Expert: Steven Taylor - 7/8/2009

Question
HOW SAFE ARE MY STOCKS WITH MLM MILSTREAM MINES MATHESON ONTARIO

Answer
I am not sure what you mean by "safe", as ALL exploration companies are very risky. Buy and Hold strategies don't work well with exploration stage companies, as the vast majority of them don't have long-term success. That is not in any way to suggest that a person cannot do well in buying and selling these shares, however. They trade in a completely different manner from large company shares. They trade more on rumor and news, as they have no earnings to measure them against their peers.

In the case of Millstream, the stock is trading for 3 cents, and they have very little capital. I don't follow the company, but in terms of "safety", I think the market is telling you all you need to know. Keep in mind, though, Canadian exploration companies usually don't go out of business as they would in non-resources industries. Exploration stage companies usually have few creditors, and if they find themselves in a capital crunch, they will usually drop the properties (and the associated future expenditure requirements), settle the remaining debts with shares or new cash, reverse split the stock, and eventually try it all again. If you take a look at the charts of some of these long-time exploration companies, they may still be in business 20-30 years from inception. BUT, because of all the stock dilution to raise operating capital, and reverse-stock splits to consolidate the stock after the failed projects, holders who have owned the stock for 20 (or 10, or in some cases, even 5 years) have lost the majority (i.e., 95-99%) of their investment. Of course, the stock price may have also doubled or more several times during the same period - it is all about picking your spots, not getting greedy, and being able to closely monitor such share prices, as the opportunities for profit can be very, very short. These stock price fluctuations are just the nature of the beast, and if you don't have the ability to handle or absorb such risk, or are not willing to closely follow the companies and their news, do not buy exploration stage resource companies. And, even if you can handle it, the investment in such companies should only be a small portion of your well diversified investment portfolio.