THE NEW ZEALAND EXPLORATION COMPANY AND AROHA GOLD MINES LTD: THE LAST INTRODUCTION OF OVERSEAS CAPITAL TO WAIORONGOMAI Philip Hart Te Aroha Mining District Working Papers No. 96 2016 Historical Research Unit Faculty of Arts & Social Sciences The University of Waikato Private Bag 3105 Hamilton, New Zealand ISSN: 2463-6266 © 2016 Philip Hart Contact: [email protected] 1 THE NEW ZEALAND EXPLORATION COMPANY AND AROHA GOLD MINES LTD: THE LAST INTRODUCTION OF OVERSEAS CAPITAL TO WAIORONGOMAI Abstract: The Paris and London Rothschilds became involved in mining investments in the late nineteenth century, in 1886 forming the Exploration Company, which subsequently formed subsidiary companies to develop promising fields. Two men were fundamental to the formation of the New Zealand Exploration Company and Aroha Gold Mines: James de Hirsch and Jules George Wilson, and full details of their lives, in particular in New Zealand, are provided. In 1895, as the mining boom started, de Hirsch, encouraged by Wilson, wanted to develop the Thames low levels but soon abandoned this idea and became interested in Waiorongomai. After an Australian expert, Edward John Dunn, produced an optimistic report, a syndicate was formed that negotiated with the vendors. Full details are provided of the founders, directors, and shareholders (almost all living outside New Zealand) in both companies and of the New Zealand mining properties they acquired. At Waiorongomai, existing mines were further tested and opened up between 1895 and 1898, but because the anticipated high value ore was not found and also because of the costs, a new low level drive through the entire field was commenced. The battery was also reconstructed and an experimental cyanide plant added. Because of discouraging results along with the deaths of both Wilson and de Hirsch, the companies abandoned the Waiorongomai field. As so often, government policies and taxes were blamed for this outcome, although wiser commentators noted that the companies were not set up to benefit New Zealand rather than their shareholders. The departure of the companies and their capital set the field back significantly. INTRODUCTION In 1895, newspapers reported that ‘the agent of the Rothschilds’ had acquired mining properties at Waiorongomai.1 The Te Aroha News for that year has not survived, but must have been ecstatic at news of their involvement. In reality, no Rothschild held any shares (at least, not in their own names) in either of the companies involved with Waiorongomai, but their close associates did. 1 Bay of Plenty Times, 9 August 1895, p. 4, reprinted in Thames Star, 14 August 1895, p. 4. 2 THE PARIS ROTHSCHILDS The original ‘House of Rothschild rose to prominence as a multinational family firm’, retaining ‘a tight-knit partnership’ throughout the nineteenth century, ‘although the different branches also operated in their own names and experienced varying fortunes. By the 1870s the French division of the firm was apparently the most active and the most important quantitatively’, and continued to be into the twentieth century. ‘When the Paris Rothschilds built an informal group of free-standing multinational companies in the 1880s and 1890s, they were basically striking out in a few direction’. Previously, this branch ‘generally avoided industrial ventures as risky and inappropriate’, its ‘primary and highly profitable focus’ being ‘government loans and public finance’. Being ‘suspicious of industrial commitments’, like many private bankers it had ‘a strong and long-standing interest in international commerce, particularly the trade in precious and non-ferrous metals’. Their strategy ‘was to focus on selected commodity markets which had few buyers and sellers, and where opportunities for profitable manipulation were believed greatest’.2 In the 1870s, the French House ‘began to face serious long-term challenges as a viable enterprise’ and were ‘reluctant investors’ in industry, most of its business consisting of ‘commercial credits backed by first mortgages’. Offers ‘to invest in mining properties around the world’ were declined. Although it had less involvement in precious metals, it had increased, and profitable, involvement in the lead trade.3 The mining industry ‘presented enticing opportunities: mine owners and founders were notoriously short of capital; and their mines and stocks of metal provided potentially good security for both loans and partnership arrangements’. The House’s commercial section ‘had the expertise necessary to finance such stocks and sell them effectively in sophisticated international markets, occasionally in conjunction with successful speculative manoeuvres’.4 In the 1880s, the Rothschilds ‘involved themselves in mining on an unprecedented scale’, the decision of the London and Paris houses to 2 John McKay, ‘The House of Rothschild (Paris) as a Multinational Industrial Enterprise: 1875-1914’, in Multinational Enterprise in Historical Perspective, ed. Alice Teichova, Maurice Levy-Lebonger, and Helga Nussbaum (Cambridge, 1986), p. 75. 3 McKay, ‘House of Rothschild’, pp. 76-77. 4 McKay, ‘House of Rothschild’, pp. 77-78. 3 develop ‘a mining empire’ being ‘the most important change in their mode of operation’ since starting financing railways in the 1830s. Like railways, ‘mines offered higher rates of return than state bonds’ and were ‘less liable to lose their value’.5 From 1880 onwards, the Paris Rothschilds were involved with several very profitable mineral and petroleum ventures in several parts of the world.6 Their involvement was a logical consequence of being bullion brokers and gold refiners.7 They ‘were extremely selective’, and despite their ‘long interest in metals, they nevertheless were extremely suspicious of all mines and mining promoters’. Their concentration on ‘rare big ventures’ that ‘grew out of and harmonized with the firm’s considerable experience in financing and selling selected high-value commodities on international markets’. They ‘skillfully manoeuvred to make themselves the exclusive selling agent of large industrial undertakings on a guaranteed commission basis. More generally, the goal was to realize profits from several sources, so as to increase the effective return on the underlying risk capital’. Investment was ‘confined to multinational enterprises which seemed potentially capable of exercising real market power, the presumed source of exceptional profits that justified purchase of risky capital shares’.8 The Paris Rothschilds ‘were not much interested in the contemporaneous American model of monopolization through the merger of competing firms into a single trust or holding company’. The branch ‘normally invested major sums only in firms in which it had a controlling interest and expected to retain a long-term commitment’. Not being prepared to be ‘mere passive investors’, it wanting financial control and close supervision ‘by Rothschild partners and trusted employees’; ‘zealously guarding their reputation’, they wanted control ‘to prevent any business disaster’ for which they would be held responsible.9 ‘Nominally independent free-standing firms were, in fact, loosely tied to the House of Rothschild’, with day-to-day operations delegated 5 Niall Ferguson, The World’s Banker: The history of the House of Rothschild (London, 1998), p. 876. 6 McKay, ‘House of Rothschild’, pp. 78-82. 7 Robert Vicat Turrell with Jean-Jacques van Helten, ‘The Rothschilds, the Exploration Company, and Mining Finance’, Business History, vol. 28 (1986), p. 199. 8 McKay, ‘House of Rothschild’, p. 82. 9 McKay, ‘House of Rothschild’, p. 83. 4 to local managers of the different firms, while a core “staff” of Rothschild employees monitored or performed certain specialized functions at the centre. For each firm these functions included marketing and commercial negotiations, financial policy, technological policy, and continuous evaluation of operating company managers. More generally, Rothschild partners and employees exercised a decisive voice in each firm’s major decisions and long-term strategic planning.10 For instance, when Rand Mines in South Africa was floated in 1893, 27,000 of its 400,000 shares ‘went to the Rothschilds, divided between the London and Paris firms’. Mining engineers involved ‘by way of Rothschilds’ also received shares.11 THE EXPLORATION COMPANY In 1896, an Auckland newspaper explained that the Exploration Company ‘might not inaccurately be described as a mining branch of the great Rothschild firm. Its shares have never been offered to the public, and it has not yet touched anything that has not proved a distinct success. It is, in fact, a thoroughly Rothschildian affair’.12 The pioneer exploration company, it was established as a guaranteed company in 1886 by N.M. Rothschild and Sons and other merchant bankers, having ‘20 exclusive members and a £20,000 exploring fund in lieu of capital’.13 At that time, ‘banks seldom directly provided finance for the purchase of mining shares and mining companies registered outside Britain found it extremely difficult to raise loans in the City’ of London.14 At first, the Exploration Company did not promote companies, from 1886 to 1889 working as ‘an exploring fund’, assessing mining possibilities and recommending investments to its members, who then formed syndicates. After being ‘reconstructed as a joint-stock venture with £300,000 in capital’ in October 1889, it ‘entered the share syndicate arena in its own right’ and commenced company promotion.15 Its floating of mining companies in London for ‘a fee 10