196 (24.05.18)


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HISTORY

The Guggenheims: Cornering Copper from Chile to the Congo

100 years on, the Guggenheims’ mining empire, which controlled 75 per cent of the world's copper, silver and lead, holds valuable lessons today

The Guggenheims may be known for their museums and galleries in New York, Bilbao and Venice, but their fortune came from copper, where the family made huge bets on obscure, low-grade deposits that are now the world's largest mines.
    Having landed in America penniless, textile trader Meyer Guggenheim wanted each of his eleven children to be multimillionaires. Peddling everything from coffee to stove polish he bought two lead-silver prospects in Colorado and ordered one of his sons, Daniel Guggenheim, who was working as a textile buyer in Switzerland for the family import business, to return to the US.
    Short and imperious, Daniel was sent to Mexico to negotiate mining rights off the military government. By 1895 he was producing $1m a year, but the Rockefeller family had started consolidating America's smelters into one company, Asarco, and were cornering the mining industry.
    In 1900, Asarco was hit by strikes. Daniel responded by upping production in Mexico, flooding the market with silver and lead. Asarco's stock fell and he began buying-up shares that he refused to sell for less than $45m. Eventually the two groups merged. Daniel was made chairman and four of his brothers joined the board. “What one Guggenheim missed, another was sure to think of,” one Asarco trustee said. “As soon as you thought you were outsmarting one, another would be putting one over on you!”
    Their father died in 1905 and Daniel was soon buying-up monopoly rights as far off as the Congo, splitting profits with King Leopold of Belgium. “The exact terms of the concessions are wrapped in mystery,” according to one account at the time. The family also bought tin mines in Bolivia and gold in the Yukon, spending large sums on surveys and engineering wherever they went. With an annual salary of $200,000, their chief engineer was better paid than America's President.
    Daniel was a “a born general”, according

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to his biographer, who could “make or break a government with a telegram.”
    Eyeing copper in Chile, he bought into a New York-based company that owned the El Teniente mine, taking control in 1910 in exchange for turning its oxcart road into a railway. For no less than $25m he also bought Chile's Chuquicamata discovery. It was 85 miles from a power supply but 123 metres thick, according to the family's geological reports, containing 18 million tonnes of copper.
    In the US, via a $30m syndicate with banker J.P. Morgan, the Guggenheims built a railway in Alaska to take control of its copper deposits and bought a 25 per cent interest in Utah's Bingham Canyon mine, ratcheting it up to full control. Its low grades were thought to be uneconomic, but by bulk-mining on a new scale, it became the world's largest copper operation by 1912. The Guggenheims had put their foot on the world's biggest copper porphyries.
    In the stock market today, mines are seen as finite assets that deplete quickly, with profits that are illusory, or short-lived. But history shows the opposite.
    The Guggenheims' mines expanded with each technological breakthrough, from electricity to steam shovels, turning small, labour-intensive outfits into sprawling pits. By the end of the First World War, they were said to control 75 per cent of the world's copper, silver and lead and were one of the world's richest families, worth an estimated $250m to $300m.
    Now, their last remaining metal assets are copper ashtrays, plus a cheque for $70m dated 1923. But the mines they owned still get silently, ceaselessly bigger.
    At El Teniente, despite a century of continuous extraction, the resource figure has more than doubled since 1918 to 14m tonnes. At Chuquicamata, the mine pit is now a kilometre deep, falling by 25 metres each year; Chile's copper commission has just announced a $5.5bn expansion, adding another 40 years to its life. Bingham Canyon has meanwhile produced more copper than any other operation on earth, growing into the world's largest excavation.
    Since the Guggenheims' day, average grades at the world's largest copper mines have fallen from 2 per cent to 0.6 per cent. Declining grades, it is commonly thought, point to an imminent drop in production. But that drop has never materialised. For over a century, the industry has upped output by mining ever-larger volumes of ever-lower grade rock.
    That, at least, is what the Guggenheims' rich history suggests: large mines don't shrink but tend to grow over time.

 

CONTENTS

Fracking for Copper:
BHP & Barrick Chase “Ultimate Prize”

Industry's key players looking at ways to replace mines with grids of wells, pumping metal out of the ground, up-ending mining's economics

Tom Butler: How to Stop Mining in World Heritage Sites

The industry's pulled together to obstruct mining in sites valuable for wildlife, writes ICMM's CEO Tom Butler

Briefing: Elliott's $1bn Vehicle Bids High

Triple Flag, the $1bn streaming group backed by hedge fund Elliott, has been generously bidding for deals