A timely article

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Part of The American Chamber of Commerce Journal

Title: A timely article
Creator: Crane, Clay W.
Language: English
Source: The American Chamber of Commerce Journal Volume XVIII (Issue No.12) December 1938
Year: 1938
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Fulltext: December, 1938 THE AMERICAN CHAMBER OF COMMERCE JOURNAL 17 A Timely Article By Clay W. Crane Statistician, Hess & Zeitlin, Inc. SAN MAURICIO MINING COMPANY The recent report released by the board of Directors of San Mauricio, coupled with the substantial advance in market price of this issue, makes necessary at this time a reappraisal of this company’s earning power, financial condition and future possibilities. (This analysis was prepared for the clients of Hess and Zeitlin early in No vember and is being now made public for the first time). ORE RESERVES: One of the most important things to consider about any mining security is, of course, its ore reserves. At the end of 1937 the reported ore re serves at San Mauricio were extremely limited. At that time it was estimated that ore reserves totalled 143,198 tons with an average value of P24.29, giving a total con tained value of P3,477,422. In other words, the com pany had at that time only a sufficient amount of ore to supply its 300-ton mill for a period of 16 months, and a gross value of only P24.29 per ton. In the report referred to above, it was stated: “Ore reserves are being greatly increased each month, both in positive tonnage and average value. Although final to tals will not be available until the end of the year, it isdefinite that the January 1st, 1939 figures will approxi mate an average value of P50.00 per ton, and tonnage in excess of three years' operations." This indicates that there will be approximately 325,000 tons of ore which, at an approximate value of P50.00 per ton, would mean a gross contained value of better than P16,000,000, a sub stantial increase in ore reserves for a period of one year of development work and development work ahead of actual production. As development work on the various vein systems' have proved up the existence of sizeable blocks of ore which will average considerably in excess of the above estimates of P50.00 per ton, it would appear reasonable to presume that at least some months will show a pro duction which will average considerably more than P50.00 per ton. FINANCIAL CONDITION: On October 31st, last, current assets amounted to P855,809 of which P663,267 was in cash or its equivalent. Current liabilities, on the other hand, amounted to P625,911 of which P64,735 re presented accrued income taxes. Therefore, on October 31st, current assets exceeded current liabilities by P209,899 while cash and its equivalent exceeded current lia bilities by P37,358. At the end of 1937 current assets amounted to only P592,755 while current liabilities were Pl,372,644. Cur rent liabilities at that time exceeded current assets by P779.889. The bulk of improvement in current position was accomplished during the past five months as, on May 31st of this year, current liabilities still exceeded current as sets by P797,027. Although almost all of the improvement in current position was accomplished out of earnings, the company has received Pl50,000 from Marsman & Company in pay ment for 1,500,000 shares. It also received P110,088.80 from stockholders who had been given the right to pur chase additional stock at 40 centavos. From this latter source San Mauricio will receive another P89,911.20 sometime this month. CAPITALIZATION: By the end of this month, when stockholders have subscribed to their share of new stocks at 40 centavos, San Mauricio will have an author ized capital of Pl,000,000, divided into 10,000,000 shares of 10 centavos par value common stock, all of which will be outstanding. MANAGEMENT AGREEMENT: By virtue of a management agreement with Marsman & Company, en tered into in February 1934, Marsman & Company re ceives a monthly fee of P4,000 per month plus 10% of the profits (net profits is not defined in the contract but in actual practice the 10 c/< is deducted after all charges including a depreciation charge) which exceed 50% of the capital subscribed when the first dividend was declared. When the first dividend was paid, the company’s capital was P800,000. In other words, should the company’s net divisible profits in any one fiscal year be P400,000 or less Marsman & Company would only re ceive the regular P4,000 monthly management fee as compensation. However, should the net divisible profits amount to P800.000 Marsman & Company would receive, in addition to their monthly fee, 10% of the difference between P400,000 and P800,000 or P40,000. EARNINGS: It has been often said by those who are not familiar with the facts, that costs at San Mauri cio are high in comparison to other mining companies in the Islands. In the letter to stockholders of November 14 it was clearly shown that “controllable” costs at San Mauricio compare very favorably with any other mines in the Islands. Controllable costs such as mining, milling and mine general during the month of October amounted to only P8.26 per ton. The very complex nature of San Mauricio ore, how ever, is of such character that the bulk of the values must be recovered in the form of concentrates and then fur ther processed by smelting with final recovery of values in United States smelter. This obviously results in a larger marketing expense than in the less costly free milling or straight cyanidation of ores by which most of the values in the Philippines are recovered. For Octo ber, this cost was P6.04 per ton, but this figure, as noted in the cost statement, includes a charge of P2.33 per ton for slag and dust losses, which is actually a smelter deduction for unrecoverable value similar to a tailing loss in milling plants. This item, as has been pointed out, is “uncontrollable.” Another uncontrollable item is taxes. Because of the high production plus its large profits San Mauricio is forced to pay a comparatively large percentage for taxation. Estimated production tax and income tax for October was an amount equal to P3.79 per ton of ore milled. San Mauricio follows a conservative policy in de preciation accounting. It has charged against earnings an amount per ton which is among the highest in the Is lands—P2.08. Miscellaneous general expenses such as various fees and incidental expenses amounted to only 76 centavos per ton. Marsman & Company’s P4.000 month fee (the profit participation has been waived tem porarily, it is understood until December 1st) amounted to only 46 centavos per ton. The total cost, therefore, of both controllable and uncontrollable items for the month of October amounted to P21.39 (before Marsman & Com pany’s profit participation). For the past several months. San Mauricio has aver aged approximately 9,500 tons per month. It can there fore be estimated that San Mauricio’s cost per month will total approximately P205.000 after all charges but be18 THE AMERICAN CHAMBER OF COMMERCE JOURNAL December. 1938 fore the profit participation. As was made public sometime ago, the net profit for San Mauricio during the first six months amounted to P388,616, after a depreciation charge of P152.214 and after payment of P95.501 for the now cancelled financing agreement. Although no official figures have been released relative to earnings for the third quarter it can be estimated, based on an analysis of the first six months operations, that during that quarter the net profit, after all charges, amounted to approximate ly P450,000 or a net profit for the nine months of approximately P850.000. According to the above breakdown of Oc tober earnings and a knowledge of actual production for that month of P437.383, it J<oppeLJ Manufactured by JOSHUA HENDY IRON WORKS (San Francisco, Cal.) ONE (1)4—5' x 6' HENDY BALL MILL has just been ordered by KM. 73 MINING COMPANY. -----------*41*5^----------Sole Agents KOPPEL (PHILIPPINES) INCORPORATED ILOILO MANILA CEBU can be estimated that the net profit for October was approximately P240.000. This brings the profit for the 10 months to approximately Pl,075,000 after all charges and Pl,275,000 after all charges but before depreciation. According to the letter referred to above, November produc tion is estimated at around P500,000 (ac tual was P501,000) and a production of ap proximately this amount is expected to con tinue for sometime to come. Basing an an alysis of potential earnings on a production of P500,000 on the above breakdown of Oc tober’s costs a monthly profit of P295.000 can be expected for November and Decem ber. In other words, the net profit of this year can be estimated at approximately Pl,650,000, an amount equal to approximately 16.5 centavos per share. The comparable profit before depreciation can be estimated at about Pl,900,000 or nearly 19 centavos a share. This, however, is only a portion of the future possibilities for this company. If San Mauricio can maintain a production of P500.000 a month, it can be estimated that the net profit, after depreciation, for a twelve month period, or one year, will be P3,540,000 before the Marsman & Com pany profit participation, and P3,236,000 after the Marsman & Company profit par ticipation. The comparable net profit be fore depreciation and after the profit par ticipation would amount to 1’3,475,000. The per share net profit then, before de preciation, but after the profit participa tion would be equal to 34.75 centavos per share and 32.36 centavos per share after all charges. DEVELOPMENT: San Mauricio’s ex tensive expansion program was virtually completed in the first five months of this year. Since that time capitalized expendi tures for capital development and additions and improvements to mill and equipment has been averaging about P25,000 a month. With the continuation of this figure ap proximately P300.000 a year, an amount al most equal to the depreciation charge can be expected to be spent on capital improve ments. Therefore, it can be estimated that a bulk of the net profits, after all charges, as described above, can be utilized for im proving the current position. DIVIDENDS: Up to the present time San Mauricio has only paid one dividend— 4 centavos a share at the end of 1936. Al though no dividend action has been taken as yet, it would appear reasonable to pre sume that a resumption and a continuation of dividend payments can be expected in the very near future. As was pointed out above, San Mauricio’s current assets on October 31st exceeded current liabilities by approximately P210,000. As a result of estimated profits for November and December, this amount should be improved by approximately P580,000, bringing the net current position on November 31st to P790.000. To this must be added the P89.000 receivable this month from stockholders. With a net current asset position of ap proximately P879.000 it would seem reason able to presume that, should the Board so desire, a dividend of 5 centavos or P500.000 should be paid at that time. (Since this was written a 5-centavo dividend was de clared). If the estimate for a 12-month period earning power holds true next year, the company could pay as high as 30 centa vos a share in dividends, but it would seem safer- to presume that the Board will take a more conservative attitude and pay out a smaller portion of the net profits. COMMENT: The above analysis of San Mauricio has been prepared, using as its basis, information which, to the best of our (Please turn to )>ar/e 22) IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION I HE AMERICAN CHAMBER OF COMMERCE JOURNAL 22 THE AMERICAN CHAMBER OF COMMERCE JOURNAL December. 19 38 market has declined, hovering peril ously close to new low ground. Technically, the New York mar ket appears to be gathering strength, and ominous news dispatches from abroad have so far failed to shake OVEJERO & HALL STOCK, COMMODITY & EXCHANGE BROKERS MEMBERS MANILA STOCK EXCHANGE NATIONAL PRODUCE EXCHANGE NEW YORK COFFEE & SUGAR EXCHANGE 6th Floor, Wilson Building Juan Luna, Manila Tel. 2-10-51 Cable Address OVERALL, Manila out any appreciable amount of stock. Seasonally, a rise can ordinarily be anticipated during the early months of the year and present market ac tion justifies the belief, barring un expected adverse developments abroad, that higher prices may be seen within the reasonably near fu ture. Overlooking, therefore, a fur ther period of indecision and irregu larity during coming weeks, the longer term outlook currently is for a continuation of the recovery cycle. A Timely . . . (Continued from page 18) knowledge, reflects to a great extent con ditions as they now exist at the mine. We realize that mining at best is a hazardous venture and these estimates may prove ex tremely optimistic as present future pros pects become history. On the other hand, we believe that there is sufficient reason to presume that instead of these estimates proving exceedingly optimistic they may very well exceedingly conservative. For this reason; the progress of San Mauricio over the next few months should be watched closely in order to fully participate in any change in market price, which will only be reflection of actual operations and condi tions as they exist at the mine. The Stock . . . (Continued from page 20) moment no reason why any parti cular weakness should develop pro viding world conditions remain about unchanged. In assessing the possibil ity of a reaction it is well to bear in mind that although the averages have staged a considerable percentage ad vance this has been largely accounted for by wide gains in only a few indi vidual issues. As these are apparent ly fully justified, in almost all cases, the market may not be in as vulner able a position as might be expected after such a sustained upward move ment. The likelihood of any runaway rise appears to be equally slim. Local and world conditions are not ripe for such a movement, however, it would appear that the present healthy con dition of the majority of the produ cers, and near producers, coupled with the increasing dividend dis bursements, would bring confidence and money enough to support a price structure irregularly higher than that to which we are now becoming accustomed and could lead to a some what more active market early next year. IN RESPONDING TO ADVERTISEMENTS PLEASE MENTION THE AMERICAN CHAMBER OF COMMERCE .JOURNAL
pages: 17-18, 22