A sterling silver puzzle, pt. 1

John Mackay (Click for larger image in a new window)In today’s world it can be hard to find time to reflect on or puzzle over the world. My wife enjoys sudoku on Saturday mornings, for example. Even this time, however, can be pinched with cell phones, blackberries, children’s soccer games, and other responsibilities.

I recently found a little time when I was incommunicado (courtesy of FAA regulations), and used the time to reflect on a biography on John Mackay, one of the four Silver Kings of the Comstock Lode. The book, John Mackay: Silver King in the Gilded Age by Michael J. Makley, provides a wonderful insight into what life was like during the “Rush to Washoe,” and how initiative, intelligence, and persistence could convert a pauper immigrant into one of the world’s richest men.

John Mackay was born in Ireland in 1831, immigrated to America in 1840 with his parents, apprenticed in a New York shipbuilding firm where he learned structural wood working, and then risked all by moving to California in 1851. He soon found himself in Downieville, where he was introduced to placer and hard-rock mining.

Anticipating the next boom, he followed the Rush to Washoe and arrived in Virginia City, Nev. in December 1859, with barely a dollar in his pocket.

Mackay quickly parlayed his efficiency and work ethic into equity interests in mines. His first big break came when he formed a group of partners to take over the Kentuck mine in 1865. Among partners were two San Francisco bar owners, William O’Brien and James Flood.

Around this time, Mackay met James G. Fair, who already had a decade of experience managing mills and mines at the southern end of the California Gold Country. By 1868 the four Silver Kings combined their ventures into a great partnership—perhaps the greatest partnership the West Coast has seen. And more important, the strategy was to operate mines, not manipulate or milk them.

Wells Fargo in Virginia City (Click for larger image in a new window)The next eight years witnessed epic stock battles that rivaled those of the rail barons on the other side of the continent. The battles were waged above ground in the finance halls and exchanges of San Francisco and below ground in the development of the mines.

While Mackay’s group aimed to grow and pay dividends, a rival group head by William Sharon of the Bank of California’s Virginia City agency aimed to control and manipulate mines through stockholder assessments, inside information, and milling surcharges.

The first big battle was for control of the Hale & Norcross mine. The Sharon group drove Hale stock from 300 in January, 1868, to 10,000 by mid-February in an attempt to gain over 50% of the shares. But the expected rich strike did not appear in the spring or summer, and the shares drifted lower.

Then in early 1869 Mackay and his partners felt that the mine had potential but had not been properly explored. Quietly they began accumulating stock through paper certificates at low prices without the rival group knowing. By the time they accumulated majority ownership, the Mackay group reregistered the shares just in time for the annual election of directors and the announced finding of a five to six foot wide vein of rich ore in the mine. But the Big Bonanza was yet to come.

In late 1871 the Mackay group began purchasing shares in the Consolidated Virginia mine on the hunch that the rich veins of neighboring mines crossed into the Consolidated Virginia, but at lower depths than previously explored. After the group gained control of the mine in early 1872, they began to drift from a neighboring mine controlled by the Sharon faction to save time and expense of digging to this depth.

Production of the mine didn’t begin until October, 1873, but when it began production, it became enormous! While the vein at the 1400 foot level was significant at roughly 50 by 150 feet, the vein found lower at 1500 feet exceed 350 feet in width. Government geologists estimated that this single mine would produce more silver than all West Coast mills could process. This was truly the Big Bonanza.

Comstock mining (Click for larger image in a new window)While mining went well underground, most of the Comstock residents were not happy with how the Sharon interests controlled local freight rates and banking.

As a first step in moving from mining, the Mackay group chartered the Nevada Bank in San Francisco in May, 1875, with $5 million in capital making it the largest capitalized bank on the world. The rival’s desire for control of the Comstock only increased further with this action, but then imploded in early 1875 when it was discovered that the Bank of California had overextended credit based on mining investments.

After Flood and O’Brien declined an offer for control of their rivals’ bank, Bank of California temporarily closed its doors. Mackay’s team had broken San Francisco’s grip on financing of the Comstock.

A decade later, however, the Nevada Bank itself faced collapse. In my next post, I’ll tell you about Mackay’s connection to Wells Fargo and the Nevada Bank.

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Guided By History

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