The essence of the ad valorem method of valuation above described is income-producing capacity. This method recognizes the fact that the value of the mineral deposit depends, not only on its physical constitution, but also on what performance can be expected from it.
Stock quotations on mineral properties in the standard markets are based substantially on estimates of income capacity, more or less on the ad valorem basis. However, the quotations also reflect the hopes and fears of the public, often resulting in valuations quite different from those based on studies of the objective conditions.
The war introduced new considerations into the problems of ad valorem valuation. Under peace conditions there is a tendency toward the establishment of normal costs, selling prices, and markets, which can be taken more or less for granted by anyone attempting to value mineral deposits. Under war and post-war conditions, few of these elements can be taken for granted; it becomes necessary to consider the entire world situation in regard to a mineral commodity, the effects of the Peace Treaty (which greatly concerns minerals), future international relations, tariffs, and other matters of a similar sort. If a person were today valuing a manganese deposit according to the method above outlined, and were to confine himself solely to a narrow consideration of past markets and profits on individual properties, he would be very likely to go wrong,—for the world manganese situation has an immediate and practical bearing on each local problem (see pp. 173-176).
Other Methods of Mineral Valuation and Taxation
We have discussed the ad valorem method of valuation at some length because it is the one in widest commercial use, and also because the principles involved underlie practically all other methods of mineral valuation. The ad valorem method is used in appraisals for taxation in some districts and for some commodities, as, for instance, the iron mines of Michigan and Wisconsin. Its application, however, requires skill and judgment if equitable results are to be secured. For taxation purposes, therefore, it is not uncommon to adopt purely arbitrary or empirical methods which eliminate the element of judgment, and which often result in valuations quite different from those used commercially.
The state of Minnesota divides its iron ore deposits into a series of classes, on each of which a more or less arbitrary flat value per ton is placed, based on the spread between cost and selling price. The adjustments of flat values on the several classes through a series of years, however, as well as the assigning of specific ores to the different classes, have been based on the same factors as are used in ad valorem valuations.
The state of Wisconsin uses a so-called "equated income" method of valuation and taxation for the lead and zinc deposits of the southwestern part of the state. Under this method the state puts such a tax on the mine incomes for the preceding year as will yield approximately the same total return as under the ad valorem method,—the whole being based on the assumption that each deposit has about the average life figured for the mines of the entire district. So far as individual ore deposits vary from this average life, the value fixed departs from the true or ad valorem value.
Several states impose specific taxes based on the operations of the mines for the preceding year or for some combination of preceding years, as expressed in tonnage output or net profits or net proceeds, regardless of life or reserves. So far as output or net proceeds for a year are proportional to the real value of the property, a rough approximation to equitable taxation as between mines is accomplished. Often, however, the valuation