The price of gold has risen from $900 oz to over $ 1500 oz over the last two years, and almost every junior mining company has gone up at least 300%+ over this time frame. As an investor whose portfolio was 90% invested in precious metals beginning in 2005 (exited mid-late 2010), I keep a close watch on the precious metals mining space and particularly the micro-small cap participants. One company which has been capturing my attention lately is Timberline Resources (NYSEMKT:TLR).
Timberline Resources is a hybrid exploration/mining company with a mining services division. Timberline Resource’s wholly owned subsidiary, Timberline Drilling, provides drilling services to the mining industry. Timberline Drilling clientele are some of the largest mining companies in North America. Timberline Drilling produces positive cash flow which is re-invested into Timberline Resource’s late stage gold projects: Butte Highlands Gold Project and Lookout Mountain Project.
The Butte Highlands Gold Project is expected to go into production in early 2012. Butte Highlands is a 50/50 carried to production joint venture with Small Mines Development. The mine is expected to produce 60,000 oz of gold annually at a $450 cash cost with a 10 year mine life. At $1,000 gold, Butte Highlands will produce over $17 million of income to Timberline Resources.
The Lookout Mountain Project was acquired in 2010 for $17.54 per ounce of gold resource. The property currently has ~500,000 (M&I + Inferred) ounces of gold. Timberline is currently working on a preliminary economic assessment of the property. If a positive production decision is made in 2012, I believe it would be realistic to have Lookout Mountain in production in ~3 years (similar CAPEX to Butte) adding to Butte Highlands production.
Timberline Resources currently trades on the NYSE AMEX at around a $60 million market cap (Share structure 61m basic/78m FD). The share count has increased 50% over the last 18 months (40m – 61m) but this is in line with every other junior mining company in the market, and it hasn’t stopped those stocks from going up 300%+. Does this make TLR a good arbitrage as the shares will eventually be reassessed higher? I don’t know, but the lack of appreciation is a head scratcher. With gold production expected within 12 months, one would assume a production premium would start showing up in TLR shares over the next few months.
Timberline Resources Corporate Presentation can be viewed HERE.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.