But in the four or five years since Houseworth left Washoe, neither Osborne nor anybody else who owned the Kentuck mine did any significant development work—strange for a superb location between two proven mines. That odd situation may have had something to do with the fact that Houseworth’s departure left a huge “flaw” in the mine’s title. Nobody in Nevada had his quitclaim deed. That may have sapped any momentum Kentuck development might otherwise have generated. If the mine proved valuable, the owners would be legally vulnerable to anyone who appeared with Houseworth’s quitclaim. The Kentuck’s ownership likely kept their title’s weakness as secret as possible while they tried to figure out exactly where Houseworth had gone to roost. History doesn’t reveal how John Mackay and Jonas M. Walker became aware of the Kentuck’s “imperfect” title, but when they did, they had an advantage—and a tremendous opportunity—for both Houseworth and Walker were Virginians, and Walker knew Houseworth’s people hailed from Orange Court House, Virginia.
The small town of Orange Court House sat about two miles south of the Rapidan River, which from the spring of 1862 until May 1864 had served as the de facto northern boundary of the Confederate States of America. Federal and rebel forces had maneuvered and skirmished through the immediate vicinity on many occasions, and the bloody battles of Chancellorsville and the Wilderness had been fought nearby. (Considering the timing of his departure from the Nevada Territory, Houseworth may have gone home to support the South’s bid for independence, or if he wasn’t a secessionist, he may have gone home to look after his people and family property in a locale certain to suffer the ravages of war.)
To find Houseworth, Walker probably traveled either by overland stage through a flare-up of the Indian wars (the November 1864 massacre of 230 Cheyenne and Arapaho men, women, and children by Colorado cavalry volunteers at Sand Creek had set the Great Plains afire), or by steamship via the Central American isthmus. Walker succeeded in locating Houseworth, and on June 1, 1865, in Orange Court House, Virginia, Valentine Houseworth conveyed a quitclaim to Jonas M. Walker in exchange for $500 “lawful money of the United States to him in hand paid.”
The transaction made John Mackay and Jonas Walker heirs to Houseworth’s claim to the Kentuck ground, and it gave them tremendous leverage over anybody else who claimed ownership of the mine, since a mining court might consider the current occupants “squatters” or “jumpers.” No contemporary source has ever revealed whether Mackay and Walker used that advantage to gain admittance to an existing ownership, or to induce the existing owners to sell them their interest in the mine, or if they’d gained control of the mine before Walker went East, but Walker had been a lawyer. He brought legal expertise to the partnership. The Kentuck incorporated with two thousand shares in late August 1865, but none of them hit the open market. Time has obscured the precise details of the Kentuck transactions, but whatever occurred, John Mackay and Jonas Walker emerged from the maneuverings as the Kentuck’s principal owners. (Five months later, “the Kentuck Mining Company” paid Walker $20,000 in exchange for his quitclaim to Houseworth’s quitclaim, which might have represented an exchange for the stock’s nominal value.)
To fund mine development, Mackay and Walker borrowed $20,000 from San Francisco merchant and financier James PhelanIV on a three-month note at 3 percent interest per month. Securing the loan required them to pledge the entirety of their little fortune, everything they’d amassed in Washoe, including all of their Kentuck stock. Walker might have handled the lawyering aspects of the partnership, but Mackay was the underground man, the miner. Mackay assembled a small workforce and put them to work sinking a shaft under a “horse whim” (a simple hoist operated by horses marching in circles, arastra fashion) and drifting for ore from shaft stations constructed at appropriate intervals. The work didn’t progress as fast as hoped. The year aged, the note’s due date approached, and Mackay and Walker found no ore.
In October, while Mackay and Walker pushed Kentuck development, another selling frenzy racked the mining stock market. Prices plunged. According to Podgers of the New York Times, many speculations hit hard reefs of reality “carrying full sail.”
Most men thought the stock market had touched bottom in the aftermath of the sell-off. It hadn’t. Despite a Daily Alta California item reporting that “recent developments in certain portions of the Comstock lode are thought to be more promising than for months past,” mining stockholders pondered the larger questions and decided that go-ahead American enterprise had gutted the lode. A “fresh stampede” hit the market in the first half of December. Prices plummeted again, leaving the security Mackay and Walker had pledged to Phelan’s loan worth only a fraction of its original value. In mid-December, Mackay and Walker levied an expensive $17.50 per share assessment on Kentuck stock to discharge the debt. Since they likely owned the majority of the Kentuck’s shares and had no money to pay the assessment, they may have made the assessment to placate their nervous creditor—James Phelan.
Speculators who sold during the mid-December panic raised the white flag a fortnight too soon. Near the end of the month, the Daily Alta California noticed “reports of better ore being found in the Yellow Jacket and other mines.”
The tide had turned. The Hale & Norcross struck ore on the 670-foot level. Working through a shaft sunk just a few feet south of the Kentuck, the Crown Point struck a west-dipping ore body 230 feet below the surface. On the other side of the Kentuck, the Yellow Jacket found “favorable indications” running on the same level from their “New Shaft” or “South Shaft,” sunk only 150 feet from the Kentuck line.
The good developments in the Crown Point and the Yellow Jacket sandwiched the Kentuck. Oddly, they actually increased Mackay and Walker’s vulnerability. Phelan’s note was coming due, and Mackay and Walker had burned through most of the loan sinking the Kentuck shaft and searching in vain for ore. If Phelan called the note, Mackay and Walker wouldn’t have the coin to repay it. They’d lose their whole security, the entirety of their little fortune, and since they’d had to pledge their Kentuck stock to secure the loan, they’d also lose ownership of the mine. And if the ore bodies revealed in the Crown Point or the Yellow Jacket extended into the Kentuck—as seemed likely—their ninety-three-and-two-third-foot sliver of the Comstock Lode would be worth exponentially more than $20,000. If Phelan kept himself attuned to underground developments, he’d know he stood a good chance of making a fortune by calling the note, breaking Mackay and Walker, and seizing their collateral.
Mackay concocted a scheme to wrangle the loan’s extension. He arranged to discuss terms with Phelan. At the meeting, Mackay protested the note’s usurious interest. Three percent per month was outrageous, Mackay complained. He insisted Phelan reduce it.
Phelan slammed his fist down on the table and swore that he’d extend the note at 3 percent or not at all. Young man, he said, if you know what’s good for you, you’ll sign the note for six months and say nothing about the interest!
Mackay protested and argued, retaining his poker face. Inside, he could hardly restrain his joy. Eventually, Mackay relented and signed the extension. He went back to working the mine.
The stay provided the critical opportunity. Not long thereafter, on New Year’s Day, 1866, working 250 feet below the surface at the bottom of the Kentuck shaft, Mackay, Walker, and their small workforce hacked into a ten-foot-wide mass of reddish, sugary, silver- and gold-infused quartz—a “very rich” body of ore.
Five weeks before, John Mackay had marked the passing of his thirty-fourth birthday. He’d been toiling in the depths of the Comstock Lode for six and a half years. The discovery shot the value of the Kentuck to the skies, saved him and Walker from bankruptcy, and set John William Mackay on the road to becoming one of the richest men in the world.
* * *
I. The thirty-six-star flag representing Nevada’s statehood didn’t become official until July 4, 1865—although a local seamstress might well have added Nevada’s star.
II. he Kentuck
first appeared in the Mining & Scientific Press on October 7, 1865, in a small item that mentioned the mine’s late-August incorporation. Thereafter, it appeared in almost every issue. The Kentuck does appear on an 1866 map.
III. hat same friend noted that the early Washoe pioneers, having lived so long beyond the margins of civilization, proved notoriously susceptible to “the tender passions.” He recalled several “despoiled” of their wealth by “the machinations of an artful woman” and others “cajoled” into “hasty and ill-advised wedlock” by women not always of “the most exemplary or deserving kind.”
IV. Phelan had made money in San Francisco merchandising, real estate, and money lending. In 1864–65, he owned stock in Comstock mines and served as a trustee of the Potosi. Among the 230 San Franciscans who owned more than $50,000 in assessed property in 1865, Phelan had $130,850—ranking him three spots ahead of a San Francisco dry goods importer named Levi Strauss (“The Rich Men of San Francisco,” Daily Alta California, October 14, 1865).
CHAPTER 9
The Rise of the Bank Ring
The pump engine and hoisting works in the shaft house of the Savage mine when the leading Comstock mines had become the most technologically advanced and innovative ones in the world.
* * *
A systemized plan of operations is carried on, in which large capital, subtle intrigue and unscrupulous misrepresentation are resorted to for the purpose . . . of draining from the many to enrich the few.
—“The Stock Jobbing Juggernaut,” San Francisco Chronicle, May 20, 1875
For the Comstock Lode, the wheel had turned. The “Old Lead” had ridden out the hard times and “come out right,” like the blessed Union itself. Fearful storms assailed Washoe in the first month of 1866. Fierce wind and furious snow blasts rendered pedestrian locomotion “precarious.” People wrapped in coats laughed at unfortunates chasing their hats down C Street. Variation came in the form of a fine rain that turned the snow on the ground into a slush that froze overnight and made Washoe’s steep streets “a glare of ice.” Hot whiskies, “coasting” (sledding), and sleigh riding constituted the only “compensating circumstances,” although at ten dollars per hour, even with a pretty “duck” alongside, “well-wrapped up with rosy cheeks and bright eyes,” the pleasure of sleighing came too dear for most common purses. Virginia City’s industrious Chinese residents made out well. They led donkeys door to door through the blizzards, peddling firewood to households that had neglected to lay in adequate supplies.
Belowground, in the subterranean city, Comstock miners labored in more tropic climes. The December strike made on the 670-foot level of the Hale & Norcross developed into a significant ore body nearly two hundred feet deeper than any previously discovered. The stock market staged “an extraordinary advance” as a number of other mines along the line of the Comstock made “discoveries of a most encouraging character,” including John Mackay’s Kentuck.
Working from the New Year’s Day strike in the shaft, Mackay directed a drift from the 285-foot level north to the Yellow Jacket line, and then a westward crosscut along the Yellow Jacket boundary. To Mackay and Walker’s great delight, their explorations revealed a fifteen-foot-wide ore body completely spanning their ground, from the Crown Point line clear across the full ninety-three-and-two-third-foot width of the Kentuck to the Yellow Jacket boundary. All indications pointed to the Kentuck’s ore being a part of the same west-dipping stratum the Crown Point was then exploiting. Of the 1,450 miners working in the Comstock mines in early February 1866, the Kentuck employed eleven—a count that might or might not have included John Mackay himself. He kept his primary focus on developing the strike for economical and efficient extraction, but he and his men still managed to raise what the Mining & Scientific Press reported as “a considerable quantity of excellent ore.” Rising returns motivated the Kentuck trustees to do something that hadn’t ever been done in the seven-year history of Comstock mining—they rescinded the mine’s recent $17.50 per share assessment, and replaced it with one of $7.50 per share. A month later, they rescinded that one, too. (Although neither Mackay nor Walker sat among the Kentuck trustees, as the mine’s majority stockholders, they controlled their decisions.)
Just north of the Kentuck, Yellow Jacket miners worked west from their South Shaft, crosscutting a wide “horse” of worthless rock. In March, they hit ore identical to that found in the “west stratum” of the Crown Point and the Kentuck. Mackay worked the Kentuck quietly and efficiently, and at the end of the month, supervised the installation of steam-powered hoisting machinery to replace the horse whim atop the shaft. Mackay must have learned an incredible amount engineering the extraction of the Kentuck’s portion of the bonanza.
In April, the Crown Point and the Yellow Jacket sent about seven thousand tons of ore to the Gold Hill mills. Every mill in Gold Hill went “full blast” around the clock, the periodic scream of their steam whistles punctuating the unceasing clatter of their stamps. Bullion receipts for the west stratum ore extracted from the two mines ran to around $100,000 per month, per mine. In May, the Crown Point upped its dividend from fifty to eighty dollars per foot.
The Comstock’s center of gravity had shifted south, to Gold Hill. By June, the ore coming up the Yellow Jacket shafts fully occupied a dozen separate reduction mills, and Gold Hill outproduced every other mining district in the United States. Indeed, the district’s bullion output exceeded the combined total for the entire state of Nevada. (The Comstock’s domination of Nevada showed in the young state’s tax rolls: the value of the Comstock’s assessed property totaled $24.2 million—the rest of the state combined assessed $5.5 million.) Mackay and Walker upped the Kentuck workforce to fifty men. Since January, they’d sunk the mineshaft at least another hundred feet, and they were raising thirty-five tons of ore per day, the best of which assayed more than $1,000 per ton. The Kentuck’s bullion product proved sufficient to fund mine development, discharge the debt to James Phelan, and still leave a hefty profit. The mine started paying dividends in September. The bulk of the payouts went to Jonas Walker and John Mackay.
Not much is known about the emotions John Mackay experienced as he developed the Kentuck strike. Mackay played his cards close to his chest through his whole life, and he never gloated. Years later, however, the New York World asked him if wealth had brought him happiness. Mackay seemed incredulous at the question. He said that it hadn’t. He told the reporter that he’d been happy selling newspapers in New York and working in the Webb shipyard, and that he’d been happy hefting a pick and shovel in the California gold country and swinging a pick and installing timbers as a common hand in the Comstock mines. Nevertheless, he did confess that little in life had brought him the satisfaction of watching the Kentuck strike blossom into a genuine Comstock bonanza. He’d been working toward it for twenty-four years, since he was eleven years old.
• • •
The dominoes of William Sharon’s plan to control the Comstock began falling in May 1866, when Sharon and the Bank of California captured their first “custom” reduction mill, one unaffiliated with any particular mine. Sharon had come to recognize that reduction mills in constant service generated more stable cash flows than did the mines supplying them with ore. Custom mills earned money on a per-ton-reduced basis, meaning they earned money based on the quantity of ore they worked. With stamps pounding at full capacity, those earnings came risk free: It mattered not a whit whether they were working high- or low-grade ore. Mines earned money from bullion returns, and those varied with ore quality. Milling had seemed like a sure thing during the flush times, when the ore product of the mines exceeded the crushing capacity of their affiliated mills. Custom mills earned a fortune reducing the surplus—until the exhaustion of the Comstock’s upper ore bodies in 1864 and 1865 exposed their weakness. Without ore, mills earned nothing, and as an experienced Comstocker explained, “No property deteriorates more rapidly in value than mill property when in disuse.” Only constant attention kept pans, s
tamp shoes, dies, mullers, engines, and other heavy machinery in working order. Foundations fell out of square; untended buildings deteriorated; taxes and insurance payments sapped funds; trained employees sought other opportunities. If they weren’t working ore, custom millers needed loans to keep afloat. Many distressed mill owners had gratefully accepted loans from William Sharon and the Bank of California at their lower interest rate without pausing to consider the ramifications of owing money to a man who held their loan security—usually the mill property itself—and was gathering power over the mines that supplied their mills with ore.
One of the mills in debt to the Bank of California was the Swansea Mill, located in lower Gold Cañon. In the spring of 1866, either Swansea ownership missed interest payments or William Sharon refused to extend their loan and the owners couldn’t make the required balloon payment. Sharon foreclosed on the mill in May. One of his appointees took over its management.
By the summer of 1866, Sharon controlled the elections—and therefore the trustees and superintendents—of two of the Comstock’s most productive mines, the Yellow Jacket and the Chollar-Potosi, and his proxy voting power was increasing at several others, including the Crown Point, the Gould & Curry, and the Savage. Combined, those mines raised the majority of the lode’s millable ore. Sharon’s influence with mine management gave him the power to target desirable mill property. Those mills with outstanding loans from the Bank of California were already vulnerable, but as a series of San Francisco Chronicle exposés published five years later described, Sharon could pressure a mill not yet indebted to the bank simply by directing the officers of “his” mines to lessen the quantity of ore the targeted mill received. The pinched mill owner soon went to mine management begging for more. He’d be told that there wasn’t enough to go around. Until the mines were raising more, he’d have to make do. However, should he desire, he “could be accommodated” with a Bank of California loan to help him make the riffle. The mill owner went to the bank—which in Virginia City meant William Sharon—and Sharon insinuated that if the miller accepted a loan, Sharon would “feel an interest in his financial welfare” that would assure his future ore supply.
The Bonanza King Page 25