To provide for the repayment from earnings of the capital invested in a mining property and expended in development, and to provide for the depreciation in value of the plant and equipment, an amortization fund must be accumulated during the life of the mine; or, if it be desired to continue the business of mining elsewhere, a similar fund must be created for the purchase, development and equipment of a new property to take the place of the original deposit when that shall be exhausted.
To cover the special risks of mining, capital should earn a higher interest than in ordinary business, and if we assume that the sinking-fund be safely invested, we must compute the amortization on a lower basis than 5%.
It was provided that amortization, at £10,000 yearly, should begin in 1917.
In 1895 an arrangement was made for the reduction of interest to 4%, the beginning of amortization, and the creation of "coffee warrants" to be used in the payment of export duties on coffee assigned for the service of the debt.
Ten years later, when the currency had fallen to 51 pence per milreis, the government found itself unable to meet the interest obligations on its debt and railway guarantees, and an arrangement was made with its creditors in London for the issue of a 5% funding loan to an amount not to exceed £10,000,000, and the suspension of all amortization for thirteen years.
Assuming, for example, the life of the mine at ten years as before, and taking the interest to be earned by the amortization fund at 3%, and that on the investment at io%, we shall find that the annual income should amount to 18.7% per year.
The national expenditures are chiefly for the interest and amortization charges on the public debt, official salaries, military expenses in connexion with the army and navy, public works (including railway construction, port improvements, water and sewage works), the administration of the state railways, telegraph lines and post office, church subsidies, public instruction and foreign representation.
The yearly charge for interest and amortization, about 124,000, is to be paid in two half-yearly instalments, and in the event of default the Russian bank will have the right to exercise effective control of the customs with a maximum number of twenty-five European employ/s.
Consequently, the Spanish government had once more to attempt to make both ends meet by asking its creditors to assent to the suppression of all the amortization of imperial and colonial debts, and to a tax of 20% on the coupons of all the debts, whilst at the same time the Cortes were asked to authorize a consolidation and liquidation of the floating and war debts and an annual increase of 3,200,000 in already heavy taxation.
The amortization is to proceed by purchase when the unified bonds are below par, and when at or above par, by drawings.
The amortization of the home and colonial debts was suppressed, and the redeemable debts of both classes were converted into 4% internal consols.
Taking into account the risk attending all mining operations, which make necessary large interest and amortization charges on the cost of a tunnel, it will in most cases be advisable to raise the water to the surface by mechanical means.
If, for example, we assume the life of a given mine at ten years and the rate of interest at 5%, it will be necessary that the property shall earn nearly 13% annually - viz., 5% interest and 8% for the annual payment to the amortization or the reserve fund.