United Copper
Encyclopedia
The United Copper Company was a short-lived United States copper mining business in the early 20th century that played a pivotal role in the Panic of 1907
.
United Copper was incorporated in 1902 by F. Augustus Heinze
, a copper magnate who had tussled for years with Amalgamated Copper for lucrative copper mine
s in Butte, Montana
. The firm was incorporated in New Jersey
with an authorized capital of US$80,000,000. United Copper combined Heinze interests in The Montana Ore Purchasing Company, The Nipper Consolidated Copper Company, The Minnie Healy Mining Company, The Corra Rock-Island Mining Company, and the The Belmont Mining Company.
Upon consolidation, United Copper was capable of producing about 42 million pounds (19 thousand metric tons) of copper a year, as compared to 143 million pounds (65 thousand metric tons) per year for Amalgamated Copper.
United Copper was literally traded "on the curb
" outside the New York Stock Exchange
(NYSE). "On the curb" trading was later formalized as the American Stock Exchange
(AMEX).
In 1907, after its legal battles with Amalgamated had finally been settled, United Copper again found itself the center of a scandal: in October, F. Augustus Heinze's brother, Otto Heinze
, devised a scheme to corner the market
in United Copper stock. The Heinzes owned a large share of the company and Otto believed that many of these shares had been loaned out to investors hoping to short sell the stock.
Short sellers borrow, or make arrangements to borrow, the stock of a company, which they then sell at current prices. If prices later drop, they repurchase shares of the company, now at a cheaper price, to replace the borrowed stock. The difference is the profit
of the short seller. Heinze's plan was to move aggressively to purchase the stock of United Copper. The price would soar high. Then, with prices high, and Heinze controlling most of the stock, he would force the short-sellers to repay the borrowed stock. The short-sellers would have no option but to settle with Heinze for high prices.
But Otto Heinze overestimated how much of the company the family controlled (cf: family business
). When he forced the borrowers to buy back stock they were able to get it from other sources. When the market realized his corner had failed, the stock price of United Copper collapsed. So shocking was the collapse, that depositors rushed to pull the money out
of the banks of F. Augustus Heinze. From there panic spread, as people pulled money out of banks associated with Heinze, and then from trust companies associated with those banks (see Panic of 1907
).
In 1908, F. Augustus Heinze was indicted for his role in the corner. The share price of United Copper, meanwhile, never recovered. In 1913 the company was placed into receivership
, so its assets could be unwound.
Panic of 1907
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...
.
United Copper was incorporated in 1902 by F. Augustus Heinze
F. Augustus Heinze
Fritz Augustus Heinze was one of the three "Copper Kings" of Butte, Montana, along with William Andrews Clark and Marcus Daly...
, a copper magnate who had tussled for years with Amalgamated Copper for lucrative copper mine
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...
s in Butte, Montana
Butte, Montana
Butte is a city in Montana and the county seat of Silver Bow County, United States. In 1977, the city and county governments consolidated to form the sole entity of Butte-Silver Bow. As of the 2010 census, Butte's population was 34,200...
. The firm was incorporated in New Jersey
New Jersey
New Jersey is a state in the Northeastern and Middle Atlantic regions of the United States. , its population was 8,791,894. It is bordered on the north and east by the state of New York, on the southeast and south by the Atlantic Ocean, on the west by Pennsylvania and on the southwest by Delaware...
with an authorized capital of US$80,000,000. United Copper combined Heinze interests in The Montana Ore Purchasing Company, The Nipper Consolidated Copper Company, The Minnie Healy Mining Company, The Corra Rock-Island Mining Company, and the The Belmont Mining Company.
Upon consolidation, United Copper was capable of producing about 42 million pounds (19 thousand metric tons) of copper a year, as compared to 143 million pounds (65 thousand metric tons) per year for Amalgamated Copper.
United Copper was literally traded "on the curb
On the curb
On the curb is a financial term that describes the act of trading securities outside the mainstream stock exchange, either because the company operating the exchange has very strict listing requirements or because investors are so interested to continue trading even after the official business...
" outside the New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
(NYSE). "On the curb" trading was later formalized as the American Stock Exchange
American Stock Exchange
NYSE Amex Equities, formerly known as the American Stock Exchange is an American stock exchange situated in New York. AMEX was a mutual organization, owned by its members. Until 1953, it was known as the New York Curb Exchange. On January 17, 2008, NYSE Euronext announced it would acquire the...
(AMEX).
In 1907, after its legal battles with Amalgamated had finally been settled, United Copper again found itself the center of a scandal: in October, F. Augustus Heinze's brother, Otto Heinze
Otto Heinze
Otto Heinze VR I/2, VR II/3 was an Estonian military commander during the Estonian War of Independence....
, devised a scheme to corner the market
Cornering the market
In finance, to corner the market is to get sufficient control of a particular stock, commodity, or other asset to allow the price to be manipulated. Another definition: "To have the greatest market share in a particular industry without having a monopoly...
in United Copper stock. The Heinzes owned a large share of the company and Otto believed that many of these shares had been loaned out to investors hoping to short sell the stock.
Short sellers borrow, or make arrangements to borrow, the stock of a company, which they then sell at current prices. If prices later drop, they repurchase shares of the company, now at a cheaper price, to replace the borrowed stock. The difference is the profit
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
of the short seller. Heinze's plan was to move aggressively to purchase the stock of United Copper. The price would soar high. Then, with prices high, and Heinze controlling most of the stock, he would force the short-sellers to repay the borrowed stock. The short-sellers would have no option but to settle with Heinze for high prices.
But Otto Heinze overestimated how much of the company the family controlled (cf: family business
Family business
A family business is a business in which one or more members of one or more families have a significant ownership interest and significant commitments toward the business’ overall well-being....
). When he forced the borrowers to buy back stock they were able to get it from other sources. When the market realized his corner had failed, the stock price of United Copper collapsed. So shocking was the collapse, that depositors rushed to pull the money out
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
of the banks of F. Augustus Heinze. From there panic spread, as people pulled money out of banks associated with Heinze, and then from trust companies associated with those banks (see Panic of 1907
Panic of 1907
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...
).
In 1908, F. Augustus Heinze was indicted for his role in the corner. The share price of United Copper, meanwhile, never recovered. In 1913 the company was placed into receivership
Receivership
In law, receivership is the situation in which an institution or enterprise is being held by a receiver, a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights." The receivership remedy is an equitable remedy that emerged in...
, so its assets could be unwound.