Coal Age : devoted to the operating, technical and business problems of the coal-mining industry, Vol. 31, No. 4

M c G r a w - H i l l

P u b l i s h i n g C o m p a n y , I n c . J a m e s H . M c G e a w , P r e s id e n t E. J . M e h r e n , V ic e -P r e s id e n t

Devoted to the Operating, Technical and Business

Problems of the Coal-Mining Industry R . D a w s o n H a l l

E n g in e e r in g E d ito r

Volume 31 NEW YORK, JANUARY 27, 1927 Number 4

F O R E W O R D

B

R esearch into th e m ethods of u sin g coal w ill enable it to com pete su c c e ssfu lly w ith water p ow er and o il. One of th ese days a household fur­

nace w ill be d evised w hich w ill burn the sm all sizes of b itum inous coal. It w ill be con trolled by therm ostats. It

. w ill be stok ed au tom atically and ash disp osal w ill be accom plished w ith ou t in con ven ien ce.

T he coal producers should encourage research on th ese problem s. If th ey are solved the d om estic m arket lost to o il can be recovered q uickly.

B efore lo n g w e w ill be k eep in g cool w ith coal in th e summer. T h e producers o f coal have an op p ortu n ity there to hasten th e day w hen th e h ousehold er w ill becom e a year- around purchaser of coal.

T hat h alf a dozen w ays of co n vertin g coal into oil are p rom isin gly near com m ercial su c­

cess w as revealed at the recent con feren ce in P ittsb u rgh on the u tilization of coal. T he in d u stry could afford to go far in financing th e stu d y of that developm ent w hich, when su cce ssfu l, w ill provide a new market for m illio n s o f tons o f th eir product.

A p p lica tio n to coal of the en terp rise d is­

played in the creation of a m arket for e le c ­ trical appliances and in the d evelop m en t of n ew m arkets for copper and zin c w ou ld bear fruit.

© Underwood & Underwood JO H N HAYS HAM M OND

B y im proving h and ling fa c ilitie s at ports, by re­

q uirin g a h ig h quality stand­

ard and by m in im izin g breakage the exp ort market for A m erican coal can be expanded.

E x cess cap acity can be re­

duced by co-operative action.

M uch can be done toward that end if sy stem atic steps are taken to ed u cate th e pro­

ducers and th ose w ho finance them . I f the in d u stry th ink s som e legal san ction is re­

quired for such co-operative measures, its leaders w ill be surprised at the fr ien d ly recep tion w hich w ill be accorded such a request. T h e public has no inborn h o stility to coal operators. W h ere co n solid a­

tion s are ob vio u sly in th e in terest of all con­

cerned the consent o f th e public w ill not be w ith h eld.

B u ild in g up o f demand and the absorption o f excess cap acity are the roads to p rosp erity and peace in the coal in d u stry. T h e y w ill be easier to fo llo w if ev ery th in g is done to c u lti­

vate th e best p ossib le relation s w ith the pub­

lic. T h e first step is to recog n ize fran k ly the p ub lic’s in terest by ad op tin g a program of fact-finding and volu n tary co-operation such as is recom m ended in th e report o f th e U. S.

Coal C om m ission. T hat recom m endation was con ceived in th e u tm ost fr ie n d lin e ss for the ind u stry. It is a necessary first step toward the p rosp erity of a b u sin ess w h ich is essen tial to the national life .

104 C O A L A G E Vol. 31, N o. 4

B itum inous M ines, Facing U nusual D em ands At H om e and Abroad in 1926,

D em onstrate Efficiency and P u b lic Service

T

tures. The anthracite strike, four months old at the beginning of tim year, continued for another month and a half before a settlement was reached and its effect upon the demand for bituminous coal was felt for several weeks longer. As a re­

sult of that demand, production for the first four months of the year amounted to 226,000,000 tons, as compared with 198,000,000 and 204,- 000,000 tons for the corresponding months of 1924 and 1925, respec­

tively.

The British strike began on the first day of May. Whereas the an­

thracite strike had affected only the United States and Canadian markets for bituminous coal, the British strike not only brought an unprece­

dented demand for coal for overseas export, but affected the local markets as well. This strike was settled by district agreements, most of which were entered into before the end of November. However, Great Britain had made comparatively little prog­

ress at the end of the year toward the recovery of her foreign business.

Foreign demand for American coal and American production continued at a high rate until the end of the year. Production for the four months, September to December, in­

clusive, was nearly 224,000,000 tons, as compared with 179,000,000 tons for the same months of 1924, and 202,000,000 tons in 1925, the latter during the anthracite strike.

578,000,000 T o n s P r o d u c e d

Aggregate production for the year 1926 was over 578,000,000 tons. This amount is over 9,000,000 tons in excess of the 1920 output, which con­

stituted the previous peace-time rec­

ord, and almost exactly equal to the record output of the war-year 1918.

For the last four months of the year, however, the 1926 output of 224,000,- 000 tons w as nearly 35,000,000 tons in excess of the output of the cor­

responding months of 1918.

The year 1926 also saw the estab-

B y W a lte r B a r n u m

P r e s i d e n t , N a t i o n a l C o a l A s s o c ia tio n

W ith o u t “o v erd ev elo p ­ m en t” in d u stry could not have fu e lle d n ation and m et w orld sh o rta g e of coal last year. P la n t cap a city and op eratin g sk ill, how ever, w ere equal to th at task.

lishment of new records for weekly and monthly production. So fa r .a s the former record is concerned, there were no fewer than seven weeks dur­

ing the last three months of the year with an output in excess of the previous record of 13,344,000 tons made in the week of Oct; 25, 1919.

The production for three of these weeks was in excess of 14,000,000 tons, the maximum being 14,676,000 tons for the week of Dec. 4. This amount was 1,332,000 tons, or 10 per cent above the previous max­

imum.

Previous to 1926 the highest monthly output record* 3 was in Oc­

tober, 1919, when 57,200,000 tons were produced in anticipation of the strike on Nov. 1 of that year. In November, 1926, the output was 59,721,000 tons. Production during the first half o f December exceeded that of the first half of November, but declined during the latter part of the month on account of the Christ­

mas and N ew Year holidays. The maximum output for a consecutive 30-day period was between Nov. 12 and Dec. 11, inclusive, when 61,117,- 000 tons were mined.

A weekly output of 14,676,000 tons is at a yearly rate of more than 765,- 000,000 tons, while even a 30-day rate of 61,117,000 tons, if continued throughout the year, would give an output in excess of 743,000,000 tons.

This high rate of production, made solely in response to a hitherto un­

precedented demand, affords striking évidence o f the superficial nature of the charge of overdevelopment fre­

quently brought against the industry, and also furnished eloquent testi­

mony to the efficiency of the industry.

If the industry is to be prepared to serve the country and the world in time of need, overdevelopment must be measured not by the yard­

stick of capacity in excess of a nor­

mal yearly demand of 500,000,000 or 525,000,000 tons, but by the measure of the demand at any one time, over which the industry has no control.

Hence due regar.d m ust be given to the factor of maximum requirement, which, as I have shown, is 765,000,- 000 tons. In the light of these fig­

ures, overdevelopment appears to be relatively slight.

16.5 p e r C e n t L a b o r C u t

In this connection it should be noted that a considerable amount of labor which was attracted into the industry by high wages has gone into other industries. Between 1920 and 1923, both years of large pro­

duction, the number of mine em­

ployees increased from 639,547 to 704,793. In 1924 the number em­

ployed was reduced to 619,604; in 1925 to 588,493. This is a decline in two years of 116,300 employees, or 16.5 per cent. During the same two years the average output per man employed increased from 781 to 884 tons. Similar figures for 1926 are not yet available.

Attention has frequently been called to the extent to which non­

union production has increased in re­

cent years. Geographically, in spite of the very substantial increase in non-union production in Pennsyl­

vania, that has meant an increase in production in the E ast from the states south of the Ohio and Potomac rivers. In 1923, Pennsylvania, Ohio, Indiana and Illinois in the North, and Kentucky, Virginia and West Vir­

ginia in the South produced 482,- 404,000 tons of bituminous coal. The three Southern states contributed 34 per cent of the total. In 1924 the same seven states pro­

duced 408,413,000 tons, but the pro­

portion of the three Southern states rose to 38.5 per cent. For 1925, the

figures w ere 443,346,000 tons and 43 per cent. D uring 1926 the unusual demand caused an increase in union production sufficient to check, but not sufficient to overcome, the Southern d rift. The aggregate pro­

duction o f the same seven state.s from Jan. 1 to Dec. 18, 1926, was 479,823,000 tons, of which the three Southern sta tes produced no less than 45.5 per cent.

Br i t i s h St r i k e Bo o s t s Ex p o r t s

The occasion for the great in­

crease in demand for bitum inous coal during the latter part of 1926 was the strik e o f the B ritish mine work­

ers. The cu ttin g off o f the B ritish supply led to the placing of large orders in th e U nited States by Great B ritain h erself as well as by some of her fo reig n custom ers. Overseas ex­

ports from A tlantic ports approxi­

m ated 22,000,000 tons in 1926, while the annual average for the previous three years w as 5,000,000 tons. If the estim ated total o f 22,000,000 tons is accurate, overseas exports for 1926 w ill be sligh tly in excess o f the previous h igh record established, in 1920. Moreover, o f these excess overseas exports, am ounting in round num bers to 17,000,000 net tons, only a little over 5,000,000 tons moved prior to Sept. 1. The lim itin g factor during the last four m onths of the year w as neither foreign demand nor m ine capacity, but the ability of rail­

roads and piers. W ithout th is check, aggreg a te e x p o r t s would have reached astounding proportions.

The B ritish strike then furnished the U nited S tates during the last four m onths o f the year w ith an in­

creased m arket for some 14,000,000 net tons o f bitum inous coal, th is fig­

ure representing excess overseas ex­

ports and increase in bunker coal.

Output -the sam e m onths increased to a fa r greater extent, exceeding that o f 1924 by 44,000,000 tons, and exceeding th e average for the years o f 1924 and 1925, in spite o f the anthracite strik e in the latter year, by nearly 34,000,000 tons. While increased industrial and transporta­

tion a c tiv ity doubtless absorbed a part o f the excess, it is unquestion­

able th a t some of it has gone into consum ers’ stocks.

A ccording to the report o f the Bureau o f M ines, consum ers’ stocks on Oct. 1, 1926, am ounted to 44,000,- 000 tons, exclusive o f the 7,500,000 tons at the H ead of the Lakes and an indefinite am ount in transit. It is unfortunate th at no close study

Ja n u a r y 27, 1927

C O A L A G E

Walter Barnum

has ever been made of the amount o f coal rolling under different con­

ditions of production. However, on the conservative estim ate th at ten days’ loadings are on w heels at any time, there would have been an addi­

tional 20,000,000 tons on top of ground on Oct. 1, m aking an aggre­

gate supply o f over 70,000,000 tons.

W ith i n c r e a s e d loadings the amount o f coal rolling increased to around 25,000,000 tons by the m id­

dle of December. Since that tim e there has probably been a slig h t decline, although all reports indicate that there is an increasing delay in gettin g cars unloaded. Meantime the supply at the Head o f the Lakes has declined. W ith due allowance for all the factors involved, we probably- entered 1927 w ith about 80,000,000 tons above ground. I f anything like

the present rate o f production con­

tinues, it is evident th a t stocks w ill not be reduced betw een the present tim e and the first of A pril; on the contrary, the probability is th at they will be m aterially increased.

A t th is point I w ant to stress the im portance o f coal storage, which, in general, of course, should take place at the point o f use, as th is w ill ac­

complish the m ost in relievin g tran s­

portation and sa feg u a rd in g supply.

A uthorities on the subject have f r e ­ quently recommended th a t the large coal consum ers purchase their coal on an annual contract for yearly re­

quirem ents, w ith the provision that the coal be delivered m onthly in equal allotm ents. It would be a relatively sim ple m atter for these consum ers to provide necessary sto r­

age fa c ilitie s to m eet the term s of such contract.

It is im possible to forecast the out­

come o f the conference between union operators and m ine workers scheduled fo r next month. I f a dead­

lock w ith a resu ltin g suspension of operations at union m ines ensues, w hat inconvenience will the public suffer? I have no h esita tio n in sa y ­ in g that, at th e m ost, it w ill be very sligh t. So fa r as m ine capacity is concerned, non-union production alone can keep pace w ith consum ption— at least during the sum m er and autum n

— and no general strik e in th e union fields has ever continued m ore than five months.

105

I N 1 9 2 6 -

L ast year, th e bitum inous coal in d u stry o f the coun­

try:

B roke all w e e k ly produc­

tion records;

P ressed clo se on the 1918 annual ou tp u t record;

T axed the capacity o f tid ew ater piers w ith an extraordinary flow o f coal overseas d urin g th e last six m onths o f the year;

H eld average sp ot prices to $2.21 d esp ite hysterical buying.

De m a n d Re c e s s i o n Fo r e s e e n

What the demand for bitum inous coal will be during 1927-28 can not o f course, be definitely foretold. It i^

altogether probable th at by A pril 1 B ritish m ines will have recovered th eir normal strid e and w ill be able to take care o f th eir fo reig n cus­

tomers. The preponderance of sentim ent am ong financial forecast­

ers seem s to be to the effect th at the year 1927 may see some s lig h t reces­

sion in the high tid e o f business activ ity in the U nited S tates, though they express no fear o f a general industrial slump. It seem s, there- fo ie , th at the demand for bitum inous coal, both dom estic and foreign , may be a little less in 1927 than in U 2 6 . If that should prove to be the case, the pressure upon non-union m ines m case o f a union suspension w ill b*1 reduced.

Significant are th e con trasts in an­

nual output during the la st five years and the seasonal fluctuations betw een m idsum m er and m idw inter produc-

106 C O A L A G E Vol. 31, No. 4

W h a t of th e Future?

P r o d u c tio n d u r in g th e n e x t co a l yea r w ill u n d o u b te d ly be b e lo w th a t o f 1926-27 u n le s s th e r e s h o u ld be a r e v iv a l o f u n u su a l e x p o r t d em and.

W h ile th e labor s itu a tio n in th e u n io n fie ld s is c lo u d e d by th e e x p ir a tio n o f th e J a c k s o n v ille a g r e e m e n t on M arch 31, c a p a c ity in n o n -u n io n fie ld s has d e v e lo p e d so r a p id ly w ith in th e p a st e ig h t y e a rs th a t th e c o n s u m in g p u b lic has lit t le to fea r fro m a s u s p e n s io n o f o p e r a tio n s in th e C en tra l C o m p e titiv e F ie ld and a llie d u n io n d is tr ic ts .

T h e le g is la t iv e s itu a t io n w ill bear w a tc h in g . G o v ern m en t r e g u la tio n c o u ld o n ly m ean th e b e g in n in g o f an era o f b u rea u ­ cra tic c o n tr o l o f a ll in d u s tr y .

tion, am ounting to more than 50 per cent even in a year of unusual a c tiv ­ ity like the one through w hich we have ju st passed. R egularity o f pro­

duction from year to year can be secured only by elim inating yearly fluctuations in business activity, and regularity o f production week by week throughout the year m ust aw ait the w illin gn ess o f consum ers to distribute th eir year’s purchases on the sam e basis. The industry it ­ self can do alm ost nothing to reduce the exten t of such fluctuations.

Lo a d i n g Ma c h i n e s Ad v a n c e

A publication by the Bureau of M ines issued during the latter part of 1926 gives us the first definite in ­ form ation w ith respect to the extent to w hich m echanical loading ma­

chines have been introduced in b itu ­ m inous m ines. While the absolute am ounts so reported are not very im ­ posing, the rapid rate of increase in recent years fu rn ish es additional evidence o f the efforts of bitum inous operators, spurred on by the highly com petitive condition o f the indus­

try, to lower th eir cost o f production through im provem ents in m ining methods. The report show s that be­

tw een 1923 and 1925 the number of loading m achines in use increased 172 per cent, w h ile the amount of coal loaded by m achines during the sam e tim e increased 232 per cent.

In its rapid adoption of th is most recent developm ent in coal mine equipm ent the industry is follow ing its own exam ple as set by its earlier adoption of coal cu ttin g devices. In th e use o f these and of all other form s of m echanical equipm ent the Am erican industry is in the van of progress and the w idespread u tiliza­

tio n of th ese devices is responsible

for the high rate of production per man employed, w hich increased from an annual average o f 713 tons for the five years 1919 to 1923, inclusive, to 781 tons in 1924 and 884 tons in 1925.

A review of the coal industry for 1926 would be incom plete if it did not include a reference to the re­

newed agitation for leg isla tiv e in ter­

ference w ith the industry which has found its expression in the introduc­

tion of numerous bills in the Con­

gress of the U nited States. The im­

m ediate occasion for the renewal of the attack w as the anthracite strike o f 1925-26. It would be difficult to point out any failu re of the bitu­

m inous industry to perform its full duty on th at occasion. On the con­

trary it w as able to render particu­

lar service to the count’-y, increasing its output sufficiently to ward off any danger of suffering or hardship be­

cause o f the shortage of anthracite.

It is an in terestin g illustration of the irony o f fa te th at the very record which should en title the industry to credit is made the basis for invidious attack.

Re g u l a t o r y Me a s u r e s

I can do no more than refer briefly to the tw o m easures now before Con­

gress ; the Copeland bill in the Senate and the Parker bill in the H ouse. If m inor differences are overlooked;

both bills embody the sam e provi­

sion s; namely, compulsory fa c t­

finding, m ediation and em ergency control. E xten sive fact-finding on a voluntary basis is now being car­

ried on by trade papers, by local bitum inous coal associations, and by various agencies o f the governm ent.

The trade inform ation com niittee o f the N ational Coal A ssociation has

charted a course which has received w ide com m endation, including favor­

able comment from Secretary of Commerce Hoover. No one has su c­

ceeded in p oin tin g out any additional inform ation that would be really useful as a guide which the industry is not ready to fu rn ish on a volun­

ta ry basis. All industry, of which bitum inous coal m ining is a part, re­

ports a great m ass o f inform ation to the D epartm ent of Commerce and other governm ental agencies and our in d u stry naturally resents the im ­ plication involved in the proposal to select it for special compulsory treatm ent.

' M ediation and the em ergency con­

trol o f distribution are already as adequately provided for through the D epartm ent o f Labor and the Inter­

sta te Commerce Com m ission as they could possibly be by any new agen­

cies established under the bills now before Congress. In fact, th e only effect o f the enactm ent o f the pro­

posed law s would be to su b stitu te inexperienced fo r experienced agen­

cies and dim inish rather than in­

crease adm inistrative efficiency.

Da n g e r o u s Le g i s l a t i o n

The bills under consideration revive certain sections of the Em er­

gency A ct o f 1922. The m ost revolu­

tionary and dangerous featu re o f the bills is found in that portion o f the 1922 Act w hich provides for fixing of prices in tim es o f em ergency. We are fam iliar w ith attem pts to pre­

vent centralized industries from extortin g monopoly profits. T his is the first instance in our h istory in w hich in tim e o f peace it has been proposed that the arbitrary power of the governm ent should in terfere w ith the natural adjustm ent o f prices un­

der freely and fu lly com petitive m ar­

ket conditions. The experience of the last few m onths of 1926 serves to illustrate how speedily a rise in price brought about through a sud­

den increase in demand results in increased output, and a prompt price change in the opposite direction.

The fact is that the proposed le g is­

lation is at once unnecessary, inex­

pedient and hazardous. It could not be otherw ise than little in accom­

plishm ent and large in danger. Once let the tentacles of the octopus of bureaucratic control fa sten them ­ selves upon th is im portant branch o f A m erican industry and the present generation -will live to see all indus­

try sw allow ed up in the m orass of political stagnation.

Ja n u a r y 27, 1927

CO 4 L A G E

107

Anthracite Industry Rests Success for Future

T h e r e c o v e r y o f m arkets, te m p o r a r ily lo st th ro u g h str ik e , has n ot g iv e n o p ­ era to rs a fa lse se n se o f s e c u r ity . P r o d u cer s are a c tiv e in effo r ts to su p p ly g o o d p r o d u ct and m arket it m ore e ffic ie n tly .

On E ngineering and M erchandising

B y S. D. W arrin er

P re s id e n t, L e h ig h C oal & N a v ig a tio n t o , , a n d C h a ir m a n , A n th r a c ite

O p e r a to r s C o n fe re n c e

T

tr y in 1926 were lost through con­

tinuation o f the strike which began Sept. 1, 1925. T his strike was finally settled by an agreem ent reached on Feb. 12, and ratified on Feb. 16, the m ines resum ing after a strike of 170 days, the longest in anthracite his­

tory.

The loss in production during the seven w eeks o f idleness in 1926 was in the neighborhood of 10,000,000 gross tons. Work has been steady at the m ines ever since resumption, and some o f the lost tonnage was made up during the summer, so that on Sept. 1, the anniversary of the strike, the output fo r the calendar year was only about 7,000,000 tons behind the sam e period in 1925. This was of course more than made up in the last four m onths of the year, the total output being w ithin 2,000,000 tons of that o f 1924, a year of un­

interrupted activity.

Wh a t Co n t r a c t Pr o v i d e s

The contract signed last February runs to Aug. 31, 1930, and contains a proviso that a fter Jan. 1, 1927, but not oftener than once a year, either side m ay ask for a modification in the w age scale, with a board of two men to be named by the parties them selves in ease the Board of Con­

ciliation can not agree. It is believed th at th is contract carries w ith it defi­

nite prom ise of peace in the industry for the com ing four years.

Commercial production of anthra­

cite in 1925, w ith four m onths from Sept. 1 to Dec. 31 lost through the strike, w as 50,582,990 gross tons, a decrease of more than 19,000,000 tons as compared w ith the preceding year. W hile official figures for 1926 are not available, at the tim e of

w riting, operations have been very steady and at a high rate since pro­

duction w as resumed and the total for the year may be estim ated at ap­

proximately 76,000,000 gross tons.

Lacking official figures for 1926 little can be said on the subject of price trends, but the average mine prices in recent years arouse con­

siderable interest. A verage mine prices per ton in 1925 were more than 12c. below those of 1924.

Figures on commercial production and value for the five years ended with 1925, reported by the U. S.

Bureau o f Mines, are:

Average Value per Ton

Commercial Production Gross Tons 192!... 70,191,076 192 2... 39,768,901 192 3... 71,718,088 192 4... 69,906,363 192 5... 48,805,380

Value at Mines

$437,488,640 255.574,915 482,404,160 466,720,562 319,862,247

Average Value per T on a t M ines

$6,223 6.426 6.726 6.676 6.553

The above figures apply solely to fresh-m ined coal, and exclude all coal taken from culm banks by w asheries, all coal dredged from creeks and rivers, and all coal used for heat and power at the collieries. The average charge in 1925 for fresh-m ined coal, at the m ines, was therefore more than 17c. below the average o f 1923, in which year the Pinchot advance o f 10 per cent in w ages became effec­

tive. In short, since 1923, the aver­

age mine price o f fresh mined coal sold has declined more than 2.5 per cent, in addition to which the in­

creased cost due to the 1923 wage increase has been absorbed.

Ta x a t i o n Ex c e s s i v e

E xcessive taxation of anthracite properties by county and municipal authorities continued to hold atten­

tion during the year, as it is one of the m ost im portant and vexing prob­

lems in the industry- All told, anthracite annually pays som ething like $i8,000,000 in county, municipal and school taxes, an average o f about

25c. a ton commercial production.

This is exclusive of any federal or state taxes, and of the P ennsylvania tonnage tax.

So heavy is the burden th at the chairman of the P ennsylvania State Tax Commission, which is draftin g su ggestion s for tax sim plification and readjustm ent, publicly stated th at the anthracite industry w as the m ost heavily and m ost unjustly taxed in­

terest in the state, and th at som e­

th in g should be done to “relieve coal producers from the excessive burden o f taxation, which is not entirely due to state laws, but to a large extent by increasing local assessm ents on coal lands.”

Pr o v i d i n g Co m b u s t i o n Se r v i c e

The A nthracite Coal Service, an agency of the A nthracite Operators Conference designed to help consum­

ers solve combustion problems, con­

tinued and extended its activities during the year. T his service, w ith headquarters in Philadelphia, has branches in six principal cities, between and including Boston and W ashington.

In addition to dem onstrating the ad­

vantages of small sizes o f anthracite as industrial fuel, or dom estic fuel in low pressure heating system s, com­

petent combustion engineers are al­

w ays available to advise users on the m ost economical sizes to buy and the best m ethods of burning. There is, o f course, no charge for th is service.

As to the future o f anthracite, one may look forward w ith a feelin g o f greater confidence than w as perhaps justifiable a year or more ago. Fears w ere expressed, and w ith consider­

able reason, that anthracite had s u f­

fered a perm anent dim inution o f its markets. The reasons w ere m ainly the disaffection o f custom ers by rea­

son o f interruption o f supply, and high prices due to strikes, w ith the resulting adoption o f su b stitu tes.

In some sections which had alw ays

108 C O A L A G E Vol. 31, No. 4 been good anthracite m arkets we

w ere told th at m any consum ers would never again burn anthracite.

Today we know better. A nthra­

cite has won back its tem porarily lost m arkets— and, it m ust be assum ed—

on its m erits. There is no other rea­

son w hy the dom estic consum ers o f N ew England, fo r example, should have resum ed the burning of anthra­

cite as soon as it became available.

The amount o f prepared bitum inous goin g into th is territo ry is now triflin g compared w ith w hat w as pre­

dicted. In spite o f the utm ost efforts o f com petitors, anthracite shipm ents to its long-held E astern m arkets are, if anything, heavier than in the past.

It has been dem onstrated, in other words, that the consum er prefers anthracite on account of its safety, cleanliness, and other advantages as a dom estic fuel.

No t De c e i v e d b y Ma r k e t

Such an outcome of an adm ittedly dangerous situ ation m igh t have lulled anthracite producers and distributors into a condition of com placency. On the contrary— and in th is is the best assurance o f the fu tu re of anthracite

— there never has been a tim e in my experience when the producers w ere more active in th eir efforts to supply a good product and to m arket it w ith increased energy. There is no d is­

position on the part o f anyone in the industry to assum e th at all is plain sailing. On the contrary, there is constant effort and study to m erchan­

dise our product m ore efficiently.

W ith th is end in view plans are being carried out to extend the ac­

tiv itie s o f the A nthracite Coal Serv­

ice. T his organization has offices in W ashington, Philadelphia, N ew York, Boston, Albany, Syracuse, and is es­

tab lish in g representatives elsewhere.

N ecessarily the m ajor part o f the tim e o f the corps of com bustion engineers connected w ith the service has been devoted to the large con­

sum er. The new developm ent in th is effort is directed to extend the serv­

ice through the dealer to the domes­

tic consum er. A good sta r t has been made in th is direction, and I am confident th at its results w ill be effective in enabling the dom estic consumer to g et a greater degree of sa tisfa ctio n and economy out o f h is anthracite fuel.

St u d y Op e r a t i n g Ef f i c i e n c y

From the operating side o f the industry every effort is being made to im prove the product by greater care in preparation and in handling

S. D. W arriner

throughout th e line o f distribution.

Improved processes are being adopted w herever practicable. Gen­

erally speaking there is no d isposi­

tion to be satisfied w ith th in g s as they are, but constantly to striv e fo r better perform ance. In th is effort the in d u stry is en listin g more and m ore the co_-operation o f the dealer.

It is g r a tify in g to be able to say th at never has the latter branch of the industry shown a better disposition to adopt progressive m ethods and to co-operate w ith the producers of anthracite in w ays th at w ill better serve the consum er.

Ne w Fi e l d s f o r Bu c k w h e a t

One of the outstanding develop­

m ents of the fu tu re will be, I believe, a larger use o f sm all sizes, particu­

larly No. 1 buckwheat fo r dom estic purposes. T h is trend is not a new one, but it is becom ing more marked all the tim e. There are hundreds, if not thousands, o f dealers at the p res-1 ent tim e handling No. 1 buckwheat, who did not m arket th is size in the past sim ply because there w as no de­

mand fo r it, except fo r the m aking of steam . The efforts of the produc­

ers to extend the use o f buckwheat have been adm irably backed up by the m anufacturers o f appliances for burning the cheaper sizes, and these m anufacturers have reaped a sub­

sta n tia l reward in the greatly in­

creased distrib u tion o f m agazine feed boilers and other appliances.

There is still a broad field for im­

provem ent in the distribution o f the various sizes o f anthracite. T his w ill come through the better education of the consum er. A much m ore healthy situ ation will e x ist when th ere is a balanced demand fo r each o f the

sizes corresponding to the supply of th ese sizes. The excess of demand for stove coal is som eth in g fo r which there is no good reason. It repre­

sen ts very largely habit rather than the requirem ents o f the consum er.

In other words, m any of th ose who are in sistin g upon and paying a prem ium for stove coal could w ith profit to them selves use other sizes.

It w ill obviously be a m ore healthy situ ation w hen the cost o f production is evenly distributed over all the sizes. A t present alm ost a third o f the production is sold a t a price three or four dollars below the cost of production sim ply because o f lack of demand, and the com petition o f these sm aller sizes w ith so ft coal.

I f it is true, as w e believe, th at these sm aller sizes have a u tility and a value w hich bitum inous coal does not possess I, it should be possible to take them , to a great extent, out of the category o f com petitors w ith bitum inous fuel.

En g i n e e r i n g t o Fo r e

W ith a view to determ ining m any unsettled questions w ith respect to the burning o f anthraciite, the oper­

ators are conducting an elaborate series o f experim ents, at no small cost, to determ ine which sizes and com binations o f sizes are m ost effi­

cient fo r a given purpose, and in various types of household appli­

ances. T hese experim ents w ill cover a long period o f tim e, and w hile im­

m ediately results from them are not perhaps to be expected, the progress reports w hich w e receive from tim e to tim e are already o f value in determ ining the efficiency o f various sizes o f anthracite under given con­

ditions. T hese experim ents w ill be continued until w e are able to say w ith definiteness, and on the basis of scientific data, w hat are the prac­

tices th at w ill give th e consum er the h ig h est degree o f econom y in the use o f anthracite. These results also w ill enable us to carry forw ard the effort in connection w ith which a b egin n in g w as m ade by the stand­

ards adopted in 1925.

W e are, it seem s to me, justified in assu m in g th a t the industry has a considerable period o f peace ahead o f it. T h is applies as well to the leg isla tiv e as to the labor situation.

In th is period the in d u stry w ill en­

deavor to work out its problems, set its house in order so fa r as m ay be necessary, w ith results th a t can­

not fa il, in m y opinion, to increase its u sefu ln ess to th e public.

Ja n u a r y 27, 1927 C O A L A G E 109

How a Banker Looks Upon Coal Investm ents

B y R o b ert K . C assatt

C a s s a t t & C o m p a n y , P h ila d e lp h ia , P a .

A L T H O U G H it m ight appear that

\ those engaged in the bitum inous coal industry have had ample op­

portunity to learn the attitude of the investm ent banker and o f the in v estin g public toward th eir in ­ dustry, I think it may be perm is­

sib le to risk a certain degree of repetition because the experience of m ost bankers teaches them that the desirable relationships between coal producer, banker and the public are but im perfectly understood by the average producer who seeks the help o f the banker in obtaining funds for h is purposes from the public.

It may, therefore, be helpful if w e restate w hat factors are con­

sidered by th e banker, w hat are his m ental processes in arriving at the decision to accept or reject a pro­

posal placed before him to buy and offer to the public an issue o f secu­

r itie s based on the operation of one or m ore bitum inous mines. If I am a t all successful in this effort, it may resu lt in p u ttin g before the operator some of the essentials w ithout which h is effort to obtain m oney from the public is doomed in advance to failure.

A Ne w Ex p e r i e n c e

M ost coal companies in this country are the result of individual effort and individual investm ent by those directly concerned w ith the operations them selves, and their ex­

pansion has been financed, and prop­

erly so, by ploughing back earnings.

There are, of course, many instances where local financing has been done through banks or otherwise, and in m any cases com panies have outgrown th is stage .and th eir securities have reached the general public. It is w ith such cases that I propose to deal, that is to say, where the com­

pany desires to obtain funds from that portion o f the public which is totally unacquainted w ith the in- dustz-y and is only desirous of ob­

tain in g, w ith the help and advice of the banker, a sound investm ent.

That is the kind o f public I shall refer to in th is article, and fo r that very reason it is apparent that the resp on sib ility of p assing on the proposed secu rity rests on the in­

vestm ent banker and on him alone.

The public accepts or rejects the security alm ost wholly on the reputa­

tion of the banker who presents it to him.

How, therefore, should the bank meet th is responsibility? Obviously he m ust have sufficient knowledge of the industry to qualify him to pass on the security for his clients, and he m ust use that knowledge in the first place to guard his clients’ in­

terests and at the sam e tim e to create such a capital structure for the company as .will perm it it to operate successfully.

N o Ru l e-o f- Th u m b Me t h o d s

I do not propose to repeat any rule-of-thum b methods of gauging a coal security but rather to touch on certain generalities which experience teaches me are im perfectly ap­

preciated.

In general, then, w hen a company first goes to the public for funds it m ust do so w ith a full realization that by doing so it invites a partner- ship which goes beyond the mere agreem ent, and fulfillm ent o f that agreem ent, to pay a stated return for the use of those funds at stated periods and the final return o f the principal. The public, I believe, feels that the partnership is wider, that it is entitled to full inform ation on m any o f the details o f operation, policy and management, costs and

<U Underwood d Underwood.

R o b er t K . C a s s a tt

Average producer lacks fu ll know ledge of financing bituminous coal properties.

Banker carefully considers several factors in arriving at decision to accept or re­

ject an issue of securities.

profits which have been considered in the past not m atters o f public concern.

Pu b l i c i t y Es s e n t i a l

Inasmuch as the secu rities presum ­ ably are such th a t they may be freely traded in over the counter or through the stock exchanges any. m an in the street m ay a t any tim e become a partner so that, in effect, the obliga­

tion to take the partners into the confidence of the m anagem ent be­

comes practically an obligation to take the public as a whole into con­

fidence. P rof. R ipley’s recent ar­

ticles illustrate th is trend in public thinking. I em phasize it here be­

cause I som etim es believe th a t m any coal m en who would like to draw upon the public for funds do not appi’eciate the com m itm ents they are entering into and also because this frank and open dealing w ith the public at lai-ge m ay prove an effective barrier to further demands fo r governm ent control.

A great m any o f the troubles th at arise between coal operators and bankers arise because the operator has not realized these obligations.

H aving made th is clear to the prospective borrower, the banker will give due consideration to these m a tte r s:

M an agem en t: Under th is head the banker will consider the ability, ex­

perience, reputation, a ctiv ity and

“punch” of the prospective m anagers w ith the g reatest care, because it is realized that to operate a coal pi-op- erty successfully, to care fo r its financial problems and to provide for disposing of its product, requires a high degree of business sagacity plus strict attention to the affairs of the company and unflagging enei’gy. N o coal property w ill run itse lf and thei’e is no type o f a ctiv ity which can more quickly be ruined by bad m anagem ent. Included under th is head are en gin eerin g skill, ab ility to handle labor, sellin g ab ility and the faculty o f g e ttin g on w ith com­

petitors.

The m anagem ent o f coal properties

110 C O A L A G E Vol. 31, No. 4 does not average high, 1 am sorry to

say. Often one or more o f the de­

partm ents are well handled, but rarely all. It behooves the banker, therefore, to be satisfied as to th is feature before even considering other factors.

H o w Mu c h Re s e r v e To n n a g e? A creage and Q uality of Coal:

Briefly stated, the banker’s concern as to these m atters will lead him to assure h im self of sufficient (but not burdensom e) reserves containing coal o f a quality that w ill sell in com petition w ith coals which reach the same m arkets. W ith the present excess of production, it is courting disaster for the banker to finance, or the public to in vest in, coal prop­

erties containing mediocre or in­

ferior grades of coal. Such coal should be le ft in the ground for future generations to use a fter our better coals are exhausted or com­

mand excessive prices for special purposes.

M a rk ets: This, head should be studied by the banker to determ ine whether the consum ing m arket is sufficiently broad to take the avail­

able coal p ressing for sale. It would be easy to cite the existen ce o f excel­

lently developed coal properties con­

taining high grade coal, w hich prop­

erties have no im m ediate chance of success because o f lack o f market.

E n gin eerin g Skill and P o lic y : In these days o f rapid im provem ents in m echanical operation of coal m ines, it is w ise to determ ine w hether the engineering force is alive to such possible savin gs and w hether the financial structure provides for the large expenditures necessary to in­

stall the m ost modern labor-saving

devices. In m y opinion, if there is one th in g sure about the fu tu re of the bitum inous industry, it is th at only those com panies w ill prosper or even survive, who take fu ll advan­

ta g e of modern m echanical m ethods.

M erch an dizin g P o licies: These m ust be capable o f follow ing sound lines as in other in dustries, such as good service to consum ers, in sistan ce on proper preparation o f coal, proper study of sta tistica l m atters and, above all, a strict adherence to con­

tract obligations.

Wh a t o f Pa s t Ea r n i n g s? F a st E a rn in g s and F u tu re P ro s­

p e c ts: The banker will require to know that the p ast earnings are amply sufficient to protect the secu­

rities he proposes to issue and that these earnings have been made under conditions likely to continue, and not through any fortu n ate set of circum ­ stances. There are those who prefer to judge a com pany by estim ating w h at it w ill do in the fu tu re rather than on its past record, and to a certain exten t th is view is sound.

But, on the other hand, the public is accustom ed to estim atin g the fu tu re from p ast data, and it would take a long cam paign o f education to change th is attitude, even if it w ere w ise to discard the factor of past records. The banker is, therefore, bound to see th a t the p a st earning record is satisfactory.

A ll the above fa cto rs w ill in the a g g re g a te d eterm in e his action, and th e g r e a te s t o f th ese is perhaps m an agem en t.

A ssu m in g th at the banker closes the deal, he w ill in sist on an effective method, not controlled by the oper­

ator, for obtaining a t all tim es full

inform ation as to the operation of the properties. The m ost effective w ay to accom plish th is is to give the banker representation on the board o f directors, not, w ith the idea of p erm ittin g him to in terfere w ith the m anagem ent o f the property, but to give him a legal rig h t to such in­

form ation as he m ay desire, th u s placing him in a position to advise h is clien ts of the condition o f the company, and to advise th e company on its financial problems w hen they become involved or serious.

I have purposely avoided the labor question and shall not now discuss it, but the banker cannot fa il to take into h is calculations the probability o f a favorable labor situ ation or the reverse.

Ne w Mi n e s Dis c o u r a g e d

For w hat purposes should a banker in these tim es consider underw riting coal issu es? I shall begin by answ er­

ing in the n egative. He should not fu rn ish m oney to create new produc­

tion at a tim e, such as th is, when potential production is fa r in excess o f demand. And he should not fu r­

n ish funds to buy out ex istin g owners, w hether sin gly or in the process o f the form ation of m ergers.

M ergers, if they are to in terest the public, m ust not be on a sell-out basis, but real m ergers as th e name im plies.

The banker m ay, I think, properly finance additional w orking capital either to protect e x istin g w orthy properties, or to stren gth en proposed m ergers. He m ay fu rn ish funds to transform an operation from one of m an-power to one o f m achine-power, or for any other purpose w hich w ill reduce production costs of an ex ist­

ing operation. In any case the banker w ill see that funds obtained from the public are properly applied, and not diverted to objects foreign to th eir original destination, such, for instance, as the acquisition of addi­

tional and perhaps surplus reserve acreage.

I f the general conditions w hich I have tried to outline can be m et by the company seek in g funds, I believe th at capital is available on term s w hich w ill be governed by all the surrounding conditions and by the general trend o f the m oney m arket;

but, broadly speaking, the cost of m oney to the bitum inous industry w ill be relatively high until th a t in­

dustry has elim inated m ost o f the g la rin g w eaknesses w hich have char­

acterized its collective m anagem ent in the past.

M O D E R N IZ A T IO N , M A N A G E M E N T — A N D T H E B A N K E R

W hen the question of financing a coal property comes up, the banker is going to consider carefully management, acreage and quality, market possibilities, engineering sk ill and the atti­

tude of the management toward the proper em ploym ent of engineering talent, past earnings and future prospects. “And the greatest of these is management.”

The banker is not interested in mergers w hich do not fill an economic need. T he old idea of a “sell-ou t” basis is view ed with a gelid eye.

The banker is not living in the past, but is facing tomorrow.

For that reason he is convinced that the only coal m ining com­

pany which can hope to survive is the one that takes full advantage of the advances in m echanization. Archaic system s may have a museum appeal, but they w ill not go far in interest­

ing the financial house which underwrites industrial securities.