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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | ||
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from _____________ to _____________
Commission file number: 001-34055
TIMBERLINE RESOURCES CORPORATION | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Exact Name of Registrant as Specified in its Charter)
(208) 664-4859 (Registrant’s Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Number of shares of issuer’s common stock outstanding at INDEX
The effects of the continued outbreak of COVID-19 and related government responses could also include extended disruptions to supply chains and capital markets, reduced availability of contractors and a prolonged reduction in economic activity. These effects could have a variety of adverse impacts on the Company, including its ability to conduct exploration activities. As of March 31, 2022, there were no material adverse impacts on the Company’s operations due to COVID-19. As of March 31, 2022, Timberline Resource’s available cash is $1,050,903. Management believes the Company has adequate liquidity to fund current obligations and commitments. To the extent that future access to the capital markets or the cost of funding is adversely affected by COVID-19, the Company may need to consider additional sources of funding for operations and working capital, which may adversely impact future results of operations, financial condition, and cash flows. The Company has taken steps to mitigate the potential risks to suppliers and employees posed by the spread of COVID-19, including work from home policies where appropriate. The Company will continue to monitor developments affecting both its workforce and contractors, and will take additional precautions as necessary. The ultimate impact of COVID-19 depends on factors beyond management’s knowledge or control, including its duration and third-party actions to contain its spread and mitigate its public health effects. Therefore, the Company cannot estimate the potential future impact to its financial position, results of operations and cash flows, but the impacts could be material.
PART I — FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
See accompanying notes to consolidated financial statements.
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS: Timberline Resources Corporation (“Timberline” or “the NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The dilutive effect of convertible and outstanding securities
At
For the
NOTE 4 –
At March 31, 2022 and 2021, the NOTE 5 – On
At March 31, The accrued interest on The $270,991 senior unsecured note payable would be senior to any other debt obtained by the Company subsequent to September 30, 2021. The note requires that when the Company enters into any other financings, 25% of
NOTE 6 – COMMON STOCK AND WARRANTS: At the Annual General Meeting of shareholders held on April 14, 2021, the shareholders approved an increase in
During the six months ended March 31,
During the six months ended March 31,
At March 31, 2022, the Company
NOTE 7 –
During the
On October
On May 6, 2021, the Company granted a total of 2,785,000 options to employees, consultants, officers and directors to purchase shares of the Company’s common stock that expire
The fair value of the
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TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES |
March 31, 2022 (Unaudited) |
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Options Granted at May 6, 2021 Options Granted at October 8, 2020 Expected volatility Stock price on date of grant Exercise price Expected dividends Expected term (in years) Risk-free rate Expected forfeiture rate 167.9 % 171.9 % $ 0.20 $ 0.25 $ 0.25 $ 0.25 - - 5 5 0.05 % 0.09 % 0 % 0 %
-
Expected term (in years)
3
Risk-free rate
1.68%
Expected forfeiture rate
0%
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NOTE 9 – STOCK-BASED AWARDS (continued):
The following is a summary of our options issued underactivity for the Amended 2005 Equity Incentive Planfiscal year ended September 30, 2021 and the 2015 Stock and Incentive Plan:six months ended March 31, 2022:
| Options |
| Weighted Average Exercise Price | ||||
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Outstanding at September 30, 2017 |
| 2,233,334 |
| $ | 0.41 | ||
| Expired |
| (245,000) |
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| (0.41) | |
Outstanding and exercisable at December 31, 2017 |
| 1,988,334 |
| $ | 0.41 | ||
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Average remaining contractual term of options outstanding and exercisable at December 31, 2017 (years) | 3.19 | ||||||
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| Options |
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| Weighted Average Exercise Price |
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Outstanding at September 30, 2020 |
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| 5,400,000 |
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| $ | 0.16 |
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Granted |
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| 3,885,000 |
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| 0.12 |
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Expired |
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| (950,000 | ) |
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| (0.43 | ) |
Outstanding at September 30, 2021 |
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| 8,335,000 |
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| 0.18 |
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Granted |
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| - |
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| - |
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Expired |
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| - |
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| - |
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Outstanding at March 31, 2022 |
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| 8,335,000 |
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| $ | 0.18 |
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Outstanding and exercisable at March 31, 2022 |
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| 7,960,000 |
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| $ | 0.17 |
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Weighted average remaining contractual term (years) |
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| 2.81 |
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The aggregate of options exercisable as of DecemberMarch 31, 20172022 had an intrinsic value of nil,$765,700, based on the closing price of $0.23$0.27 per share of ourthe Company’s common stock on DecemberMarch 31, 2017.2022.
NOTE 108 – COMMITMENTS AND CONTINGENCIES:CONTINGENCIES:
The Company has the following commitments and contingencies:
Mineral Exploration
A portion of ourthe Company’s mining claims on ourthe Company’s properties are subject to lease and option agreements including advance minimum royalty payments, with various terms, obligations, and royalties payable in certain circumstances. Total mining claim lease, option agreements and royalty agreements total $82,000 per year.
Pursuant to the Amended Option Agreement at Talapoosa (see Note 5), we had an obligation to make a payment of $1 million by March 31, 2017, which payment was made. There are also future payment and property expenditure obligations of $17.5 million, including $2 million due by March 31, 2018 and $8 million due by March 31, 2019.
We payThe Company pays federal and county claim maintenance fees on unpatented claims that are included in ourthe Company’s mineral exploration properties. Should wethe Company continue to explore all of ourthe Company’s mineral properties, we expectit expects annual fees to total approximately $285,000$236,277 per year in the future.
While we recognize that we will not be able to meet these obligations with our current cash balances, we do expect to make these required payments with proceeds from expected capital raises. We expect to obtain additional capital through refunds of excess restricted cash held for exploration bonds and financing transactions such as equity investments, asset sales, joint ventures, debt facilities, or other types of strategic arrangements.
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Real Estate Lease Commitments
As of DecemberAt March 31, 2017,2022, the Company has no real estate lease commitments. The Company’s office in Coeur d’Alene, Idaho and its facilities in Sparks, Nevada and Eureka, Nevada are rented on a month-to-month basis.
Total office lease and rental expense from continuing operations is includedNOTE 9 – SUBSEQUENT EVENTS:
On May 2, 2022, the Company closed a non-brokered private placement of the Company to accredited investors at a price of $0.25 per common share. The Company issued 18,933,705 common shares for cash proceeds of $4,733,426. Finders fees in the following line itemsamount of $254,005 and 1,016,022 Series N Warrants have been paid to licensed brokers and consultants in association with the consolidated statementsoffering. The warrants have a term of operations18 months and comprehensive income (loss):are exercisable at $0.25 per common share of the Company.
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| Table of Contents |
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| Three months ended December 31, | ||
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| 2017 |
| 2016 |
Mineral exploration expenses | $ | 12,900 | $ | 12,900 |
Other general and administrative expenses |
| 10,500 |
| 10,500 |
Total | $ | 23,400 | $ | 23,400 |
Employment Agreements
The Company has an employment agreement with an executive employee that requires certain termination benefits and payments in defined circumstances.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The followingAs used in herein, the terms “Timberline,” the “Company,” “we,” “us,” and “our” refer to Timberline Resources Corporation.
This discussion and analysis contains forward-looking statements that involve known or unknown risks, uncertainties and other factors that may cause the actual results, performance, or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Except for historical information, the matters set forth herein, which are forward-looking statements, involve certain risks and uncertainties that could cause actual results to differ. Potential risks and uncertainties include, but are not limited to, unexpected changes in business and economic conditions; significant increases or decreases in gold prices; changes in interest and currency exchange rates; unanticipated grade changes; metallurgy, processing, access, availability of materials, equipment, supplies and water; results of current and future exploration and production activities; local and community impacts and issues; timing of receipt and maintenance of government approvals; accidents and labor disputes; environmental costs and risks; competitive factors, including competition for property acquisitions; and availability of external financing at reasonable rates or at all, and those set forth under the heading “Risk Factors” in our Form 10-K filed with the United States Securities and Exchange Commission (the “SEC”) on December 20, 2021. Forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continues” or the negative of these terms or other comparable terminology. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results, levels of activity, performance, or achievements. Forward-looking statements are made based on management’s beliefs, estimates, and opinions on the date the statements are made, and the Company undertakes no obligation to update such forward-looking statements if these beliefs, estimates, and opinions should change, except as required by law.
This discussion and analysis should be read in conjunction with ourthe accompanying unaudited condensed interim consolidated financial statements as at and forrelated notes. The discussion and analysis of the three months ended December 31, 2017financial condition and results of operations are based upon the related notes thereto,unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted accounting principles in the United States (“U.S. GAAP”). This discussion and analysis contains forward-lookingof America. The preparation of financial statements and forward-looking information that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements and information as a result of many factors, including, but not limited to, those set forth elsewhereconformity with accounting principles generally accepted in this Quarterly Report on Form 10-Q. See section heading “Note Regarding Forward-Looking Statements” below.
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q and the exhibits attached hereto contain “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the United States Exchange Act of 1934, as amended,America requires the Company to make estimates and “forward-looking information” withinassumptions that affect the meaningreported amounts of applicable Canadian securities legislation, collectively “forward-looking statements.” Such forward-looking statements concern our anticipated resultsassets and developments in our operations in future periods, planned explorationliabilities, disclosure of any contingent liabilities at the financial statement date and developmentreported amounts of our properties, plans related to our businessrevenue and expenses during the reporting period. On an on-going basis the Company reviews its estimates and assumptions. The estimates were based on historical experience and other mattersassumptions that may occur in the future. These statements relateCompany believes to analyses and other information thatbe reasonable under the circumstances. Actual results are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management. These statements include, but are not limited to, comments regarding:
·the establishment and estimates of mineralization and reserves;
·the grade of mineralization and reserves;
·anticipated expenditures and costs in our operations;
·planned exploration activities and the anticipated timing and outcomes of such exploration activities;
·planned production of technical reports, economic assessments, and feasibility studies on our properties;
·plans and anticipated timing for obtaining permits and licenses for our properties;
·expected future financing, strategic and other transactions and the anticipated outcomes;
·plans and anticipated timing regarding production dates;
·anticipated gold and silver prices;
·anticipated liquidity to meet expected operating costs and capital requirements;
·our ability to obtain financing to fund our estimated expenditure and capital requirements; and
·factors expected to impact our results of operations
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or resultslikely to differ from those expressedestimates under different assumptions or implied byconditions, but the forward-looking statements, including, without limitation:
·risks related toCompany does not believe such differences will materially affect our limited operating history;
·risks related to our ability to continue as a going concern;
·risks related to our historyconsolidated financial position or results of losses and our expectation of continued losses;
·risks related to our properties being inoperations. Critical accounting policies, the exploration or, if warranted, development stage;
·risks related to our bringing our projects into production;
·risks related to our mineral operations being subject to government and environmental regulations;
·risks related to future legislation and administrative changes to mining laws;
·risks related to future legislation regarding climate change
·risks related to our ability to obtain additional capital for exploration or to develop our reserves, if any;
·risks related to land reclamation requirements and costs;
·risks related to mineral exploration and development activities being inherently hazardous;
·risks related to our insurance coverage for operating risks;
·risks related to cost increases for our exploration and development projects;
·risks related to a shortage of skilled personnel, equipment, & supplies adversely affecting our ability to operate;
·risks related to mineral resource and economic estimates;
·risks relatedpolicies the Company believes are most important to the fluctuationpresentation of prices for preciousits consolidated financial statements and base metals, such as gold, silverrequire the most difficult, subjective and copper;complex judgments are outlined below in “Critical Accounting Policies” and have not changed significantly.
·risks related to the competitive industry of mineral exploration;
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·risks related to our title and rights in our mineral properties;
·risks related to integration issues with acquisitions;
·risks related to our common stock trading on the Over-the-Counter markets
·risks related to joint ventures and partnerships;
·risks related to potential conflicts of interest with our management;
·risks related to our dependence on key management;
·risks related to our Talapoosa Project, Lookout Mountain and other acquired growth projects;
·risks related to our business model;
·risks related to our acquisition of Wolfpack Gold (Nevada) Corp.;
·risks related to our acquisition and amendment of the Talapoosa option;
·risks related to evolving corporate governance standards for public companies;
·risks related to our Canadian regulatory requirements; and
·risks related to our shares of common stock or other securities.
This list is not exhaustive of the factors that may affect our forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the sections titled “Risk Factors”, “Description of Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K for the year ended September 30, 2017, filed with the Securities and Exchange Commission (the “SEC”) on December 20, 2017. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events, except as otherwise required by law.
We qualify all the forward-looking statements contained in this Quarterly Report on Form 10-Q by the foregoing cautionary statements.
Corporate Overview
Our business is mineral exploration in Nevada with a focus on district-scale gold projects such as our district-scale Eureka Project. We are focused on delivering high-grade Carlin-type gold discoveries at Eureka. The Eureka property includes the advanced Talapoosa project and our Eureka project in Nevada.
In June 2010, we acquired Staccato Gold Resources Ltd. (“Staccato”), a Canadian-based resource company listed on the TSX Venture Exchange that was in the business of acquiring, exploring and developing mineral properties with a focus on gold exploration in the dominant gold producing trends in Nevada. As a result of this acquisition, we obtained Staccato’s Eureka Property, which included their flagship gold exploration project, thehistoric Lookout Mountain Project (“Lookout Mountain”) and the Windfall project, along with several other projects at various stages of explorationMines in the Battle Mountain/Eureka gold trend in Nevada, along with Staccato’s wholly owned U.S. subsidiary, BH Minerals USA, Inc.
In August 2014, we acquired Wolfpack Gold (Nevada) Corp. (“Wolfpack”), a U.S. company that was in the business of acquiring, exploring, and developing mineral properties with a focus on gold exploration in the dominant gold producing trends in Nevada. As a result of this acquisition, we obtained cash and several projects at various stages of exploration in the gold trends of Nevada.
In March 2015, we acquired an option from Gunpoint Exploration Ltd. (“Gunpoint”) to purchase a 100% interest in Gunpoint’s Talapoosa exploration project in western Nevada. The option agreement, as amended, grants us the right to exercise the purchase option at any time through March 31, 2019, subject to certain interim payments and cumulative project expenditures.
Recent Events
In October, 2017, we initiated a private placement offering of Units of the Company at a price of $0.30 per Unit (the “Offering”). Each Unit in the Offering consisted of one share of common stock of the Company and one common share purchase warrant. During the three months ended December 31, 2017, we closed the sale of two tranches of the Offering. In the aggregate, we sold a total property position of 2,880,867 Units for gross proceeds of $864,260.
On September 12, 2017, we entered into an agreement (the “Payment Agreement”)approximately 28 square miles (72 square kilometers). The Lookout Mountain Resource was reported in compliance with a creditor (the “Creditor”) to pay by way of a payment plan an existing obligation of $250,000 (the “Debt”) related to a potential corporate transaction in 2015 that was not completed. Pursuant to the Payment Agreement, we agreed to pay the Debt to the Creditor, including interest, on or before September 12, 2020. Interest accrues on the unpaid principal amount of the Debt at a rate of prime,
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as such rate may change from time to time, plus 3% per annum. We agreed to pay the Creditor 5% of the gross proceeds of any funds raised, whether though equity sales, debt, or sales of assets. If the gross proceeds of any equity financing are at least $1 million, then we agreed to also commence monthly installment payments of $10,000 until the Debt is paid. During the three months ended December 31, 2017, we paid $34,363 to the Creditor from proceeds of a private placement, with $30,043 being applied to principal of the Debt and $4,320 being applied to interest.
Mineral Exploration
Talapoosa, Nevada
Talapoosa is a 14,870 acre district-scale property comprising U.S. Bureau of Land Management (“BLM”) claims, fee lands, and water rights. Mineralized material at Talapoosa consists of 42.5 million tons of in-place bulk tonnage with an average grade of 0.03 ounces of gold per ton and 0.37 ounces of silver per ton at a gold cut-off of 0.013 ounces per ton of gold. The project was fully permitted by Miramar Mining Corporation with the BLM and the State of Nevada in 1996, but remained undeveloped due to low prevailing metals prices. The deposit is open on strike, and we believe potential exists to expand the quantity of mineralized material with additional exploration. The Talapoosa project includes the 4 mile-long Appaloosa zone located one mile to the north of, and parallel to, the Talapoosa mineralized area. The Appaloosa zone outcrops as epithermal-type sinter and breccia with vein fragments and is untested but for six historic, shallow drill holes.
In March, 2015, we completed a National Instrument 43-101 (“NI 43-101”) compliant Technical Report entitled “Technical Report and Resource Estimate on the Talapoosa Project, Nevada,” dated March 24, 2015 (the “Talapoosa Technical Report”) substantiating the mineralization for the Talapoosa project. Upon completion of the Talapoosa Technical Report, we initiated anCanadian NI 43-101 Preliminary Economic Assessment (“PEA”) on the property. Results of the PEA were released on April 27, 2015 and reported positive results on a potential open pit mine with heap-leach processing and Merrill Crowe recovery of gold and silver. To support the PEA, we completed due diligence reviews on the gold and silver mineralization; historic studies including metallurgy, geotechnical pit wall stability, hydrology, geochemistry, mining methods, facility siting for the previously proposed operation, and mine permitting. A metallurgical and geotechnical test program is currently in progress and is designed to assess the potential to improve heap permeability and enhance gold and silver leach efficiency for the processing of the mineralized material at the Talapoosa gold and silver deposit. The program has been designed to increase the already-substantial metallurgical test results incorporated into the Company’s PEA issued in May 2015.
In 2016, we completed surface rock sampling in the Appaloosa Zone which identified 0.16 ounces per ton (“opt”) (5.5 grams per tonne (“g/t”)) of gold and 1.24 opt (42.40 g/t) of silver over a 21.5 feet (6.55 meter (“m”)) channel sample across exposed hydrothermal breccia. Four grab samples of vein material from existing waste dumps and altered outcrops assayed from 0.005 - 0.51 opt (0.168 - 17.4 g/t) gold and 0.70 - 3.07 opt (2.3 - 105.3 g/t) silver. A nearby historic (1995) drill hole (CON-45) completed by Miramar intercepted 0.05 opt (1.66 g/t) gold over 80 feet (24.4 m) (“Technical Report of the Talapoosa Project, Lyon County, Nevada, U.S.A.” effective September 17, 2010).
We also completed a positive review of assay data from historic drill holes in areas northwest and southeast of, and contiguous to, the Talapoosa mineralized area as defined in the PEA. Results from historic drilling identify these areas as high priority drill targets for resource expansion as first noted in the NI 43-101 “Technical Report of the Talapoosa Project, Lyon County, Nevada, U.S.A.” effective September 17, 2010 and filed on SEDAR on October 12, 2010. Northwest of the PEA pit area, an expansion target is defined where eight of nine historic drill holes spaced over a strike extent of approximately 2,000 feet (600 m) intercepted gold mineralization. Historic drilling in this area intercepted mineralization in eight of the nine holes ranging from 75 feet (22.9 m) of 0.022 opt (0.75 g/t) gold and 0.439 opt (14.70 g/t) silver, to 205 feet (62.5 m) of 0.159 opt (5.43 g/t) gold and 0.80 opt (27.57 g/t) silver.
To the southeast of the Talapoosa resource area as defined in the PEA, eight of nine historic drill holes also intercepted mineralization also over approximately 2,000 feet (600 m) of strike extension. Historic drilling in this area intercepted mineralization in eight of the nine holes ranging from 21 feet (6.4 m) of 0.017 opt (0.57 g/t) gold and nil silver to 191 feet (58.2 m) of 0.032 opt (1.09 g/t) gold and 0.172 opt (5.88 g/t) silver.
In September, 2017, a metallurgical and geotechnical test program designed to assess the potential to improve heap permeability and enhance gold and silver leach efficiency for the processing of the mineralized material at the Talapoosa gold and silver deposit was completed. The program included re-sampling of four metallurgical composite samples originally tested by Gunpoint Exploration in 2013. The program advanced the already-substantial metallurgical test results incorporated into the Company’s PEA issued in May 2015.
Final results were released on 4 drill core composite test samples that were crushed using high pressure grinding roll (“HPGR”) technology to -1.7mm (-10 mesh), and separated by screening into a fine fraction (-75µm or -200 mesh) and a
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coarse fraction (+75µm or +200 mesh). Follow-up saturated permeability was tested on each coarse fraction test sample under simulated leach pad height of up to 200 feet with results indicating that acceptable levels of permeability would be maintained. Gold and silver column leach testing of the coarse fraction indicates recoveries from 58% to 63% which are comparable to historic estimates for crushed mineralized material as utilized in the PEA. The fine fraction material was also separately tested for simulated heap leach recovery with sample results indicating recovery of approximately 77% for both gold and silver.
In addition, the program also studied and compared historic assay results between various analytical methods including Metallic Screen Fire Assays (MSFA). The MSFA data led us to conclude that the deposit gold grade assays may be up to approximately 20% higher than when completed by traditional historic 30 gram or 50 gram fire assay methods.
Subject to available capital, follow-up work is planned in 2018, including additional Reverse Circulation (“RC”) drilling to test the mineralization expansion targets and core drilling to provide sufficient mineralized material to advance the metallurgical studies to a sufficient level to support a final feasibility study. We also intend to initiate studies to update historic permits for the project to current standards. These activities are expected to be completed as soon as possible, subject to availability of sufficient financing, which we estimate to be $3.5 million to complete the additional RC and core drilling and $0.5 million to undertake the updating of historic permits to current standards. Pending availability of such financing, we expect to complete these activities and incorporate the results into a NI 43-101 compliant Preliminary Feasibility Study (“PFS”). Subject to additional capital availability, the PFS could be completed by the end of 2018 at an additional cost of approximately $3 million.
There are no proven and probable reserves as defined under United States Securities and Exchange Commission’s Industry Guide 7 (“Guide 7”) at Talapoosa, and our activities there remain exploratory in nature.
Cautionary Note to U.S. Investors: The Talapoosa Technical Report and the PEA use the terms “mineral resource,” “measured mineral resource,” “indicated mineral resource” and “inferred mineral resource”. We advise investors that these terms are defined in and required to be disclosed by Canadian regulations (NI 43-101); however, these terms are not defined terms under Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. As a reporting issuer in Canada, we are required to prepare reports on our mineral properties in accordance with NI 43-101. We reference the Talapoosa Technical Report and the PEA in this Quarterly Report on Form 10-Q for informational purposes only, and the Technical Report and PEA are not incorporated herein by reference. Investors are cautioned not to assume that all or any part of a mineral deposit in the above categories will ever be converted into Guide 7 compliant reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.
Eureka Project, Nevada
The Eureka Project, which includes Lookout Mountain, comprises an area of approximately 15,000 acres, or more than 23 square miles. The Eureka Project is located within the southern portion of Nevada’s Battle Mountain-Eureka gold trend and includes three structurally controlled zones of gold mineralization, each approximately 3- 4 miles in strike length, all zones of which are open and will require additional in-fill and step-out drilling. The project has an extensive exploration, drilling, and gold production history by a number of companies since 1975, including Idaho Mining Corp., Norse-Windfall Mining, Amselco, Echo Bay Mines, Newmont and Barrick Gold. A total of 533 holes, totaling 267,000 feet, were drilled on the property prior to its acquisition by Timberline in 2010. Gold mineralization tested to date is typical sediment-hosted “Carlin-type” gold mineralization, most of which may be amenable to low-cost, heap-leach processing.
In 2010-2011, we completed an exploration program that culminated in the release of an NI 43-101 compliant technical report, entitled,Updated Technical Report on the Lookout Mountain Project Eureka County, Nevada, USA, dated May 2, 2011 (the “Lookout Mountain Technical Report”). The Lookout Mountain Technical Report was prepared by Mine Development Associates, Effective March 1, 2013, filed on SEDAR April 12, 2013:
Resource Category |
| Tonnage (million short tons) |
|
| Grade (oz/ton) |
|
| Grade (grams/tonne) |
|
| Contained Au (troy oz) |
| ||||
Measured |
|
| 3.04 |
|
|
| 0.035 |
|
|
| 1.20 |
|
|
| 106,000 |
|
Indicated |
|
| 25.90 |
|
|
| 0.016 |
|
|
| 0.55 |
|
|
| 402,000 |
|
Inferred |
|
| 11.71 |
|
|
| 0.012 |
|
|
| 0.41 |
|
|
| 141,000 |
|
Effective January 1, 2021, the Securities and Exchange Commission (“MDA”SEC”) adopted amendments to modernize the property disclosure requirements for mining registrants and related guidance, which are currently set forth in Item 102 of Reno, NevadaRegulation S-K Subpart 1300 under the supervisionSecurities Act of Michael M. Gustin, Senior Geologist, who1933 and the Securities Exchange Act of 1934. The amendments more closely align the SEC’s disclosure requirements and policies for mining properties with current industry and global regulatory practices and standards.
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| Table of Contents |
We are also operator of the Paiute Joint Venture Project with Nevada Gold Mines in the Battle Mountain District. These properties all lie on the prolific Battle Mountain-Eureka gold trend. We also control the Seven Troughs Project in northern Nevada, which is a qualified person under NI 43-101. The Lookout Mountain Technical Report details mineralization at Lookout Mountain.
Cautionary Note to U.S. Investors: The Lookout Mountain Technical Report usesone of the terms “mineral resource,” “measuredstate's highest-grade former gold producers. We control over 43 square miles (111 square kilometers) of mineral rights in Nevada. Detailed maps and mineral resource” “indicated mineral resource” estimates for the Eureka Project and “inferred mineral resource”. We advise investors that these terms are defined in and required toNI 43-101 technical reports for its projects may be disclosed by Canadian regulations (NI 43-101); however, these terms are not defined terms under Guide 7 and are normally not permitted to be used in reports and registration statements filed withviewed at http://timberlineresources.co/.
Summary of the SEC. Asexploration activities for the three months ended March 31, 2022:
Exploration activities during the quarter ending March 31, 2022 focused on the Eureka Project, where a reporting issuer in Canada, we are required to prepare reports on our mineral properties in accordance with NI 43-101. We referencesizable drill campaign was winding down. Drilling at the Water Well Zone (WWZ), near the Lookout Mountain Technical ReportResource, concluded during the middle of January 2022.
Highlights of the exploration program completed mostly during the preceding quarter include:
· | Completed 2,851 meters (m) of reverse circulation (RC) drilling, representing 44% of the total 2021 RC and Core drilling program of 6,535m. | |
· | Completed 1,285m of core drilling, representing 20% of the total drilling program. The remaining 569m of core was completed in January 2022. | |
· | Reported drill hole assay results on the first 5 RC holes that were completed in July 2021. The most significant new intercepts in these holes included: |
o | 10.67m at 2.36 grams per tonne (g/t) gold from 301.8m depth in BHSE-194; |
· | including 6.01m at 2.98 g/t gold; |
o | 16.76m at 1.74 g/t gold from 257.6m depth in BHSE-195; |
· | including 3.05m at 4.56 g/t gold; and |
o | 19.81m at 1.38 g/t gold from 248.4m depth in BHSE-193. |
· | Reported surface rock sample assay results on the channel and trench samples from the Oswego Target. Key results included: |
o | 25.9m @ 14.42 g/t gold along strike; | |
| o | 27.4m @ 12.02 g/t gold along strike; and | |
| o | 10.7m @ 3.63 g/t gold, estimated to be true thickness from a trench. |
· | Completed first pass geologic mapping in the Windfall and New York Canyon areas, geochemical and geophysical data compilation and analysis continue as drill targets are being developed. |
During the quarter ending March 31, 2022, the Company reported the majority of the drill results from the 2021 drill campaign, including the following highlights:
· | Reported results from phase 2 of the drill program in February 2022, which included 6 RC holes and partial results from 2 core holes, including the following highlights: |
o | 22.9m at 6.11 g/t gold from 140.8m depth in BHSE-220C, |
· | including 12.2m at 8.92 g/t gold from 151.5m depth; |
o | 10.7m at 2.96 g/t gold from 229.2m depth in BHSE-211C; | |
o | 22.9m at 1.11 g/t gold from 219.5m depth in BHSE-198; and | |
o | 6.10m at 2.85 g/t gold from 161.5m depth in BHSE-204. |
· | In March 2022, Timberline reported additional results from 3 core holes and 1 RC hole, including: |
o | 41.1m at 5.03 g/t gold from 316.1m depth in BHSE-212C, |
· | including 19.8m at 9.49 g/t gold; |
o | 9.1m at 1.24 g/t gold from 324.6m depth in BHSE-209, |
· | § including 4.6m at 2.07 g/t gold; and |
o | 9.1m at 1.34 g/t gold from 255.1m depth in BHSE-210C. |
| 14 |
| Table of Contents |
· | Later in March 2022, the Company reported the complete results from drillhole BHSE-220C and initial results for drillhole BHSE-206C, including: |
o | 44.2m at 4.10 g/t gold from 140.8m depth in BHSE-220C, |
· | including 22.9m at 6.24 g/t gold from 140.8m depth; and | |
· | including 12.2m at 9.18 g/t gold from 151.5m depth. |
Drilling
Due to a lack of availability of drill crews in Nevada, we were forced to split our 2021 drill program into two phases. The first phase was comprised of five RC holes that were completed during July and August 2021; we reported those results on October 27, 2021.
The RC drill rig returned to the property in October and drilled until mid-December 2021. A diamond core rig joined the drill program in November and worked until mid-January 2022. The assay results from this Quarterly Report on Form 10-Q for informational purposes only,second phase of drilling were reported during the quarter.
This second phase of drilling included completion of 23 drill holes totaling 4,859 meters (15,942 feet) aimed primarily at the WWZ and Oswego Targets. (Figure 1). A summary of the drill program RC, diamond core (core), and RC with core tails is included in Table 1.
The WWZ is immediately adjacent to the Lookout Mountain Technical Report is not incorporated herein by reference. Investors are
16
cautioned notResource and has the potential to assume that all or any part of a mineral depositsignificantly expand the resource at higher gold grades. Fourteen new drill holes, including six core holes, in the above categories will ever be converted into Guide 7 compliant reserves. “Inferred mineral resources”second phase of this drill program have added many more gold assays and much more geologic information to the WWZ target. We also drilled a great amountcore hole to the east of uncertaintythe WWZ as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any parta test of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimatesthe significant IP anomaly in the Graben Zone. We also completed nine RC holes at the Oswego Target, approximately one kilometer east of inferred mineral resources may not form the basisWWZ, testing the downdip extension of feasibility or pre-feasibility studies, exceptthe high-grade surface sampling reported in rare cases. Investors are cautioned not to assume that all or any partDecember (see our news release dated December 6, 2021).
Table 1. Compilation of an inferred mineral resource exists or is economically or legally mineable. 2021-2022 Phase 2 Drilling, Eureka Project (October – January)
Hole Type | No. of Holes | Meters Drilled | Target Area(s)* |
Reverse Circulation (RC) | 16 | 2,527 | WWZ (6); Oswego (9); LM (1) |
Diamond Core | 4 | 1,363 | WWZ (3), Graben Zone IP (1) |
RC/Core Tails | 3 | 969 | WWZ (3) |
Total | 23 | 4,859 |
|
*WWZ: Water Well Zone; Oswego: Road-cut Au occurrence/Dugout Tunnel Fault; LM: Lookout Mountain Resource area | |||
The Lookout Mountain Technical Report describesRC cuttings and drill core were logged in the Company’s Eureka, Nevada facility. Approximately 3,300 samples were collected and submitted to ALS Global, in Elko, Nevada for preparation and analysis.
Water Well Zone
The WWZ emerged during the quarter as hosting significant higher-grade gold intercepts over a large area. Repeated drill hole intercepts through the base of the Dunderberg Shale have yielded strong gold mineralization which was modeledassociated with a well-developed breccia horizon that has been intensely altered with increased presence of carbon, silica, and estimated by MDA. MDA statistically evaluated available drill data utilizing geologic interpretations provided by Timberlinesulfides. Core holes BHSE-220C and 212C are the best holes drilled to interpret gold mineral domains on cross sections spaced at 50- to 100-foot intervals across the extent of the Lookout Mountain mineralization. The cross sections were rectified with mineral-domain interpretations on level plans spaced at 10-foot intervals. The modeled mineralization was analyzed using geostatistics to aiddate in the establishment of estimation parameters,WWZ and interpolating grades into a three-dimensional block model.
In 2012, we released updated exploration data for Lookout Mountainthey are separated by approximately 400 meters north to south. BHSE-220C is the northernmost hole in the WWZ and filed an updated Lookout Mountain Technical Report. As a result of the most recently completed exploration program, we have successfully extendedintercept is open to the mineralized zone at Lookout Mountain 600 feetnorth and east. BHSE-212C is the farthest south hole in the WWZ, and the intercept is open to the south and east. The current footprint of the mineralized zone boundary definedWWZ is shown in the 2011 Lookout Mountain Technical Report, and have expanded mineralization along the west marginFigure 1.
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| Table of Contents |
Figure 1. Location of the deposit. Results from Lookout Mountain, and from the South Adit area, significantly increased the currently reported mineralization at Lookout Mountain. In early 2013, we completed our 2012 exploration program at Lookout Mountain, including 26,140 feet total of infill-drilling. This program focused on expansion of mineralization, metallurgical, geotechnical, and permitting studies.
Assay results from drilling were incorporated into an updated Lookout Mountain Technical Report which was completed in early 2013.2021-2022 Drilling also provided data for on-going metallurgical studies directed at characterization of gold mineralization recovery, and for initial assessment of pit-slope stabilities. Permitting-related activities were advanced through completion of quarterly monitoring, and installation of three monitoring wells. Conceptual designs for site facilities (heap leach pads, mine rock storage, access roads) have also been prepared.
In 2013, we continued geochemical waste rock environmental characterization, completed independent metallurgical leach testing, continued water quality monitoring and defined hydrologic work plans. We also continued the baseline environmental data collection and analysis at Lookout Mountain. In addition, we reduced costs by consolidating our Elko field office into our Eureka facility.
During most of 2014, the Company limited exploration related activities to low cost field surveys including soil and rock sampling, drill site reclamation, site archeological surveys, and geologic mapping. The mapping led to identification of new targets on each of the three structural zones of gold mineralization. In December 2014, drilling resumed at Eureka with an initial test of one new target completed before year-end. RC drill hole BHSE-171 identified a new zone of gold mineralization and intersected 25 feet of 0.144 ounces of gold per ton (“opt”) (7.62 meters (m) of 4.93 grams of gold per tonne (“g/t”)) within a longer 65-foot interval assaying 0.094 opt (19.82 m of 3.22 g/t) in the Lookout Mountain area. This hole was offset 140 feet from BHSE-152 (drilled in 2012) which first encountered the new zone in 2012 but was not completed due to drilling difficulties.
In follow-up to the successful results in RC drill hole BHSE-171, two diamond drill core holes were completed in January, 2015. BHSE-172 intersected 25.2 feet of 0.15 opt (7.7 m of 5.02 g/t) within an interval of 46.6 feet of 0.10 opt (14.2 m of 5.02 g/t). BHSE-173 intercepted 57.4 feet of 0.06 opt (17.5 m @ 1.92 g/t). The two core hole intercepts of the mineralized zone were offset approximately 140 feet from BHSE-171. The intercepts are well-correlated, as the gold occurs in mineralized collapse breccia within the pyritic Dunderberg Shale-Hamburg Dolomite contact zone. The intercepts are thought by Timberline geologists to be related to stratigraphic traps associated spatially with a higher-grade feeder system as recognized in many Carlin-type systems.
Two additional RC holes were completed as infill drilling within the existing resource area at Lookout Mountain. Results were highlighted by hole BHSE-174, which intercepted 75.0 feet of 0.02 opt (22.9 m of 0.57 g/t) which is very consistent with surrounding intercepts.
We also completed a six-hole RC drill program on the Windfall target within the Eureka project. The drilling successfully tested on-strike, offset, and down-dip extensions of gold mineralization that was previously mined at Windfall. Six drill holes completed over a strike length of approximately 3,000 feet intersected gold mineralization consistent with results from over 600 historic drill holes, highlighted by BHWF-40 which intersected 80 feet at 0.09 opt of gold (6.1 m @ 8.79 g/t). The data for Windfall will support potential development of a resource estimate of the gold mineralization at the project.
In order to prioritize our resources toward the development of Talapoosa, no material exploration expenditures were incurred at the Eureka Project, the Water Well Zone and Oswego Targets
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| Table of Contents |
We also documented during the quarter that some of the RC drilling into the WWZ may have been biased low with respect to gold grade. The Company’s February 24, 2022, and March 24, 2022 news releases described comparative results from RC and core drilling in 2017. Unless financial resources become available, minimal expendituresthe northern portion of the WWZ.
BHSE-220C was a core twin of BHSE-205, which was a RC hole. The initial results indicated that core drilling may have recovered significantly higher grades from mineralized intervals than corresponding RC drilling.
This part of the WWZ mineralization is below the water table, which can affect sample quality in RC drilling. Fine-grained material may be washed away during the drilling and sampling process, and drill cuttings may be washed downhole from higher up. Either circumstance could result in under-reporting of gold grades when sampling with RC drilling below the water table. Core drilling is generally regarded as superior to RC drilling for the quality of both assays and geological information, but it is also much more costly.
The initial indication from incomplete and expedited assays was that the core drilling yielded considerably higher-grade gold than did the RC drilling. The complete results for BHSE-220C confirmed that both drill holes encountered a zone of very similar geology and thickness, and the grades over the full interval are anticipatedsignificantly higher in the drill core.
17Table 2 – Comparison of Average Mineralized Intervals in Twinned* Drill Holes
Hole | Type | Inclination (°) | From (m) | To (m) | Interval (m) | Gold (g/t) |
BHSE-205 | RC | -90 | 138.7 | 175.3 | 36.6 | 1.06 |
BHSE-220C | Core | -90 | 140.8 | 185.0 | 44.2 | 4.10 |
* - Drill holes collared approximately 2 meters apart from same drill pad | ||||||
The additional assays received since the earlier news release were from a lower-grade interval below the previously reported high-grade. Both the RC and core drilling encountered this lower-grade zone, and a direct comparison between the assays in the two drill holes is shown in Figure 2. The overall grade of the core interval also increased slightly from the February report due to the inclusion of one overlimit assay (a repeat assay on samples that assay above 10 g/t in the initial analysis).
Much of the drilling in the WWZ encountered significant groundwater inflow during drilling. As previously reported in October 2021, Timberline increased the proportion of core drilling in the WWZ during this program to evaluate the reliability of gold grades and increase the confidence of geological interpretations. This newly discovered part of the WWZ is much thicker and higher grade than expected, and it is wide open for 2018, with work expectedfollow-up drilling to focus on reclamationthe north, northwest, and east. The intercept from BHSE-220C, which is 400m south from BHSE-220C, confirmed the highest grade and thickness yet drilled in the WWZ (See Company news release dated March 9, 2022).
This phenomenon of drill sites. sampling below the water table is well known in the gold exploration industry, as anecdotal reports and some comprehensive studies have demonstrated higher gold grades from core drilling in comparison to twin RC drill holes. The difference reported here is higher than expected, but this result is from only one pair of twin holes. The data so far suggest that the recent RC drilling in the WWZ may have underestimated the actual gold grade. The Company continues to assess the geology, assay, and quality control data before drawing conclusions from these data but plans to twin additional RC holes during 2022.
ThereAt the time of this writing, results from only two drill holes in the area are no proven and probable reserves as defined under Guide 7still pending. We expect to resume drilling at the Water Well Zone during May 2022.
Oswego Target
The Oswego Target lies approximately 1.0km from the eastern margin of the WWZ, or 1.2km from the Lookout Mountain Resource. Oswego is a historic gold showing with limited historic mining (late 19th and/or early 20th century) and exploration during the early 1990s. The area is cut by a large north-south fault zone known as the Dugout Tunnel Fault (DTF). The DTF is analogous to the Lookout Mountain Fault zone that occurs just west of Timberline’s Lookout Mountain resource. Surface sampling at Oswego has repeatedly returned high-grade gold from the fault itself, where the Eldorado Dolomite is highly silicified, and rocks on either side. During the 2021 program, we drilled 9 RC holes in and around the Oswego Target area. The 2021 drilling was aimed at confirming historic drill results and testing the downdip continuity of the surface gold zone.
| 17 |
| Table of Contents |
Figure 2 - Comparison of Geology & Gold in Twinned Holes at WWZ
Prior to the drilling, we also completed systematic channel sampling at the Oswego Target during the quarter ending December 31, 2021.
Our geologists collected 67 channel and rock samples along the 65-meter strike length of an exposed fault scarp, where historic results had indicated the presence of high-grade gold. Sampling was focused along the Trench Fault and associated cross structures. There is a zone of alteration and mineralization approximately 10 meters wide, which is pervasively oxidized at surface. The sampling consisted of continuous chip and channel samples utilizing diamond saws and hammer drills. However, due to limited access and cliff-forming outcrops, some of the samples are along the strike of the fault in highly silicified Eldorado Dolomite (channel samples). Where possible, we employed an excavator to cut trenches across the structure. In the trenches, the sampling likely represents true width of mineralization perpendicular to the fault (trench samples).
The results from the surface sampling at Oswego corroborate historic sampling that indicated a long zone of outcropping structure containing 12 to 13 g/t gold (See Company news release dated June 12, 2018). The newer data provided better information on the continuity and dimensions of the mineralized structure. The results are summarized in Figure 3.
| 18 |
| Table of Contents |
Figure 3 – Geology, Sampling, and Drilling at the Oswego Target
Oswego is separated from the Lookout – WWZ trend by a basin with volcanic rocks at surface and underlain by extensive faulting, potential host rocks for Carlin-type gold, and fine-grained altered intrusive rocks (see Company news release dated March 24, 2022). This structural corridor includes both Cambrian and Ordovician aged host rocks that Timberline intends to drill test. These rocks include the Dunderberg Shale, the host of Carlin-type mineralization at the WWZ and Lookout Mountain, and the Ninemile Formation, which is a prolific host of gold at the Ruby Hill Mine (i80 Gold Corp.) in the north of the Eureka Project, and our activities there remain exploratory in nature.District. We completed nine shallow RC holes into the Oswego alteration zone to test the downdip extension of the surface mineralization.
Summary
We believe the global economic environment and monetary climate continue to favor a relatively steady gold price for the foreseeable future with potential for long-term price improvements. While volatility is to be expected, our expectation is that we can identify and pursue opportunities to advance our projects, despite the current gold price and market volatility.
As a company, we are considering financing and strategic corporate opportunities with our focus on providing for the advancement of our Talapoosa project. In May 2015, we finalized a positive PEA at Talapoosa,Timberline reported the results of whichthe 2021 drilling at Oswego in May of 2022, some highlights are shown below:
· | 35.1m at 2.32 g/t gold (oxide) from 6.1m depth in BHSE-213, |
o | including 19.8m at 3.93 g/t gold from 7.6m depth; and |
· | 13.7m at 1.31 g/t gold from 3.0m depth in BHSE-215, |
o | including 6.1m at 2.49 g/t gold from 9.1m depth, |
Most of the 2021 Oswego drill holes (BHSE-202, 207, and 213 – 217) were announced on April 27, 2015.positioned west of the fault zone and drilled at an angle to undercut surface mineralization and cut across the structure. The metallurgical test programslogs of the drill cuttings indicate that most of these holes were designed to increase the level of confidencecollared in the metallurgical conclusionsSecret Canyon Formation, which consists of platy brown to orange chips of argillaceous material (shale) with a high carbonate content. Drilling progressed through the shale into an apparent faulted contact with the Eldorado Dolomite, which was normally brown to reddish-brown or black, very fine-grained jasperoid (silicified sedimentary rock). The relationship of the fault to the shale and dolomite is complex, but all of the drill holes in this area bottomed in the dolomite.
The gold mineralization at Oswego is most often associated with, or centered upon, the silicified fault (jasperoid). However, some of the highest gold grades occur in altered dolomite or in sediments at the margins of the jasperoid. Drillholes BHSE-213 and -207 tested the southern extent of high gold in surface samples. The shallow gold zone appears to be cut off on the south, and additional mapping and sampling is required to understand the controls of gold in that were incorporatedarea. All the drillholes in this area encountered highly anomalous gold (>0.100 g/t) well into the Talapoosa PEA.Eldorado Dolomite. None of the drill holes reached sufficient depth to test other favorable host rocks that are interpreted to lie at depth along this structure, such as the Ninemile Formation.
| 19 |
| Table of Contents |
We believe that with appropriate funding, the Talapoosa project can advance toward the preparation of a pre-feasibility study for an anticipated open-pit mining operation. Subject to available capital, exploration programs at the Lookout Mountain and Windfall areas within our Eureka project and at Seven Troughs may also continue. We believe that management and our board of directors have the knowledge and experience to evaluate financing and strategic opportunities and to provide for the advancement of our Talapoosa project toward a production decision.
Results of Operations for the threesix months ended DecemberMarch 31, 20172022 and 20162021
Consolidated Results
(US$) | (US$) | Three Months Ended December 31, |
| Three Months Ended March 31, | Six Months Ended March 31, |
| |||||||||||||||
|
| 2017 | 2016 |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||||
Exploration expenses: | Exploration expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||||||
| Eureka | $ | 12,352 | $ | 15,840 | ||||||||||||||||
| Talapoosa | 13,822 | 26,137 | ||||||||||||||||||
| Other exploration properties | - | 3,751 | ||||||||||||||||||
Eureka |
| $ | 422,819 |
| $ | 129,312 |
| $ | 1,654,023 |
| $ | 1,141,349 |
| ||||||||
Other exploration properties |
|
| 63,145 |
|
|
| 94,234 |
|
|
| 146,309 |
|
|
| 258,723 |
| |||||
Total exploration expenditures | Total exploration expenditures | 26,174 | 45,728 |
|
| 485,964 |
|
|
| 223,546 |
|
|
| 1,800,332 |
|
|
| 1,400,072 |
| ||
Non-cash expenses: | Non-cash expenses: |
|
|
|
|
|
|
|
|
|
|
| |||||||||
| Non-employee stock option expense | 15,000 | - | ||||||||||||||||||
| Depreciation, amortization and accretion | 1,843 | 1,755 | ||||||||||||||||||
Stock option expenses |
| - |
| - |
| 44,321 |
| 127,022 |
| ||||||||||||
Depreciation, amortization and accretion |
|
| 1,548 |
|
|
| 1,408 |
|
|
| 2,956 |
|
| 2,816 |
| ||||||
Total non-cash expenses | Total non-cash expenses | 16,843 | 1,755 |
|
| 1,548 |
|
|
| 1,408 |
|
|
| 47,277 |
|
|
| 129,838 |
| ||
Professional fees expenses | Professional fees expenses | 72,546 | 91,815 |
| 29,073 |
| 46,305 |
| 94,704 |
| 120,873 |
| |||||||||
Insurance expenses | Insurance expenses | 23,179 | 20,127 |
| 41,967 |
| 38,818 |
| 73,447 |
| 63,601 |
| |||||||||
Salaries and benefits expenses | Salaries and benefits expenses | 83,254 | 76,534 |
| 71,611 |
| 78,261 |
| 147,931 |
| 155,918 |
| |||||||||
Interest and other (income) expenses | (8,495) | 918 | |||||||||||||||||||
Interest and other (income) expense |
| 9,273 |
| 16,810 |
| 23,025 |
| 30,052 |
| ||||||||||||
Other general and administrative expenses | Other general and administrative expenses | 115,661 | 68,831 |
|
| 58,287 |
|
|
| 80,011 |
|
|
| 135,230 |
|
|
| 168,918 |
| ||
Income tax provision (benefit) | - | 21,000 | |||||||||||||||||||
Net loss | Net loss | $ | (329,162) | $ | (326,708) |
| $ | 697,723 |
|
| $ | 485,159 |
|
| $ | 2,321,946 |
|
| $ | 2,069,272 |
|
Our consolidated net loss for the three months ended DecemberMarch 31, 20172022 was $329,162,$697,723, compared to a consolidated net loss of $326,708$485,159 for the three months ended DecemberMarch 31, 2016. The year-over-year difference is minimal, with decreased2021. Total exploration expenses professional fees, and tax provisions in 2017 offset by increased non-cash stock option expense, and other general and administrative expenses. Other general and administrative expendituresof $485,964 were higher in 2017 primarily related to higher consulting fees aimed at increasingrecorded on our market exposure and supporting our marketing efforts during the quarter ended December 31, 2017. We anticipate that the net loss will remain relatively flat, subject to changes in non-cash option expenses and general and administrative expenditures which are subject to transaction activity. Exploration expenditures duringstatement of operations for the three months ended DecemberMarch 31, 20172022, compared with $223,546 for the three months ended March 31, 2021. The year-over-year increase in net loss is due to the significant increase in exploration expenses made possible by the infusion of cash that occurred near the close of fiscal year 2021, offset by decreases in investor and legal fees in March 31, 2021 resulting from costs associated with the preparation for the shareholder meeting held in April 2021. These cost increases were offset by the reduction of interest expense and accretion of the discount on senior notes payable. Insurance expense was somewhat higher in the comparative period due to the normal increases the industry is experiencing.
Our consolidated net loss for the six months ended March 31, 2022 was $2,321,946, compared to a consolidated net loss of $2,069,272 for the six months ended March 31, 2021. Total exploration expenses of $1,800,332 were recorded on our statement of operations for the six months ended March 31, 2022, compared with $1,400,072 for the six months ended March 31, 2021. The year-over-year increase in net loss is due to the significant increase in exploration expenses made possible by the infusion of cash that occurred near the close of fiscal year 2021, offset by reductions in legal fees described above and reduced interest expense and accretion of the discount on senior notes payable. Insurance expense was somewhat higher in the first six months of 2022 due to the normal increases the industry is experiencing. Additionally, non-cash stock option expenses decreased slightlywith the reduced number of options granted and the application of variables to their fair values in the most recent period compared to the same period in 2016 with some reclamation activities, but no significant exploration activity. We anticipate that exploration expenditures will increase year-over-year in the next quarter, subject to available capital, as we advance toward development at Talapoosa. six months ended March 31, 2021.
Subject to adequate funding in 2018,2022, we expect to continue to incur exploration expenses for the advancement of Talapoosa and exploration at Eureka.our Eureka Project.
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Financial Condition and Liquidity
At DecemberMarch 31, 2017,2022, we had assets of $17,938,314,$15,526,198, consisting of cash in the amount of $240,255;$1,050,903, property, mineral rights and equipment of $13,857,085, net of depreciation, of $17,151,019, restricted cash held for explorationreclamation bonds of $285,128,$538,696, and prepaid expenses, deposits and other assets in the amount of $261,912. $79,514.
On March 31, 2022, we had total liabilities of $511,062 and total assets of $15,526,198. This compares to total liabilities of $570,145 and total assets of $17,716,406 on September 30, 2021. As of March 31, 2022, our liabilities consist of $121,203 for asset retirement obligations, $270,991 of senior unsecured note payable – related party, and $88,387 of trade payables and accrued liabilities and $30,481 of interest and expenses payable to related parties. Of these liabilities, $118,868 are due within twelve months. The liabilities compared to September 30, 2021 have changed as a result of a decrease in accrued payables offset by increases in accrued liabilities and accrued interest - related party. The decrease in total assets was due to the usage of cash to reduce accounts payable and to pay Company operating expenses.
On March 31, 2022, we had working capital of $1,005,849 and stockholders’ equity of $15,015,136 compared to working capital of $3,170,019 and stockholders’ equity of $17,146,261 for the year ended September 30, 2021. Working capital experienced an unfavorable change because of the decrease in cash associated payments of accounts payable and operating expenses, offset by increases in accrued expenses – related party and accrued interest - related party.
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During the threesix months ended DecemberMarch 31, 2017,2022, we closedused cash from operating activities of $2,386,948, compared to cash used of $2,079,919 for the salesix months ended March 31, 2021. The use of two tranchescash from operating activities results primarily from the net loss of an equity financing. In$2,321,946 for the aggregate,six-month period ended March 31, 2022 compared to net loss of $2,069,272 for the six months ended March 31, 2021. Changes to the net loss for the comparative periods are described above.
During the six-month period ended March 31, 2022, cash of $36,000 was used by investment activities, compared with cash of $6,380 provided for the six-month period ended March 31, 2021. During the six months ended March 31, 2022, we soldused $36,000 for mineral rights compared to cash received of $52,380 for lease payments to us for company-owned mineral properties offset by $46,000 paid for mineral rights for the six months ended March 31, 2021.
During the six-month period ended March 31, 2022, $146,499 was provided by financing activities, compared to cash of $316,750 provided during the six-month period ended March 31, 2021.
Going Concern:
The audit opinion and notes that accompany our consolidated financial statements for the year ended September 30, 2021 disclose a total of 2,880,867 Units at a price of $0.30 per unit for gross proceeds of $864,260 and net proceeds after the costs of the financing of $821,767.
‘going concern’ qualification to our ability to continue in business. These consolidated financial statements have been prepared on the basis that the Company is a going concern, which contemplates the realization of our assets and the settlement of our liabilities in the normal course of our operations. Disruptions in the credit and financial markets over the past several years have had a material adverse impact on a number of financial institutions and investors and have limited access to capital and credit for many companies. In recent years,addition, commodity prices and mining equities have seen significant volatility which increases the risk to precious metal investors. Commodity price expectations, global economic uncertainties,Market disruptions and market factors,alternative investment options, among other things, make it more difficult for us to obtain, or increase our cost of obtaining, capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all. If we are unable to obtain financing through equity investments, we will seek multiple solutions including, but not limited to, return of excess restricted cash held for exploration bonds, asset sales, corporate transactions, credit facilities or debenture issuances in order to continue as a going concern.
The consolidated financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern. We believe that the going concern condition cannot be removed with confidence until the Company has entered into a business climate where funding of its activities is more assured. If the going concern basis were not appropriate for these financial statements, adjustments would be necessary in the carrying value of assets and liabilities, the reported expenses and the balance sheet classifications used.
At DecemberMarch 31, 2017,2021, we had working capital of $119,118.$1,005,849. We have a cash balance of $1,050,903 and $118,868 outstanding in current liabilities. Subsequent to the end of the quarter, we closed on a private placement of common shares to generate $4,733,426. As of the date of this report we have approximately $325,000outstanding in current liabilities and a cash balance of approximately $150,000. As of the date of this Quarterly Report on Form 10-Q, we do not anticipate that we will be ablehave sufficient cash to continue as a going concern, meet our Talapoosa option and property expenditure obligations and execute our business plannormal operating commitments for the next 12 months without receiving significant additional capital. We estimate that in order to meet our minimum obligations to maintain the Talapoosa option and continue as a going concern for the next twelve months, we need to raise at least $3 million during the next year, and to conduct our planned exploration program for the Talapoosa project for the next twelve months would require an estimated additional $5 million.months. Therefore, we do not expect to be required to engage in financial transactions to increase our cash balance and/or decrease our cash obligations in the near term, whichterm. However, we are an exploration company with exploration programs that require significant cash expenditures. A significant drilling program, such as those we have planned, will result in depletion of cash and return us to a position of insufficient cash to support normal operations for the following 12 months. Cash-raising efforts may include equity financings, corporate transactions, joint venture agreements, sales of non-core assets, credit facilities or debenture issuances, or other strategic transactions.
We are working to increase and maintain sufficient working capital by prioritizing our expenditures toward added-value activities and advancing transactions aimed at improving our cash position. We have implemented significant cost-cutting measures, reduced staff, and curtailed discretionary exploration expenditures to preserve cash. We are also working to increase our working capital by exploring multiple financing alternatives to fund the execution of our business plan.
We recognize that we will not be able to execute our operating plans with our current cash balances. However, with our current cash balance, proceeds from sales of non-core assets, our expected ability to acquire additional capital and complete necessary financing transactions, and our ability to curtail discretionary exploration expenditures as needed, we believe that we will have sufficient working capital to meet our ongoing, non-discretionary operating expenses for the next 12 months and maintain our primary mineral properties. Additional capital may be obtained through financing transactions such as equity investments, asset sales, joint ventures, debt facilities, or other types of strategic arrangements.
We plan, as funding allows, to follow-upfollow up on our completed PEApositive drill results on our Eureka and Paiute Projects. Principally, we plan to execute drilling as part of Talapoosa with a pre-feasibility study, which is expected to include trade-off studies, further metallurgical tests, and analysis of various other processing scenarios.the ongoing exploration program at Eureka. Also, subject to available capital, we may continue prudent exploration programs on our material exploration properties and/or fund some exploratory activities on early-stage properties. Based upon identified potential funding opportunities, we are revising our corporate and exploration budgets, with a focus on the advancement of the Talapoosa pre-feasibility study.
We recognize that we will require additional funding and/or reductions in order to execute our operating plansexploration and advance toward development of our properties.
administrative expenditures in future periods. Given current marketeconomic conditions, we cannot provide assurance that necessary financing transactions will be available on terms acceptable to us, on acceptable terms or at all. Over the past two years,Without additional financing, we would have significantly curtailedto curtail our corporate, exploration and other expenditures however,while we recognize that we will still require additionalseek alternative funding arrangements to provide sufficient capital to meet our Talapoosa option obligations, fund our planned,ongoing, non-discretionary expenditures, for the next 12 months, and maintain our primary mineral properties. If we cannot obtain sufficient additional financing, we may be unable to make required property payments on a timely basis and be forced to return some or all of our leased or optioned properties to the underlying owners.
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Financing Activities
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Financing ActivitiesNone
In October, 2017,Subsequent Events
On May 2, 2022, we initiatedclosed a non-brokered private placement offering of Units of the Company to accredited investors at a price of $0.30$0.25 per Unit, with an over-allotment option to increase the offering by up to 20%, solely to persons who qualify as accredited investors (the "Offering"). Each Unitcommon share. We issued 18,933,705 common shares for cash proceeds of $4,733,426. Finders fees in the Offering consistedamount of one$254,005 and 1,016,022 Series N Warrants have been paid to licensed brokers and consultants in association with the offering. The warrants have a term of 18 months and are exercisable at $0.25 per common share of common stock of the Company and one common share purchase warrant (each a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.45 per share until the warrant expiration date of October 31, 2022. The private placement offering was completed under Rule 506(b) of Regulation D promulgated by the SEC under the Securities Act of 1933, as amended, solely to persons who qualify as accredited investors. Subscribers who were resident in Canada were required to qualify as accredited investors under Canadian National Instrument 45-106Prospectus Exemptions.Company.
During the three months ended December 31, we closed the sale of two tranches of the Offering. In the aggregate, we sold a total of 2,880,867 Units at a price of $0.30 per unit for gross proceeds of $864,260.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.
Critical Accounting Policies and Estimates
See Note 2 to the financial statements contained in this Quarterly Report for a summary of the significant accounting policies used in the presentation of our financial statements. We are required to make estimates and assumptions that affect the reported amounts and related disclosures of assets, liabilities, revenue and expenses. We believe that our most critical accounting estimates are related to asset impairments and asset retirement obligations.
Our critical accounting policies and estimates are as follows:
Asset Impairments- Carrying Value of Property, Mineral Rights and Equipment
Significant property acquisition payments for active exploration properties are capitalized. The evaluation of our mineral properties for impairment is based on market conditions for minerals, underlying mineralized material associated with the properties, and future costs that may be required for ultimate realization through mining operations or by sale. If no mineable ore body is discovered, or market conditions for minerals deteriorate, there is the potential for a material adjustment to the value assigned to such mineral properties.
We review the carrying value of equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment or abandonment loss is recognized equal to an amount by which the carrying value exceeds the fair value of the asset. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the equipment is used, and the effects of obsolescence, demand, competition, and other economic factors.
Asset Retirement Obligations
We have an obligation to reclaim our properties after the surface has been disturbed by exploration methods at the site. As a result, we have recorded a liability for the fair value of the reclamation costs we expect to incur at ourLookout Mountain Target on our Eureka Project, and our Paiute Project. We estimate applicable inflation and credit-adjusted risk-free rates as well as expected reclamation time frames. To the extent that the estimated reclamation costs change, such changes will impact future reclamation expense recorded.A liability is recognized for the present value of estimated environmental remediation (asset retirement obligation) in the period in which the liability is incurred if a reasonable estimate of fair value can be made. The offsetting balance is charged to the related long-lived asset. Adjustments are made to the liability for changes resulting from passage of time and changes to either the timing or amount of the original present value estimate underlying the obligation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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ITEM 4. CONTROLS AND PROCEDURES
Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures
At the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision of and with the participation of our management, including the Principal Executive Officer and the Principal Financial Officer of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a – 15(e) and Rule 15d – 15(e) under the Exchange ActAct) as of the end of the period covered by this report).report. Based onupon that evaluation, our management, including the Principal Executive Officer and the Principal Financial Officer, hasit was concluded that our disclosure controls were effective as of the end of the period covered by this report, our disclosure controls and procedures were not effective in ensuringto ensure that: (i) information required to be disclosed by the Company in the reports that we file or submit to the SECit files under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within therequired time periods specified in applicableby the Securities & Exchange Commission rules and forms, and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our PrincipalChief Executive Officer and Principal FinancialChief Accounting Officer, as appropriate, to allow for accurate and timely decisionsdecision regarding required disclosure.
Management determined thatInternal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. This internal control system has been designed to provide reasonable assurance to the Company’s disclosure controlsmanagement and procedures wereBoard of Directors regarding the preparation and fair statement of the Company’s published financial statements.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Our management has assessed the effectiveness of the Company’s internal control over financial reporting as of March 31, 2022. To make this assessment, we used the criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that, as of March 31, 2022, the Company’s internal control over financial reporting is not effective, becausedue to the current inability to segregate duties inherent with limited staffing.
Management’s Remediation Initiatives
Management’s remediation initiatives included implementing additional controls over cash receipt and payment transactions through reviews and approvals performed by our Chief Executive Officer and Chief Financial Officer. These detective controls significantly mitigate segregation of a material weaknessduties issues that exist by one person having the ability to enter payments and receipts into the accounting software, process payment and deposits into the accounting software and reconciling bank statements. The Company has three employees, and management has concluded that anticipated business growth and the accompanying expansion of staffing will improve effectiveness of the Company’s internal controls over financial reporting.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting due primarily to minimal staffing at the Company and the resulting weakness related to appropriate segregation of duties. While the Company does adhere to a system of internal controls and processes that were designed and implemented by a respected, national accounting firm, it is difficult with a very limited staff to maintain appropriate segregation of duties in the initiating and recording of transactions, thereby creating a segregation of duties weakness. Subject to available capital, we anticipate improving the effectiveness of our disclosure controls and procedures on a long-term basis by increasing staffing levels and segregating certain duties.six months ended March 31, 2022.
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Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We are not aware of any material pending litigation or of any proceedings known to be contemplated by governmental authorities which are, or would be, likely to have a material adverse effect upon us or our operations, taken as a whole. No director, officer or affiliate of Timberline and no owner of record or beneficial owner of more than 5% of our securities or any associate of any such director, officer or security holder is a party adverse to Timberline or has a material interest adverse to Timberline in reference to any currently pending litigation.
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2017,2021, which was filed with the SEC on December 20, 2017.2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
All sales of unregistered equity securities during the fiscal quarter covered by this Quarterly Report on Form 10-Q were previously reported on Form 8-K.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
We consider health, safety and environmental stewardship to be a core value for the Company.
Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and
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citations, related assessments and legal actions, and mining-related fatalities with respect to mining operations and properties in the United States that are subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). During the quartersix months ended DecemberMarch 31, 2017,2022, our U.S. exploration properties were not subject to regulation by the MSHA under the Mine Act.
ITEM 5. OTHER INFORMATION.INFORMATION
None.
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ITEM 6. EXHIBITS.
4.1 | ||
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4.8 | Form of the Series K Warrant, incorporated by reference to exhibit 4.8 to the Company’s Form 10-K as filed with the Securities and Exchange Commission on January 13, 2021 | |
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document |
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* - Filed herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TIMBERLINE RESOURCES CORPORATION | ||
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By: | /s/ Patrick Highsmith | ||
Patrick Highsmith President and Chief Executive Officer (Principal Executive Officer) | |||
Date: May 16, 2022 | |||
By: | /s/ Ted R. Sharp | ||
Ted R. Sharp Chief Financial Officer (Principal Financial and Accounting Officer) | |||
Date: May 16, 2022 | |||
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