the expectation of a high rate of interest, no matter how safe the investment may be. In actual practice interest rates used in making valuations vary from 6 to 15 or 20 per cent.
It is clear that, where a property has long life, the interest will very materially reduce the present value of the ores to be mined far in the future. Reserves to be mined more than thirty years hence have relatively little or no present value. Beyond a certain point, therefore, the acquirement and holding of reserves for future use by private companies has little commercial justification. This is a matter which is too often not sufficiently well considered. Man's natural acquisitiveness often leads him into investments which, because of the time and interest factor, have little chance of successful outcome. Of course a large corporation, anticipating an indefinitely long life, or perhaps aiming at monopoly, may afford to hold reserves as a matter of general insurance longer than a small company,—even though, because of the interest rate, these reserves have no present value on their books. It is likewise true that governments, looking forward to the future of the nation, and without the necessity of paying so much attention to interest and taxes, are not so limited by this consideration.
An illustration of the limiting effect of the interest rate on the acquirement of long-lived coal deposits by private interests is discussed in Chapter XVII on Conservation. Investments made many years ago have so augmented, even at low interest rates, as to make it practically impossible to count on a return of capital and interest; or if the return were to be exacted from the public it would mean excessive charges, which are not possible in competition with other mines not so burdened.
In the commercial valuation of oil wells and pools, much the same method is used as has been described for mineral resources in the solid form, but the estimate of reserves or life is based on consideration of curves of production of the sort mentioned on pages 134-136.