Sobering (mostly) tales from the world of mining
We all need a good laugh, Publisher Tracy Weslosky emailed me from Toronto. Do we ever? Did you have a look at the latest prices for base metals? Or uranium? And don’t even begin thinking about rare earth prices.
So, dragging myself away from the intricate details of 3-D printing and the ion-adsorption clays of southern China, I decided to see what I could do to lighten the mental burden for Investor Intel readers. Well, there’s probably not too many laughs in what follows, probably not even a titter — but you might just manage a faint smile, a tentative chuckle, even a smirk. Or, at the very least, find it slightly interesting.
It so happens that I am just completing a book aimed at providing some fundamental information that investors might find useful for the next commodity boom (don’t hold you breath! — about the boom, that is, not the book). Yes, the ion-adsorption clays make their inevitable appearance, along with graphene, the fascinating array of new uses for silver, and … well, you get the picture. And, of course, there are summaries of much of recent literature on global demand outlooks, and so on.
But it does include one chapter where I try and put it all in some sort of perspective. And it’s really about the fact that, as we say in French, plus ça change, plus c’est la même chose. Yep, the more things change the more things stay the same.
We have all this new technology in the mining industry (there’s that graphene again) but, as someone who has been writing about it professionally for nearly 30 years, I can tell you that the mining beast looks very similar whatever era you drop in upon.
So, here are a few snapshots from the history chapter of my new book that give investors some idea of who they’re rubbing shoulders with if they get into the mining industry.So here are a few rough guidelines:
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# 1. Miners drink. During the late 1880s, during the first foray by foreign mining companies into what we now call Ghana and its neighbours, the mining engineer for the Guinea Coast Mining Company, on his 21 day sea voyage from Britain to take up his post, consumed 34 bottles of brandy along with copious amounts of champagne and beer. He died a few weeks after landing, perhaps unsurprisingly. The company doctor for another British mine company was able, on his 23 day voyage out, to knock off 61 bottles of cognac.
# 2. Not everyone in the mining sector is looking out for your interests. A fellow by the name of Paulus Dahse had a gold concession at Tarkwa — a place now well known to anyone who follows the Ghana mining story — in what was then the British colony of Gold Coast. He bought the concession for £200 and sold it on to Effluenta Company for £30,000; as Effluenta had a paid-up capital of just £55,000, it soon went broke. It was not the last occasion on which someone pulled a swift move over exploration ground.
# 3. Mining fads come and go. Those who have money riding on the West Africa gold story today might like to know that, back around 1880, Gold Coast mining shares became the rage of the London and Paris stock exchanges. The doubters called them “jungle shares”. So frenzied was the trade in concessions that the villages of Tarkwa and Abosso were turned into wild and brawling frontier towns. But the frenzy died by 1882 and, with it, stock market interest in the “jungle shares”.
# 4. China did not happen just yesterday. We know it’s the world’s biggest buyer of almost all minerals. As to history, well, people have probably learned about gunpowder and the Great Wall, but how many realise that by 1078 AD, China’s steel output reached 1.25 million tonnes, levels not achieved in the West until 1788. That steel achievement came just 38 years after China invented moveable type for printing. During the Song dynasty (960 – 1279 AD) there was substantial exploration for gold, silver, copper, iron and other minerals. In 1909 (by which time China had been mining iron ore for close to 3,000 years) the Christian Science Monitor reported China’s iron ore industry was undergoing a transformation. German capital had been invested in new iron mills. The Japanese were also ploughing money into mining in northern China. Yes, the China boom has happened before.
# 5. Did we mention that not everyone in the mining business has your investment interests at heart? How about the New York Mining Exchange which was closed down in 1934 by Joseph P. Kennedy, then head of the new Securities Exchange Commission (and father of John F. Kennedy)? This exchange was known for its history of fleecing the poorest investors.
But it was nothing compared to the San Francisco Mining Exchange that was still in business while Joe Kennedy was busting the chops of the New York equivalent. The San Francisco Mining Exchange was the grand-daddy of them, lasting one month short of 150 years before it closed in 1967. The SEC had been trying for years to shut it down, complaining about excessive speculation, fraud and lack of management. It was the Comstock discovery in Nevada in 1859 which had started the ball rolling. The amount of finance needed to carry out such a large mining operation meant money had to be raised through issuing shares. The problem in San Francisco was that a stock exchange was not by that time established, so “the brokers, on receiving orders to buy and sell, would leave their offices, go to the offices of other brokers to see if they had orders to buy or sell, and if so, negotiate a price, and thus effect a purchase or sale,” wrote Charles A Fracchia in a 1969 history of the mining exchange’s founding. The mining exchange solved the problem — at least initially.
In 1962, Time magazine reported that the SEC was trying to have the exchange’s registration cancelled. It recalled that the forty members of the exchange at its founding were known as “Ali Baba and the 40 thieves”. The magazine wrote: “Fortunes were made with dizzying speed, partly because the exchange’s secret scouts in the mining camps telegraphed the word — in code — whenever gold or silver was struck”.
By 1962, only forty-two companies remained listed (including Smuggler Mining Co). Only twenty were active, and sixteen of those had lost money the previous year. The SEC alleged that the exchange had not engaged any legal counsel for thirty years, ignored SEC regulations, and rarely filed SEC forms. In 1967, when the doors finally closed, the Los Angeles Times reported on the exchange’s headquarters ‘in its shabby second-floor offices on Montgomery Street‘. Then it added: ‘The exchange started in the gutter in 1862, gorged on manipulations in gold and silver mining stocks, occupied two pretentious buildings of its own, but died under a tarnished name‘.
Still, there were plenty of people willing to speculate. Turnover in 1864 was $45.6 million, a substantial sum at the time. And there were profits for those behind it: while the forty original founders put up $50 each, subsequent exchange members had to pay $43,000 to join.
While the gold and silver were eventually worked out at the remaining listed companies‘ deposits, older members of the exchange refused to add what they called “highfalutin’” industrial and utility stocks. The Los Angeles Times recalled that “in 1933 the exchange was haunted by several old ladies, dressed in black silks, trailing black coats and veils. They were the ‘queens’ of the old Comstock days. They traded such near forgotten issues such as Maggie, Yellow Jacket, Best & Belcher, and were known as the mudhens”.
Time had also covered the exchange in 1930. Around 1875, it wrote, the San Francisco Mining Exchange was at its height, its doors guarded by police. The easterners had lost fortunes when the local ring whipped the price of a mining stock called Belle Isle up to $5.25 for the newcomer investors, whereupon it dropped to $1.25.
FOOTNOTE: By contrast, the book publishing industry has changed. Now, instead of taking crumbs from the tables of publishers, I can self-publish through Amazon and reach a worldwide audience. And the beauty is that, apart from formatting, it requires no capital. Amazon sends out the e-books and prints the paperbacks of my books for no up-front cost, and just takes its cut on all sales. I have three titles (none about mining, I hasten to add) in print and more to come.
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