Free State Fiasco

On Erfdeel farm in the Orange Free State three weeks ago, a mining engineer hauled up a drill-core laden with ore from a 6,000-ft. test borehole. In Johannesburg Essayists announced that on the basis of the sample, the gold ore under Erfdeel ("Inheritance") farm might be worth as much as $18,000 a ton. It was the richest strike in South Africa's golden history, and on South African and London exchanges it touched off the wildest boom in gold shares in years.

No shares soared as fast as those of Free State Gold Areas, Ltd., the company which owned options on the 4,200-acre Erfdeel farm. From 13s.6d. ($2.72) the shares rose to a top of 36s. ($7.25), giving whopping paper profits to Free State Gold Areas' principal owner, Joseph Milne.

It was a well-timed strike for Milne, a balding, stooping, ex-insurance agent whose gold mining has not been as profitable as his selling of gold-mine shares. In 1947 the gold-mining companies he had promoted with Johannesburg's Norbert Erleigh were thrown into receivership (TIME, Nov. 24 and Dec. 15, 1947). Both Milne and Erleigh are under indictment on charges of fraud.

A few days after the Erfdeel test, the South African Press Association flashed still more exciting news. A test bore on another farm near Erfdeel had reportedly assayed out even richer. At this, Jo'burg's frantic speculators ran up the Free State Gold Areas shares to a high of $11.28--and Promoter Milne's paper profits were estimated at somewhere between $8 million and $20 million.

An hour later the press association sent out a shamefaced bulletin: the news was not true. After that, government police started an investigation of the report and moved in on Promoter Milne's fabulous borehole. Under their watchful eye, Milne drilled another "deflection" test (a boring near the bottom of the shaft) within a few inches of where the first fabulous strike had been made. The test ore was turned over to the government's assayers. Their report: the ore indicated a yield of 2 oz. of gold per ton of ore, or about 1/24Oth of the record yield previously reported.

On both the Jo'burg and London exchanges the great gold boom collapsed. Free State shares, which had started dropping on news of the false press report, plummeted to $2.62. It remained to be seen how much gold Milne's claim would finally yield. But Milne did not seem worried. He gave a cocktail party for 500 guests and expressed the hope that he could soon arrange for "quotation of my shares on the American market."

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