DESCRIPTION OF THE COMPANY AND SHARE MANIA IN 1881.—EVENTS OF THE
“BUBBLE YEAR.”—CAUSES WHICH BROUGHT THE MANIA ABOUT.—WHY COMPANIES WERE
FIRST FORMED.—THE BARNATO CO.—THE CENTRAL CO.—THE FRANKFORT MINE.—THE
COSMOPOLITAN CO.—WONDERFUL INVESTMENTS.—SLOW RETURN OF CONFIDENCE.
The “ten claim clause,” which was passed by the legislative council of
Griqualand West under Governor Southey (_vide_ clause 18, Ordinance 10,
1874), and prohibited any person, firm or joint-stock company to have
registered in his name, or in the name of his or their accredited agent
at any time within six months, reckoned from the date of the
proclamation of a digging, more than one claim, and after that period
more than ten claims, was brought forward by some interested men as the
reason for the non-introduction of foreign capital into our digging
operations.
The rescinding of this clause in 1876 (Ordinance 12, Nov. 20th) effected
great changes, the alteration in the law throwing the road open for
capitalists to buy out small holders in the Kimberley and other mines,
virtually leading the way to the extraordinary mania for
company-mongering and share-rigging which existed in 1880 and 1881.
The repeal of this clause, however, which had never been in favor with
capitalists, because it obstructed them from “blocking” claims in the
mines, was hailed by some with delight, by others with foreboding, as
the latter believed it to prognosticate the approach of monopoly and the
departure of the individual digger. This repeal initiated a most
remarkable period in the history of the diamond fields, in which a mania
for company promoting and for mad speculation seized the whole
community, of which a repetition is now going on at the De Kaap gold
fields. It may not perhaps be a matter of surprise that the inhabitants
of a place, depending on a somewhat precarious industry and one of which
the proceeds are so liable to fluctuation, should be more or less imbued
with the spirit of gambling, nor is there anything unusual in the digger
deserting his mining operations to endeavor to gain wealth in a more
rapid manner by speculation. Such circumstances have been of frequent
occurrence in America and Australia, where many a man who had been
unlucky as a digger, using his acquired knowledge has realized a fortune
by speculating in shares or claims.
In the case of the sudden rise of the share mania in Kimberley, the most
extraordinary point was to be found in the fact that the place had long
thrown off the habits and appearance of a digging camp, and had assumed
the customs of a settled town, while all matters connected with share
transactions were conducted in so systematic a manner that the event
bore a close resemblance to one of those speculative fevers which
occasionally seize the home Stock Exchange. Kimberley was not alone in
this novel excitement; the infection spread throughout the whole of
South Africa, share transactions were eagerly carried on in all the
coast towns, and companies with large capitals were also formed to work
the diamond mines in the Free State, at Jagersfontein, Koffyfontein and
Oliphansfontein, and half a dozen others of which it can now only be
said
“Gaudet cognomine terra.”
It is no easy matter to fully trace why the cause of this wild desire
for speculation seized upon the community. It has often been stated that
it was simply an endeavor on the part of interested persons on the
diamond fields to defraud the outside public and get rid of their
worthless property. This, however, was not the case, although it must be
admitted that in many instances the actions of promoters of companies
were far from honorable. A more feasible answer to the question will be
found in the fact that for some time past there had existed in
Kimberley, companies which, although registered under the limited
liability act, were of a semi-private nature; for instance, the
“Compagnie Française” (French Diamond Mining Company) and the Cape
Diamond Mining Company, both of which had been formed in 1879, some
three years after the “ten claim clause” had been abolished. These
undertakings were believed to be most successful, and the general public
on the Fields were eager to participate in the profits of similar
enterprises. When this desire became apparent there were many
claim-holders who were desirous of realizing some ready money, or paying
off some existing mortgage, by the sale of a share in their diamond
operations, and hence the creation of new joint-stock undertakings.
That the first companies on the Fields, the British and Central, were
formed with a most legitimate object, it is quite impossible to deny,
and the reason for their formation is most easily to be seen. As the
mine attained a greater depth, the expenses of working naturally became
larger; elaborate machinery had to be erected, and more European labor
was therefore required. Under such circumstances it is not strange that
many diggers found it to their advantage to amalgamate with their
neighbors; moreover, it often occurred that those who formerly had been
actively employed in the mine were desirous of entering into other
pursuits, and yet were not willing to abandon all interest in digging
operations; consequently the formation of joint-stock companies
naturally suggested itself as a convenient way of meeting the
requirements of the case. It was under such circumstances that the first
companies in Kimberley were formed. The shares in these undertakings
very seldom passed out of the hands of the original holders and the
system gave every promise of success; it is true that there were
prophets of evil, who were ready even in those days to declare that this
step was one on the road to ruin, so far as the prosperity of Kimberley
was concerned, yet for a time the results of these companies in most
cases proved to be unmistakably satisfactory, and it was this _bona
fide_ success which encouraged the promotion of numerous other schemes
which were shortly afterward introduced.
In the early part of the year 1881 there existed about a dozen companies
in the Kimberley mine, the total capital of which amounted roundly to
two millions and a half, and the shares in these undertakings were in
the hands of the most successful diggers on the Fields. These shares had
not, of course, been purchased with cash, but every claim-holder who put
his claim ground into a company received a certain amount of scrip for
his property. It is impossible to dispute the fact that claim property
had risen enormously in value during the few years previous to the
establishment of the first joint-stock undertaking, and it is manifest
that if claims were incorporated in a company at a price on which they
could yield a fair dividend, that price was a perfectly fair one. The
non-success of many of the subsequent undertakings was mainly due to the
fact that the promoters were blind to this very simple truth, and had
forgotten, or had never known, the first principles which should govern
joint-stock undertakings. In fact people who would never have dreamed of
buying a share in a business at £1,000, which would only secure a return
on five hundred, invested freely in shares in companies, the claims in
which would have given an admirable return on a small capital, but a
very poor one, if any at all, on the enormous sums at which they were
put in.
When once the idea that the joint-stock system was the most advantageous
method for working the mines gained a hold upon the community, the
excitement became intense, company after company was formed, and the
shares in every case were eagerly taken up by the public. When the
formation of a new undertaking was announced, the applications
universally doubled and trebled the number of shares proposed to be
allotted, and in fact a premium was invariably offered to a successful
applicant for the chance he had secured of obtaining a share in any new
venture.
The different lists for share applications were filled with marvelous
rapidity, and remained open but a very short time. Ebden Street, the
“Rue Quincampoix”[52] of Kimberley, was filled from morning to night
with a tumultuous and maddened crowd. The various offices of companies
in formation were simply stormed, and those who could not get in at the
door from the pressure of the crowd, threw their applications for shares
(to which were attached cheques and bank notes) through the windows,
trusting to chance that they might be picked up. It is difficult to
picture the eagerness, the plots, the rage of the excited multitude bent
on securing this, the magic scrip, which was to make the needy rich and
the embarrassed free.
It was astonishing how the mania seized on all classes in Kimberley,
from the highest to the lowest, just as Law’s scheme and the South Sea
bubble did during the previous century; how every one, doctors and
lawyers, masters and servants, shop-keepers and workmen, men of the pen
and men of the sword, magistrates and I. D. B.’s, Englishmen and
foreigners, rushed wildly into the wonderful game of speculation.
One financial agent told me he floated five companies in three weeks,
viz.: The Fry’s Gully, Du Toit’s Pan; the De Beer’s Central, De Beer’s;
the Barnato Co., Kimberley; the Frere Co., De Beer’s; and the Globe Co.,
Du Toit’s Pan; and that although the capital required for the five
companies was £496,000 only, yet £1,230,000 passed through his hands in
the short time I have mentioned.
Business of every kind was neglected, mining operations were all but
suspended, the sole topic being the share market and the profits to be
made there. Many made unexpected fortunes, and realized in a few months
gains larger than those a whole lifetime of work and economy could have
procured them had they continued their ordinary pursuits. Under these
circumstances it was only natural that many owners of worthless ground
took advantage of the general excitement to form companies which had
hardly the remotest possibility of success; it was evident that it
mattered very little to the general public, or the majority at all
events, what the company was, what the value of the claims might be or
where they were situated, so long as it was a diamond-mining company it
was quite sufficient to command public favor. The public bought shares
in the diamond-mining companies as to-day they are doing in the gold
companies, not to obtain dividends on their capital invested, but for
purposes of pure speculation.
One of the most flagrant instances of bogus company promoting which ever
came under notice was the imposition attempted at a farm named
Frankfort, situated in the Free State, about sixteen miles from
Kimberley.
This farm was prospected, diamonds found (?), a mine surveyed, claims
given out, dams dug, shafts sunk and machinery erected, simply to
bolster up a gigantic swindle, which but for the outspoken opinion of a
surveyor named Kitto would have been foisted, through a well known
European firm, who merely awaited his report, on the English public for
£450,000. To assist in gulling home investors an American adventurer was
actually sent to England with a parcel of beautiful diamonds, certified
by affidavit to have been found in this mine, in order that those
concerned in introducing the scheme to the public might give visible and
tangible proof of the enormous value of the property which they had for
disposal. Mr. Kitto’s report, however, decided the fate of what he terms
“one of the most shameful swindles ever attempted.”
Many a laughable story is told of how diamonds were turned out of, or—to
be more accurate—put into this mine. One probable investor on going down
a shaft to examine the ground at the bottom had a hail-storm of little
diamonds showered on him (some of which lit on the brim of his hat)
which were meant for him to unearth in the loose ground at the bottom.
This wonderful discovery of the diamond’s new “locate” did not tend to
increase this gentleman’s opinion of the proffered investment! On
another occasion an astute matron interested in the swindle roundly
bullied her servants for their carelessness in finding only seven
diamonds instead of eight, with which she had “salted” the wash-up.
To make a long story short, the “best laid schemes of mice and men gang
aft agley,” the bubble burst, and the proprietors of this wonderful mine
allowed the knowledge of its startling richness to sink into oblivion,
and found consolation and support in ministering to the bodily wants of
those whom business or pleasure took to that worked-out and forsaken
Golconda.
As another example of how things were managed in those days when the
share mania was at its height, I may mention the case of a well-known
citizen who conceived the happy idea of putting into a company certain
claims in the Bulfontein mine which were then in his possession. These
claims were twenty-six and one-half in number, and the services of an
energetic promoter (who was to be paid £500 if he pushed the company
through) having been secured, a prospectus pithily written was submitted
to several well-known men who agreed to become provisional directors.
The capital of the company was stipulated to be £30,000, in 6,000 shares
of £5 each, of which £1 was payable on application, a similar sum to be
paid on allotment. The vendor, however, reserved 3,000 shares for
himself, so that only 3,000 were offered to the public. The _modus
operandi_ of floating this company was somewhat unique. It was known
that locally the company could not go through, as the unkind assertion
that “half of the ground was in the street” was generally believed, but
that difficulty the diplomatic promoter overcame by sending copies of
the prospectus to agents in the Colony and Natal fully a week before it
was allowed to see the light of day on the Fields. This turned out to be
a rather clever dodge, for, before its publication in the local prints,
the secretary had in his possession sufficient applications by wire, the
forms for which duly signed afterward came to hand, to insure the safety
of the company. Locally there were but few applications. The first
instalment of the company, however, was only just subscribed for and the
share allotment made, when the collapse in the share market took place.
What, however, is a singular thing in reference to this company is, that
the money paid on application and that paid on allotment, which must
have amounted to some thousands of pounds, has never yet been accounted
for. The directors fell away one by one, no work was done or machinery
ordered, and eventually the vendor became his own chairman, directors
secretary, trustee, manager and the general _multum in parvo_ of the
Cosmopolitan Diamond Mining Company, Bulfontein mine! It has transpired
that the shareholders’ money had not even been devoted to paying the
licenses on the claims, for I find that up to Feb. 1887, there was an
amount due to the London and South African Exploration Company (limited)
of £2,008 for licenses on the claims from Sept. 1st, 1880. When this
company was introduced to the public, one of the clauses of the
prospectus read as follows:
“The well-known and regular returns of the Bulfontein mine are
proverbial, and most of the companies recently formed at a very much
higher rate per claim, are even now at a respectable premium; which,
coupled with the fact that all difficulties and obstructions having
been removed by the settlement arrived at between the claim-holders
generally and the London and South African Exploration Company
(limited), the provisional directors have all confidence in the future
of this company.”
Although the vendor then stated that a settlement had been arrived at,
yet in March, 1884, when sued by the London and South African
Exploration Company for the rent which was due to them, this gentleman
pleaded that the company had no title! Either his first statement in the
prospectus or his last in pleading must have been audacious in the
extreme.
The London and South African Exploration Company withdrew from the case,
probably to bring it on again at a later period.[53] Some shareholders
are asking what has become of the money, and whether the company should
not be forced into liquidation, that the matter may be fully inquired
into. The promoter of the company was never fully paid, and many
outstanding accounts were never settled.
The floating of this company and its subsequent history forms a novel of
itself, and is another proof of the loose manner in which important
business involving thousands of pounds was transacted.
This was indeed a time when a visitor to Kimberley could not help being
struck with the remarkable amount of business, legitimate and
illegitimate, which was transacted in a place so lately a mere desert.
As I have already mentioned the streets were thronged with an eager
crowd, all engaged in the same pursuit, the purchase or sale of shares;
a pursuit which each one firmly believed to be the high road to fortune.
Well-nigh every conveyance which arrived on the Fields brought new
comers, anxious to share in the supposed good fortune, all the hotels
were crowded, and from every drinking bar might be heard the popping of
champagne corks; for lucky speculators were lavish with their money,
believing as they did that they had hit on an inexhaustible mine of
wealth. Diggers who had hitherto scarcely managed to make both ends meet
now imagined themselves wealthy, as their claims had been put into
companies at a price sufficient to make them comfortable for life; men
who before had been contented to work hard for five or six pounds a week
secured positions as managers of companies with comparatively enormous
salaries, clerks and shopmen became secretaries, and assumed all the
dignity of their new positions, and lawyers were employed day and night,
drawing up agreements and trust deeds. The insatiate thirst for
speculation was not slaked by the opportunity afforded of drinking
fortune’s drams in mining ventures alone. Although 113 of these were
floated, yet some score of other schemes were thrown out as baits to
catch the unwary investor. Brick, coal, laundry, transport, ironmongery,
labor supply, theatres, clubs, hotels, aerated waters, in fact the
prosecution of every conceivable industry was changed from private hands
to those of managers and directors, some directors becoming veritable
“guinea pigs,” occupying seats at as many as from ten to fifteen boards
at the same time.
Extraordinary as it may seem, it is nevertheless a fact that in six
months the nominal capital of the diamond mining companies rose from two
millions and a half to over eight, and the companies in number from half
a dozen to seventy-one; of these thirteen existed in the Kimberley mine,
with a total capital of £2,685,000; eighteen at Du Toit’s Pan, with a
capital of £2,200,750. De Beers had thirteen companies, whose united
capital was £1,334,100, while at Bulfontein there were sixteen with the
more moderate sum of £871,100. In addition to these there were about
eleven companies formed to work the outside mines, and the capital
required for this purpose was estimated at £923,000. Some idea of the
large scale on which it was proposed to conduct these operations may be
formed from the fact that the total sum proposed to be devoted to the
purchase of machinery was no less than £650,700. Taking all these
matters into consideration, it does not require very great experience in
the art of finance to realize that the community of Kimberley was
playing at a very dangerous game, and one which would sooner or later be
attended with very serious results. Nor did the danger lie only in the
fact that Kimberley speculated far beyond its capital, from the
commencement to the end the hastily formed companies had but little
chance of success, their very trust deeds being irregular. Again, the
greed of the promoters exhausted the funds which should have been
devoted to the development of the property, claims were put in at a
price which rendered the payment of any but the most paltry dividends
impossible, whilst the favoritism and nepotism of directors caused
inefficient men to be appointed to posts the occupants of which should
have had the utmost possible practical experience.
All this ought to have been clear to the old residents on the Fields,
but for some unaccountable reason they seemed blind for the time to all
principles of common sense; the Kimberley investor—I mean, of course,
the _bona fide_ investor and not the mere speculator in shares—seemed to
throw his judgment aside altogether, and apparently believed that the
“bonanza” from which he was to derive his future wealth was to be found
in the ground, which, as he might have known, had scarcely paid for
working in the hands of the individual digger, and could not be
expected, even with the command of improved and costly machinery which
capital could secure, to pay even decent dividends.
For many months, until June 1881, in fact, shares continued to advance
in price to the most absurd premiums, and the most outrageous reports
were taken as truths, while the influx of a considerable amount of money
from colonial investors aided in fanning the breeze, which wafted the
place on the rocks and breakers of financial distress.
The first check which the mania received was given by the sudden action
taken by the local banks. The managers of these institutions had given
way to the general excitement, and in fact had conduced to it by freely
advancing money on all kinds of bogus paper, and now they suddenly
became alive to the fact that the security of the scrip of mining
companies might not be so sound as at first sight it appeared to be, and
refused, for the future, to make any advances on this class of property.
A loud cry of indignation was immediately raised from every quarter,
speculators who had been purchasing heavily and mortgaging their shares
to purchase more, and who now found that their system would receive a
fatal blow, naturally complained of these, as they termed them,
“arbitrary and injudicious proceedings” on the part of the financial
institutions.
By slow degrees the mania abated, at last shareholders commenced to
realize the fact that they had invested beyond their means, and what
made the matter more serious they found it impossible to sell at
anything like the price at which they had purchased. The natural
consequence of this was a material fall in nearly all classes of shares.
In spite, however, of the tightness in the local money market, the
community by no means lost entire confidence in their pet schemes. To
show the justness of these opinions, I will mention one company in
particular, the “Barnato.” This was the smallest company in the
Kimberley mine, consisting of four claims only, and was introduced to
the public in March, 1881, at the enormous sum of £25,000 a claim, with
an addition of £15,000 for working expenses, almost double the value put
by any other company on their claims. The application list for shares
was open for an hour only, when the required capital was subscribed for
twice over, and in two days the shares were at twenty-five per cent,
premium, at which price they changed hands freely. The faith of the
investors in this company’s shares was fully borne out. During the
succeeding eighteen months (before the company’s claims were covered
over with reef) it actually paid dividends on this exorbitant capital to
the tune of thirty-one per cent., distributing among its shareholders no
less a sum than £35,650. The Central Company also paid in dividends
during the first three-quarters after its formation fifty-one per cent.,
reaching a grand total during its first two and a half years of some
eighty per cent., the amount in figures amounting to £321,985, 18s. 6d.
But the majority of companies never paid any dividend at all for years,
and some are even now not out of debt.
When it became apparent that the place had not a sufficient amount of
capital to support its enormous number of mining undertakings, many
plans were formed for the introduction of capital from Europe, and in
the hope of this object meeting with a successful issue, speculators
still continued to buy and sell shares, but as time went on and it
became perfectly clear that the hope of any benefit being derived from
this source must be abandoned, the value of scrip gradually became lower
and lower, until at last in many cases it was all but nil, and where
there were calls unpaid a minus quantity.
The decline in the value of shares in the market was enormous. Central
shares in the Kimberley mine, which had an easy sale in March, 1881, at
£400[54] per share were in 1884 almost unsalable at £25. Rose Innes
shares which were sought after at £53 sank to £5, and a similar fall
also occurred in the shares of all the companies in the other mines of
the province. In the mines of the Free State the depreciation in the
value of shares was more extraordinary still. An instance I well
remember. A friend of mine after years of application to business,
combined with indomitable perseverance, amassed a large fortune, when he
was tempted to speculate in the Koffyfontein mine, to which I have
already alluded, during the months of June and July, 1881. He bought
during the height of the mania 1,200 Koffyfontein shares at £28 each,
which were afterward within two years realized in his estate at 6d a
share. He thus lost over £30,000 on the one venture. This was far from
being an unparalleled instance of men being completely ruined by the
unprecedented fall which took place in shares at that time. Though the
diamond mania did not convey such widespread disaster as the South Sea
bubble or the Mississippi scheme, yet it will be years before the effect
of the South African “bubble year” of 1881 is forgotten.
On the time arriving when dividends were expected to be declared, in but
very few instances were the directors able to do so. Ground which had
yielded well in the hands of private owners often proved entirely
unremunerative under the joint-stock system, and the reason of this was
evident; the digger when working on his own account required no office
with a highly paid staff; he was his own manager and secretary, he
looked keenly after his own interests, and would never have dreamed of
trusting the most vital matters in his business to a possibly
incompetent servant.
In spite of the fact that, generally speaking, the company system had
proved a failure, but little attempt was made to mend matters. Things
drifted from bad to worse, until at last Kimberley entered on the worst
financial crisis that it had ever experienced. The companies with few
exceptions were more or less in difficulties. Pressed for their
liabilities by the banks, they had in turn to put the greatest pressure
on such shareholders as had not paid all the instalments on their
shares, and in very many cases their action was useless, as the
shareholders were unable to meet the demands made on them. The
consequence was that the companies had to go into liquidation and work
in the mines came to a partial stand-still. Kimberley was no longer the
Kimberley of the past.
It may be safely said that in its rash and reckless speculation
Kimberley was almost guilty of financial suicide, for not only was an
all but fatal blow given to the industry which supported the place, but
all confidence in its resources was for a time destroyed in the minds of
its colonial neighbors and the home investing public. The good, sound
investments, yielding large returns, to be made here, would startle the
quiet folk who are satisfied with the “three per cents.” As an instance
of the dividend paying capacity of some companies some months ago, I
cannot help mentioning the Elma at Old De Beers; in November, 1883, the
market value of its £10 paid-up shares was from 16 shillings to 20
shillings, when with good management in less than eight months it paid a
monthly dividend averaging from two to three per cent., or for the
investor who was lucky enough to buy in at the low prices, at the rate
of 360 per cent. per annum.
The fact of Griqualand with its incalculable mineral wealth being now
united to the colony by the line of railway opened at the end of
1885,[55] the knowledge that owing to this the cost of the production of
diamonds must be vastly diminished, together with the lessening of
theft, which the extension of the Diamond Trade Act to the colony and
the re-enactment of a similar ordinance by the government of the Free
State must produce, will tend to give a spurt to digging operations.
I shall next treat of the political stages through which the Diamond
Fields have passed from their discovery to the present time.
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