Requiem for a crazy era

Press, 14 September 1976, Page 25

Requiem for a crazy era

Commercial

By DESMOND QUIGLEY, of "The Times”, through NZPA

The collapse in the Poseidon _share price from 155 p to 65p as soon as the shares were relisted on Thursday bore grim testimony to the odour which now attaches to this stock.

The short, sad life of Poseidon, which embodied a; period of stunning greed, gambling mania, gullibility, and an inability to look facts in the face, epitomises the extreme volatility of many mining shares. The phenomenon of Poseidon. whose shares rose 50,000 per cent in less than six months in 1969-70, laid the foundations for the most spectacular stock exchange boom Australia had ever witnessed. Other mining stocks, many previously unheard of, lifted off into the stratosphere. Nor were mundane industrial stocks immune.

The foundation for the Poseidon fever lay in a nickel strike at Mount Wind-1 arra, and a strike by workers at the plants of the two major Canadian nickel producers — Inco, then as now the world's largest nickel producer, and Falconbridge — in 1969. With nickel in short supply, and producers

rationing customers, the price on the free market, which in normal times accounts for no more than 10 per cent of suppliers, rose to seven times the producer price. Optimists saw an almost indefinite nickel shortage which would result in producer prices being raised dramatically. This feeling seemed to be confirmed by Inco, which raised its price by 24 per cent from $1.03 a pound to $1.28 a pound in November, 1969, when its f o u r-month-long strike ended.

But by then the Poseidon bandwagon was already rolling. It started on Septmber 23 with claims that the company had struck a rich and large ore body at Mount Windarra in the inhospitable Western Australian outback. Proper data was scanty and various and conflicting esti-j mates of tonnage and grade! were put about. The only) thing the estimates seemed to have in common was that’ each was bigger and better than its predecessor. As dealing in the shares mounted it was suggested that the deposit was upwards of 50 million tonnes, averaging more than 3 per cent nickel. Between September, 1969, and the following February the shares went from 50c to $250.

Coincidentally, a surprisingly large number of mineral deposits were found and with few people bothering to demand technical data the Australian speculative exploration boom was under way.

A mining boom had been running since 1966. An ex-

ample was Tasminex. On the basis of loose and unspecific talk a report reached London one lunch hour. The shares rose from a few shillings to £4O before crashing back tol £2o—and all in the same afternoon.

Apart from greed, the fuel for Poseidon was a series of misassumptions as well as iunforseen evenu. What was supposed to be a major and rich nickel strike turned out to be something rather more mundane. Last year reserves were calculated at 8.1 million tonnes, rather than 50 million tonnes plus, and the grade, far from being a rich 3 per cent, was a more mediocre 1.88 per cent. Hopes that the major disparity between the 1969 producer price and the free market would lead to major price hikes and secure the future for Poseidon never materia-' Used. By 1971 the free price lhad dropped into line with 'the producer price. Since the J 24 per cent increase in 1969 (the Inco price has risen only: 72 per cent from $1.28 a ; pound to $2.20 a pound. , i Little or no cognizance [seems to have been taken of. Ithe high infrastructure and 'development costs, which resulted with Poseidon being burdened by heavy debts. Nor did the investor unfamilliar with the mining world appreciate the long lead times needed to bring a mine to production, which in the case of Windarra took until 1974—after several postponements. What could not have been foreseen in those heady days was the Opec oil price rise, nor the biggest world slump since the war. Nickel is often seen as the barometer

of industrial activity because of the manifold uses to which it is put. and thus the demand pattern normally runs with the economic cycle.

(In fact in 1974 it was slow in reflecting the down turn, but the producers felt the full blast of the reces- : sion last year. Even now most have large stockpiles and it is widely believed that Poseidon has been undercutting the producer price in order to sell its share of the Windarra output). The start up of Windarra in 1974 was not therefore an auspicious time and the oil price rise had boosted costs sharply. Both these factors are among the risks inherent in the mining industry with a long lead time. In 1974-75. Poseidon turned in a S2.BM 'loss, and results next w»ek are likelv to show higher 'osses for the vear mst ended. The name of Poseidon has i become so sullied that even when Queensland Mines is Iqiven the co-ahead for its x'arbalek uranium deposits, Tor which Poseidon is the project manager. Poseidon’s shares are not likely to react very well. Too much ha.; been oromised in the cast, and too manv fingers [have been burnt. Nor will the shares react well if evidence of insider dealing is uncovered by an official inquiry which is particularly interested in between ' 60.000 and 80.000 shares which were disposed of through London shortly before the listing was suspended. That Poseidon has been trying — and unsuccessfully at that — to sell off its 50 per cent interest in Windarra, which was the project that started off the boom, is a sad, but perhaps fitting, epitaph for a crazy era.