Timberline holds a 50-percent carried-to-production interest in the Butte Highlands Gold Project, located approximately 15 miles south of Butte, Montana, where gold production is expected to commence in 2013. The project is located within a favorable geologic domain that has hosted several world-class, multi-million ounce gold deposits including Butte, Golden Sunlight, Montana Tunnels, and Virginia City.
The Butte Highlands Joint Venture (BHJV) is the first example of Timberline's strategy to participate in gold production through creative structures. Timberline expects to achieve production without assuming the development risk and without dilutive equity financing, burdensome debt financing, or the sale of valuable royalties that would inevitably have been required if the Company funded development itself.
Timberline management does not foresee any material permitting or regulatory impediments to BHJV receiving its Hard Rock Operating Permit (HROP) later in 2013 and advancing into commercial gold production shortly thereafter. In late 2012, BHJV received a draft HROP from the Montana Department of Environmental Quality (MDEQ), along with a Compliance Determination setting forth the MDEQ's determination that the completed application for the operating permit complies with the substantive requirements of Montana's Metal Mine Reclamation Act. The MDEQ has scheduled completion of the review process and issuance of the final HROP in August 2013.
Meanwhile, the MDEQ continues to process the water discharge permit and the United States Forest Service is coordinating completion of the permit for road use to allow material haulage. Completion of these permits is expected prior to receipt of the Final HROP.
In anticipation of permitting progress, BHJV has initiated contractor selection for development of the site water treatment plant and has advanced plans for additional underground drilling and development towards a bulk sample anticipated to begin upon receipt of the HROP. The Company has completed more than 4,500 feet of underground development and completed construction of surface facilities for the project, all of which are located on private lands owned by BHJV.
In 2011, Timberline conducted a 53,000-foot underground diamond drilling program at Butte Highlands to more precisely outline the first several years of mine production, focusing on the upper portion of the "Old Mill Block" which has dimensions of approximately 275 feet along strike, 1100 feet down dip, and a mineralized thickness of 8 to 15 feet. The program returned significant mineralized intercepts, including one of 14.5 feet grading 6.77 ounces of gold per ton. Butte Highlands was extensively drilled by Battle Mountain Gold, Placer Dome, ASARCO, and Orvana Minerals in the 1980s and 1990s, prior to its acquisition by Timberline in 2006.
In 2009, Timberline formed BHJV with Highland Mining, LLC for the purpose of developing and mining the Butte Highlands property. In 2012,Highland was sold to Montana State Gold Company, LLC (MSGC), a private Montana company. MSGC has assumed Highland's $24-million loan and will fund all remaining mine development costs through to commercial production. Both Timberline's and MSGC's shares of development costs, including the loan, are to be repaid with proceeds from future mine production. Once in production, Timberline is to receive 20-percent of project cash flow until Highland recovers its initial capital expenditures, at which time Timberline will receive 50-percent of cash flow.