For centuries, investments in mines have been particularly speculative. As such, they tend to attract small investors rather than institutions. Also, their share prices can be subject to very large and swift movements once news, or mere rumors, get out. At the end of 1969, mining shares in Australia surged higher before very swiftly giving up those gains. One small company in particular was at the center of the frenzy, Poseidon NL. The company announced a nickel find in Western Australia that turned out not to be as profitable in practice as was hoped.

Australia and Mining

           Australia is a mineral rich country and new mineral discoveries were commonplace in the 1950s and 1960s. New mines were developed in Queensland, such as the Weipa bauxite mine and the Mary Kathleen uranium mine, and in Western Australia, such as the Mt Tom Price iron ore mine. Overall, investments in mining company shares performed well. The ASX All Mining Index appreciated by an average of 25% per year from 1958 through 1968. Still, mining, and mineral exploration particularly, is a very risky business.

Nickel

           The Poseidon mining bubble was not fundamentally about nickel but the precise metal is a relevant part of the story. Growing use of stainless steel increased demand for nickel and during the Vietnam War, prices for nickel were rising due to war-related demand. The aerospace and munitions industries bought a lot of nickel products. Also, in the late 1960s, prolonged strikes at a Canadian nickel mine, owned by Inco, caused a shortage of the metal. Canada, and not Australia, was then the world’s largest producer of nickel. Amidst these developments, prices rose from under £2,000 per ton at the end of 1968 to over £4,000 per ton by the end of September 1969. Prices would rise far higher still.

Poseidon NL

            The company at the center of this story, Poseidon NL, was a mineral exploration firm based in Adelaide; its shares were listed on the Adelaide Stock Exchange. For years, it had not encountered anything promising but Poseidon acquired some new exploration leases near Laverton, Western Australia in February 1969. The company encountered some good results drilling at a site in the area, at Windarra.

The Poseidon mine at Windarra (Source: The West Australian)

            Many insiders became aware of the promising find around September 25, 1969 and shares started rising before any public announcement was made. That said, some had at least light information far earlier. On much more preliminary analysis, Poseidon’s consulting geologists, Burrill and Associates, had been buying Poseidon shares since April. Even the holder of the land leased to Poseidon was buying shares since late August.

            So, the activity in the shares on September 25 was not the first in which knowledgeable people participated but it was the day that saw the most pronounced increase in buying and so it marked the start of the boom. On that day, some 115,800 shares traded hands as compared to 24,300 the day before; the longer-run average had been somewhere in between. Belatedly, Poseidon only announced the discovery of nickel deposits publicly on September 29.

“Let’s not beat around the bush. Someone has had information on Poseidon’s deposit … The market buzzed last week with rumours … yesterday, the rumours became a highpitched screech that nickel of a richness and volume equal to, if not surpassing, anything yet found in Western Australia, has been found …”

John Henry Laurence, financial editor, The West Australian newspaper

Bubble

            Poseidon NL share prices spiked in September 1969. They rose from 80 cents per share in early September to 1.85 Australian dollars on September 26, when insiders were buying shares, already aware of the news. When this news was in turn made public, shares reached $5.60, rising still higher to $7 the next day. Upon the release of a more detailed announcement, shares reached $12.30 on October 1 and $17.70 the very next day. Capitalizing on the gain, the company issued 500,000 new shares at between $5 and $6 during this run up in prices. Prices reached $19 a share by October 7 and insiders began to realize some of their gains.

            In November 1969, nickel prices reached £7,000 per ton and Poseidon shares stood at around $50 by mid-month. On the day of the company’s annual general meeting, December 19, shares rose $30 to $130 a share. Within one business day, shares were at $175 and they reached $200 by the end of the year. Insiders kept selling as prices rose higher in January.

            Mere rumors were enough to keep driving the share price higher. These rumors would spread and often without any eventual verification by the company’s management would nonetheless affect the share price anyway. The bubble simply could not be fully explained by official or verified information alone. In any case, Poseidon shares peaked at $280 a share in February 1970. Its market cap reached $700 million, one-third that of mining firm BHP, which was then, as it is now, Australia’s largest company.

Other Stocks

            Shares in other mining companies rose, particularly those focused on nickel and those with leases near Windarra. The Australian Financial Review was reporting that the Sydney Stock Exchange was trading more shares than Wall Street, albeit driven by low-denomination securities. The index of mining shares rose 44% between October and December 1969 on strong volume of purchases as promoters pushed these shares and newspaper articles carried news of the bubble. The Australian Financial Review made the observation that a way any investor could measure market sentiment was to call their broker several times; if the calls failed to get through then the buyers were in a frenzy while if your call went straight through, it was time to sell.

            Shares in one nickel company, Tasminex NL, rose from $2.80 to $16.80 within a couple of trading days on rumors that a director of the firm had found some heavy metals in a drill sample. After an interview with the company’s chairman was published, shares reached $96 in the London market overnight, but settled at just $40 the next day in Australia. All this happened within three business days and in the end no genuine discovery was made at the site.

            SAMIN, a small mining company which had borrowed money to buy Poseidon shares earlier in the bubble, was taken over by Poseidon itself and listed on the stock exchange. Its shares rose from 50 cents to $30 on opening, the largest gain for a new listing. Many insiders of Poseidon and the Perth Stock Exchange were given allotments in the initial public offering at the ultimately meager price of 50 cents per share. During the bubble, companies were listed with ‘empty’ prospectuses and no obvious prospects. Small investors moved on from Poseidon as its share price skyrocketed beyond the investment size of many. Interest from small investors was always crucial for mineral exploration companies.

Fall

            Several factors caused the bubble to eventually deflate. Nickel prices fell sharply in early 1970, returning to pre-1969 prices by year-end. Also, concentrations of the metal at the Windarra site ended up lower than estimated. Within a couple of weeks of the boom, the company was already aware that some of the estimates it had given the public were incorrect though it did nothing to correct this. Lower concentrations meant extraction costs were high. The ASX All Mining Index peaked in January 1970 and would fall by two-thirds before the end of November 1971. However, Poseidon shares kept rising for a month longer than the index overall, turning only in February.

           News stories began to appear about the practices of share promoters and sentiment turned against the mining companies. An Australian senator brought up a complaint about insider trading at Poseidon in a speech on March 19, garnering great press interest. By mid-March, shares had fallen below $200 a share. Early in April, they decisively fell below $150 and then $100 by month-end.

           Poseidon’s mine would not start producing until 1974. For the reasons above, the mine was destined to barely breakeven. The company was sued by shareholders and Poseidon shares were delisted by 1976 and the mine sold to another operator. The site would be mined by another company until 1991. The old valuations were never justified by actual performance.

            In the wake of the bubble’s bursting, the Australian Senate commissioned an inquiry which produced a report in 1974. The report was critical of the unregulated stock market and the role of rumors in trading. Indeed, back in December 1969, the Australian Financial Review had reported that “word of Poseidon find at Windarra is generally credited to having been whispered first by drillers and equipment suppliers at the Leonora racetrack, the Palace bars soon got the message. And within minutes it was transferred again to the neighbouring office of Kalgoorlie’s only stockbroker, R. Reed, a member of the Stock Exchange of Perth”.

            Some rumors were allegedly traced back to keen observations of drillers walking around Laverton with nickel sulphides splattered on their boots. In the Western Australian mining towns, many would have known what this meant. In any case, the Rae Report, as the Senate report was known, eventually led to the creation of the Australian Securities and Investments Commission.

Lesson

            Bubbles generally start when excitement outpaces reason and they end when reason catches up, whether because the reason for the excitement altogether dissipates, rationality returns, or both. However, not every bubble is identical. They are products of their market, place, and time as well as commonplace human attributes. A stock market bubble in Australia in the 1960s was much more likely to be centered around mining shares and driven by rumors, retail investors, and unregulated insider activity than other bubbles.

More from the Tontine Coffee-House

           Read about another major bubble in Australian history, the Melbourne land boom. Also, learn about mining bubbles in early modern Germany and 1820s Latin America. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts. 

Further Reading

1.      Keith, Ward. “50 Years Ago, Poseidon Made Today’s WAAAX Look Waned.” Firstlinks, 12 Aug. 2019.

2.      John, Simon. “Three Australian Asset-Price Bubbles.” RBA Annual Conference 2003, 2003, pp. 8–41.

3.      Senate Select Committee on Securities and Exchange. Australian Securities Markets and Their Regulation. The Parliament of the Commonwealth of Australia, 1974.

4.      Simon, Royal. “How an Adelaide Mining Company Bubble Mirrors the Plot of a 1970s Disaster Movie.” ABC News, 14 Sept. 2019.

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