Technical Paper 222: Method of Administering Leases of Iron Ore Deposits Belonging to the State of Minnesota

United States Department of the Interior Bureau of Mines · 1919 · Historical

The Bureau of Mines, in carrying out one of the provisions of its organic act—to disseminate information concerning investigations made—prints a limited free

This 1919 document, Technical Paper 222: Method of Administering Leases of Iron Ore Deposits Belonging to the State of Minnesota, is preserved in the Mountain Man Mining Library for research and reference. Original source: archive.org.

Technical Paper 222 e DEPARTMENT OF THE INTERIOR

FRANKLIN K. LANE, SgcRETARY. NCETON ¢ BUREAU OF MINES VAN. H. MANNING, Dirmgcror

METHOD OF ADMINISTERING LEASES OF IRON- ORE DEPOSITS BELONGING TO THE STATE OF MINNESOTA

By

J. R. Finlay

Washington Government Printing Office

The Bureau of Mines, in carrying out one of the provisions of its organic act—to disseminate information concerning investigations made—prints a limited free edition of each of its publications.

When this edition is exhausted copies may be obtained at cost price only through the Superintendent of Documents, Government Printing Office, Washington

, D. C. ; The Superintendent of Documents is not an official of the Bureau of Mines. His is an entirely separate office and he should be addressed :

SUPERINTENDENT OF DOCUMENTS, Government Printing Office, Washington, D, C.

The general law under which publications are distributed prohibits the giving of more than one copy of a publication to one person. The price of this publication is 5 cents.

First edition, May, 1918.

viatizesy GOOgle ee

Contents.

Normal profits moderate__

" Paint rock

Tables.

2. Data showing how furnace charge and cost of producing pig

8. Data showing variations in furnace charge and in cost of producing

pig iron

Illustration.

Figure 1, Curve showing prices paid by smelters for non-Bessemer ores

Preface.

At the request of the State auditor of Minnesota, Mr. J. A. O. Preus, the Bureau of Mines undertook an investigation of the method of administering State leases of iron-ore deposits.

Under its organic act the bureau can undertake investigations of this character only for the Government or for individual States. It was felt that this investigation might involve matters of delicacy in the relations of the lessees to the State. It was decided that if the matter was handled in a broad way such a study would not injure the individual lessee and might be of mutual benefit to the State and to the operators.

The bureau was fortunate, in carrying out this purpose, in being able to utilize the services of one of its eminent consulting engineers, Mr. J. R. Finlay, who occupies a position of authority in the matter of mine economics.

The report Mr. Finlay has submitted contains material of such unusual value and interest that it is deemed wise to publish the report for the benefit of the miningNndustry in general.

Van. H. Mannino, Director.

METHOD OF ADMINISTERING LEASES OF IRON-ORE DEPOSITS : BELONGING TO THE STATE OF MINNESOTA.

By J. R. Finuay.

Introduction.

The following report on the mining properties of the State of Minnesota is the result of work begun through inquiries made by the State auditor, J. A. O. Preus, during the summer of 1917, as to whether the Bureau of Mines could supervise an investigation of those properties with the general object of ascertaining:

(1) Whether in the administration of the properties in the past the State had received such returns as could reasonably have been expected; and

(2) Whether any recommendations could be made as to improvements in the administration of the properties in the future.

Accordingly, the writer was commissioned by the Bureau of Mines to undertake the task. He made a preliminary trip in August and September, 1917, when he looked over the State properties on the Vermilion, Mesabi, and Cuyuna iron ranges in company with Mr. Preus or his assistants, and obtained their views upon the general situation. As by such conference and examination only a general impression of the State's business in regard to these lands could be gained, it seemed necessary, as a preliminary step to preparing a report that would be of any value, to have an engineer examine the properties in detail.

In order that the whole investigation should be free from any suspicion of bias, which was one of the main objects in enlisting the services of the Bureau of Mines, the men to be employed had to be without political or business affiliations in Minnesota. This requirement automatically cut out from consideration not only the mining engineers of Minnesota, but practically those of the whole Lake Superior region. It is scarcely necessary to say that this requirement had as its motive not to question the fairness or competence of any man in the State, but simply to prevent the question being brought up at all. Under these circumstances it was some time before a competent engineer could be decided upon.

In April, 1918, F. T. Eddingfield was selected as an engineer suited for the examinations required. Mr. Eddingfield had never had any

8 Leases Of Iron-Ore Deposits Of Minnesota.

former experience with Lake Superior mining, but was well equipped with technical qualifications. He is a graduate of Columbia School of Mines, class of 1906, and has been engaged ever since in mining and mine examinations in the West, the Philippines, the West Indies, and Mexico.

It may be pointed out that this preparatory examination of the State lands covered a large area in which mining problems come up in a variety of forms, and where each has to be studied on its own merits.

Mr. Eddingfield went over the records of drilling, recalculated the ore reserves, observed the practice of the engineers employed in the State auditor's office in keeping track of the extraction of ore from the State lands, and carefully studied the schedules of ore prices which determine the merchantability of the ores. Mr. Eddingfield's statement, submitted to the writer for his information in preparing this report, contains a detailed description of each property examined, with maps of the ore bodies on the State properties showing the outline and thickness of ore, together with an estimate of the probable tonnages of ore above 49 per cent iron and ores between 30 and 49 per cent iron. Upon these observations Mr. Eddingfield bases the opinion that the State lands, so far as the iron mines are concerned, have been well and properly administered, and as this opinion agrees with the writer's more limited observation, he heartily concurs in it. As regards the present condition and future prospects of the property, it is difficult to recommend any substantial changes in the present policy. In order to show the justness of this view a general review of the major factors of the iron industry of the United States is necessary.

Minnesota produces the ore for more than half the iron manufactured in the Western Hemisphere. It is not improbable that the people of the State wonder whether they get a fair share of the proceeds from the State iron lands, either in royalties or in taxes.

Iron-Ore Lands Owned By The State.

The State owns 31,560 acres on the Mesabi Range, within the productive area as now recognized, 4,640 acres on the Vermilion Range, and 4,200 acres on the Cuyuna Range, a total of 40,400 acres. Also, there is 520 acres of State land on the magnetic iron formation at the east end of the Mesabi Range within the area covered by Leith's¢ map of that range, and still more such land beyond the limit of the map. This magnetic formation may have some Rie in the future, but has none at present.

Leith, C. K., The Mesabi iron-bearing district of Minnesota: Monograph 43, U. S. Geol. Survey, 1913.

Variations In Grade And Availability Of Ores. 9

These lands are known to contain at least 168,000,000 tons of present commercial ore, according to the estimate of the Minnesota Tax Commission, which the writer believes to be conservative.

The ores known in these lands are leased mainly under the State leasing law of 1889, under leases that expire at the average date of 1952, thus having 34 years to run. The principal terms of these leases are "a royalty of 25 cents a ton," and a covenant on the part of the lessee that "he will open, use, and work said mines in such manner only as is usual and customary in skillful and proper mining operations of such character."

Evidently the proper administration of these leases on the part of the State requires judgment (1) as to what constitutes proper working of a mine—that is, mining in such a way that ores are not wasted ; (2) upon what ores shall the State demand royalties.

The full force of these points is not evident until one recognizes the principal facts of the occurrence of the ores and of the historic development of iron manufacture in the country at large. Interpretations of these facts and expectations based on them differ greatly, causing widely different views to be entertained as to the value of the property, the amount of ore to be expected, and the royalty that the State may ultimately receive. Thus, according to the tax commission's estimate, royalty being calculated at 25 cents a ton, the amount to be paid the State will be $42,000,000. However, there are fair reasons to suppose that the ultimate return will be at least twice that much. Therefore, administration of the lands in such a way as to permit every opportunity of making this expectation good is of considerable importance.

Variations In Grade And Availability Of Ores.

'Without going into the question for the moment of the geology of the deposits, the main features of the ores are that they vary in grade from about 65 per'cent iron (dry) down to as low as 30 per cent; that'average shipments run about 56 per cent (dry) ; that the ores in greatest demand are the highest grades; that the questions of merchantability have to do with a variety of factors, such as the presence of phosphorus, sulphur, silica, alumina, and water; and that the availability is also a question of varying factors, such as cost, which varies greatly in the different deposits according to natural conditions, methods employed, and capital employed, and the whole series of factors is affected from time to time by fluctuations in the price of pig iron. Furthermore, it is necessary to say that still other factors originating outside the State are superimposed upon all these conditions. The merchantability of the ores is largely determined by the demands of the iron smelters who, in order to carry out their campaigns of production, determine upon a cer-

10 Leases Of Iron-Ore Deposits Of Minnesota.

tain metallurgical practice that they will adhere to as long as ores of a given character are available; and these campaigns are dictated by financial considerations. It is clear, from the mere enumeration of these conditions, that a man capable of administering the State leases wisely and fairly must be equipped with intelligence and experience.

Another point worth bearing in mind is the history of the leases. At the time these were authorized the industry was much less highly organized than it is now, and the two important practices of ore mixing and concentration were not in use; an ore running much under 60 per cent in iron was not considered merchantable. It has frequently happened that under earlier conditions only a small proportion of an ore body was merchantable. Underground mining would be started with the object of taking out, say, 1,000,000 tons; but under the conditions that have gradually developed since, perhaps 4,000,000 additional tons have become merchantable in the same deposit. Had this fact been realized at the start the mine might have been stripped and the whole 5,000,000 tons mined to advantage from an open pit, but it may be that even under present conditions the lower grade ore is not profitable on the basis of underground mining; meanwhile a great deal of the lower grade ore may have been lost by caving and mixing with gravel from the surface, and the inducement to strip the property may have disappeared. This sort of thing in one form or another came up rather frequently in earlier days on the Mesabi Range, and it still remains a problem of considerable importance with regard to portions of ore bodies not. generally recognized as merchantable. As a rule, these problems are no longer serious enough to bring up the question of radical and vital changes in mining operations. It may seem at a glance that the interpretations of the leases have been in a state of evolution from the beginning, and the final stage, if there is to be any final stage, is not yet in sight. ,

Specialization In The Iron Business.

When we come to examine all the facts that go to determine the merchantability of iron ores, we may encounter some considerations that are not obvious to the general observer. The iron business is a highly specialized one. It employs in the aggregate many hundred thousand men, but of these very few are in a position to survey the business in its entirety. For instance, in Minnesota many thousand men are employed for their whole lives solely in iron mining; that is the only phase of the process that really comes to their attention. Others are similarly engaged in transportation of iron ore, coal, fluxes, and the many products of iron manufacture. Still others find, blast-furnace practice an ample career; others are wholly en-

Specialization In The Iron Business. 11

gaged in rolling mills or the more advanced stages of manufacture. Men so employed come into only vague contict with phases of the industry outside of their own specialty, and may be as ignorant of the other phases as rank outsiders. They have little means of learning the financial requirements, profits, or general results of the businesses as a whole.

Capital Required In Steel Business.

The price of iron ores and the grades that can be used are obviously determined. by the requirements of the industry as a whole. It is equally obvious that to describe the industry fully would be a technical effort of the most difficult kind, and is out of the question in a report of this kind. But we may discern some salient points from which we may get valuable ideas of the*proportion of things from the official annual reports of the United States Steel Corporation.

This concern produces between 40 and 45 per cent of all the pig iron and finished steel of North America. It ships something like 60 per cent of the total iron ore of Minnesota, and these shipments account for some 75 per cent of the company's own output. Moreover, it derives its ores from the best mines in the State. Thus its operations reflect the results obtained under favorable conditions. The operations of independent companies may in some instances be as profitable as those of the steel corporation, but they certainly will not be so on the average. The company's operations are of national, indeed of world-wide, scope, and it seems to the writer that a study of them will give as fair a picture of the industry as a whole as could possibly be obtained. This company represents a complete and selfcontained business. It has less dependence on intermediaries than any other concern. It digs its own raw materials, deals in general only with its own employees and the public, and it sells its products mainly to the final consumer.

The average wage paid by this corporation increased from about $2.40 per day in 1908 to $2.97 per day in 1914, $3.01 in 1915, $3.36 in 1916, and $4.16 in 1917. This average has increased a good deal further during 1918. The total of salaries and wages paid increased from $120,000,000 in 1908 to $347,000,000 in 1917. Its gross receipts increased from $482,000,000 in 1908 to $558,000,000 in 1914 and to $1,683,000,000 in 1917. These figures would be staggering if they were not thrown in the shade by the expenditures of the nations at war.

It may be noted that the total earnings before deducting appropriations were 19 per cent of the gross receipts in 1908 and only 17.5 per cent in 1917.

However, the point to which consideration must be given here is not the volume of the business or the amount of the profits, but the

12 Leases Of Iron-Ore Deposits Of Minnesota.

relation of the profits to the capital invested. It is a question of the amount of profit required to satisfy the capital. If the profits on the iron ores are unduly large in proportion to the investment, we may find in that fact an argument to justify the State in demanding that lower grade ores shall be paid for than the mining companies are now willing to take. It is the same thing in another form, if we find that there is an overstatement of the amount of capital to be satisfied.

In the earlier years of its existence there was a pretty widespread criticism that the steel corporation was overcapitalized, but this criticism seems to have disappeared. At the organization, the common stock was believed to be a profit distributed, among the promoters. The bonded indebtedness and the preferred stock have at all times, so the writer believes, been admitted to represent prices actually paid for properties; it has been said that many of the prices paid were pretty high, but a general statement of that kind could hardly have been more than an opinion.

Fortunately, we are able to trace through the reports a record of actual investments made since the formation of the company. By noting the increase of capacity obtained by these investments, compared with the capacity of the plants at the beginning, a close estimate can be formed of the replacement value of the whole property at the beginning. The general result of such a comparison is to make it pretty certain that the sum of the bonds and preferred stock did actually represent an investment at reasonable prices. The author arrived at this conclusion first in 1909, when writing a book on "The cost of mining," and the discussion of the means of arriving at it may be found in that volume.*

Seemingly, up to the end of 1908, the actual construction cost of the steel corporation's plants, plus the working capital represented by inventories and cash, was $1,068,000,000. This sum did not, apparently, include the full original sums to be allowed for the value of mines, lands, good will, etc., although it undoubtedly included considerable money paid for such property. However, the original properties probably included a much larger proportion of value in such holdings than ones acquired later. The reader should bear in mind that the original combination contained the groundwork of the whole business, and that investments made since, with the exception of the purchase of the Tennessee Coal; Iron & Railroad Co. in 1907, have been for straight construction of additional facilities.

Comparison of the report of 1915 with that of 1908 shows that in this interval $312,000,000 was spent for additional plant, and that the working capital (cash and inventories) had increased $62,000,000. Thus, on the basis of the writer's independent estimates of 1909, the

¢ Finlay, J. R., The cost of mining, 1909, pp. 112-113.

Calculations Based On Prewar Conditions. 13

capital actually invested at the end of 1915 can be estimated as follows:

If from this estimate we turn to the company's own statement of its investments as of December 31, 1915, we find them stated at $1,657,000,000.° Therefore, in order to check the above rough estimate with this figure, there should be added $215,000,000 for iron mines, coal lands, manufacturing sites, and established business taken over at the organization. This estimate would seem a reasonable one, although the writer has no independent means of verifying it.

Another short cut to a general idea of the real cost of these properties may be obtained by taking the total amount expended for construction and additional property up to the end of 1915. We find that these amounts were $653,000,000. During the following year, 1916, it is evident that all of the properties were working to their full capacity. From this we discover that the total output of the products for sale, iron only, was 15,460,000 tons, which is to be compared with a capacity of 7,700,000 tons at the beginning. It appears, therefore, that an investment of $653,000,000 added a capacity equal to the original capacity. By this means we shouldhave to calculate the total value of the steel corporation's plant 'at the end of 1915 at $1,300,000,000. To this would have to be added an increased working capital and, as before, a large amount for mines, lands, and good will, which were originally acquired in greater proportion than at any subsequent period. In order to match the company's own statement of its investments—that is, $1,657,000,000—the sum total of all these additional investments would be $350,000,000. This, again, does not seem unreasonable.

Calculations Based On Prewar Conditions.

It will be noticed that the calculations of the affairs of this company have not been carried beyond the end of 1915, because since that time commercial conditions have been so abnormal that it is difficult to make a logical comparison of such conditions with the normal state of the business.

As regards broad economic problems, a great war might increase prices for a considerable period of time—indeed, permanently—but, after all, such a sudden increase is not due to a change of the funda-

"Report of United States Steel Corporation, 1915, p. 32.

14 Leases Of Iron-Ore Deposits Of Minnesota.

mentals, but is almost entirely due to a change in the unit of value— that is, to an inflation of the currency. In considering profits it will be found that these usually represent a certain proportion of the gross output, whether measured in tons or dollars, and that this proportion is established by competition under the pressure of the law of supply and demand.

Therefore, although there may be expected an increase in the volume of business and in profits of the company for the war period beginning in 1916, it is not logical to expect that in the long run these changes will be such as to alter our conception of the business based upon undisturbed conditions which prevailed before the war. To mix the two sets of figures would be illogical and confusing, rendering it difficult to see things in their proper proportion. The writer's intention is, therefore, to draw all the conclusions he can from the cost of these properties, as it has been explained, and the average profits obtained up to the end of 1915.

Normal Profits Moderate.

Proceeding on this basis, it is evident at a glance that the profits in the iron business are not spectacular or unreasonable. In the period of five years, 1911 to 1915, inclusive, we find the following facts:

The total average investment account of the steel corporation for the period was about $1,600,000,000. The average amount of bond: issued was about $600,000,000, calling for interest payments of approximately $30,000,000 a year. The total gross earnings on investments were $446,000,000, being an average of 5.5 per cent.

The total earnings after setting aside funds for additional investments were $332,000,000, being an average of 4.1 per cent on the investment. The average payments on $362,000,000 in preferred stock was 7 per cent. The average payment on $508,000,000 in common stock was 4 per cent. During the five years these payments resulted in a decrease of surplus of $30,000,000 and a decrease of inventories of $15,000,000.

The production by years was as follows:

Production of United States Steel Corporation for 5-year period 1911-1915.

Finished prod- Year. Tron ore, ucts (iron and steel).

Tons. Tons. 19, 933, 631 9,476, 248 26, 428, 449 12,506, 619 28, 738, 451 12, 374, 838

Motel siccsaccts-ebaeae 115, 805, 188 55, 134, 856

Normal Profits Moderate. 15

Of this production Minnesota furnishes 70 to 80 per cent of the iron ore, and from this an equal or slightly higher percentage of the finished products is derived.

From this it will be seen that the average gross earnings per ton of finished iron and steel product was about $8. The total profit per ton of iron ore was less than $4.

We have now arrived at a point which may not be fully understood, namely, that these earnings are obtained only by carrying the full process of manufacture through to the ultimate consumer. It appears that the plant investment actually required to put the company in position, through the possession of its own ores, transportation equipment, blast furnaces, and manufacturing plants, to deliver a ton of finished iron and steel to the consumer is more than $100;* and that the average gross profit for delivering that ton is $8 or 8 per cent on the investment, from which must be deducted certain amounts for plant investments necessary in order to maintain or increase the business. Hence, out of this $8, it has been barely possible to pay, on an average, about $6.50 in the form of interest on bonds and dividends on stocks.

There is only one conclusion to be drawn from these figures, namely, that the profits in the iron business are moderate—in fact barely sufficient to warrant the business being called a profitable one.

Relation Of Profits To Grade Of Ore Mined.

How do these considerations affect the grade of the ore that is to be mined in Minnesota?

The answer to this question is that the ore now being mined produces the financial results above described. If the grade of that ore were to be arbitrarily reduced the output in iron would be less, and since the return on the present amount of iron is barely sufficient to justify the investment a smaller production of iron would not justify the investment,

The general effect of this review of financial considerations is to bring us toward a conclusion that the grade of the ore shipped is a resultant of powerful economic forces which can not be altered without loss; that the investment in the business is based upon the fact that high-grade ores are available; and that to attempt to force the business to use ores of lower grade would be trying to establish unnatural conditions.

In this discussion of profits the reader should notice that all figures are in round numbers and are based on the total profits of the steel corporation; also, it is well to point out that these profits are not

"This figure refers to maximum capacity. As a matter of fact, manufacturing plants

are not run at full capacity except for very limited periods. The capital cost per ton of average production for the Steel Corporation is about $140 per ton.

16 Leases Of Itron-Ore Deposits Of Minnesota.

conventional profits; that is, such as would be obtained by taking the market price of ore, and an assumed cost of mining, and paying the regular freights to market. This would only be, so far as the steel corporation is concerned, a partial statement of profits, because that company owns its own transportation system, and would naturally make a profit on the transportation. The profits referred to here are the actual returns obtained by the company in conducting its entire business, from mining its ores to delivering finished products to the public.

Having made a point of watching and analyzing the general results of this corporation for the past 10 years, the writer feels justified in saying that there can be no doubt as to the accuracy of the conclusions drawn, and that to go into a close analysis of the affairs of the concern, or of any similar concern, would add nothing to the clearness of the situation, but on the contrary would most likely cloud the whole discussion with details, the relations of which to each other might not be readily understood.

It may of interest, furthermore, to draw attention to the amount of capital required actually to work an iron mine on the basis outlined. Let us take the best mine in the Lake Superior region as an example. The property is owned jointly by the United States Steel Corporation and the Mahoning Ore Co., preponderantly by the former, and the imine is called the Hull-Rust-Mahoning. This property embraces part of an enormous ore body in the central part of the Mesabi Range at the town of Hibbing. The ore is taken from one great pit. During 1916 and 1917 the output from this ore body was between nine and ten million tons a year, but during the prior life of the steel corporation—that is, during the 15 years 1901 to 1915, inclusive—the average shipment from these mines was about three million tons a year. Undoubtedly the ore from this property is decidedly higher in grade than the average, and can be mined much more cheaply than the average. Being an open-pit mine, there is to the eye no great evidence of the large investment required to operate it.

The point the writer desires to draw attention to is that the simplicity of conditions surrounding this mine is deceptive. If we suppose that this mine is capable of producing 10,000,000 tons of ore a year and 5,000,000 tons of pig iron and the same amount of finished product we must realize that the sum total of plant investment necessary to make an actuality of this operation is between five and six hundred million dollars, although undoubtedly a very small part of this sum is invested in the State of Minnesota. It thus makes a great deal of difference in our conception of the profitableness of this property whether we take into consideration the whole business or only

Normal Profits Moderate. 17

that part of it visible in the State. At a rough estimate, ore can probably be produced from this property at about the following costs in normal times:

Per ton,

Cost-0f Mining... 525 50 ae Se een tce ene $0. 25 ROVAlty anes nes enn Stee oe ese eta een esse 25 Making: a total.of.--<s2-is2-2 sescessesuasusca. 1, 40

The ore would bring, under normal conditions, probably $4 a ton in Cleveland, giving a profit of more than $2.50 a ton. Thus, on the maximum output, the profit would be $25,000,000 a year, but on the average output during normal times it would be $7,500,000 a year.

Either return seems staggering if one has in view only the mine itself.

But if we consider the amount of capital actually invested, we find that on an output of 3,000,000 tons a year there is required an annual profit of not less than $12,000,000, and that on an output of 10,000,000 tons a year the profit should be not less than $40,000,000, in each case carrying the process through to the delivery of manufactured iron and steel.

Furthermore, it is to be noted that such a mine, being the best iron mine in North America, is not a fair representative of the business as a whole, but is simply a bonanza, the existence of which makes the business more profitable than it could be otherwise.

It seems fair to draw attention to these points principally in order to show that the iron business can hardly be understood if taken up in isolated detail, and that it is no simple matter to decide what portion of the profits of the business really belong to the mines and what proportion to the investments made elsewhere.

In this connection the best line to be had on the profits due to the iron mines and the merchantability of the ores, is simply the general value of those ores as determined by commercial practice.

The investigations of Mr. Eddingfield were largely directed toward working out the logic of this proposition, and all the evidence he has obtained seems to establish the correctness of it.

It is perhaps worth while to make the general observation that commercial practice is invariably the working out of methods by actual experience. One may take it for granted that a great business such as iron manufacture in the United States, in which billions of dollars are invested, and hundreds of thousands of men employed, under a highly specialized industrial organization, is bound

18 Leases Of Iron-Ore Deposits Of Minnesota.

to represent a correct interpretation of economic conditions. Therefore, if ore below a certain grade is not accepted as merchantable, one should view with distrust any argument based merely on theoretical grounds that the ore should be merchantable. Of course, ore that is not merchantable to-day may be merchantable 20 years from now, but not necessarily so, and any such assumption is not permissible unless there are discernible tendencies in that direction.

Conservation Of Lower Grades Of Ore.

It is also worth pointing out that mining companies have no interest in wasting ores. It is perhaps fair to say that the corporations which can least afford to waste ores are those with the largest capital. The redemption of capital is a long process, and, as a rule, the concerns with the largest investment look forward to continuing their business indefinitely. The question of mining ore cleanly is entirely an economic one. One process may be cheaper than another, and if a mine can not be made profitable it can not be worked at all. The only thing that can happen to an unprofitable mine is to be shut down. Therefore, if some process that will save 75 per cent of the ore will make the mine pay, whereas another process that will save 90 per cent of the ore will result in making the mine unprofitable, the latter process will be ruled out automatically, conservation or no conservation.

The supposition that there is anything sacred about one form of property as compared with some other form is an utterly mistaken conception. Money is property in general; if it costs an excessive amount of money to run a property with the sole object of saving all the ore, the expense is not justified ; if less property is lost by wasting iron ore than by wasting money, economic common sense requires that the ore be wasted instead of the money.

Merchantable, Or Valuable Ores,

When we leave general principles and get down to concrete explanations of the difference in cost produced by changing the grade of ore used, we have a choice of two procedures, one of which is the converse of the other.

Mr. Eddingfield has prepared some computations, confessedly theoretical, that are presented on subsequent pages (pp. 21 to 27), showing the cost of pig iron as it is approximately equalized by giving lower-grade ores progressively lower values. This is done in accordance with the scale of prices published by the Lake Superior Iron Ore Association.

Conservation Of Lower Grades Of Ores. 19

The writer will here attempt to give a more direct illustration, taking as a basis the actual operating costs of the steel corporation under prewar conditions, and showing in a general way how the substitution of lower-grade ores would increase the cost of pig iron.

It appears that a blast furnace is capable of burning a given amount of coke per day, and as the amount of silica, alumina, and fluxes, which go into making slag, increases, the proportion of coke required to melt up this slag increases. As the amount of coke that can be burned is constant, evidently the amount of iron that will be produced will diminish as the amount of slag increases.

The statements in the preceding paragraph are perfectly intelligible to anyone. The technical difficulties in establishing them arise from some uncertainties as to the proportion of heat required for the various actions that go on in the furnace, and also to the fact that different furnace designs undoubtedly bring about difference in efficiency. All that can be claimed for these and the following statements is that they represent a sort of consensus of authority. To the practical-minded reader the most convincing check on the correctness of these general figures is that they will be found to show limitations in financial possibilities that agree pretty well with the established commercial practice of the country.

In the following table has been calculated the theoretical cost of producing a ton of pig iron from a given grade of ore, on the assumption that costs of mining, transportation, ete., are the same for all grades, and applying these figures to actual costs in normal times. On this basis the actual cost of producing a ton of pig iron in 1907 at all of the furnaces of the United States Steel Corporation was as follows:

Cost of producing a ton of pig iron,

Coke, 1.06 tons, at $3.36 per ton 3. 56 Limestone, $1.06 per ton . 49 Cinder and: scales +2. 25.-u5.2 <22s.e25sese22 Stee tees 27 Operating furnaces. 22. ee Sele ace 1.38 Depreclatlon' =.2-=5.2- 5. aston ee te ee ke . 40

Wotealses ot et oe So a Sc ceen ke 11..60

It will be observed that this grade of ore is higher than any given in Mr. Eddingfield's tabulations, his figures beginning with ore having a metallic iron content of 52 per cent natural, whereas that of the ore in the table is 54.6 per cent. Without much chance of serious error the assumption may be made that with 52 per cent ore the cost would have been about $12 per ton. The variations indicated for lower grade ores, based on the estimated amount of coke required per

20 Leases Of Iron-Ore Deposits Of Minnesota.

ton of pig iron, without regard to variables other than coke, would be as follows:

Variation in cost for lower grade ores.

Grade ofore Cost of coke Total cost of , (naturaliron (units) per pig ste per in,

ton of pig iron.

o There is an eld chet error here due to the assumption that there is no difference in silica between 25 per cent and 50 per cen'

The reader will notice that at an iron content of 40 per cent natural the actual operating cost of producing pig iron has risen to the average market price of that commodity at Pittsburgh. The producing of iron at such a cost would mean the annihilation of all the capital invested in the United States Steel Corporation, because the estimated profit required to satisfy the capital invested is not less than $4 per ton of pig iron, and in addition there are a number of general expenses, such as taxes, insurance, litigation, administration, and marketing which would probably aggregate another dollar.

In order to avoid confusion it is necessary to point out that the cost of producing pig iron is apparently about half the cost of producing the finished product; and that figures given in the previous statements refer to finished products, except those in the last two tables, which are for pig iron.

In order to satisfy the whole investment of the steel corporation it is necessary to have a profit of $4 a ton on the iron ore, which is equivalent to $8 a ton on the pig iron, and approximately $8 a ton on finished products.

We have, then, an illustration of the general situation of the iron business. A fair return on the capital seems to require, under average conditions, that Lake Superior ore as mined shall average about 50 per cent natural or over; that a lowering of the grade below 50 per cent rapidly diminishes the operating profits and immediately cuts into the legitimate returns upon the invested capital.

The only relief from this situation that would justify lowering the average grade of the ore would be a general and permanent rise in the value of pig iron. Such a rise would be a commercial expression of increased difficulty in obtaining the metal. Such an increased difficulty would simply mean that the metal would have to be obtained from inferior ores.

Furnace Practice. 21

Mr. Eddingfield's discussion of " furnace practice," with the tables he has worked out to illustrate it, follows. As regards these tables an apparently legitimate inference is that the schedule of prices compiled by the Lake Superior Iron Ore Association is constructed with reference to cost variations about as given in Table 3. This inference is based on the fact that prices of iron ore, as given in the schedule with an average variation in the amount of slag produced and coke required, will give the same pig-iron cost at different grades. The schedule of prices, which is constantly changing, was that in vogue during the summer of 1917.

FURNACE PRACTICE. By F. T. EppIncFIE.p.

In the purchase of iron ore the smelters are guided by a schedule of prices compiled by the smelting companies. The schedule is represented by the price curve shown in figure 1.

In figure 1 the curve represents 1917 prices for non-Bessemer ores' varying from 34 to 66 per cent natural iron content. The line cab represents prices of ore based on iron content only; the line da represents the prices that would prevail for ores with less than 50 per cent iron content if no penalty were charged; the vertical distances between ca and da represent the penalty charged. In this diagram one division represents 25 cents. For example, the penalty charged for ore with an iron content of 39 per cent natural is represented by the line ef, of $1.16 per ton. The penalty charged on ore containing 42 per cent natural is $0.84 per ton, and so on.

As the smelters originated these prices, the conclusion may be drawn that they represent the true values of the various grades of ore to the smelters, based on the average analyses of ores for each grade of iron. If this were not the case, there would be no excuse for the schedule. .

Much discussion arises as to the justice of this schedule. Many mine operators claim that the penalty charged for ore containing less than 50 per cent iron is too great, whereas smelter managers claim that the penalty is not large enough to meet the increased cost of smelting the lower grade ore.

In support of this contention the smelters refuse to buy ore below a certain grade, usually considered as 49 per cent natural-iron content, except when they buy some special ore suitable for mixing with their stock ore. This has created one standard for defining merchantable ore. The other standard, and the more important one, is the cost of mining and shipping ore to the lower lake ports.

From a practical standpoint a company can not mine and ship ore that will not yield a just profit on the capital of the company. The

22 Leases Of Iron-Ore Deposits Of Minnesota.

unit for calculation in this instance is not the ore at the mine but the ship cargo.

In investigating the variation in cost of producing pig iron from various grades of ore as set forth by prominent metallurgical author-

S650,

(AMD ae Sie ee Bie Ries 'Titi nae tae e nasa ARES RRS i ee nee ep ei ed

ner SsaSesn= See ee eee eter piece ee et

eb 55 oe pala is oe Se SSE ceteiee teeta area

Hell a PAE herd ES ULSAN Ths fh Sinise BARS Rees

as SD a a a sO Ties cae eae eeee

Value Of Ore Based On Iron Content At /9/7 Prices

Ficurp 1.—Curve showing prices paid by smelters for non-Bessemer ores of Lake Superior district in 1917.

ities, it was found that for the most part they agreed on the following points:

1. The pig iron produced by a given furnace varies inversely with the amount of coke required per ton of pig iron.

Furnace Practice. 23

2. The amount of coke required per ton of pig iron varies directly with but not proportionately to the amount of slag.

3. The heat lost by radiation, cooling water, etc., decomposition of water in the blast, and evaporation of water in the coke varies directly with the amount of coke per ton of pig iron.

4. All other elements which consume heat may be classed as constants per ton of pig iron.

The only point of doubt seems to be the amount of coke necessary to fuse a pound of slag. Authorities differ on this point, and according to some metallurgists, the theoretical figures do not agree with actual practice. Forseyth gives 0.25 pound of coke per pound of slag; Gaines, 0.385 pound; Gordon, 0.228; Richards, 0.228; and Johnson, 0.35.

Further differences are noted in figuring the factor for computing the heat required for fusion of slag. Lothian Bell gives as a factor, 0.550; Akerman gives as an average of numerous tests, 0.388; Turner makes a further computation based on Akerman's tests, and gives 0.460.

It is evident that great variation may exist, due to the varied furnace designs and practices. Yet for the purpose of calculating the excess coke necessary for increased slag there appears to be a figure which is fairly constant.

In the following table are tabulated statistics from various furnaces with statements of coke consumption chargeable to the fusion of the slag.

TaBLeE 1—Hzamples of furnace practice in actual plants.

[Figures given are for 1 ton of pig iron.]

Per- i ber of ber of Desigcentage nation Lime-of coke tons of [pounds Reference. of fur- Ore. |Gangue. stone Slag. Coke. needed coke to} of coke nace. : tofuse| tuse1| tol

ton of pound

slag. slag.c ofslag.c

K 1.57 04 27 3 779 4.9 038 .127

N 2.005 346 151 - 440 .776 6 0465 104

Middlesbersugh (Campbell) Yo ve he eeepc 55 1.4 - 999 9.5 095 . 068 Pittsburgh (Campbell). Z 1,608 451 531 84 4.5 0378 071 Clarence (Turner). Wo 240 seccsnes 55 1.4 - 999 17.4 174 124 Pittsburgh (Turner) x P61. lovecsexe 45 535 840 8.4 071 134

a Theoretical. 6 J, Y,and W are probably the same furnace.

These examples show a variation of slag from 0.3 to 1.4 tons per ton of pig iron. Yet the number of pounds of coke theoretically required to fuse 1 pound of slag is practically the same for the two

24 Leases Of Iron-Ore Deposits Of Minnesota.

extremes, if we except example Y, which seems to be unusually low; this would give an average of 0.13 pound of coke for a pound of slag.

If the actual amount of coke required per pound of slag is, say, 0.35 pound, by working backward we find that the other elements consuming coke in furnace W would only use 0.507 ton of coke, and in furnace D, 0.575 ton, and in furnace L, 0.674, which would indicate that there were other variables.

In order to determine the constant between any two results and the variable caused by increased slag, we can substitute values in the following equation, where XY is the number of pounds of coke per

pound of slag: Coke :—Slag 1X ¥=Coke :—Slag ¥ Coke 2—Coke 1 Slag a—Slagi

By taking furnaces D, J, K, N, and Z each in turn as a basis of calculation, we have the following:

Calculated consumption of coke per pound of slag.

Pounds of coke required per pound of slag.

Calculation based on—

The disadvantage of drawing conclusions from these figures is that only one furnace (furnace J) is recorded as using low-grade ore and producing high slag. If the figures for that furnace are used as a basis, the amounts of coke per pound of slag varies from 0.186 to 0.27 pound and give an average of 0.23 pound, which approaches close to the figure given by Gordon, 0.228.

If 0.23 pound of coke is used per pound of slag, and if 0.680 ton of coke per ton of pig iron is required to satisfy all other elements, variations in cost of producing pig iron from ores ranging from 52 to 37 per cent natural iron content would be as shown in Table 2. In © making out this schedule the following points were assumed:

1. An ore assaying 52 per cent Fe natural, 57.1 per cent Fe dried, 9 per cent moisture, and 8 per cent SiO, natural is used as a basis of variation.

2. This ore requires 0.814 ton of coke per ton of pig iron.

3. The coke costs $7.50 a ton.

4, Limestone is rated at $1.60 a ton.

Furnace Practice. 25

5. The cost of labor for this ore is taken at $1.60 per ton of pig iron.

6. Other costs are taken at $0.40 per ton of pig iron.

7. The slag is calculated to contain 1 part SiO, to 1.3 parts CaO.

8. One pound of slag requires 0.23 pound of coke.

9. The amount of pig iron produced is equal to the iron content of the charge.

10. The SiO, in the ore represents in quantity all the impurities of the ore entering into the slag.

11. The SiO, from coke and limestone is estimated to represent the SiO, in the coke plus the SiO, of the limestone less the silicon reduced and found in the pig.

12. The additional coke calculated for the additional slag represents the total additional coke needed, since the increase in tunnelhead gas would compensate for any coke needed in reducing the CO, to CO by making a saving in fuel for boilers, air-blast heating, etc.

13. The capacity of the furnace varies inversely with and proportionately to the amount of coke used per ton of pig iron.*

14. Labor and other charges are varied with the capacity of the furnace.

15. Moisture content is increased per cent for every 1 per cent reduction in the Fe content of the ore.

16. SiO, content is increased per cent for'every 1 per cent reduction in Fe content of the ore below 50 per cent.

With these points in view, Table 2 was compiled.

Discussion.

From Table 2 it would appear that the cost of producing pig iron from 37 per cent ore laid down at the lower lake ports would be $2.24 per ton more than that of pig iron from 52 per cent ore. However, the calculated quantity of slag and the amount of limestone needed was intentionally taken high in order to meet unfavorable conditions. With favorable conditions, where the ores contain some magnesia or calcium or 3 to 4 per cent alumina, the schedule might easily show a uniform value for pig-iron costs.

If, instead of using 0.23 pound of coke per pound of slag, we use the figure 0.71 given by Campbell (see Table 1), and if we start with one ton of coke per ton of pig iron for the 52 per cent ore, we have Table 3, which shows uniform values at Valley Furnace.

Whatever figures are taken, however, it is clearly shown that the schedule is not favorable to the smelters on account of the decreased capacity with the lower grade ores, and it would appear that the only way the smelter could afford to take low-grade ores at present would be for the purpose of mixing with high-grade ores.

@See Campbell, J. C., Metallurgy of iron and steel, p. 71.

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28 Leases Of Iron-Ore Deposits Of Minnesota.

Average Prices Of Ores, Coke, Pig Iron, Etc.

Although it is of doubtful value to burden a report such as this with too many figures, it may be interesting to note the average prices of ores and the other elements that go into pig iron during the history of the United States Steel Corporation to the end of 1915.

Average cost of iron ore at lower lake ports.

Per ton. Old Range standard Bessemer $4.25 Mesabi Bessemeérs 2=5s5e2 so secnccucs sen boscecassoss 3. 88 Mesa bi! "ndn-Besséiier gee eecssnc see 3. 22

If we suppose that two tons of Mesabi ore are used with one ton of other ore in each instance, we find that the average Bessemer ore at lower lake ports sold for about $4 a ton, and non-Bessemer at $3.32.

As near as can be estimated, in the same period the price of Connellsville coke at the oven has averaged $2.42 per ton, varying widely from the minimum of $1.40 in 1911 to $5 in 1903. Freight rates to the furnaces must be added to the price of the coke.

The price of Bessemer pig iron at Pittsburgh seems to have averaged $17.50 per ton, and that of foundry pig iron in the Mahoning and Shenango valleys, about $16.25 per ton.

With these averages, the average cost of producing pig iron, beginning with Bessemer ore at $4 a ton at Cleveland, and figuring on Bessemer pig iron at Pittsburgh, may be calculated:

The freight rate from Cleveland to Pittsburgh averages about $1.15 per ton, making the cost of 55 per cent ore at Pittsburgh $5.15 per ton.

The freight rate of coke from Connellsville to Pittsburgh is 75 cents, making a total cost of $3.17 per ton.

Then the cost of the pig iron, on the assumption that each unit of iron will be represented by a unit of pig iron, will be as follows: ;

ore; at $5,19 5 5-2-2 5 es Se ee} $9. 40 OS. CONS COOKS. "at Sail Ta. aoa ecescaa sl san sce ctaee 3. 32 Dimestone 3s. s26-se uss ee sae pS ess ane ee tee . 50 Labor, cinders, scale, ete-o. 2-22 SU bees aes 1. 75 Deprecigtion cassacks acc acccsacsccasa messes es esssaausan - 40

Otel oo oe ons ae sons esse eon tee Soe ees 14. 37

By similar calculation the cost of making foundry pig iron out of non-Bessemer ores would be $13.20. These figures are for bare operating costs, no account being taken of such general expenses as taxes, insurance, litigation, administration, and marketing. What these expenses would average is difficult to estimate, but they might easily amount to $1 aton. This $1 would have to be added to the operating cost to get the total expense of producing pig iron, which would give approximately $15.35 per ton for Bessemer pig iron at Pittsburgh and $14.20 for non-Bessemer pig iron at the Valley. In

Conclusions As To Low-Grade Ores. 29

both instances there would remain approximately $2 a ton for profit. This profit represents a return on an investment, say, of about $2,000,000, including the construction of the furnace, purchase of

'site, and other costs. The average output of such a furnace would be about 100,000 tons of pig iron a year. The average annual profit would apparently be about $200,000 a year, or 10 per cent on the investment. Such an average return seems a moderate one when we consider that it involves initiating a large enterprise, incurring the responsibility of sustaining this enterprise indefinitely, with the effort. and uncertainty always involved in finding a place in the market for the products.

Mr. Eddingfield's discussion takes up the problem of equalizing this cost according to the value of ore of different grades. It appears that according to the conditions of the summer of 1918, the value of the ore is accurately expressed according to the factors assumed in Table 3. So far as we are concerned this assumption is decisive. The discussion need be carried no further, because the price variations as calculated in that table are more favorable to the iron-ore producers than competent authorities on blast-furnace practice are willing to concede.

For instance, according to the factors announced by J. E. Johnson in his book on Blast Furnace Practice, the conditions would be even less favorable than those shown in Table 2; that is, the lower grade ores would have lower prices still, and would be penalized more severely.

Conclusions As To Low-Grade Ores.

According to the schedules of 1917, which have been discussed by Mr. Eddingfield on pages 21 to 27, it appears that the lowest grade of ore that would cover operating expenses was at that time, under the most favorable mining conditions, an ore running about 48 per cent iron on the dry basis and 42 per cent natural. Such an ore under the most favorable mining conditions would cost in the summer of 1918 about as follows:

Mining: 2.8 305 24s oe ee Fn eos ee ese easEs $0. 50 Pretcht tO CMvClgnt Sn his Someta eakanccemaesta eta 2. 30 Royalty svec Soe wh sae eeeesteksetess aha nantes ese eee 25 Taxes, general expenses, and commissions 25

TOGO Jo sec toa eee oa eee aches ete 3. 30

The value of such an ore, according to the schedule, would be approximately $3.20 for non-Bessemer and $3.40 for Bessemer ore. The cost would approximately equal the price. Operation under these conditions would annihilate the capital invested in the enterprise.

In practical mining one is justified in taking ore down to the point at which the value is just equal to the operating expense. Any ore

'

30 Leases Of Iron-Ore Deposits Of Minnesota.

containing a greater value than that is worth taking out, as a rule, because even if such ore is not valuable enough completely to satisfy capital and cover general expenses, it does so partly. However, it must not be forgotten that the limitation of this procedure is that the average grade of the ore mined must be high enough to satisfy a legitimate business profit. Ores which are theoretically within a commercial limit such as has been described would not be so practically if the volume of low-grade ore was so preponderant that the average would not be high enough to cover all requirements.

Any ore not valuable enough to cover operating expenses can only be taken out by a positive loss, even if it is mixed with higher grade ores so as to bring the grade up to a profitable one. As a matter of fact, in any mining operation there is a certain admixture of absolute waste which yields nothing and diminishes the profitableness of the operation, but it is good practice, and a constant object of care, to reduce the proportion of such waste as much as possible.

The only reason any such material is allowed to get in is that it does so by accident; there are so many opportunities of gravel and sand, low-grade ore and pieces of rock getting in that it is beyond human care to exclude them all. To admit a proportion of such material by accident, and to permit it to get in by design, to swell the volume of a product which may indeed still be valuable, are two different things. The first condition is merely the result of a failure to guard against accident; the second is unsound economic practice. This practice is sometimes indulged in for the mere purpose of making records of output. It is obviously more easy to obtain a large production by taking everything indiscriminately than by expending care and labor to select only the valuable portion. To bring this point home to mining foremen, the writer has often used an expression like this: "'The bottom of a deep mine is no place to mine rock; that can be done much cheaper on the surface with a steam shovel."

The difficulty of rejecting this fallacy is greater in iron mining than in some other kinds of mines. Apparently many men find it hard to convince themselves that 40 per cent iron ore, resembling as it does in many respects the richer ores, is not really an ore; there is a considerable temptation to say that if 1 ton of 40 per cent ore can be mixed with 3 tons of 60 per cent ore, thereby making 4 tons of 55 per cent ore—a perfectly good product—the mine operator is justified in so doing. The writer understands that some fee owners on the Mesabi Range are in favor of this practice. However, any theory that such practice is justifiable is a mere sophistry; that kind of mining always results in a loss. The following example from gold-mining practice contained in the author's book on the Cost of Mining' clearly illustrates the folly of such methods.

Finlay, J. R., Cost of mining, 1909, p. 27.

CONCLUSIONS AS TO LOWzGRADE ORES. 31

Let us take as a practical example a body of 10,000 tons of ore, running 1 ounce gold per ton. This ore can be shipped without sorting at a handsome profit, as follows:

Grossvalue-0f 0reic 23 eee so oss ete o ee $200, 000 Freight and treatment, $8.25 per ton 82, 500

Total! c0stusa-5as255es4custtonsctas sucess ease, 112, 500 PrOhts s5o5 Satcs Seo So see see do seaewcssseseees 87, 500

But suppose we reject half of this ore by sorting. By so doing we throw away 5,000 tons that will average $2.50 per ton, or $12,500. The cost of sorting, at 50 cents per ton, will be $2,500 more. Then our shipment will be as follows:

Total Cost==s=s2= 55 5c baa de= eee ee ns nk 88, 750 W501 es ee a ee 98, 750

In other words, the gross receipts in this ease have fallen $12,500. The cost of mining per ton is more than twice as great; the cost for freight and treatment per ton is $3 greater. The apparent showing by the superintendent is very bad; but nevertheless he has made for the company $11,250 clear profit on the transaction. In the first case our total cost for mining, freight, and treatment is only $11.25 per ton; in the second case it is $17.75 per ton, but there is more money in the higher cost. This is an example that has been worked out in practice.

To complete this illustration attention is called to the fact that the material rejected is a low-grade gold ore ranging as high as at least $8.25 a ton. Under other conditions, and in many other places, such ore would be not only valuable but almost a bonanza; for instance, the Alaska Treadwell group of mines has paid many millions of dollars in dividends out of ores running only $2.50 a ton gross.

As regards the iron ores of the Mesabi Range, the writer's conclusion is that an average ore—that is, one that is not suitable for concentrating—is not really valuable unless the iron content runs over 48 per cent dried and 42 per cent natural, even if the ore can be mined under the most favorable conditions. It may be somewhat of a shock to many minds to accept this statement when they know that iron is made successfully and cheaply in Germany and other countries out of ores running only 35 per cent in metallic iron. But there is

exactly the same difference in conditions in this example as that between the gold ores of Cripple Creek and those of Alaska. The ores

of Cripple Creek have to be shipped away to be treated by an expensive process. Those in Alaska are treated right on the ground by the cheapest of all processes. Similarly, in dealing with Lake Su-

32 Leases Of Iron-Ore Deposits Of Minnesota.

perior ores, the major costs are not those of mining, but of transportation. The ore has to be taken a thousand miles before it reaches the industrial center, which is the logical place for manufacture and distribution.

This conclusion is based on the commercial circumstances ruling during the summer of 1918. Some modification of this might be found in the conditions prevailing at other times; that is, this year the price of iron ore seems to be only 45 per cent above normal, whereas the cost of producing it is 100 per cent above normal. All the evidence points to the conclusion that as a rule under no circumstances within the commercial experience of the past 15 years could an ore running as low as 40 per cent natural iron content be shipped from this region without loss.

"Wash Ores."

An important exception to which the preceding statements seemingly do not apply is a large amount of material known as " wash ore," because it can be concentrated by washing. Some of this material is commercially valuable even if it runs only 30 per cent in metallic iron. However, the facts when analyzed will be found to bear out the justness of the statements just made, because the value of concentrating lies in the fact that it will pay to add something to the cost of mining in order to get a product that will withstand the cost of transportation. The ores are brought up by a cheap and easy process to a grade running over 50 per cent natural iron content. The details of such practice will not be gone into, as this discussion is confined merely to general principles, and concentrating is a technical matter on which volumes have been written.

The value of concentrating wash ores does not depend wholly upon raising the grade in metallic iron, but very largely on rejecting silica or quartz, which is the principal slag-making element in these ores. A certain amount of slag is indispensable in the process of making iron. It is of no importance to put into the furnace an ore averaging more than 60 per cent iron, because the slag-making materials in ore down to that grade are required. However, the amount of slag that is necessary to make pig iron is simply that required to carry off certain impurities. When by lowering the grade of the ore one has to deal with a larger amount of silica, a point is reached where the amount of slag becomes greater than the amount required and becomes a rapidly increasing expense—an expense which cuts both ways, by increasing the cost of making iron and reducing the amount of iron on which a profit is made. It will be found that any process such as concentrating gets its value ultimately from reducing the cost of the final product.

Leases Of Iron-Ore Deposits In Minnesota. - 383 "Paint Rock."

A point about which there is some real controversy is whether the so-called "paint rock" of the Mesabi Range shall be considered an ore. Paint rock isa local term used to define an iron-bearing material which has a marked difference in origin from the bulk of the Mesabi ores. It is hardly worth while to go into the geology of the origin of this material, but the fact has been well established that it was formed through the alteration of a slaty layer in the middle of the iron formation. The iron ores were made by a process of natural concentration, effected, no doubt, by the circulation of water along certain channels. This-water, of course, had become a chemical agent by taking up some elements which imparted to it certain powers, the exact nature of which are not clearly understood. One thing that occurred was the removal of silica from the original formations. This removal left the iron in the form of oxides. Such an enormous amount of material was removed that the iron oxides became a bulky residue—a mass whose thickness was 60 per cent of that of the original formation. In a section of a formation which has been leached from top to bottom, about 400 feet of ore has been made from about 700 feet of formation. If the original formation, which might in a scientific sense be called an ore, ran 30 per cent, which is about what it does run, then the resulting residue after 40 per cent of 'nonferrous material has been removed, will run 50 percent iniron. That is approximately what it does run. As previously stated, the slaty layer, which is some 20 to 50 feet thick, lies about in the middle of the formation. In its original state it contained less iron and silica and more alumina. The alumina is a resistant element not readily dissolved out like silica, and it stayed there. The result from the alteration of this slaty layer is a low-grade material, the iron content seldom if ever running more than 45 per cent "dry" and about 35 per cent natural. The material has every appearance of an ore, but it is not really a commercial ore according to the writer's conclusion. It contains too little iron and too much alumina and water; besides it is invariably non-Bessemer.

Certain fee owners and the State officials have been inclined to insist that this material is an ore. The mine owners insist that it is not. The writer agrees with the mine owners.

The mine owners refuse to ship this material, but in open-pit mining an easy compromise of the matter is possible, because the paint rock has to be removed from the pits, anyway, and can be dumped on a stock pile near the mine to await indefinitely the possibility of its becoming merchantable. In open-pit mines, therefore,

34 . Leases Of Iron-Ore Deposits Of Minnesota.

the miners can afford to accede to the contention of the fee owners to that extent, because it costs nothing.

The real controversy, as a practical matter, applies only to the underground mines. So far as the State is concerned, the mines containing paint rock are the following: Niagara, Morton, Philbin, Deacon, Duncan, Wauless, Seville, Carson Lake, Woodbridge, and Leonidas (underground part).

The amount of paint rock in these mines has never been accurately estimated, but in a general way is some 15 or 20 per cent of the volume of the commercial ore; as the total amount of commercial ore is estimated at some 35,000,000 tons, the paint rock probably amounts to from 5,000,000 to 7,000,000. :

In underground mines this material can not be removed without applying a direct and unnecessary expense; it costs just as much to take out paint rock as it does to take out ore. In open-pit mines the paint rock has to be taken out in order to get at the ore; therefore its removal involves no additional expense. In underground mining the paint rock does not have to be removed in order to get at the ore. Moreover, the cost of underground mining is three times as great as that of open-pit mining. In many mines the cost is now more than $3 a ton. Even the standard ore at present prices yields little profit in the underground mines.

To'the writer's mind the point of the situation in regard to this paint rock is whether underground mining is permissible. If the State concedes that an ore body may properly be worked by underground methods then it should drop all claim on such material as paint rock.

The statement that underground mining costs three times as much as open-pit mining is intended to be an average, and to express operating costs instead of complete costs. In an open-pit mine a considerable investment must be made in stripping the ore in the first place, and this imposes a capital charge which is not expressed always in the operating costs that are obtained afterwards. However, the cost of open-pit mining is not fixed, it varies according to the amount of stripping or waste that must be handled in order to get the ore. In the large deposits where the amount of waste overlying the ore is small or moderate, the ultimate cost of open-pit mining is decidedly lower than that of underground mining, but as the proportion of waste increases, the point is reached where the cost will be greater than in underground mining, and at that point the latter process becomes logical and permissible. In the past history of the range the amount of underground mining projected was greater than it should have been for the reason that such a mine can be opened and the best part of an ore body attacked without encountering the formidable

Taconite. 35

cost of a huge stripping operation, and many of the operators were not financially able to make the investment required for stripping.

Taconite.

If the "iron formation" is to be considered an ore, there is enough ore in the Lake Superior region to last the world a thousand years. It is somewhat doubtful just what percentage of iron this material contains. Van Hise and Leith,' in their monograph on the Lake Superior region, compiled data which seem to show that the iron content averages about 35 per cent. This estimate may be somewhat high, because perhaps a good deal more drilling has been done in the neighborhood of mines where there has been a certain amount of concentration than in the solid unaltered formation.

On the Mesabi Range this material goes by the name of " taconite." The formation has no doubt about the same composition, so far as iron and silica are concerned, as the iron formations in other districts; but looks different mainly because it lies in a great undisturbed, almost flat bed, whereas on other ranges the formation is invariably more or less contorted by mountain building stresses, and has been subjected to different conditions and alterations. Seemingly this taconite might be concentrated into a higher grade ore, but in the present state of the art concentration is practicable only where the taconite has been subjected to partial leaching by natural processes, which have not gone far enough to remove the silica entirely, but have gone far enough to loosen it from the contiguous iron oxides. This process, of course, is always accompanied by more or less removal of silica and enrichment of iron, so that such ore bodies invariably average higher in iron than the general run of taconite.

Possibly certain portions may not be so enriched, and may still be available as a source of commercial ore, but in dealing with a mass of taconite in which this process has not gone on, the availability of concentration as a commercial process seems a long way off. The minerals are so intimately knit together that to separate them is expensive and difficult.

At the eastern end of the Mesabi Range there is an area in which the taconite has been so magnetized—that is to say, so much of the iron oxides has been converted into the mineral magnetite that concentration by magnetic processes becomes possible. The possibility of such concentration has been fully demonstrated by extensive experiments on a commercial scale, made in Duluth, Minn., under the direction of Mr. C. E. Swart.

If a plant could be constructed for nothing, the concentration of these magnetites could be,a commercial success right away, but the

*Van Hise, C. R., and Leith, C. K., The geology of the Lake Superior region: Monograph 52, 1911, p. 462.

36 Leases Of Iron-Ore Deposits Of Minnesota.

margin appears to be too small to justify the heavy capital charges required for construction. At the present time conditions are such as to make such a plant a financial impossibility, but it is not at all impossible that the time may arrive when the necessary plants may be constructed at a cost upon which a large enough return can be 'made to justify the investment.

When that time comes the projectors of the enterprise will probably go ahead, believing that in the long run the enhancement of the value of the ores would make the enterprise increasingly profitable. So far as the State is concerned, there is no immediate prospect of lands on the magnetic formation becoming valuable.

Permanence Of Present Conditions,

Much has been said about the gradual lowering of the grade of Lake Superior ores, and expectations have been raised that this proc- 'ess would continue. There is, however, excellent reason to believe that it will not continue, at least so far as shipments are concerned. The grade is likely to be maintained at least 50 per cent natural for a long time to come. Ores running less than 50 per cent natural if shipped at all are pretty sure to be washed. Probably a great deal of the wash ores on the range has not been fully estimated. The reports of the Minnesota Tax Commission show available something like 1,450,000,000 tons of ore of recognized present commercial grade. That is enough ore to maintain the present shipments for more than 30 years. At the rate the shipments are increasing, the reserves would probably be exhausted sooner—a good deal sooner. But, as a matter of fact, additional discoveries are constantly being made which go to maintain these reserves. Prospecting for new ore bodies or for extensions of old ones does not appear to be very active; one reason, no doubt, being that an ore body that is not needed for immediate exploitation becomes a burden upon the owners because they have to pay taxes on it. Iam confident that enough ore will be found to keep up the shipments of approximately the present grade for 30 years, even with the expectation of greater shipments. Now, an ore reserve of 30 years is a pretty good stabilizer for business conditions. It is hardly possible as a practical industrial matter to look that far ahead. If an ore is not going to be valuable until the end of 30 years, remarkably convincing argument will be required to satisfy anyone that it is worth anything now.

In view of the foregoing, there is not much ground for anxiety as to the problem of conserving these possible sources of future wealth. Ores are indestructible in themselves. The great bulk of the formation is not likely to be so mixed by mining operations as to be utterly inaccessible. When changes of conditions become strong enough to make ores, now distinctly noncommercial, commercial,

Royalties. 37

those influences will probably be strong enough to overcome the handicaps brought about by the usual disturbances of mining. Innumerable mines are worked over and over again by the development of processes and the introduction of new elements which make lower grade ores available. The same thing will no doubt be measurably true in the iron mines of Minnesota.

Royalties.

This report should not be brought to an end without pointing out that the State leases provide for a royalty in nearly all instances of only 25 cents a ton. Private owners exact much higher royalties on many areas, even as high as $1 a ton. One practical conclusion that we are warranted in making is that the State is justified, on account of the low royalties, in being as exacting as any other proprietor in regard to the grade of ores that shall be shipped; that is, the State should insist that ores shall be mined to the lowest commercial grade. So far as the operators are concerned, a complication is brought in by the fact that in a number of places they are working mines that have been subleased under higher royalties. It seems hardly fair, however, to the people of the State that an operator should refuse to mine at $1 a ton royalty an ore that would be merchantable at 25 cents royalty. The fault is not with the State's methods, but with the commercial transactions that followed after its cession of the land. The proper way to adjust the embarrassment brought about by this situation is for the operators to negotiate with the original lessees for modifications of royalty conditions that they themselves have made burdensome.

A further interesting question is the amount of royalty that the State could ask in the event of making new leases. Some leases have actually been made providing for a royalty of 50 cents a ton. For an average ore this sum appears to be reasonable. A more. logical method, of fixing royalties would seem to be a sliding scale based on the grade of the ore, higher for higher grade ores and diminishing to a nominal amount as the commercial limit is reached. To make such a scale scientific it should be constructed with some reference to each individual deposit.

In general the royalty system seems particularly desirable when the proprietor is a State government. Such an organization is not well qualified to conduct an ordinary competitive business and has a much better reason for indulging in an indirect way of utilizing the property than a private owner. For one thing, the State is not an absentee landlord. But for the very reason that the function of the State government is to promote fair play among its citizens, and also in a general way to promote the prosperity of the community, expectation that a State will avoid a grasping or oppressive attitude

38 Leases Of Iron-Ore Deposits Of Minnesota.

in the exploitation of its properties seems reasonable. Apparently the better public policy for a State would be to put its royalties at a figure somewhat lower than would be justified by the average commercial conditions, rather than to attempt to get as high returns ag a private owner might, by taking chances, succeed in obtaining. By so doing, the State would certainly avoid having its properties shut down and its income curtailed every time the market showed a little depression.

Publications On Metal Mining.

A limited supply of the following publications of the Bureau of Mines has been printed and is available for free distribution until the edition is exhausted. Requests for all publications can not be granted, and to insure equitable distribution applicants are requested to limit their selection to publications that may be of especial interest. Requests for publications should be addressed to the Director, Bureau of Mines.

The Bureau of Mines issues a list showing all the publications available for free distribution as well as those obtainable only from the Superintendent of Documents, Government Printing Office, on payment of the price of printing. Interested persons should apply to the Director, Bureau of Mines, for a copy of the latest list.

Publications Available For Free Distribution.

Buttrtin 48. The selection of explosives used in engineering and mining operations, by Clarence Hall and 8. P. Howell. 1914. 50 pp., 8 pls., 7 figs.

Butuetin 57. Safety and efficiency in mine tunneling, by D. W. Brunton and J. A. Davis. 1914. 271 pp., 6 pls., 45 figs.

Buttetin 62. National mine rescue and first aid conference, Pittsburgh, Pa. September 23-26, 1912, by H. M. Wilson. 1913. 74 pp.

ButietTin 74, Gasoline mine locomotives in relation to safety and health, by O. P. Hood and R. H. Kudlich, with a chapter on methods of analyzing exhaust gases, by G. A. Burrell. 1915. 84 pp., 8 pls., 27 figs.

Butietin 75. Rules and regulations for metal mines, by W. R. Ingalls and others. 1915. 296 pp., 1 fig.

Butietin 80, A primer on explosives for metal miners and quarrymen, by C. E. Munroe and Clarence Hall. 1915, 125 pp. 51 pls., 17 figs.

BULLETIN 127. Gold dredging in the United States, by Charles Janin. 1918.- 63 pls., 23 figs., 226 pp.

BULLETIN 132. Siliceous dust in relation to pulmonary diseases among miners in the Joplin district, Missouri, by Edwin Higgins, A. J. Lanza, F. B. Laney, and G. S. Rice. 1917. 116 pp., 16 pls., 6 figs.

Butietin 139, Control of hookworm infection at the deep gold mines of the Mother Lode, California, by J. G. Cumming, and J, H. White. 1917. 52 pp. 1 pl., 5 figs. ' .

BuLieTin 144, Report of a joint committee appointed from the Bureau of Mines and the United States Geological Survey by the Secretary of the Interior to study the gold situation. 1919. 1 pl., 8 figs., 84 pp.

Butietin 153. The mining industry in the Territory of Alaska during the calendar year 1916, by Sumner S, Smith. 1917. 91 pp., 1 pl.

Publications On Metal Mining. 39

BuLiteTin 174. Abstracts of current decisions on mines and mining, reported from May to September, 1918, by J. W. Thompson. 1919. 138 pp. Earlier bulletins of this series available for free distribution are 172 (January to May, 1918), 126 (January to April, 1916), 118 (October to December, 1915), 101 (October, 1914, to April, 1915), 90 (December, 1913, to September, 1914). For 164, 159, 152, 147, 148, 113, 79 and 61, see sale list on page 40.

TECHNICAL Paper 4: The electrical section of the Bureau of Mines, its purpose and equipment, by H. H. Clark. 1911. 12 pp.

TECHNICAL Paper 11. The use of mice and birds for detecting carbon monoxide after mine fires and explosions, by G. A. Burrell. 1912. 15 pp.

TECHNICAL Paper 18. Gas analysis as an aid in fighting mine fires, by G. A. Burrell and F. M. Seibert. 1912. 16 pp., 1 fig.

TECHNICAL Paper 19. The factor of safety in mine electric installations, by H. H. Clark. 1912. 14 pp.

TECHNICAL Paper 30. Mine-accident prevention at Lake Superior iron mines, by D. E. Woodbridge. 1913. 38 pp., 9 figs.

TECHNICAL Paper 58. Action of acid mine water on the insulation of electrical conductors, a preliminary report, by H. H. Clarkand L. C. Ilsley. 1913. 26 pp., 1 fig.

TECHNICAL Paper 59. Fires in Lake Superior iron mines, by Edwin Higgins. 1913. 34 pp., 2 pls.

TECHNICAL PAPER 62. Relative effects of carbon monoxide on small animals, by G. A. Burrell, F. M. Seibert, and I. W. Robertson. 1914. 23 pp.

TECHNICAL Paper 82. Oxygen mine rescue apparatus and physiological effects on users, by Yandell Henderson and J. W. Paul. 1917. 102 pp., 5 pls., 6 figs.

TECHNICAL Paper 95. Mining: and milling of lead and zine ores in the Wisconsin district, Wisconsin, by C. A. Wright. 1915. 39 pp., 2 pls., 5 figs.

TECHNICAL Paper 103. Organizing and conducting safety work in mines, by H. M. Wilson and J. R. Fleming. 1917. 57 pp., 35 figs.

TECHNICAL Paper 105. Pulmonary disease in the Joplin district, Missouri, and its relation to rock dust in the mines, by A. J. Lanza and Edwin Higgins. 1915. 48 pp., 5 pls., 4 figs.

TECHNICAL Paper 112. The explosibility of acetylene, by G. A. Burrell and G. G. Oberfell. 1915. 15 pp.

TECHNICAL Paper 122. Effects of oxygen deficiency on small animals and on men, by G. A. Burrell and G. G. Oberfell. 1915. 12 pp.

TECHNICAL Paper 132. Underground latrines for mines, by J. H. White. 1916. 23 pp., 2 pls., 7 figs.

TECHNICAL Paper 134. Explosibility of gases from mine fires, by G. A. Burrell and G. G. Oberfell. 1916. 31 pp., 1 fig.

TECHNICAL Paper 174. Suggestions for the safe operation of gasoline engines in mines, by R. H. Kudlich and Edwin Higgins. 1917. 19 pp., 3 figs.

TECHNICAL PAPER 223. Cost keeping for metal mines, by J. C. Pickering. 1919. 46 pp.

Miners' Crrecurar 5. Electrical accidents in mines, their causes and prevention, by H. H. Clark, W. D. Roberts, L. C. Ilsley, and H. F. Randolph, 1911. 10 pp., 3 pls. ;

Miners' Crecutar 10. Mine fires and how to fight them, by J. W. Paul. 1912. 14 pp.

Miners' Crrcutar 11. Accidents from mine cars and locomotives, by L. M. Jones, 1912. 16 pp.

Minegs' Crecutar 13. Safety in tunneling, by D. W. Brunton and J. A. Davis. 1913. 19 pp.

Minegs' Crrcutak 17. Accidents from falls of rock and ore, by Edwin Higgins. 1914. 15 pp., 8 figs.

40 Leases Of Iron-Ore Deposits Of Minnesota.

Miners' CrrcuLar 18. Notes on miners' carbide lamps, by J. W. Paul. 1915. 11 pp. ;

Miners' Crrcunar 19. The prevention of accidents from explosives in metal mining, by Edwin Higgins. 1914. 16 pp., 11 figs.

Miners' CrrcuLar 23. Elementary first aid for the miner, by W. A. Lynott and D. Harrington. 1916. 24 pp., 19 figs.

Rescue and recovery operations in mines after fires and explosions, by J. W. Paul and H. M. Wolflin. 1916. 109 pp.

Advanced first-aid instructions for miners, a report on standardization, by a committee of surgeons; G. H. Halberstadt, A. F. Knoefel, W. A. Lynott, W. S. Rountree, and M. J. Shields. 1917. 142 pp., 65 figs.

PUBLICATIONS THAT MAY BE OBTAINED ONLY THROUGH THE SUPERIN- TENDENT OF DOCUMENTS.

ButxeTin 94. United States mining statutes annotated, by J. W. Thompson. 1915. 1772 pp. In two parts, not sold separately. Cloth, $2.50 per set ; paper, $2.

Buttetin 107. Prospecting and mining of copper ore at Santa Rita, N. Mex., by D. F. MacDonald and Charles Enzian. 1916, 122 pp.,10pls., 20 figs. 25 cents.

Butietin 111. Molybdenum; its ores and their concentration, with a discussion of market, prices, and uses, by F. W. Horton. 1916, 132 pp., 18 pls., 2 figs. 30 cents.

ButLietin 121, The history and development of gold dredging in Montana, by Hennen Jennings, with a chapter on placer-mining methods and operating costs, by Charles Janin. 1916. 64 pp., 29 pls., 1 fig. 380 cents.

BuLieTiIn 161. California mining statutes annotated, by J. W. Thompson. 1918. 312 pp. 20 cents. :

BUuLieTIn 164. Abstracts of current decisions on mines and mining, September to December, 1917, by J. W. Thompson. 1918. 147 pp. 20 cents. Other bulletins of this series for sale are 159 (May to August, 1917), 15 cents; 152 (January to April, 1917), 10 cents; 147 (September to December, 1916), 10 cents; 143 (May to August, 1916), 10 cents; 113 (May to September, 1915), 15 cents; 79 (March to December, 1913), 20 cents; 61 (October, 1912, to March, 1913), 10 cents. For those on the free list see page 39.

BULLETIN 169. Illinois mining statutes annotated, by J. W. Thompson. 1919. 594 pp. 35 cents.

TECHNICAL Paper 17. The effect of stemming on the efficiency of explosives, by W. O. Snelling and Clarence Hall. 1912. 20 pp., 11 figs. 5 cents.

TECHNICAL PAPER 24. Mine fires, a preliminary study, by G. 8S. Rice. 1912. 51 pp., 1 fig. 5 cents.

TECHNICAL Paper 29. Training with mine-rescue breathing apparatus, by J. W. Paul. 1912. 16 pp. 5 cents,

TECHNICAL PAPER 41. The mining and treatment of lead and zine ores in the Joplin district, Mo., a preliminary report. by C. A. Wright. 1913. 43 pp.. 5 figs. 5 cents.

TECHNICAL Paper 67. Mine signboards, by Edwin Higgins and Edward Steidle. 1918. 15 pp., 1 pl. 4 figs. 5 cents.

TECHNICAL Paper 77. Report of the Committee on Resuscitation from Mine Gases, by W. B. Cannon, G. W. Crile, Joseph Erlanger, Yandell Henderson, and S. J. Meltzer. 1914. 35 pp., 4 figs. 5 cents.

MINEr's CIRCULAR 4. The use and care of mine-rescue breathing apparatus, by J. W. Paul. 1911. 24 pp., 5 figs. 5 cents.

MIner's CrrcuLtar 15. Rules for mine-rescue and first-aid field contests, by J. W. Paul. 1913. 12 pp. 5 cents.

Washington ; Government Printing Offich; 1919