Article Courtesy of Callum Newman, of Money Morning
The most influential Aussie who ever lived
The greatest Australian you’ve never heard of is William Knox D’Arcy.
In August this year the Queensland State Government inducted D’Arcy into its Business Leaders Hall of Fame. He was one of six inductees. The award was recognition for ‘his major contribution to the success of the Mount Morgan gold mine and the international significance of his role in the discovery of oil in Persia.’
You could forgive D’Arcy for feeling a little peeved that it took 95 years for him to get some official recognition. Then again, it was a government award – but it still seems like a shocker even by that standard.
If you love geography and history you’ll know Persia is largely today’s modern Iran. Persia is also the location of the Middle East’s first oil find – thanks to our man D’Arcy’s money and appetite for risk.
This is the reason that historian Geoffrey Blainey recently said, ‘William Knox D’Arcy is, almost by definition, the most influential Australian who has ever lived. He is a giant figure on the world stage.’
That probably seems like a pretty big call. But you’ll soon see why. D’Arcy didn’t start with a lot of money. In fact, he had no significant wealth to speak of.
But we’re getting ahead of ourselves here. We need to backtrack, because D’Arcy didn’t make his first big money – and it was BIG – in oil. It was in gold.
When You Take a Risk…and Win
Born in England, D’Arcy’s father had brought out the family to Australia when D’Arcy was 17. In time, D’Arcy became a small time lawyer in the Queensland town of Rockhampton.
D’Arcy loved to punt on the horses and play cricket.
We don’t know what his luck was like at the track but he sure got lucky – almost unbelievably lucky – the day two gold prospectors walked into his office and slapped a bag of stone on his desk.
The two men were the Morgan brothers.
The Morgan brothers chose D’Arcy for no other reason than they had been told by their banker they needed a lawyer. D’Arcy didn’t have any expertise in mining or metals. The sample had come from about twenty miles out of Rockhampton at a place called Ironstone Mountain.
A sample was sent off and showed a high level of gold.
Recognising the chance to ride what could be a great thing, D’Arcy bought into the project with a single £500 stake. In fact, D’Arcy was essentially gambling with borrowed money, probably from his wife’s family.
Less than two years after the gold started to flow the Morgan brothers – who had renamed Ironstone Mountain Mount Morgan – decided to sell out. They thought the ore was rich at the surface but sparse at depth. So, the Morgan brothers cashed out.
But by this time D’Arcy must have thought he knew better. He kept buying until he owned around 36% of the shares.
It turns out the Morgans had made a terrible mistake. Not only was Mount Morgan rich with gold at the surface, but it was rich with gold at depth too. It was just that the initial digging at depth had missed it. After further exploration, the miners found the rich gold vein and the mine and Rockhampton boomed.
Geoffrey Blainey wrote about this in his book The Rush that Never Ended:
|‘Ten years after the finding of Mount Morgan the return on the actual capital invested was over 200,000 per cent and dividends had exceeded £3 million.’|
The shares rocketed over 1,600% at the peak of the mania surrounding the mine. But not everyone got rich from Ironstone Mountain. The original freeholder who owned the land didn’t get fabulously rich. The Morgan brothers made money, but missed out on a fortune. But the speculators did get rich.
Over the next 100 years the mine would produce nearly 8.8 million ounces of gold, 1.3 million ounces of silver and 387,000 tonnes of copper. At today’s prices, the gold alone would be worth nearly $15 billion.
This would prove to be one of the richest gold mines in Australian history and turn its investors into millionaires. The phenomenal gush of dividends would finance D’Arcy’s luxury living on the scale of European aristocrats and royalty. And, of course, his discovery of oil in the Middle East.
And best of all for D’Arcy, he didn’t have to lift a finger, let alone swing a pick axe.
He soon became one of the richest men in Australia. We don’t know what Rockhampton was like in the 1880’s. But there clearly wasn’t enough of interest to make him stick around. He sold his law firm, and left for England in 1887.
And as any millionaire is bound to do, he bought a mansion and two country estates. He had his own private box at the Epsom racecourse (King Edward of England had the only other one). D’Arcy never worked again. He and his wife became a fixture of London ‘society’, famous for their lavish parties.
D’Arcy had turned a small, speculative investment into a life-changing fortune. But he didn’t lose the speculative streak in his nature. After striking it lucky and making a fortune…he decided to do it again. This time it would reshape the history of the world for the next century…
D’Arcy was smart enough to see a big change happening in the world when many were missing it. He saw a bright future for oil, especially thanks to the latest invention: the motor car.
And if there was going to be an industry based on an internal combustion engine, there needed to be more oil. And that would mean a bigger oil industry. Also, if the British could find a strategic source of oil it would give them a huge advantage.
By 1900, years of high living had taken its toll on D’Arcy’s finances. The company manager of Mount Morgan told him the mine’s best days were gone and his shares were overvalued. The dividend cheques began to shrink.
Looking for other opportunities, in 1901 D’Arcy was approached to invest in oil exploration in Persia. The gambler in him came out. If this opportunity was even half as good as Ironstone Mountain he could make a second fortune. So he took his chance. He bought a concession that covered 480,000 square miles of the country and was good for sixty years.
D’Arcy employed and sent out what would prove to be his key man, a tenacious geologist and engineer called George Reynolds. He would labour away for seven long years and find practically nothing. The project would nearly send D’Arcy bankrupt.
It seemed a reasonable bet that there would be oil in Persia because oil was known to seep to the surface. But finding a commercial field in the heat and the desert with little to no infrastructure and hostile locals was another thing altogether.
Persia had crushed many other hopeful schemes and enterprises before. From Daniel Yergin’s The Prize:
|‘It was not a reasonable business proposition. Even the estimate for expenditures was to be grossly understated. At the outset, D’Arcy had been advised that it would cost ten thousand pounds to drill two wells. Within four years, he was to be out of pocket in excess of two hundred thousand pounds.’|
D’Arcy was eventually forced to go to his London bankers and take out a huge overdraft, putting up his shares in Mount Morgan as collateral. That created a problem. The shares were falling as investors caught on to the fact the mine was no longer as rich in gold.
But it was still rich in copper, which had been ignored in the hunt for more and more gold. Luckily for D’Arcy, copper would save the mine. The copper would keep the dividend money flowing so that, along with the loans from London, D’Arcy could keep his men drilling in Persia.
But by 1905, D’Arcy wanted out. False starts, endless overruns, dry wells and trouble plagued his Persian oil play. He resolved to sell his concession. He turned to the French Rothschilds.
But around that time the British government was considering switching its Navy fuel from coal to oil. At the time Britain only had a limited source of oil within the Empire.
Seeing the opportunity, the British Government arranged to buy into D’Arcy’s concession via Scottish company Burmah Oil. This happened with days to spare. It was much needed capital. When you consider D’Arcy didn’t have a proven oilwell, let alone anything like an operating company, it was a lifesaver. But that wasn’t the end of the drama.
Three years later Burmah Oil had lost a lot of money for little return in Persia just like D’Arcy had before them.
The directors of Burmah Oil eventually caved in and cabled George Reynolds in May 1908 to cease drilling. But Reynolds must have known he was closer than ever before. He ignored the order and kept drilling. Six days later they struck oil. It was a gusher, drenching the drillers. A few days later, a second well hit oil. There was oil in Persia and D’Arcy’s team had found it.
D’Arcy’s fortune soon rocketed back up to its previous stratospheric level. Britain had a secure supply of oil that would influence the direction of both World Wars. Not only that, but the discovery of Persian oil formed the ‘Anglo-Persian’ oil company, which later became British Petroleum (BP), currently one of the world’s largest integrated oil companies.
Bottom line: the quest to find, secure, and produce this oil fundamentally altered the 20th century…and it all began with a gold mine in Queensland and a speculator named William Knox D’Arcy.
As one biographer, Margaret Carnegie, wrote, it was ‘a fitting monument to an achiever who took big risks and stood fast.’
And that’s what this story is really all about.
Great fortunes can be achieved no matter who you are. You just need to be willing to recognise a good opportunity when you see one…and be willing to take a risk.