The Poseidon Bubble: How a Nickel Shell Went from 80 Cents to $280

On the afternoon of Monday 29 September 1969, a short statement reached the Adelaide Stock Exchange from a company most brokers in the room had stopped following. Poseidon NL reported that drilling on a lease near Mount Windarra, in scrub roughly 350 kilometres north of Kalgoorlie in Western Australia, had cut nickel sulphides. There were no assay figures in it and no estimate of tonnage.

Poseidon had closed the previous Friday at $1.85. It closed that Monday at $5.60. Two days later the directors issued a fuller statement describing what they took to be a major find, and the shares travelled from $6.60 to $12.30 inside a single session. By the last week of October the price was $38, and buyers had stopped asking what the drill core actually assayed.

Five months after the first announcement, Poseidon touched $280.

A Dormant Company and a Man With a Dolly Pot

Poseidon NL was a leftover. Registered decades earlier, it had been sitting on the Adelaide board as a near-empty shell when the Adelaide stockbroker Norman Shierlaw vended a parcel of mining claims into it in 1968 and became its largest shareholder. The company's working capital was small enough that its exploration programme depended on a handful of men in a truck.

One of them was a prospector named Ken Shirley, who was pegging ground around Laverton, in the north-eastern goldfields of Western Australia. Nickel sulphides in that country announce themselves through gossan — a rusty, iron-stained cap of weathered rock — and the region had already produced one genuine mine at Kambalda, where Western Mining Corporation had struck sulphide ore in 1966. Windarra was found by walking over it. Shirley's samples justified a drill programme, and the drill programme produced the September announcement.

What the market received was a claim of discovery with almost none of the information that would let anyone price it. Nickel occurs in ore bodies whose value turns on grade, tonnage, depth, metallurgy, and the cost of getting concentrate to a smelter. Poseidon published none of that. Investors were left to fill the gap with a commodity price that was, at that moment, behaving unusually.

The Metal Behind the Story

Nickel demand in 1969 was tight for reasons that had nothing to do with Australia. Stainless steel consumption was rising across the industrialised economies, and American procurement for the war in Vietnam pulled additional tonnage out of a market with very little spare capacity. Supply was concentrated: the International Nickel Company of Canada, Inco, controlled a dominant share of the Western world's output from its Sudbury operations in Ontario.

In July 1969 Inco's Sudbury workforce went on strike. The stoppage ran for months and removed a large fraction of global supply at the moment demand was strongest. Producer contract prices could not clear the market, so buyers went to the free market in London, where nickel reached roughly £7,000 a ton in early November 1969 — a multiple of the producer price that industrial consumers with contracts were paying.

A retail investor in Sydney reading that a small Australian company had found nickel sulphides did not need to understand ore grades to draw a conclusion. The metal was scarce, the price was climbing, and Poseidon was said to have a great deal of it.

Sydney Trades More Shares Than Wall Street

Australian mining speculation ran through a market structure that had no national supervisor. Six state stock exchanges operated independently, each writing its own listing rules and policing its own members. Company registration and prospectus review sat with state Corporate Affairs offices. No Commonwealth body had authority over the securities industry as a whole.

Into that structure came a flood of paper. Sydney listed 86 mining stocks at the start of 1969 and 145 by the end of it, with about another hundred companies queuing to float. Across the boom years, 242 new floats raised some $443 million in cash — money handed to exploration companies whose assets were frequently a set of leases and an intention. Turnover in October 1969 was heavy enough that the Sydney exchange traded more shares by volume in that month than Wall Street did. Between October and December the mining index rose 44 per cent.

Simon's study of Australian asset-price episodes treats the nickel boom as the clearest domestic case of a price move that could not be reconciled with any defensible cash-flow estimate, and notes how thinly the underlying discoveries were documented at the time (Simon, 2003). Sykes, who covered the boom as a financial journalist and later wrote its standard narrative history, described a market in which the distinction between an exploration company and a promotion had effectively dissolved (Sykes, 1978).

Valuing an Unmeasured Hole

By January 1970 the price had run far enough that brokers began publishing valuations to justify it, and the valuations were written backwards from the price rather than forwards from the geology.

One London house circulated a figure of up to $382 a share. Panmure Gordon & Co went further, telling clients that Poseidon was "conservatively worth $500 and more optimistically $582". These numbers rested on assumed tonnages, assumed grades, and an assumption that the nickel price of late 1969 would persist. None of the three had been established. The Windarra ore body had not been delineated, no mine plan existed, and no metallurgical work had demonstrated that the ore could be concentrated economically.

Poseidon's market capitalisation reached about $700 million at the peak, roughly a third of the value of BHP — a company that at the time owned the country's steel industry, an oil and gas business, and operating mines producing revenue every day. Poseidon produced nothing.

The Grocer From Tasmania

The episode that best captures the state of the market involved a different company.

Tasminex NL held a prospect at Mount Venn, about 125 kilometres north-east of Laverton. On 27 January 1970 several directors of Tasminex and an associated company visited the site, and one of them panned material from a drill hole and became convinced he was looking at nickel. The geologist present told him he was not. Tasminex shares that day ran to $18.50 before closing at $16.80.

That evening a Melbourne finance reporter telephoned the company's chairman, Bill Singline, a Tasmanian grocer by trade, and asked what had been found. Singline said Tasminex had struck nickel and that it "could be bigger and better than Poseidon". The remark was published, reached London while Australia slept, and Tasminex traded at $96 on the London market overnight. It opened in Australia the next day and settled at about $40.

Drilling at Mount Venn eventually returned sub-economic results. There was no discovery. A share had gone from roughly $3 to $96 and back on the strength of a conversation between a reporter and a chairman who had been shown a pan of dirt by a colleague and contradicted by his own geologist.

The Break

Mining stocks peaked in January 1970 and Poseidon itself in February, at an intraday $280. The unwinding took the rest of the year and then some.

Nickel gave way first. Once the Sudbury strike ended and supply returned, the London free-market price fell steeply through 1970 and was back near its pre-boom level by December. The scarcity that had made an undefined ore body look valuable simply stopped existing.

Windarra's geology then delivered its own verdict. Continued drilling showed nickel concentrations lower than the early figures circulating in the market had implied, and lower grade meant more tonnes handled and milled for each tonne of contained metal. Costs came in above what the broker valuations had assumed at exactly the moment the metal price came in below.

Poseidon shares fell below $200 by the middle of March 1970, below $150 in early April, and below $100 before that month ended. The broader market followed: the all-mining index that had peaked in January 1970 lost about two-thirds of its value before the end of November 1971.

Windarra did become a mine. Production began in 1974, by which time the economics no longer supported the company that had found it, and Poseidon went into receivership that same year. It was delisted in 1976. Western Mining Corporation took the operation over and ran it into the early 1990s. The pattern — a real deposit, a real mine, and shareholders destroyed anyway by the price they paid for it — is the same one that ended Britain's railway mania of the 1840s, where most of the track that was subscribed for was eventually built and most of the subscribers still lost their money.

The Senate Takes an Interest

In March 1970, with the market still falling, the Australian Senate appointed a select committee to examine the securities industry and the operations of the six state exchanges. Senator Peter Rae, a Tasmanian Liberal, took the chair. The committee sat for four years.

Its report, tabled in 1974, was unanimous, and it was not a study of investor psychology. The committee had gone looking for conduct and found it, recording "numerous instances of improper practices in the making of new issues, and in the distribution of previously issued shares", and evidence of "insider trading, manipulation and other abuse in the stock-markets". Company officers and their associates had bought ahead of announcements. Promoters had placed stock with favoured clients. Exchanges that were supposed to be policing their own members had, in the committee's reading, not done so.

The Melbourne Age called the report "probably the most explosive document produced by either House of Parliament since Federation".

Rae's committee also drew the structural conclusion that the states had spent a decade avoiding. What Australia needed, the report said, was "for the whole of Australia, a Commonwealth regulatory body which will have a broad responsibility to oversee the securities industry". Its warning was blunt: "We have no doubt that, in the absence of an effective regulatory organisation, exploitation of the investor will continue," and government "would be irresponsible if it were not to upgrade substantially regulatory procedures so as to guard against repetition of fraud, abuse and incompetence on the scale of recent years" (Rae, 1974).

Implementation was slow. The National Companies and Securities Commission was legislated in 1979 as a co-operative scheme in which the Commonwealth and the states shared authority, an arrangement that satisfied nobody and left enforcement thin. Not until 1 January 1991, when the Australian Securities Commission began work under the 1989 Act, did Australia get a single regulator with national reach — the body that became ASIC. Twenty-one years separated the announcement at Mount Windarra from the institution built in response to it.

What the Price Was Measuring

Poseidon is often filed alongside episodes in which nothing existed at all. That is not this case. There was nickel at Windarra, the deposit was mined, and the geologist who first sampled it had been right about what the gossan indicated. The failure was in the interval between a discovery and a valuation — a gap that speculation filled with a commodity price borrowed from a Canadian labour dispute and tonnage figures nobody had measured.

That gap is what makes the episode useful to compare with the Hunt brothers' corner in silver a decade later, where the metal was also real and the position also destroyed by the price reverting, or with the way the internet bubble of the late 1990s priced businesses whose revenue models were genuine but unbuilt. In each, the asset existed. The number attached to it did not.

Ken Shirley found an ore body worth mining. The shareholders who paid $280 in February 1970 were buying something else: a nickel price set in London by a strike in Ontario, multiplied by a tonnage estimate that no one at Poseidon had yet produced.