The focus of attention in Johannesburg’s early days rested on two buildings that stood opposite each other on the corners of Commissioner and Simmonds Streets, a short distance from the site that Rhodes chose for his club. One was the stock exchange, a single-storey brick and iron building that attracted huge crowds at times of share excitement. Business was often so brisk that when the exchange closed its doors for the day, trading in shares continued on the street outside. The street market became such an integral part of share dealing that the mining commissioner eventually gave permission for a short section of Simmonds Street to be cordoned off with chains to facilitate after-hours trading.

Visitors from England were struck by the informality of the place. A disconcerted London stockbroker, E. E. Kennedy, wrote:

To a man fresh from the London Exchange where an individual is chaffed for the whole day if he wears a loud necktie, a gaudy pair of trousers, or something special in waistcoats, where it would be simply seeking for destruction of the offending article to walk in with any hat on your head but the time-honoured chimney-pot, the costumes of the Johannesburg Stock Exchange are a rude shock. These people wear every kind of headgear except the chimney-pot - helmets, deer stalkers, cricket caps, and even tam-o’shanters. The weather is cold in the early mornings, so there are many ulsters, some of remarkable design and colour; there are men in riding breeches and top boots, who carry a handsome crop and look as unlike stockbrokers as anything you could imagine. We found among members men who had been storekeepers, canteen keepers, lawyers, policemen, farmers, ostrich-feather dealers, clerks, bookmakers, one or two defaulting brokers from London, and even dealers in old clothes - which is what a good many of them appear to have had as their calling.

On the other side of Simmonds Street stood an unprepossessing wood-and-iron office with six windows and two doors. The windows bore the legend ‘H. Eckstein’ but gave no indication of what kind of business was carried out there. What was unusual about the building was that its windows were washed free of dust every day.

Hermann Eckstein was the son of a Lutheran pastor, born near Stuttgart in Germany in 1847, who had made his way to Kimberley in 1882 and become a mine manager, running the Phoenix Diamond Mining Company in Dutoitspan. As a member of the ‘German mess’, he struck up a close friendship with Alfred Beit. When Beit sought a representative to manage his interests on the Witwatersrand - his share in the Robinson Syndicate - he chose Eckstein for the job. Behind Eckstein, therefore, stood Beit; and behind Beit stood the diamond magnate Jules Porges and his partner Julius Wernher. At first, Eckstein’s office in Johannesburg was called ‘Beit’s building’; but it later became known as Eckstein’s Corner and then as the Corner House; and what it represented was the most powerful group of financiers in southern Africa.

To assist Eckstein, Beit recruited Jim Taylor, his agent at the time of the Barberton boom who had given him such valuable advice before the crash there. Born in Cape Town in 1860, Taylor had moved with his family to Kimberley in 1871 and had been employed in Beit’s office sorting diamonds before trying his luck on the goldfields of the eastern Transvaal. Trusting their judgement, Beit gave Eckstein and Taylor a free rein to buy promising properties. Most of their ventures proved highly rewarding. Using the expertise of American mining engineers, they were able to make astute purchases. Within two years, Beit, Porges and Wernher had obtained hundreds of valuable claims. In 1888 they bought Robinson’s share of the Robinson Syndicate for £250,000. Needing further funds, they gained the support of key European financiers - the Rothschilds of Germany, Austria and France and Rodolphe Kann of Paris.

Rhodes took a different approach. Also in need of funds, he decided to float a new company in London to raise capital from British investors, using his reputation in the diamond industry as bait. Charles Rudd was despatched to London in November 1886 to organise its launch. The name given to the company - The Gold Fields of South Africa - sounded impressive. Its prospectus stated that Rhodes and Rudd had spent £25,000 on purchasing ‘auriferous properties’. They had turned down many offers for them, it said, ‘but opportunities for favourable investment of capital appears so greatly to exceed private means that the public are now invited to join in the enterprise’.

Though British investors had suffered badly from the Barberton collapse, there was still considerable appetite in the City for gold shares. The terms Rhodes offered seemed favourable. Whereas the promoters of other Transvaal mining companies typically asked for a ‘vendors’ interest’ of up to 75 per cent of the money subscribed in cash and shares as their reward, Rhodes and Rudd allocated to themselves, as managing directors, only 200 Founders’ shares of £100 each - less than 10 per cent - in exchange for passing to the company at cost the properties they had bought; which meant that they made no profit unless the company prospered. What was not made clear at the outset, however, was that, from their shares, Rhodes and Rudd were entitled to take three-fifteenths of any profits the company made and a further two-fifteenths in lieu of remuneration, amounting in all to one third of the profits.

The launch of Gold Fields was a great success. Within the first week after registration in February 1887, 70,000 £1 shares were sold; by the end of October, all 250,000 shares were taken. But the information available to shareholders was scarce. They were given no inventory of properties the company intended to acquire. Addressing the company’s first meeting in London in March 1887, Rudd explained that it would be unwise to publish such details; to do so would give competitors in the Transvaal an advantage. He described Gold Fields as a ‘personal’ company, drawing on the experience and standing of its joint managing directors.

But it was, in fact, little more than a speculative venture based on guesswork. Through ill-luck and poor judgement, most of the properties Rhodes and Rudd had already acquired contained relatively low-grade ore. Neither their luck nor their judgement improved. Flush with shareholder funds, Rhodes went out and bought for £60,000 a farm called Luipaardsvlei containing the Botha Reef. ‘The immense purchase was made on very shallow tests,’ an independent observer remarked in 1887, ‘and it remains to be seen whether this clever speculator has ventured too much on surface indications.’ As it turned out, Luipaardsvlei was yet another low-grade property. When choosing a site for the headquarters of Gold Fields, Rudd decided to locate it not in the nerve centre of the mining industry around Commissioner Street and Simmonds Street, but in a new township at Doornfontein to the north-east of Randjeslaagte, a fifteen-minute drive by Cape cart from the stock exchange. Rudd and his staff were thus remote from all the hubbub, gossip and intelligence-gathering that went on there.

Indeed, so little aptitude for gold-mining did Rhodes and Rudd display that they began to divert Gold Fields funds into diamonds. By December 1887 Rhodes had spent £57,000 of unused capital and profit from gold share-dealings on De Beers and Kimberley Central shares. When the accounts for the year ended 30 June 1888 were presented, Gold Fields shareholders were astonished to find that the company had a larger holding in diamonds - £142,000 - than in gold.

The fortunes of the Corner House, by contrast, flourished. With the arrival of stamp batteries in 1887, gold mining began in earnest. By 1888, a boom was under way. Some of the Corner House properties produced gold at the rate of 10 ounces to the ton; one mine in November 1888 delivered a freak 4,000 ounces from 700 tons of ore. In a despatch to Jules Porges early in 1889, Eckstein reported profits of £860,000 for the five-month period from August to December 1888. ‘It could easily have been fixed at over £1,000,000 but I preferred following my usual rule by valuing everything at what I may term safe values.’

As if to crown the boom, Barney Barnato arrived belatedly from Kimberley, declared the Rand to be the future ‘financial Gibraltar of South Africa’, and went on a massive spending spree, investing nearly £2 million in property and mining shares. Within the space of three months he established a string of companies - Barnato Consolidated Mines; the Barnato Bank; Mining and Investment Corporation; and the Johannesburg Consolidated Investment Company - and started work on Barnato Buildings on Commissioner Street.

In an orgy of speculation, some 450 gold-mining companies were floated in 1888. ‘Half the male population of Johannesburg is to be seen in animated conversation between the chains outside Eckstein’s office,’ wrote one chronicler of the day. ‘If there is anyone in Johannesburg who does not own some scrip in a gold mine he is considered not quite right in the head. Half of the population of Kimberley is here. Barberton seems to have moved to Simmonds Street and some of the biggest men in Cape Town are buying.’

At the height of the boom in April 1889, J. B. Robinson took the opportunity to launch the Randfontein Estates Gold Mining Company. With a nominal capital of £2 million in £1 shares, it was the most ambitious project that Johannesburg had yet seen. In exchange for handing over to the company seven farms amounting to 29,000 acres, Robinson obtained a ‘vendors’ interest’ of 1,809,000 shares. The price of the remaining shares soon reached £4 each. Rhodes and Rudd too caught the high tide of the boom, selling off parts of their low-grade holdings on Luipaardsvlei at a substantial profit.

Even the banks joined in the spree. Between January and April 1889, bank advances rose from £300,000 to more than £1 million. An investigation by the Standard Bank found that in the first quarter of 1889 the market value of the shares of some 400 companies stood at £100 million.

Then disaster struck. The first intimation of trouble was picked up by the Corner House. Miners working on one of its shafts on the main reef struck pyritic ore. In March, Jim Taylor cabled to Jules Porges & Co: ‘Following is strictly private. Percy Company, Main Reef. Below level 120 feet reef changed from banket to quartz, blue, hard, no free gold but 10 dwts. in pyrites. Sunk 50 feet and there is no change.’

After inspecting the shaft, Taylor elaborated in a letter three days later:

At 100 feet down the ore becomes lighter in colour and gradually changes at 115 feet to blue conglomerate; from 115 to 165 feet the reef continues getting harder and harder and shows in small veins the action of corrosion still going on where the water has percolated through cracks and on the contact side of the lodes with its walls.

The reef is still there, of the same dimensions and appearance except that, instead of being a reddish colour through the rotting of sulphides, it is blue, with pyrites heavily charged all through the stone . . .

I think the change is very unfortunate as it comes so much sooner than we expected.

The problem of pyritic ore was familiar to mining engineers with experience of the gold fields of the United States. Gardner Williams had warned both Beit and Rhodes that the Witwatersrand reefs would probably become pyritic below a depth of 100 feet and had accurately forecast what would then happen. It meant that gold could no longer be extracted simply by running milled ore over copper plates coated with mercury; it would have to be extracted from sulphides - the ore would have to be treated in chlorination plants. The cost of establishing chlorination plants, together with the extra expense of crushing harder rock, would affect all mining, making high-grade mines far less profitable and low-grade mines unviable. The implication was that every Rand share was overvalued, and many were worthless.

Before news leaked to the public, the Corner House took action to weather the storm and ordered chlorination equipment. Rhodes was in London at the time arranging the final stages of the amalgamation of the diamond mines with Lord Rothschild. At dinner at Rothschild’s house one evening, Rhodes was placed next to an eminent American mining engineer and turned the conversation to the problem of sulphides. ‘What do you do in America when you strike sulphide ores?’ he asked. ‘Mr Rhodes,’ replied the American, ‘then we say, “O God!”’ Instead of trying to weather the storm, Rhodes decided to sell virtually all Gold Fields’ properties; in effect, it ceased to be a gold-mining company altogether.

As, one by one, the Witwatersrand mines encountered pyritic ore, panic set in. Investors rushed to sell their shares and property; the share market collapsed; scores of companies closed; thousands were left bankrupt. Out of a white population of 25,000, some 8,000 packed up and left. By March 1890 the total market value of gold shares had dropped by more than 60 per cent. The ripple of disaster spread throughout southern Africa. Three banks in the Cape Colony failed, ruining some of the leading citizens of Cape Town.

Some observers freely predicted the end of gold mining on the Witwatersrand, but insiders in the Corner House thought differently. When Hermann Eckstein cabled Beit in London to ask whether it was advisable to proceed with plans to build an imposing new two-storey headquarters on the corner-house site, he replied, ‘Yes, by all means’.

Amid the turmoil, the firm of H. Eckstein was quietly reorganised. At the end of 1889, without fanfare, Jules Porges retired and two new firms were launched: Wernher, Beit & Company based in London; and H. Eckstein & Company, its Johannesburg partner. Under the new dispensation, four-fifths of the profits made by the Johannesburg firm went to Beit, Wernher and two other London partners.

Even during the slump, Wernher, Beit & Co. made headway on the Witwatersrand, buying up properties along the main reef on the cheap. It was also the first firm to introduce a new cyanide process for treating gold ore, which had been developed in Glasgow. Initial tests between June and August 1890 proved highly successful. A small plant at Salisbury mine treated some 70,000 tons of ore and, to the astonishment of mining experts, achieved an extraction rate of up to 90 per cent, higher than the rate that had previously been won from mercury extraction. Using the same process to treat 10,000 tons of tailings on another mine, Wernher, Beit & Co. produced 6,000 ounces of gold missed by previous treatment. These results produced a rush to install cyanide plants, spurring a recovery on the Rand. The value of gold production soared from £1.7 million in 1890 to £4.2 million in 1892.

Wernher, Beit also led the way to a new phase of deep-level mining that transformed the Witwatersrand’s long-term prospects. Mining companies had originally regarded land to the south of the main reef as worthless. They assumed that the main reef descended downwards at an angle and simply followed it. But Joseph Curtis, an American engineer working for Wernher, Beit, developed the theory that the main reef dipped out of the vertical confines of existing claims and headed south and was thus accessible via deep-level shafts.

Another Wernher, Beit employee, Lionel Phillips, a former Kimberley mine manager, became an ardent advocate of the deep-level theory. When Curtis experimented in December 1889 by drilling a borehole at a spot 1,000 feet south of the outcrop, he struck rich ores at 571 feet and the main reef at 635 feet. In great secrecy, Phillips and Curtis began to buy up farms south of the main reef, persuading Beit and Wernher to back them.

The scale of their achievement only became clear in later years. Some of the most famous mines in Johannesburg’s history - Jumpers Deep, Nourse Deep, Glen Deep, Rose Deep, Village Deep, Crown Deep, Ferreira Deep, Geldenhuis Deep - were developed on properties they bought at the time of the slump.

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