As 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 29, 2022. 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 the accompanying
unaudited consolidated financial statements and related notes. The discussion
and analysis of the financial condition and results of operations are based upon
the unaudited condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of any contingent liabilities at
the financial statement date and reported amounts of revenue 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
assumptions that the Company believes to be reasonable under the circumstances.
Actual results are likely to differ from those estimates under different
assumptions or conditions, but the Company does not believe such differences
will materially affect our condensed consolidated financial position or results
of operations. Critical accounting policies, the policies the Company believes
are most important to the presentation of its consolidated financial statements
and require the most difficult, subjective and complex judgments are outlined
below in "Critical Accounting Policies" and have not changed significantly.
Corporate Overview
Our business is mineral exploration in Nevada with a focus on district-scale
gold projects such as our Eureka Project. We are focused on delivering
high-grade Carlin-type gold discoveries at Eureka. The Eureka Property includes
the historic Lookout Mountain and Windfall Mines in a total property position of
approximately 28 square miles (72 square kilometers). The Lookout Mountain
Resource was reported in compliance with Canadian NI 43-101 in an Updated
Technical Report on the Lookout Mountain Project by Mine Development Associates,
Effective March 1, 2013, filed on SEDAR April 12, 2013:
Resource Category Tonnage Grade Grade Contained Au
(million short tons) (oz/ton) (grams/tonne) (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
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Effective January 1, 2021, the Securities and Exchange Commission ("SEC")
adopted amendments to modernize the property disclosure requirements for mining
registrants and related guidance, which are currently set forth in Item 102 of
Regulation S-K Subpart 1300 under the Securities Act of 1933 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.
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 one of the state's highest-grade former gold
producers. We control over 43 square miles (111 square kilometers) of mineral
rights in Nevada.
During our fiscal year ended September 30, 2022 and continuing in the quarter
ended December 31, 2022, we have also acquired significant claims holdings
within the New York Canyon claim block.
Detailed maps and mineral resources estimates for the Eureka Project and NI
43-101 technical reports for its projects may be viewed
at http://timberlineresources.co/.
Summary of the exploration activities for the three months ended December 31,
2022:
The 2022 drill program at our 100%-controlled Eureka Project in Nevada was
terminated during the quarter ending December 31, 2022. We reported the final
results from that program on January 17, 2023. Eight drill holes were reported
in that news release, including four from the Water Well Zone (WWZ), three from
the Oswego target, and one large step out into the South Pediment area (Figure
1). Six of the eight holes were drilled with diamond core (or a pre-collar with
reverse circulation and core tail), and two of the holes were completed with
reverse circulation only. These eight holes constitute approximately 2,549
meters of the 6,662-meter drill program at Eureka.
Each of the holes in the WWZ encountered significant Carlin-type gold
mineralization, confirming that the basal contact of the Dunderberg formation is
consistently mineralized over a large area. Three drill holes (BHSE-225C, 231C,
and 241C) near BHSE-212C (the best hole in the southern part of the WWZ, see
Company news release dated March 24, 2022) yielded significant thicknesses of
gold ranging from 8.5 to 29.0 meters.
Highlights from this phase of drilling are included below. These are drill hole
widths using a cut-off grade of 0.3 g/t for gold; true thickness is not yet
known:
· BHSE-225C: 29.0m at 1.06 grams per tonne (g/t) gold from 294.7m depth,
including
o 9.1m at 2.17 g/t gold from 305.4m depth; and
o 1.5m at 3.01 g/t gold from 308.5m depth;
· BHSE-231C: 8.5m at 2.38 g/t gold from 303.9m depth, including
o 4.0m at 3.63 g/t gold from 308.5m depth;
· BHSE-241C: 1.5m at 3.40 g/t gold from 305.4m depth;
· BHSE-241C: 25.9m at 0.72 g/t gold from 314.6m depth; including
o 7.6m at 1.3 g/t gold from 314.6m depth; and
o 1.5m at 3.65 g/t gold from 314.6m depth.
Geology and Interpretation of the WWZ Results
The four core holes in the southern part of the WWZ were directed at filling in
the geological details around the thick zone of high-grade gold encountered in
BHSE-212C. That drill hole passed through very well-developed collapse breccias
at the contact between the Dunderberg and Hamburg formations that were intensely
carbonized and clay-altered and infiltrated by arsenic and fine-grained pyrite.
The heart of that 41.0-meter-thick interval included 19.8m averaging 9.5 g/t
gold. These zones of intensely altered and mineralized breccia are believed to
be best developed near faults. The latest drilling has confirmed continuity of
the WWZ mineralization to the east, west, and north from BHSE-212C, but the
assays also returned lower grades in each of these intercepts.
BHSE-225C was collared approximately 35m west of BHSE-212C, and BHSE-231C was
located approximately 56m east of the high-grade hole. BHSE-241C was drilled
inclined to the west from the same drill pad as BHSE-231C such that it
penetrated the target horizon approximately 20m north of the gold intercept in
BHSE-212C. The cross section in Figure 2 shows the geometry of these new drill
holes relative to the earlier drill holes and the geology of the area.
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Figure 1 - Plan View of New Drilling along Lookout Trend and at Oswego Target
[[Image Removed: tlrs_10qimg5.jpg]]
Careful examination of the drill core and assay data suggests that the
high-grade intercept in BHSE-212C occupies a topographic low or trough within
the top of the Hamburg formation. The Dunderberg formation also appears to thin
a bit to the east. These phenomena are most likely related to one or more faults
in the area (shown in blue with question marks on the cross section), which
juxtapose the key Dunderberg-Hamburg contact into close proximity with the
important Highwall Fault. The position of any individual drill hole relative to
these newly realized faults and the Highwall or Buried Normal faults may be a
determinant of the thickness and grade of gold in this part of the WWZ. These
sorts of gaps and variability in grade and thickness are expected in Carlin-type
deposits when chopped into segments and offset by numerous faults.
Importantly, the high-grade zone was already extended approximately 75m to the
south with drillhole BHSE-226C (22.8m at 4.39 g/t gold, including 7.6m at 11.56
g/t gold, as reported in a Company news release dated September 14, 2022). The
high-grade portion of the WWZ remains untested to the south and southeast for
more than 500m. Drill hole BHSE-228C in this phase of results was an offset of
approximately 60m southwest from BHSE-226C. The mineralized contact was present
in this hole at the expected depth, but it comprised only 15.2m of 0.57 g/t
gold.
The Lookout Mountain gold resource continues for more than 1.0 kilometre south
from this latest drilling. Hence, Timberline geologists expect similar downdip
targets, such as the WWZ, to occur in favorable settings along its eastern
front. BHSE-229C was the Company's first attempt to chase the Dunderberg-Hamburg
contact into this South Pediment area. While the drill hole did not cut
significant high-grade mineralization, it did encounter 3.7m that averaged 0.63
g/t of oxide gold mineralization at the top of the Hamburg formation beneath
structurally thinned Dunderberg formation. There is clear evidence of major
faulting in the hole, so the team will be working to better understand the
geology here before following up.
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Figure 2 - Cross Section of Line 4363875N through the South WWZ with New
Drilling
[[Image Removed: tlrs_10qimg6.jpg]]
Geology and Interpretation of the Oswego Results
This round of drilling did not return significant gold results from the Oswego
target. Two of the three holes (BHSE-232 and 235) in this area were RC holes
aimed at testing for significant expansions of the surface and shallow drill
indicated gold mineralization along this major fault structure. BHSE-232 did not
encounter the western splay of the Dugout Tunnel fault as expected, so this
means that a major break between Cambrian and Ordovician rocks is likely between
here and the IP anomaly occupying the Graben Zone.
The location of BHSE-235 was dictated in part by road access due to the steep
topography at Oswego. It was a vertical hole into the Eldorado dolomite, which
is an important host of silver in the district. There was anomalous gold over
about 37m of the hole, including 1.5m of 0.34 g/t, but there was silver
mineralization averaging 2.25 g/t over approximately 27m. As is typical of the
Carbonate Replacement Deposits (CRD) of the district, the silver is associated
with elevated antimony, lead, and zinc.
Timberline also drilled the first core hole ever into the Oswego target,
BHSE-240C. The hole was aimed to the east underneath the strong surface and
shallow drill indicated gold reported in late 2021 and early 2022. Once again,
the gold results were below expectations (29m of weakly anomalous gold with a
maximum assay of 0.35 g/t), but there was a 15m zone of enriched silver (> 1.0
g/t) accompanied by antimony, lead, and zinc.
The shallow gold at Oswego remains open to the north and northeast, but it
appears to occupy a complex fault system that may truncate or offset it at
depth. Silicification and sulfidation are intense over a large area, and this is
new evidence of CRD-type veining and replacement style mineralization that may
constitute a separate target.
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Results of Operations for the three months ended December 31, 2022 and 2021
Consolidated Results
Three Months Ended
(US$) December 31,
2022 2021
Exploration expenses:
Eureka $ 442,037 $ 1,312,960
Other exploration properties 80,606 -
Total exploration expenditures 522,643 1,312,960
Non-cash expenses:
Stock option expenses 51,708 44,321
Depreciation, amortization and accretion 1,715 1,408
Total non-cash expenses 53,423 45,729
Professional fees expenses 62,859 65,632
Insurance expenses 44,528 31,480
Salaries and benefits expenses 60,456 76,320
Interest and other (income) expense 11,447 13,753
Other general and administrative expenses 126,187 78,350
Net loss
$ 881,543 $ 1,624,224
Our consolidated net loss for the three months ended December 31, 2022 was
$881,543, compared to a consolidated net loss of $1,624,224 for the three months
ended December 31, 2021. The decrease in net loss is largely due to the
significant decrease in exploration expenses.
Subject to adequate funding in 2023, we expect to continue to incur exploration
expenses for the advancement of our Eureka Project.
Financial Condition and Liquidity
At December 31, 2022, we had assets of $15,584,398, consisting of cash in the
amount of $956,147; property, mineral rights and equipment of $14,022,809, net
of depreciation, reclamation bonds of $528,643, and prepaid expenses, deposits
and other assets in the amount of $76,799.
On December 31, 2022, we had total liabilities of $599,471 and total assets of
$15,584,398. This compares to total liabilities of $1,157,467 and total assets
of $16,972,229 on September 30, 2022. As of December 31, 2022, our liabilities
consist of $138,895 for asset retirement obligations, $270,991 of senior
unsecured note payable - related party, and $189,586 of trade payables and
accrued liabilities. Of these liabilities, $460,576 are due within twelve
months. The liabilities compared to September 30, 2022 have decreased, due to
cash paid for trade payables and accrued liabilities during the three months
ended December 31, 2022.
On December 31, 2022, we had working capital of $566,670 and stockholders'
equity of $14,984,927 compared to working capital of $1,423,723 and
stockholders' equity of $15,814,762 for the year ended September 30, 2022.
Working capital experienced an unfavorable change because of the decrease in
cash associated with payments related to our operations.
During the three months ended December 31, 2022, we used cash from operating
activities of $1,453,507, compared to cash used of $1,454,738 for the three
months ended December 31, 2021. The use of cash from operating activities
results primarily from the net loss of $881,543 for the three-month period ended
December 31, 2022 compared to net loss of $1,624,224 for the quarter ended
December 31, 2021. Changes to the net loss for the comparative periods are
described above.
During the three-month period ended December 31, 2022, cash of $28,933 was used
by investment activities, compared with cash of $18,000 used for the three-month
period ended December 31, 2021. During the quarter ended December 31, 2022, we
paid $28,933 for mineral rights, compared to $18,000 paid for mineral rights for
the quarter ended December 31, 2021.
During the three-month periods ended December 31, 2022 and 2021, $nil was
provided by financing activities.
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Going Concern:
The audit opinion and notes that accompany our consolidated financial statements
for the year ended September 30, 2022 disclose a '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 addition, commodity prices and mining
equities have seen significant volatility which increases the risk to precious
metal investors. Market disruptions and 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, asset sales, corporate transactions,
credit facilities or debenture issuances in order to continue as a going
concern.
At December 31, 2022, we had working capital of $566,670. We had $460,576
outstanding in current liabilities and a cash balance of $956,147. As of the
date of this report on Form 10-Q, we have sufficient cash to meet our normal
operating commitments for the next 12 months, without consideration of new
exploration programs. Therefore, we do not expect to be required to engage in
financial transactions to increase our cash balance or decrease our cash
obligations in the near term. However, we are an exploration company with
exploration programs that require significant cash expenditures. A significant
drilling program, such as that we have recently executed, can result in
depletion of cash and return us to a position of insufficient cash to support
normal operations for the following 12 months. Such cash-raising efforts may
include equity financings, corporate transactions, joint venture agreements,
sales of assets, credit facilities or debenture issuances, or other strategic
transactions.
The condensed 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.
We plan, as funding allows, to follow up on our positive drill results on our
Eureka and Paiute Projects. Principally, we plan to execute drilling as part of
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.
We will require additional funding and/or reductions in exploration and
administrative expenditures in future periods. Given current economic
conditions, we cannot provide assurance that necessary financing transactions
will be available on terms acceptable to us, or at all. Without additional
financing, we would have to curtail our exploration and other expenditures while
we seek alternative funding arrangements to provide sufficient capital to meet
our ongoing, non-discretionary expenditures, 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.
Financing Activities
None
Subsequent Events
None
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
There have been no significant changes to the critical accounting policies and
estimates disclosed in Management's Discussion and Analysis of Financial
Condition and Results of Operation in our 2022 Form 10K.
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