What made mining companies more successful than individual prospectors?
Mining companies tended to be more successful than individual miners for several reasons. Boomtowns, which depended primarily on gold or silver, turned into ghost towns as those resources ran out and people migrated elsewhere for better opportunities. As gold and silver became scarcer, miners had to dig for other metals. Mining companies, with their large-scale operations, financial capital, workforce and ability to mitigate risk, were better equipped for this transition and outperformed individual miners who lacked such resources.
The history of mining is full of stories of individual prospectors who became wildly successful and built large mining operations along the way, while others didn’t fare as well.
In 1859, miner Henry Comstock found a huge amount of gold and silver in western Nevada known as the Comstock Lode. This deposit attracted thousands of miners and earned more than $500 million over 20 years. However, mining the valuable metals trapped in quartz rock required expensive machinery. This led to large mining companies buying land from miners who could not afford the equipment, making mining a major industry.
These larger mining operations posed significant hazards to personnel. Miners worked in unsafe conditions, in dark tunnels with bad air, with the risk of lung disease, accidents and fires. Because of these safety concerns and concerns about wages, miners in the West began to form unions in the 1860s.
Some of the reasons why mining companies have typically been more successful than individual miners include:
Economies of scale
Mining companies could afford the necessary tools and machinery for large-scale operations. By pooling resources, these companies were able to dig more efficiently and profitably than individual miners who typically only had access to basic tools.
Labor force
Companies could employ a large workforce, allowing them to mine much more extensively than a single person. They also have more flexibility to continue work if an employee falls ill or is otherwise unable to work.
Capital for investment
Mining often requires significant upfront investment to find and develop a productive mine. Companies, especially those that are publicly traded, can raise capital through stock offerings. Individuals, on the other hand, often do not have the financial resources to invest heavily in a mining operation.
Risk mitigation
Mining is inherently risky, as not all prospecting efforts lead to productive mines. Companies can spread this risk over multiple operations and investments. If a mine is not producing, the loss can be offset by profits from other operations. In contrast, individual miners typically have all of their resources invested in a single site, and if that site fails to produce, they could lose everything.
Access to expertise
Mining companies can afford to hire experts in various fields, such as geologists and engineers, who can help them locate and extract minerals more efficiently. Individual miners often lack this expertise, making their operations less efficient.
Regulatory Compliance
Mining is often subject to various legal and environmental regulations. Companies typically have legal teams to ensure compliance with these rules, reducing the risk of fines or work stoppages. For individual miners, navigating these regulations can be more challenging.
Ability to process and sell ore
Larger companies have the resources to build or access processing facilities that can extract valuable minerals from the ore they mine. They also have marketing and sales departments to find buyers for their products. Individuals may not be able to process ore as efficiently and may have more difficulty finding buyers.
While there are certainly stories of individual miners making it rich, mining companies are generally more successful due to their access to resources, ability to mitigate risk, access to financial support, and other factors.
For more insight into mining investing, read our in-depth guide to metals and mining.