Butte Highlands Project, Montana
In conjunction with our joint venture partner, Highland, we continue to advance the Butte Highlands Project toward an expected commencement of production in mid-2013. With the receipt of final assays from the 50,000-foot underground exploration drill program that was completed in the year ended September 30, 2011, Highland completed an initial mine plan and obtained necessary data for the submission of the Hard Rock Operating Permit (“HRO Permit”) application. The mine plan anticipates production of approximately 400 tons per day during the first four years of operation, with mineralized material to be direct shipped to a nearby mill.
We submitted the application for our HRO Permit to the Montana Department of Environmental Quality (“MDEQ”) in May 2010. As a result of hydrological studies performed since that time, it has become evident that there will be a need to pump and discharge more water from the mineralized area than was initially expected. As a result, the project requires an additional water discharge permit (“MPDES Permit”) to be issued by the State of Montana and the construction of additional water treatment facilities. An application for the MPDES Permit was submitted to the MDEQ on March 30, 2012, with amendments submitted in June 2012. In July, 2012 we received a notice of completeness for the MPDES Permit application from the MDEQ, and we expect to receive the MPDES Permit in the first quarter of calendar 2013.
During the quarter ended December 31, 2012, a significant project milestone was achieved with the receipt of a notice of completeness and draft HRO Permit from the MDEQ. With environmental baseline studies substantially complete, issuance of the HRO Permit is expected in mid-2013. Upon issuance of the final HRO Permit, final development activities will commence, with production expected soon thereafter. Final water quality monitoring data was collected during the quarter allowing the MDEQ to advance processing of the MPDES Permit.
The United States Forest Service (“USFS”) has completed specialist studies in support of a Special Use Permit to allow the usage of USFS roads for ore haulage from the mine site. The Special Use Permit is expected to be received in the second quarter of 2013.
Timberline's joint venture at the Butte Highlands Project calls for its retention of a 50-percent project interest while being carried to production by Highland. Once in production, Timberline is to receive 20-percent of project cash flow until Highland recovers its initial capital expenditures, at which time Timberline will receive 50-percent of cash flow. A feasibility study has not been completed on the Butte Highlands project, there are no proven and probable reserves at the property under Guide 7, and there is no certainty the proposed operations will be economically viable.
Financial Condition and Liquidity
At December 31, 2012, we had assets of $18,643,755 consisting of cash in the amount of $1,176,445; property, mineral rights and equipment, net of depreciation of $13,682,916; a note receivable of $1,350,000, and other assets in the amount of $2,434,394.
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 have limited access to capital and credit for many companies. While access to capital has improved recently, these disruptions could, 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, credit facilities or debenture issuances.
At December 31, 2012, we had a working capital surplus of $2,004,014. As of the date of filing of this report, we have no outstanding debt and a cash balance of approximately $800,000. Management expects to maintain or increase the amount of working capital and minimize expenditures by monitoring discretionary exploration expenditures, minimizing professional and consulting expenses, and potentially obtaining financing through equity investments. We plan to continue exploration programs on our material exploration properties, to fund some exploratory activities and drilling on early-stage properties, and to seek additional acquisition opportunities.
As a result of our current cash balance, our ability to curtail discretionary exploration expenditures as needed, and the expected satisfaction of our current note receivable of $1,350,000 from the sale of Timberline Drilling, we believe that we have sufficient working capital to meet our ongoing operating expenses for the next 12 months. However, additional financing will be required if we wish to implement our currently planned exploration programs or explore additional property acquisitions.
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