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.
Timberline's JV partner at Butte
Highlands has decided to advance the project into production without first
establishing mineral resources supported by an independent technical report or
completing a feasibility study. A production decision without the benefit
of a technical report independently establishing mineral resources or reserves
and any feasibility study demonstrating economic and technical viability
creates increased uncertainty and heightens economic and technical risks of
An historic mineral resource estimate for the Butte Highlands Gold Project is included in the current NI 43-101 Technical Report dated May 10, 2013, but a qualified person has not done sufficient work to classify any of the historic estimates as current mineral resources. Timberline is not treating these estimates as current mineral resources, and the historic estimates should not be relied upon. There is no current mineral resource or reserves estimate for the Butte Highlands project. The historic mineral resource estimates are described in the Report as follows:
Orvana (Roper, 1997) reported that Battle Mountain identified a structurally controlled "underground mineable resource" of about 200,000 ounces of gold at the Highlands mine in 1989, while Placer Dome discovered a sediment-hosted skarn "resource" of about 30,000 ounces amenable to open-pit mining at the Chief (Ballarat) mine area east of the Highlands mine in 1991 (the Ballarat mine is not part of Timberline's Butte Highlands project). Orvana's description did not include any information on the assumptions, parameters, or methods on which these estimates were based.
Orvana used their drill results and historic drilling data to estimate a "geologic resource" for the Nevin Hill deposit in June 1997, using manual cross-sectional methods (Roper, 1997). Twelve northwest-facing cross sections were constructed on 100-foot centers. Polygons were drawn on the sections to encompass drill-hole intercepts greater than 0.1 oz Au/ton over greater than or equal to 10 feet. The polygons were then projected section to section to achieve a volume. Grade was assigned based on weighted-average intercepts within the shapes, and a rock density of 12 ft3/ton was applied to the volumes. The resulting "resource" estimated by Orvana was 583,253 tons grading 0.335 oz Au/ton in the "Measured and Indicated" categories for a total of 195,208 ounces of gold; Orvana did not separate the two categories of "resources". They also calculated an "Inferred" category by projecting 500 feet along trend from the drill-hole intercepts, but MDA believes this is not appropriate for the Butte Highlands skarn mineralization and therefore these results are not reported herein. Orvana noted that the Nevin Hill mineralization remained open down dip and along strike (Roper, 1997).
(1) Reference: Technical Report on the Butte Highlands Gold Project, MDA, Effective May 10, 2013, Filed on SEDAR May 23, 2013.