Dividends and Murdered Midas

In July of 1943, the world was interested in who killed Sir Harry Oakes? At the time of his death Sir Harry was said to be worth over $200 million or about $3 billion in today’s money, most of it earned from a gold mine. They were the regular suspects, the son-in-law who needed money; the real estate people. Sir Harry was the largest landowner in the Bahamas and the former King of England was the Governor, had to step down to marry or did he step down because he was too close to the Nazi Party in Germany?

Sir Harry was born in Maine and caught the gold bug. He went around the world looking for gold California, Alaska, Australia, Nevada, South Africa and by 1911 northern Canada. He was looking for porphyry a reddish, crystallized volcanic rock which is associated with gold deposits. In a book called Murdered Midas written by Charlotte Gray published by HarperCollins, Toronto, 2019 outlines the rise of Mr. Oakes. The trip up to where Mr. Oakes eventually found the gold was a prospector’s journey. The railroad stopped 20 miles from where he was going similar to many mines before they become productive. The prospectors needed money to develop the property. For some general store merchants, they often took shares in exchange for money. Sometimes the shares increased, sometimes they did not. Harry had similar problems and reached out to friends and family to seed his ventures – his family found cash and 1912, Harry was back in Kirkland Lake.

By 1913, Harry had teamed up with other prospectors and owned shares, their mines were easier to mine and with his profits reinvested the money into his own property. In 1914, Harry formed Lake Shore Mines with 2 million shares with a par value of $1. By 1916, only 300,000 had been sold at prices ranging from 15 to 30 cents. Why? the war was a reason; the first drill was a bust; but Number Two meant a vein 12 meters wide of gold, it would yield some of the richest ore ever seen in Canada. In the mid 20’s Lake Shore Mines traded for $46 a share.

One of the reasons why the shares went to $46 was Harry wanted to process the ore in Kirkland Lake rather than ship it out to the country. He needed money, eventually sold shares to folks in Buffalo and they were rewarded when Lake Shore paid its first dividend in 1918 and over the next 20 years, they received dividends totalling $32 million.

The dividends came because the mine in 1918 produced gold valued at $416,414 of which $100,000 was paid in dividends.

Harry owned nearly 50% and the rest was well diversified which meant he had control of the company. Between 1924 and 1932, Harry’s mining stock earned him about $10.7 million or about $25,000 a week. In 1934, Lakeshore Mines was paying dividends of $3.15 million.

In order to reduce taxes from both the US and Canada, Harry’s lawyer Walter Foskett of Palm Beach set up several holding companies to purchase all of Oakes’s Canadian securities including the million shares Harry personally owned. Oakes then took shares in tax-free Bahamian corporation so they could pay him, as dividends, what they received from Canadian securities. Once Oakes was receiving dividends from the holding companies rather than directly from Lake Shore, he no longer liable to pay income tax on income in Canada, instead as a resident of Bahamas he paid a 5% withholding tax. Between 1925 and 1939, Harry’s dividends amount to $22.75 million of which Canadian tax was $1.1 million. The $20 million was to be spent however Harry wanted or about $400 million in today’s dollars.

In reality, by the 1940’s the gold at Lake Shore Mines in Kirkland Lake was becoming unprofitable at $35, but Harry was a wealthy man. Todayif you were to go to Bahamas as a tourist you would see many millionaires taking the same route Harry did when he first went to the islands. Saving taxes and enjoying the sun.

Linking to dividend paying stocks, most gold mines are very risky, unless they are the gold royalty stocks which are good investments. Lakeshore Mines was a mine which fit the dogged determination of the owner who was struck with gold fever and it paid off. There were many claims at the same time which did not. If you invest in the mining industry, understand the risks, there are other methods to participation – mines need equipment who provides the equipment? who provides the supplies? there are options which can provide you will some gold fever but not enough to take dramatic risks.

There are more questions than answers, till the next time – to raising questions.

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