After studying and satisfying one's self as to the directorate of a company, we should next look at the capital, which is equally as important a matter. Indeed, a company may have an honest and most capable board of directors, but if it be over or under capitalized, then its success is greatly jeopardized. Indeed, I do not think it would be exaggeration to say that one or other of these causes is responsible for the majority of failures of gold-mining, as well as of other companies; and unless investors, and even speculators, exercise more discretion in this essential matter, they must run many serious risks. If it be under-capitalized, for instance, then the mine cannot be properly developed, and recourse is had to reconstruction, or some other method of raising additional capital. All this, of course, is greatly against both the speculator and the investor, for a company that is continually undergoing reconstruction, or appealing to the shareholders for fresh capital, even if the mine be a very promising one, soon gets into bad odour. The shares fall in price more and more, and hence the investor sees his capital steadily depreciate, whilst to the speculator such a share is no longer useful; or, at least, it is useless for a time, and thus it is the loss to him of an opportunity, and the more the opportunities the greater the chances of success he has.

Without adequate capital, therefore, a mining company, like any other business concern, cannot make headway, whilst if it be overburdened with capital, though the mine may be developed in a thorough manner and equipped with the best machinery, it may not be able to earn sufficient profits to give a return upon its capital. Therefore, as an investment it is a failure, and as no one puts money into a company merely with a philanthropic object, to provide a means of living for the directors, officials, and servants, no man in his senses would think of buying the shares. The mine may be turning out tons of rich ore, going an ounce or two ounces to the ton, but, all the same, it may be working at a loss. Overcapitalization is more common than undercapitalization, and is responsible for the wreckages of a larger number of mines. It doesn't follow that because a mine is floated1 with a huge capital the major portion of that capital will be employed in the legitimate development of the mine. In the great majority of cases it is not. In the first place, the property may have been bought at an exorbitant price, far above its intrinsic value, the greater portion of it, therefore, going into the pockets of the vendors and promoters. Then, out of a huge capital, quite an inadequate amount may be apportioned for working capital, altogether insufficient to develop the mine, and, therefore, in this case likewise early recourse is had to reconstruction, or debentures, or the issue of priority or preference shares, and thus an already huge capital is still further inflated, making ultimate success a still greater unlikelihood.

The most ordinary intelligence, therefore, will see the great, the vital importance of this matter; and yet it is a fact that the most ordinary intelligence rarely takes the trouble to see it. What is the earthly use of honest men attempting to make a success of an undertaking where the obstacles and difficulties are so many that success is impossible? Let us take the case of a man speculating in the shares of such a company. Everything looks exceedingly promising. Very few mines have been floated that have such brilliant prospects. It is situated in the heart of a rich and well-known district; it has been examined by well-known experts, who speak of it in terms of enthusiasm; and there is no lack of water, timber, labour, etc., and therefore it is bound to be an excellent medium for speculation. But this is one of the very reasons why the vendor puts a high price upon it, and why the promoters are only too willing to give it to him, knowing that they can ask the public any price they like for it, and that they will get it. Thus, its flotation is sure to be a success, and they will have all the more to pocket for themselves. But as a speculator we forget all this. We do not trouble our heads about it. We are not investing our money in it, and, therefore, it matters little whether the company is a success or not in the long-run. So we subscribe to the shares and get an allotment, and we make our calculations as to how long we should hold them before selling them again.

But for once in a way reason prevails. The public do not subscribe to the extent the promoter anticipated, and recourse is had to the underwriters. The public has the sense to see, or it has been forcibly pointed out to them, by some influential paper probably, that the company is grossly overcapitalized, and thus they are frightened. This is eventually made known, and naturally deters investors and speculators from buying and dealing in the shares. It is known that the vendors and promoters have loaded themselves with scrip, that this scrip is bound to be thrown on the market before long, so until that is all absorbed speculation would be attended with too many risks. The shares are thus quoted at a discount even from the very commencement, and may not even reach par for many years, so that our little speculation in these shares is attended with loss. Thus it behoves us, even as speculators, to make a study of all these essentials, and not to ignore them entirely. They can be ignored with less risks in time of a boom, when the public are excited and eager to subscribe to anything in the way of mining shares, whatever their prospects or lack of prospects might be. But even then miscalculation might easily be made, especially by holding on too long, for a collapse may come more suddenly than we anticipated.