COMMON MINING ENTERPRISES.

Southern Cross, Volume 1, Issue 46, 10 February 1894, Page 12

COMMON MINING ENTERPRISES.

TO THE EDITOR. Sir,- —The importance of the mining industry to the community cannot he over-estimated, and it is with a sincere desire to place fairly before the public the matter of floating companies for the purpose of developing mining claims that I venture to offer a, few remarks on this important subject. One would have thought that the experience gained with the so-called Stewart Island tin field and beach dredging companies would have been sufficient to have warned us as a community to be extremely careful of the “ promoter,” but I notice with regret that the same thing is likely to be repeated with reference to the Wilson’s River field unless a note of warning is raised, and unless the press does its •duty in the matter, as it is said that promoters are offering 16th and 20th or 30th shares in claims that, so far as work is concerned, are practically undeveloped. Let us take an illustration to show the relative position of promoter and investor, and for this purpose we will locate our claim at Ren thorn. I have said that the evil of over-loaded companies and ; promoters’ shares has been in our midst, and may re-appear, but it is so 1 much easier to try to take the mote 1 •out of our brother’s ej'e than to re- s move the beam from our own, that we 1 will begin operations on our brother 1 •(Renthorn’s) eye. Row to our illus- ’ tration. A valuable reef is discovered, ' with gold actually in sight. After < ■spending about £I,OOO in prospecting 1 and opening up the claim, it was re- 1 -solved that a company with £60,000 shares be floated. Of these 44,000 i shares were to be reserved for the ; promoters, and considered as paid up i to 15s, representing £33,000 as the i •capital value of the mine. The total £ expenditure for the 44,000 shares has f thus been under 6d per share. Further t •capital is, however, required, and one r 'would have thought that if the claim 1 was so good as represented by the t “prospectors that a call of Is or 2s on the holders of the 44,000 shares would r have been sufficient to have raised t •enough capital to put machinery on c the ground. But no ! Other share- f holders must be called in to partici- a

pate in the good things going, and a prospectus is issued in which it is stated that £4,000 is required to develop the property, and it is proposed to raise this amount by the issue of 8,000 shares, on which it was intended to call up 10s per share. This having been done, let us now see by a simple calculation what an intending investor might expect in return for his money. We will suppose that the company has been fortunate enough to make a profit of £2,600 during the first year of its operations, winch would be a handsome return for the outlay of £I,OOO. This would be divided as follows : The 44,000 shares which contribute less than 6d per share, or a total of, say, £I,OOO, would receive ... £2,200 The 8,000 shares which had paid 10s per share, or a tota 1 of £4,000, would receive 400 £2,600 In most companies it is provided that dividends shall be paid at per share, irrespective of the amount paid up, and I am assuming that in the case under notice this was provided for, otherwise the position would be very much worse for the investor of 10s per share, as in that case the promoters would have been paid a dividend on 15s, nominally paid up. On this basis the promoters would have received about (cash paid, £1,000) ... £2,320 The investors -who have paid 10s per share, about (cash paid, £4,000) ... ... 280 £2,600 Can it be wondered at that people have become sick of the very name of mining when it is proposed to start enterprises in this way P The case cited above is typical of hundreds of companies which have been floated. People wonder why they don’t get satisfactory dividends the wonder wmuld be if they did under such circumstances.

Another instance of the injustice sometimes done to hona fide investors may be given. I have assumed that a mine has become a dividend-paying one from the start. But suppose it doesn’t, what then ? Why, the promoter commences to “ unload ” his shares. These, as already stated, have cost him about 6d each. He can, therefore, well afford to sell at a profit at, say, os, making a net gain of 4s by the transaction, while the unfortunate investing shareholder who has honestly paid 10s for his shares makes a net loss of os if he places his shares on the market. But before this stage is reached our investor friend has probably discovered that his shares are far more unsaleable than the promoter’s for this reason, that while the promoter’s shares have only cost him 6d each, but are nominally paid up to 15s, and have a prospective liability of 5s only, his (the investor’s) shares cost him 10s and have a further liability of 10s. For this reason they are unsaleable, and are left on his hands. And now my illustration is drawing rapidly to a close. Difficulties have arisen at the claim. A liquidator appears on the scene who discovers that it will take exactly 5s to pay debts and cost of liquidation, and although our investor friend has clearly had gold in view at the outset, his vision is now so obscured that he can only read indistinctly these words as a piece of blue paper is put into his hands—“ To wit: Re liquidation. Henthorn. Dr to unpaid calls : 200 shares at 10s—£100 !” The curtain drops, and our investor friend vows that nothing will induce him to venture into the miningarena again. I might show how unfairly the investor is represented on the board of directors by being outnumbered by the promoter’s shares, but I have said enough to show that the whole system is rotten to the core. What is the remedy for this state of matters ? The public must judge for themselves. If more than one-fourth of the shares, with less than threefourths the liability on these shares, are taken by the promoters, the in-

vestor is on dangerous ground. This rule may not always hold good, but it will be found to be a safe guide. Apply it to our cdaim, and we find that about £4,000 would have been absorbed instead of £33,000. It must be admitted that this would have been a very good return for the £I,OOO actually spent. In order to bring about a better state of things I would suggest—lst. That the Government insist on absolute truthfulness in statements made regarding the registration of companies. These statements are often misleading and in many cases absolutely untrue. The amount actually spent in developing a claim should be accurately stated. 2nd. Promoters’ scrip should have stamped on the face the words—- “ Not negotiable.” This would have the effect of keeping them off the market for say at least two years, or until satisfactory dividends had been paid to the investing shareholders. If promoters icill have shares nominally paid up to a fictitious value, let the public be protected. In conclusion, allow me to add that, in writing this letter I have no wish or intention to include in one sweeping condemnation all mining enterprises. We want more industries. But, whilst I extend my heartiest good wishes to all companies formed and worked on legitimate lines, I have felt it my duty to protest in the strongest manner agamst a system which can onl_y end in disaster to an honest investor, because its foundation does not rest on the bed rock of what always was and always will be the source of all commercial and other greatness, viz., truth.—Yours, etc., Pro Boxo Publico. Feb. 6, 1894.