Tom Zoellner

by Uranium - Rock That Shaped the World

  The strip was one of the last sections of the American West to be settled, and it was then—as it is today—lonely country. Mormon pioneers had scouted the area in the 1850s and found it unpromising, though they did haul timber from the slopes of Mount Trumbull for the construction of their first temple. One of the only towns to take permanent root here was a place called Millennial City, inhabited almost exclusively by a band of polygamist families. They had left Salt Lake City in the 1930s to escape the harassment of the mainstream Mormon church, which considered them apostates. They came to the desert to prepare for the final judgment, for which only they were worthy, because they had defied the Utah constitution and kept God’s revelation that a man should have multiple wives. “Hell, if I had to live out here I’d want more than one wife myself,” said Arizona’s first governor, George W. P. Hunt, after an official visit. Yet the settlement at the base of the Vermilion Cliffs was advantageous: It straddled the Utah-Arizona border, which meant that quick escapes could be made from sheriffs of one state or another. When apocalypse failed to arrive, the town changed its name to Short Creek and settled in for the long haul. The place is known today as Colorado City and is the home of the ten-thousand-member Fundamentalist Church of Jesus Christ of Latter-day Saints.

  Bob Adams found the young men there to be excellent ore muckers and hired several of them to work in the breccia pipes. After they took all of their wives to the Christmas party and nearly broke the entertainment budget, a new policy had to be crafted: All of a man’s wives were welcome at company picnics, but only one could be taken to dinner with a client. And only one could go on the insurance policy as a dependent. Energy Fuels Nuclear grew powerful enough in the late 1970s to acquire all the competing claims on the Arizona Strip. It serviced its eight main holdings with a fleet of three helicopters, based out of the small town of Fredonia, Arizona. The polygamists tended to avoid liquor, but other employees did not.

  “People played hard and lived hard,” remembered sixty-three-year-old Roger Smith, the manager at the old Pigeon Mine. “It was a jumping, jumping time. People came to work with guns on their hips. In those days you could run a mine inspector off the property. Today, you’d go to jail for that.”

  Smith wears Elvis-style sideburns and black Reebok athletic shoes. A buck knife rides on his belt. I met him in sunbaked Fredonia, in the yard of his decorative stone company, where he was driving a forklift. He took me inside the office and offered me a beer. Tacked above his air-conditioning unit is a bumper sticker: EARTH FIRST! we’LL mine THE OTHER PLANETS LATER. On another of his office walls is a photograph of one of the old uranium mines on the strip: a cathedral-size hole blasted into the sandstone, with dirt ramps for the wagon loaders.

  Smith had a reputation as a tightwad, to the occasional resentment of his employees. One of them absentmindedly left his jackhammer in the bucket of a loader. It accidentally got sent to the mill with a load of ore that evening, and the hammer was turned into a metal pretzel: “Smashed to shit,” recalled Smith. But the serial number was still legible, and Smith figured out who it had belonged to. He deducted its cost from the paycheck of the forgetful man, who took revenge by dumping loads of waste rock into the ore pile to dilute its value.

  These pranks did not affect the bottom line for Bob Adams, who had become an extremely wealthy man before he died unexpectedly in 1982. He had just finished a room-service dinner in the Essex House hotel in New York City and was settling in to watch television when he had a massive heart attack. The medical examiner’s report indicated he was alone in the room.

  He had owned a ranch in the ski town of Steamboat Springs, Colorado, and the Steamboat Pilot memorialized him on the front page, remembering him as “a giant of a man” and “a citizen concerned with his world.” The paper went on to note that “he died, as he had lived, with flare [sic]” in his luxury hotel.

  Adams’s death came at the beginning of the long slide in uranium prices that would eventually kill the mines on the Arizona Strip, and with them, his company. His old manager, Roger Smith, now works as a consultant to some of the new uranium outfits prowling the strip, but he has not joined any of them.

  “It’s a happening thing,” he told me. “You are not going to see wind or solar anytime soon. We have to start thinking about what’s clean and safe and inexpensive. Everybody likes to kick back and have a cold beer in an air-conditioned house. And where does that come from?”

  For all of Bob Adams’s gumption and drive, he had missed a lot of uranium. Most of the mineralized breccia pipes are still unexplored, and large sums of capital are being wagered in the hopes of finding more. The ore grades on the strip historically averaged 0.2 percent—lower than Moab’s—but still rich enough to be worth digging during price spikes. And public land is free for the taking, or nearly so. The General Mining Act of 1872, a law that hasn’t been substantially revised since its passage under the presidency of Ulysses S. Grant, says that a prospector must affix wooden posts at the corners of an area no bigger than six hundred feet by fifteen hundred feet. You pound in a central stake known as a discovery monument and at the base leave a waterproof container holding a document with your name and address and the surveyors’ coordinates of the land, all written underneath a magisterial opening: Notice is hereby given. . . . A duplicate copy must be mailed to the county recorder. And that’s all. You now own everything under the surface. And if you’re lucky, a mining company will decide there’s enough uranium hiding in there to be worth a deal.

  Walt and Sandy were busy hammering posts into a sloping patch of caliche when Walter spied something interesting on the ground. He carried it over to me. It was a flake of stone shaped like a teardrop, colored ivory, and thin and sharp on the edges. It looked as though it had been worked with another stone. This was chalcedony, a crystalline form of silica and a favorite source of tool points for the local Paiute Indians and, before them, the Anasazi, who vanished in the thirteenth century. The stone may have once been tied onto an arrow shaft and fired into the ribs of an unlucky antelope, whose bones had long since gone to dust. Or it might have been a reject. There was no way to tell.

  “We find these out here from time to time,” he said. “This land has been inhabited for the last five thousand years.”

  A few tickles of radioactivity can be turned into cash, and the best place to do it is the Canadian city of Vancouver, the financial capital of the new uranium rush and a historic tank of sharks.

  At least four hundred uranium companies, known as juniors, were operating in Canada in the autumn of 2007, and most were squirreled inside various rented offices in downtown Vancouver, cloaked behind a forest of nameplates on an oak door and a shared secretary to turn away visitors. They have Internet sites advertising possible future drilling in such far-flung spots as Argentina, Peru, and Kazakhstan. Others aimed for ground in more established uranium fields such as Wyoming, Niger, or the heavily staked Athabascan Basin in Saskatchewan. There are often scenic pictures of wilderness decorating the home pages of the Web sites, as if time-share condominiums were being sold instead of stock certificates.

  The quality of dreaming is the same, though, because almost none of the juniors will ever see an ounce of uranium. The object is to convince a brokerage house that a ghost of a chance exists of there being some ore lying underneath a claim, enough so that one of the major players, such as Rio Tinto, Cameco, or International Uranium Company, might be sufficiently paranoid to buy it for fear of the property’s going to a competitor. And everyone involved (except, perhaps, the investor) knows full well that only about one in every ten thousand claims will ever come near to being a mine.

  Making this pitch requires what brokers call a “story”—a quick verbal summary of where the claim is located, what its historic reserves might be, what kind of drilling has taken place so far, and some brief biographies of the management team. The story is what moves the stock, not the actual uranium that might be pulled out of the ground, which is a faraway concept
almost irrelevant to the entire process. The old saying in Hollywood goes that anybody is a “producer” who has a quarter to put into a pay phone, and the bar is set low in a similar way in Vancouver, where anybody who can hire a geologist to sign a disclosure and a promoter to hype the stock (euphemistically called V.P., investor relations) can be the president and CEO of a uranium company.

  “Most of these ‘stories’ are fantasy,” said Jim Cambon, a mining executive. “And they aren’t lying so much as believing their own bullshit.”

  If the brokerage house can be persuaded to write an analysis and offer shares to its clients, the market will notice and the stock price will rise a few cents, leaving the principals in an excellent position to sell their own shares at peak. They might retain an interest in case of a second spike, but the point is still to make a quick payday and move on to the next thing. The brokerage makes its money from fees and is rarely in a position to object to a dubious offering. No buyout occurs, no revenue is produced, and no mine ever appears. This is known as mining the markets. The more egregious cases are called pump and dump. It is sometimes illegal, occasionally investigated, and almost never prosecuted.

  “It’s hard to differentiate between the smoke and mirrors and the legitimate exploration,” said Robert Holland, the chief geologist for the British Columbia Securities Commission. “We’ve seen cases where companies incorporate and get a rinky-dink piece of property, do a ten-thousand-dollar work program, and the disclosure is all there. They’re able to get listed.”

  Vancouver is a “city of glass,” in the words of the novelist Douglas Coupland, a rainy peninsula of Finnish-modern apartment towers and espresso bars and seaplanes owned by Hong Kong billionaires. It had become a haven for shady stock deals partly because of lax securities regulation, but mostly because of its physical setting at the mouth of the Fraser River and at the foot of the Coast Mountains. This was the gateway to the furs and lumber and gold inside the high mountain valleys of British Columbia in the first wave of natural resource exploitation in the 1860s. Sawmills and freight yards sprang up along False Creek, and the Canadian Pacific Railway picked the spot as its western terminus. Young men flooded in for the Fraser Canyon rush, heeding the famous motto “Get in, get yer gold, and get out.” Several local penny exchanges provided an easy means of raising capital for these schemes, and in 1907, the omnibus Vancouver Stock Exchange was chartered.

  The frauds began almost immediately. Promoters hawked shares in whaling ships, timber stands, and bird guano fertilizer companies. Minerals were always the star attraction, though—the notion of buried treasure is a durable opiate. Otherwise prudent men could be charmed into thinking that a faraway patch of ground might be the one concealing a vein of gold or silver. It was more mysterious than textile factories or hotel chains—more subject to huge payoffs and crushing disappointments, and therefore more attractive to a certain risk-drunk personality. Mark Twain’s definition of a mine as “a hole in the ground with a liar at the top” was never truer than in the early days of the Vancouver exchange. And the rich wilderness of British Columbia had made it possible.

  “The Canadian economy was started on ventures—timber, trapping, and minerals—and Canadian exchanges were built around these industries,” said Paul MacKenzie, the president of Red Hill Energy. “We’ve always had risk money going into minerals. Canadian investors still have a thirst for this.”

  Enough of the offerings hit big to justify thousands of lemons. In 1964, a company with the unfortunate name of Pyramid was selling at 35 cents a share, advertising some lead and zinc claims in the Northwest Territories in a joint venture with the mining giant Teck Cominco. The crew had a drill rig out at a frozen spot called Pine Point, and the foreman was supposed to relay encouraging news over the radio with the code words 3 a.m. in hopes of confusing potential eavesdroppers. He got on the radio with a cheerful tone of voice one day, obviously drunk, and his supervisors kept interrupting him to ask him what time it was. “I don’t give a fuck what time it is,” he slurred into the microphone, “we’re all fucking millionaires!”

  Pyramid’s drill had intersected a convincing amount of zinc and lead, and the stock went up to $14 by the end of the next day. This success only fueled a host of imitators, who rushed to stake everything surrounding Pine Point and sell it as the next big thing. This is known in local parlance as an area play.

  Things had gotten so bad by 1989 that Forbes magazine was moved to call Vancouver the “Scam Capital of the World” and to note that all the unregulated capital flowing through its exchange had made it a laundry for mobsters. “Each year it sucks billions of dollars out of legitimate markets by inducing dupes in North America and Europe to invest in mysterious outfits making hydrodouches, computerized golf courses, and airborne farm equipment,” said the magazine, adding, “Nobody blinks or even chuckles.”

  Reforms were promised, but delivered only after a disgraceful episode on the more respected Toronto Stock Exchange. In 1997, a company called Bre-X started spreading rumors of a huge gold discovery on the island of Borneo. There was said to be a confirmed deposit of seventy million ounces in the jungle, with core samples to prove it. Investors rushed to buy shares in Bre-X, which quickly acquired a market capitalization of $4.4 billion and a partnership with two majors, as well as an alliance with a company controlled by a son of the corrupt Indonesian dictator Suharto. Canada’s brokerage houses responded with glee, and the stock price climbed even higher. “They seemed to have teamed up with a partner with high standing,” a mining analyst with the firm Lévesque Beaubien Geoffrion told a reporter.

  The truth started to come out after the core samples were taken to an independent lab. They had been sprinkled with gold shavings, a practice known as salting and one of the basic scams of the mining trade. The chief geologist for Bre-X began to say he was haunted by “evil spirits,” and then he tried to kill himself by drinking a bottle of cough syrup and lying facedown in the bathtub. A few days later, he fell eight hundred feet from a helicopter into the Indonesian jungle. His body was found after four days, decayed and partially eaten by wild pigs. No autopsy could be performed, and rumors circulated that he had not committed suicide, as the official verdict said, but had been pushed. The founder of Bre-X died of a stroke in the Bahamas the next year. In what many consider an embarrassment for the Royal Canadian Mounted Police, none of the surviving officials was convicted of a crime.

  The atmosphere in Vancouver is somewhat less sleazy today, though the regulation is still light and the odds of any one claim yielding hard revenue are just as astronomical. Canadian mining companies are now required to file a National Instrument 43-101, a certificate signed by a licensed geologist, after they make any public statements about the potential of one of their claims. This information must also be in the press releases sent out to bump a stock; however, the data can be impenetrable to nonexperts, full of statistics and code names and laden with postdoctoral language. Punishment is light for a company that tells outright lies; the worst thing that usually happens is a temporary halt in trading until corrections can be issued.

  The most typical scam perpetuated in Vancouver today is no scam at all by strictest legal terms, though it is no less dishonest, and no less dependent on the naïveté or greed of the investors. A junior company of two or three friends simply picks a region somewhere on the globe where a small amount of uranium has been detected (not hard to do: The stuff is a common element in the earth’s crust) and legally stakes a few hectares. Then a minimal amount of geophysical work is done, a technically truthful press release issued, and a Web site put up. The stock gets listed, and the project is hyped to brokers and the newsletter writers who cover both the penny stocks on the Toronto Venture Exchange and the even less well-regulated Over-the-Counter and Pink Sheet exchanges in the United States. The property is never drilled for core samples. That’s too expensive. And it will likely provide hard evidence that the site is a dog—hence the old saying “If you drill it, you kill i
t.” The company makes scrupulously honest statements about absolutely everything except what they know to be true in their hearts: That not a single ounce of uranium will ever appear.

  Given the dismal climate in the Vancouver markets, what kind of person would put his or her income into such a known meat grinder?

  The average investor is a middle-aged male with a few thousand dollars who feels that he hasn’t yet achieved the financial success he deserves and that uranium is a way to catch up quickly. Few know how to wade through the numbing technical language of a 43-101, but there are newsletters and brokers to guide those decisions and, in any case, the story has always been more important than the science. These stocks cost pennies per share, they rise fast, crash overnight, and provide entertainment far beyond their face worth. One junior president compared it to buying a raffle ticket. “Losses are limited,” he said. “And thrills are high.”

  These snowball-chance plays offer the investor something even more important: the intangible value of respect; of being someone who matters. “A little guy can put down five to ten grand and that’s a significant position,” one investor relations man told me. “He’s a player. They will take his phone calls.” Such a thing would not be possible at Coca-Cola or Google. Uranium thus offers the average lowballer a chance to feel like an earl of finance, the same way that any man who walks into a strip club is immediately lavished with attention and conversation.