-- Posted Tuesday, 28 December 2010 | Digg This Article
| | Source: GoldSeek.com
Original submission to TheStockAdvisors.com Top Pick Challenge for 2011 follows for subscribers of Got Gold Report.
Timberline Resources (NYSE-AMEX:TLR; TSX-V:TBR) is a soon-to-be gold producer we at Got Gold Report believe has been overlooked by the market, but we doubt it will remain overlooked for much longer.
Gold and silver had a pretty good year in 2010. With gold up more than 30% and silver up more than 70% lots of gold and silver miners and explorers saw tremendous gains over the past year as wealth found its way into them and investors sought to join in on the decade-long precious metals boom.
The fundamental forces which have propelled the prices for gold and silver haven’t changed. If anything, we believe they are every bit as compelling as they were in the beginning of 2010 when we chose the largest silver ETF, iShares Silver Trust (SLV), as our Top Pick for 2010. SLV advanced as much as 75% last year.
Our chart for silver, which was not part of the AOL submission, is just below for reference:
Growing interest in the precious metals sector and higher prices for most companies makes finding undervalued companies more difficult, but not impossible. If we found a good company in the mining space the market has so far overlooked, that might make for good candidate for our attention in 2011 – assuming we believe that the world will continue to more or less hold it together and precious metals will remain precious.
One company the market has not yet rewarded, even though it should be a low-cost producer of gold in either late 2011 or early 2012, is Timberline Resources (TLR), shares of which are not very far from $1.00 U.S. as of late December of 2010.
Not exactly a household name, yet, Timberline’s superior management teamed up with the premier underground mining and development company in North America, Ron Guill’s Small Mine Development (SMD), to develop the Butte Highlands gold deposit just south of Butte, Montana. Timberline provided the project; SMD provides the development funding and knowhow to bring the gold ore out from under Nevin Hill via a mile long-plus tunnel driven from the side of the mountain down to the multiple pay zones. When we visited the future mine in June of 2010 the 16-foot tall and 14-foot wide development ramp had already been excavated nearly 1,000 feet down toward the “good stuff.”
There in Butte we met with TLR Executive Chairman Paul Dircksen, CEO Randal Hardy, Senior Geologist Art Glover and other members of the TLR team. We also had the pleasure of meeting SMD’s Ron Guill and Project Superintendent/Foreman Lou Myers who provided a comprehensive tour of this environmentally friendly underground mine with a tiny surface footprint of only about 20 acres of Montana countryside overlooking Butte.
TLR CEO Randal Hardy (left) and Executive Chairman Paul Dircksen
We came away impressed that these mining professionals are what we call “The Real Deal” in Texas.
Timberline shareholders benefit from the SMD partnership because the company did not have to heavily dilute the share structure in order to raise the development capital to get the gold ore out of the ground. In addition, the company will spare investors the cost of building an expensive processing mill because the ore can be hauled to nearby existing third-party processing facilities already permitted and operational in Montana.
Once the development capital has been recovered through production, the partners will share the net proceeds of the gold mined at Butte on a 50/50 basis. Timberline estimated in 2010 that the cost of production for the gold would be less than U.S. $500 the ounce given the richness (high grade) of the deposit. With gold above $1,300 the ounce that means that the Butte Highlands project should enjoy significant positive cash flow once production, estimated to be about 50,000 to 70,000 ounces per year, begins. (Actually the numbers would work and work well at substantially lower gold prices.) The mine could be operational for approximately ten years at that production level, perhaps longer if there are additional resources discovered just ahead.
Based on historic drilling and some more recent drilling from the surface, the company estimates there is something north of 750,000 ounces of recoverable gold at Butte Highlands (including about 323,000 ounces of “Measured and Indicated” ore averaging .28 ounces per ton of Montana rock and about 435,000 ounces of “Inferred” material grading .254 ounces per ton), but the company has not yet found the limits of the deposits. Timberline plans underground drilling from the development ramp early in 2011 to better define the deposit and perhaps to discover new zones of ore – a potential news catalyst for TLR investors in 2011.
Paul Dircksen and Gene Arensberg at the entrance to the Butte Highlands development ramp in June, 2010.
Underground drilling can be done faster and much cheaper than drilling from the surface because the drills are very close to the intended targets.
Butte Highlands Project Superintendent Lou Myers giving us instruction on the emergency gear before entering the mine. All photos above: Gene Arensberg
In addition to the Butte Highlands project, Timberline acquired the South Eureka Property, which Timberline says “is one of the largest undeveloped exploration properties in Nevada, encompassing some 23 square miles, and which is situated within four miles of the Archimedes Mine (Barrick Gold Corp.),” where Timberline is executing an aggressive exploration program.
Timberline says the exploration program, which includes new exploration drilling, geophysics, continued mapping and sampling, and metallurgical analysis, “will further define and potentially expand, the previously reported resource estimates.” The company that Timberline acquired to obtain the South Eureka project had estimated a gold resource of approximately 800,000 ounces at the Lookout Mountain project on the property.
Lookout Mountain is just one of the promising projects Paul Dircksen, a 40-year veteran seasoned geologist with multiple economic deposits and mines to his credit, sees in Nevada. The South Eureka Property encompasses some 15,000 acres and hosts multiple sediment-hosted gold targets in the Battle Mountain/Eureka gold trend, four of which have already been identified by Timberline as additional project areas. Additional targeted drilling and testing of other exploration targets is already underway.
Timberline also has a profitable exploration drilling subsidiary in North America, generating cash flow and providing the company with an additional, regular source of revenue. With higher gold and silver prices, their contract drilling subsidiary should be quite busy in 2011. Timberline contracts its drilling rigs and crews to the giants of the mining industry.
One of Timberline’s “Jumbo” underground drills in action. (Photo Timberline Resources).
At Got Gold Report, we think that Timberline is the proverbial overlooked gem, worthy of our time and our investment. Indeed, given what we already know about the company and given its superior management and prospects just ahead, we think that TLR deserves to be our Top Pick in the gold sector for 2011. Timberline may have been overlooked by the market up to the end of 2010, but with the company rapidly progressing toward production in Montana and with exploration drills currently turning in Nevada, we sincerely doubt it will remain that way in 2011.
TLR, which trades in the U.S. on the NYSE-AMEX, and in Canada under the symbol TBR on the Venture Exchange, has about 56 million shares issued and outstanding, about 73 million fully diluted. TLR was chosen for inclusion in the Russell Microcap Index in July of 2010. Our first target for TLR is U.S. $5.00, and we would not be at all surprised to see that target hit by mid-2013.
For more information about Timberline Resources the company website is here. For more about GotGoldReport.com click here. The author holds a long position in Timberline Resources and TLR is a sponsor of GotGoldReport.com, but we would have chosen TLR for our 2011 Top Pick even if they were not one of our corporate sponsors.
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Edit December 21, 2010: Santa arrives early, giving us a terrific buying op (we think, but please do your own due diligence to see if you agree) and probably a lower starting point for the AOL Challenge. This makes TLR one of the few tax loss candidates, so the downward pressure might be more than expected. Love it! We are on the bid today and will be adding into this news-inspired dip for TLR. We want to own more, not less of TLR.
(End of public version of this offering)
That is all, carry on.
Gene Arensberg
www.gotgoldreport.com
