MONEY Crisis 'Down Under'
NICHOLAS DAVENPORT
Two weeks ago the Council of the Stock Exchange called upon their broker members to disclose their transactions in Australian shares and their up-to-date liquidity. (The norm is £5,000 per partner.) Such a stern request is not made in a light-hearted way. The Council was obviously worried about the consequences of the collapse of the Australian mining finance house, Mineral Securities, which, as I have said, was far more serious for the Stock Exchange than the collapse of Rolls-Royce. Three small firms of stockbrokers caught up in the Aus- tralian mining debacle have already been hammered. It would be bad for the Stock Exchange image if there were any more.
Here I must relieve the innocent reader (if one exists) of the illusion that the Stock Exchange is a casino. It is the market place where the savings of the people, gathered up by the life and pension funds and other savings institutions, are converted into in- vestment for the good and growth of the economy. No advanced capitalist society could exist without it. Throgmorton Street is doing its job very efficiently and the only thing which could jam the machinery would be either a drying-up of savings because of the rapid fall in the value of money or the drying-up of investment be- cause of grossly inflated wage costs. But this is not to suggest that the machinery of the Stock Exchange cannot be misused from time to time by speculators and crooks. Being a free market, speculators can easily run a share up or down by organised' buying or selling timed with the appro- priate rumours. But pure crookedness is rare and the Stock Exchange Council is usually quick to unmask it and call in the Fraud Squad. It is when 'honest to God' speculation reaches a dangerous size and form, as in the Australian mining gamble, that the Council is forced to intervene.
The mining boom 'down under' was ideal for the big-time speculator. Under Rule 163 (I) (e) the Council allows dealings in any share quoted on a recognised Stock Exchange anywhere in the world. This is to advertise the world nature of the London market. But the rules of the Australian stock exchanges are not as strict as ours. They might allow shares to be quoted of mushroom companies which had staked out a few mining claims—written up wildly by tame geologists—in areas adjacent to some well known mineral deposits. The great nickel discoveries at Kambalda of Western Mining, now an established pro- ducer, and the sensational finds at Windarra or Poseidon, now struggling to get itself financed, whetted the appetite of every gambler. And the 'pommies' were fair game for the Australian share pusher. If we accept the schoolboy's definition of an Australian mine as a hole in the ground owned by a liar the `pommies' were the suckers who provided the London market on which the company liars could unload their worthless paper. They unloaded about a billion shares. It was as easy as shelling peas. The mining claims were remote and impossible to verify. The differences in time—Sydney being nine hours ahead of London—enabled the pushers to manipu- late one market against another. A good example was Tasminex whose chairman, arriving near midnight in Melbourne, tele- phoned to London that they had made a nickel discovery 'bigger and better' than Poseidon's. This caused the shares to soar from E3 to £36. The unloading in Sydney which followed enabled the gamblers to take huge profits. An official inquiry is being made into that story of which more may be heard.
The pricking of the Australian South Sea bubble has caused a calamitous fall in the market value of all Australian shares, good or bad, from Broken Hill Proprietary downwards. It has wiped some £1,000 mil- lion off share values. The most sensational falls were seen in the speculative mining favourites: Poseidon from A$280.0 to A$39.00 Tasminex from $90.0 to $0.95 International Mining from $9.4 to $0.05 • Westralian Nickel from $15.7 to $1.25 Mineral Securities from $23.8 to nil An effort is now being made to effect an orderly disposal of the holdings of Mineral Securities. A consortium of sixteen powerful banking and finance houses, headed by the Bank of New South Wales, has agreed to make a loan of A$35 million for this pur- pose. It seems incredible that a mining house with the proved expertise of Mineral Securities should have borrowed some A$30 million short to invest long in com- panies like Queensland Mines, Kathleen Investment, Thiess Holdings and Robe River (which is developing an iron ore project). Huge depreciation on these holdings more than wiped out all their profits. The crash came when the underwriters of a pre- ference issue, designed to replenish their cash, withdrew at the last moment.
It is a sad story. Australia is now passing from an unsafe agricultural, pastoral econ- omy to a sure industrial mining economy. It has enormously rich deposits of copper, lead, zinc, iron ore, coal, nickel, uranium and bauxite (a third of the world's known reserves in the last). It had lately discovered oil and gas in the Bass Straits which BHP are exploiting and its huge copper mine at Bourgainville (West Guinea) will come into production in 1972. Minerals were only 12 per cent of its exports a few years ago: now they are close on 25 per cent with a value around A$1,000 million. By the end of this decade they will be trebled and the Australian dollar will be a strong currency.
Speculation is a necessity of business. Every businessman has to speculate on future demand and the yield of his assets over their life. In his General Theory Keynes had this to say about speculation in the stock markets: `Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirl- pool of speculation. When the capital de- velopment of a country becomes a by- product of the activities of a casino the job is likely to be ill-done.' This warning should be taken seriously by the Australian government if it wants to guide its economy surely from the agricultural to the indus- trial. And the first thing it should do is to set up a Securities and Exchange Commis- sion on the lines of the American to police the stock markets and wipe out the most flagrant forms of crookedness. If only these outrageous Aussie gamblers would, like Juliette, 'stick to horses.'
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