These are exciting times for Timberline Resource Corporation (TLR), a company that is uniquely positioned to capitalize on current and future economic trends.
Having just passed one of the largest one day plunges in the Dow, in the past two years, investors are looking for alternative investment opportunities and are returning to the fabled “hard asset” class that provide a sense of security during economic instability. During times such as these it is important not to only look at the producers of “hard assets” but to also look at the support staff involved in these ventures.
As such, many investors are drawn to the miners, such as Newmont (NYSE:NEM), Barrick (NYSE:ABX), Goldcorp (NYSE:GG), and other major producers who supply precious and base metals to the industrial, and investing, communities. However, it is critical to realize that even major producers contract out some or most of their underground drilling and mining operations to independent companies in order to lower their own cost of operations. Timberline Resource Corporation encapsulates this type of independent contractor who drills and physically extracts the ore from the mines for producers.
As previously mentioned, this has been an exciting year for Timberline Resource Corporation. From its modest beginnings, Timberline has succeeded in growing its drilling operations from four drilling rigs to twenty-four in a span of approximately two years. In addition to this robust and organic growth, Timberline is reaching out and taking steps towards acquiring one of the largest independent mining development companies in the United States. Small Mine Development [SMD] was formed in 1982 by Ron Guill, who is also a director for Timberline. SMD has been a consistently profitable company and has enjoyed double digit revenue growth over the past five years, coupled with 22 – 24 percent gross margin on revenue [EBITDA]. With the addition of an equally sound company such as SMD, Timberline is in a favorable position to capitalize on opportunities as they move into the future. As presented by the company in the most recent conference call, management expects the acquisition to close around the middle to end of July.
A bit more information on the acquisition of SMD includes, a total purchase price of $80 million, consisting of $45-million in cash at closing, $15-million in Timberline common stock (valued at $3.21 per share), and $20-million paid in $5-million increments over four years. Ron Guill, founder and owner of SMD, has agreed to stay on with SMD over the next four years and assist in the merging of the two companies. With the recent up-listing to the American Stock Exchange (Ticker: TLR), Timberline has gained further credibility among institutional, and high net worth, investors. With further exposure to the greater investing community Timberline’s name, and business, should gain momentum over the coming weeks and months. There are very few mining companies that have the ability to explore, drill, permit, and mine all in-house and in Timberline’s case the value is truly in the sum of its parts. As Timberline moves closer towards the SMD acquisition I expect the mining industry as well as financial community will come to realize the very unique opportunity in Timberline.
The instability in the economic environment worldwide, over the past eight to ten months, has brought to light serious flaws in areas such as the housing market and sub-prime mortgages, increased inflation, devaluation of the dollar, and substantially higher commodity and energy costs. These events are ones that we are all well aware of, and in many circumstances affect our everyday lives. However, as an investor it is not only important to identify our current economic environment but evaluate where we are headed as a nation from this point in time. Looking forward six months, one year, two years, and five years, it is imperative to anticipate what our overall economic structure will look like and identify what sectors will be positioned to profit from it. Specifically addressing the mining sector it is evident, by all accounts, that base and precious metals will continue to remain in demand over the coming years. Although there is debate on the supply inventories of specific ore types, the general overarching consensus of the mining sector is that demand for ore will exceed supply over the next three years and possibly well into the next decade. With developing countries demanding incremental increases in supply of specific ore, such as steel, lead, copper, and zinc, this bodes well for mining companies.
Further, those companies that specialize in extraction of those ore bodies, such as Timberline, should continue to see additional long-term contracts develop for the services that they provide. With restrained optimism for the sector in general over the coming years, it would behoove the objective investor to analyze and consider companies such as Timberline who are strategically aligned to capitalize on the immense opportunity presented.
Disclosure: Author holds a long position in TLR