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.