Company Overview

Timberline Resources Corporation is a diversified gold company comprised of three complementary business units:  a mine in development with upcoming gold production, an active exploration division, and two drilling services subsidiaries.  Our unique, vertically-integrated business model provides investors exposure gold production, the "blue sky" potential of exploration, and the "picks and shovels" aspects of the mining industry.  We have contract drilling subsidiaries in the western United States and Mexico and an exploration division focused on evaluating advanced-stage exploration opportunities with potential for near-term development and production.

We formed a 50/50 joint venture with Small Mine Development ("SMD") at our royalty-free Butte Highlands Gold Project which commenced development in the summer of 2009 and has gold production targeted in 2011.  We believe that this partnership is a model for future opportunities in underground mine development and mining with SMD, and that projects similar to Butte Highlands are a good fit for the current market environment and for the unique qualifications of both companies.  We are long-term believers in metals and mining.

In early 2008, demand for drilling services was unprecedented.  Our greatest challenges were high energy and labor costs, along with a dearth of experienced operational management personnel.  By the end of 2008, these issues were essentially resolved as the credit crisis, global deleveraging, and hedge fund liquidation gained momentum, resulting in sharply decreased demand for mining services.  These developments adversely impacted the plans of many mining, mining services, and mineral exploration companies, including Timberline.

After investing significant resources into our planned acquisition of SMD, the collapse of financial markets prevented us from executing the transaction on acceptable terms, leading to its cancellation.  However, we have successfully realized our listing on the American Stock Exchange (now NYSE Amex), the restructuring of our drilling services business and, especially, the successful advancement of our Butte Highlands Gold Project to the development stage and the forming of a joint venture to take it to production.

Our management team has experience, depth, and a solid track record of achievement - building successful companies and discovering economic orebodies.  We have the people and the knowledge base to pursue growth opportunities, organically and through acquisitions, building upon our in-house capabilities to explore, permit, drill, develop, and mine.

Despite recent unprecedented market conditions, we remain optimistic and excited about our future.  Please take a close look at our Butte Highland Gold Project and I believe you will understand and share our optimism.  On behalf of the Board of Directors, I would like to again thank our shareholders for their support while inviting others to take a closer look at the compelling value we offer.  Please feel free to contact us at any time to discuss our progress, our outlook, and our plans.

Sincerely,

Randal Hardy
CEO
(208) 664-4859