Royal Dutch Shell Group .com Rotating Header Image

Daily Telegraph: To the point: Beware – the spirit of the gold rush is still with us

EXTRACT: However high commodity prices soar, there comes a time when an investor in an exploration stock wants proof that the company really has proven reserves in the ground and that it can extract them profitably.


By Edmond Warner
(Filed: 17/08/2006)

Ambition is engrained in the DNA of the human race. So too, unfortunately, are greed and gullibility. For every individual striving to better himself, there are others attuned to the opportunities to profit from the in-built weaknesses that are odds on to prevent him reaching his goal. This is as true now as it was, say, in the days of the gold rush.

Recently I had the enormous pleasure of seeing Gold Rush, a riotous bittersweet comedy performed al fresco by the Rude Mechanicals Theatre Company. It is doing the rounds of Britain’s summer arts festivals. Catch it if you can. Hilarious though the telling of its story is, the historical reality at its heart is a chilling reminder of the extraordinary lengths mankind will go to in pursuit of wealth. Although there were a number of mass pursuits of gold in nineteenth century North America, the one that has spawned the greatest legends and the enduring arts – from those of Charlie Chaplin to Jack London – was that on Canada’s Klondike River between 1896 and 1898. And the legend within the legend centres on the terrifying Golden Stairs on the Chilkoot Pass, the most direct route from Alaska to the gold panning beds.

The Golden Stairs were 1,500 precarious steps chiselled into the ice on the final leg of the pass. The Canadian Mounties decreed that prospectors had to bring over a ton of food and equipment with them into Canada at the summit – enough to ensure that they could survive a winter without starving. This necessitated dozens of gruelling trips.

It could take as long as three months to transport all one’s provisions the entire length of the 27-mile trail and up to the top of the Golden Stairs. It has been estimated that many prospectors will have travelled a total of over 1,000 miles to cover this marathon-length journey. Many hundreds of their mules perished; many prospectors too. Of 100,000 would-be gold kings and queens, only 40,000 actually made it as far as the mushrooming Dawson City. There they found that the locals had already staked all the claims, living expenses were extortionate and conditions extremely poor. Most slunk back to the United States when their circumstances allowed. As they ebbed away, so Dawson deflated, taking with it the wealth of those who had sought to prosper on the back of the prospectors’ ambitions.

There were, of course, winners in this sorry gold mania. There really was gold on the Klondike and some profited enormously from its existence. Others built enduring fortunes from servicing the tide of greedy humanity. That these successful entrepreneurs were few in number is the lesson that the unhappy multitude should have taken back home with them and should be remembered to this day.

Commodities have been the hottest investment property of the past two years. Chinese industrial demand for copper and geopolitical threats to oil supplies have both made repeated forays on to the business pages. The prices of base metals have soared. So too have those of precious metals, not because they have great industrial usage but because they represent safe havens in an uncertain world. And the oil price just keeps squeezing higher.

Investing in the major owners of reserves – be they liquid or solid – has proven rewarding during this upward march by commodity prices. The likes of BP, Shell, BHP Billiton and Rio Tinto have performed handsomely, thank you very much. But this is not enough for many investors. They want to trade at the outer edges of the risk frontier, to conduct their own slog to the Klondike.

Stock markets the world over have been swamped by oil and mining exploration issues (none more so than London’s Alternative Investment Market). Already, there have been high-profile instances of investors’ expectations getting out of hand, such as White Nile, and companies who spectacularly failed to live up to their hype, such as Regal Petroleum.

It may be that it will have to take a collapse in commodity prices to reveal many more exploration dreams have no roots in reality. I’m not so sure, though. Sometimes it only requires the passage of time to unearth the gross over-optimism at the heart of a prospector’s prospectus.

However high commodity prices soar, there comes a time when an investor in an exploration stock wants proof that the company really has proven reserves in the ground and that it can extract them profitably.

For many exploration companies that have come to market over the past couple of years, their day of reckoning is fast approaching. As is that of the ‘picks and shovels’ merchants – the equivalent of those who made money servicing the gullible caught up in the gold rush. This time around it will be the bankers and brokers who brought the companies to market. They may legally be able to hide behind the risk warnings in prospectuses but this will not save them from reputational damage.

Spectacular gains can be made in the investment markets. However, these are rare, constituting only a tiny proportion of the many thousands of listed companies and funds around the world. This does not mean that investors should not strive to unearth the golden nugget at the bottom of the stream but that they should devote only the appropriate proportion of their resources to doing so. That is, a very small one.

For the record, it was the big mining companies who successfully mined the Klondike for a half-century after the rush died out.

Edmond Warner is chief executive of IFX Group and its sister non-profit websites,,,,,, and are owned by John Donovan. There is also a Wikipedia feature.

Comments are closed.

%d bloggers like this: