Chapter 3

Monday, August 18, 1890

In Wichita, two weeks after the Yellowstone trip, Malik joined Castillo and his wife, Rita, for breakfast, at the General Superintendent’s home, in a well-to-do neighborhood on the west side of town. With the dishes in the sink, awaiting the arrival of their daytime housekeeper, Rita Castillo placed a full carafe of hot coffee at her husband’s elbow, kissed his cheek, bid her guest a good day, and excused herself, leaving for the school where she was preparing her class notes and materials for the upcoming school year.

Taking up the carafe, Castillo refilled both his and Malik’s coffee cups, then he set the carafe back on the table and sat up straighter in his chair.

With a quizzical angle to one eyebrow, Castillo asked, “Have the Sonora and the Dry Valleys Cooperative decided what they will do when you reach the limits of the high-grade silver?” In this use of the term, high-grade referred to the purest veins and richest ores most easily extracted in a mine. To excavate only the most productive material, while bypassing less valuable ore, was a technique called high-grading. Of note, the same term was sometimes applied to the theft of valuable ores by mine or mill employees.

Malik, seated across from Castillo, nodded. “Both the Co-op and Sonora Mining have been pushing to complete that process. Digging the additional shafts to intercept the vein certainly sped things up. It looks like the high-grade ore in the Sonora mine’s southern drift will play out first. The vein has been diminishing in size for some months. Their north drift looks to be good right up to the reservation line and the Co-Op’s claim.”

Malik sipped his coffee, and set the china cup in its saucer. Then he scooted the chair back a few inches so he could cross one leg over the other. He looked at his friend with a mild frown. “With silver prices being so volatile on the world market, and on a downward trend, the Sonora want to shut down operations when the high-grade vein plays out. That may change if relative prices become more favorable, but that doesn’t seem likely. Speed was more of an issue when it looked like they might lose control of the mine, but the way we structured the contract with the Sonora management corporation made that less likely. As to the market, everyone seems to be buying gold with their silver.” He shrugged. “We have, too, for that matter.” Then he shook his head. “But the price of silver just keeps falling. When we first opened the mines, silver was selling for a dollar an ounce. Now, the price has dropped to sixty-nine cents. The ore that will remain in the Sonora mine would still turn a profit at today’s prices, but it would only be a few pennies on the dollar it would cost to extract and refine it.”

Malik waved his hand dismissively. “In any event, the money itself is not that attractive to the Sonora and they’ve found few ways to use it. Certainly, no one in the clan goes hungry, now, or is cold in the winter, and there are a half dozen Sonora men in college, as well as two women at a nursing school, but the bulk of it is invested in stocks and bonds, with a small fund in the bank accumulating interest.” Malik took another sip of coffee, and added, “On the other hand, the elders council have made sure that none of the money has been spent foolishly.”

“What about the Dry Valleys Cooperative?”

Malik teeter-tottered his head, side-to-side. “We’re not sure,” he replied. “We figure we’ll finish high-grading by the end of the year. At our last partnership meeting, we decided to review the situation each month, but we also warned Fu-Chun that we may be laying off his workers in the New Year. We told him that anyone who is let go will receive a month’s pay when they’re dismissed. Emmet Quincy convinced the Sonora to make the same provision.”

“Has anything changed with the copper or other minerals?”

“No. We’re still not encountering sufficient copper to make extracting it worthwhile, except as a by-product of our silver refining. On it’s own, we can’t compete with the cost-per-ton of the big copper deposits in Michigan’s Upper Peninsula or the new ones in Arizona and Utah Territories. The same goes for the galena. If prices rise, then it might be a different story. Otherwise, we’ll only refine it with the silver.”

“So, you will also close down the stamping mill and the smelter?”

“No. As a matter of fact, the Kanzona’s own coal and gold mining should keep that going, and the two private copper mines, as well, though perhaps with fewer men.”

“What are Emmet Quincy’s plans?”

“If we shut down the silver mines, he wants to work with Pickax Pete; he leaves little doubt about that. And Pete wants to hire him. He thinks he has some real potential and would like to have Quincy working for the road, especially if we plan further development.”

Castillo, with an uncertain frown, pressed his lips together, then released a heavy sigh. “I do not think this is the time for expansion, my friend. In fact, I think that we should consider selling one or two of the divisions.”

Malik, looking surprised, uncrossed his legs and leaned forward toward the table. “Seriously? Sell some branches? You think things will get that rugged? I wanted to talk to you about the Ogallala Division.”

“Emil, look at how the economy has been enlarging. It is not healthy. From what I learned, this is the same things that happened prior to the Panic of 1873. Railroads are building new routes and facilities beyond reason. Banks are loaning money on almost any venture. Worse still, new banks are opening willy-nilly just to climb on that bandwagon. And Congress is not helping. Both the Bland-Allison Act and the Sherman Silver Purchase Act boosted the price of silver, though both fell far short of the silver interests’ desires, as you well know. But even those were artificial prices, and they were not sustained, and all while the country persisted on a gold-based currency. Congress tried to have it both ways, and it simply cannot.

“This conflict between silver and gold has polarized economic interests. I fear a reckoning is coming. The economy is always cyclical. A bounding economy is always brought to heel, and the wilder it bounds the harsher the leash will choke it.

“Beyond even that,” he added, “what happens when the gold reserve is diminished? We are required to have sufficient gold on hand to cover our currency, are we not?”

“Well, yes, but why would our national gold reserve be drawn down?”

“Because, as riotous as it is here, the economic frenzy is worse in Europe. They are buying not only with silver and gold, but on credit from European banks, with individuals and syndicates making purchases all over the world, including here, in the United States. Europeans are buying American mills, factories, cattle ranches, mines, railroads, farmland, stocks, bonds, commodities futures, and what all. And when the bottom falls out, as it must, they will want to sell, even at reduced prices. However, when they sell here, in the US, they will be paid in notes that can be redeemed for gold from our national reserve. They will redeem those certificates for our gold, and that gold will depart for Europe, to pay debts there.”

Malik looked at Castillo for a moment. He began nodding slowly and said, “Okay, I can see that. It means cash will be tight.”

“Even more, it means that cash will be tight during an economic downturn. Washington will have to borrow gold from somewhere. Wherever that turns out to be, it will give those lenders even more influence with our government while our economy is at a particularly vulnerable moment.”

‘So you think we need to pull into our shell.”

“One might say that,” Castillo confirmed.

Malik toyed with his coffee spoon for a full minute, then looked up at Castillo. “If we’re to sell any branches, I would suggest those that connect with just one operator. We should probably guard against being subject to either the whims or the possible misfortunes of only one other road. The UP has been the best example of the abuses possible in their relationship with us.

“So, I would suppose the Ogallala Branch would meet that definition. Moreover, it crosses a state line, so we had to set it up as a separate corporation to protect the rest of the road from provisions of the Interstate Commerce Act. Finally, it’s a terminal line with only the one outlet, the Union Pacific at Ogallala. The UP, being the only exchange road, has us over a barrel.”

Castillo nodded.

“But, in spite of that,” Malik added, “I’m not ready to write it off, not yet. However, we can come back to that, later.”

Castillo said, “I would look forward to hearing any of your ideas.”

Malik continued, “The Grand Junction branch is another that meets with only one other road. It connects at each end with the Denver and Rio Grande and I know the D and RG have been anxious to buy it.”

Again, Castillo nodded. “And so --”

“Ah, but wait, my friend.” Apparently, Malik was not yet finished, and Castillo showed some surprise when Malik said, “The only other, that I might consider, would be the portion of the Amarillo Division between Amarillo and San Angelo. It connects with the Santa Fe at each town. I would hold onto the San Angelo to Del Rio section, though, since it connects the Santa Fe with the Southern Pacific.

Castillo said, “I had not considered selling part of the Amarillo Branch. I was thinking only of the other two.”

“Well, until a few minutes ago, I wasn’t thinking of any of them.”

Castillo had earlier placed a small notepad near his place at the table. He took up the accompanying pencil, and he wrote on the pad for a moment, then said, “I will have to review our records, but my estimate is that that sale may also be in keeping with the measures I am considering.”

Then he looked up from his writing. “I am, however, surprised at your reluctance to sell the Ogallala,” Castillo said, with a quizzical look. “Our interaction with the Union Pacific has been quite troublesome, at times.”

“True enough, but my opinion may be your own fault,” Malik rejoined. “You were the one who hoped the Yellowstone trip would help clear my mind. Well, perhaps it did.”

With a gesture of his hand, Castillo said, “Please proceed.”

Malik sat forward and rested his elbows on the table. “We came through Denver on our way back from the Yellowstone. That is what started me thinking. We changed trains there, from the UP to the Santa Fe, and it reminded me that, including the D and RG, Denver was served by three railroads.

“Well, I’d intended to ease back into work, when I returned, and I’d planned to make my next monthly division visit an undemanding one, so I had thought to review the Fort Birney branch. But the passage through Denver gave me pause, so I decided to visit the Ogallala Division, instead.

“What impressed me was the growing number of acres under cultivation. Wheat appears to be the mainstay, but sugar beets are also a major product. There is also a significant number of acres with Lucerne alfalfa and other hays, as well as potatoes. Besides the planted crops, there are considerable numbers of beef cattle on the dryer, less fertile sections.”

“My point is that that corner of Colorado, from Aurora to Julesburg, is engaged in essential agriculture -- food production -- and people, including our people, will need to eat, no matter the state of the economy. So what I want to urge is not that we simply retain that branch, but that we extend it to Denver. We’d reduce the miles that the UP has to travel between Denver and Ogallala by over twenty percent. We’d also be opening up markets for the farmers and ranchers in those counties. Beyond that, there is still the burgeoning mining and attendant traffic from the central Colorado mountains.”

Now it was Castillo’s turn to pause a thoughtful minute. “Perhaps,” he finally said. “I can see all that -- with possibly one exception.”

“Before we get to your exception, I have one more argument,” Malik, once more, interjected. “We have two main sources of revenue in our short-line work. One is the transfer of goods from one terminus to another, that is, carrying goods from one end of the line to the other end, usually as transfers of cargo from one road to another. The second primary source is with cargo originating or terminating along the branch; in other words, local business. The latter is the more lucrative for us by way of earnings versus costs.

“Right now, our most productive divisions are the Kansas Southern and the Fort Birney branches, because they each have a good mix of both through transfer and local business. While the other branches have a greater preponderance of through traffic, the Ogallala branch is purely local business. Two things hold the Ogallala back from even higher profitability: the UP’s stranglehold on us and the fact that we don’t have the second profit center of the through business. I think the Ogallala has even more potential than the Kansas Southern.

“Now, what’s your one possible exception?” he asked Castillo.

“I will grant that you make a convincing argument. However, as you observed, wheat is the dominant crop along the Ogallala Division. I would note, though, that wheat yields are on the rise throughout the country, as both wheat varieties and farming techniques improve. At the same time, farmers are not only placing more acres in wheat, but more farmers are adding wheat to their crop selection. As a result, wheat production is growing aggressively.”