TLR ($0.63)

Timberline Resources (Sym: TLR) commenced mine development this month and is supposed to take 12 months with production expected Fall 2010.  The mine is expected to produce 50,000-60,000 oz Gold in Year 1 ramping to as much as 90,000 oz.  The expected cash cost will be around $400/oz.  As I’ve stated in previous posts, the real value add with Timberline Resources is their relationship with their JV partner who is the best underground miner here in the United States, Small Mines Development (SMD).  This relationship is a first in the mining industry, and I believe will yield both companies ample project flow in years ahead.  Management has recently stated their ambition to bring in new underground projects.  Timberline’s Vice President of Exploration, Paul Dircksen, commented, “We are very pleased with the progress at our Butte Highlands Gold Project over the past few weeks. Upon securing the permit and posting the bond, our joint venture company began site work immediately and is making good progress. The Butte Highlands project demonstrates the unique abilities of the Timberline and Small Mine Development (SMD) teams to evaluate the geologic viability along with the mining feasibility of underground mining projects. We have identified other similar sized underground projects that this partnership is uniquely qualified to take advantage of, and we will pursue those that have the potential to provide cash flow and enhance shareholder value.”

With a $25 million market cap, TLR continues to be flying under the radar, but as the company inches closer to production and with the blue sky opportunity of new projects, the stock will most likely continue its upward momentum.  The average gold producer trades at 10x operating cash flow.  If TLR can bring in another project like Butte Highlands, the multiple will expand even more.  The chart below shows the potential operating cash flow per share to Timberline once Butte Highlands gets into production late next year.

Disclosure:  LONG TLR and NO Affiliation