-- Posted Thursday, 18 February 2010 | | Source: GoldSeek.com

By: Ian Cassel

I spoke with the TLR management team yesterday to get an update.  A quick summary of the company:

Timberline Resources Corporation is a diversified gold company comprised of three complementary business units: An underground mine with upcoming gold production, exploration, and drilling services. Its unique, vertically-integrated business model provides investors exposure to gold production, the “blue sky” potential of exploration, and the “picks and shovels” aspect of the mining industry. Timberline has contract core drilling subsidiaries in the western United States and Mexico and an exploration division focused on district-scale gold projects with the potential for near-term, low-cost development. The Company has formed a 50/50 joint venture with Highland Mining, LLC, an affiliate of Small Mine Development, LLC, at its Butte Highlands Gold Project where development commenced in 2009.

Update:

• TLR’s Butte Highlands Gold project is about 12-15 months away from gold production.
• The project is fully funded to production by their JV partner Small Mines Development (SMD).
• Permitting:  Timberline is expected to submit their mining permit in March and they expect no issues.  The permit is expected to take 9-12 months to receive.  This corresponds nicely with the amount of construction needed to be complete (12-15 months).
• SMD is also doing all the mine development and will be the mining contractor once mining begins.  SMD is expected to spend $15-18 million on construction which will be repaid to SMD from cash flow from the mine.
• Currently, SMD is driving the underground decline (ie basically an underground tunnel to reach the ore body).  The decline will take approx 12 months to complete and when finished will be 6,700 feet long.  SMD works 24 hours a day and is able to tunnel about 15-25 feet per day.
• As SMD constructs the tunnel deeper underground, TLR’s subsidiary Timberline Drilling (another synergy), will use its underground drill rigs to better define the ore body for when production begins.  It is expected that 60,000 feet of delineation drilling (both core and RC drilling) will be completed before production begins.
• Butte Highlands has roughly 750,000 ounces of Gold, roughly a 10 year mine life.  The company feels confident that once further drilling is complete Butte Highlands gold reserves could be close to 1 million ounces.
• SMD will be repaid their $15-18 million during the first year of production.  Net Income will be split 80/20 until SMD is repaid.
• An MOU has already been signed to truck the ore from Butte Highlands to a local mill.
• The mill can process 750 tons per day, so given the head grade, annual production will be ~70,000 ounces annually.
• At $1,000 Gold, Butte Highlands will produce ~$32 million in Net income per year.  SMD will be repaid in roughly 8 months via 80/20 split of cash flow, and there after Net Income will be split 50/50 between SMD and Timberline.

The Opportunity:

• At $0.95 TLR represents a phenomenal value as most gold producers trade at 10-15x net income or more.  Timberline currently has 52 million fully diluted shares outstanding with no financing risk. Once SMD is fully repaid out of mine cash flow (est Q4 2011), TLR will have annual net income of $16 million or 0.31 EPS.  A potential share price of $3-5 over the next 18 months is certainly attainable, and any additional land/resource acquisition could add greatly to my expectations.
• Construction Photos
• Net Income Analysis

Disclosure:  LONG TLR

Ian Cassel

http://iancassel.com/
-- Posted Thursday, 18 February 2010 | Digg This Article | Source: GoldSeek.com

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