed assets employed by the entire
industry in the free world amounted to approximately 63 billion dollars
at the end of 1955. Considering this investment on the basis of a frequently
employed yardstick, this is equivalent to an expenditure of $4,600 for each
barrel of daily throughput. In the United States, gross assets employed
were estimated at 50.7 billion dollars of which 40.4 billion constituted the
fixed investment in plant, property, and equipment. With United States
crude production averaging 7,500,000 bbl per day, the fixed investment
per barrel of daily throughput is about $5,400. The above figures are overall average costs of finding oil and providing facilities to produce, transport,
refine, and distribute the products made from it. In different parts of the
world this investment per barrel of daily production may vary from a low
of about $2,000 to a high of perhaps $10,000. In the United States about
70% of the total investment is devoted to exploration and production
activities.
In 1956, in the United States alone, the total investment by the domestic
oil industry, including expenditures for exploration, probably totaled over
6 billion dollars. This figure, which represents about 17% of all such expenditures by industries in the United States, is over six times the investment in plants and new facilities of the iron and steel industry and 4 %
times the investment contemplated by either the chemical or automobile
industry. These large capital needs can be attributed to a combination of
geographical, technological, and geological conditions. As a preliminary
step in considering these matters, let us look briefly at the basic factors in
each of these problems.
Geographically, as is common with other mining enterprises, the sources.
of supply are often remote from the market for products. This not only
increases the cost of producing the raw material but also necessitates provision of adequate transportation facilities. For oil, these take the form of
extensive networks of pipelines, fleets of ocean-going tankers, barges for
inland water, tank cars for rail transportation, and tank trucks for highway
use along with the attendant handling and storage facilities. The cost of
providing drilling equipment and supplies in areas remote from established
distribution points compounds the difficulties and expense of looking for
oil. The offshore area is an excellent example of an exploratory region in
which all the costs and geographic problems are amplified.
221
Technologically, with the exception of water, the oil industry is unique

among the mineral extraction industries in that oil occurs in nature in ,the
liquid state under high pressures and moves into the well bores through
which it is produced to the surface by the action of natural physical forces.
Highly efficient and specialized facilities have been devised to handle this
liquid raw material and the products derived from it. These specialized
facilities range from the oil field drilling rig, through world-wide systems
for oil transport and complex refineries for conversion of crude oil to salable products, to the product distribution systems that deliver gasoline to
service stations and fuel oils to residential and industrial consumers. The
natural gas phase of the industry is similarly specialized with facilities for
the production, processing, and transportation of gas at pressures ranging
from a few ounces to several thousand pounds per square inch.
Last, but certainly not least, geologicaUy, the unpredictability of oil and
gas exploration adds to the industry's high capital needs. In the United
States only one out of nine wildcat wells-wells drilled on unproved structures-results
in a discovery of any kind, and only one in about 44 finds
an oil reserve of a million barrels or more.
To the present point, capital costs have been considered as they relate
to the entire industry in all phases of its activity. Although this is a realistic
approach as regards the fully integrated companies engaged in production,
transportation, refining, and marketing, it does not reflect the position of
the several thousand companies engaged primarily in crude oil production.
Since this chapter is concerned principally with the producing activity,
whether conducted by companies engaged only in this phase of the business
or by the exploration and production departments of integrated companies,
cost of procurement as used hereafter will be defined as those costs in
money, manpower, skills, and facilities required to bring the raw material
to the first point of sale; to the lease stock tank for crude oil; and to the
pipeline delivery point for natural gas.
The requirements for technical and professional manpower, highly
trained in the specialized skills demanded by the petroleum producing industry, are of importance equal to those of capital. Engineers of all kinds,
geologists, lawyers, and many others with special training and skills are
required to operate and administer the oil producing industry. Again using
the offshore area as an example, it has been necessary for the producing
industry to develop entirely new techniques and equipment for communication and transportation in addition to solving drilling and producing problems created by the marine locations in water currently ranging up to 100
ft deep.
The large requirements for and usage of technically trained personnel in
the petroleum industry are emphasized by the following figures. The National Petroleum Council, in a report on the oil and gas industries' man-
222
power, indicated that technically trained personnel represented over 7 %

of the total petroleum industry employes. A survey of all technical industries (mining, manufacturing, transportation, public utilities, and government) by the Engineers Joint Council indicated that technical personnel
represented about 13/,% of total employes. These data indicate that the
concentration of technically trained personnel required by the petroleum
industry is over four times that used by all technical industries. For one
major integrated oil company about 12% of the personnel employed in the
exploration and production activities were technically trained or about
seven times the number employed in all technical industries.
The Procurement Process

Crude oil is extracted from its underground reservoirs by utilizing the
action of natural forces. Utilization of these forces in a manner that will
promote efficient recovery of the oil in place requires substantial periods
of time. The time required will depend on the size and character of the oil
reservoir and will generally range from a minimum of about five years to
as much as thirty to forty years. United States proved oil reserves are
roughly equal to thirteen times annual production. A minimum reserve on
the order of ten years' produotion is needed if losses in recovery by reason
of excessive producing rates are to be avoided. A somewhat higher reserve
is desired to provide the flexibility needed to meet fluctuations and increases
in demand, including the urgent need for increased production that would
accompany an outbreak of war or an interruption of imports. These facts
have an important bearing on the discovery and development effort that
must be undertaken to maintain a healthy industry in the face of a domestic
demand which, for the past several decades, has shown a growth rate of
about 5% per year. Not only must the oil produced during a year be replaced, but sufficient additional reserves must be discovered to maintain a
healthy ratio of reserves to production.
Oil reserves and producing capacity can be increased in several ways.
The first and most basic is the conduct of .wildcatting to discover oil on
new producing structures or in geological environments not previously
proven productive. Secondly, exploration effort may be expended on known
producing structures to find new areas of production, to expand previously
known reservoirs, and to test deeper geologic horizons. But efforts to expand production from known structures must eventually run their course,
so a continuous supply of oil must depend on discovery of new producing
structures. A third method is to increase recovery from known oil accumulations through injection of gas, water, or other fluids in what are known
as pressure maintenance and secondary recovery operations. In the absence
of a continuous program of wildcatting, this latter activity also can do no
more than defer the time at which an oil shortage would occur.
Elements of Cost
Three principal elements of cost enter into the production of a barrel
of oil: first, the exploration or discovery cost; second, the cost of developing the property for production; and third, the actual production or operating cost. Each will be discussed in turn.
Exploration Cost-Almost all companies employ, either directly or on a
consulting basis, staffs of geologists and geophysicists in the search for new
sources for oil and gas. This search involves surface geology as observed
on the ground, from topographic and tectonic maps, and from aerial photographic surveys together with subsurface mapping of formations met with
in wells, both dry and productive. This effort in turn is combined with that
of the geophysicists who endeavor to delineate subsurface structural conditions through observation of gravity and magnetic anomalies and by the
reflection or refraction of seismic waves induced by the detonation of explosives. Core drilling may also be employed, as knowledge of structural
features in the shallow formations aids in inferring structural conditions in
the underlying formations.
It should be recognized that these activities are all indirect efforts in the
search for structural and stratigraphic conditions favorable to the accumulation of oil and gas, rather than for oil and gas per se. The presence, or
more frequently the absence, of oil in even the most promising of structures
can only be proven by the drill.
A second phase of the exploration effort is acquisition of mineral rights.
In foreign countries, these rights take the form of a concession whereas in
the United States, leases with a primary term of five to ten years are usually
obtained. Acquisition of these leases generally involves payment of a lease
bonus which may range from less than $1 per acre to over $1,000 per acre,
depending on the competition for leases and the productive prospects that
the land is believed to have. In addition, there will be an annual lease rental
to maintain the lease during its primary term prior to the development of
production, as well as a royalty of one-eighth or more of the gross production. Although logically the oil companies would prefer to defer leasing
operations until after a promising structure had been located, the competition for leases has become so severe that much of the acreage under lease
has been acquired prior to the conduct of significant geological or geophysical effort and without any intention of immediate drilling. This is apparent
from the records of the National Oil Scouts and Landmen's Association
which reveal that in Texas over 44 million undeveloped acres were held
under lease by major companies at the end of 1954. This is about ten
times the acreage that has been developed for production during the entire
history of oil production in Texas.
The final exploration effort is the conduct of drilling operations to prove
TABLE1 . Discoveries per Well Drilled for Various Types of Exploratory Drilling, 1944-1955
New Field \I'ildcats
Year
Total
% Hits
11.05
11.59
10.65
11.32
11.66
11.37
11.19
11.05
11.06
11.18
12.22
11.32 .
New Pool Wildcats

Hits
Total
179
236
213
324
325469
418
518
500
65 1
5 94
712
706
903
792
1,216
1,469
1,868
2,027
2,449
2,665
2,892
2,453
2,931
% Hits
25.35'
26.14
26.39
26.64
22.12
25.11
20.13
21.15
20.64
22.51
24.22
24.29
Deeper Pools
Extensions
Hits
315
480
482
489
490
668
780
680
706
982
923
1,118
Total
% Hits
- 755
41.72
1,913
39.57
1,415
34.06
31.71
1,542
1,766
27.74
31.04
2,152
30.94
2,521
2,503
27.16
29.07
2,429
3,030
32.41
2,632
35.06
3,204
34.89
Total
yo Hits
Sliallower Pools
Hits Total % Hits
--18
33
24
26
30
57
117
158
159
114
136
171-
26
40
29
38
49
87
138
193
193
138
195
233
69.24
82.50
82.76
68.42
58.82
65 52
84.76
81.87
82.36
82.61
69.74
73.39
Soctrce: F . H . Lahee, "Exploratory Drilling in 19XX," published in June issues of the B~rlletb~
o f ,the Alner. Assoc. o f Petroleum Geologists
(1945-1956).
or disprove the presence of oil or gas. It is in this phase of exploration that

the costs and risks are most evident and most easily assayed. Particularly
helpful in this regard are annual studies conducted since 1944 by Dr. F. H.
Lahee and a committee of the American Association of Petroleum Geologists. This committee publishes data on the number of exploratory wells
of various types, the number of successful wells, and the size of new fields
discovered. Table 1 shows success ratios for the several types of exploratory wells. In this regard it should be recognized that wells that are successful from a purely exploration standpoint do not necessarily result in profitable operation. Wells once drilled will be produced if the production rate
is sufficient to cover current operating expenses and without regard to
whether the drilling cost will be recovered. Similarly, a field once found
will be produced so long as a payout can be obtained on future development and operating expenses. However, truly commercial discoveries must
also be able to bear their share of the unsuccessful exploration effort.
An appraisal of the data in Table 1 requires an understanding of the
various categories into which the exploratory wells have been divided.
New-field or rank wildcats are wells drilled on geologic stnictures or in
geological environments where petroleum has not previously been discovered. These wells involve the greatest risk with an average of only
11.3% completed as producers; and yet, as previously mentioned, they
are the most essential to the continued supply of oil on which the national
economy and source of fuel in time of war depend. The next most risky
category with an average 23.7% producers is new-pool wildcats which are
defined as wells drilled on a structure, or in a geological environment,
where other pools have been found but where the complexities in the underground geologic conditions are so great that searching for a new pool is
extremely hazardous. Extension wells, as the name implies, are wells drilled
in the hope of materially extending the productive areas of previously discovered pools. These wells achieved an average of about 33.0% producers
or nearly three times the number completed by new-field wildcats. Wells
drilled through existing pools in search of deeper pays achieved a similar
number of producers and averaged 34.2 % hits. The higher completion
ratios of extension wells and wells drilled for deeper pays as compared
with new-field and new-pool wildcats are to be expected as there are fewer
uncertainties concerning geologic conditions. The least hazardous of the
exploratory wells are those drilled for shallower pays, as there is usually
a substantial body of geologic information obtained from deeper wells that
have penetrated the same formations.
In gauging the success of an exploration effort, the quality as well as
frequency of discovery must be considered. The mere discovery of a new
field or pool does not assure a profitable venture. Some discoveries may
not pay the direct costs of developing and operating and will soon be
TABLE2. Size o f Oil Fields Discovered 1946-1949, as Estimated Six Years after Discovery1
E?
z
0
1946-1949
1946
Size of Field
(Rlillion Barrels)
" A "-50
or more
B"-25
to 50
"C"-10
t o 25
"D"1 to 10
"I3 "-Less than 1
" F"-Abandoned
1947
1948
1949
No. of % of
Fields Total
No. of % of
Fields Total
No. of % of
Fields Total
No. of ' % of
Fields Total
--
--
3
2
10
58
136
43
1.1
0.8
4.0
23.0
54.0
17.1
4
' 7
15
52
165
58
1.3
2.3
5.0
17.3.
54.8
19.3
--
3
3
21
65
199
81
0.8
0.8
5.6
17.5
53.5
21.8
-10
4
11
83
229
86
2.4
1.0
2.6
20.0
53.4
20.7
No. of
Fields
% of
Total
20
16
57
258
722
268
1.5
1.2
4.3
19.2
53.8
90.0
--
-- -
Cumulative
Number
of Fields
(down) (up)
20
36
93
351
1,073
1,341
Cumulative
% of Total
(down) (up)
1,341
1,321
1,305
1,248
990
968
1.5
2.7
7.0
26.9
80.0
100.0
100.0
98.5
97.3
93.0
73.8
20.0
252
100.0
301
100.0
372
100.0
416
100.0
1,341 100.0
Total Oil Fields1
Total I)iscoveries2
333
394
501
506
1,734
Excludes dry gas fields; wet gas fields are included, but are rated only at their Liquid reserve content. No allowance is made for any gas
reserves per se.
'The difference between total oil fields and total discoveries represents gas fields and a feu oil fields on which data are not available or
which were in reality not new fields but extensions of old fields.
Sorclre: F. H. Lahee, "Exploratory Drilling in 19XX," published in June issues of the Bulletin o f the Amer. Assoc. of Petroleum Geologists
(1945-1956).
,+
B
g
2
M
h
t-
abandoned. (Of 536 new oil fields discovered in 1951, 64 had been
abandoned by 1955.) Continuing success in the oil business requires discovery of fields that will produce sufficient oil above direct costs to pay
overhead expenses and provide funds for further exploration as well as
profits. In general, fields that come in this category are those capable of
producing in excess of a million barrels of oil.
A suitable measure of exploratory success in the discovery of commercial
fields is provided by data on the size of field discoveries as compiled by
Dr. Lahee's committee. Table 2 shows the frequency of discovery of fields
in various size categories during the period 1946-49 as estimated six years
after discovery. More current information is not available as several years
are usually required for the development drilling and production experience
which make reasonable estimates of field size possible.
Of special significance in Table 2 is the small number of spbstantial discoveries of over 10,000,000 barrels. Only 351 out of 1,341 oil fields met
even the estimated minimum requirement of a 1,000,000 bbl reserve for
a commercial discovery. These data may be cited to show that only one in
44 new-field wildcats results in the discovery of a profitable oil field, being
in the ratio of 351 to the 15,358 rank wildcats drilled during the 19461949 period. There were also 393 gas discoveries from the wildcats drilled;
and if the ratio of profitable gas discoveries is the same as for oil, it might
be said that about one out of 34 wildcats drilled in the search for new
fields results in a commercial discovery of oil or gas. Even on this basis,
the cost of discovering a commercial oil or gas field approximates five
million dollars. (The average cost for a wildcat well including exploration
expenses necessary to the location of this well is approximately $140,000.)
It should be recognized that the costs for an individual company vary
widely from the averages. These variations result from discovery ratios
different from the industry averages, differences in the amount of predrilling expense, and the wide spread in drilling costs.
TABLE
3. Finding Cost for Crude Oil in the United States
Year
Dollars per Barrel

H . J . Struth Data
Private Company Survey
1944
1948
1953
$0 224
0 370
0.928
$0.248
0 412
0.931
Expressed in costs per barrel, the figures in Table 3 demonstrate a fourfold increase in finding costs over a ten-year period from 1944 to 1953, as
developed by H. J. Struth and a private company'survey. Undoubtedly
inflation played a role in the increases cited. However, they are to a much
greater extent the result of the increased costs associated with deeper drilling and the generally poorer quality of reserves discovered in recent years.
TABLE
4. Effect o f Depth on Well Costs 1953
Wells
Drilled,
Depth Range, F t
u. s.
5,001
10,219
12,603
7,442
8,624
3,496
1,414
447
33
4!),279
Source: Joint Association Survey.
Total
Footage,
Thousallds
Arg.
l3eptl1
FVeIl,
Ft
Total
Cost,
Thousands $
Avg.
Cost per
IVell,
Thousands $
Cost of Illcremeutal
Increase ill Depth
Avg.
Cost per
Ft, $
Added
Depth, F t
Added
Cost, $
Cost per
Added F t , I
229
Development Expenses-Oil and 'gas fields of significant size cannot be

produced solely through the discovery well, either from the standpoint of
recovery efficiency or of achieving desired rates of production. Accordingly,
additional wells must be drilled to provide outlets for production and to
delineate the size of the field. Here again the dry-hole hazard is present
with about 25% of development wells being unproductive. Although the
average cost of a well in the United States in 1953 was indicated to be
approximately $50,000, it should be emphasized that an extremely wide
range exists in the cost of individual wells, dependent upon such factors as
the depth of the well, the location, and the nature of the formations to be
penetrated. For example, well costs as high as two million dollars have been
experienced in deep offshore wildcats. Depth is one of the prime factors,
as actual costs of drilling, that is, making hole, increase exponentially with
depth. This relationship is evident in Table 4, which shows costs versus
depth for the year 1953. That drilling costs also vary with location is well
illustrated by Table 5 which gives 1953 data for several of the major producing areas. These tables are based on data compiled during a joint survey
of the industry made by the American Petroleum Institute, the Independent
Producers Association of America, and the Mid-Continent Oil and Gas
Association. On the average, about $15,000 in addition to the costs included in Table 4 represents the investment in lease equipment required
to place the well on production. These drilling and equipment costs are
based on a sample of 15,000 out of the 49,000 wells drilled during 1953
and are believed representative of costs as they existed at that time. Jncreases in labor and material costs have undoubtedly tended to increase
currently applicable costs.
Production Costs-Once
a field has been discovered and developed,
there are the continuing production costs. These consist of the actual cost
of maintenance and operation, taxes (ad valorem and severance or production), and administrative overhead. Royalties, which may range from
one-eighth to as much as seven-eighths of the value of production, must
be paid from the gross income from the well before the operator can acquire revenue with which to pay his operating expenses and recover his
investment. Income taxes are also ever present. Some of these costs are
relatively fixed and persist as long as the well is maintained on production;
others, in particular the production taxes, vary directly or nearly so with
the rate of production.
As with exploration and development costs, there is a wide range in
production costs whether measured in daily operation cost per well or in
cost per barrel of production. Lower per-barrel costs can be expected in
flush fields producing at high rates of production by natural flow. Higher
costs per barrel are associated with low rates of production, artificial lifting
of the oil to the surface, the production of large volumes of salt water
TABLE5. Costs o f Drilling and Equipping Wells in Five Areas o f the United States 1953
m
Upper Texas
Gulf Coast1
Depth Range, F t
0 t o 1,350
1,350 t o 3,500
3,500 t o 3,750
3,750 t o 5,000
5,000 t o 7,500
7,500 t o 10,000
10,000 t o 13,500
13,500 to 15,000
15,000 or more
Cost
Per
No.
Well,
of
ThouWells sands $
Louisiana Offshore
Cost
per
No.
Well,
of
ThouWells sands $
Cost
per
Ft, $
Cost
per
Ft, $
West Texas
Cost
per
No.
Well,
of
ThouWells sa~!ds $
Wyoming
Cost
.per
Ft, $
5,300
18,800
41,400
43,300
65,100
104,100
190,000
383,800
710,500
6.17
10.10
13.41
7.10
10.49
13.04
19 .OO
98 .60
44.51
- --
10
44
30
8
930,900
193,400
380,400
765,500
37.13
31 .39
34.58
60.04
--
70
16,300 30.07
356
14,800 8.11
738 36,700 11.93
610 44,900 10.38
1,130 79,300 13.97
445 136,700 15.03
183 390,700 19.94
98 354,600 36.31
5 78,800 49.86
- --
0
0
--
No.
of
Fl'ells
Cost
Per
Fl'ell,
Thousands $
Cost
per
Ft, $
- --
18,400
30,600
38,500
61,400
101,100
147,400
390,600
345,300
673
1,902
9,671
990
949
390
89
6
1
3,000
14,000
37,800
46,100
76,500
119,600
900,700
577,000
646,000
3.98
7.69
9.01
10.69
19.43
13.76
18.93
44.00
40.38
7,593
36,900
3,440
10.71
Cost
Per
No.
Fl'ell,
of
ThouWells sands $
- -- - -- - -- -
77
133
178
347
795
815
150
19
6
Oklahoma
63
50
179
187
361
58
17
3
-
Total
3,530 79,700 19.97
83
398,800 31.09 3,735
78,700 14.47 917
Average Depth
6,499
9,549
5,440
Includes Railroad Commission Districts 2 and 3-roughly,
the alea north of Corpus Christi.
Source: Joint Association Survey.
Cost
per
Ft, $
99.36
18.08
19.73
14.51
16.93
17.49
35.96
97 .96
-80,400 17.01
4,730
- --
Fi2
*t~
5
vl
along with the oil, and the need for extensive well maintenance. New fields
may produce with costs as low as $0.30 to $0.40 per barrel, but each well
and field in turn experiences gradually increasing cost per barrel as production declines, artificial lift is required, and maintenance and well workovers are required to keep the well producing. Ultimately the direct cost
of production reaches the total revenue whereupon the well is abandoned.
Daily operating costs per well ranging from $15 to $40 are probably
typical, depending on the rate of production, age of well, whether pumping
or flowing, and other factors. However, direct operating costs as high as
$200 per day may be experienced in offshore operations in which supply
and personnel transportation problems are difficult.
TABLE
6 . Estimated lndustry Expend~tures
In Millions o f Dollars
Exploration
Dry IIoles
Othera
Overllcad
Total
Development
l'roducing ll'clls
Equipment
bverhcn d
Total
P~oduction
Lifting Cost
Overhead
1944
1948
274
327
44
4G2
570
79
1955
797
987
172
645
1,111
1,956
593
203
55
1,058
362
98
l,7G2
483
174
851
1,518
2,419
566
G1
1,097
115
I ,84G
227
Total
627
1,212
2,075
Total
2,123
3,841
6,448
"Lease purchases, lease rentals, geological and geophysical work, etc.
Summary of Industry Cost Data-Unusually complete data are available

from the previously referred to Joint Association Survey of the income and
expenditures for exploration, development, and production of operators
engaged in petroleum production in the United States for the years 1944,
1948, and 1953. Replies were received from among the smallest, with only
a few thousand barrels of production per year and average production of
less than one barrel daily per well, to the largest, with production of over
100,000,000 bbl annually and average output of 30 bbl daily per well.
These operators accounted for nearly two-thirds of the crude production in
the United States. These data were extended by statistical methods to provide a picture of conditions as applied to the entire domestic producing
industry.
The estimate of total expenditures by all operators engaged in petroleum
232
production shown in Table 6 is based upon the Joint Association Survey. The
total expenditures for exploration, development, and production increased by $1,718,000,000 or 80.9% between 1944 and 1948 and by
$2,607,000,000 or 67.8% between 1948 and 1953. Of the total outlay,
about 30% has been for exploration, about 40% for development, and
about 30% for production. The increases in these three categories of expenditure were as shown in Table 7.
TABLE
7. lilcre~sexit1 Petrole~iinIndustry E,rpenrlitures
From 1!)44 lo 1!)4H
~xploration
nevelop~nent
Production
Total
466
667
585
--
1,718
72.2
78.4
K3.3
From 1048 to 1953
845
900
861
80.9
2,606
76.1
59.3
71 . O
From 1944 t o 1053
1,311
1,567
1,446
203.3.
184.1
230.6
-
67.8
4,324
203.7
TABLE
8. Estimated Industry Expenditures per Barrel of Crude Oil Prodrtcfion
Dollars per Barrel
The increases in expenditures have been affected by changes in volume

of operations, by the higher costs of labor and materials, and by other
factors. Exploration and development expenditures are related principally
to the number and type of wells drilled, and the production expenditures
are related to the number of producing wells and the volume of production.
Expenditures for exploration and development related to total wells completed (including producers, d~ holes, and service wells) averaged $59,500
per well in 1944, $65,000 in 1948, and $89,000 in 1953. The total number
of wells drilled was 25,262 in 1944, 39,778 in 1948, and 49,279 in 1953.
In relation to crude oil production, the production expenditures were $0.43
a barrel in 1944, $0.70 a barrel in 1948, and $1.02 a barrel in 1953.
The upward trend shown by the preceding comparisons demonstrates
that expenditures have increased at a greater rate than the volume of
operations. The rise in expenditures is evident in relation to net crude oil
production as shown by the data in Table 8. Total expenditures per barrel
of crude oil production increased by $0.74 or 50.3% between 1944 and
1948, by $0.95 or 43.0% between 1948 and 1953, and by $1.69 or
115.0% between 1944 and 1953. The increases in the three categories of
expenditures were as shown in Table 9. It should be noted that the expenditures are for the total operations of the petroleum industry, including
gas, and that they represent cash outlays rather than expenses as recorded
by accounting practice. They do not include cash outlays for items such
as income taxes, payments of interest and principal on debts, or returns
to investors. In other words, the expenditures covered are only those cash
outlays involved in carrying on petroleum operations for exploration, development, and production.
TABLE
9. Increases in Petroleum Industry Expenditures per Barrel o f Crude
Oil Production
From 1948 t o 1953
Per Barrel
Per Barrel
l!xl)loratio~~
I)e\.elop~nent
Production
Total
$0.19
0.38
0.27
43.3
47.5
62.8
$0.74
50.3
$0.31
0.33
0.32
%
-
Per Barrel
-
%
-
48.4
36.8
45.7
TABLE
10. Operators' Revenue from United States Petroleum Production
$ per Bbl of Net
Crude Oil Produced
Million Dollars
Source
Crude oil
Natural gas
Royalty owned by operators
Other lea:e revenue
Total
1,746
163
93
9
2,011
4,517
288
226
13
5,044
5,464
668
319
20
6,471
1.21
0.11
0.06
0.01
2.60
0.16
0.13
0.01
2.68
0.33
0.15
0.01
1.39
2.90
3.17
Industry expenditures are met primarily by income from operations, but

many operators find it necessary at times to supplement income by borrowing and new equity financing in order to pay for 'total expenditures. The
income of operators from petroleum producing operations is shown in
Table 10. This income cannot, of course, be compared with expenditures
to arrive at "profit or loss" in an accounting sense, principally because most
of current production is from reserves discovered in earlier years fo; which
exploration and development costs were below current replacement costs.
a competitive system, companies in all
New Producing Capacity-In
industries face certain risks or uncertainties concerning the adequacy of
markets, obsolescence of product, price competition, etc., which affect the
rate of profit as well as the recovery of the investment. In the petroleum
industry there is an additional uncertainty of great importance-the unpredictability of the cost of developing a given volume of production; or
'
234
restated, the uncertainty of the amount of productive capacity, if any, that

will be developed by the investment of a given amount of capital. There is
uncertainty not only as to the relative number of discoveries but also as
to their probable size. These uncertainties create unusual problems in the
search for oil.
The oil industry is unique among industries in that it must spend large
sums of money for capital investment although it is known in advance that
a high proportion of these investments will be lost in unsuccessful ventures.
The fact that this loss can be deducted in computation of income taxes does
not return the money lost in the venture. These funds can only be recovered
from a successful venture in which the return is gr&ter than the capital
outlay for that particular venture. In the United States as well as in a
number of foreign countrieq, the tax laws contain provisions permitting
depletion to be calculated as a percentage of gross or net income rather
than on the basis of the cost of producing properties, in recognition of the
peculiar nature of the search for oil and of the large amounts lost in un,
successful ventures.
Factors Which Adversely Affect Costs-In addition to the hazards, uncertainties, and wide variations in the cost of finding and developing productive capacity, a number of circumstances, beyond the control of the
individual operator, tend to increase his costs and reduce the flow of funds
available for reinvestment in the search for new oil. The continuous replacement and enhancement of reserves are, of course, essential to the continued growth of an oil company.
Because well operating costs are relatively insensitive to the rate of production, any condition that reduces the rate of production increases the
per-barrel cost of production. These limitations in the rate of production
come about in several ways. First is the natural decline in capacity with
depletion which eventually results in the well's abandonment. Second are
the limitations requisite lo efficient recovery of oil. A part of this problem is the necessity of maintaining gas reserves associated with oil intact
for many years until the oil reserves are depleted. This, of course;materially
lessens the cash value of this type of gas reserve, as income is deferred for
a number of years. A third cause, which has affected some companies for
the past several years, is the growth of domestic producing capacity at a
faster rate than the demand for domestic oil. This is the result of technological factors increasing the rate at which reserves can be produced and
of imports from prolific, low-cost foreign producing areas. It is not within
the scope of this chapter to debate the proper role of foreign oil in domestic
markets, but it is pertinent to note that imports affect domestic exploratory
and drilling efforts by limiting the amount of domestic oil produced and the
net revenue per barrel.
The importance of reserve productive capacity, currently about
235
2,000,000 bbl per day as compared with production of 7,500,000 bbl per
day, is self-evident from experience during the past two major wars and
the more recent difficulty concerned with closing of the Suez Canal, and
no one questions the advisability of continuing to maintain it at adequate
levels. However, it is an expensive procedure which requires that expenditures long precede ,the time of actual production. This is so because the
uncertainty of exploration makes is impossible to build capacity quickly.
In this connection, it should be noted that stockpiles of metals and other
materials essential to national defense are maintained at Government expense whereas the reserve capacity provided by the oil industry is carried
by industry rather than by the Government.
E8orts to Control Costs

The increasing costs of finding and developing new reserves have made
the industry quite cost conscious. Technological progress is being aggressively applied in an effort to maintain costs as low as possible. A notable
development serving to save unnecessary investment of many millions of
dollars per year is the trend toward wider well spacing which has accompanied a fuller understanding of fluid movement in reservoirs. Whereas
in the early days of the oil fields, well spacing was generally with ten or
less acres per well, current development is frequently on forty- or eightyacre spacing. The trend toward wide well spacing is well exemplified in
Texas by the fact that prior to 1950, only nine well spacing orders which
provided for greater than 40-acre spacing had been issued by the Texas
Railroad Commission. By contrast, in the succeeding five years, there were
51 such orders of which 25 were issued in 1955.
A continued effort is applied to the improvement of techniques for faster
and cheaper drilling and for more economical workover operations. In the
drilling field, particularly good progress has been made through use of
improved bits combined with adequate hydraulic horsepower. The effect
of improved technology in controlling drilling costs is demonstrated by
data presented to the American Petroleum Institute (November 1956)
which show that in the period from 1950 to 1955 only a slight increase
occurred in cost per foot for shallow wells and an actual reduction in unit
costs for wells deeper than 12,000 ft. During the same period a cost index
of the unit costs of labor and materials required for drilling operations increased over 25%. The reduction in costs for deep wells is particularly
important as it becomes necessary to drill deeper and deeper in the search
for new oil.
A new development that is materially reducing workover costs is the
permanent well completion practice. This permits the workover of wells
so as to change completion intervals, exclude salt water or excessive gas
production, and similar operations, by the manipulation of ingenious wire-
236
line tools; whereas in the past, it has always been necessary to employ rig
equipment similar to that with which the wells were originally drilled. Savings of up to 75 percent as compared to conventional operations have been
attained. Use of these wire-line tools is particularly important in offshore
operations where the cost of moving a drilling rig on to a platform is of the
magnitude of $100,000. Development costs can also be minimized in fields
where production is obtained from more than one subsurface stratum by
the use of dual completion equipment which permits simultaneous segregated production from two strata. The cost of a dual completion is only
about 70% of the cost of the two individual wells which would otherwise
be needed.
Another phase of the effort to obtain a greater production of oil per unit
of capital invested is the application of fluid injection operations to augment natural recovery forces and thus to increase the quantity of oil that
can ultimately be produced from a reservoir. Among the more promising
recent developments is a procedure through which, by injecting a hydrocarbon fluid of a particular composition, an extremely effective displacement results; recoveries approaching 100% of the oil in place appear
feasible. Although substantially higher recoveries are indicated to be possible from many reservoirs by this process, economical and practical limits
are imposed by the high cost and limited availability of the hydrocarbon
fluids required to establish the proper composition of injected fluid.
In the past, the undertaking of desirable fluid injection projects has
frequently been deterred by the conflicts of interest which arise when the
injected fluids displace crude oil across property lines. This problem has
been alleviated in a large measure by the upsurge in unitization activity by
which the diverse interests in an oil pool are unified. Each of the owners
in an individual tract then becomes an owner of an undivided interest in
an entire pool, thus facilitating the application of recovery increasing methods and also obtaining the economies of operation which accompany common ownership and a single operating organization.
As a means of reducing labor costs, a number of companies are active
in the application of automation to lease operations, including the automatically controlled operation and testing of wells, as well as automatically
controlled and recorded custody transfer procedures. The completely ideal
system toward which these efforts are directed will be attained when all
flow may be directed automatically from individual wells into the pipeline
without the use of stock tanks. This process will utilize automatic controllers governing the flow rate of wells, automatic provision for disposal
of salt water and waste products, dependable and accurate meters for
measuring water, oil, and gas, and reliable samplers to provide completely
representative samples of the fluid stream as it changes custody and ownership.
'
The preceding discussion has pointed out the nature of the oil procurement process and indicated the magnitude of the cost associated with the
various aspects of this procurement. Because of the nature of his business,
the oil producer is faced with a tendency for rising real costs in addition
to the increases in costs due to inflation that affect all industry. As a result,
the industry is currenftly in the situation of producing oil that was discovered in times past at a cost substantially less than that of the oil with which
it is being replaced.
T o meet the ever-increasing demand for petroleum products, it is readily
apparent that large investments must be made continuously. This situation
is accentuated by the rising cost of exploration and operation. The Chase
Manhattan Bank has estimated that in the decade 1955-65, a total investment of 115 billion dollars will be required by the petroleum industry in
the free world. Most of this sum must be generated from the operations of
the industry since the capital markets can provide only a small percentage
of the total. This vast sum emphasizes the magnitude of capital formation
that will be required and points to the impo~tanceof maintaining conditions
under which this capital can be generated. Any substantial interference
with the process of capital formation in the petroleum industry will
seriously dim the hopes for an expanding economy, so essential is petroleum to industrial expansion and living standards the world over.

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ECONOMICS OF THE MINERAL INDUSTRIES

ECONOMICS OF THE MINERAL INDUSTRIES

industry comparisons on the basis of man-hours and other physical units

Cost o f Obtaining Economic Deposits and Preparing Them ,for

harder to find a worth-while mineral deposit. Wildcat wells and diamond

intelligent guesswork. A 20% excess of actual over estimated cost of such

Underground Development Costs

Drilling and blasting

A. Labor (man-hours per foot)

Miscellaneous Mining Cost Data

is likely to vary widely from mine to mine, experienced mining engineers

ECONOMICS OF THE MINERAL INDUSTRIES