The speculator runs as many risks, if not more, by speculating in the shares of an undercapitalized company, for a proposal for reconstruction may startle holders and the market before they are prepared for it, and thus knock prices down to a level at which all our gains may vanish like mist in the sun. Therefore, after all, the speculator cannot drift along so easily as he may think. He must take the trouble to calculate, and not trust entirely to luck, for those who make the most elaborate calculations are undoubtedly the most successful speculators. He would do well to bear in mind the amount of shares held by promoters and vendors, and calculate the effects of the selling of these - for such men do not keep scrip to look at - especially when the period approaches when they are marketable. For he may still be holding for the rise when he could secure a small profit, even until the very time arrives when the market is overwhelmed with scrip, and when dealers are putting prices down in consequence, for vendors and promoters will make sure of their money, even if they have to sell at a discount.

As for the investor, it is even of greater importance that he should assure himself that a company is not handicapped by too little capital, and not overburdened by too heavy a capital. In the first place, as I have said, he will find his investment lessened considerably in value by the issue of debentures or preference shares - which, will only be taken up with the bait of a large interest - or else he may be called upon to pay another assessment upon his shares in a reconstruction. Indeed, the company may ultimately be burdened with debentures, preference shares, and two or three reconstructions before the mine is adequately developed and making returns, and then those returns may not be sufficient to leave any interest on the ordinary shares after provision has been made for the debentures and preference shares. Thus he may wait patiently for years and years, and then find his shares as valueless as waste-paper, and curse mining instead of his own foolishness and lack of ordinary business discretion. It isn't as if this was a rare experience, and therefore that he had no precedent with which to guide him. It is the almost invariable fate - the exceptions being very, very rare - of all such companies. They are doomed to struggle from the very beginning of their careers, and probably never recover from their accumulating burdens and troubles. Therefore, another golden rule both for the investor and the speculator is: Avoid the shares of undercapitalized companies.

The risks are just as great if we invest our money in overcapitalized companies, for though such a company may never appeal for further capital, nor issue debentures, nor reconstruct, and may have enough money to develop the mine properly, yet it may never be able to earn sufficient profits to give us a dividend on our shares. The shares of such a company are not likely to command a premium on the market, and they are far more likely to fall than rise. Therefore, as we invest our money with the sole object of getting a return on it, and as we see no likelihood of any return, great or small, then the investment is a failure and a loss to us, and should be avoided. From this the further rule may be deduced: Do not invest in overcapitalized companies, nor even speculate, if you would only run a minimum of risk.

But when we come to discuss the question as to what is an adequate capital, we find ourselves confronted with many difficulties, such as we do not encounter in the case of industrial and other companies. Where experts will differ no wonder the layman will find himself greatly perplexed. No golden rule can be laid down, and the capital, like many other things, must vary with the circumstances of each mine and company. We must in the majority of cases use our common-sense, and where that is lacking, then, of course, we must trust a great deal to chance. In the first place, the capital of a company should be in proportion to the area of the property which it is purchasing. The majority of experts, I believe, consider that for a good property of from 12 to 50 acres the capital should be fixed between £100,000 and £150,000, out of which sum a fair amount of working capital may be provided, both to develop the mine and to put up a fair-sized battery. But if the mine turns out to be a very poor one, the yield small, and the working expenses great, then, of course, such a capital would be far too much, for no dividends could be paid upon it. No mining company, however, ought to be floated with less than £100,000, except in those cases where a great amount of development work has been done, where machinery is already provided, and where returns are about to be made. In such rare cases considerably less capital will be sufficient.

But we see some mines with quite a small area floated with a capital of half a million or three-quarters of a million, nearly all of which, with the exception of a small sum for working capital, is paid to the vendors and taken by the promoters, and in any such company I think it would invariably be wise not to put one's money. Some companies, on the other hand, take up properties of several thousands of acres, and are floated with an exceedingly small capital, but it is obvious that they do not intend to develop the whole of it. That would be impossible. They intend merely to open up a small area of it, and to float the rest of the property into subsidiary concerns, and thus make their profits out of promotion. These are chiefly finance and exploration companies, which meet with considerable success when a new gold-field is opened up, and thus they may be good speculative shares. But, as a rule, their lives are short and sweet, especially if the subsidiary companies turn out to be worthless, as we find to be frequently the case. But as these companies themselves are speculators, and make their profits by speculating in the market, they are great competitors of the private speculator, though that competition might be of real assistance to the astute, clever man. Some of them turn out to be good investments, like the Consolidated Gold Fields of South Africa, the South African Gold Trust, Rand Mines, and one or two others, but, nevertheless, they must be regarded as, in the majority of cases, precarious and risky.