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
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.