Poseidon bubble
Encyclopedia
The Poseidon bubble was a stock market bubble
in which the price of Australia
n mining
shares
soared in late 1969, then crashed in early 1970. It was triggered by the Poseidon NL company's discovery of a promising site for nickel
mining in September 1969.
In the late 1960s, nickel
was in high demand due to the Vietnam War
, but there was a shortage of supply due to industrial action
against the major Canadian
supplier Inco. These factors pushed the price of nickel to record levels, peaking at around £7,000/ton on the London
market early in November 1969
. In September 1969, the mining company Poseidon NL made a major nickel discovery at Windarra in the Shire of Laverton, Western Australia. In early September their shares had been trading at $0.80, but as information about the discovery was released, the price rose until it was trading at $12.30 on October 1. After this, very little further information came to light, but the price continued to climb due to speculation
; at one point, a UK broker suggested a value of up to $382 a share.
The price of Poseidon shares quickly became too high for many investors, so some investors turned to other nickel stocks, stocks in other mines near Windarra, and eventually other mining stocks in general. As the price of mining shares grew, numerous new companies were listed by promoters looking to cash in. Some of these new listings did not even have any mining leases, let alone viable mines. Many investors lost money on these shady listings, and this attracted substantial negative press. Thus the image of mining stocks was tainted, and the prices began to fall. Mining stocks peaked in January 1970, then immediately crashed
. Poseidon shares peaked at an intraday high of $280 in February 1970, and fell rapidly thereafter.
By the time Poseidon actually started producing nickel, the price of nickel had fallen. Also, the nickel ore was of a lower grade than originally thought, so extraction costs were higher. Profits from the mine were not sufficient to keep Poseidon afloat, and in 1976 it delisted. Western Mining
then took over the mine, operating it until 1991.
In 1974, The Rae Committee handed down its report on the Poseidon bubble, in which it documented numerous cases of improper trade practices. It recommended a number of changes to the regulation
of stock markets, which ultimately led to Australia's national companies and securities legislation.
In the late 1980s Robert Champion de Crespigny took over the Poseidon Company and it became part of Normandy Mining, the largest gold miner in Australia. In 2001 Normandy Mining, including Poseidon, was taken over by the Newmont Mining Corporation, which also at that time acquired Canadian company Franco-Nevada
. The acquisitions made Newmont the world's largest producer of gold
at that time.
Stock market bubble
A stock market bubble is a type of economic bubble taking place in stock markets when market participants drive stock prices above their value in relation to some system of stock valuation....
in which the price of Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
n mining
Mining
Mining is the extraction of valuable minerals or other geological materials from the earth, from an ore body, vein or seam. The term also includes the removal of soil. Materials recovered by mining include base metals, precious metals, iron, uranium, coal, diamonds, limestone, oil shale, rock...
shares
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
soared in late 1969, then crashed in early 1970. It was triggered by the Poseidon NL company's discovery of a promising site for nickel
Nickel
Nickel is a chemical element with the chemical symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. Nickel belongs to the transition metals and is hard and ductile...
mining in September 1969.
In the late 1960s, nickel
Nickel
Nickel is a chemical element with the chemical symbol Ni and atomic number 28. It is a silvery-white lustrous metal with a slight golden tinge. Nickel belongs to the transition metals and is hard and ductile...
was in high demand due to the Vietnam War
Vietnam War
The Vietnam War was a Cold War-era military conflict that occurred in Vietnam, Laos, and Cambodia from 1 November 1955 to the fall of Saigon on 30 April 1975. This war followed the First Indochina War and was fought between North Vietnam, supported by its communist allies, and the government of...
, but there was a shortage of supply due to industrial action
Industrial action
Industrial action or job action refers collectively to any measure taken by trade unions or other organised labour meant to reduce productivity in a workplace. Quite often it is used and interpreted as a euphemism for strike, but the scope is much wider...
against the major Canadian
Canada
Canada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic Ocean in the east to the Pacific Ocean in the west, and northward into the Arctic Ocean...
supplier Inco. These factors pushed the price of nickel to record levels, peaking at around £7,000/ton on the London
London
London is the capital city of :England and the :United Kingdom, the largest metropolitan area in the United Kingdom, and the largest urban zone in the European Union by most measures. Located on the River Thames, London has been a major settlement for two millennia, its history going back to its...
market early in November 1969
. In September 1969, the mining company Poseidon NL made a major nickel discovery at Windarra in the Shire of Laverton, Western Australia. In early September their shares had been trading at $0.80, but as information about the discovery was released, the price rose until it was trading at $12.30 on October 1. After this, very little further information came to light, but the price continued to climb due to speculation
Speculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
; at one point, a UK broker suggested a value of up to $382 a share.
The price of Poseidon shares quickly became too high for many investors, so some investors turned to other nickel stocks, stocks in other mines near Windarra, and eventually other mining stocks in general. As the price of mining shares grew, numerous new companies were listed by promoters looking to cash in. Some of these new listings did not even have any mining leases, let alone viable mines. Many investors lost money on these shady listings, and this attracted substantial negative press. Thus the image of mining stocks was tainted, and the prices began to fall. Mining stocks peaked in January 1970, then immediately crashed
Stock market crash
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market, resulting in a significant loss of paper wealth. Crashes are driven by panic as much as by underlying economic factors...
. Poseidon shares peaked at an intraday high of $280 in February 1970, and fell rapidly thereafter.
By the time Poseidon actually started producing nickel, the price of nickel had fallen. Also, the nickel ore was of a lower grade than originally thought, so extraction costs were higher. Profits from the mine were not sufficient to keep Poseidon afloat, and in 1976 it delisted. Western Mining
WMC Resources
WMC Resources Limited was an Australian diversified mining and fertilizer company formerly listed on the Australian Stock Exchange. WMC was an acronym for Western Mining Corporation. It was delisted on 29 June 2005 following a successful takeover by BHP Billiton...
then took over the mine, operating it until 1991.
In 1974, The Rae Committee handed down its report on the Poseidon bubble, in which it documented numerous cases of improper trade practices. It recommended a number of changes to the regulation
Regulation
Regulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
of stock markets, which ultimately led to Australia's national companies and securities legislation.
In the late 1980s Robert Champion de Crespigny took over the Poseidon Company and it became part of Normandy Mining, the largest gold miner in Australia. In 2001 Normandy Mining, including Poseidon, was taken over by the Newmont Mining Corporation, which also at that time acquired Canadian company Franco-Nevada
Franco-Nevada
Franco-Nevada Corporation is a Canadian company that owns royalties in gold mining and other commodity and natural resource investments. It is traded on the Toronto Stock Exchange and NYSE Arca stock exchange....
. The acquisitions made Newmont the world's largest producer of gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
at that time.
Further reading
- Weekend NewsDaily News (Perth)The Daily News was an afternoon daily newspaper published in Perth, Western Australia from 1882 until 1990, though its origin is traceable from 1840.-Origins:...
Saturday January 10, 1970 - p. 10 -W.A. Shareholders in Poseidon and Poseidon slip $24.66 in London - Adamson, Graeme.(1989) Miners and millionaires : the first one hundred years of the people, markets and companies of the stock exchange in Perth, 1889-1989 Perth, W.A : Australian Stock Exchange(Perth) Limited. ISBN 1875262008